Item 1: Financial Statements
THE WALT DISNEY COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(unaudited; in millions, except per share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended
|
|
|
|
Six Months Ended
|
|
|
|
|
March 28,
2020
|
|
March 30,
2019
|
|
March 28,
2020
|
|
March 30,
2019
|
|
Revenues:
|
|
|
|
|
|
|
|
|
Services
|
$
|
16,174
|
|
|
$
|
13,011
|
|
|
$
|
34,249
|
|
|
$
|
25,877
|
|
|
Products
|
1,835
|
|
|
1,911
|
|
|
4,618
|
|
|
4,348
|
|
|
Total revenues
|
18,009
|
|
|
14,922
|
|
|
38,867
|
|
|
30,225
|
|
|
Costs and expenses:
|
|
|
|
|
|
|
|
|
Cost of services (exclusive of depreciation and amortization)
|
(10,664)
|
|
|
(7,167)
|
|
|
(22,041)
|
|
|
(14,731)
|
|
|
Cost of products (exclusive of depreciation and amortization)
|
(1,254)
|
|
|
(1,209)
|
|
|
(2,893)
|
|
|
(2,646)
|
|
|
Selling, general, administrative and other
|
(3,388)
|
|
|
(2,330)
|
|
|
(7,091)
|
|
|
(4,482)
|
|
|
Depreciation and amortization
|
(1,333)
|
|
|
(828)
|
|
|
(2,631)
|
|
|
(1,560)
|
|
|
Total costs and expenses
|
(16,639)
|
|
|
(11,534)
|
|
|
(34,656)
|
|
|
(23,419)
|
|
|
Restructuring and impairment charges
|
(145)
|
|
|
(662)
|
|
|
(295)
|
|
|
(662)
|
|
|
Other income
|
|
—
|
|
|
4,963
|
|
|
—
|
|
|
4,963
|
|
|
Interest expense, net
|
(300)
|
|
|
(143)
|
|
|
(583)
|
|
|
(206)
|
|
|
Equity in the income / (loss) of investees
|
135
|
|
|
(309)
|
|
|
359
|
|
|
(233)
|
|
|
Income from continuing operations before income taxes
|
1,060
|
|
|
7,237
|
|
|
3,692
|
|
|
10,668
|
|
|
Income taxes on continuing operations
|
(525)
|
|
|
(1,647)
|
|
|
(984)
|
|
|
(2,292)
|
|
|
Net income from continuing operations
|
535
|
|
|
5,590
|
|
|
2,708
|
|
|
8,376
|
|
|
Income (loss) from discontinued operations, net of income tax benefit/(expense) of $5, ($5), $13 and ($5), respectively
|
(15)
|
|
|
21
|
|
|
(41)
|
|
|
21
|
|
|
Net income
|
520
|
|
|
5,611
|
|
|
2,667
|
|
|
8,397
|
|
|
Net income from continuing operations attributable to noncontrolling interests
|
(60)
|
|
|
(159)
|
|
|
(100)
|
|
|
(157)
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to The Walt Disney Company (Disney)
|
$
|
460
|
|
|
$
|
5,452
|
|
|
$
|
2,567
|
|
|
$
|
8,240
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per share attributable to Disney(1):
|
|
|
|
|
|
|
|
|
Diluted
|
|
|
|
|
|
|
|
|
Continuing operations
|
$
|
0.26
|
|
|
$
|
3.53
|
|
|
$
|
1.44
|
|
|
$
|
5.42
|
|
|
Discontinued operations
|
(0.01)
|
|
|
0.01
|
|
|
(0.02)
|
|
|
0.01
|
|
|
|
$
|
0.25
|
|
|
$
|
3.55
|
|
|
$
|
1.41
|
|
|
$
|
5.43
|
|
|
Basic
|
|
|
|
|
|
|
|
|
Continuing operations
|
$
|
0.26
|
|
|
$
|
3.55
|
|
|
$
|
1.44
|
|
|
$
|
5.44
|
|
|
Discontinued operations
|
(0.01)
|
|
|
0.01
|
|
|
(0.02)
|
|
|
0.01
|
|
|
|
$
|
0.25
|
|
|
$
|
3.56
|
|
|
$
|
1.42
|
|
|
$
|
5.46
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of common and common equivalent shares outstanding:
|
|
|
|
|
|
|
|
|
Diluted
|
1,816
|
|
|
1,537
|
|
|
1,816
|
|
|
1,517
|
|
|
Basic
|
1,808
|
|
|
1,530
|
|
|
1,806
|
|
|
1,510
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)Total may not equal the sum of the column due to rounding.
See Notes to Condensed Consolidated Financial Statements
THE WALT DISNEY COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(unaudited; in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended
|
|
|
|
Six Months Ended
|
|
|
|
|
March 28,
2020
|
|
March 30,
2019
|
|
March 28,
2020
|
|
March 30,
2019
|
|
Net income
|
$
|
520
|
|
|
$
|
5,611
|
|
|
$
|
2,667
|
|
|
$
|
8,397
|
|
|
Other comprehensive income (loss), net of tax:
|
|
|
|
|
|
|
|
|
Market value adjustments for investments
|
—
|
|
|
(4)
|
|
|
—
|
|
|
(4)
|
|
|
Market value adjustments for hedges
|
129
|
|
|
(80)
|
|
|
22
|
|
|
(89)
|
|
|
Pension and postretirement medical plan adjustments
|
73
|
|
|
68
|
|
|
180
|
|
|
121
|
|
|
Foreign currency translation and other
|
(323)
|
|
|
46
|
|
|
(196)
|
|
|
25
|
|
|
Other comprehensive income
|
(121)
|
|
|
30
|
|
|
6
|
|
|
53
|
|
|
Comprehensive income
|
399
|
|
|
5,641
|
|
|
2,673
|
|
|
8,450
|
|
|
Net income from continuing operations attributable to noncontrolling interests
|
(60)
|
|
|
(159)
|
|
|
(100)
|
|
|
(157)
|
|
|
Other comprehensive income (loss) attributable to noncontrolling interests
|
17
|
|
|
(34)
|
|
|
(26)
|
|
|
(36)
|
|
|
Comprehensive income attributable to Disney
|
$
|
356
|
|
|
$
|
5,448
|
|
|
$
|
2,547
|
|
|
$
|
8,257
|
|
See Notes to Condensed Consolidated Financial Statements
THE WALT DISNEY COMPANY
CONDENSED CONSOLIDATED BALANCE SHEETS
(unaudited; in millions, except per share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 28,
2020
|
|
September 28, 2019
|
|
ASSETS
|
|
|
|
|
Current assets
|
|
|
|
|
Cash and cash equivalents
|
$
|
14,339
|
|
|
$
|
5,418
|
|
|
Receivables
|
14,532
|
|
|
15,481
|
|
|
Inventories
|
1,531
|
|
|
1,649
|
|
|
Licensed content costs and advances
|
1,869
|
|
|
4,597
|
|
|
|
|
|
|
|
Other current assets
|
1,003
|
|
|
979
|
|
|
|
|
|
|
|
Total current assets
|
33,274
|
|
|
28,124
|
|
|
Produced and licensed content costs
|
26,757
|
|
|
22,810
|
|
|
Investments
|
3,180
|
|
|
3,224
|
|
|
Parks, resorts and other property
|
|
|
|
|
Attractions, buildings and equipment
|
60,929
|
|
|
58,589
|
|
|
Accumulated depreciation
|
(33,713)
|
|
|
(32,415)
|
|
|
|
27,216
|
|
|
26,174
|
|
|
Projects in progress
|
3,916
|
|
|
4,264
|
|
|
Land
|
1,019
|
|
|
1,165
|
|
|
|
32,151
|
|
|
31,603
|
|
|
Intangible assets, net
|
22,037
|
|
|
23,215
|
|
|
Goodwill
|
80,320
|
|
|
80,293
|
|
|
|
|
|
|
|
Other assets
|
8,575
|
|
|
4,715
|
|
|
Total assets
|
$
|
206,294
|
|
|
$
|
193,984
|
|
|
|
|
|
|
|
LIABILITIES AND EQUITY
|
|
|
|
|
Current liabilities
|
|
|
|
|
Accounts payable and other accrued liabilities
|
$
|
17,906
|
|
|
$
|
17,762
|
|
|
Current portion of borrowings
|
12,676
|
|
|
8,857
|
|
|
Deferred revenue and other
|
4,891
|
|
|
4,722
|
|
|
|
|
|
|
|
Total current liabilities
|
35,473
|
|
|
31,341
|
|
|
Borrowings
|
42,770
|
|
|
38,129
|
|
|
Deferred income taxes
|
7,965
|
|
|
7,902
|
|
|
|
|
|
|
|
Other long-term liabilities
|
16,113
|
|
|
13,760
|
|
|
Commitments and contingencies (Note 14)
|
|
|
|
|
Redeemable noncontrolling interests
|
9,096
|
|
|
8,963
|
|
|
Equity
|
|
|
|
|
Preferred stock
|
—
|
|
|
—
|
|
|
Common stock, $0.01 par value, Authorized – 4.6 billion shares, Issued – 1.8 billion shares
|
54,230
|
|
|
53,907
|
|
|
Retained earnings
|
43,721
|
|
|
42,494
|
|
|
Accumulated other comprehensive loss
|
(6,637)
|
|
|
(6,617)
|
|
|
|
|
|
|
|
Treasury stock, at cost, 19 million shares
|
(907)
|
|
|
(907)
|
|
|
Total Disney Shareholders’ equity
|
90,407
|
|
|
88,877
|
|
|
Noncontrolling interests
|
4,470
|
|
|
5,012
|
|
|
Total equity
|
94,877
|
|
|
93,889
|
|
|
Total liabilities and equity
|
$
|
206,294
|
|
|
$
|
193,984
|
|
See Notes to Condensed Consolidated Financial Statements
THE WALT DISNEY COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited; in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended
|
|
|
|
|
March 28,
2020
|
|
March 30,
2019
|
|
OPERATING ACTIVITIES
|
|
|
|
|
Net income from continuing operations
|
$
|
2,708
|
|
|
$
|
8,376
|
|
|
Depreciation and amortization
|
2,631
|
|
|
1,560
|
|
|
Gain on acquisition
|
—
|
|
|
(4,917)
|
|
|
Deferred income taxes
|
297
|
|
|
1,190
|
|
|
Equity in the (income) / loss of investees
|
(359)
|
|
|
233
|
|
|
Cash distributions received from equity investees
|
405
|
|
|
370
|
|
|
Net change in produced and licensed content costs and advances
|
(925)
|
|
|
(281)
|
|
|
Net change in operating lease right of use assets / liabilities
|
(96)
|
|
|
—
|
|
|
Equity-based compensation
|
246
|
|
|
456
|
|
|
Other
|
156
|
|
|
143
|
|
|
Changes in operating assets and liabilities, net of business acquisitions:
|
|
|
|
|
Receivables
|
828
|
|
|
(386)
|
|
|
Inventories
|
70
|
|
|
(19)
|
|
|
Other assets
|
(174)
|
|
|
46
|
|
|
Accounts payable and other liabilities
|
(888)
|
|
|
(283)
|
|
|
Income taxes
|
(112)
|
|
|
(474)
|
|
|
Cash provided by operations - continuing operations
|
4,787
|
|
|
6,014
|
|
|
|
|
|
|
|
INVESTING ACTIVITIES
|
|
|
|
|
Investments in parks, resorts and other property
|
(2,585)
|
|
|
(2,390)
|
|
|
|
|
|
|
|
Acquisitions
|
—
|
|
|
(9,901)
|
|
|
Other
|
(21)
|
|
|
(392)
|
|
|
Cash used in investing activities - continuing operations
|
(2,606)
|
|
|
(12,683)
|
|
|
|
|
|
|
|
FINANCING ACTIVITIES
|
|
|
|
|
Commercial paper borrowings, net
|
3,138
|
|
|
376
|
|
|
Borrowings
|
6,071
|
|
|
31,145
|
|
|
Reduction of borrowings
|
(1,048)
|
|
|
(17,398)
|
|
|
Dividends
|
(1,587)
|
|
|
(1,310)
|
|
|
|
|
|
|
|
Proceeds from exercise of stock options
|
207
|
|
|
83
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
(165)
|
|
|
(200)
|
|
|
Cash provided by financing activities - continuing operations
|
6,616
|
|
|
12,696
|
|
|
|
|
|
|
|
CASH FLOWS FROM DISCONTINUED OPERATIONS
|
|
|
|
|
Cash provided by (used in) operations - discontinued operations
|
4
|
|
|
(35)
|
|
|
Cash provided by investing activities - discontinued operations
|
198
|
|
|
—
|
|
|
|
|
|
|
|
Cash provided by (used in) discontinued operations
|
202
|
|
|
(35)
|
|
|
|
|
|
|
|
Impact of exchange rates on cash, cash equivalents and restricted cash
|
(76)
|
|
|
75
|
|
|
|
|
|
|
|
Change in cash, cash equivalents and restricted cash
|
8,923
|
|
|
6,067
|
|
|
Cash, cash equivalents and restricted cash, beginning of period
|
5,455
|
|
|
4,155
|
|
|
Cash, cash equivalents and restricted cash, end of period
|
$
|
14,378
|
|
|
$
|
10,222
|
|
See Notes to Condensed Consolidated Financial Statements
THE WALT DISNEY COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF EQUITY
(unaudited; in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity Attributable to Disney
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
|
|
Common Stock
|
|
Retained Earnings
|
Accumulated
Other
Comprehensive
Income
(Loss)
|
|
|
Treasury Stock
|
|
Total Disney Equity
|
|
Non-controlling
Interests (1)
|
|
Total
Equity
|
|
Balance at December 28, 2019
|
|
1,805
|
|
|
$
|
53,995
|
|
|
$
|
43,202
|
|
|
$
|
(6,533)
|
|
|
$
|
(907)
|
|
|
$
|
89,757
|
|
|
$
|
5,016
|
|
|
$
|
94,773
|
|
|
Comprehensive income
|
|
—
|
|
|
—
|
|
|
460
|
|
|
(104)
|
|
|
—
|
|
|
356
|
|
|
(23)
|
|
|
333
|
|
|
Equity compensation activity
|
|
1
|
|
|
226
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
226
|
|
|
—
|
|
|
226
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends
|
|
—
|
|
|
9
|
|
|
(9)
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Contributions
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
33
|
|
|
33
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Distributions and other
|
|
—
|
|
|
—
|
|
|
68
|
|
|
—
|
|
|
—
|
|
|
68
|
|
|
(556)
|
|
|
(488)
|
|
|
Balance at March 28, 2020
|
|
1,806
|
|
|
$
|
54,230
|
|
|
$
|
43,721
|
|
|
$
|
(6,637)
|
|
|
$
|
(907)
|
|
|
$
|
90,407
|
|
|
$
|
4,470
|
|
|
$
|
94,877
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 29, 2018
|
|
1,490
|
|
|
$
|
36,799
|
|
|
$
|
84,887
|
|
|
$
|
(3,782)
|
|
|
$
|
(67,588)
|
|
|
$
|
50,316
|
|
|
$
|
4,077
|
|
|
$
|
54,393
|
|
|
Comprehensive income
|
|
—
|
|
|
—
|
|
|
5,452
|
|
|
(4)
|
|
|
—
|
|
|
5,448
|
|
|
191
|
|
|
5,639
|
|
|
Equity compensation activity
|
|
1
|
|
|
395
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
395
|
|
|
—
|
|
|
395
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends
|
|
—
|
|
|
8
|
|
|
(8)
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Contributions
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
27
|
|
|
27
|
|
|
Acquisition of TFCF
|
|
307
|
|
|
33,804
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
33,804
|
|
|
10,638
|
|
|
44,442
|
|
|
Retirement of treasury stock
|
|
—
|
|
|
(17,563)
|
|
|
(49,118)
|
|
|
—
|
|
|
66,681
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Distributions and other
|
|
—
|
|
|
(24)
|
|
|
(1)
|
|
|
—
|
|
|
—
|
|
|
(25)
|
|
|
(532)
|
|
|
(557)
|
|
|
Balance at March 30, 2019
|
|
1,798
|
|
|
$
|
53,419
|
|
|
$
|
41,212
|
|
|
$
|
(3,786)
|
|
|
$
|
(907)
|
|
|
$
|
89,938
|
|
|
$
|
14,401
|
|
|
$
|
104,339
|
|
(1)Excludes redeemable noncontrolling interests.
See Notes to Condensed Consolidated Financial Statements
THE WALT DISNEY COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF EQUITY
(unaudited; in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity Attributable to Disney
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
|
|
Common Stock
|
|
Retained Earnings
|
Accumulated
Other
Comprehensive
Income
(Loss)
|
|
|
Treasury Stock
|
|
Total Disney Equity
|
|
Non-controlling
Interests (1)
|
|
Total
Equity
|
|
Balance at September 28, 2019
|
|
1,802
|
|
|
$
|
53,907
|
|
|
$
|
42,494
|
|
|
$
|
(6,617)
|
|
|
$
|
(907)
|
|
|
$
|
88,877
|
|
|
$
|
5,012
|
|
|
$
|
93,889
|
|
|
Comprehensive income
|
|
—
|
|
|
—
|
|
|
2,567
|
|
|
(20)
|
|
|
—
|
|
|
2,547
|
|
|
(6)
|
|
|
2,541
|
|
|
Equity compensation activity
|
|
4
|
|
|
314
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
314
|
|
|
—
|
|
|
314
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends
|
|
—
|
|
|
9
|
|
|
(1,596)
|
|
|
—
|
|
|
—
|
|
|
(1,587)
|
|
|
—
|
|
|
(1,587)
|
|
|
Contributions
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
53
|
|
|
53
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adoption of new lease accounting guidance
|
|
—
|
|
|
—
|
|
|
197
|
|
|
—
|
|
|
—
|
|
|
197
|
|
|
—
|
|
|
197
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Distributions and other
|
|
—
|
|
|
—
|
|
|
59
|
|
|
—
|
|
|
—
|
|
|
59
|
|
|
(589)
|
|
|
(530)
|
|
|
Balance at March 28, 2020
|
|
1,806
|
|
|
$
|
54,230
|
|
|
$
|
43,721
|
|
|
$
|
(6,637)
|
|
|
$
|
(907)
|
|
|
$
|
90,407
|
|
|
$
|
4,470
|
|
|
$
|
94,877
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at September 29, 2018
|
|
1,488
|
|
|
$
|
36,779
|
|
|
$
|
82,679
|
|
|
$
|
(3,097)
|
|
|
$
|
(67,588)
|
|
|
$
|
48,773
|
|
|
$
|
4,059
|
|
|
$
|
52,832
|
|
|
Comprehensive income
|
|
—
|
|
|
—
|
|
|
8,240
|
|
|
17
|
|
|
—
|
|
|
8,257
|
|
|
190
|
|
|
8,447
|
|
|
Equity compensation activity
|
|
3
|
|
|
415
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
415
|
|
|
—
|
|
|
415
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends
|
|
—
|
|
|
8
|
|
|
(1,318)
|
|
|
—
|
|
|
—
|
|
|
(1,310)
|
|
|
—
|
|
|
(1,310)
|
|
|
Contributions
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
47
|
|
|
47
|
|
|
Acquisition of TFCF
|
|
307
|
|
|
33,804
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
33,804
|
|
|
10,638
|
|
|
44,442
|
|
|
Adoption of new accounting guidance:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income
|
|
—
|
|
|
—
|
|
|
691
|
|
|
(691)
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Intra-Entity Transfers of Assets Other Than Inventory
|
|
—
|
|
|
—
|
|
|
129
|
|
|
—
|
|
|
—
|
|
|
129
|
|
|
—
|
|
|
129
|
|
|
Revenues from Contracts with Customers
|
|
—
|
|
|
—
|
|
|
(116)
|
|
|
—
|
|
|
—
|
|
|
(116)
|
|
|
—
|
|
|
(116)
|
|
|
Other
|
|
—
|
|
|
—
|
|
|
22
|
|
|
(15)
|
|
|
—
|
|
|
7
|
|
|
—
|
|
|
7
|
|
|
Retirement of treasury stock
|
|
—
|
|
|
(17,563)
|
|
|
(49,118)
|
|
|
—
|
|
|
66,681
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Distributions and other
|
|
—
|
|
|
(24)
|
|
|
3
|
|
|
—
|
|
|
—
|
|
|
(21)
|
|
|
(533)
|
|
|
(554)
|
|
|
Balance at March 30, 2019
|
|
1,798
|
|
|
$
|
53,419
|
|
|
$
|
41,212
|
|
|
$
|
(3,786)
|
|
|
$
|
(907)
|
|
|
$
|
89,938
|
|
|
$
|
14,401
|
|
|
$
|
104,339
|
|
(1)Excludes redeemable noncontrolling interests.
See Notes to Condensed Consolidated Financial Statements
THE WALT DISNEY COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited; tabular dollars in millions, except for per share data)
1.Principles of Consolidation
These Condensed Consolidated Financial Statements have been prepared in accordance with accounting principles generally accepted in the United States of America (GAAP) for interim financial information and the instructions to Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. We believe that we have included all normal recurring adjustments necessary for a fair presentation of the results for the interim period. Operating results for the six months ended March 28, 2020 are not necessarily indicative of the results that may be expected for the year ending October 3, 2020.
The terms “Company,” “we,” “us,” and “our” are used in this report to refer collectively to the parent company and the subsidiaries through which our various businesses are actually conducted. The term “TWDC” is used to refer to the parent company.
These financial statements should be read in conjunction with the Company’s 2019 Annual Report on Form 10-K.
On March 20, 2019, the Company acquired Twenty-First Century Fox, Inc., which was subsequently renamed TFCF Corporation (TFCF). As a result of the acquisition, the Company’s ownership in Hulu LLC (Hulu) increased to 60% (67% as of March 28, 2020 and September 28, 2019). The acquired TFCF operations and Hulu have been consolidated since the acquisition. In order to obtain regulatory approval for the acquisition, the Company agreed to sell TFCF’s domestic regional sports networks (sold in August 2019) and sports media operations in Brazil and Mexico, which along with certain other businesses to be divested, are presented as discontinued operations in the Condensed Consolidated Statement of Income. At March 28, 2020 and September 28, 2019, the assets and liabilities of the businesses held for sale are not material and are included in other assets and other liabilities in the Condensed Consolidated Balance Sheet.
Variable Interest Entities
The Company enters into relationships with or makes investments in other entities that may be variable interest entities (VIE). A VIE is consolidated in the financial statements if the Company has the power to direct activities that most significantly impact the economic performance of the VIE and has the obligation to absorb losses or the right to receive benefits from the VIE that could potentially be significant (as defined by ASC 810-10-25-38) to the VIE. Hong Kong Disneyland Resort and Shanghai Disney Resort (together the Asia Theme Parks) are VIEs in which the Company has less than 50% equity ownership. Company subsidiaries (the Management Companies) have management agreements with the Asia Theme Parks, which provide the Management Companies, subject to certain protective rights of joint venture partners, with the ability to direct the day-to-day operating activities and the development of business strategies that we believe most significantly impact the economic performance of the Asia Theme Parks. In addition, the Management Companies receive management fees under these arrangements that we believe could be significant to the Asia Theme Parks. Therefore, the Company has consolidated the Asia Theme Parks in its financial statements.
Redeemable Noncontrolling Interests
On May 13, 2019, the Company entered into a put/call agreement with NBC Universal (NBCU) that provided the Company with full operational control of Hulu. Under the agreement, beginning in January 2024, NBCU has the option to require the Company to purchase NBCU’s approximately 33% interest in Hulu and the Company has the option to require NBCU to sell its interest in Hulu, based on NBCU’s equity ownership percentage of the greater of Hulu’s then fair value or $27.5 billion.
NBCU’s interest will generally not be allocated its portion of Hulu’s losses as the redeemable noncontrolling interest is required to be carried at a minimum value. The minimum value is equal to the fair value as of the May 13, 2019 agreement date accreted to the January 2024 redemption value. At March 28, 2020, NBCU’s interest in Hulu is recorded in the Company’s financial statements at $8.0 billion.
BAMTech LLC (BAMTech) provides streaming technology services to third parties and is owned 75% by the Company, 15% by Major League Baseball (MLB) and 10% by the National Hockey League (NHL), both of which have the right to sell their interests to the Company in the future. MLB can generally sell its interest to the Company starting five years from and ending ten years after the Company’s September 25, 2017 acquisition date of BAMTech at the greater of fair value or a guaranteed floor value ($563 million accreting at 8% annually for eight years from the date of acquisition). The NHL can sell its interest to the Company in fiscal 2020 for $300 million or in fiscal 2021 for $350 million. The Company has the right to
THE WALT DISNEY COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited; tabular dollars in millions, except for per share data)
purchase MLB’s interest in BAMTech starting five years from and ending ten years after the September 25, 2017 acquisition date at the greater of fair value or the guaranteed floor value. The Company has the right to acquire the NHL interest in fiscal 2020 or 2021 for $500 million.
The MLB and NHL interests will generally not be allocated their portion of BAMTech losses as these interests are required to be recorded at the greater of (i) their acquisition date fair value adjusted for their share (if any) of earnings, losses, or dividends or (ii) an accreted value from the date of the acquisition to the applicable redemption date. The accretion of the MLB interest to the earliest redemption value (i.e. in five years after the acquisition date) will be recorded using an interest method. The redeemable noncontrolling interest subject to accretion would have had a redemption amount of $683 million as of March 28, 2020.
Adjustments to the carrying amount of redeemable noncontrolling interests increase or decrease income available to Company shareholders and are recorded in “Net income from continuing operations attributable to noncontrolling interests” on the Condensed Consolidated Statement of Income.
Use of Estimates
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and footnotes thereto. Actual results may differ from those estimates.
Reclassifications
Certain reclassifications have been made in the fiscal 2019 financial statements and notes to conform to the fiscal 2020 presentation.
2.Segment Information
Our operating segments report separate financial information, which is evaluated regularly by the Chief Executive Officer in order to decide how to allocate resources and to assess performance. The following are the Company’s operating segments:
•Media Networks;
•Parks, Experiences and Products;
•Studio Entertainment; and
•Direct-to-Consumer & International
Segment operating results reflect earnings before corporate and unallocated shared expenses, restructuring and impairment charges, net other income, net interest expense, income taxes and noncontrolling interests. Segment operating income includes equity in the income of investees and excludes impairments of certain equity investments and purchase accounting amortization of TFCF and Hulu assets (i.e. intangible assets and the fair value step-up for film and television costs) recognized in connection with the TFCF acquisition. Corporate and unallocated shared expenses principally consist of corporate functions, executive management and certain unallocated administrative support functions.
Segment operating results include allocations of certain costs, including information technology, pension, legal and other shared services costs, which are allocated based on metrics designed to correlate with consumption.
Intersegment content transactions are presented “gross” (i.e. the segment producing the content reports revenue and profit from intersegment transactions, and the required eliminations are reported on a separate “Eliminations” line when presenting a summary of our segment results). Other intersegment transactions are reported “Net” (i.e. revenue from another segment is recorded as a reduction of costs). Studio Entertainment revenues and operating income include an allocation of Parks, Experiences and Products revenues, which is meant to reflect royalties on revenue generated by Parks, Experiences and Products on merchandise based on intellectual property from Studio Entertainment films.
As it relates to film and television content that is produced by our Media Networks and Studio Entertainment segments that will be used on our direct-to-consumer (DTC) services, there are four broad categories of content:
•Content produced for exclusive DTC use, “Originals”;
•New Studio Entertainment theatrical releases following the theatrical and home entertainment windows, “Studio Pay 1”;
•New Media Networks episodic television series following their initial airing on our linear networks, “Media Pay 1”; and
•Content in all other windows, “Library”.
THE WALT DISNEY COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited; tabular dollars in millions, except for per share data)
The intersegment transfer price, for purposes of segment financial reporting pursuant to ASC 280 Segment Reporting, is generally cost plus a margin for Originals and Media Pay 1 content and generally based on comparable transactions for Studio Pay 1 and Library content. Imputed title by title intersegment license fees that may be necessary for other purposes are established as required by those purposes.
Intersegment revenue is recognized upon availability of the content to the DTC service except with respect to Library content for which revenue is recognized ratably over the license period.
Our DTC services generally amortize intersegment content costs for Originals and Studio Pay 1 content on an accelerated basis and for Media Pay 1 and Library content on a straight line basis.
When the DTC amortization timing is different than the timing of revenue recognition at Studio Entertainment or Media Networks, the difference results in an operating income impact in the elimination segment, which nets to zero over the DTC amortization period.
Impact of COVID-19
The impact of the novel coronavirus pandemic (“COVID-19”) and measures to prevent its spread are affecting our segments in a number of ways, most significantly at Parks, Experiences and Products where we have closed our theme parks and retail stores and suspended cruise ship sailings and guided tours and experienced supply chain disruptions. In addition, we have delayed, or in some cases, shortened or canceled theatrical releases and suspended stage play performances at Studio Entertainment and have seen advertising sales impacts at Media Networks and Direct-to-Consumer & International. We have experienced disruptions in the production and availability of content, including the cancellation or deferral of certain sports events and suspension of most film and television production. Many of our businesses have been closed or suspended consistent with government mandates or guidance.
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 of COVID-19 and among other things, the impact of governmental actions imposed in response to the pandemic and individuals’ and companies’ risk tolerance regarding health matters going forward.
Segment revenues and segment operating income are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended
|
|
|
|
Six Months Ended
|
|
|
|
|
March 28,
2020
|
|
March 30, 2019
|
|
March 28,
2020
|
|
March 30,
2019
|
|
Revenues:
|
|
|
|
|
|
|
|
|
Media Networks
|
$
|
7,257
|
|
|
$
|
5,683
|
|
|
$
|
14,618
|
|
|
$
|
11,604
|
|
|
Parks, Experiences and Products(1)
|
5,543
|
|
|
6,171
|
|
|
12,939
|
|
|
12,995
|
|
|
Studio Entertainment(1)
|
2,539
|
|
|
2,157
|
|
|
6,303
|
|
|
3,981
|
|
|
Direct-to-Consumer & International
|
4,123
|
|
|
1,145
|
|
|
8,110
|
|
|
2,063
|
|
|
|
|
|
|
|
|
|
|
|
Eliminations(2)
|
(1,453)
|
|
|
(234)
|
|
|
(3,103)
|
|
|
(418)
|
|
|
|
$
|
18,009
|
|
|
$
|
14,922
|
|
|
$
|
38,867
|
|
|
$
|
30,225
|
|
|
Segment operating income (loss):
|
|
|
|
|
|
|
|
|
Media Networks
|
$
|
2,375
|
|
|
$
|
2,230
|
|
|
$
|
4,005
|
|
|
$
|
3,560
|
|
|
Parks, Experiences and Products(1)
|
639
|
|
|
1,506
|
|
|
2,977
|
|
|
3,658
|
|
|
Studio Entertainment(1)
|
466
|
|
|
506
|
|
|
1,414
|
|
|
815
|
|
|
Direct-to-Consumer & International
|
(812)
|
|
|
(385)
|
|
|
(1,505)
|
|
|
(521)
|
|
|
|
|
|
|
|
|
|
|
|
Eliminations(2)
|
(252)
|
|
|
(41)
|
|
|
(473)
|
|
|
(41)
|
|
|
|
$
|
2,416
|
|
|
$
|
3,816
|
|
|
$
|
6,418
|
|
|
$
|
7,471
|
|
(1)The allocation of Parks, Experiences and Products revenues to Studio Entertainment was $117 million and $126 million for the quarters ended March 28, 2020 and March 30, 2019, respectively, and $301 million and $280 million for the six months ended March 28, 2020 and March 30, 2019, respectively.
THE WALT DISNEY COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited; tabular dollars in millions, except for per share data)
(2)Intersegment eliminations are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended
|
|
|
|
Six Months Ended
|
|
|
|
(in millions)
|
March 28,
2020
|
|
March 30,
2019
|
|
March 28,
2020
|
|
March 30,
2019
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Studio Entertainment:
|
|
|
|
|
|
|
|
|
Content transactions with Media
Networks
|
$
|
(58)
|
|
|
$
|
(13)
|
|
|
$
|
(111)
|
|
|
$
|
(34)
|
|
|
Content transactions with Direct-to-Consumer & International
|
(461)
|
|
|
(82)
|
|
|
(1,146)
|
|
|
(100)
|
|
|
Media Networks:
|
|
|
|
|
|
|
|
|
Content transactions with Direct-to-Consumer & International
|
(934)
|
|
|
(139)
|
|
|
(1,846)
|
|
|
(284)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(1,453)
|
|
|
$
|
(234)
|
|
|
$
|
(3,103)
|
|
|
$
|
(418)
|
|
|
|
|
|
|
|
|
|
|
|
Operating income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Studio Entertainment:
|
|
|
|
|
|
|
|
|
Content transactions with Media
Networks
|
$
|
(10)
|
|
|
$
|
5
|
|
|
$
|
(10)
|
|
|
$
|
5
|
|
|
Content transactions with Direct-to-Consumer & International
|
(157)
|
|
|
(46)
|
|
|
(273)
|
|
|
(44)
|
|
|
Media Networks:
|
|
|
|
|
|
|
|
|
Content transactions with Direct-to-Consumer & International
|
(85)
|
|
|
—
|
|
|
(190)
|
|
|
(2)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(252)
|
|
|
$
|
(41)
|
|
|
$
|
(473)
|
|
|
$
|
(41)
|
|
Equity in the income / (loss) of investees is included in segment operating income as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended
|
|
|
|
Six Months Ended
|
|
|
|
|
March 28,
2020
|
|
March 30,
2019
|
|
March 28,
2020
|
|
March 30,
2019
|
|
Media Networks
|
$
|
179
|
|
|
$
|
182
|
|
|
$
|
372
|
|
|
$
|
361
|
|
|
Parks, Experiences and Products
|
(6)
|
|
|
—
|
|
|
(9)
|
|
|
(12)
|
|
|
|
|
|
|
|
|
|
|
|
Direct-to-Consumer & International
|
(30)
|
|
|
(138)
|
|
|
12
|
|
|
(229)
|
|
|
Equity in the income of investees included in segment operating income
|
143
|
|
|
44
|
|
|
375
|
|
|
120
|
|
|
Vice impairment (1)
|
—
|
|
|
(353)
|
|
|
—
|
|
|
(353)
|
|
|
Amortization of TFCF intangible assets related to equity investees
|
(8)
|
|
|
—
|
|
|
(16)
|
|
|
—
|
|
|
Equity in the income / (loss) of investees, net
|
$
|
135
|
|
|
$
|
(309)
|
|
|
$
|
359
|
|
|
$
|
(233)
|
|
(1) Reflects the impairment of Vice Group Holdings, Inc.
THE WALT DISNEY COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited; tabular dollars in millions, except for per share data)
A reconciliation of segment operating income to income from continuing operations before income taxes is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended
|
|
|
|
Six Months Ended
|
|
|
|
|
March 28,
2020
|
|
March 30,
2019
|
|
March 28,
2020
|
|
March 30,
2019
|
|
Segment operating income
|
$
|
2,416
|
|
|
$
|
3,816
|
|
|
$
|
6,418
|
|
|
$
|
7,471
|
|
|
Corporate and unallocated shared expenses
|
(188)
|
|
|
(279)
|
|
|
(425)
|
|
|
(440)
|
|
|
Restructuring and impairment charges
|
(145)
|
|
|
(662)
|
|
|
(295)
|
|
|
(662)
|
|
|
Other income
|
—
|
|
|
4,963
|
|
|
—
|
|
|
4,963
|
|
|
Interest expense, net
|
(300)
|
|
|
(143)
|
|
|
(583)
|
|
|
(206)
|
|
|
Amortization of TFCF and Hulu intangible assets and fair value step-up on film and television costs(1)
|
(723)
|
|
|
(105)
|
|
|
(1,423)
|
|
|
(105)
|
|
|
Vice impairment
|
—
|
|
|
(353)
|
|
|
—
|
|
|
(353)
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations before income taxes
|
$
|
1,060
|
|
|
$
|
7,237
|
|
|
$
|
3,692
|
|
|
$
|
10,668
|
|
(1)For the quarter ended March 28, 2020 amortization of intangible assets, step-up of film and television costs and intangibles related to TFCF equity investees were $498 million, $217 million and $8 million, respectively. For the six months ended March 28, 2020 amortization of intangible assets, step-up of film and television costs and intangibles related to TFCF equity investees were $984 million, $423 million and $16 million, respectively. For the quarter and six months ended March 30, 2019 amortization of intangible assets and step-up of film and television costs were $73 million and $32 million, respectively.
3.Revenues
The Company has revenue recognition policies for its various operating segments that are appropriate to the circumstances of each business.
The following table presents our revenues by segment and major source:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended March 28, 2020
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Media
Networks
|
|
Parks, Experiences and Products
|
|
Studio
Entertainment
|
|
Direct-to-Consumer & International
|
|
|
|
Eliminations
|
|
Consolidated
|
|
Affiliate fees
|
$
|
3,746
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
957
|
|
|
|
|
$
|
(186)
|
|
|
$
|
4,517
|
|
|
Advertising
|
1,703
|
|
|
1
|
|
|
—
|
|
|
1,081
|
|
|
|
|
—
|
|
|
2,785
|
|
|
Theme park admissions
|
—
|
|
|
1,554
|
|
|
—
|
|
|
—
|
|
|
|
|
—
|
|
|
1,554
|
|
|
Resort and vacations
|
—
|
|
|
1,377
|
|
|
—
|
|
|
—
|
|
|
|
|
—
|
|
|
1,377
|
|
|
Retail and wholesale sales of merchandise, food and beverage
|
—
|
|
|
1,584
|
|
|
—
|
|
|
—
|
|
|
|
|
—
|
|
|
1,584
|
|
|
TV/SVOD distribution licensing
|
1,700
|
|
|
—
|
|
|
1,112
|
|
|
163
|
|
|
|
|
(1,267)
|
|
|
1,708
|
|
|
Theatrical distribution licensing
|
—
|
|
|
—
|
|
|
603
|
|
|
—
|
|
|
|
|
—
|
|
|
603
|
|
|
Merchandise licensing
|
—
|
|
|
591
|
|
|
117
|
|
|
8
|
|
|
|
|
—
|
|
|
716
|
|
|
Subscription fees
|
—
|
|
|
—
|
|
|
—
|
|
|
1,796
|
|
|
|
|
—
|
|
|
1,796
|
|
|
Home entertainment
|
—
|
|
|
—
|
|
|
427
|
|
|
19
|
|
|
|
|
—
|
|
|
446
|
|
|
Other
|
108
|
|
|
436
|
|
|
280
|
|
|
99
|
|
|
|
|
—
|
|
|
923
|
|
|
Total revenues
|
$
|
7,257
|
|
|
$
|
5,543
|
|
|
$
|
2,539
|
|
|
$
|
4,123
|
|
|
|
|
$
|
(1,453)
|
|
|
$
|
18,009
|
|
THE WALT DISNEY COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited; tabular dollars in millions, except for per share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended March 30, 2019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Media
Networks
|
|
Parks, Experiences and Products
|
|
Studio
Entertainment
|
|
Direct-to-Consumer & International
|
|
|
|
Eliminations
|
|
Consolidated
|
|
Affiliate fees
|
$
|
3,234
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
412
|
|
|
|
|
$
|
(12)
|
|
|
$
|
3,634
|
|
|
Advertising
|
1,624
|
|
|
1
|
|
|
—
|
|
|
454
|
|
|
|
|
—
|
|
|
2,079
|
|
|
Theme park admissions
|
—
|
|
|
1,768
|
|
|
—
|
|
|
—
|
|
|
|
|
—
|
|
|
1,768
|
|
|
Resort and vacations
|
—
|
|
|
1,503
|
|
|
—
|
|
|
—
|
|
|
|
|
—
|
|
|
1,503
|
|
|
Retail and wholesale sales of merchandise, food and beverage
|
—
|
|
|
1,768
|
|
|
—
|
|
|
—
|
|
|
|
|
—
|
|
|
1,768
|
|
|
TV/SVOD distribution licensing
|
745
|
|
|
—
|
|
|
718
|
|
|
23
|
|
|
|
|
(222)
|
|
|
1,264
|
|
|
Theatrical distribution licensing
|
—
|
|
|
—
|
|
|
752
|
|
|
—
|
|
|
|
|
—
|
|
|
752
|
|
|
Merchandise licensing
|
—
|
|
|
637
|
|
|
126
|
|
|
13
|
|
|
|
|
—
|
|
|
776
|
|
|
Subscription fees
|
—
|
|
|
—
|
|
|
—
|
|
|
153
|
|
|
|
|
—
|
|
|
153
|
|
|
Home entertainment
|
—
|
|
|
—
|
|
|
270
|
|
|
21
|
|
|
|
|
—
|
|
|
291
|
|
|
Other
|
80
|
|
|
494
|
|
|
291
|
|
|
69
|
|
|
|
|
—
|
|
|
934
|
|
|
Total revenues
|
$
|
5,683
|
|
|
$
|
6,171
|
|
|
$
|
2,157
|
|
|
$
|
1,145
|
|
|
|
|
$
|
(234)
|
|
|
$
|
14,922
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended March 28, 2020
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Media
Networks
|
|
Parks, Experiences and Products
|
|
Studio
Entertainment
|
|
Direct-to-Consumer & International
|
|
|
|
Eliminations
|
|
Consolidated
|
|
Affiliate fees
|
$
|
7,394
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
1,910
|
|
|
|
|
$
|
(360)
|
|
|
$
|
8,944
|
|
|
Advertising
|
3,726
|
|
|
3
|
|
|
—
|
|
|
2,448
|
|
|
|
|
—
|
|
|
6,177
|
|
|
Theme park admissions
|
—
|
|
|
3,621
|
|
|
—
|
|
|
—
|
|
|
|
|
—
|
|
|
3,621
|
|
|
Resort and vacations
|
—
|
|
|
3,008
|
|
|
—
|
|
|
—
|
|
|
|
|
—
|
|
|
3,008
|
|
|
Retail and wholesale sales of merchandise, food and beverage
|
—
|
|
|
3,897
|
|
|
—
|
|
|
—
|
|
|
|
|
—
|
|
|
3,897
|
|
|
TV/SVOD distribution licensing
|
3,238
|
|
|
—
|
|
|
2,474
|
|
|
366
|
|
|
|
|
(2,743)
|
|
|
3,335
|
|
|
Theatrical distribution licensing
|
—
|
|
|
—
|
|
|
2,011
|
|
|
—
|
|
|
|
|
—
|
|
|
2,011
|
|
|
Merchandise licensing
|
—
|
|
|
1,455
|
|
|
301
|
|
|
16
|
|
|
|
|
—
|
|
|
1,772
|
|
|
Subscription fees
|
—
|
|
|
—
|
|
|
—
|
|
|
3,122
|
|
|
|
|
—
|
|
|
3,122
|
|
|
Home entertainment
|
—
|
|
|
—
|
|
|
938
|
|
|
46
|
|
|
|
|
—
|
|
|
984
|
|
|
Other
|
260
|
|
|
955
|
|
|
579
|
|
|
202
|
|
|
|
|
—
|
|
|
1,996
|
|
|
Total revenues
|
$
|
14,618
|
|
|
$
|
12,939
|
|
|
$
|
6,303
|
|
|
$
|
8,110
|
|
|
|
|
$
|
(3,103)
|
|
|
$
|
38,867
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended March 30, 2019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Media
Networks
|
|
Parks, Experiences and Products
|
|
Studio
Entertainment
|
|
Direct-to-Consumer & International
|
|
|
|
Eliminations
|
|
Consolidated
|
|
Affiliate fees
|
$
|
6,309
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
735
|
|
|
|
|
$
|
(12)
|
|
|
$
|
7,032
|
|
|
Advertising
|
3,647
|
|
|
3
|
|
|
—
|
|
|
871
|
|
|
|
|
—
|
|
|
4,521
|
|
|
Theme park admissions
|
—
|
|
|
3,701
|
|
|
—
|
|
|
—
|
|
|
|
|
—
|
|
|
3,701
|
|
|
Resort and vacations
|
—
|
|
|
3,034
|
|
|
—
|
|
|
—
|
|
|
|
|
—
|
|
|
3,034
|
|
|
Retail and wholesale sales of merchandise, food and beverage
|
—
|
|
|
3,890
|
|
|
—
|
|
|
—
|
|
|
|
|
—
|
|
|
3,890
|
|
|
TV/SVOD distribution licensing
|
1,467
|
|
|
—
|
|
|
1,323
|
|
|
57
|
|
|
|
|
(406)
|
|
|
2,441
|
|
|
Theatrical distribution licensing
|
—
|
|
|
—
|
|
|
1,125
|
|
|
—
|
|
|
|
|
—
|
|
|
1,125
|
|
|
Merchandise licensing
|
—
|
|
|
1,378
|
|
|
280
|
|
|
28
|
|
|
|
|
—
|
|
|
1,686
|
|
|
Subscription fees
|
—
|
|
|
—
|
|
|
—
|
|
|
186
|
|
|
|
|
—
|
|
|
186
|
|
|
Home entertainment
|
—
|
|
|
—
|
|
|
695
|
|
|
49
|
|
|
|
|
—
|
|
|
744
|
|
|
Other
|
181
|
|
|
989
|
|
|
558
|
|
|
137
|
|
|
|
|
—
|
|
|
1,865
|
|
|
Total revenues
|
$
|
11,604
|
|
|
$
|
12,995
|
|
|
$
|
3,981
|
|
|
$
|
2,063
|
|
|
|
|
$
|
(418)
|
|
|
$
|
30,225
|
|
THE WALT DISNEY COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited; tabular dollars in millions, except for per share data)
The following table presents our revenues by segment and primary geographical markets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended March 28, 2020
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Media
Networks
|
|
Parks, Experiences and Products
|
|
Studio
Entertainment
|
|
Direct-to-Consumer & International
|
|
|
|
Eliminations
|
|
Consolidated
|
|
United States and Canada
|
$
|
6,805
|
|
|
$
|
4,567
|
|
|
$
|
1,264
|
|
|
$
|
2,408
|
|
|
|
|
$
|
(1,207)
|
|
|
$
|
13,837
|
|
|
Europe
|
383
|
|
|
523
|
|
|
714
|
|
|
436
|
|
|
|
|
(172)
|
|
|
1,884
|
|
|
Asia Pacific
|
49
|
|
|
405
|
|
|
399
|
|
|
657
|
|
|
|
|
(12)
|
|
|
1,498
|
|
|
Latin America
|
20
|
|
|
48
|
|
|
162
|
|
|
622
|
|
|
|
|
(62)
|
|
|
790
|
|
|
Total revenues
|
$
|
7,257
|
|
|
$
|
5,543
|
|
|
$
|
2,539
|
|
|
$
|
4,123
|
|
|
|
|
$
|
(1,453)
|
|
|
$
|
18,009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended March 30, 2019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Media
Networks
|
|
Parks, Experiences and Products
|
|
Studio
Entertainment
|
|
Direct-to-Consumer & International
|
|
|
|
Eliminations
|
|
Consolidated
|
|
United States and Canada
|
$
|
5,438
|
|
|
$
|
4,689
|
|
|
$
|
1,074
|
|
|
$
|
320
|
|
|
|
|
$
|
(205)
|
|
|
$
|
11,316
|
|
|
Europe
|
148
|
|
|
631
|
|
|
576
|
|
|
184
|
|
|
|
|
(23)
|
|
|
1,516
|
|
|
Asia Pacific
|
69
|
|
|
800
|
|
|
388
|
|
|
245
|
|
|
|
|
(6)
|
|
|
1,496
|
|
|
Latin America
|
28
|
|
|
51
|
|
|
119
|
|
|
396
|
|
|
|
|
—
|
|
|
594
|
|
|
Total revenues
|
$
|
5,683
|
|
|
$
|
6,171
|
|
|
$
|
2,157
|
|
|
$
|
1,145
|
|
|
|
|
$
|
(234)
|
|
|
$
|
14,922
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended March 28, 2020
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Media
Networks
|
|
Parks, Experiences and Products
|
|
Studio
Entertainment
|
|
Direct-to-Consumer & International
|
|
|
|
Eliminations
|
|
Consolidated
|
|
United States and Canada
|
$
|
13,746
|
|
|
$
|
10,275
|
|
|
$
|
3,245
|
|
|
$
|
4,568
|
|
|
|
|
$
|
(2,671)
|
|
|
$
|
29,163
|
|
|
Europe
|
590
|
|
|
1,415
|
|
|
1,687
|
|
|
922
|
|
|
|
|
(234)
|
|
|
4,380
|
|
|
Asia Pacific
|
195
|
|
|
1,137
|
|
|
1,024
|
|
|
1,364
|
|
|
|
|
(136)
|
|
|
3,584
|
|
|
Latin America
|
87
|
|
|
112
|
|
|
347
|
|
|
1,256
|
|
|
|
|
(62)
|
|
|
1,740
|
|
|
Total revenues
|
$
|
14,618
|
|
|
$
|
12,939
|
|
|
$
|
6,303
|
|
|
$
|
8,110
|
|
|
|
|
$
|
(3,103)
|
|
|
$
|
38,867
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended March 30, 2019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Media
Networks
|
|
Parks, Experiences and Products
|
|
Studio
Entertainment
|
|
Direct-to-Consumer & International
|
|
|
|
Eliminations
|
|
Consolidated
|
|
United States and Canada
|
$
|
11,126
|
|
|
$
|
9,831
|
|
|
$
|
2,112
|
|
|
$
|
545
|
|
|
|
|
$
|
(369)
|
|
|
$
|
23,245
|
|
|
Europe
|
290
|
|
|
1,485
|
|
|
989
|
|
|
373
|
|
|
|
|
(38)
|
|
|
3,099
|
|
|
Asia Pacific
|
132
|
|
|
1,562
|
|
|
674
|
|
|
379
|
|
|
|
|
(11)
|
|
|
2,736
|
|
|
Latin America
|
56
|
|
|
117
|
|
|
206
|
|
|
766
|
|
|
|
|
—
|
|
|
1,145
|
|
|
Total revenues
|
$
|
11,604
|
|
|
$
|
12,995
|
|
|
$
|
3,981
|
|
|
$
|
2,063
|
|
|
|
|
$
|
(418)
|
|
|
$
|
30,225
|
|
Revenues recognized in the current and prior-year periods from performance obligations satisfied (or partially satisfied) in previous reporting periods primarily relate to revenues earned on TV/SVOD and theatrical distribution licensee sales on titles made available to the licensee in previous reporting periods. For the quarter ended March 28, 2020, $733 million was recognized related to performance obligations satisfied as of December 28, 2019. For the six months ended March 28, 2020, $771 million was recognized related to performance obligations satisfied as of September 28, 2019. For the quarter ended March 30, 2019, $363 million was recognized related to performance obligations satisfied as of December 29, 2018. For the six months ended March 30, 2019, $408 million was recognized related to performance obligations satisfied as of September 29, 2018.
As of March 28, 2020, revenue for unsatisfied performance obligations expected to be recognized in the future is $17 billion, which primarily relates to content to be delivered in the future under existing agreements with television station affiliates and TV/SVOD licensees. Of this amount, we expect to recognize approximately $4 billion in the remainder of fiscal 2020, $5 billion in fiscal 2021, $4 billion in fiscal 2022 and $4 billion thereafter. These amounts include only fixed
THE WALT DISNEY COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited; tabular dollars in millions, except for per share data)
consideration or minimum guarantees and do not include amounts related to (i) contracts with an original expected term of one year or less (such as most advertising contracts) or (ii) licenses of IP that are solely based on the sales of the licensee.
When the timing of the Company’s revenue recognition is different from the timing of customer payments, the Company recognizes either a contract asset (customer payment is subsequent to revenue recognition and subject to the Company satisfying additional performance obligations) or deferred revenue (customer payment precedes the Company satisfying the performance obligations). Consideration due under contracts with payment in arrears is recognized as accounts receivable. Deferred revenues are recognized as (or when) the Company performs under the contract. Contract assets, accounts receivable and deferred revenues from contracts with customers are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 28,
2020
|
|
September 28,
2019
|
|
Contract assets
|
$
|
112
|
|
|
$
|
150
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts Receivable
|
|
|
|
|
Current
|
12,322
|
|
|
12,755
|
|
|
Non-current
|
1,737
|
|
|
1,962
|
|
|
Allowance for credit losses
|
(535)
|
|
|
(375)
|
|
|
Deferred revenues
|
|
|
|
|
Current
|
4,276
|
|
|
4,050
|
|
|
Non-current
|
636
|
|
|
619
|
|
Contract assets primarily relate to certain multi-season TV/SVOD licensing contracts. Activity for the current and prior-year quarters related to contract assets was not material. The allowance for credit losses increased from $375 million at September 28, 2019 to $535 million at March 28, 2020 due to additional provisions in the period.
For the quarter and six months ended March 28, 2020, the Company recognized revenues of $0.8 billion and $2.9 billion, respectively, primarily related to theme park admissions, vacation packages and licensing advances included in the deferred revenue balance at September 28, 2019. For the quarter and six months ended March 30, 2019, the Company recognized revenues of $0.7 billion and $2.3 billion, respectively, primarily related to theme park admissions and vacation packages included in the deferred revenue balance at September 30, 2018.
The Company has accounts receivable with original maturities greater than one year related to the sale of film and television program rights and vacation club properties.
The Company estimates the allowance for credit losses related to receivables from the sale of film and television programs based upon a number of factors, including historical experience and the financial condition of individual companies with which we do business. The balance of film and television program sales receivables recorded in other non-current assets, net of an immaterial allowance for credit losses, was $1.1 billion as of March 28, 2020. The activity in the allowance for credit loss for the quarter and six-month period ended March 28, 2020 was not material.
The Company estimates the allowance for credit losses related to receivables from sales of its vacation club properties based primarily on historical collection experience. Estimates of uncollectible amounts also consider the economic environment and the age of receivables. The balance of mortgage receivables recorded in other non-current assets, net of an immaterial allowance for credit losses, was $0.8 billion as of March 28, 2020. The activity in the allowance for credit loss for the quarter and six-month period ended March 28, 2020 was not material.
The Company has $14.1 billion in trade accounts receivable outstanding at March 28, 2020, with an allowance for credit losses of $0.5 billion. We evaluate our allowance for credit losses and estimate collectability of accounts receivable based on our analysis of historical bad debt experience in conjunction with our assessment of the financial condition of individual companies with which we do business. In times of domestic or global 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.
4.Acquisitions
TFCF Corporation
On March 20, 2019, the Company acquired the outstanding capital stock of TFCF, a diversified global media and entertainment company. The acquisition purchase price totaled $69.5 billion, of which the Company paid $35.7 billion in cash and $33.8 billion in Disney shares (307 million shares at a price of $110.00 per share).
THE WALT DISNEY COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited; tabular dollars in millions, except for per share data)
As part of the TFCF acquisition, the Company acquired TFCF’s 30% interest in Hulu increasing our ownership in Hulu to 60%. As a result, the Company began consolidating Hulu and recorded a one-time gain of $4.9 billion (Hulu gain) in the prior-year quarter from remeasuring our initial 30% interest to its estimated fair value, which was determined based on a discounted cash flow analysis.
The Company is required to allocate the TFCF purchase price to tangible and identifiable intangible assets acquired and liabilities assumed based on their fair values. The excess of the purchase price over those fair values is recorded as goodwill.
The following table summarizes our final allocation of the purchase price:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Initial Allocation(1)
|
|
Valuation Adjustments
|
|
Final Allocation
|
|
Cash and cash equivalents
|
$
|
25,666
|
|
|
$
|
35
|
|
|
$
|
25,701
|
|
|
Receivables
|
4,746
|
|
|
350
|
|
|
5,096
|
|
|
Film and television costs
|
20,120
|
|
|
(2,380)
|
|
|
17,740
|
|
|
Investments
|
1,471
|
|
|
(509)
|
|
|
962
|
|
|
Intangible assets
|
20,385
|
|
|
(2,504)
|
|
|
17,881
|
|
|
Net assets held for sale
|
11,704
|
|
|
(348)
|
|
|
11,356
|
|
|
Accounts payable and other liabilities
|
(10,753)
|
|
|
(1,776)
|
|
|
(12,529)
|
|
|
Borrowings
|
(21,723)
|
|
|
—
|
|
|
(21,723)
|
|
|
Deferred income taxes
|
(6,497)
|
|
|
1,397
|
|
|
(5,100)
|
|
|
Other net liabilities acquired
|
(3,865)
|
|
|
(114)
|
|
|
(3,979)
|
|
|
Noncontrolling interests
|
(10,638)
|
|
|
230
|
|
|
(10,408)
|
|
|
Goodwill
|
43,751
|
|
|
5,496
|
|
|
49,247
|
|
|
Fair value of net assets acquired
|
74,367
|
|
|
(123)
|
|
|
74,244
|
|
|
Less: Disney’s previously held 30% interest in Hulu
|
(4,860)
|
|
|
123
|
|
|
(4,737)
|
|
|
Total purchase price
|
$
|
69,507
|
|
|
$
|
—
|
|
|
$
|
69,507
|
|
(1)As reported in our March 30, 2019 Form 10-Q.
These adjustments to the initial allocation are based on more detailed information obtained about the specific assets acquired and liabilities assumed. The adjustments made to the initial allocation during the current quarter did not result in any material net changes to amortization expense recorded in prior quarters.
The following table summarizes the revenues and net loss from continuing operations (including purchase accounting amortization and excluding restructuring and impairment charges and interest income and expense) of TFCF and Hulu included in the Company’s Condensed Consolidated Statement of Income for the quarter and six months ended March 28, 2020. In addition, the table provides the impact of intercompany eliminations of transactions between the Company, TFCF and Hulu:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter
|
|
Six Months
|
|
TFCF (before intercompany eliminations):
|
|
|
|
|
Revenues
|
$
|
3,483
|
|
|
$
|
6,853
|
|
|
Net loss from continuing operations
|
(201)
|
|
|
(236)
|
|
|
Hulu (before intercompany eliminations):
|
|
|
|
|
Revenues
|
$
|
1,659
|
|
|
$
|
3,284
|
|
|
Net loss from continuing operations
|
(287)
|
|
|
(603)
|
|
|
Intercompany eliminations:
|
|
|
|
|
Revenues
|
$
|
(793)
|
|
|
$
|
(1,392)
|
|
|
Net loss from continuing operations
|
(83)
|
|
|
(131)
|
|
The revenues and net loss from continuing operations (including purchase accounting amortization) of TFCF and Hulu included in the Company’s Condensed Consolidated Statement of Income for the quarter and six-months ended March 30, 2019 are $518 million and $115 million, respectively (from the date of acquisition through March 30, 2019).
THE WALT DISNEY COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited; tabular dollars in millions, except for per share data)
The following pro forma summary presents consolidated information of the Company for the six months ended March 30, 2019 as if the acquisition had occurred on October 1, 2017:
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
38,598
|
|
|
Net income
|
|
4,171
|
|
|
Net income attributable to Disney
|
|
4,240
|
|
|
Earnings per share attributable to Disney:
|
|
|
|
Diluted
|
|
$
|
2.35
|
|
|
Basic
|
|
$
|
2.36
|
|
The pro forma earnings exclude the Hulu gain, compensation expense of $0.2 billion related to TFCF equity awards that were accelerated to vest upon closing of the acquisition and $0.3 billion of acquisition-related expenses. These amounts were recognized by Disney and TFCF in the six months ended March 30, 2019.
The pro forma results exclude a $10.8 billion gain on sale recorded by TFCF for the six months ended March 30, 2019 related to its 39% interest in Sky plc, which was sold by TFCF in October 2018. The pro forma results include $0.3 billion of net income recorded by TFCF for the six months ended March 30, 2019 related to the TFCF businesses that we are required to divest as a condition of the acquisition.
These pro forma results do not represent financial results that would have been realized had the acquisition actually occurred on October 1, 2017, nor are they intended to be a projection of future results.
Goodwill
The changes in the carrying amount of goodwill for the six months ended March 28, 2020 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Media
Networks
|
|
Parks, Experiences and Products
|
Studio
Entertainment
|
|
|
|
|
|
|
Direct-to-Consumer & International
|
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at September 28, 2019
|
$
|
33,423
|
|
|
$
|
5,535
|
|
|
$
|
17,797
|
|
|
|
|
|
|
$
|
23,538
|
|
|
|
|
$
|
80,293
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquisitions (1)
|
133
|
|
|
2
|
|
|
15
|
|
|
|
|
|
|
10
|
|
|
|
|
160
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Currency translation adjustments and other, net
|
—
|
|
|
—
|
|
|
—
|
|
|
|
|
|
|
(133)
|
|
|
|
|
(133)
|
|
|
Balance at March 28, 2020
|
|
$
|
33,556
|
|
|
$
|
5,537
|
|
|
$
|
17,812
|
|
|
|
|
|
|
$
|
23,415
|
|
|
|
|
$
|
80,320
|
|
(1) Reflects updates to allocation of purchase price for the acquisition of TFCF.
5.Other Income
Other income is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended
|
|
|
|
Six Months Ended
|
|
|
|
|
March 28,
2020
|
|
March 30,
2019
|
|
March 28,
2020
|
|
March 30,
2019
|
|
Hulu gain
|
$
|
—
|
|
|
$
|
4,917
|
|
|
$
|
—
|
|
|
$
|
4,917
|
|
|
Insurance recovery related to a legal matter
|
—
|
|
|
46
|
|
|
—
|
|
|
46
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income
|
$
|
—
|
|
|
$
|
4,963
|
|
|
$
|
—
|
|
|
$
|
4,963
|
|
THE WALT DISNEY COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited; tabular dollars in millions, except for per share data)
6.Cash, Cash Equivalents, Restricted Cash and Borrowings
Cash, Cash Equivalents and Restricted Cash
The following table provides a reconciliation of cash, cash equivalents and restricted cash reported in the Condensed Consolidated Balance Sheet to the total of the amounts reported in the Condensed Consolidated Statements of Cash Flows.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 28,
2020
|
|
September 28,
2019
|
|
Cash and cash equivalents
|
|
$
|
14,339
|
|
|
$
|
5,418
|
|
|
Restricted cash included in:
|
|
|
|
|
|
Other current assets
|
|
1
|
|
|
26
|
|
|
Other assets
|
|
38
|
|
|
11
|
|
|
|
|
|
|
|
|
Total cash, cash equivalents and restricted cash in the statement of cash flows
|
|
$
|
14,378
|
|
|
$
|
5,455
|
|
Borrowings
During the six months ended March 28, 2020, the Company’s borrowing activity was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 28,
2019
|
|
Borrowings
|
|
Payments
|
|
|
|
Other
Activity
|
|
March 28,
2020
|
|
Commercial paper with original maturities less than three months(1)
|
$
|
1,934
|
|
|
$
|
1,598
|
|
|
$
|
—
|
|
|
|
|
$
|
(11)
|
|
|
$
|
3,521
|
|
|
Commercial paper with original maturities greater than three months
|
3,408
|
|
|
5,920
|
|
|
(4,380)
|
|
|
|
|
14
|
|
|
4,962
|
|
|
U.S. dollar denominated notes
|
39,424
|
|
|
5,981
|
|
|
(1,008)
|
|
|
|
|
(108)
|
|
|
44,289
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asia Theme Parks borrowings
|
1,114
|
|
|
39
|
|
|
—
|
|
|
|
|
32
|
|
|
1,185
|
|
|
Foreign currency denominated debt and other(2)
|
1,106
|
|
|
51
|
|
|
(40)
|
|
|
|
|
372
|
|
|
1,489
|
|
|
|
$
|
46,986
|
|
|
$
|
13,589
|
|
|
$
|
(5,428)
|
|
|
|
|
$
|
299
|
|
|
$
|
55,446
|
|
(1)Borrowings and reductions of borrowings are reported net.
(2)The other activity is due to market value adjustments for debt with qualifying hedges, partially offset by the impact of changes in foreign currency exchange rates.
The Company has bank facilities with a syndicate of lenders to support commercial paper borrowings. In March 2020, the Company refinanced two bank facilities with previously committed capacity of $6.0 billion and $2.25 billion, which were scheduled to expire in March 2020 and March 2021, respectively. The new bank facilities are for $5.25 billion and $3.0 billion and are scheduled to expire in March 2021 and 2025, respectively. At March 28, 2020, the Company’s bank facilities were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Committed
Capacity
|
|
Capacity
Used
|
|
Unused
Capacity
|
|
Facility expiring March 2021
|
$
|
5,250
|
|
|
$
|
—
|
|
|
$
|
5,250
|
|
|
Facility expiring March 2023
|
4,000
|
|
|
—
|
|
|
4,000
|
|
|
Facility expiring March 2025
|
3,000
|
|
|
—
|
|
|
3,000
|
|
|
Total
|
$
|
12,250
|
|
|
$
|
—
|
|
|
$
|
12,250
|
|
All of the above bank facilities allow for borrowings at LIBOR-based rates plus a spread depending on the credit default swap spread applicable to the Company’s debt, subject to a cap and floor that vary with the Company’s debt rating assigned by Moody’s Investors Service and Standard & Poor’s. The spread above LIBOR can range from 0.18% to 1.63%. The bank facilities specifically exclude certain entities, including the Asia Theme Parks, from any representations, covenants or events of default. The bank facilities contain only one financial covenant, which is interest coverage of three times earnings before interest, taxes, depreciation and amortization, including both intangible amortization and amortization of our film and television production and programming costs. On March 28, 2020 the financial covenant was met by a significant margin. The Company also has the ability to issue up to $500 million of letters of credit under the facility expiring in March 2023, which if utilized, reduces available borrowings under this facility. As of March 28, 2020, the Company has $1.0 billion of outstanding letters of credit, of which none were issued under this facility.
THE WALT DISNEY COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited; tabular dollars in millions, except for per share data)
In April 2020, the Company entered into an additional $5.0 billion bank facility expiring in April 2021 with substantially similar terms as the Company’s other bank facilities. The facility allows for borrowings at LIBOR-based rates plus a spread that ranges between 1.025% and 1.800%.
Foreign Currency Denominated Debt
Subsequent to March 28, 2020, the Company issued Canadian $1.3 billion ($925 million) of fixed rate senior notes, which bear interest at 3.057% and mature in March 2027.
Cruise Ship Credit Facilities
The Company has credit facilities to finance three new cruise ships, which were to be delivered in 2021, 2022 and 2023 although delays are now expected as a result of the COVID-19 impact on the shipyard. The financings may be used for up to 80% of the contract price of the cruise ships. Under the agreements, $1.0 billion in financing is available beginning in April 2021, $1.1 billion is available beginning in May 2022 and $1.1 billion is available beginning in April 2023. Each tranche of financing may be utilized for a period of 18 months from the initial availability date. If utilized, the interest rates will be fixed at 3.48%, 3.72% and 3.74%, respectively, and the loans and interest will be payable semi-annually over a 12-year period from the borrowing date. Early repayment is permitted subject to cancellation fees.
Interest expense, net
Interest expense (net of amounts capitalized), interest and investment income, and net periodic pension and postretirement benefit costs (other than service costs) (see Note 10) are reported net in the Condensed Consolidated Statements of Income and consist of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended
|
|
|
|
Six Months Ended
|
|
|
|
|
March 28,
2020
|
|
March 30,
2019
|
|
March 28,
2020
|
|
March 30,
2019
|
|
Interest expense
|
$
|
(365)
|
|
|
$
|
(198)
|
|
|
$
|
(727)
|
|
|
$
|
(361)
|
|
|
Interest and investment income
|
63
|
|
|
30
|
|
|
139
|
|
|
105
|
|
|
Net periodic pension and postretirement benefit costs (other than service costs)
|
2
|
|
|
25
|
|
|
5
|
|
|
50
|
|
|
Interest expense, net
|
$
|
(300)
|
|
|
$
|
(143)
|
|
|
$
|
(583)
|
|
|
$
|
(206)
|
|
Interest and investment income includes gains and losses on publicly traded and non-public investments, investment impairments and interest earned on cash and cash equivalents and certain receivables.
7.International Theme Parks
The Company has a 47% ownership interest in the operations of Hong Kong Disneyland Resort and a 43% ownership interest in the operations of Shanghai Disney Resort. The Asia Theme Parks together with Disneyland Paris are collectively referred to as the International Theme Parks.
The following table summarizes the carrying amounts of the Asia Theme Parks’ assets and liabilities included in the Company’s Condensed Consolidated Balance Sheets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 28, 2020
|
|
September 28, 2019
|
|
Cash and cash equivalents
|
$
|
423
|
|
|
$
|
655
|
|
|
Other current assets
|
104
|
|
|
102
|
|
|
Total current assets
|
527
|
|
|
757
|
|
|
Parks, resorts and other property
|
6,593
|
|
|
6,608
|
|
|
Other assets
|
180
|
|
|
9
|
|
|
Total assets
|
$
|
7,300
|
|
|
$
|
7,374
|
|
|
|
|
|
|
|
Current liabilities
|
$
|
373
|
|
|
$
|
447
|
|
|
Long-term borrowings
|
1,146
|
|
|
1,114
|
|
|
Other long-term liabilities
|
366
|
|
|
189
|
|
|
Total liabilities
|
$
|
1,885
|
|
|
$
|
1,750
|
|
THE WALT DISNEY COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited; tabular dollars in millions, except for per share data)
The following table summarizes the International Theme Parks’ revenues and costs and expenses included in the Company’s Condensed Consolidated Statement of Income for the six months ended March 28, 2020:
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
$
|
1,274
|
|
|
Costs and expenses
|
(1,691)
|
|
|
Equity in the loss of investees
|
(9)
|
|
Asia Theme Parks’ royalty and management fees of $41 million for the six months ended March 28, 2020 are eliminated in consolidation, but are considered in calculating earnings attributable to noncontrolling interests.
International Theme Parks’ cash flows included in the Company’s Condensed Consolidated Statement of Cash Flows for the six months ended March 28, 2020 were $148 million used in operating activities, $439 million used in investing activities and $92 million generated from financing activities. The majority of cash flows used in operating activities, approximately half of the cash flows used in investing activities, and all of the cash flows generated from financing activities were for the Asia Theme Parks.
Hong Kong Disneyland Resort
The Government of the Hong Kong Special Administrative Region (HKSAR) and the Company have a 53% and a 47% equity interest in Hong Kong Disneyland Resort, respectively.
The Company and HKSAR have both provided loans to Hong Kong Disneyland Resort with outstanding balances of $146 million and $97 million, respectively. The interest rate is three month HIBOR plus 2%, and the maturity date is September 2025. The Company’s loan is eliminated in consolidation.
The Company has provided Hong Kong Disneyland Resort with a revolving credit facility of HK $2.1 billion ($271 million), which bears interest at a rate of three month HIBOR plus 1.25% and matures in December 2023. There is no outstanding balance under the line of credit at March 28, 2020.
Shanghai Disney Resort
Shanghai Shendi (Group) Co., Ltd (Shendi) and the Company have 57% and 43% equity interests in Shanghai Disney Resort, respectively. A management company, in which the Company has a 70% interest and Shendi a 30% interest, operates Shanghai Disney Resort.
The Company has provided Shanghai Disney Resort with loans totaling $848 million, bearing interest at rates up to 8% and maturing in 2036, with early repayment permitted. The Company has also provided Shanghai Disney Resort with a $157 million line of credit bearing interest at 8%. As of March 28, 2020, the total amount outstanding under the line of credit was $29 million. These balances are eliminated in consolidation.
Shendi has provided Shanghai Disney Resort with loans totaling 7.4 billion yuan (approximately $1.0 billion), bearing interest at rates up to 8% and maturing in 2036, with early repayment permitted. Shendi has also provided Shanghai Disney Resort with a 1.4 billion yuan (approximately $0.2 billion) line of credit bearing interest at 8%. As of March 28, 2020 the total amount outstanding under the line of credit was 0.3 billion yuan (approximately $39 million).
8.Produced and Acquired/Licensed Content Costs and Advances
At the beginning of fiscal 2020, the Company adopted, on a prospective basis, new Financial Accounting Standards Board (FASB) guidance that updates the accounting for film and television content costs. Therefore, reporting periods beginning after September 29, 2019 are presented under the new guidance, while prior periods continue to be reported in accordance with our historical accounting. The new guidance does the following:
•Allows for the classification of acquired/licensed television content rights as long-term assets. Previously, we reported a portion of these rights in current assets. The Company has classified approximately $3 billion of these rights as long-term in the Q1 2020 balance sheet. Advances for live programming rights made prior to the live event continue to be reported in current assets.
•Aligns the capitalization of production costs for episodic television content with the capitalization of production costs for theatrical content. Previously, theatrical content production costs could be fully capitalized while episodic television production costs were generally limited to the amount of contracted revenues. We do not expect this change to have a material impact on the Company’s financial statements for fiscal year 2020.
•Introduces the concept of “predominant monetization strategy” to classify capitalized content costs for purposes of amortization and impairment as follows:
THE WALT DISNEY COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited; tabular dollars in millions, except for per share data)
•Individual - lifetime value is predominantly derived from third-party revenues that are directly attributable to the specific film or television title (e.g. theatrical revenues or sales to third-party television programmers).
•Group - lifetime value is predominantly derived from third-party revenues that are attributable only to a bundle of titles (e.g. subscription revenue for a DTC service or affiliate fees for a cable television network).
The determination of the predominant monetization strategy is made at commencement of production on a consolidated basis and is based on the means by which we derive third-party revenues from use of the content. Imputed title by title intersegment license fees that may be necessary for other purposes are established as required by those purposes.
For these accounting purposes, we generally classify content that is initially intended for use on our DTC services or on our linear television networks as group assets. Content initially intended for theatrical release or for sale to third-party licensees, we generally classify as individual assets. Because the new accounting guidance is applied prospectively, the predominant monetization strategy for content released prior to the beginning of fiscal 2020 is determined based on the expected means of monetization over the remaining life of the content. Thus for example, film titles that were released theatrically and in home entertainment prior to fiscal year 2020 and are now distributed on Disney+ are generally considered group content.
The classification of content as individual or group only changes if there is a significant change to the title’s monetization strategy relative to its initial assessment (e.g. content that was initially intended for license to a third-party is instead used on an owned DTC service).
Production costs for content predominantly individually monetized will continue to be amortized based upon the ratio of the current period’s revenues to the estimated remaining total revenues (Ultimate Revenues). For film productions, Ultimate Revenues include revenues from all sources, which may include intersegment license fees, that will be earned within ten years from the date of the initial release for theatrical films. For episodic television series, Ultimate Revenues include revenues that will be earned within ten years from delivery of the first episode, or if still in production, five years from delivery of the most recent episode, if later.
Production costs predominantly monetized as a group are amortized based on projected usage (which may be, for example, derived from historical viewership patterns), typically resulting in an accelerated or straight-line amortization pattern.
Licensed rights to film and television content and other programs for broadcast on our linear networks or distribution on our DTC services are expensed on an accelerated or straight-line basis over their useful life or over the number of times the program is expected to be aired, as appropriate. We amortize rights costs for multi-year sports programming arrangements during the applicable seasons based on the estimated relative value of each year in the arrangement. If annual contractual payments related to each season approximate each season’s estimated relative value, we expense the related contractual payments during the applicable season.
The costs of produced and licensed film and television content are subject to regular recoverability assessments. For content that is predominantly monetized individually, the unamortized costs are compared to the estimated fair value. The fair value is determined based on a discounted cash flow analysis of the cash flows directly attributable to the title. To the extent the unamortized costs exceed the fair value, an impairment charge is recorded for the excess. For content that is predominantly monetized as a group, the aggregate unamortized costs of the group are compared to the present value of the discounted cash flows using the lowest level for which identifiable cash flows are independent of other produced and licensed content. If the unamortized costs exceed the present value of discounted cash flows, an impairment charge is recorded for the excess and allocated to individual titles based on the relative carrying value of each title in the group. If there are no plans to continue to use an individual film or television program that is part of a group, the unamortized cost of the individual title is written-off immediately. Licensed content is included as part of the group within which it is monetized for purposes of assessing recoverability.
THE WALT DISNEY COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited; tabular dollars in millions, except for per share data)
Total capitalized produced and licensed content by predominant monetization strategy is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of March 28, 2020
|
|
|
|
|
|
|
Predominantly Monetized Individually
|
|
Predominantly Monetized as a Group
|
|
Total
|
|
Produced content
|
|
|
|
|
|
|
Theatrical film costs
|
|
|
|
|
|
|
Released, less amortization
|
$
|
3,515
|
|
|
$
|
2,477
|
|
|
$
|
5,992
|
|
|
Completed, not released
|
452
|
|
|
59
|
|
|
511
|
|
|
In-process
|
3,194
|
|
|
268
|
|
|
3,462
|
|
|
In development or pre-production
|
399
|
|
|
1
|
|
|
400
|
|
|
|
$
|
7,560
|
|
|
$
|
2,805
|
|
|
10,365
|
|
|
Television costs
|
|
|
|
|
|
|
Released, less amortization
|
$
|
2,920
|
|
|
$
|
6,377
|
|
|
$
|
9,297
|
|
|
Completed, not released
|
387
|
|
|
533
|
|
|
920
|
|
|
In-process
|
155
|
|
|
1,789
|
|
|
1,944
|
|
|
In development or pre-production
|
—
|
|
|
48
|
|
|
48
|
|
|
|
$
|
3,462
|
|
|
$
|
8,747
|
|
|
12,209
|
|
|
Licensed content - Television programming rights and advances
|
|
|
|
|
6,052
|
|
|
Total produced and licensed content
|
|
|
|
|
$
|
28,626
|
|
|
|
|
|
|
|
|
|
Current portion
|
|
|
|
|
$
|
1,869
|
|
|
Non-current portion
|
|
|
|
|
$
|
26,757
|
|
Amortization of produced and licensed content is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended March 28, 2020
|
|
|
|
|
|
|
Predominantly
Monetized
Individually
|
|
Predominantly
Monetized
as a Group
|
|
Total
|
|
Theatrical film costs
|
$
|
562
|
|
|
$
|
270
|
|
|
$
|
832
|
|
|
Television costs
|
740
|
|
|
1,081
|
|
|
1,821
|
|
|
Total produced content costs
|
$
|
1,302
|
|
|
$
|
1,351
|
|
|
2,653
|
|
|
Television programming rights and advances
|
|
|
|
|
2,453
|
|
|
Total produced and licensed content costs(1)
|
|
|
|
|
$
|
5,106
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended March 28, 2020
|
|
|
|
|
|
|
Predominantly
Monetized
Individually
|
|
Predominantly
Monetized
as a Group
|
|
Total
|
|
Theatrical film costs
|
$
|
1,088
|
|
|
$
|
581
|
|
|
|
$
|
1,669
|
|
|
Television costs
|
1,494
|
|
|
|
2,008
|
|
|
|
3,502
|
|
|
Total produced content costs
|
$
|
2,582
|
|
|
$
|
2,589
|
|
|
|
5,171
|
|
|
Television programming rights and advances
|
|
|
|
|
|
|
|
6,184
|
|
|
Total produced and licensed content costs(1)
|
|
|
|
|
|
|
|
$
|
11,355
|
|
(1)Primarily included in “Costs of services” in the Condensed Consolidated Statement of Income.
Amortization of produced and licensed content for the quarter and six months ended March 30, 2019 was $3.2 billion and $7.3 billion, respectively.
THE WALT DISNEY COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited; tabular dollars in millions, except for per share data)
9.Income Taxes
Interim Period Tax Expense
Because of COVID-19 implications on our projections of full-year pre-tax earnings and income tax expense, as well as the projected impact of permanent tax differences and other items that are generally not proportional to full-year earnings (“Permanent Differences”), our normal approach of using an estimated full-year effective income tax rate to determine interim period tax expense produces an income tax provision for the current year-to-date period that is not meaningful. Accordingly, we calculated year-to-date fiscal 2020 tax expense based on year-to-date earnings before tax and using a blended U.S. Federal and state statutory tax rate of approximately 23%, and adjusted for the estimated impact of Permanent Differences. The second quarter tax expense is the fiscal year-to-date tax expense less tax expense recognized in the first quarter.
Intra-Entity Transfers of Assets Other Than Inventory
At the beginning of fiscal 2019, the Company adopted new FASB accounting guidance that requires recognition of the income tax consequences of an intra-entity transfer of an asset (other than inventory) when the transfer occurs instead of when the asset is ultimately sold to an outside party. In the first quarter of fiscal 2019, the Company recorded a $0.1 billion deferred tax asset with an offsetting increase to retained earnings.
Unrecognized Tax Benefits
At March 28, 2020, the Company’s unrecognized tax benefits were $2.9 billion (before interest and penalties). The change for the six months ended March 28, 2020 was not material. In the next twelve months, it is reasonably possible that our unrecognized tax benefits could change due to resolutions of open tax matters. These resolutions would reduce our unrecognized tax benefits and income tax expense by $0.1 billion if recognized.
10.Pension and Other Benefit Programs
The components of net periodic benefit cost are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Plans
|
|
|
|
|
|
|
|
Postretirement Medical Plans
|
|
|
|
|
|
|
|
|
Quarter Ended
|
|
|
|
Six Months Ended
|
|
|
|
Quarter Ended
|
|
|
|
Six Months Ended
|
|
|
|
|
Mar. 28, 2020
|
|
Mar. 30, 2019
|
|
Mar. 28, 2020
|
|
Mar. 30, 2019
|
|
Mar. 28, 2020
|
|
Mar. 30, 2019
|
|
Mar. 28, 2020
|
|
Mar. 30, 2019
|
|
Service costs
|
$
|
102
|
|
|
$
|
83
|
|
|
$
|
205
|
|
|
$
|
166
|
|
|
$
|
2
|
|
|
$
|
2
|
|
|
$
|
5
|
|
|
$
|
4
|
|
|
Other costs (benefits):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest costs
|
133
|
|
|
144
|
|
|
266
|
|
|
289
|
|
|
14
|
|
|
17
|
|
|
28
|
|
|
33
|
|
|
Expected return on plan assets
|
(273)
|
|
|
(240)
|
|
|
(546)
|
|
|
(479)
|
|
|
(15)
|
|
|
(14)
|
|
|
(29)
|
|
|
(28)
|
|
|
Amortization of previously deferred service costs
|
4
|
|
|
4
|
|
|
7
|
|
|
7
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Recognized net actuarial loss
|
131
|
|
|
67
|
|
|
262
|
|
|
131
|
|
|
4
|
|
|
—
|
|
|
7
|
|
|
—
|
|
|
Total other costs (benefits)
|
(5)
|
|
|
(25)
|
|
|
(11)
|
|
|
(52)
|
|
|
3
|
|
|
3
|
|
|
6
|
|
|
5
|
|
|
Net periodic benefit cost
|
$
|
97
|
|
|
$
|
58
|
|
|
$
|
194
|
|
|
$
|
114
|
|
|
$
|
5
|
|
|
$
|
5
|
|
|
$
|
11
|
|
|
$
|
9
|
|
During the six months ended March 28, 2020, the Company did not make any material contributions to its pension and postretirement medical plans. The Company originally intended to make fiscal 2020 total pension and postretirement medical plan contributions of approximately $600 million to $675 million. However, in light of the COVID-19 impacts, contributions will be determined based on the funded status of the plans. The Company will receive its January 1, 2020 actuarial valuation in the fourth quarter of fiscal 2020, which will determine minimum funding requirements for fiscal 2020.
THE WALT DISNEY COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited; tabular dollars in millions, except for per share data)
11.Earnings Per Share
Diluted earnings per share amounts are based upon the weighted average number of common and common equivalent shares outstanding during the period and are calculated using the treasury stock method for equity-based compensation awards (Awards). A reconciliation of the weighted average number of common and common equivalent shares outstanding and the number of Awards excluded from the diluted earnings per share calculation, as they were anti-dilutive, are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended
|
|
|
|
Six Months Ended
|
|
|
|
|
March 28,
2020
|
|
March 30,
2019
|
|
March 28,
2020
|
|
March 30,
2019
|
|
Shares (in millions):
|
|
|
|
|
|
|
|
|
Weighted average number of common and common equivalent shares outstanding (basic)
|
1,808
|
|
|
1,530
|
|
|
1,806
|
|
|
1,510
|
|
|
Weighted average dilutive impact of Awards
|
8
|
|
|
7
|
|
|
10
|
|
|
7
|
|
|
Weighted average number of common and common equivalent shares outstanding (diluted)
|
1,816
|
|
|
1,537
|
|
|
1,816
|
|
|
1,517
|
|
|
Awards excluded from diluted earnings per share
|
9
|
|
|
14
|
|
|
9
|
|
|
13
|
|
12.Equity
The Company paid the following dividends in fiscal 2020 and 2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Per Share
|
|
Total Paid
|
|
Payment Timing
|
|
Related to Fiscal Period
|
|
$0.88
|
|
$1.6 billion
|
|
Second Quarter of Fiscal 2020
|
|
Second Half 2019
|
|
$0.88
|
|
$1.6 billion
|
|
Fourth Quarter of Fiscal 2019
|
|
First Half 2019
|
|
$0.88
|
|
$1.3 billion
|
|
Second Quarter of Fiscal 2019
|
|
Second Half 2018
|
|
|
|
|
|
|
|
|
The Board of Directors elected not to declare a dividend payable in July 2020 with respect to the first half of fiscal year 2020.
THE WALT DISNEY COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited; tabular dollars in millions, except for per share data)
The following tables summarize the changes in each component of accumulated other comprehensive income (loss) (AOCI) including our proportional share of equity method investee amounts:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrecognized
Pension and
Postretirement
Medical
Expense
|
|
Foreign
Currency
Translation
and Other
|
|
AOCI
|
|
|
Market Value Adjustments
|
|
|
|
|
|
|
|
|
|
AOCI, before tax
|
Investments
|
|
Cash Flow Hedges
|
|
|
|
|
|
|
|
Second quarter of fiscal 2020
|
|
|
|
|
|
|
|
|
|
|
Balance at December 28, 2019
|
$
|
—
|
|
|
$
|
(12)
|
|
|
$
|
(7,363)
|
|
|
$
|
(1,004)
|
|
|
$
|
(8,379)
|
|
|
Quarter Ended March 28, 2020:
|
|
|
|
|
|
|
|
|
|
|
Unrealized gains (losses) arising during the period
|
—
|
|
|
212
|
|
|
(43)
|
|
|
(364)
|
|
|
(195)
|
|
|
Reclassifications of realized net (gains) losses to net income
|
—
|
|
|
(42)
|
|
|
138
|
|
|
—
|
|
|
96
|
|
|
Balance at March 28, 2020
|
|
$
|
—
|
|
|
$
|
158
|
|
|
$
|
(7,268)
|
|
|
$
|
(1,368)
|
|
|
$
|
(8,478)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Second quarter of fiscal 2019
|
|
|
|
|
|
|
|
|
|
|
Balance at December 29, 2018
|
$
|
—
|
|
|
$
|
166
|
|
|
$
|
(4,254)
|
|
|
$
|
(743)
|
|
|
$
|
(4,831)
|
|
|
Quarter Ended March 30, 2019:
|
|
|
|
|
|
|
|
|
|
|
Unrealized gains (losses) arising during the period
|
(5)
|
|
|
(82)
|
|
|
19
|
|
|
15
|
|
|
(53)
|
|
|
Reclassifications of realized net (gains) losses to net income
|
—
|
|
|
(22)
|
|
|
72
|
|
|
—
|
|
|
50
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at March 30, 2019
|
|
$
|
(5)
|
|
|
$
|
62
|
|
|
$
|
(4,163)
|
|
|
$
|
(728)
|
|
|
$
|
(4,834)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six months ended fiscal 2020
|
|
|
|
|
|
|
|
|
|
|
Balance at September 28, 2019
|
$
|
—
|
|
|
$
|
129
|
|
|
$
|
(7,502)
|
|
|
$
|
(1,086)
|
|
|
$
|
(8,459)
|
|
|
Six Months Ended March 28, 2020:
|
|
|
|
|
|
|
|
|
|
|
Unrealized gains (losses) arising during the period
|
—
|
|
|
131
|
|
|
(43)
|
|
|
(282)
|
|
|
(194)
|
|
|
Reclassifications of realized net (gains) losses to net income
|
—
|
|
|
(102)
|
|
|
277
|
|
|
—
|
|
|
175
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at March 28, 2020
|
$
|
—
|
|
|
$
|
158
|
|
|
$
|
(7,268)
|
|
|
$
|
(1,368)
|
|
|
$
|
(8,478)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six months ended fiscal 2019
|
|
|
|
|
|
|
|
|
|
|
Balance at September 29, 2018
|
$
|
24
|
|
|
$
|
177
|
|
|
$
|
(4,323)
|
|
|
$
|
(727)
|
|
|
$
|
(4,849)
|
|
|
Six Months Ended March 30, 2019:
|
|
|
|
|
|
|
|
|
|
|
Unrealized gains (losses) arising during the period
|
(5)
|
|
|
(55)
|
|
|
19
|
|
|
(1)
|
|
|
(42)
|
|
|
Reclassifications of realized net (gains) losses to net income
|
—
|
|
|
(61)
|
|
|
141
|
|
|
—
|
|
|
80
|
|
|
Reclassifications to retained earnings
|
(24)
|
|
|
1
|
|
|
—
|
|
|
—
|
|
|
(23)
|
|
|
Balance at March 30, 2019
|
$
|
(5)
|
|
|
$
|
62
|
|
|
$
|
(4,163)
|
|
|
$
|
(728)
|
|
|
$
|
(4,834)
|
|
THE WALT DISNEY COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited; tabular dollars in millions, except for per share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrecognized
Pension and
Postretirement
Medical
Expense
|
|
Foreign
Currency
Translation
and Other
|
|
AOCI
|
|
|
Market Value Adjustments
|
|
|
|
|
|
|
|
|
|
Tax on AOCI
|
Investments
|
|
Cash Flow Hedges
|
|
|
|
|
|
|
|
Second quarter of fiscal 2020
|
|
|
|
|
|
|
|
|
|
|
Balance at December 28, 2019
|
$
|
—
|
|
|
$
|
5
|
|
|
$
|
1,724
|
|
|
$
|
117
|
|
|
$
|
1,846
|
|
|
Quarter Ended March 28, 2020:
|
|
|
|
|
|
|
|
|
|
|
Unrealized gains (losses) arising during the period
|
—
|
|
|
(51)
|
|
|
10
|
|
|
58
|
|
|
17
|
|
|
Reclassifications of realized net (gains) losses to net income
|
—
|
|
|
10
|
|
|
(32)
|
|
|
—
|
|
|
(22)
|
|
|
Balance at March 28, 2020
|
|
$
|
—
|
|
|
$
|
(36)
|
|
|
$
|
1,702
|
|
|
$
|
175
|
|
|
$
|
1,841
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Second quarter of fiscal 2019
|
|
|
|
|
|
|
|
|
|
|
Balance at December 29, 2018
|
$
|
—
|
|
|
$
|
(38)
|
|
|
$
|
1,007
|
|
|
$
|
80
|
|
|
$
|
1,049
|
|
|
Quarter Ended March 30, 2019:
|
|
|
|
|
|
|
|
|
|
|
Unrealized gains (losses) arising during the period
|
1
|
|
|
19
|
|
|
(6)
|
|
|
(3)
|
|
|
11
|
|
|
Reclassifications of realized net (gains) losses to net income
|
—
|
|
|
5
|
|
|
(17)
|
|
|
—
|
|
|
(12)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at March 30, 2019
|
|
$
|
1
|
|
|
$
|
(14)
|
|
|
$
|
984
|
|
|
$
|
77
|
|
|
$
|
1,048
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six months ended fiscal 2020
|
|
|
|
|
|
|
|
|
|
|
Balance at September 28, 2019
|
$
|
—
|
|
|
$
|
(29)
|
|
|
$
|
1,756
|
|
|
$
|
115
|
|
|
$
|
1,842
|
|
|
Six Months Ended March 28, 2020:
|
|
|
|
|
|
|
|
|
|
|
Unrealized gains (losses) arising during the period
|
—
|
|
|
(31)
|
|
|
10
|
|
|
60
|
|
|
39
|
|
|
Reclassifications of realized net (gains) losses to net income
|
—
|
|
|
24
|
|
|
(64)
|
|
|
—
|
|
|
(40)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at March 28, 2020
|
$
|
—
|
|
|
$
|
(36)
|
|
|
$
|
1,702
|
|
|
$
|
175
|
|
|
$
|
1,841
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six months ended fiscal 2019
|
|
|
|
|
|
|
|
|
|
|
Balance at September 29, 2018
|
$
|
(9)
|
|
|
$
|
(32)
|
|
|
$
|
1,690
|
|
|
$
|
103
|
|
|
$
|
1,752
|
|
|
Six Months Ended March 30, 2019:
|
|
|
|
|
|
|
|
|
|
|
Unrealized gains (losses) arising during the period
|
1
|
|
|
13
|
|
|
(6)
|
|
|
(10)
|
|
|
(2)
|
|
|
Reclassifications of realized net (gains) losses to net income
|
—
|
|
|
14
|
|
|
(33)
|
|
|
—
|
|
|
(19)
|
|
|
Reclassifications to retained earnings(1)
|
9
|
|
|
(9)
|
|
|
(667)
|
|
|
(16)
|
|
|
(683)
|
|
|
Balance at March 30, 2019
|
$
|
1
|
|
|
$
|
(14)
|
|
|
$
|
984
|
|
|
$
|
77
|
|
|
$
|
1,048
|
|
THE WALT DISNEY COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited; tabular dollars in millions, except for per share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrecognized
Pension and
Postretirement
Medical
Expense
|
|
Foreign
Currency
Translation
and Other
|
|
AOCI
|
|
|
Market Value Adjustments
|
|
|
|
|
|
|
|
|
|
AOCI, after tax
|
Investments
|
|
Cash Flow Hedges
|
|
|
|
|
|
|
|
Second quarter of fiscal 2020
|
|
|
|
|
|
|
|
|
|
|
Balance at December 28, 2019
|
$
|
—
|
|
|
$
|
(7)
|
|
|
$
|
(5,639)
|
|
|
$
|
(887)
|
|
|
$
|
(6,533)
|
|
|
Quarter Ended March 28, 2020:
|
|
|
|
|
|
|
|
|
|
|
Unrealized gains (losses) arising during the period
|
—
|
|
|
161
|
|
|
(33)
|
|
|
(306)
|
|
|
(178)
|
|
|
Reclassifications of realized net (gains) losses to net income
|
—
|
|
|
(32)
|
|
|
106
|
|
|
—
|
|
|
74
|
|
|
Balance at March 28, 2020
|
|
$
|
—
|
|
|
$
|
122
|
|
|
$
|
(5,566)
|
|
|
$
|
(1,193)
|
|
|
$
|
(6,637)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Second quarter of fiscal 2019
|
|
|
|
|
|
|
|
|
|
|
Balance at December 29, 2018
|
$
|
—
|
|
|
$
|
128
|
|
|
$
|
(3,247)
|
|
|
$
|
(663)
|
|
|
$
|
(3,782)
|
|
|
Quarter Ended March 30, 2019:
|
|
|
|
|
|
|
|
|
|
|
Unrealized gains (losses) arising during the period
|
(4)
|
|
|
(63)
|
|
|
13
|
|
|
12
|
|
|
(42)
|
|
|
Reclassifications of realized net (gains) losses to net income
|
—
|
|
|
(17)
|
|
|
55
|
|
|
—
|
|
|
38
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at March 30, 2019
|
|
$
|
(4)
|
|
|
$
|
48
|
|
|
$
|
(3,179)
|
|
|
$
|
(651)
|
|
|
$
|
(3,786)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six months ended fiscal 2020
|
|
|
|
|
|
|
|
|
|
|
Balance at September 28, 2019
|
$
|
—
|
|
|
$
|
100
|
|
|
$
|
(5,746)
|
|
|
$
|
(971)
|
|
|
$
|
(6,617)
|
|
|
Six Months Ended March 28, 2020:
|
|
|
|
|
|
|
|
|
|
|
Unrealized gains (losses) arising during the period
|
—
|
|
|
100
|
|
|
(33)
|
|
|
(222)
|
|
|
(155)
|
|
|
Reclassifications of realized net (gains) losses to net income
|
—
|
|
|
(78)
|
|
|
213
|
|
|
—
|
|
|
135
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at March 28, 2020
|
$
|
—
|
|
|
$
|
122
|
|
|
$
|
(5,566)
|
|
|
$
|
(1,193)
|
|
|
$
|
(6,637)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six months ended fiscal 2019
|
|
|
|
|
|
|
|
|
|
|
Balance at September 29, 2018
|
$
|
15
|
|
|
$
|
145
|
|
|
$
|
(2,633)
|
|
|
$
|
(624)
|
|
|
$
|
(3,097)
|
|
|
Six Months Ended March 30, 2019:
|
|
|
|
|
|
|
|
|
|
|
Unrealized gains (losses) arising during the period
|
(4)
|
|
|
(42)
|
|
|
13
|
|
|
(11)
|
|
|
(44)
|
|
|
Reclassifications of realized net (gains) losses to net income
|
—
|
|
|
(47)
|
|
|
108
|
|
|
—
|
|
|
61
|
|
|
Reclassifications to retained earnings(1)
|
(15)
|
|
|
(8)
|
|
|
(667)
|
|
|
(16)
|
|
|
(706)
|
|
|
Balance at March 30, 2019
|
$
|
(4)
|
|
|
$
|
48
|
|
|
$
|
(3,179)
|
|
|
$
|
(651)
|
|
|
$
|
(3,786)
|
|
(1)At the beginning of fiscal 2019, the Company adopted new FASB accounting guidance, Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income, and reclassified $691 million from AOCI to retained earnings.
In addition, at the beginning of fiscal 2019, the Company adopted new FASB accounting guidance, Recognition and Measurement of Financial Assets and Liabilities, and reclassified $24 million ($15 million after tax) of market value adjustments on investments previously recorded in AOCI to retained earnings.
THE WALT DISNEY COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited; tabular dollars in millions, except for per share data)
Details about AOCI components reclassified to net income are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain (loss) in net income:
|
|
Affected line item in the
Condensed Consolidated
Statements of Income:
|
|
Quarter Ended
|
|
|
|
Six Months Ended
|
|
|
|
|
|
|
|
March 28,
2020
|
|
March 30,
2019
|
|
March 28,
2020
|
|
March 30,
2019
|
|
Cash flow hedges
|
|
Primarily revenue
|
|
|
$
|
42
|
|
|
$
|
22
|
|
|
$
|
102
|
|
|
$
|
61
|
|
|
Estimated tax
|
|
Income taxes
|
|
|
(10)
|
|
|
(5)
|
|
|
(24)
|
|
|
(14)
|
|
|
|
|
|
|
32
|
|
|
17
|
|
|
78
|
|
|
47
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension and postretirement
medical expense
|
|
Interest expense, net
|
|
|
(138)
|
|
|
(72)
|
|
|
(277)
|
|
|
(141)
|
|
|
Estimated tax
|
|
Income taxes
|
|
|
32
|
|
|
17
|
|
|
64
|
|
|
33
|
|
|
|
|
|
|
(106)
|
|
|
(55)
|
|
|
(213)
|
|
|
(108)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total reclassifications for the period
|
|
|
|
$
|
(74)
|
|
|
$
|
(38)
|
|
|
$
|
(135)
|
|
|
$
|
(61)
|
|
13.Equity-Based Compensation
Compensation expense related to stock options and restricted stock units (RSUs) is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended
|
|
|
|
Six Months Ended
|
|
|
|
|
March 28,
2020
|
|
March 30,
2019
|
|
March 28,
2020
|
|
March 30,
2019
|
|
Stock options
|
$
|
28
|
|
|
$
|
24
|
|
|
$
|
49
|
|
|
$
|
43
|
|
|
RSUs (1)
|
103
|
|
|
340
|
|
|
197
|
|
|
413
|
|
|
Total equity-based compensation expense (2)
|
$
|
131
|
|
|
$
|
364
|
|
|
$
|
246
|
|
|
$
|
456
|
|
|
Equity-based compensation expense capitalized during the period
|
$
|
21
|
|
|
$
|
22
|
|
|
$
|
45
|
|
|
$
|
38
|
|
(1)Includes TFCF Performance RSUs converted to Company RSUs in connection with the TFCF acquisition. For both the quarter and six months ended March 30, 2019, the Company recognized $259 million of equity based compensation in connection with the TFCF acquisition.
(2)Equity-based compensation expense is net of capitalized equity-based compensation and estimated forfeitures and excludes amortization of previously capitalized equity-based compensation costs.
Unrecognized compensation cost related to unvested stock options and RSUs was $209 million and $969 million, respectively, as of March 28, 2020.
The weighted average grant date fair values of options granted during the six months ended March 28, 2020 and March 30, 2019 were $36.22 and $28.67, respectively.
During the six months ended March 28, 2020, the Company made equity compensation grants consisting of 4.3 million stock options and 5.0 million RSUs.
14.Commitments and Contingencies
Legal Matters
The Company, together with, in some instances, certain of its directors and officers, is a defendant in various legal actions involving copyright, breach of contract and various other claims incident to the conduct of its businesses. Management does not believe that the Company has incurred a probable material loss by reason of any of those actions.
Contractual Guarantees
The Company has guaranteed bond issuances by the Anaheim Public Authority that were used by the City of Anaheim to finance construction of infrastructure and a public parking facility adjacent to the Disneyland Resort. Revenues from sales, occupancy and property taxes from the Disneyland Resort and non-Disney hotels are used by the City of Anaheim to repay the bonds, which mature in 2037. In the event of a debt service shortfall, the Company will be responsible to fund the shortfall. As of March 28, 2020, the remaining debt service obligation guaranteed by the Company was $237 million. To the extent that tax
THE WALT DISNEY COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited; tabular dollars in millions, except for per share data)
revenues exceed the debt service payments subsequent to the Company funding a shortfall, the Company would be reimbursed for any previously funded shortfalls. To date, tax revenues have exceeded the debt service payments for these bonds.
15.Leases
At the beginning of fiscal 2020, the Company adopted new lease accounting guidance issued by the FASB. The most significant change requires lessees to record the present value of operating lease payments as right-of-use assets and lease liabilities on the balance sheet. The new guidance continues to require lessees to classify leases between operating and finance leases (formerly “capital leases”).
We adopted the new guidance using the modified retrospective method at the beginning of fiscal year 2020. Reporting periods beginning after September 29, 2019 are presented under the new guidance, while prior periods continue to be reported in accordance with our historical accounting. The Company adopted the new guidance by applying practical expedients that permit us not to reassess our prior conclusions concerning whether:
•Any of our existing arrangements contain a lease;
•Our existing lease arrangements are operating or finance leases;
•To capitalize indirect costs; and
•Existing land easements are leases.
The adoption of the new guidance resulted in the recognition on the Condensed Consolidated Balance Sheet of right-of-use assets and lease liabilities of approximately $3.7 billion, which were measured by the present value of the remaining minimum lease payments. In accordance with the guidance, the Company elected to exclude from the measurement of the right-of-use asset and lease liability leases with a remaining term of one year (“Short-term leases”).
The present value of the lease payments was calculated using the Company’s incremental borrowing rate applicable to the lease, which is determined by estimating what it would cost the Company to borrow a collateralized amount equal to the total lease payments over the lease term based on the contractual terms of the lease and the location of the leased asset.
At adoption, in the Condensed Consolidated Balance Sheet we also reclassified:
•Deferred rent of approximately $0.3 billion for operating leases at the end of fiscal year 2019 from “Accounts payable and other accrued liabilities” (current portion) and “Other long-term liabilities” (non-current portion) to “Other assets” (right-of-use asset);
•A deferred sale leaseback gain of approximately $0.3 billion from “Deferred revenue and other” (current portion) and “Other long-term liabilities” (non-current portion) to “Retained earnings”; and
•Capitalized lease assets of approximately $0.2 billion from “Parks, resorts and other property” to “Other assets” related to finance leases.
Lessee Arrangements
The Company’s operating leases primarily consist of real estate and equipment, including office space for general and administrative purposes, production facilities, retail outlets and distribution centers for consumer products, land and content broadcast equipment. The Company also has finance leases, primarily for land and broadcast equipment.
We determine whether a new contract is a lease at contract inception or for a modified contract at the modification date. Our leases may require us to make fixed rental payments, variable lease payments based on usage or sales and fixed non-lease costs relating to the leased asset. Variable lease payments are generally not included in the measurement of the right-of-use asset and lease liability. Fixed non-lease costs, for example common-area maintenance costs, are included in the measurement of the right-of-use asset and lease liability as the Company does not separate lease and non-lease components.
Some of our leases include renewal and/or termination options. If it is reasonably certain that a renewal or termination option will be exercised, the exercise of the option is considered in calculating the term of the lease. As of March 28, 2020, our operating leases have a weighted-average remaining lease term of approximately 9 years, and our finance leases have a weighted-average remaining lease term of approximately 23 years. The weighted-average incremental borrowing rate is 2.5% and 6.4%, for our operating leases and finance leases, respectively. Additionally, as of March 28, 2020, the Company had signed non-cancelable lease agreements with total estimated future lease payments of approximately $270 million that had not yet commenced and therefore are not included in the measurement of the right-of-use asset and lease liability.
THE WALT DISNEY COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited; tabular dollars in millions, except for per share data)
The Company’s operating and finance right-of-use assets and lease liabilities as of March 28, 2020 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Right-of-use assets(1)
|
|
|
|
|
Operating leases
|
$
|
4,211
|
|
|
|
|
Finance leases
|
353
|
|
|
|
|
Total right-of-use assets
|
$
|
4,564
|
|
|
|
|
|
|
|
|
|
Short-term lease liabilities(2)
|
|
|
|
|
Operating leases
|
$
|
822
|
|
|
|
|
Finance leases
|
36
|
|
|
|
|
|
858
|
|
|
|
|
Long-term lease liabilities(3)
|
|
|
|
|
Operating leases
|
$
|
2,969
|
|
|
|
|
Finance leases
|
282
|
|
|
|
|
|
3,251
|
|
|
|
|
Total lease liabilities
|
$
|
4,109
|
|
|
|
(1)Included in “Other assets” in the Condensed Consolidated Balance Sheets. Includes approximately $0.6 billion of long-term prepaid rent that was presented as a right-of-use asset upon adoption.
(2)Included in “Accounts payable and other accrued liabilities” in the Condensed Consolidated Balance Sheets
(3)Included in “Other long-term liabilities” in the Condensed Consolidated Balance Sheet
The components of lease expense for the quarter and six months ended March 28, 2020 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter
|
|
Six Months
|
|
Finance lease cost
|
|
|
|
|
|
Amortization of right-of-use assets
|
|
$
|
15
|
|
|
$
|
17
|
|
|
Interest on lease liabilities
|
|
4
|
|
|
8
|
|
|
Operating lease cost
|
|
229
|
|
|
452
|
|
|
Variable fees and other (1)
|
|
127
|
|
|
273
|
|
|
Total lease cost
|
|
$
|
375
|
|
|
$
|
750
|
|
(1)Includes variable lease payments related to our operating and finance leases and costs of Short-term leases, net of sublease income.
Cash paid during the quarter and six months ended March 28, 2020 for amounts included in the measurement of lease liabilities as of the beginning of the reporting period are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter
|
|
|
Six Months
|
|
|
|
|
|
|
|
Operating cash flows for operating leases
|
|
$
|
270
|
|
|
$
|
495
|
|
|
Operating cash flows for finance leases
|
|
4
|
|
|
8
|
|
|
Financing cash flows for finance leases
|
|
16
|
|
|
23
|
|
|
Total
|
|
$
|
290
|
|
|
$
|
526
|
|
|
|
|
|
|
|
|
|
|
|
|
|
THE WALT DISNEY COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited; tabular dollars in millions, except for per share data)
Future minimum lease payments, as of March 28, 2020, are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
|
|
Financing
|
|
Fiscal year:
|
|
|
|
|
|
2020
|
|
$
|
436
|
|
|
$
|
30
|
|
|
2021
|
|
832
|
|
|
57
|
|
|
2022
|
|
645
|
|
|
56
|
|
|
2023
|
|
505
|
|
|
47
|
|
|
2024
|
|
381
|
|
|
38
|
|
|
Thereafter
|
|
1,817
|
|
|
514
|
|
|
Total undiscounted future lease payments
|
|
4,616
|
|
|
742
|
|
|
Less: Imputed interest
|
|
(825)
|
|
|
(424)
|
|
|
Total reported lease liability
|
|
$
|
3,791
|
|
|
$
|
318
|
|
Future minimum lease payments under non-cancelable operating leases and non-cancelable capital leases at September 28, 2019, presented based on our historical accounting prior to the adoption of the new lease guidance, are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
Leases
|
|
Capital
Leases
|
|
Fiscal year:
|
|
|
|
|
|
2020
|
|
$
|
982
|
|
|
$
|
19
|
|
|
2021
|
|
849
|
|
|
20
|
|
|
2022
|
|
670
|
|
|
19
|
|
|
2023
|
|
532
|
|
|
17
|
|
|
2024
|
|
407
|
|
|
16
|
|
|
Thereafter
|
|
2,491
|
|
|
458
|
|
|
Total minimum obligations
|
|
$
|
5,931
|
|
|
549
|
|
|
Less: amount representing interest
|
|
|
|
|
(398)
|
|
|
Present value of net minimum obligations
|
|
|
|
|
$
|
151
|
|
16. Fair Value Measurements
Fair value is defined as the amount that would be received for selling an asset or paid to transfer a liability in an orderly transaction between market participants and is generally classified in one of the following categories:
Level 1 - Quoted prices for identical instruments in active markets
Level 2 - Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations in which all significant inputs and significant value drivers are observable in active markets
Level 3 - Valuations derived from valuation techniques in which one or more significant inputs or significant value drivers are unobservable
THE WALT DISNEY COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited; tabular dollars in millions, except for per share data)
The Company’s assets and liabilities measured at fair value are summarized in the following tables by fair value measurement Level:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurement at March 28, 2020
|
|
|
|
|
|
|
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total
|
|
Assets
|
|
|
|
|
|
|
|
|
Investments
|
$
|
7
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
7
|
|
|
Derivatives
|
|
|
|
|
|
|
|
|
Interest rate
|
—
|
|
|
466
|
|
|
—
|
|
|
466
|
|
|
Foreign exchange
|
—
|
|
|
994
|
|
|
—
|
|
|
994
|
|
|
Other
|
—
|
|
|
13
|
|
|
—
|
|
|
13
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
Derivatives
|
|
|
|
|
|
|
|
|
Interest rate
|
—
|
|
|
(2)
|
|
|
—
|
|
|
(2)
|
|
|
Foreign exchange
|
—
|
|
|
(734)
|
|
|
—
|
|
|
(734)
|
|
|
Other
|
—
|
|
|
(29)
|
|
|
—
|
|
|
(29)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total recorded at fair value
|
$
|
7
|
|
|
$
|
708
|
|
|
$
|
—
|
|
|
$
|
715
|
|
|
Fair value of borrowings
|
$
|
—
|
|
|
$
|
56,510
|
|
|
$
|
1,328
|
|
|
$
|
57,838
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurement at September 28, 2019
|
|
|
|
|
|
|
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total
|
|
Assets
|
|
|
|
|
|
|
|
|
Investments
|
$
|
13
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
13
|
|
|
Derivatives
|
|
|
|
|
|
|
|
|
Interest rate
|
—
|
|
|
89
|
|
|
—
|
|
|
89
|
|
|
Foreign exchange
|
—
|
|
|
771
|
|
|
—
|
|
|
771
|
|
|
Other
|
—
|
|
|
1
|
|
|
—
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
Derivatives
|
|
|
|
|
|
|
|
|
Interest rate
|
—
|
|
|
(93)
|
|
|
—
|
|
|
(93)
|
|
|
Foreign exchange
|
—
|
|
|
(544)
|
|
|
—
|
|
|
(544)
|
|
|
Other
|
—
|
|
|
(4)
|
|
|
—
|
|
|
(4)
|
|
|
|
|
|
|
|
|
|
|
|
Total recorded at fair value
|
$
|
13
|
|
|
$
|
220
|
|
|
$
|
—
|
|
|
$
|
233
|
|
|
Fair value of borrowings
|
$
|
—
|
|
|
$
|
48,709
|
|
|
$
|
1,249
|
|
|
$
|
49,958
|
|
The fair values of Level 2 derivatives are primarily determined by internal discounted cash flow models that use observable inputs such as interest rates, yield curves and foreign currency exchange rates. Counterparty credit risk, which is mitigated by master netting agreements and collateral posting arrangements with certain counterparties, did not have a material impact on derivative fair value estimates.
Level 2 borrowings, which include commercial paper, U.S. dollar denominated notes and certain foreign currency denominated borrowings, are valued based on quoted prices for similar instruments in active markets or identical instruments in markets that are not active.
Level 3 borrowings include the Asia Theme Park borrowings, which are valued based on the current borrowing cost and credit risk of the Asia Theme Parks as well as prevailing market interest rates.
The Company’s financial instruments also include cash, cash equivalents, receivables and accounts payable. The carrying values of these financial instruments approximate the fair values.
THE WALT DISNEY COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited; tabular dollars in millions, except for per share data)
17.Derivative Instruments
The Company manages its exposure to various risks relating to its ongoing business operations according to a risk management policy. The primary risks managed with derivative instruments are interest rate risk and foreign exchange risk.
The Company’s derivative positions measured at fair value are summarized in the following tables:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of March 28, 2020
|
|
|
|
|
|
|
|
|
Current
Assets
|
|
Other Assets
|
|
Other Current Liabilities
|
|
Other Long-
Term
Liabilities
|
|
Derivatives designated as hedges
|
|
|
|
|
|
|
|
|
Foreign exchange
|
$
|
389
|
|
|
$
|
302
|
|
|
$
|
(95)
|
|
|
$
|
(287)
|
|
|
Interest rate
|
—
|
|
|
466
|
|
|
—
|
|
|
—
|
|
|
Other
|
1
|
|
|
—
|
|
|
(21)
|
|
|
(8)
|
|
|
Derivatives not designated as hedges
|
|
|
|
|
|
|
|
|
Foreign exchange
|
105
|
|
|
198
|
|
|
(141)
|
|
|
(211)
|
|
|
Interest rate
|
—
|
|
|
—
|
|
|
—
|
|
|
(2)
|
|
|
Other
|
12
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Gross fair value of derivatives
|
507
|
|
|
966
|
|
|
(257)
|
|
|
(508)
|
|
|
Counterparty netting
|
(211)
|
|
|
(492)
|
|
|
225
|
|
|
478
|
|
|
Cash collateral (received)/paid
|
(214)
|
|
|
(229)
|
|
|
—
|
|
|
6
|
|
|
Net derivative positions
|
$
|
82
|
|
|
$
|
245
|
|
|
$
|
(32)
|
|
|
$
|
(24)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of September 28, 2019
|
|
|
|
|
|
|
|
|
Current
Assets
|
|
Other Assets
|
|
Other Current Liabilities
|
|
Other Long-
Term
Liabilities
|
|
Derivatives designated as hedges
|
|
|
|
|
|
|
|
|
Foreign exchange
|
$
|
302
|
|
|
$
|
241
|
|
|
$
|
(67)
|
|
|
$
|
(244)
|
|
|
Interest rate
|
—
|
|
|
89
|
|
|
(82)
|
|
|
—
|
|
|
Other
|
1
|
|
|
—
|
|
|
(3)
|
|
|
(1)
|
|
|
Derivatives not designated as hedges
|
|
|
|
|
|
|
|
|
Foreign exchange
|
65
|
|
|
163
|
|
|
(107)
|
|
|
(126)
|
|
|
Interest rate
|
—
|
|
|
—
|
|
|
—
|
|
|
(11)
|
|
|
|
|
|
|
|
|
|
|
|
Gross fair value of derivatives
|
368
|
|
|
493
|
|
|
(259)
|
|
|
(382)
|
|
|
Counterparty netting
|
(231)
|
|
|
(345)
|
|
|
258
|
|
|
318
|
|
|
Cash collateral (received)/paid
|
(55)
|
|
|
(6)
|
|
|
—
|
|
|
7
|
|
|
Net derivative positions
|
$
|
82
|
|
|
$
|
142
|
|
|
$
|
(1)
|
|
|
$
|
(57)
|
|
Interest Rate Risk Management
The Company is exposed to the impact of interest rate changes primarily through its borrowing activities. The Company’s objective is to mitigate the impact of interest rate changes on earnings and cash flows and on the market value of its borrowings. In accordance with its policy, the Company targets its fixed-rate debt as a percentage of its net debt between a minimum and maximum percentage. The Company primarily uses pay-floating and pay-fixed interest rate swaps to facilitate its interest rate risk management activities.
The Company designates pay-floating interest rate swaps as fair value hedges of fixed-rate borrowings effectively converting fixed-rate borrowings to variable rate borrowings indexed to LIBOR. As of March 28, 2020 and September 28, 2019, the total notional amount of the Company’s pay-floating interest rate swaps was $10.9 billion and $9.9 billion, respectively.
THE WALT DISNEY COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited; tabular dollars in millions, except for per share data)
The following table summarizes fair value hedge adjustments to hedged borrowings at March 28, 2020 and September 28, 2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Carrying Amount of Hedged Borrowings (1)
|
|
|
|
Fair Value Adjustments Included
in Hedged Borrowings (1)
|
|
|
|
|
March 28, 2020
|
|
September 28, 2019
|
|
March 28, 2020
|
|
September 28, 2019
|
|
Borrowings:
|
|
|
|
|
|
|
|
|
Current
|
$
|
1,126
|
|
|
$
|
1,121
|
|
|
$
|
2
|
|
|
$
|
(3)
|
|
|
Long-term
|
10,936
|
|
|
9,562
|
|
|
464
|
|
|
34
|
|
|
|
$
|
12,062
|
|
|
$
|
10,683
|
|
|
$
|
466
|
|
|
$
|
31
|
|
(1)Includes $36 million and $37 million of gains on terminated interest rate swaps as of March 28, 2020 and September 28, 2019, respectively.
The following amounts are included in “Interest expense, net” in the Condensed Consolidated Statements of Income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended
|
|
|
|
Six Months Ended
|
|
|
|
|
March 28, 2020
|
|
March 30,
2019
|
|
March 28,
2020
|
|
March 30, 2019
|
|
Gain (loss) on:
|
|
|
|
|
|
|
|
|
Pay-floating swaps
|
$
|
542
|
|
|
$
|
117
|
|
|
$
|
429
|
|
|
$
|
234
|
|
|
Borrowings hedged with pay-floating swaps
|
(542)
|
|
|
(117)
|
|
|
(429)
|
|
|
(234)
|
|
|
Benefit (expense) associated with interest accruals on pay-floating swaps
|
(7)
|
|
|
(18)
|
|
|
(19)
|
|
|
(32)
|
|
The Company may designate pay-fixed interest rate swaps as cash flow hedges of interest payments on floating-rate borrowings. Pay-fixed swaps effectively convert floating-rate borrowings to fixed-rate borrowings. The unrealized gains or losses from these cash flow hedges are deferred in AOCI and recognized in interest expense as the interest payments occur. The Company did not have pay-fixed interest rate swaps that were designated as cash flow hedges of interest payments at March 28, 2020 or at September 28, 2019, and gains and losses related to pay-fixed swaps recognized in earnings for the quarter ended March 28, 2020 and March 30, 2019 were not material.
To facilitate its interest rate risk management activities, the Company sold options in November 2016, October 2017 and April 2018 to enter into future pay-floating interest rate swaps indexed to LIBOR for $2.0 billion in future borrowings. The fair values of these contracts as of March 28, 2020 and September 28, 2019 were $2 million and $11 million, respectively. The options are not designated as hedges and do not qualify for hedge accounting; accordingly, changes in their fair value are recorded in earnings. Gains and losses on the options for the quarter ended March 28, 2020 and March 30, 2019 were not material.
Foreign Exchange Risk Management
The Company transacts business globally and is subject to risks associated with changing foreign currency exchange rates. The Company’s objective is to reduce earnings and cash flow fluctuations associated with foreign currency exchange rate changes, enabling management to focus on core business issues and challenges.
The Company enters into option and forward contracts that change in value as foreign currency exchange rates change to protect the value of its existing foreign currency assets, liabilities, firm commitments and forecasted but not firmly committed foreign currency transactions. In accordance with policy, the Company hedges its forecasted foreign currency transactions for periods generally not to exceed four years within an established minimum and maximum range of annual exposure. The gains and losses on these contracts offset changes in the U.S. dollar equivalent value of the related forecasted transaction, asset, liability or firm commitment. The principal 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 into U.S. dollar denominated borrowings.
The Company designates foreign exchange forward and option contracts as cash flow hedges of firmly committed and forecasted foreign currency transactions. As of March 28, 2020 and September 28, 2019, the notional amounts of the Company’s net foreign exchange cash flow hedges were $5.6 billion and $6.3 billion, respectively. Mark-to-market gains and losses on these contracts are deferred in AOCI and are recognized in earnings when the hedged transactions occur, offsetting changes in the value of the foreign currency transactions. Net deferred gains recorded in AOCI for contracts that will mature in
THE WALT DISNEY COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited; tabular dollars in millions, except for per share data)
the next twelve months total $324 million. The following table summarizes the effect of foreign exchange cash flow hedges on AOCI for the quarter and six months ended March 28, 2020:
|
|
|
|
|
|
|
|
Quarter Ended
|
|
|
Gain (loss) recognized in Other Comprehensive Income
|
$
|
234
|
|
|
Gain (loss) reclassified from AOCI into the Statement of Income (1)
|
43
|
|
|
|
|
|
Six Months Ended:
|
|
|
Gain/(loss) recognized in Other Comprehensive Income
|
$
|
149
|
|
|
Gain/(loss) reclassified from AOCI into the Statement of Income (1)
|
103
|
|
(1)Primarily recorded in revenue.
Foreign exchange risk management contracts with respect to foreign currency denominated assets and liabilities are not designated as hedges and do not qualify for hedge accounting. The notional amounts of these foreign exchange contracts at March 28, 2020 and September 28, 2019 were $4.2 billion and $3.8 billion, respectively. The following table summarizes the net foreign exchange gains or losses recognized on foreign currency denominated assets and liabilities and the net foreign exchange gains or losses on the foreign exchange contracts we entered into to mitigate our exposure with respect to foreign currency denominated assets and liabilities for the six months ended March 28, 2020 and March 30, 2019 by the corresponding line item in which they are recorded in the Condensed Consolidated Statements of Income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs and Expenses
|
|
|
|
Interest expense, net
|
|
|
|
Income Tax Expense
|
|
|
|
Quarter Ended:
|
March 28,
2020
|
|
March 30,
2019
|
|
March 28,
2020
|
|
March 30,
2019
|
|
March 28,
2020
|
|
March 30,
2019
|
|
Net gains (losses) on foreign currency denominated assets and liabilities
|
$
|
(241)
|
|
|
$
|
1
|
|
|
$
|
64
|
|
|
$
|
(12)
|
|
|
$
|
8
|
|
|
$
|
—
|
|
|
Net gains (losses) on foreign exchange risk management contracts not designated as hedges
|
239
|
|
|
(4)
|
|
|
(62)
|
|
|
11
|
|
|
(20)
|
|
|
(4)
|
|
|
Net gains (losses)
|
$
|
(2)
|
|
|
$
|
(3)
|
|
|
$
|
2
|
|
|
$
|
(1)
|
|
|
$
|
(12)
|
|
|
$
|
(4)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net gains (losses) on foreign currency denominated assets and liabilities
|
$
|
(172)
|
|
|
$
|
(26)
|
|
|
$
|
52
|
|
|
$
|
28
|
|
|
$
|
(7)
|
|
|
$
|
15
|
|
|
Net gains (losses) on foreign exchange risk management contracts not designated as hedges
|
159
|
|
|
20
|
|
|
(52)
|
|
|
(28)
|
|
|
(3)
|
|
|
(22)
|
|
|
Net gains (losses)
|
$
|
(13)
|
|
|
$
|
(6)
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
(10)
|
|
|
$
|
(7)
|
|
Commodity Price Risk Management
The Company is subject to the volatility of commodities prices and the Company designates certain commodity forward contracts as cash flow hedges of forecasted commodity purchases. Mark-to-market gains and losses on these contracts are deferred in AOCI and are recognized in earnings when the hedged transactions occur, offsetting changes in the value of commodity purchases. The notional amount of these commodities contracts at March 28, 2020 and September 28, 2019 and related gains or losses recognized in earnings for the quarter and six months ended March 28, 2020 and March 30, 2019 were not material.
Risk Management – Other Derivatives Not Designated as Hedges
The Company enters into certain other risk management contracts that are not designated as hedges and do not qualify for hedge accounting. These contracts, which include certain swap contracts, are intended to offset economic exposures of the Company and are carried at market value with any changes in value recorded in earnings. The notional amount and fair value of these contracts at March 28, 2020 and September 28, 2019 were not material. The related gains or losses recognized in earnings for the quarter and six months ended March 28, 2020 and March 30, 2019 were not material.
Contingent Features and Cash Collateral
The Company has master netting arrangements by counterparty with respect to certain derivative financial instrument contracts. The Company may be required to post collateral in the event that a net liability position with a counterparty exceeds limits defined by contract and that vary with the Company’s credit rating. In addition, these contracts may require a
THE WALT DISNEY COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited; tabular dollars in millions, except for per share data)
counterparty to post collateral to the Company in the event that a net receivable position with a counterparty exceeds limits defined by contract and that vary with the counterparty’s credit rating. If the Company’s or the counterparty’s credit ratings were to fall below investment grade, such counterparties or the Company would also have the right to terminate our derivative contracts, which could lead to a net payment to or from the Company for the aggregate net value by counterparty of our derivative contracts. The aggregate fair values of derivative instruments with credit-risk-related contingent features in a net liability position by counterparty were $62 million and $65 million on March 28, 2020 and September 28, 2019, respectively.
18.Restructuring and Impairment Charges
In fiscal 2019, the Company implemented a restructuring and integration plan as a part of its initiative to realize cost synergies from the acquisition of TFCF. We expect to substantially complete the restructuring plan by the end of fiscal 2021. In connection with this plan, during the quarter ended March 28, 2020, the Company recorded $145 million of restructuring and impairment charges, which included $133 million of severance. To date, we have recorded restructuring charges of $1.5 billion, including $1.2 billion related to severance (including employee contract terminations) in connection with the plan and $0.3 billion of equity based compensation costs, primarily for TFCF awards that were accelerated to vest upon the closing of the TFCF acquisition. Integration efforts are still underway and we anticipate that the total severance costs will be on the order of $1.5 billion. The Company currently expects other remaining restructuring costs will not be material.
The changes in restructuring reserves related to TFCF integration for fiscal 2019 and the six months ended March 28, 2020 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at September 29, 2018
|
|
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
Additions in fiscal 2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
Media Networks
|
|
|
|
|
90
|
|
|
|
|
|
|
|
|
Parks, Experiences and Products
|
|
|
|
|
11
|
|
|
|
|
|
|
|
|
Studio Entertainment
|
|
|
|
|
197
|
|
|
|
|
|
|
|
|
Direct-to-Consumer & International
|
|
|
|
|
426
|
|
|
|
|
|
|
|
|
Corporate
|
|
|
|
|
182
|
|
|
|
|
|
|
|
|
Total additions in fiscal 2019
|
|
|
|
|
906
|
|
|
|
|
|
|
|
|
Payments in fiscal 2019
|
|
|
|
|
(230)
|
|
|
|
|
|
|
|
|
Balance at September 28, 2019
|
|
|
|
|
$
|
676
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additions in fiscal 2020:
|
|
|
|
|
|
|
|
|
|
|
|
|
Media Networks
|
|
|
|
|
18
|
|
|
|
|
|
|
|
|
Parks, Experiences and Products
|
|
|
|
|
8
|
|
|
|
|
|
|
|
|
Studio Entertainment
|
|
|
|
|
50
|
|
|
|
|
|
|
|
|
Direct-to-Consumer & International
|
|
|
|
|
163
|
|
|
|
|
|
|
|
|
Corporate
|
|
|
|
|
32
|
|
|
|
|
|
|
|
|
Total additions in fiscal 2020
|
|
|
|
|
271
|
|
|
|
|
|
|
|
|
Payments in fiscal 2020
|
|
|
|
|
(412)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at March 28, 2020
|
|
|
|
|
$
|
535
|
|
|
|
|
|
|
|
19.New Accounting Pronouncements
Accounting Pronouncements Adopted in Fiscal 2020
•Leases - See Note 15
•Improvements to Accounting for Costs of Films and License Agreements for Program Materials - See Note 8
Facilitation of the Effects of Reference Rate Reform
In March 2020, the FASB issued guidance which provides optional expedients and exceptions for applying current GAAP to contracts, hedging relationships, and other transactions affected by the transition from the use of LIBOR to an alternative reference rate. We are currently evaluating our contracts and hedging relationships that reference LIBOR and the potential
THE WALT DISNEY COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited; tabular dollars in millions, except for per share data)
effects of adopting this new guidance. The guidance can be adopted immediately and is applicable to contracts entered into on or before December 31, 2022.
Simplifying the Accounting for Income Taxes
In December 2019, the FASB issued guidance which simplifies the accounting for income taxes. The guidance amends the rules for recognizing deferred taxes for investments, performing intraperiod tax allocations and calculating income taxes in interim periods. It also reduces complexity in certain areas, including the accounting for transactions that result in a step-up in the tax basis of goodwill and allocating taxes to members of a consolidated group. The guidance is effective at the beginning of the Company’s 2022 fiscal year (with early adoption permitted). The Company is currently assessing the impact of the new guidance on its financial statements.
Measurement of Credit Losses on Financial Instruments
In June 2016, the FASB issued new accounting guidance which modifies existing guidance related to the measurement of credit losses on financial instruments, including trade and loan receivables. The new guidance requires impairments to be measured based on expected losses over the life of the asset rather than incurred losses. We currently do not expect the new guidance will have a material impact on our financial statements. The guidance is effective at the beginning of the Company’s 2021 fiscal year.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Item 2: Management’s Discussion and Analysis of Financial Condition and Results of Operations
ORGANIZATION OF INFORMATION
Management’s Discussion and Analysis provides a narrative of the Company’s financial performance and condition that should be read in conjunction with the accompanying financial statements. It includes the following sections:
•Consolidated Results
•Significant Developments
•Current Quarter Results Compared to Prior-Year Quarter
•Current Period Results Compared to Prior-Year Period
•Seasonality
•Business Segment Results
•Corporate and Unallocated Shared Expenses
•Restructuring in Connection with the Acquisition of TFCF
•Financial Condition
•Supplemental Guarantor Financial Information
•Commitments and Contingencies
•Other Matters
•Market Risk
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS — (continued)
CONSOLIDATED RESULTS
Our summary consolidated results are presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended
|
|
|
|
% Change
|
|
Six Months Ended
|
|
|
|
% Change
|
|
(in millions, except per share data)
|
March 28,
2020
|
|
March 30,
2019
|
|
Better/
(Worse)
|
|
March 28,
2020
|
|
March 30,
2019
|
|
Better/
(Worse)
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
Services
|
$
|
16,174
|
|
|
$
|
13,011
|
|
|
24
|
%
|
|
$
|
34,249
|
|
|
$
|
25,877
|
|
|
32
|
%
|
|
Products
|
1,835
|
|
|
1,911
|
|
|
(4)
|
%
|
|
4,618
|
|
|
4,348
|
|
|
6
|
%
|
|
Total revenues
|
18,009
|
|
|
14,922
|
|
|
21
|
%
|
|
38,867
|
|
|
30,225
|
|
|
29
|
%
|
|
Costs and expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of services (exclusive of depreciation and amortization)
|
(10,664)
|
|
|
(7,167)
|
|
|
(49)
|
%
|
|
(22,041)
|
|
|
(14,731)
|
|
|
(50)
|
%
|
|
Cost of products (exclusive of depreciation and amortization)
|
(1,254)
|
|
|
(1,209)
|
|
|
(4)
|
%
|
|
(2,893)
|
|
|
(2,646)
|
|
|
(9)
|
%
|
|
Selling, general, administrative and other
|
(3,388)
|
|
|
(2,330)
|
|
|
(45)
|
%
|
|
(7,091)
|
|
|
(4,482)
|
|
|
(58)
|
%
|
|
Depreciation and amortization
|
(1,333)
|
|
|
(828)
|
|
|
(61)
|
%
|
|
(2,631)
|
|
|
(1,560)
|
|
|
(69)
|
%
|
|
Total costs and expenses
|
(16,639)
|
|
|
(11,534)
|
|
|
(44)
|
%
|
|
(34,656)
|
|
|
(23,419)
|
|
|
(48)
|
%
|
|
Restructuring and impairment charges
|
(145)
|
|
|
(662)
|
|
|
78
|
%
|
|
(295)
|
|
|
(662)
|
|
|
55
|
%
|
|
Other income
|
|
—
|
|
|
4,963
|
|
|
(100)
|
%
|
|
—
|
|
|
4,963
|
|
|
(100)
|
%
|
|
Interest expense, net
|
(300)
|
|
|
(143)
|
|
|
>(100)
|
%
|
|
(583)
|
|
|
(206)
|
|
|
>(100)
|
%
|
|
Equity in the income / (loss) of investees
|
135
|
|
|
(309)
|
|
|
nm
|
|
|
359
|
|
|
(233)
|
|
|
nm
|
|
|
Income from continuing operations before income taxes
|
1,060
|
|
|
7,237
|
|
|
(85)
|
%
|
|
3,692
|
|
|
10,668
|
|
|
(65)
|
%
|
|
Income taxes on continuing operations
|
(525)
|
|
|
(1,647)
|
|
|
68
|
%
|
|
(984)
|
|
|
(2,292)
|
|
|
57
|
%
|
|
Net income from continuing operations
|
535
|
|
|
5,590
|
|
|
(90)
|
%
|
|
2,708
|
|
|
8,376
|
|
|
(68)
|
%
|
|
Income (loss) from discontinued operations, net of income tax benefit/(expense) of $5, ($5), $13 and ($5), respectively
|
(15)
|
|
|
21
|
|
|
nm
|
|
|
(41)
|
|
|
21
|
|
|
nm
|
|
|
Net income
|
520
|
|
|
5,611
|
|
|
(91)
|
%
|
|
2,667
|
|
|
8,397
|
|
|
(68)
|
%
|
|
Net income from continuing operations attributable to noncontrolling interests
|
(60)
|
|
|
(159)
|
|
|
62
|
%
|
|
(100)
|
|
|
(157)
|
|
|
36
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to Disney
|
$
|
460
|
|
|
$
|
5,452
|
|
|
(92)
|
%
|
|
$
|
2,567
|
|
|
$
|
8,240
|
|
|
(69)
|
%
|
|
Diluted earnings per share from continuing operations attributable to Disney
|
$
|
0.26
|
|
|
$
|
3.53
|
|
|
(93)
|
%
|
|
$
|
1.44
|
|
|
$
|
5.42
|
|
|
(73)
|
%
|
SIGNIFICANT DEVELOPMENTS
COVID-19
The impact of COVID-19 and measures to prevent its spread are affecting our businesses in a number of ways. We have closed our theme parks and retail stores; suspended our cruise ship sailings, stage play performances and guided tours; delayed or, in some cases, shortened or cancelled theatrical distribution of films both domestically and internationally; and seen adverse advertising sales and supply chain impacts. Many of our businesses have been closed or suspended consistent with government mandates or guidance. We have experienced disruptions in the production and availability of content, including the cancellation or deferral of certain sports events and suspension of production of most film and television content. We have continued to pay for certain sports rights, even during these cancellations and deferrals. The impacts to our content have resulted in decreased viewership and advertising revenues, and demands for affiliate fee reductions related to certain of our television networks. These impacts are likely to be exacerbated the longer such content is not available. Other of our offerings could be exposed to additional financial impacts in the event of future significant unavailability of content. We have experienced increased returns and refunds and customer requests for payment deferrals, reduced usage of certain of our products and services and decreased merchandise licensing royalties.
We have taken a number of mitigation efforts in response. We have significantly increased cash balances through the issuance of commercial paper, as well as, the issuance of senior notes in March 2020. In addition, we entered into an additional $5.0 billion credit facility in April 2020. The Company (or our Board of Directors) has also elected to not declare a dividend payable in July 2020 with respect to the first half of fiscal year 2020; suspended certain capital projects; reduced certain discretionary expenditures (such as spending on marketing); temporarily reduced management compensation; temporarily
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS — (continued)
eliminated Board of Director retainers and committee fees; and furloughed over 120,000 of our employees (who will continue to receive Company provided medical benefits). 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. Some of these measures may have an adverse impact on our businesses.
The most significant impact of COVID-19 during the current quarter was at our Parks, Experiences and Products segment, which we estimate was an adverse impact on operating income of approximately $1.0 billion primarily due to revenue lost as a result of the closures. We estimate the COVID-19 impact on our current quarter income from continuing operations before income taxes across all of our businesses including the Parks, Experiences and Products segment, was as much as $1.4 billion. Impacts at our other segments include lower advertising revenue at Media Networks and Direct-to-Consumer & International driven by a decrease in viewership in the current quarter reflecting COVID-19’s impact on live sports events and higher bad debt expense and an impact on revenue at Studio Entertainment due to theater and stage play closures. The estimated impact in the current quarter is net of approximately $150 million in employee retention credits pursuant to the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”). We expect more extensive COVID-19 impacts in the third quarter.
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 of the impacts of COVID-19, and among other things the impact of governmental actions imposed in response to the pandemic and individuals’ and companies’ risk tolerance regarding health matters going forward. With the unknown duration of the pandemic and yet to be determined timing of the phased reopening of our businesses, it is not possible to precisely estimate the impact in future quarters.
Additionally, see Part II. Other Information, Item 1A. Risk Factors - The adverse impact of COVID-19 on our businesses will continue for an unknown length of time.
Disney+
In November 2019, the Company launched Disney+, a subscription based DTC streaming service with Disney, Pixar, Marvel, Star Wars and National Geographic branded programming in the U.S. and four other countries and has expanded to select Western European countries in March 2020 and in additional Western European countries and India in April 2020. Following these launches, Disney+ exceeded 50 million paid subscribers, including those who receive the service through wholesale arrangements in which we receive a fee for the distribution of Disney+ to each subscriber to an existing content distribution tier. The Hotstar service in India was converted to Disney+ Hotstar, resulting in approximately 8 million additional Disney+ paid subscribers. 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. In addition, the average monthly revenue per paid subscriber for Disney+ Hotstar is significantly lower than the average monthly revenue per paid subscriber in North America and Europe. Further launches are planned for Latin America in fall of 2020, and Europe and various Asia-Pacific territories throughout calendar 2020 and calendar 2021. As we will use our branded film and television content on the Disney+ service, we are forgoing certain licensing revenue from the sale of this content to third parties in TV/SVOD markets. In addition, we are increasing programming and production investments to create exclusive content for Disney+.
CURRENT QUARTER RESULTS COMPARED TO PRIOR-YEAR QUARTER
As discussed in Note 4 to the Condensed Consolidated Financial Statements, the Company acquired TFCF on March 20, 2019. Additionally, in connection with the acquisition of TFCF, we acquired a controlling interest in Hulu. The Company began consolidating the results of TFCF and Hulu effective March 20, 2019.
Revenues for the quarter increased 21%, or $3.1 billion, to $18.0 billion; net income attributable to Disney decreased 92%, or $5.0 billion, to $0.5 billion; and diluted earnings per share from continuing operations attributable to Disney (EPS) decreased 93% from $3.53 to $0.26. The EPS decrease for the quarter was due to the comparison to the Hulu gain recognized in the prior-year quarter, lower segment operating income and higher amortization of intangible assets and fair value step-up on film and television costs from the TFCF acquisition and the consolidation of Hulu. The decrease in segment operating income was due to lower results at our legacy operations, partially offset by a $0.2 billion net benefit from the consolidation of TFCF and Hulu. Legacy operations reflected a decrease at Parks, Experiences and Products, higher losses at Direct-to-Consumer & International, and to a lesser extent, lower results at Studio Entertainment, partially offset by higher results at Media Networks.
Revenues
Service revenues for the quarter increased 24%, or $3.2 billion, to $16.2 billion due to the consolidation of TFCF and Hulu’s operations, partially offset by a decrease at our legacy operations. The decrease at our legacy operations was due to lower sales of film and television programs to third parties, lower volume at our theme parks, resorts and cruise line and a decrease in theatrical distribution revenue. Volumes at theme parks, resorts and cruise line and theatrical distribution revenue
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS — (continued)
were impacted by the suspension of these operations and closure of theaters, respectively, in response to COVID-19. These decreases were partially offset by higher subscription revenue from Disney+.
Product revenues for the quarter decreased 4%, or $0.1 billion, to $1.8 billion due to a decrease at our legacy operations, partially offset by the consolidation of TFCF’s operations. The decrease at our legacy operations was driven by lower guest spending at parks and resorts for merchandise, food and beverages, which was impacted by the shutdown of our operations.
Costs and expenses
Cost of services for the quarter increased 49%, or $3.5 billion, to $10.7 billion due to the consolidation of TFCF and Hulu’s operations, partially offset by lower costs at our legacy operations. The decrease at our legacy operations was due to lower film and television cost amortization for programs sold to third parties and declines in theatrical distribution revenue, partially offset by higher programming and production costs primarily related to Disney+ and an increase in technology costs to support Disney+.
Cost of products for the quarter increased 4%, or $45 million, to $1.3 billion due to an increase at our legacy operations and the consolidation of TFCF’s operations. The increase at our legacy operations was due to labor cost inflation at theme parks and resorts.
Selling, general, administrative and other costs increased 45%, or $1.1 billion, to $3.4 billion due to the consolidation of TFCF and Hulu’s operations and higher marketing costs at our legacy operations. The increase in marketing costs was primarily due to Disney+, ESPN+ and the ABC Television Network, partially offset by lower theatrical distribution marketing spend.
Depreciation and amortization increased 61%, or $0.5 billion, to $1.3 billion, due to amortization of intangible assets arising from the acquisition of TFCF and Hulu.
Restructuring and impairment charges
Restructuring and impairment charges of $145 million for the current quarter were primarily for severance in connection with the acquisition and integration of TFCF.
Restructuring and impairment charges of $662 million for the prior-year quarter were primarily for severance and equity based compensation costs in connection with the acquisition and integration of TFCF.
Other income
Other income of $5.0 billion in the prior-year quarter was due to the Hulu gain.
Interest expense, net
Interest expense, net is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended
|
|
|
|
|
|
(in millions)
|
March 28,
2020
|
|
March 30,
2019
|
|
% Change
Better/(Worse)
|
|
Interest expense
|
$
|
(365)
|
|
|
$
|
(198)
|
|
|
>(100)
|
%
|
|
Interest income, investment income and other
|
65
|
|
|
55
|
|
|
18
|
%
|
|
|
|
|
|
|
|
|
Interest expense, net
|
$
|
(300)
|
|
|
$
|
(143)
|
|
|
>(100)
|
%
|
The increase in interest expense was due to higher average debt balances as a result of the TFCF acquisition.
The increase in interest income, investment income and other was driven by higher interest on long-term receivables for film and television program sales, partially offset by a lower benefit related to pension and postretirement benefit costs, other than service cost.
Equity in the income / (loss) of investees
Equity in the income / (loss) of investees reflected income of $135 million in the current quarter compared to a loss of $309 million in the prior-year quarter. The change reflected an impairment of our investment in Vice in the prior-year quarter and the impact of consolidating Hulu. In the current quarter, Hulu’s results are reported in revenues and expenses. For the majority of the prior-year quarter, the Company recognized its ownership share of Hulu’s loss in equity in the income of investees.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS — (continued)
Effective Income Tax Rate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended
|
|
|
|
|
|
|
|
March 28,
2020
|
|
March 30,
2019
|
|
Change
Better/(Worse)
|
|
|
Effective income tax rate - continuing operations
|
49.5
|
%
|
|
22.8
|
%
|
|
(26.7)
|
|
ppt
|
The increase in the effective income tax rate was due to higher U.S. tax on foreign income and an increase in losses for which the Company does not recognize a tax benefit, primarily related to our Asia Theme Parks.
Noncontrolling Interests
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended
|
|
|
|
|
|
(in millions)
|
March 28,
2020
|
|
March 30,
2019
|
|
% Change
Better/(Worse)
|
|
Net income from continuing operations attributable to noncontrolling interests
|
$
|
(60)
|
|
|
$
|
(159)
|
|
|
62
|
%
|
The decrease in net income from continuing operations attributable to noncontrolling interests was primarily due to lower results at Hong Kong Disneyland Resort, Shanghai Disney Resort and ESPN. These decreases were partially offset by the accretion of the fair value of the redeemable noncontrolling interest in Hulu.
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 Comparability
Results for the quarter ended March 28, 2020 were impacted by the following:
•Amortization expense of $723 million related to TFCF and Hulu intangible assets and fair value step-up on film and television costs
•Restructuring charges of $145 million
Results for the quarter ended March 30, 2019 were impacted by the following:
•The Hulu gain of $4,917 million
•A benefit of $46 million from an insurance recovery related to a legal matter
•Restructuring charges of $662 million
•An impairment of our investment in Vice of $353 million
•Amortization expense of $105 million related to TFCF and Hulu intangible assets and fair value step-up on film and television costs
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS — (continued)
A summary of the impact of these items on EPS is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in millions, except per share data)
|
Pre-Tax Income (Loss)
|
|
Tax Benefit (Expense)(1)
|
|
After-Tax Income (Loss)
|
|
EPS Favorable (Adverse) (2)
|
|
Quarter Ended March 28, 2020:
|
|
|
|
|
|
|
|
|
Amortization of TFCF and Hulu intangible assets and fair value step-up on film and television costs(3)
|
$
|
(723)
|
|
|
$
|
167
|
|
|
$
|
(556)
|
|
|
$
|
(0.28)
|
|
|
Restructuring and impairment charges
|
(145)
|
|
|
34
|
|
|
(111)
|
|
|
(0.06)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
$
|
(868)
|
|
|
$
|
201
|
|
|
$
|
(667)
|
|
|
$
|
(0.34)
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended March 30, 2019:
|
|
|
|
|
|
|
|
|
Hulu gain
|
$
|
4,917
|
|
|
$
|
(1,131)
|
|
|
$
|
3,786
|
|
|
$
|
2.46
|
|
|
Insurance recovery related to a legal matter
|
46
|
|
|
(11)
|
|
|
35
|
|
|
0.02
|
|
|
Restructuring and impairment charges
|
(662)
|
|
|
152
|
|
|
(510)
|
|
|
(0.33)
|
|
|
Vice impairment
|
(353)
|
|
|
81
|
|
|
(272)
|
|
|
(0.18)
|
|
|
Amortization of TFCF and Hulu intangible assets and fair value step-up on film and television costs
|
(105)
|
|
|
24
|
|
|
(81)
|
|
|
(0.05)
|
|
|
Total
|
$
|
3,843
|
|
|
$
|
(885)
|
|
|
$
|
2,958
|
|
|
$
|
1.92
|
|
(1)Tax benefit (expense) amounts are determined using the tax rate applicable to the individual item.
(2)EPS is net of noncontrolling interest share, where applicable. Total may not equal the sum of the column due to rounding.
(3)Includes amortization of intangibles related to TFCF equity investees.
CURRENT PERIOD RESULTS COMPARED TO PRIOR-YEAR PERIOD
Revenues for the six-month period increased 29%, or $8.6 billion, to $38.9 billion; net income attributable to Disney decreased 69%, or $5.7 billion, to $2.6 billion; and EPS decreased 73% from $5.42 to $1.44. The EPS decrease for the six-month period was due to the comparison to the Hulu gain recognized in the prior-year period, higher amortization of intangible assets and fair value step-up on film and television costs from the TFCF acquisition and the consolidation of Hulu, lower segment operating income, an increase in shares outstanding reflecting shares issued for the acquisition of TFCF and higher interest expense. The decrease in segment operating income was due to lower results at our legacy operations, partially offset by a $0.5 billion net benefit from the consolidation of TFCF and Hulu. Legacy operations reflected higher losses at Direct-to-Consumer & International and lower results at Parks, Experiences and Products segments, partially offset by growth at our Studio Entertainment and Media Networks segments.
Revenues
Service revenues for the six-month period increased 32%, or $8.4 billion, to $34.2 billion due to the consolidation of TFCF and Hulu’s operations partially offset by a decrease at our legacy operations. The decrease at our legacy operations was due to a decrease in sales of our television and film programs to third parties, lower volumes at our theme parks, resorts and cruise line and a decrease in advertising revenue. Theme park, resort and cruise line volumes were impacted by the suspension of these operations in response to COVID-19. These decreases were partially offset by an increase in subscription revenue driven by the launch of Disney+, growth in theatrical distribution revenue and higher per capita guest spending at our parks and resorts prior to being shutdown.
Product revenues for the six-month period increased 6%, or $0.3 billion, to $4.6 billion due to the consolidation of TFCF’s operations and to a lesser extent, growth at our legacy operations. The increase at our legacy operations was driven by higher per capita guest spending on merchandise, food and beverages at our parks and resorts, partially offset by lower theme park, resort and home entertainment volumes. Theme park and resort volumes were impacted by the shutdown of operations.
Costs and expenses
Cost of services for the six-month period increased 50%, or $7.3 billion, to $22.0 billion, due to the consolidation of TFCF and Hulu’s operations and to a lesser extent, higher costs at our legacy operations. The increase in costs at our legacy operations was due to an increase in programming, production and technology costs for Disney+ and cost inflation at our theme parks and resorts. These increases were partially offset by lower television and film cost amortization for programs sold to third parties.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS — (continued)
Cost of products for the six-month period increased 9%, or $0.2 billion, to $2.9 billion, due to higher costs at our legacy operations and the consolidation of TFCF’s operations. The increase in costs at our legacy operations was due to higher per capita guest spending on merchandise, food and beverages and labor cost inflation at our theme parks and resorts. These increases were partially offset by lower home entertainment and theme parks and resort volumes.
Selling, general, administrative and other costs for the six-month period increased 58%, or $2.6 billion, to $7.1 billion, due to the consolidation of TFCF and Hulu’s operations and higher marketing costs at our legacy operations. The increase in marketing costs was primarily due to spend for Disney+, ESPN+ and the ABC Television Network, partially offset by lower theatrical marketing spend.
Depreciation and amortization increased 69%, or $1.1 billion, to $2.6 billion, due to the amortization of intangible assets arising from the acquisition of TFCF and Hulu.
Restructuring and impairment charges
Restructuring and impairment charges of $295 million for the current period were primarily for severance costs in connection with the acquisition and integration of TFCF.
Restructuring and impairment charges of $662 million in the prior-year period were primarily for severance and equity based compensation costs in connection with the acquisition and integration of TFCF.
Other income/(expense), net
Other income of $5.0 billion for the prior-year period was due to the Hulu gain.
Interest expense, net
Interest expense, net is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended
|
|
|
|
|
|
(in millions)
|
March 28,
2020
|
|
March 30,
2019
|
|
% Change
Better/(Worse)
|
|
Interest expense
|
$
|
(727)
|
|
|
$
|
(361)
|
|
|
>(100)
|
%
|
|
Interest income, investment income and other
|
144
|
|
|
|
155
|
|
|
(7)
|
%
|
|
Interest expense, net
|
$
|
(583)
|
|
|
$
|
(206)
|
|
|
>(100)
|
%
|
The increase in interest expense for the six-month period was due to higher average debt balances.
The decrease in interest income, investment income and other was due to a lower benefit related to pension and postretirement benefit costs, other than service cost, partially offset by higher interest on long-term receivables for film and television program sales.
Equity in the income / (loss) of investees
Equity in the income / (loss) of investees reflected income of $359 million in the current period compared to a loss of $233 million in the prior-year period. The change reflected an impairment of our investment in Vice in the prior-year quarter and the impact of consolidating Hulu.
Effective Income Tax Rate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended
|
|
|
|
|
|
|
|
March 28,
2020
|
|
March 30,
2019
|
|
Change
Better/(Worse)
|
|
|
Effective income tax rate - continuing operations
|
26.7
|
%
|
|
21.5
|
%
|
|
(5.2)
|
|
ppt
|
The increase in the effective income tax rate was driven by higher U.S. tax on foreign income and an increase in losses for which the Company does not recognize a tax benefit, primarily related to our Asia Theme Parks.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS — (continued)
Noncontrolling Interests
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended
|
|
|
|
|
|
(in millions)
|
March 28,
2020
|
|
March 30,
2019
|
|
% Change
Better/(Worse)
|
|
Net income from continuing operations attributable to noncontrolling interests
|
$
|
(100)
|
|
|
$
|
(157)
|
|
|
36
|
%
|
The decrease in net income from continuing operations attributable to noncontrolling interests for the six-month period was due to lower results at Hong Kong Disneyland Resort, Shanghai Disney Resort and ESPN, and a higher loss from our DTC sports business. These decreases were partially offset by the accretion of the fair value of the redeemable noncontrolling interest in Hulu.
Certain Items Impacting Comparability
Results for the six months ended March 28, 2020 were impacted by the following:
•Amortization expense of $1.4 billion related to TFCF and Hulu intangible assets and fair value step-up on film and television costs
•Restructuring charges of $295 million
Results for the six months ended March 30, 2019 were impacted by the following:
•The Hulu gain of $4,917 million
•A benefit of $46 million from an insurance recovery related to a legal matter
•A benefit of $34 million from the Tax Act
•Restructuring charges of $662 million
•An impairment of our investment in Vice of $353 million
•Amortization expense of $105 million related to TFCF and Hulu intangible assets and fair value step-up on film and television costs
A summary of the impact of these items on EPS is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in millions, except per share data)
|
Pre-Tax Income/(Loss)
|
|
Tax Benefit/(Expense)(1)
|
|
After-Tax Income/(Loss)
|
|
EPS Favorable/(Adverse) (2)
|
|
Six Months Ended March 28, 2020:
|
|
|
|
|
|
|
|
|
Amortization of TFCF and Hulu intangible assets and fair value step-up on film and television costs(3)
|
$
|
(1,423)
|
|
|
$
|
330
|
|
|
$
|
(1,093)
|
|
|
$
|
(0.57)
|
|
|
Restructuring and impairment charges
|
(295)
|
|
|
68
|
|
|
(227)
|
|
|
(0.13)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
$
|
(1,718)
|
|
|
$
|
398
|
|
|
$
|
(1,320)
|
|
|
$
|
(0.70)
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended March 30, 2019:
|
|
|
|
|
|
|
|
|
Hulu gain
|
$
|
4,917
|
|
|
$
|
(1,131)
|
|
|
$
|
3,786
|
|
|
$
|
2.50
|
|
|
Insurance recoveries related to a legal matter
|
46
|
|
|
(11)
|
|
|
35
|
|
|
0.02
|
|
|
Net benefit from the Tax Act
|
—
|
|
|
34
|
|
|
34
|
|
|
0.02
|
|
|
Restructuring and impairment charges
|
(662)
|
|
|
152
|
|
|
(510)
|
|
|
(0.33)
|
|
|
Vice impairment
|
(353)
|
|
|
81
|
|
|
(272)
|
|
|
(0.18)
|
|
|
Amortization of TFCF and Hulu intangible assets and fair value step-up on film and television costs
|
(105)
|
|
|
24
|
|
|
(81)
|
|
|
(0.05)
|
|
|
Total
|
$
|
3,843
|
|
|
$
|
(851)
|
|
|
$
|
2,992
|
|
|
$
|
1.98
|
|
(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 share, where applicable. Total may not equal the sum of the column due to rounding.
(3)Includes amortization of intangibles related to TFCF equity investees.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS — (continued)
SEASONALITY
The Company’s businesses are subject to the effects of seasonality. Consequently, the operating results for the six months ended March 28, 2020 for each business segment, and for the Company as a whole, are not necessarily indicative of results to be expected for the full year.
Media Networks revenues are subject to seasonal advertising patterns, changes in viewership levels and timing of program sales. In general, advertising revenues are somewhat higher during the fall and somewhat lower during the summer months. Affiliate fees are generally recognized ratably throughout the year.
Parks, Experiences and Products revenues fluctuate with changes in theme park attendance and resort occupancy resulting from the seasonal nature of vacation travel and leisure activities and seasonal consumer purchasing behavior, which generally results in increased revenues during the Company’s first and fourth fiscal quarter. Peak attendance and resort occupancy generally occur during the summer months when school vacations occur and during early winter and spring holiday periods. In addition, licensing revenues fluctuate with the timing and performance of our theatrical releases and cable programming broadcasts.
Studio Entertainment revenues fluctuate due to the timing and performance of releases in the theatrical, home entertainment and television markets. Release dates are determined by several factors, including competition and the timing of vacation and holiday periods.
Direct-to-Consumer & International revenues fluctuate based on: changes in subscriber levels; the timing and performance of releases of our digital media content; viewership levels on our cable channels and digital platforms; and the demand for sports and our content. Each of these may depend on the availability of content, which varies from time to time throughout the year based on, among other things, sports seasons and content production schedules.
BUSINESS SEGMENT RESULTS
The following table reconciles income from continuing operations before income taxes to total segment operating income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended
|
|
|
|
% Change
|
|
Six Months Ended
|
|
|
|
% Change
|
|
(in millions)
|
March 28,
2020
|
|
March 30,
2019
|
|
Better/
(Worse)
|
|
March 28,
2020
|
|
March 30,
2019
|
|
Better/
(Worse)
|
|
Income from continuing operations before income taxes
|
$
|
1,060
|
|
|
$
|
7,237
|
|
|
(85)
|
%
|
|
$
|
3,692
|
|
|
$
|
10,668
|
|
|
(65)
|
%
|
|
Add:
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate and unallocated shared expenses
|
188
|
|
|
279
|
|
|
33
|
%
|
|
425
|
|
|
440
|
|
|
3
|
%
|
|
Restructuring and impairment charges
|
145
|
|
|
662
|
|
|
78
|
%
|
|
295
|
|
|
662
|
|
|
55
|
%
|
|
Other income
|
—
|
|
|
(4,963)
|
|
|
(100)
|
%
|
|
—
|
|
|
(4,963)
|
|
|
(100)
|
%
|
|
Interest expense, net
|
300
|
|
|
143
|
|
|
>(100)
|
%
|
|
583
|
|
|
206
|
|
|
>(100)
|
%
|
|
Amortization of TFCF and Hulu intangible assets and fair value step-up on film and television costs(1)
|
723
|
|
|
105
|
|
|
>(100)
|
%
|
|
1,423
|
|
|
105
|
|
|
>(100)
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vice impairment
|
—
|
|
|
353
|
|
|
100
|
%
|
|
—
|
|
|
353
|
|
|
100
|
%
|
|
Total segment operating income
|
$
|
2,416
|
|
|
$
|
3,816
|
|
|
(37)
|
%
|
|
$
|
6,418
|
|
|
$
|
7,471
|
|
|
(14)
|
%
|
(1)Includes amortization of intangibles related to TFCF equity investees.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS — (continued)
The following is a summary of segment revenue and operating income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended
|
|
|
|
% Change
|
|
Six Months Ended
|
|
|
|
% Change
|
|
(in millions)
|
March 28,
2020
|
|
March 30,
2019
|
|
Better/
(Worse)
|
|
March 28,
2020
|
|
March 30,
2019
|
|
Better/
(Worse)
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
Media Networks
|
$
|
7,257
|
|
|
$
|
5,683
|
|
|
28
|
%
|
|
$
|
14,618
|
|
|
$
|
11,604
|
|
|
26
|
%
|
|
Parks, Experiences and Products
|
5,543
|
|
|
6,171
|
|
|
(10)
|
%
|
|
12,939
|
|
|
12,995
|
|
|
—
|
%
|
|
Studio Entertainment
|
2,539
|
|
|
2,157
|
|
|
18
|
%
|
|
6,303
|
|
|
3,981
|
|
|
58
|
%
|
|
Direct-to-Consumer & International
|
4,123
|
|
|
1,145
|
|
|
>100
|
%
|
|
8,110
|
|
|
2,063
|
|
|
>100
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Eliminations
|
(1,453)
|
|
|
(234)
|
|
|
>(100)
|
%
|
|
(3,103)
|
|
|
(418)
|
|
|
>(100)
|
%
|
|
|
$
|
18,009
|
|
|
$
|
14,922
|
|
|
21
|
%
|
|
$
|
38,867
|
|
|
$
|
30,225
|
|
|
29
|
%
|
|
Segment operating income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
Media Networks
|
$
|
2,375
|
|
|
$
|
2,230
|
|
|
7
|
%
|
|
$
|
4,005
|
|
|
$
|
3,560
|
|
|
13
|
%
|
|
Parks, Experiences and Products
|
639
|
|
|
1,506
|
|
|
(58)
|
%
|
|
2,977
|
|
|
3,658
|
|
|
(19)
|
%
|
|
Studio Entertainment
|
466
|
|
|
506
|
|
|
(8)
|
%
|
|
1,414
|
|
|
815
|
|
|
73
|
%
|
|
Direct-to-Consumer & International
|
(812)
|
|
|
(385)
|
|
|
>(100)
|
%
|
|
(1,505)
|
|
|
(521)
|
|
|
>(100)
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Eliminations
|
(252)
|
|
|
(41)
|
|
|
>(100)
|
%
|
|
(473)
|
|
|
(41)
|
|
|
>(100)
|
%
|
|
|
$
|
2,416
|
|
|
$
|
3,816
|
|
|
(37)
|
%
|
|
$
|
6,418
|
|
|
$
|
7,471
|
|
|
(14)
|
%
|
Depreciation expense is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended
|
|
|
|
% Change
|
|
Six Months Ended
|
|
|
|
% Change
|
|
(in millions)
|
March 28,
2020
|
|
March 30,
2019
|
|
Better/
(Worse)
|
|
March 28,
2020
|
|
March 30,
2019
|
|
Better/
(Worse)
|
|
Media Networks
|
|
|
|
|
|
|
|
|
|
|
|
|
Cable Networks
|
$
|
26
|
|
|
$
|
26
|
|
|
—
|
%
|
|
$
|
53
|
|
|
$
|
50
|
|
|
(6)
|
%
|
|
Broadcasting
|
16
|
|
|
20
|
|
|
20
|
%
|
|
38
|
|
|
40
|
|
|
5
|
%
|
|
Total Media Networks
|
42
|
|
|
46
|
|
|
9
|
%
|
|
91
|
|
|
90
|
|
|
(1)
|
%
|
|
Parks, Experiences and Products
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Domestic
|
408
|
|
|
367
|
|
|
(11)
|
%
|
|
806
|
|
|
719
|
|
|
(12)
|
%
|
|
International
|
175
|
|
|
182
|
|
|
4
|
%
|
|
344
|
|
|
368
|
|
|
7
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Parks, Experiences and Products
|
583
|
|
|
549
|
|
|
(6)
|
%
|
|
1,150
|
|
|
1,087
|
|
|
(6)
|
%
|
|
Studio Entertainment
|
22
|
|
|
17
|
|
|
(29)
|
%
|
|
44
|
|
|
31
|
|
|
(42)
|
%
|
|
Direct-to-Consumer & International
|
72
|
|
|
37
|
|
|
(95)
|
%
|
|
142
|
|
|
69
|
|
|
>(100)
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate
|
46
|
|
|
42
|
|
|
(10)
|
%
|
|
77
|
|
|
81
|
|
|
5
|
%
|
|
Total depreciation expense
|
$
|
765
|
|
|
$
|
691
|
|
|
(11)
|
%
|
|
$
|
1,504
|
|
|
$
|
1,358
|
|
|
(11)
|
%
|
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS — (continued)
Amortization of intangible assets is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended
|
|
|
|
% Change
|
|
Six Months Ended
|
|
|
|
% Change
|
|
(in millions)
|
March 28,
2020
|
|
March 30,
2019
|
|
Better/
(Worse)
|
|
March 28,
2020
|
|
March 30,
2019
|
|
Better/
(Worse)
|
|
Media Networks
|
$
|
1
|
|
|
$
|
—
|
|
|
nm
|
|
|
$
|
2
|
|
|
$
|
—
|
|
|
nm
|
|
|
Parks, Experiences and Products
|
27
|
|
|
27
|
|
|
—
|
%
|
|
54
|
|
|
54
|
|
|
—
|
%
|
|
Studio Entertainment
|
15
|
|
|
15
|
|
|
—
|
%
|
|
30
|
|
|
31
|
|
|
3
|
%
|
|
Direct-to-Consumer & International
|
27
|
|
|
23
|
|
|
(17)
|
%
|
|
57
|
|
|
45
|
|
|
(27)
|
%
|
|
TFCF and Hulu
|
498
|
|
|
72
|
|
|
>(100)
|
%
|
|
984
|
|
|
72
|
|
|
>(100)
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total amortization of intangible assets
|
$
|
568
|
|
|
$
|
137
|
|
|
>(100)
|
%
|
|
$
|
1,127
|
|
|
$
|
202
|
|
|
>(100)
|
%
|
Media Networks
Operating results for the Media Networks segment are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended
|
|
|
|
% Change
|
|
(in millions)
|
March 28,
2020
|
|
March 30,
2019
|
|
Better/
(Worse)
|
|
Revenues
|
|
|
|
|
|
|
Affiliate fees
|
$
|
3,746
|
|
|
$
|
3,234
|
|
|
16
|
%
|
|
Advertising
|
1,703
|
|
|
1,624
|
|
|
5
|
%
|
|
TV/SVOD distribution and other
|
1,808
|
|
|
825
|
|
|
>100
|
%
|
|
Total revenues
|
7,257
|
|
|
5,683
|
|
|
28
|
%
|
|
Operating expenses
|
(4,335)
|
|
|
(3,099)
|
|
|
(40)
|
%
|
|
Selling, general, administrative and other
|
(683)
|
|
|
(490)
|
|
|
(39)
|
%
|
|
Depreciation and amortization
|
(43)
|
|
|
(46)
|
|
|
7
|
%
|
|
Equity in the income of investees
|
179
|
|
|
182
|
|
|
(2)
|
%
|
|
Operating Income
|
$
|
2,375
|
|
|
$
|
2,230
|
|
|
7
|
%
|
Revenues
The increase in affiliate fees was due to increases of 13% from the consolidation of TFCF’s operations and 7% from higher contractual rates, partially offset by a decrease of 3% from fewer subscribers. The subscriber decline was net of a benefit from the ACC Network launch in August 2019.
The increase in advertising revenues was due to increases of $51 million at Cable Networks, from $752 million to $803 million and $28 million at Broadcasting, from $872 million to $900 million. Cable Networks advertising revenue reflected increases of 15% from the consolidation of TFCF’s operations and 6% from higher rates. These increases were partially offset by a decrease of 15% from lower impressions reflecting lower average viewership, driven by the impact of COVID-19 on live sports events. Broadcasting advertising revenue reflected increases of 4% from higher network rates, 3% from the consolidation of TFCF’s operations and 2% from the owned television stations. These increases were partially offset by a decrease of 5% from lower network impressions due to lower average viewership.
The increase in TV/SVOD distribution and other revenue of $983 million was due to the consolidation of TFCF’s operations, which consisted primarily of program sales.
Costs and Expenses
Operating expenses include programming and production costs, which increased $1,176 million, from $2,946 million to $4,122 million. At Cable Networks, programming and production costs increased $462 million due to the consolidation of TFCF’s operations and, to a lesser extent, contractual increases for sports programming as well as costs for the ACC Network. At Broadcasting, programming and production costs increased $714 million due to the consolidation of TFCF’s operations and higher cost network programming, driven by more hours of higher cost specials and contractual rate increases for The Academy Awards in the current quarter. These increases were partially offset by a timing benefit from the adoption of new accounting guidance, which generally results in lower amortization of capitalized episodic television costs during the network airings for
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS — (continued)
shows we also expect to utilize on our direct-to-consumer services (see Note 8 to the Condensed Consolidated Financial Statements). Compared to the previous accounting, programming and production expense will generally be lower in the first half of the fiscal year and higher in the second half of the fiscal year as the capitalized costs are amortized.
Selling, general, administrative and other costs increased $193 million, from $490 million to $683 million, due to the consolidation of TFCF’s operations and higher marketing costs at the ABC Television Network.
Segment Operating Income
Segment operating income increased 7%, or $145 million to $2,375 million due to the consolidation of TFCF’s operations, partially offset by lower results at ESPN and the Domestic Disney Channels.
The following table presents supplemental revenue and operating income detail for the Media Networks segment:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended
|
|
|
|
% Change
|
|
(in millions)
|
March 28,
2020
|
|
March 30,
2019
|
|
Better/
(Worse)
|
|
Supplemental revenue detail
|
|
|
|
|
|
|
Cable Networks
|
$
|
4,445
|
|
|
$
|
3,793
|
|
|
17
|
%
|
|
Broadcasting
|
2,812
|
|
|
1,890
|
|
|
49
|
%
|
|
|
$
|
7,257
|
|
|
$
|
5,683
|
|
|
28
|
%
|
|
Supplemental operating income detail
|
|
|
|
|
|
|
Cable Networks
|
$
|
1,799
|
|
|
$
|
1,789
|
|
|
1
|
%
|
|
Broadcasting
|
397
|
|
|
259
|
|
|
53
|
%
|
|
Equity in the income of investees
|
179
|
|
|
182
|
|
|
(2)
|
%
|
|
|
$
|
2,375
|
|
|
$
|
2,230
|
|
|
7
|
%
|
Items Excluded from Segment Operating Income Related to Media Networks
The following table presents supplemental information for items related to the Media Network segment that are excluded from segment operating income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended
|
|
|
|
% Change
|
|
(in millions)
|
March 28,
2020
|
|
March 30,
2019
|
|
Better/
(Worse)
|
|
|
|
|
|
|
|
|
Amortization of TFCF intangible assets and fair value step-up on film and television costs(1)
|
$
|
(311)
|
|
|
$
|
(50)
|
|
|
>(100)
|
%
|
|
Restructuring and impairment charges
|
(18)
|
|
|
(64)
|
|
|
72
|
%
|
|
|
|
|
|
|
|
(1)In the current quarter, amortization of step-up on film and television costs was $158 million and amortization of intangible assets was $153 million. In the prior-year quarter, amortization of step-up on film and television costs was $32 million and amortization of intangible assets was $18 million.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS — (continued)
Parks, Experiences and Products
Operating results for the Parks, Experiences and Products segment are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended
|
|
|
|
% Change
|
|
(in millions)
|
March 28,
2020
|
|
March 30,
2019
|
|
Better/
(Worse)
|
|
Revenues
|
|
|
|
|
|
|
Theme park admissions
|
$
|
1,554
|
|
|
$
|
1,768
|
|
|
(12)
|
%
|
|
Parks & Experiences merchandise, food and beverage
|
1,276
|
|
|
1,411
|
|
|
(10)
|
%
|
|
Resorts and vacations
|
1,377
|
|
|
1,503
|
|
|
(8)
|
%
|
|
Merchandise licensing and retail
|
900
|
|
|
992
|
|
|
(9)
|
%
|
|
Parks licensing and other
|
436
|
|
|
497
|
|
|
(12)
|
%
|
|
Total revenues
|
5,543
|
|
|
6,171
|
|
|
(10)
|
%
|
|
Operating expenses
|
(3,555)
|
|
|
(3,341)
|
|
|
(6)
|
%
|
|
Selling, general, administrative and other
|
(733)
|
|
|
(748)
|
|
|
2
|
%
|
|
Depreciation and amortization
|
(610)
|
|
|
(576)
|
|
|
(6)
|
%
|
|
Equity in the loss of investees
|
(6)
|
|
|
—
|
|
|
nm
|
|
|
Operating Income
|
$
|
639
|
|
|
$
|
1,506
|
|
|
(58)
|
%
|
Revenues
Revenues at the Parks, Experiences and Products segment were impacted by COVID-19, which led to the closure of our domestic and international theme parks and resorts, suspension of cruise ship sailings, disruptions in our merchandise licensing business and closure of our retail stores. We estimate that the impact of COVID-19 on current period segment operating income was approximately $1.0 billion.
The decrease in theme park admissions revenue was due to a decrease of 19% from lower attendance driven by the closure of the parks, partially offset by an increase of 7% from higher average ticket prices.
The decline in Parks & Experiences merchandise, food and beverage revenue was driven by a decrease of 17% from volumes due to the closure of our theme parks and resorts, partially offset by an increase of 9% from higher average guest spending.
The decrease in resorts and vacations revenue was due to decreases of 8% from lower occupied room nights and 5% from fewer passenger cruise days due to the closure of our theme parks and resorts and suspension of cruise ship sailings, respectively. These decreases were partially offset by increases of 2% from higher average daily hotel room rates and 2% from the consolidation of TFCF’s operations.
Merchandise licensing and retail revenue was lower due to decreases of 6% from games and 2% from merchandise licensing. Lower revenue at games was due to the prior-year sale of rights to a video game and lower royalties from the licensed title Kingdom Hearts III. The decrease in merchandise licensing revenues was due to lower minimum guarantee shortfall recognition and a decrease in sales of merchandise based on Mickey and Minnie and Avengers, partially offset by higher revenue from Frozen merchandise. Revenues from merchandise based on Mickey and Minnie in the prior-year quarter included the benefit of Mickey’s 90th birthday. Merchandise licensing revenues for the current quarter were adversely impacted by COVID-19.
The decrease in parks licensing and other revenue was due to lower sponsorship revenue and a decrease in Tokyo Disney Resort royalties due to the closure of the park.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS — (continued)
In addition to revenue, costs and operating income, management uses the following key metrics to analyze trends and evaluate the overall performance of our theme parks and resorts, and we believe these metrics are useful to investors in analyzing the business:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Domestic
|
|
|
|
International (1)
|
|
|
|
Total
|
|
|
|
|
Quarter Ended
|
|
|
|
Quarter Ended
|
|
|
|
Quarter Ended
|
|
|
|
|
Mar 28,
2020
|
|
Mar 30,
2019
|
|
Mar 28,
2020
|
|
Mar 30,
2019
|
|
Mar 28,
2020
|
|
Mar 30,
2019
|
|
Parks
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase/(decrease)
|
|
|
|
|
|
|
|
|
|
|
|
|
Attendance (2)
|
(11)
|
%
|
|
1
|
%
|
|
(50)
|
%
|
|
(3)
|
%
|
|
(22)
|
%
|
|
—
|
%
|
|
Per Capita Guest Spending (3)
|
13
|
%
|
|
4
|
%
|
|
(5)
|
%
|
|
10
|
%
|
|
14
|
%
|
|
6
|
%
|
|
Hotels
|
|
|
|
|
|
|
|
|
|
|
|
|
Occupancy (4)
|
77
|
%
|
|
93
|
%
|
|
47
|
%
|
|
79
|
%
|
|
70
|
%
|
|
89
|
%
|
|
Available Room Nights (in thousands) (5)
|
2,617
|
|
|
2,484
|
|
|
794
|
|
|
787
|
|
|
3,411
|
|
|
3,271
|
|
|
Per Room Guest Spending (6)
|
$372
|
|
|
$351
|
|
|
$265
|
|
|
$273
|
|
|
$355
|
|
|
$334
|
|
(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, meaning that 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 Disney Vacation Club (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 include operating labor, which increased $146 million from $1,515 million to $1,661 million, cost of goods sold and distribution costs, which decreased $10 million from $636 million to $626 million, and infrastructure costs, which increased $57 million from $597 million to $654 million. The increase in operating labor was due to the costs of pay to employees who were not performing services as a result of actions taken in response to COVID-19 (net of the CARES Act credits), new guest offerings and inflation. The decrease in cost of goods sold and distribution costs was due to lower volumes resulting from the closures of our theme parks and resorts. Higher infrastructure costs were primarily due to an increase in costs for new guest offerings, including expenses associated with Star Wars: Galaxy’s Edge, and higher technology spending. Other operating expenses, which include costs for such items as supplies, commissions/fees and entertainment offerings, increased $21 million, from $593 million to $614 million driven by higher charges for capital project abandonments, the consolidation of TFCF’s operations and costs for new guest offerings, partially offset by lower volumes.
Selling, general, administrative and other costs decreased $15 million from $748 million to $733 million driven by a favorable foreign exchange impact, partially offset by costs related to an employee educational program.
Depreciation and amortization increased $34 million from $576 million to $610 million due to new attractions at our domestic parks and resorts.
Equity in the Loss of Investees
Loss from equity investees was $6 million, reflecting a loss from Villages Nature, in which Disneyland Paris has a 50% interest.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS — (continued)
Segment Operating Income
Segment operating income decreased 58%, or $867 million to $639 million due to decreases at our domestic and international parks and experiences and to a lesser extent, our games and merchandise licensing businesses.
The following table presents supplemental revenue and operating income detail for the Parks, Experiences and Products segment:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended
|
|
|
|
% Change
Better /
(Worse)
|
|
(in millions)
|
March 28,
2020
|
|
March 30,
2019
|
|
|
|
Supplemental revenue detail
|
|
|
|
|
|
|
Parks & Experiences
|
|
|
|
|
|
|
Domestic
|
$
|
4,139
|
|
|
$
|
4,207
|
|
|
(2)
|
%
|
|
International
|
480
|
|
|
930
|
|
|
(48)
|
%
|
|
Consumer Products
|
924
|
|
|
1,034
|
|
|
(11)
|
%
|
|
|
$
|
5,543
|
|
|
$
|
6,171
|
|
|
(10)
|
%
|
|
Supplemental operating income detail
|
|
|
|
|
|
|
Parks & Experiences
|
|
|
|
|
|
|
Domestic
|
$
|
661
|
|
|
$
|
1,047
|
|
|
(37)
|
%
|
|
International
|
(343)
|
|
|
43
|
|
|
nm
|
|
|
Consumer Products
|
321
|
|
|
416
|
|
|
(23)
|
%
|
|
|
$
|
639
|
|
|
$
|
1,506
|
|
|
(58)
|
%
|
Studio Entertainment
Operating results for the Studio Entertainment segment are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended
|
|
|
|
% Change
|
|
(in millions)
|
March 28,
2020
|
|
March 30,
2019
|
|
Better/
(Worse)
|
|
Revenues
|
|
|
|
|
|
|
Theatrical distribution
|
$
|
603
|
|
|
$
|
752
|
|
|
(20)
|
%
|
|
Home entertainment
|
427
|
|
|
270
|
|
|
58
|
%
|
|
TV/SVOD distribution and other
|
1,509
|
|
|
1,135
|
|
|
33
|
%
|
|
Total revenues
|
2,539
|
|
|
2,157
|
|
|
18
|
%
|
|
Operating expenses
|
(1,265)
|
|
|
(1,002)
|
|
|
(26)
|
%
|
|
Selling, general, administrative and other
|
(771)
|
|
|
(617)
|
|
|
(25)
|
%
|
|
Depreciation and amortization
|
(37)
|
|
|
(32)
|
|
|
(16)
|
%
|
|
Operating Income
|
$
|
466
|
|
|
$
|
506
|
|
|
(8)
|
%
|
Revenues
The decrease in theatrical distribution revenue was due to release of Captain Marvel in the prior-year quarter, partially offset by the consolidation of TFCF’s operations in the current quarter. Additionally, the current quarter included the ongoing performance from the first quarter release of Star Wars: The Rise of Skywalker and Frozen II and current quarter release of Onward, which was impacted by theater closures globally due to COVID-19. The prior-year quarter included the ongoing performance of Mary Poppins Returns and Ralph Breaks the Internet, which were both released in the prior-year first quarter, and the results of Dumbo, which was released in the prior-year quarter. Significant TFCF titles in release included Spies in Disguise and Call of The Wild.
Higher home entertainment revenue was primarily due to an increase of 42% from the consolidation of TFCF’s operations and an increase of 11% from higher domestic unit sales at our legacy operations. The increase in domestic unit sales at our legacy operations was driven by the performance of Frozen II and Maleficent: Mistress of Evil in the current quarter compared to Ralph Breaks the Internet and Mary Poppins Returns in the prior-year quarter.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS — (continued)
Growth in TV/SVOD distribution and other revenue was due to an increase of 30% from the consolidation of TFCF’s operations. Revenues at our legacy operations were essentially flat as an increase of 4% from TV/SVOD distribution was largely offset by a decrease of 3% from stage plays reflecting the impact of theater closures in response to COVID-19. The increase in TV/SVOD distribution at our legacy operations was due to sales of content to Disney+, which included The Lion King, Aladdin, Toy Story 4 and Frozen II, partially offset by lower sales to third parties in the pay and free television windows.
Costs and Expenses
Operating expenses include film cost amortization, which increased $271 million, from $698 million to $969 million, due to the consolidation of TFCF’s operations, partially offset by lower film cost amortization at our legacy operations. Lower amortization at our legacy operations was due to the decrease in theatrical distribution revenue, partially offset by higher film impairments. Operating expenses also include cost of goods sold and distribution costs, which decreased $8 million, from $304 million to $296 million.
Selling, general, administrative and other costs increased $154 million from $617 million to $771 million, due to the consolidation of TFCF’s operations and higher bad debt expense at our theatrical distribution business. These decreases were partially offset by lower theatrical marketing expense at our legacy operations.
Segment Operating Income
Segment operating income decreased $40 million, to $466 million due to lower operating results at our legacy operations, due to higher film impairments, a decrease in theatrical distribution results and lower stage play results, partially offset by an increase in TV/SVOD distribution results. The decrease at our legacy operations was partially offset by the consolidation of TFCF businesses.
Items Excluded from Segment Operating Income Related to Studio Entertainment
The following table presents supplemental information for items related to the Studio Entertainment segment that are excluded from segment operating income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended
|
|
|
|
% Change
|
|
(in millions)
|
March 28,
2020
|
|
March 30,
2019
|
|
Better/
(Worse)
|
|
Amortization of TFCF intangible assets and fair value step-up on film and television costs(1)
|
$
|
(81)
|
|
|
$
|
—
|
|
|
nm
|
|
|
Restructuring and impairment charges
|
(37)
|
|
|
(111)
|
|
|
67
|
%
|
(1)Amortization of step-up on film and television costs was $54 million and amortization of intangible assets was $27 million.
Direct-to-Consumer & International
Operating results for the Direct-to-Consumer & International segment are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended
|
|
|
|
% Change
|
|
(in millions)
|
March 28,
2020
|
|
March 30,
2019
|
|
Better/
(Worse)
|
|
Revenues
|
|
|
|
|
|
|
Affiliate fees
|
$
|
957
|
|
|
$
|
412
|
|
|
>100
|
%
|
|
Advertising
|
1,081
|
|
|
454
|
|
|
>100
|
%
|
|
Subscription fees
|
1,796
|
|
|
153
|
|
|
>100
|
%
|
|
TV/SVOD distribution and other
|
289
|
|
|
126
|
|
|
>100
|
%
|
|
Total revenues
|
4,123
|
|
|
1,145
|
|
|
>100
|
%
|
|
Operating expenses
|
(3,747)
|
|
|
(1,094)
|
|
|
>(100)
|
%
|
|
Selling, general, administrative and other
|
(1,059)
|
|
|
(238)
|
|
|
>(100)
|
%
|
|
Depreciation and amortization
|
(99)
|
|
|
(60)
|
|
|
(65)
|
%
|
|
Equity in the loss of investees
|
(30)
|
|
|
(138)
|
|
|
78
|
%
|
|
Operating Loss
|
$
|
(812)
|
|
|
$
|
(385)
|
|
|
>(100)
|
%
|
Revenues
The increase in affiliate fees was due to the consolidation of TFCF’s operations.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS — (continued)
Advertising revenue growth was due to increases of $451 million in addressable advertising sales driven by the consolidation of Hulu’s operations and $176 million at our International Channels driven by the consolidation of TFCF’s operations.
The increase in subscription fees was due to the consolidation of Hulu’s operations, the launch of Disney+ starting in November 2019 and, to a lesser extent, subscriber growth at ESPN+.
Growth in TV/SVOD distribution and other revenue was due to Ultimate Fighting Championship (UFC) pay-per-view fees and the consolidation of TFCF’s operations, which primarily consisted of TV/SVOD distribution.
The following table presents the number of paid subscribers(1) (in millions) for Disney+, ESPN+ and Hulu as of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% Change
|
|
|
|
March 28,
2020
|
|
March 30,
2019
|
|
Better /
(Worse)
|
|
|
Disney+
|
33.5
|
|
|
—
|
|
|
nm
|
|
|
|
ESPN+
|
7.9
|
|
|
2.2
|
|
|
>100
|
%
|
|
|
Hulu
|
|
|
|
|
|
|
|
SVOD Only
|
28.8
|
|
|
23.2
|
|
|
24
|
%
|
|
|
Live TV + SVOD
|
3.3
|
|
|
2.0
|
|
|
65
|
%
|
|
|
Total Hulu
|
32.1
|
|
|
25.2
|
|
|
27
|
%
|
|
The following table presents the average monthly revenue per paid subscriber(2) for the quarter ended:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% Change
|
|
|
|
March 28,
2020
|
|
March 30,
2019
|
|
Better /
(Worse)
|
|
|
Disney+
|
$
|
5.63
|
|
|
—
|
|
|
nm
|
|
|
|
ESPN+ (3)
|
$
|
4.24
|
|
|
$
|
5.13
|
|
|
(17)
|
%
|
|
|
Hulu (4)
|
|
|
|
|
|
|
|
SVOD Only
|
$
|
12.06
|
|
|
$
|
12.73
|
|
|
(5)
|
%
|
|
|
Live TV + SVOD
|
$
|
67.75
|
|
|
$
|
52.58
|
|
|
29
|
%
|
|
(1) A subscriber for which we recognized subscription revenue. A subscriber ceases to be a paid subscriber as of their effective cancellation date or as a result of a failed payment method. A subscription bundle is considered a paid subscriber for each service included in the bundle.
(2) Revenue per paid subscriber is calculated based upon 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 for the quarter ended March 28, 2020 is calculated using a daily average of paid subscribers for the period beginning at launch and ending on the last day of the quarter. The average revenue per subscriber is net of discounts offered on bundled services. The discount is allocated to each service based on the relative retail price of each service on a standalone basis.
(3) Excludes Pay-Per-View revenue.
(4) Hulu’s average monthly revenue per paid subscriber for the period December 30, 2018 to March 19, 2019 is not reflected in the Company’s prior-year quarter revenues, but is included in the average monthly revenue per paid subscriber reported in the table. Includes advertising revenue (including amounts generated during free trial subscription periods).
The average monthly revenue per paid subscriber for ESPN+ decreased from $5.13 to $4.24 due to the introduction of a bundled subscription package offering of Disney+, ESPN+ and Hulu beginning in November 2019. The bundled offering has a lower retail price than the aggregate standalone retail prices of the individual services.
The average monthly revenue per paid subscriber for the Hulu SVOD Only service decreased from $12.73 to $12.06 driven by lower retail pricing. The average monthly revenue per paid subscriber for the Hulu Live TV + SVOD service increased from $52.58 to $67.75 due to higher retail pricing.
Costs and Expenses
Operating expenses include a $2,208 million increase in programming and production costs, from $769 million to $2,977 million and a $445 million increase in other operating expenses, from $325 million to $770 million. The increase in programming and production costs, which includes the costs of content provided by other segments, was due to the consolidation of Hulu’s and TFCF’s operations, the launch of Disney+ and, to a lesser extent, higher programming costs at
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS — (continued)
ESPN+, primarily for UFC programming rights. Other operating expenses, which include technical support and distribution costs, increased due to the consolidation of Hulu’s and TFCF’s operations and the launch of Disney+.
Selling, general, administrative and other costs increased $821 million from $238 million to $1,059 million due to the consolidation of Hulu’s and TFCF’s operations and the launch of Disney+.
Depreciation and amortization increased $39 million from $60 million to $99 million driven by the consolidation of Hulu’s and TFCF’s operations.
Equity in the Loss of Investees
Loss from equity investees in the prior-year quarter of $138 million improved by $108 million to a loss of $30 million in the current quarter, primarily due to the consolidation of Hulu’s operations. In the current quarter, Hulu’s results are reported in revenues and expenses. In the prior-year quarter, prior to March 20, 2019, the Company recognized its ownership share of Hulu’s results in equity in the loss of investees.
Segment Operating Loss
Segment operating loss increased to $812 million due to costs associated with the launch of Disney+ and the consolidation of Hulu’s operations. Results for the quarter also reflected a net a benefit from the inclusion of TFCF’s operations due to income at the international channels, including Star.
The following table presents supplemental revenue and operating income/(loss) detail for the Direct-to-Consumer & International segment:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended
|
|
|
|
% Change
|
|
|
(in millions)
|
March 28,
2020
|
|
March 30,
2019
|
|
Better /
(Worse)
|
|
|
Supplemental revenue detail
|
|
|
|
|
|
|
|
International Channels
|
$
|
1,389
|
|
|
$
|
615
|
|
|
>100
|
%
|
|
|
Direct-to-Consumer services
|
2,456
|
|
|
220
|
|
|
>100
|
%
|
|
|
Other (1)
|
278
|
|
|
310
|
|
|
(10)
|
%
|
|
|
|
$
|
4,123
|
|
|
$
|
1,145
|
|
|
>100
|
%
|
|
|
Supplemental operating income (loss) detail
|
|
|
|
|
|
|
|
International Channels
|
$
|
247
|
|
|
$
|
113
|
|
|
>100
|
%
|
|
|
Direct-to-Consumer services
|
(894)
|
|
|
(277)
|
|
|
>(100)
|
%
|
|
|
Other (1)
|
(135)
|
|
|
(83)
|
|
|
(63)
|
%
|
|
|
Equity in the loss of investees
|
(30)
|
|
|
(138)
|
|
|
78
|
%
|
|
|
|
$
|
(812)
|
|
|
$
|
(385)
|
|
|
>(100) %
|
|
|
(1)Primarily addressable ad sales related to domestic Media Networks branded properties (addressable ad sales related to our Direct-to-Consumer services, principally Hulu, are reflected in “Direct-to-Consumer services”)
Items Excluded from Segment Operating Loss Related to Direct-to-Consumer & International
The following table presents supplemental information for items related to the Direct-to-Consumer & International segment that are excluded from segment operating loss:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended
|
|
|
|
% Change
|
|
(in millions)
|
March 28,
2020
|
|
March 30,
2019
|
|
Better /
(Worse)
|
|
Amortization of TFCF and Hulu intangible assets and fair value step-up on film and television costs(1)
|
$
|
(329)
|
|
|
$
|
(55)
|
|
|
>(100)
|
%
|
|
Hulu gain
|
—
|
|
|
4,917
|
|
|
(100)
|
%
|
|
Restructuring and impairment charges
|
(69)
|
|
|
(138)
|
|
|
50
|
%
|
(1)In the current quarter, amortization of intangible assets was $316 million, amortization of intangible assets related to TFCF equity investees was $8 million and amortization of step-up on film and television costs was $5 million. In the prior-year quarter, amortization of intangible assets was $50 million and amortization of step-up on film and television costs was $5 million.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS — (continued)
Eliminations
Intersegment content transactions are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended
|
|
|
|
% Change
|
|
(in millions)
|
March 28,
2020
|
|
March 30,
2019
|
|
Better/
(Worse)
|
|
Revenues
|
|
|
|
|
|
|
Studio Entertainment:
|
|
|
|
|
|
|
Content transactions with Media Networks
|
$
|
(58)
|
|
|
$
|
(13)
|
|
|
>(100)
|
%
|
|
Content transactions with Direct-to-Consumer & International
|
(461)
|
|
|
(82)
|
|
|
>(100)
|
%
|
|
Media Networks:
|
|
|
|
|
|
|
Content transactions with Direct-to-Consumer & International
|
(934)
|
|
|
(139)
|
|
|
>(100)
|
%
|
|
|
|
|
|
|
|
|
Total
|
$
|
(1,453)
|
|
|
$
|
(234)
|
|
|
>(100)
|
%
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
|
|
|
|
Studio Entertainment:
|
|
|
|
|
|
|
Content transactions with Media Networks
|
$
|
(10)
|
|
|
$
|
5
|
|
|
nm
|
|
|
Content transactions with Direct-to-Consumer & International
|
(157)
|
|
|
(46)
|
|
|
>(100) %
|
|
|
Media Networks:
|
|
|
|
|
|
|
Content transactions with Direct-to-Consumer & International
|
(85)
|
|
|
—
|
|
|
nm
|
|
|
|
|
|
|
|
|
|
Total
|
$
|
(252)
|
|
|
$
|
(41)
|
|
|
>(100) %
|
|
Revenues
The increase in revenue eliminations was due to sales of Media Networks content to Hulu and Disney+ and sales of Studio Entertainment content to Disney+. Media Networks sales to Hulu included sales of original ABC Studio titles and Twentieth Century Fox Television library titles. Media Networks sales include the benefit of affiliate fees received from Hulu for networks included in the Hulu Live TV + SVOD service. Media Networks sales to Disney+ included sales of Twentieth Century Fox Television and Disney Channel library titles. Studio Entertainment titles sold to Disney+ included The Lion King, Aladdin, Toy Story 4 and Frozen II.
Operating Income
The increase in the impact from eliminations was driven by sales of Studio Entertainment titles to Disney+ and sales of ABC Studios and Twentieth Century Fox Television titles to Hulu.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS — (continued)
BUSINESS SEGMENT RESULTS - Six Month Results
Media Networks
Operating results for the Media Networks segment are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended
|
|
|
|
% Change
|
|
(in millions)
|
March 28,
2020
|
|
March 30,
2019
|
|
Better/
(Worse)
|
|
Revenues
|
|
|
|
|
|
|
Affiliate Fees
|
$
|
7,394
|
|
|
$
|
6,309
|
|
|
17
|
%
|
|
Advertising
|
3,726
|
|
|
3,647
|
|
|
2
|
%
|
|
TV/SVOD distribution and other
|
3,498
|
|
|
1,648
|
|
|
>100
|
%
|
|
Total revenues
|
14,618
|
|
|
11,604
|
|
|
26
|
%
|
|
Operating expenses
|
(9,549)
|
|
|
(7,347)
|
|
|
(30)
|
%
|
|
Selling, general, administrative and other
|
(1,343)
|
|
|
(968)
|
|
|
(39)
|
%
|
|
Depreciation and amortization
|
(93)
|
|
|
(90)
|
|
|
(3)
|
%
|
|
Equity in the income of investees
|
372
|
|
|
361
|
|
|
3
|
%
|
|
Operating Income
|
$
|
4,005
|
|
|
$
|
3,560
|
|
|
13
|
%
|
Revenues
The increase in affiliate fees was due to increases of 13% from the consolidation of TFCF’s operations and 7% from higher contractual rates, partially offset by a decrease of 2% from fewer subscribers. The subscriber decline was net of a benefit from the ACC Network launch in August 2019.
The increase in advertising revenues was due to an increase of $130 million at Cable Networks, from $1,759 million to $1,889 million offset by a decrease of $51 million at Broadcasting, from $1,888 million to $1,837 million. Cable Networks advertising revenue reflected increases of 15% from the consolidation of TFCF’s operations and 4% from higher rates. These increases were partially offset by a decrease of 10% from lower impressions reflecting lower average viewership, including the impact COVID-19 had on live sports events. Broadcasting advertising revenue reflected decreases of 5% from lower average network viewership and 3% from the owned television stations, partially offset by increases of 4% from higher network rates and 3% from the consolidation of TFCF’s operations.
The increase in TV/SVOD distribution and other revenue of $1,850 million was due to the consolidation of TFCF’s operations, which consisted primarily of program sales.
Costs and Expenses
Operating expenses include programming and production costs, which increased $2,053 million from $7,047 million to $9,100 million. At Cable Networks, programming and production costs increased $934 million due to the consolidation of TFCF’s operations and, to a lesser extent, contractual increases for sports programming as well as costs for the ACC Network. At Broadcasting, programming and production costs increased $1,119 million due to the consolidation of TFCF’s operations and higher network programming costs driven by higher average costs due to fewer repeats and more hours of higher cost specials. These increases were partially offset by a timing benefit from the adoption of new accounting guidance, which generally results in lower amortization of capitalized episodic television costs during the network airings for shows we also expect to utilize on our direct-to-consumer services. The new guidance also removed certain limitations on the capitalization of episodic television costs. See Note 8 to the Condensed Consolidated Financial Statements. Compared to the previous accounting, programming and production expense will generally be lower in the first half of the fiscal year and higher in the second half of the fiscal year as the capitalized costs are amortized.
Selling, general, administrative and other costs increased $375 million from $968 million to $1,343 million, due to the consolidation of TFCF’s operations.
Segment Operating Income
Segment operating income increased 13%, or $445 million to $4,005 million due to the consolidation of TFCF’s operations and an increase at the ABC Television Network, partially offset by a decrease at ESPN and lower operating income from ABC Studios program sales.
The following table provides supplemental revenue and segment operating income detail for the Media Networks segment:
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS — (continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended
|
|
|
|
% Change
|
|
(in millions)
|
March 28,
2020
|
|
March 30,
2019
|
|
Better/
(Worse)
|
|
Revenues
|
|
|
|
|
|
|
Cable Networks
|
$
|
9,211
|
|
|
$
|
7,779
|
|
|
18
|
%
|
|
Broadcasting
|
5,407
|
|
|
3,825
|
|
|
41
|
%
|
|
|
$
|
14,618
|
|
|
$
|
11,604
|
|
|
26
|
%
|
|
Segment operating income
|
|
|
|
|
|
|
Cable Networks
|
$
|
2,661
|
|
|
$
|
2,532
|
|
|
5
|
%
|
|
Broadcasting
|
972
|
|
|
667
|
|
|
46
|
%
|
|
Equity in the income of investees
|
372
|
|
|
361
|
|
|
3
|
%
|
|
|
$
|
4,005
|
|
|
$
|
3,560
|
|
|
13
|
%
|
Items Excluded from Segment Operating Income Related to Media Networks
The following table presents supplemental information for items related to the Media Network segment that are excluded from segment operating income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended
|
|
|
|
|
|
(in millions)
|
March 28,
2020
|
|
March 30,
2019
|
|
% Change
Better/(Worse)
|
|
Amortization of TFCF intangible assets and fair value step-up on film and television costs(1)
|
$
|
(611)
|
|
|
$
|
(50)
|
|
|
>(100)
|
%
|
|
Restructuring and impairment charges
|
(22)
|
|
|
(64)
|
|
|
66
|
%
|
|
|
|
|
|
|
|
(1)In the current six-month period, amortization of step-up on film and television costs was $305 million and amortization of intangible assets was $306 million. In the prior-year six-month period, amortization of step-up on film and television costs was $32 million and amortization of intangible assets was $18 million.
Parks, Experiences and Products
Operating results for the Parks, Experiences and Products segment are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended
|
|
|
|
% Change
|
|
(in millions)
|
March 28,
2020
|
|
March 30,
2019
|
|
Better/
(Worse)
|
|
Revenues
|
|
|
|
|
|
|
Theme park admissions
|
$
|
3,621
|
|
|
$
|
3,701
|
|
|
(2)
|
%
|
|
Parks & Experiences merchandise, food and beverage
|
2,967
|
|
|
2,976
|
|
|
—
|
%
|
|
Resorts and vacations
|
3,008
|
|
|
3,034
|
|
|
(1)
|
%
|
|
Merchandise licensing and retail
|
2,385
|
|
|
2,292
|
|
|
4
|
%
|
|
Parks licensing and other
|
958
|
|
|
992
|
|
|
(3)
|
%
|
|
Total revenues
|
12,939
|
|
|
12,995
|
|
|
—
|
%
|
|
Operating expenses
|
(7,258)
|
|
|
(6,747)
|
|
|
(8)
|
%
|
|
Selling, general, administrative and other
|
(1,491)
|
|
|
(1,437)
|
|
|
(4)
|
%
|
|
Depreciation and amortization
|
(1,204)
|
|
|
(1,141)
|
|
|
(6)
|
%
|
|
Equity in the loss of investees
|
(9)
|
|
|
(12)
|
|
|
25
|
%
|
|
Operating Income
|
$
|
2,977
|
|
|
$
|
3,658
|
|
|
(19)
|
%
|
Revenues
The decrease in theme park admissions revenue was due to a decrease of 9% from lower attendance driven by the closure of the parks, partially offset by an increase of 7% from higher average ticket prices.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS — (continued)
Parks & Experiences merchandise, food and beverage revenue was comparable to the prior-year six-month period, as a decrease of 9% from lower volumes driven by the closure of the parks and resorts was largely offset by an increase of 8% from higher average guest spending.
The decrease in resorts and vacations revenue was due to decreases of 5% from lower occupied room nights and 2% from a decrease in passenger cruise days driven by the closure of the resorts and suspension of cruise ship sailings, respectively. These decreases were largely offset by increases of 3% from higher average daily hotel room rates, 2% from the consolidation of TFCF’s operations and 1% from higher average ticket prices for cruise line sailings.
Merchandise licensing and retail revenue growth was due to increases of 3% from merchandise licensing, 3% from publishing and 2% from retail, partially offset by a decrease of 3% from games. The increase at merchandise licensing was due to higher revenue from Frozen and Star Wars merchandise, partially offset by a decrease in guaranteed shortfall recognition and lower revenues from merchandise based on Mickey and Minnie. Revenues from merchandise based on Mickey and Minnie in the prior-year period included the benefit of Mickey’s 90th birthday. The increase at publishing was primarily due to the consolidation of TFCF’s operations, while higher revenues at retail were due to an increase in online sales. The decrease at games was driven by the prior-year sale of rights to a video game.
The decrease in parks licensing and other revenue was due to a decrease of 4% from lower Tokyo Disney Resort royalties primarily due to the closure of the park.
The following table presents supplemental park and hotel statistics:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Domestic
|
|
|
|
International (1)
|
|
|
|
Total
|
|
|
|
|
Six Months Ended
|
|
|
|
Six Months Ended
|
|
|
|
Six Months Ended
|
|
|
|
|
March 28,
2020
|
|
March 30,
2019
|
|
March 28,
2020
|
|
March 30,
2019
|
|
March 28,
2020
|
|
March 30,
2019
|
|
Parks
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase/(decrease)
|
|
|
|
|
|
|
|
|
|
|
|
|
Attendance (2)
|
(4)
|
%
|
|
1
|
%
|
|
(29)
|
%
|
|
(4)
|
%
|
|
(11)
|
%
|
|
(1)
|
%
|
|
Per Capita Guest Spending (3)
|
11
|
%
|
|
6
|
%
|
|
—
|
%
|
|
9
|
%
|
|
12
|
%
|
|
7
|
%
|
|
Hotels
|
|
|
|
|
|
|
|
|
|
|
|
|
Occupancy (4)
|
84
|
%
|
|
93
|
%
|
|
60
|
%
|
|
83
|
%
|
|
79
|
%
|
|
91
|
%
|
|
Available Room Nights (in thousands)(5)
|
5,150
|
|
|
4,975
|
|
|
1,594
|
|
|
1,587
|
|
|
6,744
|
|
|
6,562
|
|
|
Per Room Guest Spending(6)
|
$373
|
|
|
$355
|
|
|
$302
|
|
|
$293
|
|
|
$360
|
|
|
$342
|
|
(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, meaning that 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 include operating labor, which increased $245 million from $3,008 million to $3,253 million, cost of sales and distribution costs, which increased $76 million from $1,453 million to $1,529 million, and infrastructure costs, which increased $112 million from $1,147 million to $1,259 million. The increase in operating labor was due to inflation, new guest offerings and costs of pay to employees who were not performing services as a result of actions taken in response to COVID-19 (net of the CARES Act credits). Higher cost of sales and distribution costs were primarily due to the consolidation of TFCF’s
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS — (continued)
operations and inflation. The increase in infrastructure costs was driven by new guest offerings and higher technology spending. Other operating expenses, which include costs for such items as supplies, commissions/fees and entertainment offerings, increased $78 million, from $1,139 million to $1,217 million, due to higher charges for capital project abandonments, new guest offerings and the consolidation of TFCF’s operations, partially offset by lower volumes.
Selling, general, administrative and other costs increased $54 million from $1,437 million to $1,491 million due to costs related to an employee educational program, inflation and the consolidation of TFCF’s operations, partially offset by a favorable foreign exchange impact.
Depreciation and amortization increased $63 million from $1,141 million to $1,204 million due to new attractions at our domestic parks and resorts.
Segment Operating Income
Segment operating income decreased 19%, or $681 million, to $2,977 million due to decreases at our international and domestic parks and experiences, partially offset by an increase at merchandise licensing.
The following table presents supplemental revenue and operating income detail for the Parks, Experiences and Products segment:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended
|
|
|
|
% Change
Better /
(Worse)
|
|
(in millions)
|
March 28,
2020
|
|
March 30,
2019
|
|
|
|
Supplemental revenue detail
|
|
|
|
|
|
|
Parks & Experiences
|
|
|
|
|
|
|
Domestic
|
$
|
9,078
|
|
|
$
|
8,680
|
|
|
5
|
%
|
|
International
|
1,430
|
|
|
1,942
|
|
|
(26)
|
%
|
|
Consumer Products
|
2,431
|
|
|
2,373
|
|
|
2
|
%
|
|
|
$
|
12,939
|
|
|
$
|
12,995
|
|
|
—
|
%
|
|
Supplemental operating income detail
|
|
|
|
|
|
|
Parks & Experiences
|
|
|
|
|
|
|
Domestic
|
$
|
2,233
|
|
|
$
|
2,528
|
|
|
(12)
|
%
|
|
International
|
(292)
|
|
|
142
|
|
|
nm
|
|
|
Consumer Products
|
1,036
|
|
|
988
|
|
|
5
|
%
|
|
|
$
|
2,977
|
|
|
$
|
3,658
|
|
|
(19)
|
%
|
Studio Entertainment
Operating results for the Studio Entertainment segment are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended
|
|
|
|
% Change
|
|
(in millions)
|
March 28,
2020
|
|
March 30,
2019
|
|
Better/
(Worse)
|
|
Revenues
|
|
|
|
|
|
|
Theatrical distribution
|
$
|
2,011
|
|
|
$
|
1,125
|
|
|
79
|
%
|
|
Home entertainment
|
938
|
|
|
695
|
|
|
35
|
%
|
|
TV/SVOD distribution and other
|
3,354
|
|
|
2,161
|
|
|
55
|
%
|
|
Total revenues
|
6,303
|
|
|
3,981
|
|
|
58
|
%
|
|
Operating expenses
|
(3,058)
|
|
|
(1,878)
|
|
|
(63)
|
%
|
|
Selling, general, administrative and other
|
(1,757)
|
|
|
(1,226)
|
|
|
(43)
|
%
|
|
Depreciation and amortization
|
(74)
|
|
|
(62)
|
|
|
(19)
|
%
|
|
Operating Income
|
$
|
1,414
|
|
|
$
|
815
|
|
|
73
|
%
|
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS — (continued)
Revenues
The increase in theatrical distribution revenue was due to the current period performance of Frozen II and Star Wars: The Rise of Skywalker and the consolidation of TFCF’s operations compared to Captain Marvel and Ralph Breaks the Internet in the prior-year period. Additionally, the current period included Maleficent: Mistress Of Evil and Onward and the prior-year period included Mary Poppins Returns, Nutcracker and the Four Realms and Dumbo. Significant TFCF titles included Ford V. Ferrari, Spies in Disguise and Terminator: Dark Fate.
Higher home entertainment revenue was due to an increase of 35% from the consolidation of TFCF’s operations.
Higher TV/SVOD distribution and other revenue was due to an increase of 53% from TV/SVOD distribution due to an increase of 30% from the consolidation of TFCF’s operations and an increase of 24% at our legacy operations. The increase at our legacy operations was due to sales of content to Disney+, partially offset by lower sales to third parties in the pay and free television windows.
Costs and Expenses
Operating expenses included film cost amortization, which increased $1,056 million, from $1,316 million to $2,372 million due to the consolidation of TFCF’s operations and an increase at our legacy operations. The increase at our legacy operations was due to higher TV/SVOD distribution revenue, and to a lesser extent, higher film cost impairments. Operating expenses also include cost of goods sold and distribution costs, which increased $124 million, from $562 million to $686 million, due to the consolidation of TFCF’s operations.
Selling, general, administrative and other costs increased $531 million from $1,226 million to $1,757 million due to the consolidation of TFCF’s operations.
Segment Operating Income
Segment operating income increased 73%, or $599 million, to $1,414 million due to increases in theatrical and TV/SVOD distribution results at our legacy operations.
Items Excluded from Segment Operating Income Related to Studio Entertainment
The following table presents supplemental information for items related to the Studio Entertainment segment that are excluded from segment operating income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended
|
|
|
|
|
|
(in millions)
|
March 28,
2020
|
|
March 30,
2019
|
|
% Change
Better/(Worse)
|
|
Amortization of TFCF intangible assets and fair value step-up on film and television costs(1)
|
$
|
(162)
|
|
|
$
|
—
|
|
|
nm
|
|
|
Restructuring and impairment charges
|
(57)
|
|
|
(111)
|
|
|
49
|
%
|
(1)Amortization of step-up on film and television costs was $108 million and amortization of intangible assets was $54 million.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS — (continued)
Direct-to-Consumer & International
Operating results for the Direct-to-Consumer & International segment are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended
|
|
|
|
% Change
|
|
(in millions)
|
March 28,
2020
|
|
March 30,
2019
|
|
Better/
(Worse)
|
|
Revenues
|
|
|
|
|
|
|
Affiliate fees
|
$
|
1,910
|
|
|
$
|
735
|
|
|
>100
|
%
|
|
Advertising
|
2,448
|
|
|
871
|
|
|
>100
|
%
|
|
Subscription fees
|
3,122
|
|
|
186
|
|
|
>100
|
%
|
|
TV/SVOD distribution and other
|
630
|
|
|
271
|
|
|
>100
|
%
|
|
Total revenues
|
8,110
|
|
|
2,063
|
|
|
>100
|
%
|
|
Operating expenses
|
(7,276)
|
|
|
(1,749)
|
|
|
>(100)
|
%
|
|
Selling, general, administrative and other
|
(2,152)
|
|
|
(492)
|
|
|
>(100)
|
%
|
|
Depreciation and amortization
|
(199)
|
|
|
(114)
|
|
|
(75)
|
%
|
|
Equity in the income / (loss) of investees
|
12
|
|
|
(229)
|
|
|
nm
|
|
|
Operating Loss
|
$
|
(1,505)
|
|
|
$
|
(521)
|
|
|
>(100)
|
%
|
Revenues
The increase in affiliate fees was due to the consolidation of TFCF’s operations.
The increase in advertising revenues was due to increases of $1,048 million in addressable advertising sales, driven by the consolidation of Hulu’s operations, and $529 million at our International Channels, driven by the consolidation of TFCF’s operations.
The increase in subscription fees was due to the consolidation of Hulu’s operations, the launch of Disney+ and, to a lesser extent, subscriber growth at ESPN+.
Growth in TV/SVOD and other revenue was due to the consolidation of TFCF’s operations, which primarily consisted of TV/SVOD distribution, and UFC pay-per-view fees.
The following table presents the average monthly revenue per paid subscriber(1) for the six-month period ended:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% Change
|
|
|
|
March 28,
2020
|
|
March 30,
2019
|
|
Better /
(Worse)
|
|
|
Disney+
|
$
|
5.60
|
|
|
$
|
—
|
|
|
nm
|
|
|
|
ESPN+ (2)
|
$
|
4.32
|
|
|
$
|
4.94
|
|
|
(13)
|
%
|
|
|
Hulu (3)
|
|
|
|
|
|
|
|
SVOD Only
|
$
|
12.66
|
|
|
$
|
13.57
|
|
|
(7)
|
%
|
|
|
Live TV + SVOD
|
$
|
63.66
|
|
|
$
|
52.46
|
|
|
21
|
%
|
|
(1) Revenue per paid subscriber is calculated based upon 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 for the six-month period ended March 28, 2020 is calculated using a daily average of paid subscribers for the period beginning at launch and ending on the last day of the period. The average revenue per subscriber is net of discounts offered on bundled services. The discount is allocated to each service based on the relative retail price of each service on a standalone basis.
(2) Excludes Pay-Per-View revenue.
(3) Hulu’s average monthly revenue per paid subscriber for the period September 30, 2018 to March 19, 2019 is not reflected in the Company’s prior-year revenues, but is included in the average monthly revenue per paid subscriber reported in the table. Includes advertising revenue (including amounts generated during free trial subscription periods).
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS — (continued)
The average monthly revenue per paid subscriber for ESPN+ decreased from $4.94 to $4.32 due to the introduction of a bundled subscription package offering of Disney+, ESPN+ and Hulu beginning in November 2019. The bundled offering has a lower retail price than the aggregate standalone retail prices of the individual services.
The average monthly revenue per paid subscriber for the Hulu SVOD Only service decreased from $13.57 to $12.66 driven by lower retail pricing. The average monthly revenue per paid subscriber for the Hulu Live TV + SVOD service increased from $52.46 to $63.66 due to higher retail pricing.
Costs and Expenses
Operating expenses include a $4,641 million increase in programming and production costs, from $1,215 million to $5,856 million, and a $886 million increase in other operating expenses, from $534 million to $1,420 million. The increase in programming and production costs, which includes the costs of content provided by other segments, was due to the consolidation of Hulu and TFCF’s operations, the launch of Disney+ and, to a lesser extent, higher programming costs at ESPN+, primarily for UFC programming rights. Other operating expenses, which include technical support and distribution costs, increased due to the consolidation of Hulu and TFCF’s operations and the launch of Disney+.
Selling, general, administrative and other costs increased $1,660 million, from $492 million to $2,152 million, due to the consolidation of Hulu and TFCF’s operations and the launch of Disney+.
Depreciation and amortization increased $85 million, from $114 million to $199 million, due to the consolidation of Hulu and TFCF’s operations.
Equity in the Income / (Loss) of Investees
Loss from equity investees in the prior-year period of $229 million improved by $241 million to income of $12 million, due to the consolidation of Hulu.
Segment Operating Loss
Segment operating loss increased from $521 million to $1,505 million due to costs associated with the launch of Disney+ and the consolidation of Hulu’s operations, partially offset by a benefit from the inclusion of TFCF’s operations due to income at the international channels.
The following table presents supplemental revenue and operating income/(loss) detail for the Direct-to-Consumer & International segment:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended
|
|
|
|
% Change
|
|
|
(in millions)
|
March 28,
2020
|
|
March 30,
2019
|
|
Better /
(Worse)
|
|
|
Supplemental revenue detail
|
|
|
|
|
|
|
|
International Channels
|
$
|
2,956
|
|
|
$
|
1,109
|
|
|
>100 %
|
|
|
|
Direct-to-Consumer services
|
4,462
|
|
|
|
276
|
|
|
>100 %
|
|
|
|
Other (1)
|
692
|
|
|
|
678
|
|
|
2
|
%
|
|
|
|
$
|
8,110
|
|
|
$
|
2,063
|
|
|
>100 %
|
|
|
|
Supplemental operating income/(loss) detail
|
|
|
|
|
|
|
|
International Channels
|
$
|
617
|
|
|
$
|
250
|
|
|
>100 %
|
|
|
|
Direct-to-Consumer services
|
(1,956)
|
|
|
(394)
|
|
|
>(100)%
|
|
|
|
Other (1)
|
(178)
|
|
|
(148)
|
|
|
(20)
|
%
|
|
|
Equity in the income / (loss) of investees
|
12
|
|
|
(229)
|
|
|
nm
|
|
|
|
|
$
|
(1,505)
|
|
|
$
|
(521)
|
|
|
>(100)
|
%
|
|
(1)Primarily addressable ad sales related to domestic Media Networks branded properties (addressable ad sales related to our Direct-to-Consumer services, principally Hulu, are reflected in “Direct-to-Consumer services”)
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS — (continued)
Items Excluded from Segment Operating Loss Related to Direct-to-Consumer & International
The following table presents supplemental information for items related to the Direct-to-Consumer & International segment that are excluded from segment operating loss:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended
|
|
|
|
|
|
(in millions)
|
March 28,
2020
|
|
March 30,
2019
|
|
% Change
Better/(Worse)
|
|
Amortization of TFCF and Hulu intangible assets and fair value step-up on film and television costs(1)
|
$
|
(646)
|
|
|
$
|
(55)
|
|
|
>(100)
|
%
|
|
Hulu gain
|
—
|
|
|
4,917
|
|
|
(100)
|
%
|
|
Restructuring and impairment charges
|
(172)
|
|
|
(138)
|
|
|
(25)
|
%
|
|
Impairment of equity investments
|
—
|
|
|
(353)
|
|
|
100
|
%
|
(1)In the current six-month period, amortization of intangible assets was $620 million, amortization of intangible assets related to TFCF equity investees was $16 million and amortization of step-up on film and television costs was $10 million. In the prior-year six-month period, amortization of intangible assets was $50 million and amortization of step-up on film and television costs was $5 million.
Eliminations
Intersegment content transactions are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended
|
|
|
|
% Change
|
|
(in millions)
|
March 28,
2020
|
|
March 30,
2019
|
|
Better/
(Worse)
|
|
Revenues
|
|
|
|
|
|
|
Studio Entertainment:
|
|
|
|
|
|
|
Content transactions with Media Networks
|
$
|
(111)
|
|
|
$
|
(34)
|
|
|
>(100) %
|
|
|
Content transactions with Direct-to-Consumer & International
|
(1,146)
|
|
|
(100)
|
|
|
>(100)
|
%
|
|
Media Networks:
|
|
|
|
|
|
|
Content transactions with Direct-to-Consumer & International
|
(1,846)
|
|
|
(284)
|
|
|
>(100)
|
%
|
|
|
|
|
|
|
|
|
Total
|
$
|
(3,103)
|
|
|
$
|
(418)
|
|
|
>(100)
|
%
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
|
|
|
|
Studio Entertainment:
|
|
|
|
|
|
|
Content transactions with Media Networks
|
$
|
(10)
|
|
|
5
|
|
|
nm
|
|
|
Content transactions with Direct-to-Consumer & International
|
(273)
|
|
|
(44)
|
|
|
>(100)
|
%
|
|
Media Networks:
|
|
|
|
|
|
|
Content transactions with Direct-to-Consumer & International
|
(190)
|
|
|
(2)
|
|
|
>(100)
|
%
|
|
Total
|
$
|
(473)
|
|
|
$
|
(41)
|
|
|
>(100)
|
%
|
Revenues
The increase in revenue eliminations was due to sales of Media Networks content to Hulu and Disney+ and sales of Studio Entertainment content to Disney+. Media Networks sales to Hulu included original and library titles, including both ABC Studios and Twentieth Century Fox Television content. Media Networks sales include the benefit of affiliate fees received from Hulu for networks included in the Hulu Live TV + SVOD service. Media Networks sales to Disney+ were driven by sales of Twentieth Century Fox Television and Disney Channel library titles. Studio Entertainment titles sold to Disney+ included Noelle, Lady and the Tramp, Avengers: Endgame and The Lion King.
Operating Income
The increase in the impact from eliminations was due to sales of Studio Entertainment content to Disney+ and sales of ABC Studios and Twentieth Century Fox Television content to Hulu.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS — (continued)
CORPORATE AND UNALLOCATED SHARED EXPENSES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended
|
|
|
|
% Change
|
|
Six Months Ended
|
|
|
|
% Change
|
|
(in millions)
|
March 28,
2020
|
|
March 30,
2019
|
|
Better/
(Worse)
|
|
March 28,
2020
|
|
March 30,
2019
|
|
Better/
(Worse)
|
|
Corporate and unallocated shared expenses
|
$
|
(188)
|
|
|
$
|
(279)
|
|
|
33
|
%
|
|
$
|
(425)
|
|
|
$
|
(440)
|
|
|
3
|
%
|
Corporate and unallocated shared expenses decreased $91 million from $279 million to $188 million for the quarter and decreased $15 million from $440 million to $425 million for the six-month period. The decreases were primarily due to lower compensation costs, partially offset by the absence of a benefit from amortization of a deferred gain on a sale leaseback due to the adoption of new lease accounting guidance. The current quarter also benefited from lower costs related to TFCF due to the comparison to acquisition related professional fees that were incurred in the prior-year quarter, partially offset by the consolidation of TFCF in the current quarter. TFCF costs in the current six-month period were comparable to the prior-year period as costs from the inclusion of TFCF were effectively offset by the comparison to acquisition related professional fees in the prior-year period.
RESTRUCTURING IN CONNECTION WITH THE ACQUISITION OF TFCF
See Note 18 to the Condensed Consolidated Financial Statements for information regarding the Company’s restructuring activities in connection with the acquisition of TFCF.
FINANCIAL CONDITION
The change in cash and cash equivalents is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended
|
|
|
|
% Change
Better/
(Worse)
|
|
(in millions)
|
March 28,
2020
|
|
March 30,
2019
|
|
|
|
Cash provided by operations - continuing operations
|
$
|
4,787
|
|
|
$
|
6,014
|
|
|
(20)
|
%
|
|
Cash used in investing activities - continuing operations
|
(2,606)
|
|
|
(12,683)
|
|
|
79
|
%
|
|
Cash provided by financing activities - continuing operations
|
6,616
|
|
|
12,696
|
|
|
(48)
|
%
|
|
Cash provided by (used in) operations - discontinued operations
|
4
|
|
|
(35)
|
|
|
nm
|
|
|
Cash provided by investing activities - discontinued operations
|
198
|
|
|
—
|
|
|
nm
|
|
|
|
|
|
|
|
|
|
Impact of exchange rates on cash, cash equivalents and restricted cash
|
(76)
|
|
|
75
|
|
|
nm
|
|
|
Change in cash, cash equivalents and restricted cash
|
$
|
8,923
|
|
|
$
|
6,067
|
|
|
47
|
%
|
Operating Activities
Cash provided by continuing operating activities decreased 20% to $4.8 billion for the current six months compared to $6.0 billion in the prior-year six months due to lower operating cash flows at Direct-to-Consumer & International and Parks, Experiences and Products, partially offset by increased operating cash flows at Studio Entertainment. Lower operating cash flows at Direct-to-Consumer & International were due to higher film and television spending and an increase in operating cash disbursements due to higher operating expenses, partially offset by higher operating cash receipts driven by revenues from TFCF and Hulu and the launch of Disney+. Lower operating cash flows at Parks, Experiences and Products were driven by higher operating cash disbursements primarily due to higher labor costs and costs for new guest offerings. Higher operating cash flows at Studio Entertainment were due to higher theatrical, home entertainment and TV/SVOD distribution revenues, including revenues from TFCF, partially offset by higher operating cash disbursements.
Produced and licensed content costs
The Company’s Studio Entertainment, Media Networks and Direct-to-Consumer & International segments incur costs to license and produce feature film and television programming. Film and television production costs include all internally produced content such as live-action and animated feature films, animated direct-to-video programming, television series, television specials, theatrical stage plays or other similar product. Programming costs include film or television product licensed for a specific period from third parties for airing on the Company’s broadcast and cable networks, television stations and DTC services. Programming assets are generally recorded when the programming becomes available to us with a corresponding increase in programming liabilities. Accordingly, we analyze our programming assets net of the related liability.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS — (continued)
The Company’s film and television production and programming activity for the six months ended March 28, 2020 and March 30, 2019 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended
|
|
|
|
(in millions)
|
March 28,
2020
|
|
March 30,
2019
|
|
Beginning balances:
|
|
|
|
|
Produced and licensed content assets
|
$
|
27,407
|
|
|
$
|
9,202
|
|
|
Programming liabilities
|
(4,061)
|
|
|
(1,178)
|
|
|
|
23,346
|
|
|
8,024
|
|
|
Spending:
|
|
|
|
|
Television program licenses and rights
|
6,880
|
|
|
4,710
|
|
|
Film and television production
|
5,400
|
|
|
2,896
|
|
|
|
12,280
|
|
|
7,606
|
|
|
Amortization:
|
|
|
|
|
Television program licenses and rights
|
(6,565)
|
|
|
(4,959)
|
|
|
Film and television production
|
(4,790)
|
|
|
(2,366)
|
|
|
|
(11,355)
|
|
|
(7,325)
|
|
|
Change in film and television production and licensed content
|
925
|
|
|
281
|
|
|
Net film and television production costs from the acquisition of TFCF and consolidation of Hulu
|
—
|
|
|
14,141
|
|
|
Other non-cash activity
|
(37)
|
|
|
372
|
|
|
Ending balances:
|
|
|
|
|
Produced and licensed content assets
|
28,626
|
|
|
29,761
|
|
|
Programming liabilities
|
(4,392)
|
|
|
(6,943)
|
|
|
|
$
|
24,234
|
|
|
$
|
22,818
|
|
Investing Activities
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 the six months ended March 28, 2020 and March 30, 2019 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in millions)
|
March 28,
2020
|
|
March 30,
2019
|
|
Media Networks
|
|
|
|
|
Cable Networks
|
$
|
51
|
|
|
$
|
41
|
|
|
Broadcasting
|
36
|
|
|
55
|
|
|
Total Media Networks
|
87
|
|
|
96
|
|
|
Parks, Experiences and Products
|
|
|
|
|
Domestic
|
1,549
|
|
|
1,678
|
|
|
International
|
441
|
|
|
415
|
|
|
|
|
|
|
|
Total Parks, Experiences and Products
|
1,990
|
|
|
2,093
|
|
|
Studio Entertainment
|
40
|
|
|
39
|
|
|
Direct-to-Consumer & International
|
299
|
|
|
83
|
|
|
Corporate
|
169
|
|
|
79
|
|
|
|
$
|
2,585
|
|
|
$
|
2,390
|
|
Capital expenditures at Media Networks primarily reflect investments in facilities and equipment for expanding and upgrading broadcast centers, production facilities and television station facilities.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS — (continued)
Capital expenditures for the Parks, Experiences and Products segment are principally for theme park and resort expansion, new attractions, cruise ships, capital improvements and systems infrastructure. The decrease in the period compared to the prior-year period was due to lower spend on Star Wars: Galaxy’s Edge.
Capital expenditures at Direct-to-Consumer & International primarily reflect investments in technology. The increase in the current period compared to the prior-year period was due to investments in technology.
Capital expenditures at Corporate primarily reflect investments in corporate facilities, information technology infrastructure and equipment. The increase in the current period compared to the prior-year period was due higher spending on equipment, facilities and technology.
The Company currently expects its fiscal 2020 capital expenditures will be approximately $0.4 billion lower than fiscal 2019 capital expenditures of $4.9 billion due to lower investments at our domestic parks and resorts, partially offset by increased spending on technology at Direct-to-Consumer & International and facilities, equipment and technology at Corporate. Lower capital expenditures, in part, reflects mitigation actions in response to COVID-19.
Other Investing Activities
Cash used for acquisitions of $9.9 billion in the prior six-month period reflects $35.7 billion of cash paid to acquire TFCF less $25.7 billion of cash acquired in the transaction (See Note 4 to the Condensed Consolidated Financial Statements).
Financing Activities
Cash provided by financing activities was $6.6 billion in the current six-month period due to borrowings, partially offset by dividend payments.
Cash provided by financing activities was $6.6 billion in the current six-month period compared to $12.7 billion in the prior-year six-month period. In the current six-month period, the Company received lower cash proceeds from net borrowings ($8.2 billion compared to $14.1 billion in the prior-year six-month period).
See Note 6 to the Condensed Consolidated Financial Statements for a summary of the Company’s borrowing activities during the quarter ended March 28, 2020 and information regarding the Company’s bank facilities. The Company may use commercial paper borrowings up to the amount of its unused $12.25 billion bank facilities maturing in March 2021, March 2023 and March 2025, unused availability under the $5.0 billion bank facility maturing in April 2021, incremental term debt issuances and operating cash flows, to retire or refinance other borrowings before or as they come due.
See Note 12 to the Condensed Consolidated Financial Statements for a summary of the Company’s dividends in fiscal 2020 and 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 affected our segment operations in a number of ways, and as a result, 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. We have significantly increased the Company’s cash balances through the issuance of commercial paper, as well as the issuance of senior notes in March 2020. In addition, we entered into an additional $5.0 billion credit facility in April 2020, bringing our total bank facilities to $17.25 billion. See Significant Developments for the impact COVID-19 had on our operations and mitigating measures.
Despite the impact of COVID-19, 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. The Company's financial condition also provides adequate resources to fund future capital expenditures related to the expansion of existing businesses and development of new projects, although these activities have been scaled back or suspended in light of the recent events. In addition to measures the Company has already taken in response to COVID-19, there are a number of additional mitigating actions the Company may take in the future such as not declaring dividends; 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 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 interest coverage and leverage ratios. As of March 28, 2020, Moody’s Investors Service’s long- and short-term debt ratings for the Company were A2 and P-1, respectively, Standard and Poor’s long- and short-term debt ratings for the Company were A and A-1, respectively, and Fitch’s long- and short-term debt ratings for the Company were A and F1, respectively. On March 18, 2020, Fitch placed the Company’s debt ratings on Negative Outlook. On April 23, 2020, Standard and Poor’s lowered the Company’s long- and short-term debt ratings to A- and A-2, respectively, and placed the Company’s
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS — (continued)
ratings on CreditWatch with negative implications. On April 29, 2020, Standard and Poor’s affirmed the Company’s short-term debt rating of A-2 and removed the short-term debt rating from CreditWatch with negative implications. The Company’s bank facilities contain only one financial covenant, relating to interest coverage, which the Company met on March 28, 2020, 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.
The duration of business closures and other impacts related to COVID-19, and the corresponding duration of the impacts to our operating cash flows, are subject to substantial uncertainty. These impacts to our operating cash flow may require us to rely more heavily on alternative funding resources, such as debt and other types of financing.
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 March 28, 2020 was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TWDC
|
|
|
|
Legacy Disney
|
|
|
|
(in millions)
|
Par Value
|
|
Carrying Value
|
|
Par Value
|
|
Carrying Value
|
|
Registered debt with unconditional guarantee
|
$
|
27,031
|
|
|
$
|
29,597
|
|
|
$
|
14,601
|
|
|
$
|
14,674
|
|
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, the Obligor 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 the Obligor Group, whether by dividends, loans or otherwise. Holders of the guaranteed registered debt securities have a direct claim only against the Obligor Group.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS — (continued)
Set forth below are summarized financial information for the Obligor 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 of Guaranteed Securities” and is not intended to present the financial position or results of operations of the Obligor Group in accordance with U.S. GAAP.
|
|
|
|
|
|
|
|
Results of operations (in millions)
|
Six Months Ended March 28, 2020
|
|
Revenues
|
$
|
—
|
|
|
Costs and expenses
|
—
|
|
|
Net income (loss) from continuing operations
|
(416)
|
|
|
Net income (loss)
|
(416)
|
|
|
Net income (loss) attributable to TWDC shareholders
|
(416)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance Sheet (in millions)
|
March 28, 2020
|
|
September 28, 2019
|
|
Current assets
|
$
|
9,298
|
|
|
$
|
1,145
|
|
|
Noncurrent assets
|
1,577
|
|
|
1,398
|
|
|
Current liabilities
|
13,319
|
|
|
9,405
|
|
|
Noncurrent liabilities (excluding intercompany to non-Guarantors)
|
45,915
|
|
|
41,728
|
|
|
Intercompany payables to non-Guarantors
|
145,214
|
|
|
143,574
|
|
|
|
|
|
|
|
|
|
|
|
COMMITMENTS AND CONTINGENCIES
Legal Matters
As disclosed in Note 14 to the Condensed Consolidated Financial Statements, the Company has exposure for certain legal matters.
Guarantees
See Note 15 to the Consolidated Financial Statements in the 2019 Annual Report on Form 10-K for information regarding the Company’s guarantees.
Tax Matters
As disclosed in Note 10 to the Consolidated Financial Statements in the 2019 Annual Report on Form 10-K, the Company has exposure for certain tax matters.
Contractual Commitments
See Note 15 to the Consolidated Financial Statements in the 2019 Annual Report on Form 10-K for information regarding the Company’s contractual commitments.
OTHER MATTERS
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 in the 2019 Annual Report on Form 10-K.
Produced and Acquired/Licensed Content Costs
At the beginning of fiscal 2020, the Company adopted on a prospective basis, new FASB guidance that updates the accounting for film and television content costs. Under that new guidance, 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 8 to the Condensed 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
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS — (continued)
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, including intersegment content transactions, and markets 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.
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 3 to the Consolidated Financial Statements in the 2019 Annual Report on Form 10-K 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. Refer to the 2019 Annual Report on Form 10-K for estimated impacts of changes in these assumptions. 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. 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.
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. A lower expected rate of return on plan assets will increase pension and postretirement medical expense.
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. Goodwill is allocated to various reporting units, which are an operating segment or one level below the operating segment. The Company compares the fair value of each 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.
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 generally use a present value technique (discounted cash flows) corroborated by market multiples when available and as appropriate. We apply what we believe to be the most appropriate valuation
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS — (continued)
methodology for each of our reporting units. The discounted cash flow analyses are sensitive to our estimates of future revenue growth and margins for these businesses.
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. In addition, the projected cash flows of our reporting units reflect intersegment revenues and expenses for the sale and use of intellectual property as if it was licensed to an unrelated third party. We believe our estimates are consistent with how a marketplace participant would value our reporting units.
The Company is required to compare the fair values of other indefinite-lived intangible assets to their carrying amounts. 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 other 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 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 cash flows expected to be generated over the useful life of an asset group to the carrying value of the asset group. An asset group is 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 or segments. If the carrying value 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 group’s long-lived assets and the carrying value of the group’s long-lived assets. The impairment is allocated to the long-lived assets of the group on a pro rata basis using the relative carrying amounts, but only to the extent the carrying value of each asset is above its fair value. For assets held for sale, to the extent the carrying value 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 the 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 inherit in the external markets for these investments. If these forecasts are not met, impairment charges may be recorded.
Allowance for Credit Losses
We evaluate our allowance for credit losses and estimate collectability of accounts receivable based on our analysis of historical bad debt experience in conjunction with our assessment of the financial condition of individual companies with which we do business. In times of domestic or global 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. In addition, see Note 3.
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 may also be involved in other contingent matters for which we have accrued 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 14 to the Condensed 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 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.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS — (continued)
COVID-19 Impacts 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. As COVID-19 continues to develop, we may make changes to these estimates and judgments over time, which 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 or cancelled. The duration of the delay, market conditions when we release the content, or a change in our release strategy (e.g. to bypass certain windows) could have an impact on Ultimate Revenues, which may accelerate amortization or result in an impairment of capitalized film and television production costs.
With the current suspension of live sporting events and the uncertain timing of resuming live sporting events, 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). Depending on the duration of the suspension of live sporting events and film and television content production activities and our assessment of the contractual obligations, we may need to adjust the revenue that we recognize in future periods related to these contracts.
Pension and Postretirement Medical Plan Actuarial Assumptions
The discount rate and expected long-term rate of return of plan assets could be significantly different at our next measurement date at the end of the current fiscal year when compared to our last measurement date. If the discount rate or asset return rate is lower, our underfunded status and future plan expense would increase (absent additional contributions).
Goodwill, Other Intangible Assets, Long-Lived Assets and Investments
Given the ongoing impacts of COVID-19 across our businesses, the long-range cash flow projections 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 cash flow projections, we may need to impair some of these assets.
As discussed in the Critical Accounting Policies and Estimates section of our fiscal 2019 Annual Report on Form 10-K, the fair value of our International Channels reporting unit exceeded the carrying value by less than 10%. Our International Channels reporting unit comprises the Company’s international television networks, which derive their revenues primarily from affiliate fees and advertising revenues. A majority of the operations in this reporting unit were acquired in the TFCF acquisition and therefore the fair value of these businesses approximated the carrying value at the date of the acquisition of TFCF. Goodwill of this reporting unit is approximately $3 billion. Given the uncertain ultimate impact of COVID-19 on these businesses, our cash flow projections for these businesses could decrease in the future, which could lead to an impairment of goodwill.
Income Tax (See Note 9 to the Condensed Consolidated Financial Statements)
The determination of interim period tax provisions generally requires the use of a forecasted full year effective tax rate, which in turn requires a full year forecast of earnings before tax and tax expense. Given the uncertainties created by COVID-19, these forecasts are subject to greater than normal variability, which could lead to volatility in our reported quarterly effective tax rates.
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.
Changes to our hedged cash flows from a decrease in projected revenues of the Company or reductions of projected usage of commodities as compared to our projections when we entered into hedges may cause us to recognize gains or losses on our hedging instruments in our income statement prior to when the hedged transaction was projected to occur.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS — (continued)
New Accounting Pronouncements
See Note 19 to the Condensed Consolidated Financial Statements for information regarding new accounting pronouncements.
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.