WALT DISNEY COMPANY (THE) 
CONSOLIDATED RESULTS
(in millions, except per share data)
% Change
Better
2021 2020 (Worse)
Revenues:
Services $ 61,768 $ 59,265 4 %
Products 5,650 6,123 (8) %
Total revenues 67,418 65,388 3 %
Costs and expenses:
Cost of services (exclusive of depreciation and (41,129) (39,406) (4) %
amortization)
Cost of products (exclusive of depreciation and (4,002) (4,474) 11 %
amortization)
Selling, general, administrative and other (13,517) (12,369) (9) % Depreciation and amortization (5,111) (5,345) 4 % Total costs and expenses (63,759) (61,594) (4) % Restructuring and impairment charges (654) (5,735) 89 % Other income, net 201 1,038 (81) % Interest expense, net (1,406) (1,491) 6 % Equity in the income of investees, net 761 651 17 %
Income (loss) from continuing operations before income 2,561
(1,743) nm
taxes
Income taxes from continuing operations (25) (699) 96 % Net income (loss) from continuing operations 2,536 (2,442) nm Loss from discontinued operations, net of income tax (29) (32) 9 % benefit of$9 and$10 , respectively Net income (loss) 2,507 (2,474) nm Net income from continuing operations attributable to (512) (390) (31) %
noncontrolling and redeemable noncontrolling interests
Net income (loss) attributable to Disney$ 1,995 $ (2,864) nm Earnings (loss) per share attributable toDisney : Diluted(1) Continuing operations$ 1.11 $ (1.57) nm Discontinued operations (0.02) (0.02) - %$ 1.09 $ (1.58) nm Basic(1) Continuing operations$ 1.11 $ (1.57) nm Discontinued operations (0.02) (0.02) - %$ 1.10 $ (1.58) nm Weighted average number of common and common equivalent shares outstanding: Diluted 1,828 1,808 Basic 1,816 1,808
(1)Total may not equal the sum of the column due to rounding.
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Organization of Information
Management's Discussion and Analysis provides a narrative on the Company's
financial performance and condition that should be read in conjunction with the
accompanying financial statements. It includes the following sections:
•Significant Developments
•Consolidated Results and Non-Segment Items
•Business Segment Results
•Corporate and Unallocated Shared Expenses
•Restructuring Activities
•Liquidity and Capital Resources
•Supplemental Guarantor Financial Information
•Critical Accounting Policies and Estimates
•Forward-Looking Statements
In Item 7, we discuss fiscal 2021 and 2020 results and comparisons of fiscal
2021 results to fiscal 2020 results. Discussions of fiscal 2019 results and
comparisons of fiscal 2020 results to fiscal 2019 results can be found in
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" in the update to Part II, Item 7 of the Company's Annual Report on
Form 10-K for the fiscal year ended October 3, 2020 as reported in
E x hibit 99.1 to the Current Report on form 8-K of the Company
filed April 1, 2021 .
SIGNIFICANT DEVELOPMENTS
COVID-19 Pandemic
Since early 2020, the world has been, and continues to be, impacted by COVID-19
and its variants. COVID-19 and measures to prevent its spread has impacted our
segments in a number of ways, most significantly at the DPEP segment where our
theme parks and resorts were closed and cruise ship sailings and guided tours
were suspended. These operations resumed, generally at reduced capacity, at
various points since May 2020 . We have delayed, or in some cases, shortened or
cancelled theatrical releases, and stage play performances were suspended as of
March 2020 . Stage play operations resumed, generally at reduced capacity, in the
first quarter of fiscal 2021. Theaters have been subject to capacity limitations
and shifting government mandates or guidance regarding COVID-19 restrictions. We
experienced significant disruptions in the production and availability of
content, including the delay of key live sports programming during fiscal 2020
and fiscal 2021, as well as the suspension of most film and television
production in March 2020 . Although film and television production generally
resumed beginning in the fourth quarter of fiscal 2020, we continue to see
disruption of production activities depending on local circumstances. Fewer
theatrical releases and production delays have limited the availability of film
content to be sold in distribution windows subsequent to the theatrical release.
We have taken a number of mitigation efforts in response to the impacts of
COVID-19 on our businesses. We significantly increased cash balances through the
issuance of senior notes in March and May 2020 . The Company did not pay a
dividend with respect to fiscal 2020 operations and has not declared or paid a
dividend with respect to fiscal 2021 operations; suspended certain capital
projects; reduced certain discretionary expenditures (such as spending on
marketing); reduced management compensation for several months in fiscal 2020
and temporarily eliminated Board of Director retainers and committee fees in
fiscal 2020. In addition, we furloughed over 120,000 of our employees (who
continued to receive Company provided medical benefits), most of which have
returned from furlough as operations have reopened. At the end of fiscal 2020,
the Company announced a workforce reduction plan, which was essentially
completed in the first half of fiscal 2021. We may take additional mitigation
actions in the future such as raising additional financing; not declaring future
dividends; reducing, or not making, certain payments, such as some contributions
to our pension and postretirement medical plans; further suspending capital
spending, reducing film and television content investments; or implementing
additional furloughs or reductions in force; or modifying our operating
strategies. Some of these measures may have an adverse impact on our businesses.
The most significant impact on operating income since the second quarter of
fiscal 2020 from COVID-19 was at the DPEP segment due to revenue lost as a
result of closures and/or reduced operating capacities. Although results
improved in the second half of fiscal 2021 compared to the second half of fiscal
2020 from reopening our DPEP businesses, we continue to be impacted by reduced
operating capacities. COVID-19 also had a negative impact in fiscal 2021 at our
DMED segment compared to fiscal 2020 as higher advertising revenue from the
return of live sporting events was more than offset by higher sports programming
costs. Our other film and television distribution businesses were impacted by
revenue lost from the deferral or cancellation of significant film releases,
partially offset by costs avoided due to a reduction in film cost amortization,
marketing and distribution costs. The impact of COVID-19 on fiscal 2021 and 2020
results is not necessarily indicative of the impact on future period results.
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The impact of these disruptions and the extent of their adverse impact on our
financial and operational results will be dictated by the length of time that
such disruptions continue, which will, in turn, depend on the currently
unknowable duration and severity of the impacts of COVID-19 and its variants,
and among other things, the impact and duration of governmental actions imposed
in response to COVID-19 and individuals' and companies' risk tolerance regarding
health matters going forward.
Our businesses have incurred and will continue to incur additional costs to
address government regulations and the safety of our employees, guests and
talent. For example, when we reopened theme parks and retail stores, we incurred
and will continue to incur costs for such things as additional custodial
services, personal protection equipment, temperature screenings and testing,
sanitizer and cleaning supplies and signage, among other items. Similar costs
have been incurred in the production of film and television content, including
live sporting events, and productions may take longer to complete. The timing,
duration and extent of these costs will depend on the timing and scope of the
resumption of our operations. These costs totaled approximately $1 billion in
fiscal 2021. Some of these costs have been capitalized and will be amortized
over future periods. With the unknown duration of COVID-19, it is not possible
to precisely estimate the impact of COVID-19 on our operations in future
periods, although we estimate a modestly lower impact in fiscal 2022. In
addition, we are no longer benefiting from certain savings related to the
closure of certain businesses, such as related furloughs. The reopening or
closure of our businesses is dependent on applicable government requirements,
which vary by location and are subject to ongoing changes.
Additionally, see Part I., Item 1A. Risk Factors - The adverse impact of
COVID-19 on our businesses will continue for an unknown length of time and may
continue to impact certain of our key sources of revenue.
Direct-to-Consumer
The Company has significantly increased its focus on distribution of branded
film and episodic content via our own DTC streaming services. As a result, we
are forgoing certain licensing revenue from the sale of this content to third
parties in TV/SVOD markets. We also expect to forgo revenue as we shut down
channels in certain markets as a result of investment in our DTC offerings. In
addition, we are increasing programming and production investments to create
exclusive content for our DTC offerings.
CONSOLIDATED RESULTS AND NON-SEGMENT ITEMS
The Company's fiscal year end is on the Saturday closest to September 30 and
consists of fifty-two weeks with the exception that approximately every six
years, we have a fifty-three week year. Fiscal 2020 was a fifty-three week year,
which began on September 29, 2019 and ended on October 3, 2020 . We estimate that
the additional week of operations in fiscal 2020 resulted in a benefit to
pre-tax income in the prior year of approximately $200 million , primarily at the
DMED segment.
Revenues for fiscal 2021 increased 3%, or $2.0 billion , to $67.4 billion ; net
income attributable to Disney increased $4.9 billion , to income of $2.0 billion ;
and diluted earnings per share from continuing operations attributable to Disney
increased to income of $1.11 compared to a loss of $1.57 in the prior year. The
EPS increase for the year was due to the comparison to goodwill and intangible
asset impairments recognized in the prior year at our International Channels
business, an income tax benefit in the current year compared to tax expense in
the prior year and lower amortization of fair value step-up on film and
television costs and intangible assets from the TFCF acquisition and
consolidation of Hulu (collectively TFCF and Hulu acquisition amortization).
These increases were partially offset by lower net investment gains and a
decrease in segment operating income at DMED.
Revenues
Service revenues for fiscal 2021 increased 4%, or $2.5 billion , to $61.8
billion , due to higher DTC subscription revenue, advertising revenue growth and,
to a lesser extent, increased merchandise licensing revenue. These increases
were partially offset by a decrease in TV/SVOD distribution revenue, lower
theatrical revenues, a decrease in revenue at our parks and experiences
businesses and, to a lesser extent, lower electronic home entertainment sales,
all of which reflected the impact of COVID-19. The decrease at parks and
experiences was due to lower volumes from closure/generally reduced operating
capacities, partially offset by an increase in average guest spending. The
decrease in TV/SVOD distribution revenue also reflected the shift from licensing
our content to third parties to distributing it on our DTC streaming services.
Product revenues for fiscal 2021 decreased 8%, or $0.5 billion , to $5.7 billion ,
due to lower home entertainment volumes and a decrease in merchandise, food and
beverage sales at parks and experiences as lower volumes were partially offset
by an increase in average guest spending.
Costs and expenses
Cost of services for fiscal 2021 increased 4%, or $1.7 billion , to $41.1
billion , due to higher programming, production and technology costs at Disney+
and Hulu and higher sports programming costs. The increase in sports programming
costs was due to NBA, cricket, college football and soccer events, many of which
shifted from fiscal 2020 to fiscal 2021 due to COVID-19. These increases were
partially offset by a decrease in film and television production cost
amortization and distribution costs at
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Content Sales/Licensing reflecting lower revenues and, to a lesser extent, lower
volumes at our parks and experiences businesses.
Cost of products for fiscal 2021 decreased 11%, or $0.5 billion , to $4.0
billion , due to lower merchandise, food and beverage sales at our theme parks
and resorts and a decrease in home entertainment volumes.
Selling, general, administrative and other costs for fiscal 2021 increased 9%,
or $1.1 billion , to $13.5 billion , due to higher marketing costs at
Direct-to-Consumer and Linear Networks, partially offset by lower marketing
costs at Content Sales/Licensing.
Depreciation and amortization costs decreased 4%, or $0.2 billion , to $5.1
billion due to lower amortization of intangible assets from the acquisition of
TFCF and Hulu and lower depreciation at our theme parks and resorts.
Restructuring and Impairment Charges
Restructuring and impairment charges in fiscal 2021 were $0.7 billion due to
$0.4 billion of asset impairments and severance costs related to the shut-down
of an animation studio and the closure of a substantial number of Disney -branded
retail stores in North America and Europe and $0.3 billion of severance and
other costs in connection with the integration of TFCF and workforce reductions
at DPEP.
Restructuring and impairment charges in fiscal 2020 were $5.7 billion due to
$5.0 billion of impairment charges for goodwill and intangible assets at our
International Channels business and $0.8 billion of severance and other costs in
connection with the acquisition and integration of TFCF and at our DPEP segment.
Other Income (expense), net
% Change
(in millions) 2021 2020 Better (Worse)
fuboTV gain $ 186 $ - nm
German FTA gain 126 - nm
DraftKings gain (loss) (111) 973 nm
Endemol Shine gain - 65 - %
Other income, net $ 201 $ 1,038 (81) %
In fiscal 2021, the Company recognized a $186 million gain from the sale of our
investment in fuboTV Inc. (fuboTV gain), a $126 million gain on the sale of our
50% interest in a German free-to-air (FTA) television network (German FTA gain)
and a non-cash loss of $111 million to adjust our investment in DraftKings, Inc.
to fair value (DraftKings gain (loss)).
In fiscal 2020, the Company recognized a $973 million DraftKings gain and a $65
million gain on the sale of our 50% interest in Endemol Shine Group (Endemol
Shine gain).
Interest Expense, net
% Change
(in millions) 2021 2020 Better (Worse)
Interest expense $ (1,546) $ (1,647) 6 %
Interest income, investment income and other 140 156 (10) %
Interest expense, net $ (1,406) $ (1,491) 6 %
The decrease in interest expense was primarily due to lower average interest
rates and higher capitalized interest, partially offset by higher average debt
balances.
The decrease in interest income, investment income and other was due to higher
pension and postretirement benefit costs, other than service cost, partially
offset by lower investment impairments.
Equity in the Income of Investees
Equity in the income of investees increased $110 million to $761 million in the
current year due to higher income from A+E Television Networks and Tata Sky
Limited and lower investment impairments.
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Effective Income Tax Rate
2021 2020
Income (loss) from continuing operations before income taxes
$ (1,743) Income tax expense on continuing operations 25
699
Effective income tax rate - continuing operations 1.0%
(40.1)%
The effective income tax rate in the current year was lower than theU.S. statutory rate due to favorable adjustments related to prior years and excess tax benefits on employee share-based awards, partially offset by an unfavorable impact from foreign losses for which we are unable to recognize a tax benefit. The effective income tax rate in the prior year included unfavorable impacts from the goodwill impairment, which was not tax deductible, higher tax rates than theU.S. statutory rate on foreign earnings and foreign losses for which we are unable to recognize a tax benefit. Noncontrolling Interests % Change (in millions) 2021 2020 Better (Worse) Net income from continuing operations attributable to noncontrolling interests $ (512) $ (390) (31)% The increase in net income from continuing operations attributable to noncontrolling interests was due to lower losses atShanghai Disney Resort , our DTC sports business andHong Kong Disneyland Resort and higher accretion of the fair value of the redeemable noncontrolling interest inBAMTech . These increases were partially offset by lower results atESPN . Net income attributable to noncontrolling interests is determined on income after royalties and management fees, financing costs and income taxes, as applicable. Certain Items Impacting Results in the Year Results for fiscal 2021 were impacted by the following: •TFCF and Hulu acquisition amortization of$2,418 million •Restructuring and impairment charges of$654 million •The fuboTV gain of$186 million , German FTA gain of$126 million and DraftKings loss of$111 million Results for fiscal 2020 were impacted by the following: •Goodwill and intangible asset impairments of$4,953 million and restructuring charges of$782 million •TFCF and Hulu acquisition amortization of$2,846 million •The DraftKings gain of$973 million andEndemol Shine gain of$65 million A summary of the impact of these items on EPS is as follows: Pre-Tax Income Tax Benefit After-Tax Income EPS Favorable (in millions, except per share data) (Loss) (Expense)(1) (Loss) (Adverse)(2)
Year Ended
$ (1,856) $ (1.00) Restructuring and impairment charges (654) 152 (502) (0.27) fuboTV and German FTA gains, partially offset by DraftKings loss 201 (46) 155 0.08 Total$ (2,871) $ 668 $ (2,203) $ (1.18)
Year Ended
$ (5,164) $ (2.86) TFCF and Hulu acquisition amortization(3) (2,846) 662 (2,184) (1.17) DraftKings and Endemol Shine gains 1,038 (242) 796 0.44 Total$ (7,543) $ 991 $ (6,552) $ (3.59) (1)Tax benefit/expense adjustments are determined using the tax rate applicable to the individual item affecting comparability. (2)EPS is net of noncontrolling interest, where applicable. Total may not equal the sum of the column due to rounding. (3)Includes amortization of intangibles related toTFCF equity investees. 35 -------------------------------------------------------------------------------- TABLE OF CONTENTS BUSINESS SEGMENT RESULTS Below is a discussion of the major revenue and expense categories for our business segments. Costs and expenses for each segment consist of operating expenses, selling, general, administrative and other costs, and depreciation and amortization. Selling, general, administrative and other costs include third-party and internal marketing expenses. Our DMED segment primarily generates revenue across three significant lines of business/distribution platforms: Linear Networks, Direct-to-Consumer and Content Sales/Licensing. Programming and production costs to support these businesses/distribution platforms are largely incurred across three content creation groups: Studios,General Entertainment and Sports. Programming and production costs include amortization of acquired licensed programming rights (including sports rights), amortization of capitalized production costs (including participations and residuals) and production costs related to live programming such as news and sports. The Linear Networks business generates revenue from affiliate fees and advertising sales and from fees from sub-licensing of sports programming to third parties. Operating expenses include programming and production costs, technical support costs, operating labor and distribution costs. The Direct-to-Consumer business generates revenue from subscription fees, advertising sales and pay-per-view and Premier Access fees. Operating expenses include programming and production costs, technology support costs, operating labor and distribution costs. Operating expenses also includes fees paid to Linear Networks for the right to air the linear networks feed and other services. The Content Sales/Licensing business generates revenue from the sale of film and episodic television content in the TV/SVOD and home entertainment markets, distribution of films in the theatrical market, licensing of our music rights, sales of tickets to stage play performances and licensing of our IP for use in stage plays. Operating expenses include programming and production costs, distribution expenses and costs of sales. Our DPEP segment primarily generates revenue from the sale of admissions to theme parks, the sale of food, beverage and merchandise at our theme parks and resorts, charges for room nights at hotels, sales of cruise vacations, sales and rentals of vacation club properties, royalties from licensing our IP for use on consumer goods and the sale of branded merchandise. Revenues are also generated from sponsorships and co-branding opportunities, real estate rent and sales, and royalties fromTokyo Disney Resort . Significant expenses include operating labor, costs of goods sold, infrastructure costs, depreciation and other operating expenses. Infrastructure costs include information systems expense, repairs and maintenance, utilities and fuel, property taxes, retail occupancy costs, insurance and transportation. Other operating expenses include costs for such items as supplies, commissions and entertainment offerings. The Company evaluates the performance of its operating segments based on segment operating income, and management uses total segment operating income as a measure of the overall performance of the operating businesses. Total segment operating income is not a financial measure defined by GAAP, should be reviewed in conjunction with the relevant GAAP financial measure and may not be comparable to similarly titled measures reported by other companies. The Company believes that information about total segment operating income assists investors by allowing them to evaluate changes in the operating results of the Company's portfolio of businesses separate from factors other than business operations that affect net income. The following table reconciles income (loss) from continuing operations before income taxes to total segment operating income: % Change (in millions) 2021 2020 Better (Worse) Income (loss) from continuing operations before income taxes$ 2,561 $ (1,743) nm Add (subtract): Corporate and unallocated shared expenses 928 817 (14) % Restructuring and impairment charges 654 5,735 89 % Other income, net (201) (1,038) (81) % Interest expense, net 1,406 1,491 6 % TFCF and Hulu acquisition amortization 2,418 2,846 15 % Total segment operating income$ 7,766 $ 8,108 (4) % 36 -------------------------------------------------------------------------------- TABLE OF CONTENTS The following is a summary of segment revenue and operating income: % Change (in millions) 2021 2020 Better (Worse) Revenues:
Disney Media and Entertainment Distribution
5 %
Disney Parks, Experiences and Products 16,552 17,038 (3) %
$ 67,418 $ 65,388 3 %
Segment operating income:
Disney Media and Entertainment Distribution $ 7,295 $ 7,653 (5) %
Disney Parks, Experiences and Products 471 455 4 %
$ 7,766 $ 8,108 (4) %
Disney Media and Entertainment Distribution
Revenue and operating results for the DMED segment are as follows:
% Change
(in millions) 2021 2020 Better (Worse)
Revenues:
Linear Networks $ 28,093 $ 27,583 2 %
Direct-to-Consumer 16,319 10,552 55 %
Content Sales/Licensing and Other 7,346 10,977 (33) %
Elimination of Intrasegment Revenue(1) (892) (762) (17) %
$ 50,866 $ 48,350 5 % Segment operating income (loss): Linear Networks$ 8,407 $ 9,413 (11) % Direct-to-Consumer (1,679) (2,913) 42 % Content Sales/Licensing and Other 567 1,153 (51) %$ 7,295 $ 7,653 (5) % (1) Reflects fees received by the Linear Networks from other DMED businesses for the right to air our Linear Networks and related services. Linear Networks Operating results for Linear Networks are as follows: % Change (in millions) 2021 2020 Better (Worse) Revenues Affiliate fees$ 18,652 $ 18,691 - % Advertising 8,853 8,252 7 % Other 588 640 (8) % Total revenues 28,093 27,583 2 % Operating expenses (16,808) (15,309) (10) % Selling, general, administrative and other (3,491) (3,330) (5) % Depreciation and amortization (168) (262) 36 % Equity in the income of investees 781 731 7 % Operating Income$ 8,407 $ 9,413 (11) % 37
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Revenues
Affiliate revenue is as follows:
% Change
(in millions) 2021 2020 Better (Worse)
Domestic Channels $ 15,244 $ 15,018 2 %
International Channels 3,408 3,673 (7) %
$ 18,652 $ 18,691 - %
The increase in affiliate revenue at the Domestic Channels was due to an
increase of 7% from higher contractual rates, partially offset by decreases of
4% from fewer subscribers and 2% from the comparison to the additional week of
operations in the prior year.
The decrease in affiliate revenue at the International Channels was due to
decreases of 4% from fewer subscribers driven by channel closures, primarily in
Europe and Asia , 2% from the comparison to the additional week of operations in
the prior year and 1% from an unfavorable foreign exchange impact.
Advertising revenue is as follows:
% Change
(in millions) 2021 2020 Better (Worse)
Cable $ 3,681 $ 3,648 1 %
Broadcasting 3,239 3,278 (1) %
Domestic Channels 6,920 6,926 - %
International Channels 1,933 1,326 46 %
$ 8,853 $ 8,252 7 %
The increase in Cable advertising revenue was due to an increase of 10% from
higher rates, partially offset by decreases of 6% from fewer impressions and 4%
from the comparison to the additional week of operations in the prior year. The
decrease in impressions reflected lower average viewership, partially offset by
higher units delivered.
The decrease in Broadcasting advertising revenue was primarily due to decreases
of 7% from fewer impressions at ABC and 2% from the comparison to the additional
week of operations in the prior year, partially offset by increases of 4% from
higher rates at ABC and 4% from the owned television stations. The decrease in
impressions reflected lower average viewership, partially offset by higher units
delivered. The increase at the owned television stations was primarily due to
higher rates reflecting political advertising.
The increase in International Channels advertising revenue was due to increases
of 43% from higher impressions, reflecting an increase in average viewership, 6%
from higher rates and 2% from a favorable foreign exchange impact, partially
offset by a decrease of 5% from the comparison to the additional week of
operations in the prior year. The increase in impressions was due to the airing
of live sporting events in the current year that were not aired in the prior
year, primarily Indian Premier League (IPL) cricket matches.
Other revenue decreased $52 million , to $588 million from $640 million , due to
an unfavorable foreign exchange impact.
Costs and Expenses
Operating expenses are as follows:
% Change
(in millions) 2021 2020 Better (Worse)
Programming and production costs
Cable $ (9,353) $ (8,538) (10) %
Broadcasting (2,767) (2,605) (6) %
Domestic Channels (12,120) (11,143) (9) %
International Channels (3,139) (2,693) (17) %
(15,259) (13,836) (10) %
Other operating expenses (1,549) (1,473) (5) %
$ (16,808) $ (15,309) (10) %
38-------------------------------------------------------------------------------- TABLE OF CONTENTS The increase in programming and production costs at Cable was due to the timing of live sporting events, partially offset by the comparison to the additional week of operations in the prior year. As a result of COVID-19, events have been delayed sinceMarch 2020 . The most significant impacts were due to the shift of NBA and college football games from fiscal 2020 into the current fiscal year. The increase in programming and production costs at Broadcasting was due to an increase in the average cost of programming reflecting incremental costs of health and safety measures. The increase in programming and production costs at the International Channels was due to an increase in sports programming costs, partially offset by the comparison to the additional week of operations in the prior year and the impact of channel closures. Higher sports programming costs were due to the timing of live sporting events driven by the shift of IPL cricket matches into the current year from fiscal 2020. Selling, general administrative and other costs increased$161 million , to$3,491 million from$3,330 million , due to higher marketing costs at FX Channels andABC reflecting more titles premiering in the current year, partially offset by lower bad debt expense. Depreciation and amortization decreased$94 million , to$168 million from$262 million , primarily due to the transfer of technology assets and related depreciation primarily between Linear Networks and Content Sales/Licensing and Other and higher asset write-offs in the prior year. Equity in the Income of Investees Income from equity investees increased$50 million , to$781 million from$731 million , primarily due to higher income from A+E Television Networks driven by an increase in program sales and lower programming costs, partially offset by lower advertising revenue and higher marketing costs. Operating Income from Linear Networks Operating income decreased 11%, to$8,407 million from$9,413 million due to decreases at Cable and, to a lesser extent, Broadcasting, partially offset by an increase at the International Channels and higher income from equity investees. The following table provides supplemental revenue and operating income detail for Linear Networks: % Change (in millions) 2021 2020 Better (Worse) Supplemental revenue detail Domestic Channels$ 22,463 $ 22,244 1 % International Channels 5,630 5,339 5 %$ 28,093 $ 27,583 2 % Supplemental operating income detail Domestic Channels$ 6,594 $ 7,708 (14) % International Channels 1,032 974 6 % Equity in the income of investees 781 731 7 %$ 8,407 $ 9,413 (11) % Direct-to-Consumer
Operating results for Direct-to-Consumer are as follows:
% Change
(in millions) 2021 2020 Better (Worse)
Revenues
Subscription fees $ 12,020 $ 7,645 57 %
Advertising 3,366 2,357 43 %
TV/SVOD distribution and other 933 550 70 %
Total revenues 16,319 10,552 55 %
Operating expenses (13,234) (10,078) (31) %Selling, general, administrative and other (4,435) (3,126)
(42) %
Depreciation and amortization (329) (260) (27) %
Equity in the loss of investees - (1) 100 %
Operating Loss $ (1,679) $ (2,913) 42 %
39-------------------------------------------------------------------------------- TABLE OF CONTENTS Revenues The increase in subscription fees was due to higher subscribers driven by growth at Disney+, Hulu and, to a lesser extent, ESPN+, and higher rates due to increases in retail pricing at Hulu, Disney+ and, to a lesser extent, ESPN+. Higher advertising revenue reflected increases of 39% from higher impressions and 3% from higher rates due to an increase at Hulu. Higher impressions were due to increases at Hulu, Disney+ and, to a lesser extent, ESPN+. The increase in TV/SVOD distribution and other revenue was due to higher Disney+ Premier Access revenues and an increase inUltimate Fighting Championship (UFC) pay-per-view fees. Higher Disney+ Premier Access revenues were due to four releases in the current year, Black Widow, Raya, Jungle Cruise and Cruella, compared to one release in the prior year, Mulan. The increase in UFC pay-per-view fees reflected the benefit of thirteen events in the current year compared to eleven in the prior year and higher pricing. The following table presents the number of paid subscribers(1) (in millions) for Disney+, ESPN+ and Hulu as of: % Change October 2, 2021 October 3, 2020 Better (Worse) Disney+(2) 118.1 73.7 60 % ESPN+ 17.1 10.3 66 % Hulu SVOD Only 39.7 32.5 22 % Live TV + SVOD 4.0 4.1 (2) % Total Hulu(3) 43.8 36.6 20 % The following table presents the average monthly revenue per paid subscriber(4) for the fiscal year ended: % Change 2021 2020 Better (Worse) Disney+$ 4.08 $ 4.80 (15) % ESPN+$ 4.57 $ 4.35 5 % Hulu SVOD Only$ 12.86 $ 12.24 5 % Live TV + SVOD$ 81.35 $ 67.24 21 % (1)Reflects subscribers for which we recognized subscription revenue. Subscribers cease to be a paid subscriber as of their effective cancellation date or as a result of a failed payment method. Subscribers to the bundled offering in theU.S. are counted as a paid subscriber for each service included in the bundle (Disney+, Hulu and ESPN+). Star+ inLatin America is offered as a standalone service or along with Disney+. If a subscriber has either the standalone Disney+ or Star+ service or both the Disney+ and Star+ services, they are counted as one Disney+ paid subscriber. When we aggregate the total number of paid subscribers across our DTC streaming services, whether acquired individually, through a wholesale arrangement or via the bundle, we refer to them as paid subscriptions. (2)Includes Disney+ Hotstar and Star+. Disney+ Hotstar launched onApril 3, 2020 inIndia (as a conversion of the preexisting Hotstar service), onSeptember 5, 2020 inIndonesia , onJune 1, 2021 inMalaysia , and onJune 30, 2021 inThailand . Disney+ Hotstar average monthly revenue per paid subscriber is significantly lower than the average monthly revenue per paid subscriber for Disney+ in other markets. Star+ launched inLatin America onAugust 31, 2021 . (3)Total may not equal the sum of the column due to rounding. (4)Revenue per paid subscriber is calculated based on the average of the monthly average paid subscribers for each month in the period. The monthly average paid subscribers is calculated as the sum of the beginning of the month and end of the month paid subscriber count, divided by two. Disney+ average monthly revenue per paid subscriber is calculated using a daily average of paid subscribers for the period. Revenue includes subscription fees, advertising (excluding revenue earned from selling advertising spots to other Company businesses) and premium and feature add-on revenue but excludes Premier Access and Pay-Per-View revenue. The average revenue per subscriber is net of discounts on bundled services. The bundled discount is allocated to each service based on the relative retail price of each service on a standalone basis. In general, wholesale arrangements have a lower average monthly revenue per paid subscriber than subscribers that we acquire directly or through third party platforms like Apple. 40 -------------------------------------------------------------------------------- TABLE OF CONTENTS The average monthly revenue per paid subscriber for Disney+ decreased from$4.80 to$4.08 due to a higher mix of Disney+ Hotstar subscribers in the current year, partially offset by a lower mix of wholesale subscribers in the current year and increases in retail pricing. The average monthly revenue per paid subscriber for ESPN+ increased from$4.35 to$4.57 primarily due to increases in retail pricing inAugust 2021 andAugust 2020 , partially offset by a higher mix of subscribers to the bundled offering. The average monthly revenue per paid subscriber for the Hulu SVOD Only service increased from$12.24 to$12.86 primarily due to higher per-subscriber advertising revenue, a lower mix of wholesale subscribers and an increase in per-subscriber premium add-on revenue, partially offset by a higher mix of subscribers to the bundled offering. The average monthly revenue per paid subscriber for the Hulu Live TV + SVOD service increased from$67.24 to$81.35 due to an increase in retail pricing inDecember 2020 , higher per-subscriber advertising revenue and, to a lesser extent, per-subscriber premium and feature add-on revenue, partially offset by a higher mix of subscribers to the bundled offering. Costs and Expenses Operating expenses are as follows: % Change (in millions) 2021 2020 Better (Worse) Programming and production costs$ (10,716) $ (8,124) (32) % Other operating expense (2,518) (1,954) (29) %$ (13,234) $ (10,078) (31) % The increase in programming and production costs was due to higher costs at Disney+, Hulu and, to a lesser extent, ESPN+. The increase at Disney+ was due to the ongoing expansion including launches in additional markets. Higher costs at Hulu were due to an increase in subscriber-based fees for programming the Live service driven by higher average monthly subscribers and rate increases. Higher ESPN+ costs were primarily due to new soccer programming rights, higher costs for UFC programming rights driven by two additional events in the current year, and new college sports rights. Other operating expenses, which include technical support and distribution costs, increased due to higher distribution costs at Disney+ due to the ongoing expansion. Selling, general, administrative and other costs increased$1,309 million , to$4,435 million from$3,126 million , due to higher marketing and general and administrative costs at Disney+ driven by the ongoing expansion. Depreciation and amortization increased$69 million , to$329 million from$260 million , driven by the ongoing expansion of Disney+. Operating Loss from Direct-to-Consumer Operating loss from Direct-to-Consumer decreased$1,234 million , to$1,679 million from$2,913 million due to improved results at Hulu and, to a lesser extent, ESPN+, partially offset by a higher loss at Disney+. Content Sales/Licensing and Other Operating results for Content Sales/Licensing and Other are as follows: % Change (in millions) 2021 2020 Better (Worse) Revenues TV/SVOD distribution$ 4,206 $ 5,673 (26) % Theatrical distribution 920 2,134 (57) % Home entertainment 1,014 1,802 (44) % Other 1,206 1,368 (12) % Total revenues 7,346 10,977 (33) % Operating expenses (4,536) (6,871) 34 %
Selling, general, administrative and other (1,963) (2,628)
25 %
Depreciation and amortization (294) (291) (1) %
Equity in the income (loss) of investees 14 (34) nm
Operating Income $ 567 $ 1,153 (51) %
41-------------------------------------------------------------------------------- TABLE OF CONTENTS COVID-19 Our Content Sales/Licensing businesses have been impacted by COVID-19 in a number of ways. We have delayed, or in some cases, shortened or cancelled, theatrical releases, and stage play performances were suspended as ofMarch 2020 . Stage play operations resumed, generally at reduced capacity, in the first quarter of fiscal 2021. Theaters have been subject to capacity limitations and shifting government mandates or guidance regarding COVID-19. We experienced significant disruptions in the production and availability of content, including the suspension of most film and television production inMarch 2020 . Although film and television production generally resumed beginning in the fourth quarter of 2020, we continue to see disruption of production activities depending on local circumstances. Fewer theatrical releases and production delays have limited the availability of film content to be sold in distribution windows subsequent to the theatrical release. Revenues The decrease in TV/SVOD distribution revenue reflected both lower episodic and film content sales. The decrease in episodic content sales was primarily due to lower sales of Homeland, How to Get Away with Murder, Modern Family, Grey's Anatomy and This is Us in the current year and the comparison to prior-year sales of Ratched, The Politician, Tales from the Loop and The Wilds. Lower film content sales reflected less content available due to the impact of COVID-19 and the shift from licensing our content to third parties to distributing it on our DTC streaming services. The decrease in theatrical distribution revenue was due to the prior-year performance of Frozen II and Star Wars: The Rise of Skywalker, which were both released prior to COVID-19's impact on our business. Other significant titles released in the prior year included Maleficent: Mistress of Evil and Ford v Ferrari, whereas the current year included Shang-Chi and the Legend of the Ten Rings, Black Widow and Free Guy. The decrease in home entertainment revenue was due to decreases of 36% from lower unit sales and 5% from lower average net effective pricing. New release titles in the current year included Mulan, Raya and the Last Dragon and Black Widow, whereas the prior year included Frozen II, Star Wars: The Rise of Skywalker, The Lion King, Toy Story 4, Maleficent: Mistress of Evil, Onward, Ford v Ferrari, Aladdin and Avengers: Endgame. The decrease in average net effective pricing was due to a lower mix of new release titles, which have a higher sales price than catalog titles. The decrease in other revenue was due to lower revenue from stage plays reflecting the impact of COVID-19, partially offset by an increase in revenue fromLucasfilm's special effects business driven by more projects. Costs and Expenses Operating expenses are as follows: % Change (in millions) 2021 2020 Better (Worse) Programming and production costs $ (3,611) $ (5,729) 37 % Distribution costs and cost of goods sold (925) (1,142) 19 % $ (4,536) $ (6,871) 34 % The decrease in programming and production costs was due to lower production cost amortization driven by a decline in revenues and lower film and television cost impairments. The decrease in distribution costs and cost of goods sold was primarily due to lower home entertainment volumes, a decrease in costs for stage plays as a result of a limited number of performances in the current year and lower theatrical distribution costs due to fewer theatrical releases, partially offset by more projects atLucasfilm's special effects business. Selling, general, administrative and other costs decreased$665 million , to$1,963 million from$2,628 million , primarily due to lower theatrical and home entertainment marketing costs and, to a lesser extent, a decrease in bad debt expense. Equity in the Income (Loss) of Investees Income from equity investments increased$48 million , to income of$14 million from a loss of$34 million , primarily due to higher income fromTata Sky Limited and the absence of an investment impairment recognized in the prior year. Operating Income from Content Sales/Licensing and Other Operating income from Content Sales/Licensing and Other decreased$586 million , to$567 million from$1,153 million , primarily due to lower theatrical distribution and home entertainment results, partially offset by lower film and television cost impairments. 42 -------------------------------------------------------------------------------- TABLE OF CONTENTS Items Excluded from Segment Operating Income Related to Disney Media and Entertainment Distribution The following table presents supplemental information for items related to the DMED segment that are excluded from segment operating income: (in millions) 2021 2020 % Change Better (Worse) TFCF and Hulu acquisition amortization(1)$ (2,410) $ (2,838) 15 % Restructuring and impairment charges(2) (315) (5,394) 94 % German FTA gain 126 - nm (1)In the current year, amortization of step-up on film and television costs was$646 million and amortization of intangible assets was$1,749 million . In the prior year, amortization of step-up on film and television costs was$899 million and amortization of intangible assets was$1,913 million . (2)The current year includes impairments and severance costs related to the closure of an animation studio and severance costs and contract termination charges in connection with the integration ofTFCF . The prior year includes goodwill and intangible asset impairments and severance and contract termination charges in connection with the acquisition and integration ofTFCF . Disney Parks, Experiences and Products Operating results for the DPEP segment are as follows: % Change (in millions) 2021 2020 Better (Worse) Revenues Theme park admissions$ 3,848 $ 4,038 (5) % Parks & Experiences merchandise, food and beverage 3,299 3,441 (4) % Resorts and vacations 2,701 3,402 (21) % Merchandise licensing and retail 5,241 4,721 11 % Parks licensing and other 1,463 1,436 2 % Total revenues 16,552 17,038 (3) % Operating expenses (10,799) (11,485) 6 % Selling, general, administrative and other (2,886) (2,642) (9) % Depreciation and amortization (2,377) (2,437) 2 % Equity in the loss of investees (19) (19) - % Operating Income$ 471 $ 455 4 % COVID-19
Revenues at the DPEP segment were adversely impacted by COVID-19 as a result of the closure/generally reduced operating capacity across our theme parks and resorts. The following table summarizes the approximate number of weeks of operations in the current and prior year:
Weeks of Operation
2021 2020
Walt Disney World Resort 52 36
Disneyland Resort 22 24
Disneyland Paris 19 35
Hong Kong Disneyland Resort (1) 40 22
Shanghai Disney Resort 52 38
(1) Hong Kong Disneyland Resort generally operated 5 days per week in fiscal
2021 and 7 days per week in fiscal 2020
Revenues
The decrease in theme park admissions revenue was due to a decrease of 14% from
lower attendance, partially offset by an increase of 8% from higher average
ticket prices.
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Parks & Experiences merchandise, food and beverage revenue was lower compared to
the prior year due to a decrease of 9% from lower volumes, partially offset by
an increase of 3% from higher average guest spending.
The decrease in resorts and vacations revenue was due to decreases of 17% from
fewer passenger cruise days and 3% from lower occupied room nights.
Merchandise licensing and retail revenue growth was due to an increase of 9%
from merchandise licensing driven by higher revenues from merchandise based on
Mickey and Minnie, Spider-Man, Star Wars, including The Mandalorian, and Disney
Princesses, partially offset by a decrease in revenues from merchandise based on
Frozen.
The increase in parks licensing and other revenue was primarily due to an
increase in sponsorship revenue, partially offset by a decrease in royalties
from Tokyo Disney Resort as a result of the resort operating at reduced
capacities.
The following table presents supplemental park and hotel statistics:
Domestic International(1) Total
2021 2020 2021 2020 2021 2020
Parks
Increase (decrease)
Attendance(2) (17) % (47) % (4) % (53) % (14) % (49) %
Per Capita Guest Spending(3) 17 % 8 % (3) % (3) % 11 % 7 %
Hotels
Occupancy(4) 42 % 43 % 21 % 35 % 37 % 41 % Available Room Nights (in thousands)(5) 10,451 11,114 3,179 3,207 13,630 14,321 Per Room Guest Spending(6)$374 $367 $377 $308 $374 $355 (1)Per capita guest spending growth rate is stated on a constant currency basis. Per room guest spending is stated at the average foreign exchange rate for the same period in the prior year. (2)Attendance is used to analyze volume trends at our theme parks and is based on the number of unique daily entries, i.e. a person visiting multiple theme parks in a single day is counted only once. Our attendance count includes complimentary entries but excludes entries by children under the age of three. (3)Per capita guest spending is used to analyze guest spending trends and is defined as total revenue from ticket sales and sales of food, beverage and merchandise in our theme parks, divided by total theme park attendance. (4)Occupancy is used to analyze the usage of available capacity at hotels and is defined as the number of room nights occupied by guests as a percentage of available hotel room nights. (5)Available hotel room nights are defined as the total number of room nights that are available at our hotels and at DVC properties located at our theme parks and resorts that are not utilized by DVC members. Available hotel room nights include rooms temporarily taken out of service. (6)Per room guest spending is used to analyze guest spending at our hotels and is defined as total revenue from room rentals and sales of food, beverage and merchandise at our hotels, divided by total occupied hotel room nights. Costs and Expenses Operating expenses are as follows: % Change (in millions) 2021 2020 Better (Worse) Operating labor$ (4,711) $ (4,870) 3 % Infrastructure costs (2,308) (2,422) 5 %
Cost of goods sold and distribution costs (2,086) (2,202)
5 %
Other operating expense (1,694) (1,991) 15 %
$ (10,799) $ (11,485) 6 %
The decrease in operating labor was due to lower volumes and decreased furlough
costs (net of government credits), partially offset by inflation and an increase
in incentive compensation costs. The decrease in infrastructure costs was
primarily due to the prior year write-down of assets at our retail stores and
reduced volumes. Lower cost of goods sold were due to lower
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volumes. The decrease in other operating expenses was due to lower volumes and
the comparison to prior-year charges for capital project abandonments.
Selling, general, administrative and other costs increased $244 million from
$2,642 million to $2,886 million due to higher incentive compensation costs and
increased marketing spend.
Depreciation and amortization decreased $60 million from $2,437 million to
$2,377 million , primarily due to lower depreciation at our theme parks and
resorts.
Segment Operating Income
Segment operating income increased $16 million , to $471 million due to an
increase at our consumer products business, largely offset by a decrease at our
domestic parks and experiences.
The following table presents supplemental revenue and operating income detail
for the Parks, Experiences and Products segment:
% Change
(in millions) 2021 2020 Better (Worse)
Supplemental revenue detail
Parks & Experiences
Domestic $ 9,353 $ 10,226 (9) %
International 1,859 2,020 (8) %
Consumer Products 5,340 4,792 11 %
$ 16,552 $ 17,038 (3) %
Supplemental operating income detail
Parks & Experiences
Domestic $ (1,139) $ (623) (83) %
International (1,074) (1,073) - %
Consumer Products 2,684 2,151 25 %
$ 471 $ 455 4 %
Items Excluded from Segment Operating Income Related to Parks, Experiences and
Products
The following table presents supplemental information for items related to the
DPEP segment that are excluded from segment operating income:
% Change
(in millions) 2021 2020 Better
(Worse)
Restructuring and impairment charges(1)$ (327) $ (265) (23) % Amortization of TFCF intangible assets (8) (8)
- %
(1)The current year includes asset impairments and severance costs related to the closure of a substantial number of ourDisney -branded retail stores inNorth America andEurope and severance costs related to other workforce reductions. The prior year includes severance costs related to workforce reductions. CORPORATE AND UNALLOCATED SHARED EXPENSES Corporate and unallocated shared expenses are as follows: % Change (in millions) 2021 2020 Better (Worse)
Corporate and unallocated shared expenses
(14) %
The increase in corporate and unallocated shared expenses was due to higher
compensation costs.
RESTRUCTURING ACTIVITIES
See Note 19 to the Consolidated Financial Statements for information regarding
the Company's restructuring activities in connection with the acquisition and
integration of TFCF and at the DPEP segment.
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LIQUIDITY AND CAPITAL RESOURCES
The change in cash, cash equivalents and restricted cash is as follows:
(in millions) 2021 2020
Cash provided by operations - continuing operations $ 5,566 $ 7,616
Cash used in investing activities - continuing operations (3,171) (3,850)
Cash provided by (used in) financing activities - continuing operations
(4,385) 8,480
Cash provided by operations - discontinued operations 1 2
Cash provided by investing activities - discontinued operations
8 213
Impact of exchange rates on cash, cash equivalents and restricted cash
30 38
Change in cash, cash equivalents and restricted cash $ (1,951) $ 12,499
Operating Activities
Continuing operations
Cash provided by operating activities of $5.6 billion for fiscal 2021 decreased
27% or $2.0 billion compared to $7.6 billion in fiscal 2020 due to lower
operating cash flow at DMED and higher income tax and interest payments,
partially offset by higher operating cash flow at DPEP and lower payments for
severance. The decrease at DMED was due to higher spending on film and
television productions. The increase at DPEP was due to lower operating cash
disbursements due to the pay-down of liabilities in the prior year as a result
of closures/reduced capacities and lower volumes in the current year.
Depreciation expense is as follows:
(in millions) 2021 2020
Disney Media and Entertainment Distribution $ 613 $ 638
Disney Parks, Experiences and Products
Domestic 1,551 1,634
International 718
694
Total Disney Parks, Experiences and Products 2,269 2,328 Corporate 186 174 Total depreciation expense$ 3,068 $ 3,140 Amortization of intangible assets is as follows: (in millions) 2021 2020
Disney Media and Entertainment Distribution
108 109
TFCF and Hulu 1,757
1,921
Total amortization of intangible assets$ 2,043 $
2,205
Produced and licensed content costs
The DMED segment incurs costs to produce and license film, episodic television
and other content. Production costs include spend on content internally produced
at our studios such as live-action and animated films, episodic series,
specials, shorts and theatrical stage plays. Production costs also include
original content commissioned from third party studios. Programming costs
include content rights licensed from third parties for use on the Company's
Linear Networks and DTC streaming services. Programming assets are generally
recorded when the programming becomes available to us with a corresponding
increase in programming liabilities.
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The Company's production and programming activity for fiscal 2021 and 2020 are
as follows:
(in millions) 2021 2020
Beginning balances:
Production and programming assets $ 27,193 $ 27,407
Programming liabilities (4,099) (4,061)
23,094 23,346
Spending:
Licensed programming and rights 12,412 12,077
Produced content 12,848 8,104
25,260 20,181
Amortization:
Licensed programming and rights (12,784) (11,241)
Produced content (8,175) (9,337)
(20,959) (20,578)
Change in production and programming costs 4,301 (397)
Other non-cash activity 224 145
Ending balances:
Production and programming assets 31,732 27,193
Programming liabilities (4,113) (4,099)
$ 27,619 $ 23,094
The Company currently expects its fiscal 2022 spend on produced and licensed
content, including sports rights, to be as much as approximately $33 billion , or
approximately $8 billion more than fiscal 2021 spend of $25 billion . The
increase is driven by higher spend to support our DTC expansion and generally
assumes no significant disruptions to production due to COVID-19. See Note 15 to
the Consolidated Financial Statements for information regarding the Company's
contractual commitments to acquire sports and broadcast programming.
Commitments and guarantees
The Company has various commitments and guarantees, such as long-term leases,
purchase commitments and other executory contracts, that are disclosed in the
footnotes to the financial statements. See Notes 15 and 16 to the Consolidated
Financial Statements for further information regarding these commitments.
Legal and Tax Matters
As disclosed in Notes 10 and 15 to the Consolidated Financial Statements, the
Company has exposure for certain tax and legal matters.
Investing Activities
Continuing operations
Investing activities consist principally of investments in parks, resorts and
other property and acquisition and divestiture activity. The Company's
investments in parks, resorts and other property for fiscal 2021 and 2020 are as
follows:
(in millions) 2021 2020
Disney Media and Entertainment Distribution
1,597 2,145
International 675 759
Total Disney Parks, Experiences and Products 2,272 2,904 Corporate
444 335
$ 3,578 $ 4,022 Capital expenditures at the DMED segment primarily reflect investments in technology and in facilities and equipment for expanding and upgrading broadcast centers, production facilities and television station facilities.
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Capital expenditures at the DPEP segment are principally for theme park and
resort expansion, new attractions, cruise ships, capital improvements and
systems infrastructure. The decrease in capital expenditures at our domestic
parks and resorts in fiscal 2021 compared to fiscal 2020 was driven by the
temporary suspension of certain capital projects since the onset of COVID-19
although spending increased in the latter part of fiscal 2021 compared to fiscal
2020.
Capital expenditures at Corporate primarily reflect investments in facilities,
information technology infrastructure and equipment. The increase in fiscal 2021
compared to fiscal 2020 was due to higher spending on facilities.
The Company currently expects its fiscal 2022 capital expenditures will be
approximately $6.1 billion compared to fiscal 2021 capital expenditures of $3.6
billion . The increase in capital expenditures is due to higher spending on
cruise ship fleet expansion, Corporate facilities and production facilities and
technology at the DMED segment.
Other Investing Activities
Cash provided by other investing activities of $407 million in fiscal 2021 and
$172 million in fiscal 2020 reflects proceeds from the sales of investments.
Financing Activities
Continuing operations
Cash used in financing activities was $4.4 billion in fiscal 2021 compared to
cash provided by financing activities of $8.5 billion in fiscal 2020. Cash used
in financing activities in fiscal 2021 was due to a reduction in borrowings and
the purchase of a redeemable non-controlling interest, partially offset by
proceeds from the issuance of stock options. The decrease in cash provided by
financing activities in fiscal 2021 compared to fiscal 2020 reflected a
reduction in net borrowings of $3.7 billion in fiscal 2021 compared to proceeds
from net borrowings of $11.2 billion in fiscal 2020. Additionally, we paid a
cash dividend of $1.6 billion in fiscal 2020 compared to no dividend in fiscal
2021.
Borrowings activities and other
During the year ended October 2, 2021 , the Company's borrowing activity was as
follows:
Other
(in millions) October 3, 2020 Borrowings Payments Activity October 2, 2021
Commercial paper with original
maturities less than three
months(1) $ - $ - $ - $ - $ -
Commercial paper with original
maturities greater than three
months 2,023 2,221 (2,247) (5) 1,992
U.S. dollar denominated notes(2) 52,736 - (3,510) (136) 49,090
Asia Theme Parks borrowings 1,303 35 (129) 122 1,331
Foreign currency denominated debt
and other(3) 2,566 29 (98) (504) 1,993
$ 58,628 $ 2,285 $ (5,984) $ (523) $ 54,406
(1)Borrowings and reductions of borrowings are reported net.
(2)The other activity is primarily due to the amortization of purchase price
adjustments on debt assumed in the TFCF acquisition and debt issuance fees.
(3)The other activity is due to market value adjustments for debt with
qualifying hedges.
See Note 9 to the Consolidated Financial Statements for information regarding
the Company's bank facilities and debt maturities. The Company may use operating
cash flows, commercial paper borrowings up to the amount of its unused $12.25
billion bank facilities maturing in March 2022 , March 2023 and March 2025 , and
incremental term debt issuances, to retire or refinance other borrowings before
or as they come due.
See Note 4 to the Consolidated Financial Statements for a summary of the
Company's put/call agreement with NBCU.
See Note 7 to the Consolidated Financial Statements for information regarding
commitments to fund Hong Kong Disneyland Resort and Shanghai Disney Resort .
See Note 12 to the Consolidated Financial Statements for a summary of the
Company's dividends in fiscal 2020 and 2019. The Company did not declare or pay
a dividend in fiscal 2021. The Company did not repurchase any of its shares in
fiscal 2021, 2020 or 2019.
The Company's operating cash flow and access to the capital markets can be
impacted by factors outside of its control, including COVID-19, which has had an
adverse impact on the Company's operating cash flows. We have taken a number of
measures to mitigate the impact on the Company's financial position. See
Significant Developments for the impact COVID-19 has had on our operations and
mitigating measures we have taken.
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We believe that the Company's financial condition remains strong and that its
cash balances, other liquid assets, operating cash flows, access to debt and
equity capital markets and borrowing capacity under current bank facilities,
taken together, provide adequate resources to fund ongoing operating
requirements and upcoming debt maturities as well as future capital expenditures
related to the expansion of existing businesses and development of new projects,
although certain of these activities have been scaled back or suspended in light
of COVID-19. Depending on the unknowable duration and severity of the future
impacts of COVID-19 and its variants, the Company may take additional mitigating
actions in the future such as continuing to not declare dividends (the Company
did not pay a dividend with respect to fiscal 2020 operations and has not
declared or paid a dividend with respect to fiscal 2021 operations); reducing,
or not making certain payments, such as some contributions to our pension and
postretirement medical plans; raising additional financing; further suspending
capital spending; reducing film and television content investments; or
implementing additional furloughs or reductions in force. The impacts on our
operating cash flows are subject to uncertainty and may require us to rely more
heavily on external funding sources, such as debt and other types of financing.
The Company's borrowing costs can also be impacted by short- and long-term debt
ratings assigned by nationally recognized rating agencies, which are based, in
significant part, on the Company's performance as measured by certain credit
metrics such as leverage and interest coverage ratios. As of October 2, 2021 ,
Moody's Investors Service's long- and short-term debt ratings for the Company
were A2 and P-1 (Stable), respectively, Standard and Poor's long- and short-term
debt ratings for the Company were BBB+ and A-2 (Stable), respectively, and
Fitch's long- and short-term debt ratings for the Company were A- and F2
(Stable), respectively. The Company's bank facilities contain only one financial
covenant, relating to interest coverage, which the Company met on October 2,
2021 , by a significant margin. The Company's bank facilities also specifically
exclude certain entities, including the Asia Theme Parks, from any
representations, covenants or events of default.
SUPPLEMENTAL GUARANTOR FINANCIAL INFORMATION
On March 20, 2019 , as part of the acquisition of TFCF , The Walt Disney Company
("TWDC") became the ultimate parent of TWDC Enterprises 18 Corp. (formerly known
as The Walt Disney Company ) ("Legacy Disney"). Legacy Disney and TWDC are
collectively referred to as "Obligor Group ", and individually, as a "Guarantor".
Concurrent with the close of the TFCF acquisition, $16.8 billion of TFCF's
assumed public debt (which then constituted 96% of such debt) was exchanged for
senior notes of TWDC (the "exchange notes") issued pursuant to an exemption from
registration under the Securities Act of 1933, as amended (the "Securities
Act"), pursuant to an Indenture, dated as of March 20, 2019 , between TWDC,
Legacy Disney, as guarantor, and Citibank, N.A ., as trustee (the "TWDC
Indenture") and guaranteed by Legacy Disney. On November 26, 2019 , $14.0 billion
of the outstanding exchange notes were exchanged for new senior notes of TWDC
registered under the Securities Act, issued pursuant to the TWDC Indenture and
guaranteed by Legacy Disney. In addition, contemporaneously with the closing of
the March 20, 2019 exchange offer, TWDC entered into a guarantee of the
registered debt securities issued by Legacy Disney under the Indenture dated as
of September 24, 2001 between Legacy Disney and Wells Fargo Bank, National
Association , as trustee (the "2001 Trustee") (as amended by the first
supplemental indenture among Legacy Disney, as issuer, TWDC, as guarantor, and
the 2001 Trustee, as trustee).
Other subsidiaries of the Company do not guarantee the registered debt
securities of either TWDC or Legacy Disney (such subsidiaries are referred to as
the "non-Guarantors"). The par value and carrying value of total outstanding and
guaranteed registered debt securities of the Obligor Group at October 2, 2021
was as follows:
TWDC Legacy Disney
(in millions) Par Value Carrying Value Par Value Carrying Value
Registered debt with unconditional
guarantee $ 37,338 $ 39,162 The guarantees by TWDC and Legacy Disney are full and unconditional and cover all payment obligations arising under the guaranteed registered debt securities. The guarantees may be released and discharged upon (i) as a general matter, the indebtedness for borrowed money of the consolidated subsidiaries of TWDC in aggregate constituting no more than 10% of all consolidated indebtedness for borrowed money of TWDC and its subsidiaries (subject to certain exclusions), (ii) upon the sale, transfer or disposition of all or substantially all of the equity interests or all or substantially all, or substantially as an entirety, the assets of Legacy Disney to a third party, and (iii) other customary events constituting a discharge of a guarantor's obligations. In addition, in the case of Legacy Disney's guarantee of registered debt securities issued by TWDC, Legacy Disney may be released and discharged from its guarantee at any time Legacy Disney is not a borrower, issuer or guarantor under certain material bank facilities or any debt securities. Operations are conducted almost entirely through the Company's subsidiaries. Accordingly, theObligor Group's cash flow and ability to service its debt, including the public debt, are dependent upon the earnings of the Company's subsidiaries and the distribution of those earnings to theObligor Group , whether by dividends, loans or otherwise. Holders of the guaranteed registered debt securities have a direct claim only against theObligor Group . 49 -------------------------------------------------------------------------------- TABLE OF CONTENTS Set forth below are summarized financial information for theObligor Group on a combined basis after elimination of (i) intercompany transactions and balances between TWDC and Legacy Disney and (ii) equity in the earnings from and investments in any subsidiary that is a non-Guarantor. This summarized financial information has been prepared and presented pursuant to the Securities and Exchange Commission Regulation S-X Rule 13-01, "Financial Disclosures about Guarantors and Issuers ofGuaranteed Securities " and is not intended to present the financial position or results of operations of theObligor Group in accordance withU.S. GAAP. Results of operations (in millions) 2021 Revenues $ - Costs and expenses - Net income (loss) from continuing operations (1,847) Net income (loss) (1,847)
Net income (loss) attributable to TWDC shareholders (1,847)
Balance Sheet (in millions) October 2, 2021 October 3, 2020
Current assets $ 9,506 $ 12,899
Noncurrent assets 1,689 2,076
Current liabilities 6,878 6,155
Noncurrent liabilities (excluding intercompany to
non-Guarantors) 51,439 57,809
Intercompany payables to non-Guarantors 147,629 146,748
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
We believe that the application of the following accounting policies, which are
important to our financial position and results of operations, require
significant judgments and estimates on the part of management. For a summary of
our significant accounting policies, including the accounting policies discussed
below, see Note 2 to the Consolidated Financial Statements.
Produced and Acquired/Licensed Content Costs
We amortize and test for impairment capitalized film and television production
costs based on whether the content is predominantly monetized individually or as
a group. See Note 2 to the Consolidated Financial Statements for further
discussion.
Production costs that are classified as individual are amortized based upon the
ratio of the current period's revenues to the estimated remaining total revenues
(Ultimate Revenues).
With respect to produced films intended for theatrical release, the most
sensitive factor affecting our estimate of Ultimate Revenues is theatrical
performance. Revenues derived from other markets subsequent to the theatrical
release are generally highly correlated with theatrical performance. Theatrical
performance varies primarily based upon the public interest and demand for a
particular film, the popularity of competing films at the time of release and
the level of marketing effort. Upon a film's release and determination of the
theatrical performance, the Company's estimates of revenues from succeeding
windows and markets, which may include imputed license fees for content that is
used on our DTC streaming services, are revised based on historical
relationships and an analysis of current market trends.
With respect to capitalized television production costs that are classified as
individual, the most sensitive factors affecting estimates of Ultimate Revenues
are program ratings of the content on our licensees' platforms. Program ratings,
which are an indication of market acceptance, directly affect the program's
ability to generate advertising and subscriber revenues and are correlated with
the license fees we can charge for the content in subsequent windows and for
subsequent seasons.
Ultimate Revenues are reassessed each reporting period and the impact of any
changes on amortization of production cost is accounted for as if the change
occurred at the beginning of the current fiscal year. If our estimate of
Ultimate Revenues decreases, amortization of costs may be accelerated or result
in an impairment. Conversely, if our estimate of Ultimate Revenues increases,
cost amortization may be slowed.
Produced content costs that are part of a group and acquired/licensed content
costs are amortized based on projected usage typically resulting in an
accelerated or straight-line amortization pattern. The determination of
projected usage requires judgement and is reviewed periodically for changes. If
projected usage changes we may need to accelerate or slow the recognition of
amortization expense.
The amortization of multi-year sports rights is based on our projections of
revenues over the contract period, which include advertising revenue and an
allocation of affiliate revenue (relative value). If the annual contractual
payments related to each season approximate each season's estimated relative
value, we expense the related contractual payments during the applicable season.
If estimated relative values by year were to change significantly, amortization
of our sports rights costs may be accelerated or slowed.
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Revenue Recognition
The Company has revenue recognition policies for its various operating segments
that are appropriate to the circumstances of each business. Refer to Note 2 to
the Consolidated Financial Statements for our revenue recognition policies.
Pension and Postretirement Medical Plan Actuarial Assumptions
The Company's pension and postretirement medical benefit obligations and related
costs are calculated using a number of actuarial assumptions. Two critical
assumptions, the discount rate and the expected return on plan assets, are
important elements of expense and/or liability measurement, which we evaluate
annually. Other assumptions include the healthcare cost trend rate and employee
demographic factors such as retirement patterns, mortality, turnover and rate of
compensation increase.
The discount rate enables us to state expected future cash payments for benefits
as a present value on the measurement date. A lower discount rate increases the
present value of benefit obligations and increases pension and postretirement
medical expense. The guideline for setting this rate is a high-quality long-term
corporate bond rate. We increased our discount rate to 2.88% at the end of
fiscal 2021 from 2.82% at the end of fiscal 2020 to reflect market interest rate
conditions at our fiscal 2021 year-end measurement date. The Company's discount
rate was determined by considering yield curves constructed of a large
population of high-quality corporate bonds and reflects the matching of the
plans' liability cash flows to the yield curves. A one percentage point decrease
in the assumed discount rate would increase total benefit expense for fiscal
2022 by approximately $341 million and would increase the projected benefit
obligation at October 2, 2021 by approximately $4.0 billion . A one percentage
point increase in the assumed discount rate would decrease total benefit expense
and the projected benefit obligation by approximately $292 million and $3.4
billion , respectively.
To determine the expected long-term rate of return on the plan assets, we
consider the current and expected asset allocation, as well as historical and
expected returns on each plan asset class. Our expected return on plan assets is
7.00%. A lower expected rate of return on plan assets will increase pension and
postretirement medical expense. A one percentage point change in the long-term
asset return assumption would impact fiscal 2022 annual expense by approximately
$175 million .
Goodwill , Other Intangible Assets, Long-Lived Assets and Investments
The Company is required to test goodwill and other indefinite-lived intangible
assets for impairment on an annual basis and if current events or circumstances
require, on an interim basis. The Company performs its annual test of goodwill
and indefinite-lived intangible assets for impairment in its fiscal fourth
quarter.
Goodwill is allocated to various reporting units, which are an operating segment
or one level below the operating segment. To test goodwill for impairment, the
Company first performs a qualitative assessment to determine if it is more
likely than not that the carrying amount of a reporting unit exceeds its fair
value. If it is, a quantitative assessment is required. Alternatively, the
Company may bypass the qualitative assessment and perform a quantitative
impairment test.
The qualitative assessment requires the consideration of factors such as recent
market transactions, macroeconomic conditions, and changes in projected future
cash flows of the reporting unit.
The quantitative assessment compares the fair value of each goodwill reporting
unit to its carrying amount, and to the extent the carrying amount exceeds the
fair value, an impairment of goodwill is recognized for the excess up to the
amount of goodwill allocated to the reporting unit.
In fiscal 2021, the Company bypassed the qualitative test and performed a
quantitative assessment of goodwill for impairment.
The impairment test for goodwill requires judgment related to the identification
of reporting units, the assignment of assets and liabilities to reporting units
including goodwill, and the determination of fair value of the reporting units.
To determine the fair value of our reporting units, we apply what we believe to
be the most appropriate valuation methodology for each of our reporting units.
We generally use a present value technique (discounted cash flows) corroborated
by market multiples when available and as appropriate. The discounted cash flow
analyses are sensitive to our estimates of future revenue growth and margins for
these businesses as well as the discount rates used to calculate the present
value of future cash flows. In times of adverse economic conditions in the
global economy, the Company's long-term cash flow projections are subject to a
greater degree of uncertainty than usual. We believe our estimates are
consistent with how a marketplace participant would value our reporting units.
If we had established different reporting units or utilized different valuation
methodologies or assumptions, the impairment test results could differ, and we
could be required to record impairment charges.
To test its other indefinite-lived intangible assets for impairment, the Company
first performs a qualitative assessment to determine if it is more likely than
not that the carrying amount of each of its indefinite-lived intangible assets
exceeds its fair value. If it is, a quantitative assessment is required.
Alternatively, the Company may bypass the qualitative assessment and perform a
quantitative impairment test.
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The qualitative assessment requires the consideration of factors such as recent
market transactions, macroeconomic conditions, and changes in projected future
cash flows.
The quantitative assessment compares the fair value of an indefinite-lived
intangible asset to its carrying amount. If the carrying amount of an
indefinite-lived intangible asset exceeds its fair value, an impairment loss is
recognized for the excess. Fair values of indefinite-lived intangible assets are
determined based on discounted cash flows or appraised values, as appropriate.
The Company tests long-lived assets, including amortizable intangible assets,
for impairment whenever events or changes in circumstances (triggering events)
indicate that the carrying amount may not be recoverable. Once a triggering
event has occurred, the impairment test employed is based on whether the
Company's intent is to hold the asset for continued use or to hold the asset for
sale. The impairment test for assets held for use requires a comparison of the
estimated undiscounted future cash flows expected to be generated over the
useful life of the significant assets of an asset group to the carrying amount
of the asset group. An asset group is generally established by identifying the
lowest level of cash flows generated by a group of assets that are largely
independent of the cash flows of other assets and could include assets used
across multiple businesses. If the carrying amount of an asset group exceeds the
estimated undiscounted future cash flows, an impairment would be measured as the
difference between the fair value of the asset group and the carrying amount of
the asset group. For assets held for sale, to the extent the carrying amount is
greater than the asset's fair value less costs to sell, an impairment loss is
recognized for the difference. Determining whether a long-lived asset is
impaired requires various estimates and assumptions, including whether a
triggering event has occurred, the identification of asset groups, estimates of
future cash flows and the discount rate used to determine fair values.
The Company has investments in equity securities. For equity securities that do
not have a readily determinable fair value, we consider forecasted financial
performance of the investee companies, as well as volatility inherent in the
external markets for these investments. If these forecasts are not met,
impairment charges may be recorded.
The Company recorded non-cash impairment charges of $0.3 billion and $5.2
billion in fiscal 2021 and 2020, respectively.
The fiscal 2021 charges primarily related to the closure of an animation studio
and a substantial number of our Disney -branded retail stores in North America
and Europe .
The fiscal 2020 impairment charges primarily related to impairments of MVPD
agreement intangible assets ($1.9 billion ) and goodwill ($3.1 billion ) at the
International Channels' business. See Note 19 to the Consolidated Financial
Statements for additional discussion of these impairment charges.
Allowance for Credit Losses
We evaluate our allowance for credit losses and estimate collectability of
accounts receivable based on historical bad debt experience, our assessment of
the financial condition of individual companies with which we do business,
current market conditions, and reasonable and supportable forecasts of future
economic conditions. In times of economic turmoil, including COVID-19, our
estimates and judgments with respect to the collectability of our receivables
are subject to greater uncertainty than in more stable periods. If our estimate
of uncollectible accounts is too low, costs and expenses may increase in future
periods, and if it is too high, costs and expenses may decrease in future
periods. See Note 3 to the Consolidated Financial Statements for additional
discussion.
Contingencies and Litigation
We are currently involved in certain legal proceedings and, as required, have
accrued estimates of the probable and estimable losses for the resolution of
these proceedings. These estimates are based upon an analysis of potential
results, assuming a combination of litigation and settlement strategies and have
been developed in consultation with outside counsel as appropriate. From time to
time, we are also involved in other contingent matters for which we accrue
estimates for a probable and estimable loss. It is possible, however, that
future results of operations for any particular quarterly or annual period could
be materially affected by changes in our assumptions or the effectiveness of our
strategies related to legal proceedings or our assumptions regarding other
contingent matters. See Note 15 to the Consolidated Financial Statements for
more detailed information on litigation exposure.
Income Tax
As a matter of course, the Company is regularly audited by federal, state and
foreign tax authorities. From time to time, these audits result in proposed
assessments. Our determinations regarding the recognition of income tax benefits
are made in consultation with outside tax and legal counsel, where appropriate,
and are based upon the technical merits of our tax positions in consideration of
applicable tax statutes and related interpretations and precedents and upon the
expected outcome of proceedings (or negotiations) with taxing and legal
authorities. The tax benefits ultimately realized by the Company may differ from
those recognized in our future financial statements based on a number of
factors, including the Company's decision to
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settle rather than litigate a matter, relevant legal precedent related to
similar matters and the Company's success in supporting its filing positions
with taxing authorities.
Impacts of COVID-19 on Accounting Policies and Estimates
In light of the currently unknown ultimate duration and severity of COVID-19, we
face a greater degree of uncertainty than normal in making the judgments and
estimates needed to apply our significant accounting policies and make changes
to these estimates and judgements over time. This could result in meaningful
impacts to our financial statements in future periods. A more detailed
discussion of the impact of COVID-19 on the Accounting Policies and Estimates
follows.
Produced and Acquired/Licensed Content Costs
Certain of our completed or in progress film and television productions have had
their initial release dates delayed. The duration of the delay, market
conditions when we release the content, or a change in our release strategy
(e.g. bypassing certain distribution windows) could have an impact on Ultimate
Revenues, which may accelerate amortization or result in an impairment of
capitalized film and television production costs.
Given the ongoing uncertainty around live sporting events continuing
uninterrupted, the amount and timing of revenues derived from the broadcast of
these events may differ from the projections of revenues that support our
amortization pattern of the rights costs we pay for these events. Such changes
in revenues could result in an acceleration or slowing of the amortization of
our sports rights costs.
Revenue Recognition
Certain of our affiliate contracts contain commitments with respect to the
content to be aired on our television networks (e.g. live sports or original
content). If there are delays or cancellations of live sporting events or
disruptions to film and television content production activities, we may need to
assess the impact on our contractual obligations and adjust the revenue that we
recognize related to these contracts.
Goodwill , Other Intangible Assets, Long-Lived Assets and Investments
Given the ongoing impacts of COVID-19 across our businesses, the projected cash
flows that we use to assess the fair value of our businesses and assets for
purposes of impairment testing are subject to greater uncertainty than normal.
If in the future we reduce our estimate of cash flow projections, we may need to
impair some of these assets.
Prior to the Company's reorganization in October 2020 , the former
Direct-to-Consumer & International segment included an International Channels
reporting unit, which was comprised of the Company's international television
networks. Our international television networks primarily derive revenues from
affiliate fees charged to MVPDs for the right to deliver our programming under
multi-year licensing agreements and the sales of advertising time/space on the
networks.
In the third quarter of fiscal 2020, we assessed the International Channels'
long-lived assets and goodwill for impairment and recorded impairments of
$1.9 billion primarily related to MVPD agreement intangible assets and
$3.1 billion related to goodwill.
As of October 2, 2021 , the remaining balance of our international MVPD agreement
intangible assets was $2.2 billion , primarily related to our channel businesses
in Latin America and India .
See Note 19 to the Consolidated Financial Statements for discussion of the
impairment tests performed in the third quarter of fiscal 2020.
Risk Management Contracts
The Company employs a variety of financial instruments (derivatives) including
interest rate and cross-currency swap agreements and forward and option
contracts to manage its exposure to fluctuations in interest rates, foreign
currency exchange rates and commodity prices.
As a result of the impact of COVID-19 on our businesses, our projected cash
flows or projected usage of commodities are subject to a greater degree of
uncertainty, which may cause us to recognize gains or losses on our hedging
instruments in different periods than the hedged transaction.
New Accounting Pronouncements
See Note 20 to the Consolidated Financial Statements for information regarding
new accounting pronouncements.
FORWARD-LOOKING STATEMENTS
The Private Securities Litigation Reform Act of 1995 provides a safe harbor for
"forward-looking statements" made by or on behalf of the Company. We may from
time to time make written or oral statements that are "forward-looking,"
including statements contained in this report and other filings with the
Securities and Exchange Commission and in reports to our
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shareholders. Such statements may, for example, express expectations,
projections, estimates, plans or future impacts; actions that we may take (or
not take); developments beyond our control, including changes in domestic or
global economic conditions; or other statements that are not historical in
nature. All forward-looking statements are made on the basis of management's
views and assumptions regarding future events and business performance as of the
time the statements are made and the Company does not undertake any obligation
to update its disclosure relating to forward-looking matters. Actual results may
differ materially from those expressed or implied due to a variety of important
factors, many of which are beyond our control. In addition to the factors
affecting specific business operations identified in connection with the
description of these operations and the financial results of these operations
elsewhere in our filings with the SEC , the most significant factors affecting
these expectations, which may be revised or supplemented in subsequent reports
we file with the SEC , are set forth under Item 1A - Risk Factors of this Report
on Form 10-K as well as in this Item 7 - Management's Discussion and Analysis
and Item 1 - Business.
ITEM 7A. Quantitative and Qualitative Disclosures About Market Risk
The Company is exposed to the impact of interest rate changes, foreign currency
fluctuations, commodity fluctuations and changes in the market values of its
investments.
Policies and Procedures
In the normal course of business, we employ established policies and procedures
to manage the Company's exposure to changes in interest rates, foreign
currencies and commodities using a variety of financial instruments.
Our objectives in managing exposure to interest rate changes are to limit the
impact of interest rate volatility on earnings and cash flows and to lower
overall borrowing costs. To achieve these objectives, we primarily use interest
rate swaps to manage net exposure to interest rate changes related to the
Company's portfolio of borrowings. By policy, the Company targets fixed-rate
debt as a percentage of its net debt between minimum and maximum percentages.
Our objective in managing exposure to foreign currency fluctuations is to reduce
volatility of earnings and cash flow in order to allow management to focus on
core business issues and challenges. Accordingly, the Company enters into
various contracts that change in value as foreign exchange rates change to
protect the U.S. dollar equivalent value of its existing foreign currency
assets, liabilities, commitments and forecasted foreign currency revenues and
expenses. The Company utilizes option strategies and forward contracts that
provide for the purchase or sale of foreign currencies to hedge probable, but
not firmly committed, transactions. The Company also uses forward and option
contracts to hedge foreign currency assets and liabilities. The principal
foreign currencies hedged are the euro, Japanese yen, British pound, Chinese
yuan and Canadian dollar. Cross-currency swaps are used to effectively convert
foreign currency denominated borrowings to U.S. dollar denominated borrowings.
By policy, the Company maintains hedge coverage between minimum and maximum
percentages of its forecasted foreign exchange exposures generally for periods
not to exceed four years. The gains and losses on these contracts offset changes
in the U.S. dollar equivalent value of the related exposures. The economic or
political conditions in a country could reduce our ability to hedge exposure to
currency fluctuations in the country or our ability to repatriate revenue from
the country.
Our objectives in managing exposure to commodity fluctuations are to use
commodity derivatives to reduce volatility of earnings and cash flows arising
from commodity price changes. The amounts hedged using commodity swap contracts
are based on forecasted levels of consumption of certain commodities, such as
fuel oil and gasoline.
It is the Company's policy to enter into foreign currency and interest rate
derivative transactions and other financial instruments only to the extent
considered necessary to meet its objectives as stated above. The Company does
not enter into these transactions or any other hedging transactions for
speculative purposes.
Value at Risk (VAR)
The Company utilizes a VAR model to estimate the maximum potential one-day loss
in the fair value of its interest rate, foreign exchange, commodities and market
sensitive equity financial instruments. The VAR model estimates were made
assuming normal market conditions and a 95% confidence level. Various modeling
techniques can be used in a VAR computation. The Company's computations are
based on the interrelationships between movements in various interest rates,
currencies, commodities and equity prices (a variance/co-variance technique).
These interrelationships were determined by observing interest rate, foreign
currency, commodity and equity market changes over the preceding quarter for the
calculation of VAR amounts at each fiscal quarter end. The model includes all of
the Company's debt as well as all interest rate and foreign exchange derivative
contracts, commodities and market sensitive equity investments. Forecasted
transactions, firm commitments, and accounts receivable and payable denominated
in foreign currencies, which certain of these instruments are intended to hedge,
were excluded from the model.
The VAR model is a risk analysis tool and does not purport to represent actual
losses in fair value that will be incurred by the Company, nor does it consider
the potential effect of favorable changes in market factors.
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VAR on a combined basis increased to $364 million at October 2, 2021 from $323
million at October 3, 2020 .
The estimated maximum potential one-day loss in fair value, calculated using the
VAR model, is as follows (unaudited, in millions):
Interest Rate Currency Equity
Sensitive Sensitive Sensitive
Financial Financial Financial Commodity Sensitive Combined
Fiscal 2021 Instruments Instruments Instruments Financial Instruments Portfolio
Year end fiscal 2021 VAR $ 357 $ 44 $ 37 $ 1 $ 364
Average VAR 342 34 48 1 345
Highest VAR 380 44 65 1 372
Lowest VAR 290 23 37 1 296
Year end fiscal 2020 VAR 304 29 81 1 323
The VAR for Hong Kong Disneyland Resort and Shanghai Disney Resort is immaterial
as of October 2, 2021 and accordingly has been excluded from the above table.
ITEM 8. Financial Statements and Supplementary Data
See Index to Financial Statements and Supplemental Data on page 63 .
ITEM 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None.
ITEM 9A. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
We have established disclosure controls and procedures to ensure that the
information required to be disclosed by the Company in the reports that it files
or submits under the Securities Exchange Act of 1934 is recorded, processed,
summarized and reported within the time periods specified in SEC rules and forms
and that such information is accumulated and made known to the officers who
certify the Company's financial reports and to other members of senior
management and the Board of Directors as appropriate to allow timely decisions
regarding required disclosure.
Based on their evaluation as of October 2, 2021 , the principal executive officer
and principal financial officer of the Company have concluded that the Company's
disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e)
under the Securities Exchange Act of 1934) are effective.
Management's Report on Internal Control Over Financial Reporting
Management's report set forth on page 64 is incorporated herein by
reference.
Changes in Internal Controls
There have been no changes in our internal control over financial reporting
during the fourth quarter of the fiscal year ended October 2, 2021 that have
materially affected, or are reasonably likely to materially affect, our internal
control over financial reporting.
ITEM 9B. Other Information
None.
ITEM 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections
Not applicable.
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