UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
10-K/A
(Amendment No. 1)
☒
☒
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended October 3, 20201, 2022
or
☐
☐
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________
to __________.
.
Commission File Number
001-38842

Delaware
dis-20201003_g1.jpg
83-0940635

Delaware83-0940635
State or Other Jurisdiction of Incorporation or Organization
I.R.S. Employer Identification
Incorporation or Organization
500 South Buena Vista Street
Burbank, California 91521
Address of Principal Executive Offices and Zip Code
(818)
560-1000
Registrant’s Telephone Number, Including Area Code
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Trading Symbol(s)
Name of each exchange on which registered
Common Stock, $0.01 par value
DIS
New York Stock Exchange
Securities Registered Pursuant to Section 12(g) of the Act: None.
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.    Yes  x☒    No  o☐
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.    Yes  ☐    No  x☒
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x☒    No  o☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation
S-T
during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes  x☒    No  o☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a
non-accelerated
filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer”, “accelerated filer”, “smaller reporting company”, and “emerging growth company” in Rule
12b-2
of the Exchange Act.
Large accelerated filerxAccelerated filer☐
Non-accelerated filer☐Smaller reporting company☐
Large accelerated filer
☒
Accelerated filer
☐
Non-accelerated filer
☐
Smaller reporting company
☐
Emerging growth company
☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  ¨☐
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report.  ☒
Indicate by check mark whether the registrant is a shell company (as defined in Rule
12b-2
of the Act).     Yes  ☐    No  x☒
The aggregate market value of common stock held by
non-affiliates (based
(based on the closing price on the last business day of the registrant’s most recently completed second fiscal quarter as reported on the New York Stock Exchange-Composite Transactions) was $174.0$249.5 billion. All executive officers and directors of the registrant and all persons filing a Schedule 13D with the Securities and Exchange Commission in respect to registrant’s common stock have been deemed, solely for the purpose of the foregoing calculation, to be “affiliates” of the registrant.
There were 1,810,485,0371,826,784,847 shares of common stock outstanding as of January 18, 2023.
Auditor Name:
 PricewaterhouseCoopers LLP
Auditor Location:
 Los Angeles, California
Auditor Firm ID:
 238

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

This report contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, including statements regarding mandates, expectations, beliefs, business plans and other statements that are not historical in nature. These statements are made on the basis of the Company’s views and assumptions regarding future events and business performance and plans as of the time the statements are made. The Company does not undertake any obligation to update these statements unless required by applicable laws or regulations and you should not place undue reliance on forward-looking statements.

Actual results may differ materially from those expressed or implied. Such differences may result from actions taken by the Company, including restructuring or strategic initiatives or other business decisions, as well as from developments beyond the Company’s control, including: further deterioration in domestic and global economic conditions, including heightened inflation, capital market volatility, interest rate and currency rate fluctuations and economic slowdown or recession; deterioration in or pressures from competitive conditions; consumer preferences and acceptance of our content and offerings; health concerns and their impact on our businesses; international, regulatory, political or military developments; technological developments; labor markets and activities; adverse weather conditions or natural disasters; and legal or regulatory changes. Each such risk includes the current and future impacts of and is amplified by, the COVID-19 pandemic and related mitigation efforts. Such developments may further affect entertainment, travel and leisure businesses generally and may, among other things, affect (or further affect, as applicable): our operations, business plans or profitability; and demand for our products and services.

Additional factors are set forth in the Company’s Annual Report on Form 10-K for the year ended October 1, 2022, under the captions “Risk Factors,” “Management’s Discussion and Analysis” and “Business,” and subsequent filings with the Securities and Exchange Commission (“SEC”), including, among others, quarterly reports on Form 10-Q.

EXPLANATORY NOTE
This Amendment No. 1 on Form
10-K/A
(this “Amendment”) amends The Walt Disney Company’s Annual Report on Form
10-K
for the fiscal year ended October 1, 2022, originally filed with the SEC on November 18, 2020.29, 2022 (the “Original Form
Documents Incorporated by Reference10-K”).
Certain information required for Part III
We are filing this Amendment pursuant to General Instruction G(3) of this report is incorporated herein by reference to theForm 10-K, as we currently expect that our definitive proxy statement for the 20212023 annual meeting of stockholders (“2023 Annual Meeting”) will be filed later than the Company’s shareholders.120th day after the end of the last fiscal year. Accordingly, this Amendment is being filed solely to:

amend Part III, Items 10, 11, 12, 13 and 14 of the Original Form
10-K
to include the information required by and not included in such Items;

delete the reference on the cover of the Original Form
10-K
to the incorporation by reference of certain information from our proxy statement into Part III of the Original Form
10-K;
and
file new certifications of our principal executive officer and principal financial officer as exhibits
to this Amendment under Item 15 of Part IV hereof pursuant to Rule
12b-15
under the Securities Exchange Act of 1934, as amended, and to Section 302 of the Sarbanes-Oxley Act of 2002.
This
Amendment does not otherwise change or update any of the disclosures set forth in the Original Form
 10-K.
References to the “Company,” “Disney,” “we” or “our” in this Amendment refer to The Walt Disney Company and, as applicable, its consolidated subsidiaries
.

THE WALT DISNEY COMPANY AND SUBSIDIARIES

TABLE OF CONTENTS

Page
PART I
ITEM 1.
1
ITEM 1A.
20
ITEM 1B.
29
ITEM 2.
29
ITEM 3.
30
ITEM 4.
30
30
PART II
ITEM 5.
32
ITEM 6.
33
ITEM 7.
34
ITEM 7A.
61
ITEM 8.
62
ITEM 9.
62
ITEM 9A.
62
ITEM 9B.
62
PART III

ITEM 10.

Directors, Executive Officers and Corporate Governance

63
1
ITEM 11.

Executive Compensation

63
15
ITEM 12.

Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

63
58
ITEM 13.

Certain Relationships and Related Transactions, and Director Independence

63
59
ITEM 14.

Principal Accounting Fees and Services

63
61
PART IV

ITEM 15.

Exhibits and Financial Statement Schedules

64
62
SIGNATURES63

PART III

ITEM 10. Directors, Executive Officers and Corporate Governance

Executive Officers

Information regarding executive officers of the Company is set forth under “Information About Our Executive Officers” at the end of Part I of the Original Form 10-K.

Directors

The names of the members of the Company’s Board of Directors (the “Board”), their respective ages, their positions with the Company and other biographical information as of January 17, 2023 are set forth below.

ITEM 16.
68
69
70


TABLE OF CONTENTS
PART I
ITEM 1. Business
The Walt Disney Company, together with its subsidiaries, is a diversified worldwide entertainment company with operations in the following business segments: Media Networks; Parks, Experiences and Products; Studio Entertainment; and Direct-to-Consumer & International (DTCI). In October 2020, the Company announced a strategic reorganization of our media and entertainment businesses to accelerate the growth of our direct-to-consumer (DTC) strategy. The operations of the Media Networks, Studio Entertainment and DTCI segments were reorganized into four groups: three content groups (Studios, General Entertainment and Sports), which are focused on developing and producing content that will be used across all of our traditional and DTC platforms and a distribution group, which is focused on distribution and commercialization activities across these platforms and which has full accountability for media and entertainment operating results globally.
The terms “Company”, “we”, “our” and “us” are used in this report to refer collectively to the parent company and the subsidiaries through which businesses are conducted.
COVID-19 Pandemic
During fiscal 2020 and continuing into fiscal 2021, the world has been, and continues to be, impacted by the novel coronavirus (COVID-19) pandemic. COVID-19 and measures to prevent its spread impacted our segments in a number of ways, most significantly at Parks, Experiences and Products where our theme parks were closed or operating at significantly reduced capacity for a significant portion of the year, cruise ship sailings and guided tours were suspended since late in the second quarter and retail stores were closed for a significant portion of the year. We also had an adverse impact on our merchandise licensing business. Our Studio Entertainment segment has delayed, or in some cases, shortened or cancelled, theatrical releases, and stage play performances have been suspended since late in the second quarter. We also had adverse impacts on advertising sales at Media Networks and Direct-to-Consumer & International. Since March 2020, we have experienced significant disruptions in the production and availability of content, including the shift of key live sports programming from our third quarter to the fourth quarter and into fiscal 2021 as well as the suspension of production of most film and television content since late in the second quarter, although some film and television production resumed in the fourth quarter.
The impact of these disruptions and the extent of their adverse impact on our financial and operating results will be dictated by the length of time that such disruptions continue, which will, in turn, depend on the currently unknowable duration and severity of the impacts of COVID-19, and among other things, the impact of governmental actions imposed in response to COVID-19 and individuals’ and companies’ risk tolerance regarding health matters going forward. As some of our businesses have reopened, we have incurred additional costs to address government regulations and the safety of our employees, talent and guests. The reopening or closure of our businesses is dependent on applicable government requirements, which vary by location, are subject to ongoing changes, which could result from increasing COVID-19 cases.
Human Capital
The Company’s key human capital management objectives are to attract, retain and develop the highest quality talent. To support these objectives, the Company’s human resources programs are designed to develop talent to prepare them for critical roles and leadership positions for the future; reward and support employees through competitive pay, benefit, and perquisite programs; enhance the Company’s culture through efforts aimed at making the workplace more engaging and inclusive; acquire talent and facilitate internal talent mobility to create a high-performing, diverse workforce; engage employees as brand ambassadors of the Company’s content, products and experiences; and evolve and invest in technology, tools, and resources to enable employees at work.
The Company employed approximately 203,000 people as of October 3, 2020. Our global workforce is comprised of approximately 80% full time and 20% part time employees, with nearly 1% of the part time population being seasonal employees. Of the total population as of October 3, 2020, approximately 155,000 of our employees worked in the Parks, Experiences and Products segment.
Some examples of key programs and initiatives that are focused to attract, develop and retain our diverse workforce include:
•Diversity and inclusion (D&I). Our D&I objectives are to build teams that reflect the life experiences of our audiences, while employing and supporting a diverse array of voices in our creative and production content.
◦Established six pillars that serve as the foundation for our D&I commitments – transparency, accountability, representation, content, community, and culture
◦Created a pipeline of next-generation creative executives from underrepresented backgrounds through programs such as the Executive Incubator, Creative Talent Development and Inclusion (CTDI), and the Disney Launchpad: Shorts Incubator
1
TABLE OF CONTENTS
◦Championed targeted development programs for underrepresented talent
◦Hosted a series of culture-changing, innovation and learning opportunities to spark dialogue among employees, leaders, Disney talent and external experts
◦Sponsored over 70 employee-led Business Employee Resource Groups (BERGs) that represent and support the diverse communities that make up our workforce. The BERGs facilitate networking and connections with peers, outreach and mentoring, leadership and skill development and cross-cultural business innovation
•Health, wellness and family resources. Disney’s benefit offerings are designed to meet the varied and evolving needs of a diverse workforce across businesses and geographies. Because we want our employees and their families to thrive, this year, we enhanced the ways we help our employees care for themselves and their families, especially in response to COVID-19
◦Healthcare options for employees in Florida and Southern California, aimed at reducing out-of-pocket costs
◦Coverage of all COVID-19 testing and treatment under all Company medical plans at no cost to the employees and dependents
◦Child care programs for employees, including access to onsite/community centers, enhanced back-up care choices to include personal caregivers, child care referral assistance and center discounts, homework help and a variety of parenting educational resources
◦Free mental and behavioral health resources, including on-demand access to the Employee Assistance Program (EAP) for employees and their dependents
•Disney Aspire. We support the long-term career aspirations of our hourly employees through education and personal development. We pay tuition costs at a network of schools and aim to help our hourly employees put their career goals within reach by equipping them with degree programs, coaching and job skills designed for a rapidly changing workplace and workforce
◦Investment of $150 million in Aspire’s first five years to cover 100% of tuition, books and education fees
◦Access to a wide variety of degree, certificate, high school completion, college start, language learning and trades programs
◦Chosen fields of study do not have to be related to an employee’s current position, and employees do not have to stay at the Company upon completion of their studies
•Talent Development. We prioritize and invest in creating opportunities to help employees grow and build their careers, through a multitude of training and development programs. These include online, instructor-led and on-the-job learning formats as well as executive talent and succession planning paired with an individualized development approach
•Community & Social Impact. We are committed to providing comfort to those in need and inspiration and opportunity to those who want to improve their world. One primary way we do this is through our unique employee volunteer program - Disney VoluntEARS. Throughout the year, employees make a positive impact in their local communities and have found a multitude of special ways to continue volunteering during the pandemic
Due to the current climate, including COVID-19 impacts, and changing environment in which we are operating, the Company has generated efficiencies in its staffing, including limiting hiring to critical business roles, furloughs and reductions-in-force. As part of these actions, the employment of approximately 32,000 employees primarily at Parks, Experiences and Products will terminate in the first half of fiscal 2021. Additionally, as of October 3, 2020, approximately 37,000 employees who are not scheduled for employment termination were on furlough as a result of COVID-19’s impact on our businesses.
Direct-to-Consumer
In November 2019, the Company launched Disney+, a subscription-based DTC video streaming service with Disney, Pixar, Marvel, Star Wars and National Geographic branded content in the U.S. and four other countries and has expanded to select Western European countries in the Spring of 2020. In April, our Hotstar service in India was converted to Disney+Hotstar, and in June 2020, current subscribers of the Disney Deluxe service in Japan were converted to Disney+. In September 2020, Disney+ was launched in additional European countries and Disney+Hotstar was launched in Indonesia. In November 2020, Disney+ was launched in Latin America. Additional launches are planned for various Asia-Pacific territories in calendar 2021.
The Company also plans to launch a general entertainment DTC video streaming offering under the Star brand outside the U.S. in calendar year 2021.
TFCF Acquisition
On March 20, 2019, the Company acquired the outstanding capital stock of Twenty-First Century Fox, Inc., a diversified global media and entertainment company, which was subsequently renamed TFCF Corporation (TFCF). As a result of the
2
TABLE OF CONTENTS
acquisition, the Company’s ownership interest in Hulu, LLC (Hulu), a general entertainment DTC video streaming service, increased to 60% (67% as of October 3, 2020), and the Company started consolidating the results of Hulu as of the acquisition date. See Note 4 of the Consolidated Financial Statements for additional information on the TFCF and Hulu transactions.
MEDIA NETWORKS
Significant operations:
•Disney, ESPN, Freeform, FX and National Geographic branded domestic cable networks
•ABC branded broadcast television network and eight owned domestic television stations
•Television production and distribution
•A 50% equity investment in A+E Television Networks (A+E)
Significant revenues:
•Affiliate fees - Fees charged to multi-channel video programming distributors (i.e. cable, satellite, telecommunications and digital over-the-top (OTT) (e.g. Hulu, YouTube TV) service providers) (MVPDs) and to television stations affiliated with the ABC Network for the right to deliver our programming to their customers
•Advertising - Sales of advertising time/space on our domestic networks and related platforms (“ratings-based ad sales”, which excludes advertising on digital platforms that is not ratings-based), and the sale of advertising time on our domestic television stations. Ratings-based ad sales are generally determined using viewership measured with Nielsen ratings. Non-ratings-based advertising on digital platforms is reported by DTCI
•TV/SVOD distribution - Licensing fees and other revenues from the right to use our television programs and productions and revenue from content transactions with other Company segments (“program sales”)
Significant expenses:
•Operating expenses consisting primarily of programming and production costs, participations and residuals expense, technical support costs, operating labor and distribution costs
•Selling, general and administrative costs
•Depreciation and amortization
Domestic Cable Networks
Our domestic cable networks produce their own programs and also acquire programming rights from our television and film production operations and third parties. The majority of the domestic cable networks’ revenue is derived from affiliate fees and advertising sales. Generally, the Company’s cable networks provide programming under multi-year licensing agreements with MVPDs that include contractually specified rates on a per subscriber basis. The amounts that we can charge to MVPDs for our cable network programming is largely dependent on the quality and quantity of programming that we can provide and the competitive market for programming services. The ability to sell advertising time and the rates received are primarily dependent on the size and nature of the audience that the network can deliver to the advertiser as well as overall advertiser demand. We also sell programs developed by our cable networks worldwide to television broadcasters, to subscription video-on-demand (SVOD) services (such as Netflix and Amazon) and in home entertainment formats (such as DVD, Blu-ray and electronic home video license). A significant portion of our programs are sold to the DTCI segment for use on our DTC offerings. As such, we are forgoing certain licensing revenue from the sale of this content to third parties in TV/SVOD markets.
3
TABLE OF CONTENTS
The Company’s significant domestic cable channels and the number of subscribers (in millions) as estimated by Nielsen Media Research(1) as of September 2020 (except where noted) are as follows:
Estimated Subscribers(2)
DisneySusan E. Arnold 
Disney Channel85
Disney Junior66
Disney XD66
ESPN
ESPN84
ESPN284
ESPNU62
ESPNEWS62
SEC Network(3)
57
Freeform85
FX
FX86
FXX83
FXM57
National Geographic
National Geographic85
National Geographic Wild60
(1)As a result of COVID-19, we understand there have been disruptions in Nielsen Media Research’s ability to collect in-home data, which may have had an impact on the estimated subscriber counts at September 2020.
(2)Estimates include traditional MVPD and the majority of digital OTT subscriber counts.
(3)Because Nielsen Media Research does not measure this channel, estimated subscribers are according to SNL Kagan as of December 2019.
Disney
Branded television channels include Disney Channel, Disney Junior and Disney XD. Programming for these channels includes internally developed and acquired programming. The Disney branded channels also provide programming for video-on-demand (VOD) services and through the DisneyNOW App and website, both of which are operated by DTCI.
Disney Channel - the domestic Disney Channel airs original series and movie programming 24 hours a day targeted to kids ages 2 to 14. Disney Channel develops and produces shows for exhibition on its channel, including live-action comedy series, animated programming and preschool series, as well as original movies. Disney Channel also airs content from Disney’s theatrical film and television programming library.
Disney Junior - the domestic Disney Junior channel airs programming 24 hours a day targeted to kids ages 2 to 7 and their parents and caregivers. The channel features animated and live-action programming that blends Disney’s storytelling and characters with learning. Disney Junior also airs as a programming block on the Disney Channel.
Disney XD - the domestic Disney XD channel airs programming 24 hours a day targeted to kids ages 6 to 11. The channel features a mix of live-action and animated programming.
ESPN
ESPN is a multimedia sports entertainment company owned 80% by the Company and 20% by Hearst Corporation (Hearst). ESPN operates nine 24-hour domestic television sports channels: ESPN and ESPN2 (both of which are sports channels dedicated to professional and college sports as well as sports news and original programming), ESPNU (which is devoted to college sports), ESPNEWS (which simulcasts weekday ESPN Radio programming, re-airs select ESPN studio shows and airs a variety of other programming), SEC Network (which is dedicated to Southeastern Conference college athletics), ESPN Classic (which airs rebroadcasts of famous sporting events, sports documentaries and sports-themed movies), Longhorn Network (which is dedicated to The University of Texas athletics), ESPN Deportes (which airs professional and
4
TABLE OF CONTENTS
college sports, as well as studio shows in Spanish), and ACC Network (which is dedicated to Atlantic Coast Conference college athletics). ESPN programs the sports schedule on the ABC Television Network, which is branded ESPN on ABC.
ESPN holds rights for various professional and college sports programming including college football (including bowl games and the College Football Playoff) and basketball, the National Basketball Association (NBA), the National Football League (NFL), Major League Baseball (MLB), US Open Tennis, the Professional Golfers’ Association (PGA) Championship, the Women’s National Basketball Association (WNBA), various soccer rights, Top Rank Boxing, the Wimbledon Championships and the Masters golf tournament.
ESPN provides programming for the following, which are operated by DTCI:
•ESPN.com delivers sports news, information and video on internet-connected devices, with approximately 20 editions in three languages globally. In the U.S., ESPN.com also features live video streams of ESPN channels to authenticated MVPD subscribers. Non-subscribers have limited access to certain content.
•ESPN App delivers scores, news, stories, highlights, short form video, podcasts and live audio, with fourteen editions in three languages globally. In the U.S., the ESPN App also features live video streams of ESPN’s linear channels and exclusive events to authenticated MVPD subscribers. Non-subscribers have limited access to certain content. The ESPN App is available for download on various internet-connected devices.
•ESPN+ is a multi-sports subscription offering available through ESPN.com and the ESPN App.
ESPN also operates the following:
•ESPN Radio distributes talk and play-by-play programming in the U.S. ESPN Radio network programming is carried on approximately 400 terrestrial stations, including four ESPN owned stations in New York, Los Angeles, Chicago and Dallas, and on satellite and internet radio.
•ESPN owns and operates the following events: ESPYs (annual awards show); X Games (winter and summer action sports competitions); and a portfolio of collegiate sporting events including: bowl games, basketball games, softball games and post-season award shows.
Freeform
Freeform is a channel targeted to viewers ages 18 to 34. Freeform produces original live-action programming, acquires programming rights from our television and theatrical production businesses and from third parties, and features branded holiday programming events. Freeform content is also available through VOD services and through the Freeform App and website, both of which are operated by DTCI.
FX
Branded television channels include FX, FXM and FXX. Programming for these channels includes internally developed and acquired programming. Internally produced programming for the 2020/2021 season includes two returning and one new one-hour dramas, nine returning half-hour comedies, and three new and one returning non-scripted series.
FX - is a general entertainment channel that airs original series, acquired television series and films including content from the Company’s libraries.
FXX - is a general entertainment channel targeted to young adults that airs acquired television series and films as well as content from the Company’s film and television libraries. The channel also airs original television series.
FXM - is a television channel that primarily airs films from the Company’s library or acquired from third parties.
National Geographic
National Geographic operates branded television channels (National Geographic, Nat Geo Wild and Nat Geo Mundo (collectively the National Geographic Channels)) and publishes the National Geographic magazines. The National Geographic Channels air scripted and documentary programming on such topics as natural history, adventure, science, exploration and culture. National Geographic is owned 73% by the Company and 27% by the National Geographic Society.
Broadcasting
Our broadcasting business includes a domestic broadcast network, television production and distribution operations, and eight owned domestic television stations.
Domestic Broadcast Television Network
The Company operates the ABC Television Network (ABC), which as of October 3, 2020, had affiliation agreements with approximately 240 local television stations reaching almost 100% of U.S. television households. ABC broadcasts programs in the primetime, daytime, late night, news and sports “dayparts”.
5
TABLE OF CONTENTS
ABC produces its own programs and also acquires programming rights from third parties as well as entities that are owned by or affiliated with the Company. ABC derives the majority of its revenues from advertising sales and affiliate fees. The ability to sell advertising time and the rates received are primarily dependent on the size and nature of the audience that the network can deliver to the advertiser as well as overall advertiser demand for time on broadcast networks. ABC also receives fees from affiliated television stations for the right to broadcast ABC programming.
ABC network programming is available digitally on internet-connected devices to authenticated MVPD subscribers. Non-subscribers have more limited access to on-demand episodes.
ABC provides online access to in-depth worldwide news and certain other programming through various Company operated and third party distribution platforms.
Television Production and Distribution
ABC Signature (previously ABC Studios), 20th Television (previously Twentieth Century Fox Television) and Touchstone Television (previously Fox 21 Television Studios) produce the majority of the Company’s general entertainment television programs. Program development is carried out in collaboration with writers, producers and creative teams, with a focus on one-hour dramas and half-hour comedies, primarily for primetime broadcasts.
Programming produced either for our networks or for third-party platforms for the 2020/2021 television season includes:
•ABC Signature - seven returning and two new one-hour dramas and five returning and two new half-hour comedies
•20th Television and Touchstone Television - fifteen returning and eight new one-hour dramas and nine returning and four new half-hour comedies
The Company also produces Jimmy Kimmel Live for late night and a variety of primetime specials, as well as syndicated, news and daytime programming.
We distribute the Company’s productions worldwide to television broadcasters and SVOD services and in home entertainment formats. The Company has a significant library of television programming spanning approximately 70 years of production history. Series with four or more seasons include approximately 55 one-hour dramas and 40 half-hour comedies.
Domestic Television Stations
The Company owns eight television stations, six of which are located in the top ten television household markets in the U.S. The television stations derive the majority of their revenues from advertising sales. The stations also receive affiliate fees from MVPDs. All of our television stations are affiliated with ABC and collectively reach approximately 20% of the nation’s television households. Generally, each owned station broadcasts three digital channels: the first consists of local, ABC and syndicated programming; the second is Localish (formerly the Live Well Network); and the third is the LAFF Network.
The stations we own are as follows:
TV StationMarket
Television Market
Ranking(1)
WABCNew York, NY1FORMER OPERATING EXECUTIVE, THE CARLYLE GROUP
KABC

LOGO

Age: 68

Director since: 2007

Committees:

Governance and Nominating (Sitting Chair)

Executive (Sitting Chair)

Los Angeles, CA2
WLS  

Chicago, IL

3Experience:

2013–2021

2007–2009

2006

2004–2006

2002–2004


Operating Executive, The Carlyle Group (a global investment firm)

President—Global Business Units, Procter & Gamble (a consumer goods company)

Vice Chair of Beauty and Health, Procter & Gamble

Vice Chair of Beauty, Procter & Gamble

President, Global Personal Beauty Care and Global Feminine Care, Procter & Gamble

Former Public Company Directorships:

NBTY, Inc. (2013–2017)

McDonald’s Corporation (2008–2016)

Notable Experience Aligned with Disney’s Strategy and Key Board Contributions

•  As a former Operating Executive focused on the global consumer and retail sectors at The Carlyle Group, Ms. Arnold brings extensive experience evaluating operational, investment, and branding strategies to the Board

•  Ms. Arnold offers in-depth knowledge of retail strategies and marketing management to fellow directors and the leadership team gained during her time as a senior executive at Procter & Gamble including her responsibility for the management of major consumer brands

•  She also offers the Board guidance on global brand management and international consumer markets, which have served as invaluable insights as the Company’s audience expands globally

•  As the Company’s independent Chairman and former lead independent director, Ms. Arnold provides consistent leadership and expert judgement of the Company’s Board and the areas it oversees including the Company’s strategy, risk management, and ESG matters

Other Key Skillsets

•  In-depth knowledge of finance and executive and risk management gained through experience at The Carlyle Group and Proctor & Gamble

•  Experience in environmental practices, including her role in embedding sustainability into products and operations at Proctor & Gamble

WPVIPhiladelphia, PA4
KGOSan Francisco, CA6
KTRKHouston, TX8
WTVDRaleigh-Durham, NC27
KFSNFresno, CA55
(1)Based on Nielsen Media Research, U.S. Television Household Estimates, January 

1 2020.

Equity Investments
The Company has investments in media businesses that are accounted for under the equity method, and the Company’s share of the financial results for these investments is reported as “Equity in the income (loss) of investees, net” in the
6

TABLE OF CONTENTS
Company’s Consolidated Statements of Operations. The Company’s significant equity investments reported in the Media Networks segment are as follows:
A+E
A+E is owned 50% by the Company and 50% by Hearst. A+E operates a variety of cable channels:
•A&E – which offers entertainment programming including original reality and scripted series
•HISTORY – which offers original series and event-driven specials
•Lifetime and Lifetime Real Women – which offer female-focused programming
•Lifetime Movie Network (LMN) – which offers female-focused movies
•FYI – which offers contemporary lifestyle programming
A+E also has a 50% ownership interest in Viceland, a channel offering lifestyle-oriented documentaries and reality series aimed at millennial audiences.
A+E programming is available in approximately 200 countries and territories. A+E’s networks are distributed internationally under multi-year licensing agreements with MVPDs. A+E programming is also sold to international television broadcasters and SVOD services.
The number of domestic subscribers (in millions) for A+E channels as estimated by Nielsen Media Research(1) as of September 2020 is as follows:
Estimated Subscribers(2)
A&E84
HISTORY85
Lifetime84
LMN61
FYI50
Viceland63
(1)As a result of COVID-19, we understand there have been disruptions in Nielsen Media Research’s ability to collect in-home data, which may have had an impact on the estimated subscriber counts at September 2020.
(2)Estimates include traditional MVPD and the majority of digital OTT subscriber counts.
CTV
ESPN holds a 30% equity interest in CTV Specialty Television, Inc., which owns television channels in Canada, including The Sports Networks (TSN) 1-5, Le Réseau des Sports (RDS), RDS2, RDS Info, ESPN Classic Canada, Discovery Canada and Animal Planet Canada.
Competition and Seasonality
The Company’s Media Networks businesses compete for viewers primarily with other broadcast and cable networks, independent television stations and other media, such as DTC services and video games. With respect to the sale of advertising time, we compete with other television networks and radio stations, independent television stations, MVPDs and other advertising media such as digital content, newspapers, magazines and billboards. Our television and radio stations primarily compete for audiences and advertisers in local market areas.
The Company’s Media Networks businesses face competition from other networks for carriage by MVPDs. The Company’s contractual agreements with MVPDs are renewed or renegotiated from time to time in the ordinary course of business. Consolidation and other market conditions in the cable, satellite and telecommunication distribution industry and other factors may adversely affect the Company’s ability to obtain and maintain contractual terms for the distribution of its various programming services that are as favorable as those currently in place.
The Company’s Media Networks businesses also compete with other media and entertainment companies, independent production companies, SVOD providers and direct-to-consumer services for the acquisition of sports rights, talent, show concepts, scripted and other programming, and exhibition outlets.
The Company’s internet websites and digital products compete with other websites and entertainment products.
7
TABLE OF CONTENTS
Advertising revenues at Media Networks are subject to seasonal advertising patterns and changes in viewership levels. Revenues are typically somewhat higher during the fall and somewhat lower during the summer months. Affiliate fees are generally collected ratably throughout the year.
Federal Regulation
Television and radio broadcasting are subject to extensive regulation by the Federal Communications Commission (FCC) under federal laws and regulations, including the Communications Act of 1934, as amended. Violation of FCC regulations can result in substantial monetary fines, limited renewals of licenses and, in egregious cases, denial of license renewal or revocation of a license. FCC regulations that affect our Media Networks segment include the following:
•Licensing of television and radio stations. Each of the television and radio stations we own must be licensed by the FCC. These licenses are granted for periods of up to eight years, and we must obtain renewal of licenses as they expire in order to continue operating the stations. We (and the acquiring entity in the case of a divestiture) must also obtain FCC approval whenever we seek to have a license transferred in connection with the acquisition or divestiture of a station. The FCC may decline to renew or approve the transfer of a license in certain circumstances and may delay renewals while permitting a licensee to continue operating. Although we have received such renewals and approvals in the past or have been permitted to continue operations when renewal is delayed, there can be no assurance that this will be the case in the future.
•Television and radio station ownership limits. The FCC imposes limitations on the number of television stations and radio stations we can own in a specific market, on the combined number of television and radio stations we can own in a single market and on the aggregate percentage of the national audience that can be reached by television stations we own. Currently:
◦FCC regulations may restrict our ability to own more than one television station in a market, depending on the size and nature of the market. We do not own more than one television station in any market.
◦Federal statutes permit our television stations in the aggregate to reach a maximum of 39% of the national audience. Pursuant to the most recent decision by the FCC as to how to calculate compliance with this limit, our eight stations reach approximately 20% of the national audience.
◦FCC regulations in some cases impose restrictions on our ability to acquire additional radio or television stations in the markets in which we own radio stations. We do not believe any such limitations are material to our current operating plans.
•Dual networks. FCC rules currently prohibit any of the four major broadcast television networks — ABC, CBS, Fox and NBC — from being under common ownership or control.
•Regulation of programming. The FCC regulates broadcast programming by, among other things, banning “indecent” programming, regulating political advertising and imposing commercial time limits during children’s programming. Penalties for broadcasting indecent programming can be over $400 thousand per indecent utterance or image per station.
Federal legislation and FCC rules also limit the amount of commercial matter that may be shown on broadcast or cable channels during programming designed for children 12 years of age and younger. In addition, broadcast stations are generally required to provide an average of three hours per week of programming that has as a “significant purpose” meeting the educational and informational needs of children 16 years of age and younger. FCC rules also give television station owners the right to reject or refuse network programming in certain circumstances or to substitute programming that the licensee reasonably believes to be of greater local or national importance.
•Cable and satellite carriage of broadcast television stations. With respect to MVPDs operating within a television station’s Designated Market Area, FCC rules require that every three years each television station elect either “must carry” status, pursuant to which MVPDs generally must carry a local television station in the station’s market, or “retransmission consent” status, pursuant to which the MVPDs must negotiate with the television station to obtain the consent of the television station prior to carrying its signal. The ABC owned television stations have historically elected retransmission consent.
•Cable and satellite carriage of programming. The Communications Act and FCC rules regulate some aspects of negotiations regarding cable and satellite retransmission consent, and some cable and satellite distribution companies have sought regulation of additional aspects of the carriage of programming on cable and satellite systems. New legislation, court action or regulation in this area could have an impact on the Company’s operations.
The foregoing is a brief summary of certain provisions of the Communications Act, other legislation and specific FCC rules and policies. Reference should be made to the Communications Act, other legislation, FCC rules and public notices and rulings of the FCC for further information concerning the nature and extent of the FCC’s regulatory authority.
8
TABLE OF CONTENTS
FCC laws and regulations are subject to change, and the Company generally cannot predict whether new legislation, court action or regulations, or a change in the extent of application or enforcement of current laws and regulations, would have an adverse impact on our operations.
PARKS, EXPERIENCES AND PRODUCTS
Significant operations:
•Parks & Experiences:
◦Theme parks and resorts, which include: Walt Disney World Resort in Florida; Disneyland Resort in California; Disneyland Paris; Hong Kong Disneyland Resort (48% ownership interest); and Shanghai Disney Resort (43% ownership interest), all of which are consolidated in our results. Additionally, the Company licenses our intellectual property to a third party to operate Tokyo Disney Resort.
◦Disney Cruise Line, Disney Vacation Club, National Geographic Expeditions (73% ownership interest), Adventures by Disney and Aulani, a Disney Resort & Spa in Hawaii
•Consumer Products:
◦Licensing of our trade names, characters, visual, literary and other intellectual properties to various manufacturers, game developers, publishers and retailers throughout the world, for use on merchandise, published materials and games
◦Sale of branded merchandise through retail, online and wholesale businesses, and development and publishing of books, comic books and magazines (except National Geographic, which is reported in Media Networks)
Significant revenues:
•Theme park admissions - Sales of tickets for admission to our theme parks
•Parks & Experiences merchandise, food and beverage - Sales of merchandise, food and beverages at our theme parks and resorts and cruise ships
•Resorts and vacations - Sales of room nights at hotels, sales of cruise and other vacations and sales and rentals of vacation club properties
•Merchandise licensing and retail:
◦Merchandise licensing - Royalties from intellectual property licensing
◦Retail - Sales of merchandise at The Disney Stores and through branded internet shopping sites, as well as to wholesalers (including books, comic books and magazines)
•Parks licensing and other - Revenues from sponsorships and co-branding opportunities and real estate rent and sales. In addition, we earn royalties on Tokyo Disney Resort revenues.
Significant expenses:
•Operating expenses consisting primarily of operating labor, costs of goods sold, infrastructure costs, supplies, commissions and entertainment offerings. Infrastructure costs include information systems expense, repairs and maintenance, property taxes, utilities and fuel, retail occupancy costs, insurance and transportation
•Selling, general and administrative costs
•Depreciation and amortization
Significant capital investments:
•In recent years, over 70% of the Company’s capital spend has been at our parks and experiences business, which is principally for theme park and resort expansion, new attractions, cruise ships, capital improvements and systems infrastructure. The various investment plans discussed in the “Parks & Experiences” section are based on management’s current expectations. Actual investment may differ
Many of our Parks, Experiences and Products businesses have been significantly impacted by COVID-19, including:
•Walt Disney World Resort closed from March 16, 2020 through July 10, 2020
•Disneyland Resort closed March 14, 2020 and continues to be closed, except for the Downtown Disney district which reopened on July 9, 2020
•Disneyland Paris closed from March 14, 2020 through July 14, 2020 and closed again on October 30, 2020
•Hong Kong Disneyland Resort closed from January 26, 2020 through June 17, 2020 and July 15, 2020 through September 24, 2020
•Shanghai Disney Resort closed from January 25, 2020 through May 10, 2020
9
TABLE OF CONTENTS
•Tokyo Disney Resort closed from February 29, 2020 through June 30, 2020
•Disney Cruise Line sailings have been suspended since March 14, 2020
•Many of our retail stores were closed for most of the second half of our fiscal year although most have since reopened
Parks & Experiences
Walt Disney World Resort
The Walt Disney World Resort is located approximately 20 miles southwest of Orlando, Florida, on approximately 25,000 acres of land. The resort includes theme parks (the Magic Kingdom, Epcot, Disney’s Hollywood Studios and Disney’s Animal Kingdom); hotels; vacation club properties; a retail, dining and entertainment complex (Disney Springs); a sports complex; conference centers; campgrounds; golf courses; water parks; and other recreational facilities designed to attract visitors for an extended stay.
The Walt Disney World Resort is marketed through a variety of international, national and local advertising and promotional activities. A number of attractions and restaurants in each of the theme parks are sponsored or operated by other corporations under multi-year agreements.
Magic Kingdom — The Magic Kingdom consists of six themed areas: Adventureland, Fantasyland, Frontierland, Liberty Square, Main Street USA and Tomorrowland. Each land provides a unique guest experience featuring themed attractions, restaurants, merchandise shops and entertainment experiences.
Epcot — Epcot consists of two major themed areas: Future World and World Showcase. Future World dramatizes certain historical developments and addresses the challenges facing the world today through pavilions devoted to showcasing science and technology innovations, communication, transportation, use of imagination, nature and food production, the ocean environment and space. World Showcase presents a community of nations focusing on the culture, traditions and accomplishments of people around the world. Countries represented with pavilions include Canada, China, France, Germany, Italy, Japan, Mexico, Morocco, Norway, the United Kingdom and the U.S. Both areas feature themed attractions, restaurants, merchandise shops and entertainment experiences. Epcot is undergoing a multi-year transformation, which will include the addition of new attractions and experiences.
Disney’s Hollywood Studios — Disney’s Hollywood Studios consists of eight themed areas: Animation Courtyard, Commissary Lane, Echo Lake, Grand Avenue, Hollywood Boulevard, Star Wars: Galaxy’s Edge, Sunset Boulevard and Toy Story Land. The areas provide behind-the-scenes glimpses of Hollywood-style action through various shows and attractions and offer themed food service, merchandise shops and entertainment experiences.
Disney’s Animal Kingdom — Disney’s Animal Kingdom consists of a 145-foot tall Tree of Life centerpiece surrounded by five themed areas: Africa, Asia, DinoLand USA, Discovery Island and Pandora - The World of Avatar. Each themed area contains attractions, restaurants, merchandise shops and entertainment experiences. The park features more than 300 species of live mammals, birds, reptiles and amphibians and 3,000 varieties of vegetation.
Hotels, Vacation Club Properties and Other Resort Facilities — As of October 3, 2020, the Company owned and operated 18 resort hotels and vacation club facilities at the Walt Disney World Resort, with approximately 24,000 rooms and 3,500 vacation club units. Resort facilities include 500,000 square feet of conference meeting space and Disney’s Fort Wilderness camping and recreational area, which offers approximately 800 campsites. The Company is constructing a new Star Wars: Galactic Starcruiser hotel at the Walt Disney World Resort.
Disney Springs is an approximately 120-acre retail, dining and entertainment complex and consists of four areas: Marketplace, The Landing, Town Center and West Side. The areas are home to more than 150 venues including the 64,000-square-foot World of Disney retail store and NBA Experience. Most of the Disney Springs facilities are operated by third parties that pay rent to the Company.
Nine independently-operated hotels with approximately 6,000 rooms are situated on property leased from the Company.
ESPN Wide World of Sports Complex is a 230-acre center that hosts professional caliber training and competitions, festival and tournament events and interactive sports activities. The complex, which welcomes both amateur and professional athletes, accommodates multiple sporting events, including baseball, basketball, football, soccer, softball, tennis and track and field. It also includes a stadium, as well as two venues designed for cheerleading, dance competitions and other indoor sports. In 2020, the complex hosted the remainder of the previously suspended NBA season, including the playoffs and finals.
Other recreational amenities and activities available at the Walt Disney World Resort include three championship golf courses, miniature golf courses, full-service spas, tennis, sailing, swimming, horseback riding and a number of other sports and leisure time activities. The resort also includes two water parks: Disney’s Blizzard Beach and Disney’s Typhoon Lagoon.
10
TABLE OF CONTENTS
Disneyland Resort
The Company owns 486 acres and has rights under a long-term lease for use of an additional 55 acres of land in Anaheim, California. The Disneyland Resort includes two theme parks (Disneyland and Disney California Adventure), three resort hotels and a retail, dining and entertainment complex (Downtown Disney).
The Disneyland Resort is marketed through a variety of international, national and local advertising and promotional activities. A number of the attractions and restaurants in the theme parks are sponsored or operated by other corporations under multi-year agreements.
Disneyland — Disneyland consists of nine themed areas: Adventureland, Critter Country, Fantasyland, Frontierland, Main Street USA, Mickey’s Toontown, New Orleans Square, Star Wars: Galaxy’s Edge, and Tomorrowland. These areas feature themed attractions, restaurants, merchandise shops and entertainment experiences.
Disney California Adventure — Disney California Adventure is adjacent to Disneyland and includes seven themed areas: Buena Vista Street, Cars Land, Grizzly Peak, Hollywood Land, Pacific Wharf, Paradise Gardens Park and Pixar Pier. These areas include themed attractions, restaurants, merchandise shops and entertainment experiences. The Company is constructing a new themed area, Avengers Campus.
Hotels, Vacation Club Units and Other Resort Facilities — Disneyland Resort includes three Company owned and operated hotels and vacation club facilities with approximately 2,400 rooms, 50 vacation club units and 180,000 square feet of conference meeting space.
Downtown Disney is a themed 15-acre retail, entertainment and dining complex with approximately 30 venues located adjacent to both Disneyland and Disney California Adventure. Most of the Downtown Disney facilities are operated by third parties that pay rent to the Company.
Aulani, a Disney Resort & Spa
Aulani, a Disney Resort & Spa, is a Company-operated family resort on a 21-acre oceanfront property on Oahu, Hawaii featuring approximately 350 hotel rooms, an 18,000-square-foot spa and 12,000 square feet of conference meeting space. The resort also has approximately 480 vacation club units.
Disneyland Paris
Disneyland Paris is located on a 5,510-acre development in Marne-la-Vallée, approximately 20 miles east of Paris, France. The land is being developed pursuant to a master agreement with French governmental authorities. Disneyland Paris includes two theme parks (Disneyland Park and Walt Disney Studios Park); seven themed resort hotels; two convention centers; a shopping, dining and entertainment complex (Disney Village); and a 27-hole golf facility. Of the 5,510 acres comprising the site, approximately half have been developed to date, including a planned community (Val d’Europe) and an eco-tourism destination (Villages Nature).
Disneyland Park — Disneyland Park consists of five themed areas: Adventureland, Discoveryland, Fantasyland, Frontierland and Main Street USA. These areas include themed attractions, restaurants, merchandise shops and entertainment experiences.
Walt Disney Studios Park — Walt Disney Studios Park includes four themed areas: Backlot, Front Lot, Production Courtyard and Toon Studio. These areas each include themed attractions, restaurants, merchandise shops and entertainment experiences. The Company has announced plans for a multi-year expansion of Walt Disney Studios Park that will add new themed areas based on Marvel and Frozen.
Hotels and Other Facilities — Disneyland Paris operates seven resort hotels, with approximately 5,800 rooms and 210,000 square feet of conference meeting space. In addition, eight on-site hotels that are owned and operated by third parties provide approximately 2,575 rooms.
Disney Village is a 500,000-square-foot retail, dining and entertainment complex located between the theme parks and the hotels. A number of the Disney Village facilities are operated by third parties that pay rent to the Company.
Val d’Europe is a planned community near Disneyland Paris that is being developed in phases. Val d’Europe currently includes a regional train station, hotels and a town center consisting of a shopping center as well as office, commercial and residential space. Third parties operate these developments on land leased or purchased from the Company.
Villages Nature is a European eco-tourism resort that consists of recreational facilities, restaurants and 900 vacation units. The resort is a 50% joint venture between the Company and Pierre & Vacances-Center Parcs, who manages the venture.
11
TABLE OF CONTENTS
Hong Kong Disneyland Resort
The Company owns a 48% interest in Hong Kong Disneyland Resort and the Government of the Hong Kong Special Administrative Region (HKSAR) owns a 52% interest. The resort is located on 310 acres on Lantau Island and is in close proximity to the Hong Kong International Airport and the Hong Kong-Zhuhai-Macau Bridge. Hong Kong Disneyland Resort includes one theme park and three themed resort hotels. A separate Hong Kong subsidiary of the Company is responsible for managing Hong Kong Disneyland Resort. The Company is entitled to receive royalties and management fees based on the operating performance of Hong Kong Disneyland Resort.
Hong Kong Disneyland — Hong Kong Disneyland consists of seven themed areas: Adventureland, Fantasyland, Grizzly Gulch, Main Street USA, Mystic Point, Tomorrowland and Toy Story Land. These areas feature themed attractions, restaurants, merchandise shops and entertainment experiences. The park is in the midst of a multi-year expansion project that will add a number of new guest offerings, including a transformed castle and a Frozen-themed area.
Hotels — Hong Kong Disneyland Resort includes three themed hotels with a total of 1,750 rooms and approximately 16,000 square feet of conference meeting space.
Shanghai Disney Resort
The Company owns a 43% interest in Shanghai Disney Resort and Shanghai Shendi (Group) Co., Ltd (Shendi) owns a 57% interest. The resort is located in the Pudong district of Shanghai on approximately 1,000 acres of land, which includes the Shanghai Disneyland theme park; two themed resort hotels; a retail, dining and entertainment complex (Disneytown); and an outdoor recreation area. A management company, in which the Company has a 70% interest and Shendi has a 30% interest, is responsible for operating the resort and receives a management fee based on the operating performance of Shanghai Disney Resort. The Company is also entitled to royalties based on the resort’s revenues.
Shanghai Disneyland — Shanghai Disneyland consists of seven themed areas: Adventure Isle, Fantasyland, Gardens of Imagination, Mickey Avenue, Tomorrowland, Toy Story Land and Treasure Cove. These areas feature themed attractions, restaurants, merchandise shops and entertainment experiences. The Company is constructing an eighth themed area based on the animated film Zootopia.
Hotels and Other Facilities — Shanghai Disneyland Resort includes two themed hotels with a total of 1,220 rooms. Disneytown is an 11-acre outdoor complex of dining, shopping and entertainment venues located adjacent to Shanghai Disneyland. Most Disneytown facilities are operated by third parties that pay rent to Shanghai Disney Resort.
Tokyo Disney Resort
Tokyo Disney Resort is located on 494 acres of land, six miles east of downtown Tokyo, Japan. The Company earns royalties on revenues generated by the Tokyo Disney Resort, which is owned and operated by Oriental Land Co., Ltd. (OLC), a third-party Japanese corporation. The resort includes two theme parks (Tokyo Disneyland and Tokyo DisneySea); four Disney-branded hotels; six other hotels (operated by third parties other than OLC); a retail, dining and entertainment complex (Ikspiari); and Bon Voyage, a Disney-themed merchandise location.
Tokyo Disneyland — Tokyo Disneyland consists of seven themed areas: Adventureland, Critter Country, Fantasyland, Tomorrowland, Toontown, Westernland and World Bazaar.
Tokyo DisneySea — Tokyo DisneySea is divided into seven “ports of call,” including American Waterfront, Arabian Coast, Lost River Delta, Mediterranean Harbor, Mermaid Lagoon, Mysterious Island and Port Discovery. OLC is expanding Tokyo DisneySea to include an eighth themed port, Fantasy Springs.
Hotels and Other Resort Facilities — Tokyo Disney Resort includes four Disney-branded hotels with a total of more than 2,400 rooms and a monorail, which links the theme parks and resort hotels with Ikspiari. OLC is currently constructing a 475-room Disney-branded hotel at Tokyo DisneySea, and a 600-room Toy Story themed hotel opening in 2021.
Disney Vacation Club (DVC)
DVC offers ownership interests in 15 resort facilities located at the Walt Disney World Resort; Disneyland Resort; Aulani; Vero Beach, Florida; and Hilton Head Island, South Carolina. Available units are offered for sale under a vacation ownership plan and are operated as hotel rooms when not occupied by vacation club members. The Company’s vacation club units range from deluxe studios to three-bedroom grand villas. Unit counts in this document are presented in terms of two-bedroom equivalents. DVC had approximately 4,300 vacation club units as of October 3, 2020. The Company also plans to build a new DVC property at Disneyland Resort with 135 units.
Disney Cruise Line
Disney Cruise Line is a four-ship vacation cruise line, which operates out of ports in North America and Europe. The Disney Magic and the Disney Wonder are approximately 85,000-ton 875-stateroom ships, and the Disney Dream and the Disney
12
TABLE OF CONTENTS
Fantasy are approximately 130,000-ton 1,250-stateroom ships. The ships cater to families, children, teenagers and adults, with distinctly-themed areas and activities for each group. Many cruise vacations include a visit to Disney’s Castaway Cay, a 1,000-acre private Bahamian island.
The Company is expanding its cruise business by adding three new ships. The first ship, the Disney Wish, is scheduled to launch in summer 2022 with the other two ships to be delivered from the shipyard in 2024 and 2025. These dates include impacts from shipyard delays due to COVID-19. Each new ship can be powered by liquefied natural gas and will be approximately 140,000 tons with 1,250 staterooms.
The Company has an agreement with the Government of The Bahamas to create and manage a destination at Lighthouse Point on the island of Eleuthera.
Adventures by Disney
Adventures by Disney offers guided tour packages predominantly at non-Disney sites around the world. Adventures by Disney offered approximately 20 different tour packages during 2020.
National Geographic Expeditions
National Geographic Expeditions offers guided tour packages around the world that explore cultures, landscapes and history. National Geographic offered approximately 190 different tour packages during 2020.
Walt Disney Imagineering
Walt Disney Imagineering provides master planning, real estate development, attraction, entertainment and show design, engineering support, production support, project management and research and development for the Company’s Parks, Experiences and Products operations.
Consumer Products
Licensing
The Company’s merchandise licensing operations cover a diverse range of product categories, the most significant of which are: toys, apparel, games, home décor and furnishings, accessories, health and beauty, books, food, stationery, footwear, consumer electronics and magazines. The Company licenses characters from its film, television and other properties for use on third-party products in these categories and earns royalties, which are usually based on a fixed percentage of the wholesale or retail selling price of the products. Some of the major properties licensed by the Company include: Mickey and Minnie, Frozen, Star Wars, Disney Princess, Avengers, Spider-Man, Toy Story, Disney Channel characters, Winnie the Pooh, Cars and Disney Classics.
Retail
The Company sells Disney-, Marvel-, Pixar- and Lucasfilm-branded products through retail stores and internet sites globally. Retail stores operate under The Disney Store name and are generally located in leading shopping malls and other retail complexes. The Company owns and operates approximately 200 stores in North America, 60 stores in Europe, 45 stores in Japan and two stores in China. Internet sites are generally branded shopDisney.
The Company creates, distributes and publishes a variety of products in multiple countries and languages based on the Company’s branded franchises. The products include children’s books, comic books, digital comics and ebooks, learning products and storytelling apps.
Competition and Seasonality
The Company’s theme parks and resorts as well as Disney Cruise Line and Disney Vacation Club compete with other forms of entertainment, lodging, tourism and recreational activities. The profitability of the leisure-time industry may be influenced by various factors that are not directly controllable, such as economic conditions including business cycle and exchange rate fluctuations, the political environment, travel industry trends, amount of available leisure time, oil and transportation prices, weather patterns and natural disasters. The licensing and retail business compete with other licensors, retailers and publishers of character, brand and celebrity names, as well as other licensors, publishers and developers of game software, online video content, internet websites, other types of home entertainment and retailers of toys and kids merchandise.
All of the theme parks and the associated resort facilities are operated on a year-round basis. Typically, theme park attendance and resort occupancy fluctuate based on the seasonal nature of vacation travel and leisure activities, the opening of new guest offerings and pricing and promotional offers. Peak attendance and resort occupancy generally occur during the summer months when school vacations occur and during early winter and spring holiday periods. The licensing, retail and wholesale businesses are influenced by seasonal consumer purchasing behavior, which generally results in higher revenues
13
TABLE OF CONTENTS
during the Company’s first and fourth fiscal quarter, and by the timing and performance of theatrical and game releases and cable programming broadcasts.
STUDIO ENTERTAINMENT
Significant operations:
•Motion picture production and distribution under the Walt Disney Pictures, Twentieth Century Studios (previously Twentieth Century Fox), Marvel, Lucasfilm, Pixar, Searchlight Pictures (previously Fox Searchlight Pictures) and Blue Sky Studios banners
•Development, production and licensing of live entertainment events on Broadway and around the world (stage plays)
•Music production and distribution
•Post-production services through Industrial Light & Magic and Skywalker Sound
Significant revenues:
•Theatrical distribution - Rentals from licensing our motion pictures to theaters
•Home entertainment - Sale of our motion pictures to retailers and distributors in physical (DVD and Blu-ray) and electronic formats
•TV/SVOD distribution and other - Licensing fees and other revenue from the right to use our motion picture productions, revenue from content transactions with other Company segments, ticket sales from stage plays, fees from licensing our intellectual properties for use in live entertainment productions, revenue from licensing our music and revenue from post-production services
Significant expenses:
•Operating expenses consisting primarily of amortization of production, participations and residuals costs, distribution costs and costs of sales
•Selling, general and administrative costs
•Depreciation and amortization
Prior to the Company’s acquisition of Marvel in fiscal 2010, Marvel had licensed Spider-Man rights to Sony Pictures Entertainment (Sony). With the exception of a co-production relationship for the upcoming Spider-Man 3 (2021) film, Sony incurs the costs to produce and distribute Spider-Man films. For Spider-Man 3 (2021), the Company and Sony share in the cost to produce the film and proportionately share in revenues, adjusted for distribution fees retained by Sony. Sony distributes all the Spider-man films and the Company licenses the merchandise rights to third parties. The Company pays Sony a licensing fee based on each film’s box office receipts, subject to specified limits. The Company distributes all other Marvel-produced films with the exception of The Incredible Hulk, which is distributed by Universal Pictures.
Theatrical Market
We produce and distribute full-length live-action films and animated films. In the domestic theatrical market, we generally distribute and market our filmed products directly. In most major international markets, we distribute our filmed products directly while in other markets our films are distributed by independent companies or joint ventures. During fiscal 2021, we expect to release approximately 15 to 20 of our own produced feature films, although the timing and number of feature films could be impacted by COVID-19. As a result of COVID-19, our distribution strategy may change and certain films intended for theatrical release may be licensed to DTCI for use on Disney+ in certain territories. Some of these films will be released theatrically in certain territories and released on Disney+ where not available theatrically. Cumulatively through October 3, 2020, the Company has released approximately 1,100 full-length live-action features and 100 full-length animated features.
The Company incurs significant marketing and advertising costs before and throughout the theatrical release of a film in an effort to generate public awareness of the film, to increase the public’s intent to view the film and to help generate consumer interest in the subsequent home entertainment and other ancillary markets. These costs are expensed as incurred, which may result in a loss on a film in the theatrical markets, including in periods prior to the theatrical release of the film.
Home Entertainment Market
In the domestic market, we distribute home entertainment releases directly under each of our motion picture banners. In international markets, we distribute home entertainment releases under our motion picture banners both directly and through independent distribution companies.
Domestic and international home entertainment distribution typically starts three to six months after the theatrical release in each market. Home entertainment releases are distributed in physical (DVD and Blu-ray) and electronic formats. Electronic
14
TABLE OF CONTENTS
formats may be released up to four weeks ahead of the physical release. Physical formats are generally sold to retailers, such as Walmart and Target, and electronic formats are sold through e-tailers, such as Apple and Amazon.
As of October 3, 2020, we have approximately 2,500 active produced and acquired film titles, including 2,200 live-action titles and 300 animated titles, in the domestic home entertainment marketplace and approximately 2,400 active produced and acquired titles, including 2,000 live-action titles and 400 animated titles, in the international marketplace.
Concurrently with physical home entertainment distribution, we license titles to VOD services for electronic delivery to consumers for a specified rental period.
Television Market
In the television market, we license our films to cable and broadcast networks, television stations and other video service providers, which may provide the content to viewers on television or a variety of internet-connected devices. The television market is comprised of multiple pay TV and free TV windows, which can have license periods of various lengths following the home entertainment window. Our Walt Disney Pictures, Marvel, Lucasfilm and Pixar branded films are generally licensed to DTCI for use on Disney+ after the theatrical and home entertainment windows. In response to the impact COVID-19 is having on theatrical distribution, certain films originally intended for theatrical release were licensed to DTCI for use on Disney+ in certain territories.
Disney Music Group
The Disney Music Group (DMG) commissions new music for the Company’s motion pictures and television programs and develops, produces, markets and distributes the Company’s music worldwide either directly or through license agreements. DMG also licenses the songs and recording copyrights to third parties for printed music, records, audio-visual devices, public performances and digital distribution and produces live musical concerts. DMG includes Walt Disney Records, Hollywood Records, Disney Music Publishing and Disney Concerts.
Disney Theatrical Group
Disney Theatrical Group develops, produces and licenses live entertainment events on Broadway and around the world, including The Lion King, Aladdin, Frozen, The Little Mermaid, Beauty and the Beast, The Hunchback of Notre Dame, Mary Poppins (a co-production with Cameron Mackintosh Ltd), Newsies, Aida and TARZAN®.
Disney Theatrical Group also licenses the Company’s intellectual property to Feld Entertainment, the producer of Disney On Ice and Marvel Universe Live!.
Competition and Seasonality
The Studio Entertainment businesses compete with all forms of entertainment. A significant number of companies produce and/or distribute theatrical and television films, exploit products in the home entertainment market, provide pay television and SVOD services, and produce music and live theater. We also compete to obtain creative and performing talent, story properties and advertiser support that are essential to the success of our Studio Entertainment businesses.
The success of Studio Entertainment operations is heavily dependent upon public taste and preferences. In addition, Studio Entertainment operating results 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
Significant operations:
•Direct-to-consumer (DTC) streaming services, which include Disney + / Disney+Hotstar, ESPN+ and Hulu
•Branded international television networks and channels, which include Disney, ESPN, Fox, National Geographic and Star (International Channels)
•Other digital content distribution platforms and services
•Equity investments:
◦A 50% ownership interest in Endemol Shine Group, which was sold on July 2, 2020
◦A 20% ownership interest (49% economic interest) in Seven TV
◦A 30% effective ownership interest in Tata Sky Limited
15
TABLE OF CONTENTS
◦An approximate 24% effective ownership interest (14% fully diluted) in Vice Group Holding Inc. (Vice). Vice operates Viceland, which is owned 50% by Vice and 50% by A+E.
Significant revenues:
•Subscription fees - Fees charged to customers/subscribers for our video streaming services
•Advertising - Sales of advertising time/space on our International Channels and sales of non-ratings based advertising time/space on digital media platforms (“addressable ad sales”) across the Company. In general, addressable ad sales are delivered using technology that allows for dynamic insertion of advertisements into video content, which can be targeted to specific viewer groups
•Affiliate fees - Fees charged to MVPDs for the right to deliver our International Channels to their customers
•TV/SVOD distribution - Program sales, sub-licensing fees for sports programming rights and fees charged to customers to view our sports programming (“pay-per-view”) (e.g. Ultimate Fighting Championship) and Premier Access content (e.g. Mulan on Disney+)
Significant expenses:
•Operating expenses consisting primarily of programming and production costs (including amortization of content obtained from other Company segments), technical support costs, operating labor and distribution costs
•Selling, general and administrative costs
•Depreciation and amortization
Direct-to-Consumer Services (DTC)
Our DTC businesses consist of subscription services that provide video streaming of general entertainment, family and sports programming (services are offered individually or in a bundle). The services are offered to customers directly or through third-party distributors on mobile and connected devices. Customers are generally billed a monthly or annual subscription fee.
Disney+ / Disney+Hotstar
Disney+ is a subscription based DTC video streaming service with Disney, Pixar, Marvel, Star Wars and National Geographic branded programming. It offers approximately 11,700 episodes and 700 movies from the Company’s library of television and film programming and over 30 exclusive original series and over 15 exclusive original movies and specials produced by the Company’s film and television studios. Disney+ launched in November 2019 in the U.S. and four other countries and has expanded to select Western European countries in the Spring of 2020. In April, our Hotstar service in India was converted to Disney+Hotstar, and in June 2020, subscribers of the Disney Deluxe service in Japan were converted to Disney+. In September 2020, Disney+ was launched in additional European countries and Disney+Hotstar was launched in Indonesia. In November 2020, Disney+ was launched in Latin America. Additional launches are planned for various Asia-Pacific territories in calendar 2021.
Disney+Hotstar is a subscription based DTC video streaming service with local and international television shows, movies, sports, news and original series in approximately ten languages and incorporates gaming and social features. Disney+Hotstar has exclusive streaming rights to Home Box Office, Inc.’s original programming in India and also carries content from Disney, Fox and Showtime Networks.
The majority of Disney+ / Disney+Hotstar revenue is derived from subscription fees. Disney+Hotstar also generates advertising revenue from commercial announcements in select programming.
Based on internal management reports, the estimated number of paid Disney+ / Disney+Hotstar subscribers as of October 3, 2020 was approximately 74 million.
ESPN+
ESPN+ is a subscription based DTC video streaming service offering thousands of live sporting events, on-demand sports content and original programming not available on ESPN’s other networks. ESPN+ revenue is derived from subscription fees, pay-per-view fees and, to a lesser extent, advertising sales. Live events available through the service include mixed martial arts, soccer, hockey, boxing, baseball, college sports, tennis and cricket. ESPN+ is currently the exclusive distributor for UFC pay-per-view events in the U.S. Based on internal management reports, the estimated number of paid ESPN+ subscribers as of October 3, 2020 was approximately 10 million.
Hulu
Hulu is a subscription based DTC video streaming service with acquired and original television and film content. The majority of Hulu’s revenue is derived from subscription fees and advertising sales. Hulu offers four primary subscription services/bundles, including an SVOD service with either limited commercial announcements or no commercial announcements,
16
TABLE OF CONTENTS
and a digital OTT MVPD service that also includes the SVOD service with either limited commercial announcements or no commercial announcements. The digital OTT MVPD service includes live linear streams of cable networks and the major broadcast networks. In addition, Hulu offers subscriptions to premium services such as HBOMax, Cinemax, Starz and Showtime, which can be added to the Hulu service. Based on internal management reports, the estimated number of paid Hulu subscribers as of October 3, 2020 was approximately 37 million.
The Company has a 67% ownership interest in Hulu and full operational control, with NBCU owning the remaining 33%. The Company also has a put/call agreement with NBCU, which provides NBCU the option to require the Company to purchase NBCU’s interest in Hulu and the Company the option to require NBCU to sell its interest in Hulu to the Company, in both cases, beginning in January 2024 (see Note 4 of the Consolidated Financial Statements for additional information).
Star
The Company plans to launch a DTC general entertainment video streaming offering under the Star brand outside the U.S. in calendar year 2021.
International Channels
Our International Channels produce local programs or acquire rights from our domestic studios and from third parties. Our International Channels derive the majority of their revenues from advertising sales and affiliate fees. Generally, channels provide programming under multi-year agreements with MVPDs that include contractually determined rates on a per subscriber basis. The amounts that we can charge to MVPDs for our channels are largely dependent on the quality and quantity of programming that we can provide and the competitive market for programming services. The ability to sell advertising time and the rates received are primarily dependent on the size and nature of the audience that a channel can deliver to the advertiser as well as overall advertiser demand.
The Company’s increased focus on DTC distribution in international markets is expected to negatively impact the International Channels business as we shift the primary means of monetizing our film and television content from licensing of linear channels to use on our DTC services.
The Company’s significant International Channels and the number of subscribers (in millions) based on internal management reports as of September 2020 are as follows:
Estimated Subscribers
Disney
Disney Channel196
Disney Junior166
Disney XD105
ESPN(1)
53
Fox(1)
201
National Geographic(1)
317
Star
General Entertainment(1)
134
Sports(1)
80
(1)Reflects each unique subscriber that has access to one or more of these branded channels.
Disney
DTCI operates approximately 100 Disney branded television channels outside of the U.S., which are broadcast in approximately 30 languages and 170 countries/territories. Branded channels include Disney Channel, Disney Junior, Disney XD and Disney International HD. Disney content is also available on third-party VOD services and online on our apps and websites. Programming for these channels includes Disney branded programming acquired from our domestic studios, programming acquired from third parties and internally developed local programming.
ESPN
DTCI operates approximately 25 ESPN branded television channels outside of the U.S. (primarily in Latin America and Australia), which are broadcast in three languages (English, Spanish and Portuguese) and approximately 60 countries/territories. ESPN holds non-U.S. rights for various professional sports programming including English Premier League, La Liga, multiple UEFA leagues, various other soccer rights, various tennis rights and the NFL.
17
TABLE OF CONTENTS
Fox
The DTCI segment operates approximately 190 Fox branded channels outside of the U.S., which are broadcast in approximately 40 languages and 190 countries/territories. Branded channels include Fox Channel, Fox Movies, Fox Life, Fox Crime, Fox Traveler, FX and Fox Sports. Content is also available on third-party VOD services and online on our apps and websites. Programming for these channels includes internally developed local programming and programming acquired from our domestic studios and from third parties.
Fox Sports distributes Spanish-language sports programming services in Latin America that feature local and international soccer events, motorsports programming, combat sports and U.S. sports leagues (such as NFL and MLB). Fox Sports Premium, a pay television service in Argentina, airs the matches of the professional soccer league in Argentina. In addition, Fox Sports distributes programming in Asia Pacific with regional feeds offered for Taiwan, Singapore, Philippines and South East Asia markets. The service features Bundesliga, motorsports, combat sports and international tennis programming.
In order to obtain regulatory approval for the acquisition of TFCF, the Company agreed to sell TFCF’s sports media operations in Mexico.
The Company has a 51% direct ownership interest in Eredivisie Media & Marketing CV (EMM), a media company that holds the media and sponsorship rights of the Dutch Premier League for soccer.
National Geographic
The DTCI segment operates approximately 90 National Geographic branded channels outside of the U.S., which are broadcast in approximately 40 languages and 180 countries/territories. Branded channels include National Geographic Channel, Nat Geo People, Nat Geo Wild and Nat Geo Kids. These channels air scripted and documentary programming on such topics as natural history, adventure, science, exploration and culture. Content is also available on third-party VOD services and online on our apps and websites. Programming for these channels includes programming acquired from our domestic studios, internally developed local programming and programming acquired from third parties.
Star
Star develops, produces and broadcasts approximately 60 channels, in approximately 10 languages in India and throughout Asia, the United Kingdom, Continental Europe, the Middle East and parts of Africa. Programming for these channels includes internally developed local programming and acquired programming, as well as content from Star’s extensive library of film and television programs. Star holds rights for various sports programming including cricket (for which Star has the global distribution rights to certain events) soccer, tennis and field hockey.
Other India Channels
DTCI operates UTV, Bindass and Hungama branded channels in India. UTV Action and UTV Movies offer Bollywood movies as well as Hollywood, Asian and Indian regional movies dubbed in Hindi. Bindass is a youth entertainment channel. Hungama is targeted to kids and features a mix of animated series and movies.
At October 3, 2020, we adjusted the methodology used to determine the number of branded channels and the number of countries/territories in which we operate channels. The current year includes language feeds that were previously excluded but includes only one channel (rather than two) in markets where we have both high definition and standard definition feeds. In addition, the current year includes certain Fox and National Geographic channels in Africa and Eastern Europe that were previously excluded. On a comparable basis, the number of branded channels declined by approximately 30 primarily due to shutting down Disney and Fox channels.
Other Digital Content Distribution Platforms and Services
DTCI operates branded apps and websites, the Disney Movie Club and Disney Digital Network and provides streaming technology support services.
Branded Apps and Websites
DTCI operates apps and websites under the ESPN, ABC, Disney, Freeform, FX and Nat Geo brands. DTCI sells advertising on these apps and websites, which are programmed with content licensed from the Media Networks.
Disney Movie Club
The Disney Movie Club sells DVD/Blu-ray discs directly to consumers in the U.S. and Canada.
Disney Digital Network (DDN)
DDN develops online video content, primarily for distribution on YouTube, and provides online marketing services.
18
TABLE OF CONTENTS
Streaming Technology Services
BAMTech LLC (BAMTech) provides streaming technology services to third parties. BAMTech is owned 75% by the Company, 15% by MLB and 10% by the National Hockey League (NHL), both of which have the right to sell their shares to the Company in the future (see Note 2 of the Consolidated Financial Statements for additional information).
BAMTech also operates the Company’s DTC sports business, which includes ESPN+ as well as DTC services for NHL programming. Hearst has a 20% interest in the Company’s DTC sports business.
Equity Investments
The significant equity investments reported in the Direct-to-Consumer & International segment are as follows:
Endemol Shine Group
Endemol Shine Group produces both scripted and non-scripted content for distribution across multiple platforms. On July 2, 2020, the Company sold its 50% interest in Endemol Shine Group.
Seven TV
Seven TV operates an advertising-supported, free-to-air Disney Channel in Russia. The Company has a 20% ownership interest and a 49% economic interest in the business.
Tata Sky
The Company has a 30% effective interest in Tata Sky Limited, which operates a direct-to-home satellite distribution platform in India.
Vice
The Company has an approximate 24% effective ownership (14% fully diluted) in Vice, which is a media company that targets millennial audiences. Vice operates Viceland, which is owned 50% by A+E and 50% by Vice.
Competition and Seasonality
The Company’s DTC and International Channel businesses compete for viewers primarily with other television and cable networks, television stations and other media, such as DTC services and video games. With respect to the sale of advertising time, we compete with other television networks, television stations, MVPDs and other advertising media such as digital content, newspapers, magazines and billboards.
The Company’s International Channels face competition from other networks for carriage by MVPDs. The Company’s contractual agreements with MVPDs are renewed or renegotiated from time to time in the ordinary course of business. Consolidation and other market conditions in the cable, satellite and telecommunication distribution industry and other factors may adversely affect the Company’s ability to obtain and maintain contractual terms for distribution that are as favorable as those currently in place.
The Company’s DTC and International Channels businesses also compete with other media and entertainment companies, SVOD providers and DTC services for the acquisition of sports rights, talent, show concepts and scripted and other programming.
Internet websites and digital products operated by the segment compete with other websites and entertainment products.
Revenues fluctuate based on the timing of releases and performance of our digital media content, viewership levels on our channels and digital platforms, changes in subscriber levels and the demand for sports and other content.
INTERCOMPANY ELIMINATIONS
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).
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 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”;
19
TABLE OF CONTENTS
•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 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. Generally, timing of revenue recognition is similar to the reporting of third-party sales transactions, except that intersegment sales of library content are generally recognized over time.
INTELLECTUAL PROPERTY PROTECTION
The Company’s businesses throughout the world are affected by its ability to exploit and protect against infringement of its intellectual property, including trademarks, trade names, copyrights, patents and trade secrets. Important intellectual property includes rights in the content of motion pictures, television programs, electronic games, sound recordings, character likenesses, theme park attractions, books and magazines, and merchandise. Risks related to the protection and exploitation of intellectual property rights are set forth in Item 1A – Risk Factors.
AVAILABLE INFORMATION
Our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports are available without charge on our website, www.disney.com/investors, as soon as reasonably practicable after they are filed electronically with the U.S. Securities and Exchange Commission (SEC). We are providing the address to our internet site solely for the information of investors. We do not intend the address to be an active link or to otherwise incorporate the contents of the website into this report.
ITEM 1A. Risk Factors
For an enterprise as large and complex as the Company, a wide range of factors could materially affect future developments and performance. In addition to the factors affecting specific business operations identified in connection with the description of these operations and the financial results of these operations elsewhere in this report and our other filings with the SEC, the most significant factors affecting our business include the following:
BUSINESS, ECONOMIC, MARKET and OPERATING CONDITION RISKS
The adverse impact of COVID-19 on our businesses will continue for an unknown length of time and may continue to impact certain of our key sources of revenue.
The impact of COVID-19 and measures to prevent its spread are affecting our businesses in a number of ways. Our theme parks were closed or operating at significantly reduced capacity for a significant portion of the year, cruise ship sailings, guided tours and stage play performances were suspended since late in the second quarter, and retail stores were closed for a significant portion of the year. In addition, we have delayed or, in some instances shortened or cancelled, theatrical releases and have experienced adverse impacts on advertising sales and on our merchandise licensing business. 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 deferral or cancellation of certain sports events and suspension of production of most film and television content. We have continued to pay for certain sports rights, including for certain events that have been deferred or canceled. 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, including if sports content should become unavailable again in the future. Other of our offerings will be exposed to additional financial impacts in the event of future significant unavailability of content. COVID-19 impacts could also hasten the erosion of our historical sources of revenue at our Media Networks businesses. We have significantly reduced numbers of reservations at our hotels and cruises. We have granted rent waivers to some of our tenants, and they have not paid rent while certain of our facilities have been closed. We have experienced increased returns and refunds and customer requests
20
TABLE OF CONTENTS
for payment deferrals. Collectively, our impacted businesses have historically been the source of the majority of our revenue. Some of our businesses remain closed and those that are open are operating subject to restrictions and increased expenses. These and other impacts of COVID-19 on our businesses will continue for an unknown length of time. COVID-19 impacts that have subsided may again impact our businesses in the future and new impacts may emerge, particularly given the rise of COVID-19 cases following the end of fiscal 2020. For example, some of our parks have closed due to government mandates or guidance following their initial reopening.
Consumers may change their behavior and consumption patterns in response to the prolonged suspension of certain of our businesses, such as subscription to pay television packages (which have experienced accelerated decline during COVID-19) or theater-going to watch movies. Certain of our customers, including individuals as well as businesses such as theatrical distributors, affiliates, licensees of rights to use our programming and intellectual property, advertisers and others, have been negatively impacted by the economic downturn caused by COVID-19, which may result in decreased purchases of our goods and services even after certain operations resume. Some industries in which our customers operate, such as theatrical distribution, retail and travel, could experience contraction, which could impact the profitability of our businesses going forward. Additionally, we have and will continue to incur incremental costs to implement health and safety measures, reopen our parks and restart our halted construction projects. As we have resumed production of film and television content, including live sporting events, we have incurred costs to implement health and safety measures and productions will generally take longer to complete.
Our mitigation efforts in response to the impacts of COVID-19 on our businesses have had, or may have, negative impacts. The Company (or our Board of Directors, as applicable) significantly increased cash balances through the issuance of senior notes in March and May 2020, and we entered into an additional $5.0 billion credit facility in April 2020, did not declare a dividend with respect to fiscal year 2020 operations; suspended certain capital projects; reduced certain discretionary expenditures (such as spending on marketing); temporarily reduced management compensation; temporarily eliminated Board of Director retainers and committee fees; furloughed over half of our employees (some of whom remain furloughed and continue to receive Company provided medical benefits); and reduced our employee population. Such mitigation measures have resulted in the delay or suspension of certain projects in which we have invested, particularly at our parks and resorts and Studio Entertainment segment. 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. These and other of our mitigating actions may have an adverse impact on our businesses. Additionally, there are certain limitations on our ability to mitigate the adverse financial impact of COVID-19, including the fixed costs of our theme park business and the impact COVID-19 may have on capital markets and our cost of borrowing. Further, the benefit of certain mitigation efforts will not continue to be available going forward. For example, as our employees return from furlough, the cost reductions of the related furloughs will no longer be available.
Even our operations that were not suspended or that have resumed continue to be adversely impacted by government mandated restrictions (such as density limitations and travel restrictions); measures we voluntarily implement; measures we are contractually obligated to implement; the distancing practices and health concerns of consumers, talent and production workers; and logistical limitations. Upon reopening our parks and resorts business we have seen lower demand. Geographic variation in government requirements and ongoing changes to restrictions have disrupted and could further disrupt our businesses, including our production operations. Our operations could be suspended or re-suspended by government action or otherwise in the future. For example, after Hong Kong Disneyland Resort reopened in June 2020, it closed again in July 2020 and Disneyland Paris opened July 2020 and closed again in October 2020. Some of our businesses have not yet been permitted to open, such as Disneyland Resort and our cruise business. Some of our employees who returned to work have been refurloughed. Our operations could be negatively impacted by a significant COVID-19 outbreak impacting our employees, customers or others interacting with our businesses, including our supply chain.
In fiscal year 2020, we operated at a net loss. We have impaired goodwill and intangible assets at our International Channels businesses and written down the value of certain of our retail store assets. Certain of our other assets could also become impaired, including further impairments of goodwill and intangible assets; we have increased, and may further increase, allowances for credit losses; and there may be changes in judgments in determining the fair-value of assets; and estimates related to variable consideration may change due to increased returns, reduced usage of our products or services and decreased royalties. Our leverage ratios have increased and may remain elevated in the near-term as a result of COVID-19’s impact on our financial performance, causing certain of the credit rating agencies to downgrade our ratings. Our debt ratings may be further downgraded as a result of the COVID-19 impact, which may negatively impact our cost of borrowing. Due to reduced operating cash flow, we may utilize cash balances and/or future financings to fund a portion of our operations and investments in our businesses. Financial risks may be exacerbated by the timing of customer deposit refunds; liquidity issues among our key customers, particularly advertisers, television affiliates, theatrical exhibitors and distributors and licensees, which have impacted timely payments by such customers to the Company; loss or delay of receivables as a result of contractual performance short falls; and our contractual payment obligations. The Company has $13.1 billion in trade accounts receivable
21
TABLE OF CONTENTS
outstanding at October 3, 2020, with an allowance for credit losses of $0.5 billion. Our estimates and judgments with respect to the collectability of our receivables are subject to greater uncertainty due to the impacts of COVID-19. Economic or political conditions in a country outside the U.S. as a result of COVID-19 could also reduce our ability to hedge exposure to currency fluctuations in the country or our ability to repatriate revenue from the country.
The impacts of COVID-19 to our business have generally amplified, or reduced our ability to mitigate, the other risks discussed herein. Our remediation efforts may not be successful.
COVID-19 also makes it more challenging for management to estimate future performance of our businesses. COVID-19 has already adversely impacted our businesses and net cash flow, and we expect the ultimate magnitude of these disruptions on our financial and operational results will be dictated by the length of time that such disruptions continue which will, in turn, depend on the currently unknowable duration and severity of the impacts of COVID-19, and among other things, the impact and duration of governmental actions imposed in response to COVID-19 and individuals’ and companies’ risk tolerance regarding health matters going forward. If actual performance in our international markets significantly underperforms management’s forecasts, the Company could have foreign currency hedge gains/losses which are not offset by the realization of exposures, resulting in excess hedge gains or losses. While we cannot be certain as to the duration of the impacts of COVID-19, we expect impacts of COVID-19 to affect our financial results at least through fiscal 2021.
Changes in U.S., global, and regional economic conditions are expected to have an adverse effect on the profitability of our businesses.
A decline in economic activity in the U.S. and other regions of the world in which we do business can adversely affect demand for any of our businesses, thus reducing our revenue and earnings. Global economic activity has declined as a result of COVID-19. Past declines in economic conditions reduced spending at our parks and resorts, purchases of and prices for advertising on our broadcast and cable networks and owned stations, performance of our home entertainment releases, and purchases of Company-branded consumer products, and similar impacts can be expected should such conditions recur. The current decline in economic conditions could also reduce attendance at our parks and resorts, prices that MVPDs pay for our cable programming or subscription levels for our cable programming or direct-to-consumer products. Economic conditions can also impair the ability of those with whom we do business to satisfy their obligations to us. In addition, an increase in price levels generally, or in price levels in a particular sector such as the energy sector, could result in a shift in consumer demand away from the entertainment and consumer products we offer, which could also adversely affect our revenues and, at the same time, increase our costs. A decline in economic conditions could impact implementation of our expansion plans. Changes in exchange rates for foreign currencies may reduce international demand for our products or increase our labor or supply costs in non-U.S. markets, or reduce the U.S. dollar value of revenue we receive and expect to receive from other markets. Economic or political conditions in a country could also reduce our ability to hedge exposure to currency fluctuations in the country or our ability to repatriate revenue from the country.
Changes in technology and in consumer consumption patterns may affect demand for our entertainment products, the revenue we can generate from these products or the cost of producing or distributing products.
The media entertainment and internet businesses in which we participate increasingly depend on our ability to successfully adapt to shifting patterns of content consumption through the adoption and exploitation of new technologies. New technologies affect the demand for our products, the manner in which our products are distributed to consumers, ways we charge for and receive revenue for our entertainment products and the stability of those revenue streams, the sources and nature of competing content offerings, the time and manner in which consumers acquire and view some of our entertainment products and the options available to advertisers for reaching their desired audiences. This trend has impacted the business model for certain traditional forms of distribution, as evidenced by the industry-wide decline in ratings for broadcast television, the reduction in demand for home entertainment sales of theatrical content, the development of alternative distribution channels for broadcast and cable programming and declines in subscriber levels for traditional cable channels, including for a number of our networks. COVID-19 has accelerated this trend. In order to respond to these developments, we regularly consider, and from time to time implement changes to our business models, most recently by developing, investing in and acquiring DTC products and reorganizing our media and entertainment businesses to accelerate our DTC strategies. There can be no assurance that our DTC offerings and other efforts will successfully respond to these changes. We expect to forgo revenue from traditional sources, particularly as we expand our DTC offerings. There can be no assurance that the DTC model and other business models we may develop will ultimately be as profitable as our existing or historic business models.
Misalignment with public and consumer tastes and preferences for entertainment and consumer products could negatively impact demand for our entertainment offerings and products and adversely affect the profitability of any of our businesses.
Our businesses create entertainment, travel and consumer products whose success depends substantially on consumer tastes and preferences that change in often unpredictable ways. The success of our businesses depends on our ability to consistently create filmed entertainment and television programming, which may be distributed among other ways through
22
TABLE OF CONTENTS
broadcast, cable, internet or cellular technology, theme park attractions, hotels and other resort facilities and travel experiences and consumer products that meet the changing preferences of the broad consumer market and respond to competition from an expanding array of choices facilitated by technological developments in the delivery of content. The success of our theme parks, resorts, cruise ships and experiences, as well as our theatrical releases, depends on demand for public or out-of-home entertainment experiences. COVID-19 may impact consumer tastes and preferences. Many of our businesses increasingly depend on acceptance of our offerings and products by consumers outside the U.S., and their success therefore depends on our ability to successfully predict and adapt to changing consumer tastes and preferences outside as well as inside the U.S. Moreover, we must often invest substantial amounts in film production, television programming, other content production and acquisition, acquisition of sports rights, theme park attractions, cruise ships or hotels and other resort facilities before we know the extent to which these products will earn consumer acceptance. The impacts of COVID-19 are inhibiting and delaying our ability to earn returns on these and other investments. If our entertainment offerings and products, including our content offerings, modified as a result of COVID-19, do not achieve sufficient consumer acceptance, our revenue from advertising sales (which are based in part on ratings for the programs in which advertisements air), affiliate fees, subscription fees, theatrical film receipts, the license of rights to other distributors, theme park admissions, hotel room charges and merchandise, food and beverage sales, sales of licensed consumer products or from sales of our other consumer products and services, may decline, decline further or fail to grow to the extent we anticipate when making investment decisions and thereby further adversely affect the profitability of one or more of our businesses.
The success of our businesses is highly dependent on the existence and maintenance of intellectual property rights in the entertainment products and services we create.
The value to us of our intellectual property rights is dependent on the scope and duration of our rights as defined by applicable laws in the U.S. and abroad and the manner in which those laws are construed. If those laws are drafted or interpreted in ways that limit the extent or duration of our rights, or if existing laws are changed, our ability to generate revenue from our intellectual property may decrease, or the cost of obtaining and maintaining rights may increase.
The unauthorized use of our intellectual property may increase the cost of protecting rights in our intellectual property or reduce our revenues. The convergence of computing, communication and entertainment devices, increased broadband internet speed and penetration, increased availability and speed of mobile data transmission and increasingly sophisticated attempts to obtain unauthorized access to data systems have made the unauthorized digital copying and distribution of our films, television productions and other creative works easier and faster and protection and enforcement of intellectual property rights more challenging. The unauthorized distribution and access to entertainment content generally continues to be a significant challenge for intellectual property rights holders. Inadequate laws or weak enforcement mechanisms to protect entertainment industry intellectual property in one country can adversely affect the results of the Company’s operations worldwide, despite the Company’s efforts to protect its intellectual property rights. COVID-19 may increase incentives and opportunities to access content in unauthorized ways, as negative economic conditions coupled with a shift in government priorities could lead to less enforcement. These developments require us to devote substantial resources to protecting our intellectual property against unlicensed use and present the risk of increased losses of revenue as a result of unlicensed distribution of our content.
With respect to intellectual property developed by the Company and rights acquired by the Company from others, the Company is subject to the risk of challenges to our copyright, trademark and patent rights by third parties. Successful challenges to our rights in intellectual property may result in increased costs for obtaining rights or the loss of the opportunity to earn revenue from the intellectual property that is the subject of challenged rights.
Protection of electronically stored data is costly, and if our data is compromised in spite of this protection, we may incur additional costs, lost opportunities and damage to our reputation.
We maintain information necessary to conduct our business, including confidential and proprietary information as well as personal information regarding our customers and employees, in digital form. Data maintained in digital form is subject to the risk of unauthorized access, modification and exfiltration. We develop and maintain information security systems in an effort to prevent this, but the development and maintenance of these systems is costly and requires ongoing monitoring and updating as technologies change and efforts to overcome security measures become more sophisticated. Accordingly, despite our efforts, unauthorized access, modification and exfiltration of data cannot be eliminated entirely, and the risks associated with a potentially material incident remain. In addition, we provide confidential, proprietary and personal information to third parties when it is necessary to pursue business objectives. While we obtain assurances that these third parties will protect this information and, where we believe appropriate, monitor the protections employed by these third parties, there is a risk the confidentiality of data held by third parties may be compromised. If our information security systems or data are compromised in a material way, our ability to conduct our business may be impaired, we may lose profitable opportunities or the value of those opportunities may be diminished and, as described above, we may lose revenue as a result of unlicensed use of our intellectual property. If personal information of our customers or employees is misappropriated, our reputation with our customers and employees may be damaged resulting in loss of business or morale, and we may incur costs to remediate
23
TABLE OF CONTENTS
possible harm to our customers and employees and/or to pay fines or take other action with respect to judicial or regulatory actions arising out of the incident.
A variety of uncontrollable events may reduce demand for or consumption of our products and services, impair our ability to provide our products and services or increase the cost or reduce the profitability of providing our products and services.
Demand for and consumption of our products and services, particularly our theme parks and resorts, is highly dependent on the general environment for travel and tourism. The environment for travel and tourism, as well as demand for and consumption of other entertainment products, can be significantly adversely affected in the U.S., globally or in specific regions as a result of a variety of factors beyond our control, including: adverse weather conditions arising from short-term weather patterns or long-term change, catastrophic events or natural disasters (such as excessive heat or rain, hurricanes, typhoons, floods, tsunamis and earthquakes); health concerns (including as it has been by COVID-19); international, political or military developments; and terrorist attacks. These events and others, such as fluctuations in travel and energy costs and computer virus attacks, intrusions or other widespread computing or telecommunications failures, may also damage our ability to provide our products and services or to obtain insurance coverage with respect to some of these events. An incident that affected our property directly would have a direct impact on our ability to provide goods and services and could have an extended effect of discouraging consumers from attending our facilities. Moreover, the costs of protecting against such incidents, including the costs of protecting against the spread of COVID-19, reduces the profitability of our operations.
For example, COVID-19 and measures to prevent the spread of COVID-19 are currently impairing our ability to provide our products and services and reducing consumption of those products and services. Further, prior to COVID-19, events in Hong Kong impacted profitability of our Hong Kong operations and may continue to do so, and past hurricanes have impacted the profitability of Walt Disney World Resort in Florida and future hurricanes may also do so.
The negative economic consequences of COVID-19 may be particularly challenging in markets where individuals and local businesses have limited access to government supported “safety nets”, which could lead to political instability and unrest, and further depress demand for our products and services over a longer timeframe.
In addition, we derive affiliate fees and royalties from the distribution of our programming, sales of our licensed goods and services by third parties, and the management of businesses operated under brands licensed from the Company, and we are therefore dependent on the successes of those third parties for that portion of our revenue. A wide variety of factors could influence the success of those third parties and if negative factors significantly impacted a sufficient number of those third parties, the profitability of one or more of our businesses could be adversely affected. Impacts of COVID-19 on third parties’ liquidity have impacted timely payments by such third parties to the Company.
We obtain insurance against the risk of losses relating to some of these events, generally including physical damage to our property and resulting business interruption, certain injuries occurring on our property and some liabilities for alleged breach of legal responsibilities. When insurance is obtained it is subject to deductibles, exclusions, terms, conditions and limits of liability. The types and levels of coverage we obtain vary from time to time depending on our view of the likelihood of specific types and levels of loss in relation to the cost of obtaining coverage for such types and levels of loss and we may experience material losses not covered by our insurance. For example, we expect some losses related to impacts of COVID-19 will not be covered by insurance available to us and insurers may contest coverage.
Changes in our business strategy or restructuring of our businesses may increase our costs or otherwise affect the profitability of our businesses or the value of our assets.
As changes in our business environment occur we have adjusted, and may further adjust our business strategies to meet these changes and we may otherwise decide to further restructure our operations or particular businesses or assets. For example, in October 2020 we announced a reorganization of our media and entertainment businesses to accelerate our direct-to-consumer strategies. Our new organization and strategies may not produce the anticipated benefits, such as supporting our growth strategies and enhancing shareholder value. Our new organization and strategies could be less successful than our previous organizational structure and strategies. In addition, external events including changing technology, changing consumer patterns, acceptance of our theatrical offerings and changes in macroeconomic conditions may impair the value of our assets. When these changes or events occur, we may incur costs to change our business strategy and may need to write-down the value of assets. For example, current conditions, including COVID-19 and our business decisions, have reduced the value of some of our assets. We have impaired goodwill and intangible assets at our International Channels businesses and written down the value of certain of our retail store assets. We may write-down other assets as our strategy evolves to account for the current business environment. We also make investments in existing or new businesses, including investments in international expansion of our business and in new business lines. In recent years, such investments have included expansion and renovation of certain of our theme parks, expansion of our fleet of cruise ships, the acquisition of TFCF and investments related to direct-to-consumer offerings. Some of these investments may have returns that are negative or low, the ultimate business prospects of the businesses related to these investments may be uncertain, these investments may impact the profitability of our other
24
TABLE OF CONTENTS
businesses, and these risks are exacerbated by COVID-19. In any of these events, our costs may increase, we may have significant charges associated with the write-down of assets or returns on new investments may be lower than prior to the change in strategy or restructuring.
Increased competitive pressures may reduce our revenues or increase our costs.
We face substantial competition in each of our businesses from alternative providers of the products and services we offer and from other forms of entertainment, lodging, tourism and recreational activities. This includes, among other types, competition for human resources, programming and other resources we require in operating our business. For example:
•Our studio operations and media businesses compete to obtain creative, performing and business talent, sports and other programming, story properties, advertiser support and market share with other studio operations, broadcast and cable networks, SVOD providers and other new sources of broadband delivered content.
•Our broadcast and cable networks and stations and direct-to-consumer offerings compete for the sale of advertising time with other broadcast, cable and satellite services, as well as with newspapers, magazines, billboards and radio stations. In addition, we increasingly face competition for advertising sales from internet and mobile delivered content, which offer advertising delivery technologies that are more targeted than can be achieved through traditional means.
•Our cable networks compete for carriage of their programming with other programming providers.
•Our theme parks and resorts compete for guests with all other forms of entertainment, lodging, tourism and recreation activities.
•Our studio operations compete for customers with all other forms of entertainment.
•Our consumer products business competes with other licensors and creators of intellectual property.
•Our direct-to-consumer businesses compete for customers with competitors’ direct-to-consumer offerings, all other forms of media and all other forms of entertainment, as well as for technology, creative, performing and business talent and for content. Competition in each of these areas may increase as a result of technological developments and changes in market structure, including consolidation of suppliers of resources and distribution channels. Increased competition may divert consumers from our creative or other products, or to other products or other forms of entertainment, which could reduce our revenue or increase our marketing costs.
Competition for the acquisition of resources can increase the cost of producing our products and services or deprive us of talent necessary to produce high quality creative material. Such competition may also reduce, or limit growth in, prices for our products and services, including advertising rates and subscription fees at our media networks, parks and resorts admissions and room rates, and prices for consumer products from which we derive license revenues.
Our results may be adversely affected if long-term programming or carriage contracts are not renewed on sufficiently favorable terms.
We enter into long-term contracts for both the acquisition and the distribution of media programming and products, including contracts for the acquisition of programming rights for sporting events and other programs, and contracts for the distribution of our programming to content distributors. As these contracts expire, we must renew or renegotiate the contracts, and if we are unable to renew them on acceptable terms, we may lose programming rights or distribution rights. Even if these contracts are renewed, the cost of obtaining programming rights may increase (or increase at faster rates than our historical experience) or programming distributors, facing pressures resulting from increased subscription fees and alternative distribution challenges, may demand terms (including pricing and the breadth of distribution) that reduce our revenue from distribution of programs (or increase revenue at slower rates than our historical experience). Moreover, our ability to renew these contracts on favorable terms may be affected by consolidation in the market for program distribution, the entrance of new participants in the market for distribution of content on digital platforms and the impacts of COVID-19. With respect to the acquisition of programming rights, particularly sports programming rights, the impact of these long-term contracts on our results over the term of the contracts depends on a number of factors, including the strength of advertising markets, subscription levels and rates for programming, effectiveness of marketing efforts and the size of viewer audiences. There can be no assurance that revenues from programming based on these rights will exceed the cost of the rights plus the other costs of producing and distributing the programming.
Changes in regulations applicable to our businesses may impair the profitability of our businesses.
Our broadcast networks and television stations are highly regulated, and each of our other businesses is subject to a variety of U.S. and overseas regulations. These regulations include:
•U.S. FCC regulation of our television and radio networks, our national programming networks and our owned television stations. See Item 1 — Business — Media Networks, Federal Regulation.
•Federal, state and foreign privacy and data protection laws and regulations.
25
TABLE OF CONTENTS
•Regulation of the safety and supply chain of consumer products and theme park operations, including potential regulation regarding the sourcing, importation and sale of goods.
•Environmental protection regulations.
•Imposition by foreign countries of trade restrictions, restrictions on the manner in which content is currently licensed and distributed, ownership restrictions, currency exchange controls or film or television content requirements, investment obligations or quotas.
•Domestic and international labor laws, tax laws or currency controls
Changes in any of these regulations or regulatory activities in any of these areas may require us to spend additional amounts to comply with the regulations, or may restrict our ability to offer products and services in ways that are profitable. For example, in January 2019 India implemented regulation and tariffs impacting certain bundling of channels and in November 2020 potential U.S. legislation is pending prohibiting importation of goods from certain regions.
Public health and other regional, national, state and local regulations and policies are impacting our ability to operate our businesses at all or in accordance with historic practice. In addition to the government requirements that have closed or impacted most of our businesses as a result of COVID-19, government requirements may continue to be extended and new government requirements may be imposed.
Our operations outside the U.S. may be adversely affected by the operation of laws in those jurisdictions.
Our operations in non-U.S. jurisdictions are in many cases subject to the laws of the jurisdictions in which they operate rather than U.S. law. Laws in some jurisdictions differ in significant respects from those in the U.S. These differences can affect our ability to react to changes in our business, and our rights or ability to enforce rights may be different than would be expected under U.S. law. Moreover, enforcement of laws in some overseas jurisdictions can be inconsistent and unpredictable, which can affect both our ability to enforce our rights and to undertake activities that we believe are beneficial to our business. In addition, the business and political climate in some jurisdictions may encourage corruption, which could reduce our ability to compete successfully in those jurisdictions while remaining in compliance with local laws or U.S. anti-corruption laws applicable to our businesses. As a result, our ability to generate revenue and our expenses in non-U.S. jurisdictions may differ from what would be expected if U.S. law governed these operations.
Damage to our reputation or brands may negatively impact our business across segments and regions.
Our reputation and globally recognizable brands are integral to the success of our businesses. Because our brands engage consumers across our businesses, damage to our reputation or brands in one business may have an impact on our other businesses. Because some of our brands are globally recognized, brand damage may not be locally contained. Maintenance of the reputation of our Company and brands depends on many factors including the quality of our offerings, maintenance of trust with our customers and our ability to successfully innovate. Significant negative claims or publicity regarding the Company or its operations, products, management, employees, practices, business partners, business decisions, social responsibility and culture may damage our brands or reputation, even if such claims are untrue. Damage to our reputation or brands could impact our sales, business opportunities, profitability, recruiting and valuation of our securities.
Risks that impact our business as a whole may also impact the success of our direct-to-consumer (DTC) business.
We may not successfully execute on our DTC strategy. Consumers may not be willing to pay for an expanding set of DTC services, potentially exacerbated by an economic downturn. We face competition for creative talent and may not be successful in recruiting and retaining talent. Government regulation, including revised foreign content and ownership regulations, may impact the implementation of our DTC business plans. Poor quality broadband infrastructure in certain markets may impact our customers’ access to our DTC products and may diminish our customers’ experience with our DTC products. These and other risks may impact the profitability and success of our DTC businesses.
Volatility in the financial markets and our debt ratings have impacted our cost of borrowing and could impede access to, or increase the cost of, financing our operations and investments.
U.S. and global markets have experienced significant volatility. Past disruptions in the U.S. and global credit and equity markets made it more difficult for many businesses to obtain financing on acceptable terms. These conditions tended to increase the cost of borrowing and if they recur, our cost of borrowing could increase and it may be more difficult to obtain financing for our operations or investments. In addition, our borrowing costs can be affected by short- and long-term debt ratings assigned by independent rating agencies that are based, in part, on the Company’s performance as measured by credit metrics such as leverage and interest coverage ratios.
Since April 2020, Standard and Poor’s has downgraded our long-term debt ratings by two notches to BBB+, downgraded our short-term debt ratings by one notch to A-2 and placed our long-term debt ratings on Negative Outlook. In May 2020, Fitch downgraded our long- and short-term credit ratings by one notch to A- and F2, respectively, and placed our long-term ratings
26
TABLE OF CONTENTS
on Negative Outlook. On November 18, 2020, Standard and Poor’s lowered the Company’s long-term rating to BBB+ and placed the Company’s long-term ratings on Negative Outlook. These ratings actions have increased, and any potential future downgrades could further increase, our cost of borrowing and/or make it more difficult for us to obtain financing. Past disruptions in the global financial markets also impacted some of the financial institutions with which we do business. A similar decline in the financial stability of financial institutions could affect our ability to secure credit-worthy counterparties for our interest rate and foreign currency hedging programs, could affect our ability to settle existing contracts and could also affect the ability of our business customers to obtain financing and thereby to satisfy their obligations to us.
Labor disputes may disrupt our operations and adversely affect the profitability of any of our businesses.
A significant number of employees in various parts of our businesses are covered by collective bargaining agreements, including employees of our theme parks and resorts as well as writers, directors, actors, production personnel and others employed in our media networks and studio operations. In addition, the employees of licensees who manufacture and retailers who sell our consumer products, and employees of providers of programming content (such as sports leagues) may be covered by labor agreements with their employers. In general, a labor dispute involving our employees or the employees of our licensees or retailers who sell our consumer products or providers of programming content may disrupt our operations and reduce our revenues, and resolution of disputes may increase our costs.
The seasonality of certain of our businesses and timing of certain of our product offerings could exacerbate negative impacts on our operations.
Each of our businesses is normally subject to seasonal variations and variations in connection with the timing of our product offerings, including as follows:
•Revenues in our Media Networks segment 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 typically recognized ratably throughout the year.
•Revenues in our Parks, Experiences and Products segment 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 quarters. Peak attendance and resort occupancy generally occur during the summer months when school vacations occur and during early winter and spring holiday periods. Our parks, resorts, stores and experiences are operating at diminished capacity or closed during these periods as a result of COVID-19. In addition, licensing revenues fluctuate with the timing and performance of our theatrical releases and cable programming broadcasts, many of which have been delayed, canceled or modified.
•Revenues in our Studio Entertainment segment 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, the timing of vacation and holiday periods and closing of theaters and impacts on attendance due to COVID-19.
•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, content production schedules and league shut downs.
Accordingly, negative impacts on our business occurring during a time of typical high seasonal demand could have a disproportionate effect on the results of that business for the year. Examples include the ongoing impact of COVID-19 on various high seasons or hurricane damage to our parks during the summer travel season.
Sustained increases in costs of pension and postretirement medical and other employee health and welfare benefits may reduce our profitability.
With approximately 203,000 employees, our profitability is substantially affected by costs of pension and current and postretirement medical benefits. We may experience significant increases in these costs as a result of macroeconomic factors, which are beyond our control, including increases in the cost of health care. Impacts of COVID-19 may lead to an increase in the cost of medical insurance and expenses. In addition, changes in investment returns and discount rates used to calculate pension and postretirement medical expense and related assets and liabilities can be volatile and may have an unfavorable impact on our costs in some years. Our pension and postretirement medical plans were remeasured at the end of fiscal 2020, and as a result, the underfunded status and fiscal 2021 costs increased. These macroeconomic factors as well as a decline in the fair value of pension and postretirement medical plan assets may put upward pressure on the cost of providing pension and postretirement medical benefits and may increase future funding requirements. There can be no assurance that we will succeed in limiting cost increases, and continued upward pressure could reduce the profitability of our businesses.
27
TABLE OF CONTENTS
The alteration or discontinuation of LIBOR may adversely affect our borrowing costs.
Certain of our interest rate derivatives and a portion of our indebtedness bear interest at variable interest rates, primarily based on LIBOR, which may be subject to regulatory guidance and/or reform that could cause interest rates under our current or future debt agreements to perform differently than in the past or cause other unanticipated consequences. In July 2017, the Chief Executive of the U.K. Financial Conduct Authority (the “FCA”), which regulates LIBOR, announced that the FCA will no longer persuade or compel banks to submit rates for the calculation of LIBOR after 2021. Such announcement indicates that the continuation of LIBOR on the current basis cannot and will not be guaranteed after 2021. The Alternative Reference Rates Committee (ARCC), which was convened by the Federal Reserve Board and the New Your Fed, has identified the Secured Oversight Financing Rate (SOFR) as the recommended risk-free alternative rate for USD LIBOR. At this time, it is not possible to predict the effect any discontinuance, modification or other reforms to LIBOR, or the establishment of alternative reference rates such as SOFR, or any other reference rate, will have on the Company. However, if LIBOR ceases to exist or if the methods of calculating LIBOR change from their current form, the Company’s borrowing costs may be adversely affected.
TFCF ACQUISITION RISKS
Our consolidated indebtedness increased substantially following completion of the TFCF acquisition and may increase in connection with impacts of the COVID-19. This increased level of indebtedness could adversely affect us, including by decreasing our business flexibility.
Our consolidated indebtedness and cash and cash equivalents as of September 29, 2018 were approximately $20.9 billion and $4.2 billion, respectively. With the completion of the TFCF acquisition, our consolidated indebtedness and cash and cash equivalents as of September 28, 2019 were approximately $47.0 billion and $5.4 billion, respectively. As of October 3, 2020 our consolidated indebtedness and cash and cash equivalents were approximately $58.6 billion and $17.9 billion, respectively. The increased indebtedness could have the effect of, among other things, reducing our financial flexibility and reducing our flexibility to respond to changing business and economic conditions, such as those presented by COVID-19, among others. Increased levels of indebtedness could also reduce funds available for capital expenditures, share repurchases and dividends, and other activities and may create competitive disadvantages for us relative to other companies with lower debt levels. Since April 2020, Standard and Poor’s has downgraded our long-term debt ratings by two notches to BBB+, downgraded our short-term debt ratings by one notch to A-2 and placed our long-term debt ratings on Negative Outlook. In May 2020, Fitch downgraded our long- and short-term credit ratings by one notch to A- and F2, respectively, and placed our long-term ratings on Negative Outlook. Our financial flexibility may be further constrained by the issuance of shares of common stock in the TFCF acquisition, to the extent we determine to make dividend payments in the future.
We could fail to realize all of the benefits anticipated in the TFCF acquisition.
If we are not able to realize the strategic value of the TFCF assets, the anticipated benefits of the TFCF acquisition may not be realized fully or may take longer than expected to be realized, and these risks could be exacerbated by the impact of COVID-19. Further, there could be loss of key employees, loss of customers, disruption of ongoing businesses or unexpected issues, higher than expected costs and an overall post-acquisition process that takes longer than originally anticipated. Specifically, the following issues, among others, must be addressed in order to realize the anticipated benefits of the TFCF acquisition so the combined company performs as we hope:
•combining the businesses of the Company and TFCF in a manner that permits us to achieve the synergies anticipated to result from the TFCF acquisition, the failure of which would result in the anticipated benefits of the TFCF acquisition not being realized in the time frame currently anticipated or at all;
•maintaining existing agreements with customers, distributors, providers, talent and vendors and avoiding delays in entering into new agreements with prospective customers, distributors, providers, talent and vendors; and
•developing products and technology that allow value to be unlocked in the future.
Consummation of the TFCF acquisition has increased our exposure to the risks of operating internationally.
We are a diversified entertainment company that offers entertainment, travel and consumer products worldwide. Although many of our businesses increasingly depend on acceptance of our offerings and products by consumers outside of the U.S., the combination with TFCF has increased the importance of international operations to our future operations, growth and prospects. Our risks of operating internationally have increased following the completion of the TFCF acquisition and as a result of COVID-19.
The TFCF acquisition and integration may result in additional costs and expenses.
We have incurred and expect to continue to incur significant costs, expenses and fees for professional services and other transaction costs in connection with the TFCF acquisition and integration. We may also incur accounting and other costs that were not anticipated at the time of the TFCF acquisition, including costs for which we have established reserves or which may lead to reserves in the future. Such costs could negatively impact the Company’s free cash flow.
28
TABLE OF CONTENTS
GENERAL RISKS
The Company’s amended and restated bylaws provide to the fullest extent permitted by law that the Court of Chancery of the State of Delaware will be the exclusive forum for certain legal actions between the Company and its stockholders, which could increase costs to bring a claim, discourage claims or limit the ability of the Company’s stockholders to bring a claim in a judicial forum viewed by the stockholders as more favorable for disputes with the Company or the Company’s directors, officers or other employees.
The Company’s amended and restated bylaws provide to the fullest extent permitted by law that unless the Company consents in writing to the selection of an alternative forum, the Court of Chancery of the State of Delaware will be the sole and exclusive forum for any (i) derivative action or proceeding brought on behalf of the Company, (ii) any action or proceeding asserting a claim of breach of a fiduciary duty owed by any current or former director, officer or stockholder of the Company to the Company or the Company’s stockholders, (iii) any action or proceeding asserting a claim arising pursuant to, or seeking to enforce any right, obligation or remedy under, any provision of the General Corporation Law of the State of Delaware (the “DGCL”), the Certificate of Incorporation or these Bylaws (as each may be amended from time to time), (iv) any action or proceeding as to which the General Corporation Law of the State of Delaware confers jurisdiction on the Court of Chancery of the State of Delaware, (v) or any action or proceeding asserting a claim governed by the internal affairs doctrine. The choice of forum provision may increase costs to bring a claim, discourage claims or limit a stockholder’s ability to bring a claim in a judicial forum that it finds favorable for disputes with the Company or the Company’s directors, officers or other employees, which may discourage such lawsuits against the Company or the Company’s directors, officers and other employees. Alternatively, if a court were to find the choice of forum provision contained in the Company’s amended and restated bylaws to be inapplicable or unenforceable in an action, the Company may incur additional costs associated with resolving such action in other jurisdictions. The exclusive forum provision in the Company’s amended and restated bylaws will not preclude or contract the scope of exclusive federal or concurrent jurisdiction for actions brought under the federal securities laws including the Securities Exchange Act of 1934, as amended, or the Securities Act of 1933, as amended, or the respective rules and regulations promulgated thereunder.
ITEM 1B. Unresolved Staff Comments
The Company has received no written comments regarding its periodic or current reports from the staff of the SEC that were issued 180 days or more preceding the end of fiscal 2020 and that remain unresolved.
ITEM 2. Properties
The Walt Disney World Resort, Disneyland Resort, retail store locations leased by the Company and other properties of the Company and its subsidiaries are described in Item 1 under the caption Parks, Experiences and Products. Film and television library properties are described in Item 1 under the caption Media Networks and Studio Entertainment. Television stations owned by the Company are described in Item 1 under the caption Media Networks.
29
TABLE OF CONTENTS
The Company and its subsidiaries own and lease properties throughout the world. In addition to the properties noted above, the table below provides a brief description of other significant properties and the related business segment.
Mary T. Barra 
LocationProperty /
Approximate Size		Use
Business Segment(1)
Burbank, CA & surrounding cities(2)
Land (201 acres) & Buildings (4,695,000 ft2)
Owned Office/Production/Warehouse (includes 239,000 ft2 sublet to third-party tenants)
Corp/Studio/Media/
PEP/DTCI
Burbank, CA & surrounding cities(2)
Buildings (1,748,000 ft2)
Leased Office/WarehouseCorp/Studio/Media/
PEP/DTCI
Los Angeles, CA
Land (22 acres) & Buildings (600,000 ft2)
Owned Office/Production/TechnicalMedia/Studio/DTCI
Los Angeles, CA
Buildings (2,724,000 ft2)
Leased Office/Production/Technical/Theater (includes 376,000 ft2 sublet to third-party tenants)
Media/Studio
New York, NY
Buildings (51,000 ft2)
Owned Office/Production/TechnicalMedia/Corp
New York, NY
Buildings (2,716,000 ft2)
Leased Office/Production/Theater/Warehouse (includes 676,000 ft2 sublet to third-party tenants)
Corp/Studio/Media/PEP/DTCI
Bristol, CT
Land (117 acres) & Buildings (1,174,000 ft2)
Owned Office/Production/TechnicalMedia/Studio
Bristol, CT
Buildings (512,000 ft2)
Leased Office/Warehouse/TechnicalMedia/Studio
Emeryville, CA
Land (20 acres) & Buildings (430,000 ft2)
Owned Office/Production/TechnicalStudio
Emeryville, CA
Buildings (80,000 ft2)
Leased Office/StorageStudio/Media
San Francisco, CA
Buildings (646,000 ft2)
Leased Office/Production/Technical/Theater (includes 57,000 ft2 sublet to third-party tenants)
Studio/Media/
PEP/DTCI
USA & CanadaLand and Buildings (Multiple sites and sizes)Owned and Leased Office/ Production/Transmitter/Theaters/WarehouseCorp/Studio/Media/
PEP/DTCI
Hammersmith, England
Building (284,000 ft2)
Leased OfficeCorp/Studio/Media/
PEP/DTCI
Europe, Asia, Australia & Latin AmericaBuildings (Multiple sites and sizes)Leased Office/Warehouse/Retail/ResidentialStudio/Media/
PEP/DTCI
(1)Corp – Corporate, PEP – Parks, Experiences and Products, DTCI – Direct-To-Consumer & International
(2)Surrounding cities include Glendale, CA, North Hollywood, CA and Sun Valley, CA
ITEM 3. Legal Proceedings
As disclosed in Note 15 to the Consolidated Financial Statements, the Company is engaged in certain legal matters, and the disclosure set forth in Note 15 relating to certain legal matters is incorporated herein by reference.
The Company, together with, in some instances, certain of its directors and officers, is a defendant in various other legal actions involving copyright, breach of contract and various other claims incident to the conduct of its businesses. Management does not expect the Company to suffer any material liability by reason of these actions.
ITEM 4. Mine Safety Disclosures
Not applicable.
Executive Officers of the Company
The executive officers of the Company are elected each year at the organizational meeting of the Board of Directors, which follows the annual meeting of the shareholders, and at other Board of Directors meetings, as appropriate. Each of the
30
TABLE OF CONTENTS
executive officers has been employed by the Company in the position or positions indicated in the list and pertinent notes below. Each of the executive officers has been employed by the Company for more than five years.
At October 3, 2020, the executive officers of the Company were as follows:
NameAgeTitleExecutive
Officer Since
Robert A. Iger69
Executive Chairman(1)
2000
Robert A. Chapek61
Chief Executive Officer(2)
2020
Alan N. Braverman72Senior Executive Vice President, General Counsel and Secretary2003
Christine M. McCarthy65
Senior Executive Vice President and Chief Financial Officer(3)
2005
M. Jayne Parker59
Senior Executive Vice President and Chief Human Resources Officer(4)
2009
Zenia B. Mucha64
Senior Executive Vice President Corporate Communications(5)
2018
(1)Mr. Iger was appointed Executive Chairman effective February 24, 2020, he is also Chairman of the Board from March 2012. He was Chief Executive Officer from October 2005 to February 2020.
(2)Mr. Chapek was appointed Chief Executive Officer effective February 24, 2020. He served as Chairman of Disney Parks, Experiences and Products since the segment’s creation in 2018, and prior to that was Chairman of Walt Disney Parks and Resorts since 2015.
(3)Ms. McCarthy was appointed Senior Executive Vice President and Chief Financial Officer effective June 30, 2015. She was previously Executive Vice President, Corporate Real Estate, Alliances and Treasurer of the Company from 2000 to 2015.
(4)Ms. Parker was appointed Senior Executive Vice President and Chief Human Resources Officer effective August 20, 2017. She was previously Executive Vice President and Chief Human Resources Officer from 2009.
(5)Ms. Mucha was appointed Senior Executive Vice President Corporate Communications effective August 2016. She was previously Executive Vice President Corporate Communications from March 2005.
31
TABLE OF CONTENTS
PART II
ITEM 5. Market for the Company’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
The Company’s common stock is listed on the New York Stock Exchange under the ticker symbol “DIS”.
See Note 12 of the Consolidated Financial Statements for a summary of the Company’s dividends in fiscal 2020 and 2019.
As of October 3, 2020, the approximate number of common shareholders of record was 826,250.
The following table provides information about Company purchases of equity securities that are registered by the Company pursuant to Section 12 of the Exchange Act during the quarter ended October 3, 2020:
Period
Total Number
of Shares
Purchased(1)
Weighted
Average Price
Paid per Share		Total Number 
of Shares 
Purchased
as Part of 
Publicly
Announced 
Plans or 
Programs
Maximum 
Number of 
Shares that 
May Yet Be 
Purchased
Under the
Plans or
Programs(2)
June 28, 2020 – July 31, 202027,550$117.57—n/a
August 1, 2020 – August 31, 202022,011128.29—n/a
September 1, 2020 – October 3, 202021,613131.57—n/a
Total71,174125.14—n/a
(1)71,174 shares were purchased on the open market to provide shares to participants in the Walt Disney Investment Plan (WDIP). These purchases were not made pursuant to a publicly announced repurchase plan or program.
(2)Not applicable as the Company no longer has a stock repurchase plan or program.
During the fiscal quarter ended October 3, 2020, 823,340 shares of common stock were issued in a privately negotiated sale, at a price of $129.5537 per share, which was determined by applying a volume weighed average price over a period of 30 trading days, in satisfaction of contractual obligations of the Company undertaken in a commercial agreement entered into in the ordinary course of business. The shares issued are subject to restrictions which, among other things, are designed to assure that any resales will occur in reliance on an applicable exemption under the Securities Act.
32
TABLE OF CONTENTS
ITEM 6. Selected Financial Data
(in millions, except per share data)
2020(1)
2019(2)
2018(3)
2017(4)
2016(5)
Statements of operations
Revenues$65,388   $69,607   $59,434   $55,137   $55,632   
Net income (loss) from continuing operations(2,442)  10,897   13,066   9,366   9,790   
Net income (loss) from continuing operations attributable to Disney(2,832)  10,425   12,598   8,980   9,391   
Per common share
Earnings (loss) attributable to Disney:
Continuing Operations - Diluted$(1.57)$6.26 $8.36 $5.69 $5.73 
Continuing Operations - Basic(1.57)6.30 8.40 5.73 5.76 
Dividends0.88 1.76 1.68 1.56 1.42 
Balance sheets
Total assets$201,549 $193,984 $98,598 $95,789 $92,033 
Long-term obligations79,370 60,852 24,797 26,710 24,189 
Disney shareholders’ equity83,583 88,877 48,773 41,315 43,265 
Statements of cash flows
Cash provided (used) by - continuing operations:
Operating activities$7,616 $5,984 $14,295 $12,343 $13,136 
Investing activities(3,850)(15,096)(5,336)(4,111)(5,758)
Financing activities8,480 (464)(8,843)(8,959)(7,220)
(1)Fiscal 2020 results include the impact of COVID-19 (estimated at approximately $3.19 per diluted share), goodwill and intangible asset impairments at our International Channels business ($2.53 per diluted share), amortization expense related to recognition of TFCF and Hulu intangible assets and fair value step-up on film and television costs ($1.17 per diluted share), a non-cash gain to adjust our investment in DraftKings, Inc. to fair value (DraftKings gain) ($0.41 per diluted share) and restructuring and impairment charges ($0.33 per diluted share). At the beginning of fiscal 2020, the Company adopted new lease accounting guidance increasing total assets and liabilities by approximately $3.7 billion.
(2)On March 20, 2019, the Company acquired TFCF for cash and Disney shares (see Note 4 to the Consolidated Financial Statements). TFCF and Hulu’s financial results have been consolidated since the date of acquisition. The acquisition had a number of impacts on fiscal 2019 results, the most significant of which were a non-cash gain from remeasuring our initial 30% interest in Hulu to fair value ($2.22 per diluted share), amortization expense related to recognition of TFCF and Hulu intangible assets and fair value step-up on film and television costs ($0.74 per diluted share), restructuring and impairment charges ($0.55 per diluted share), an adverse impact from TFCF and Hulu operating results ($0.27 per diluted share) and a charge for the extinguishment of a portion of the debt originally assumed in the TFCF acquisition ($0.24 per diluted share). Fiscal 2019 results also reflected equity investment impairments ($0.25 per diluted share). Cash provided by continuing operating activities reflected payments for tax obligations that arose from the spin-off of Fox Corporation in connection with the TFCF acquisition and the sale of the Regional Sports Networks (RSN) acquired with TFCF ($7.6 billion). Cash used in continuing investing activities reflected a cash payment of $35.7 billion paid to acquire TFCF, offset by $25.7 billion in cash and cash equivalents assumed in the TFCF acquisition.
(3)Fiscal 2018 results include a net benefit from the Tax Act Deferred Remeasurement, net of the Deemed Repatriation Tax ($1.11 per diluted share) and the Tax Act reduction in the fiscal 2018 U.S. federal statutory income tax rate ($0.75 per diluted share) (see Note 10 to the Consolidated Financial Statements). In addition, fiscal 2018 included gains on the sales of real estate and property rights ($0.28 per diluted share) and an adverse impact from equity investment impairments ($0.11 per diluted share).
(4)Fiscal 2017 results include a non-cash net gain in connection with the acquisition of a controlling interest in BAMTech ($0.10 per diluted share).
(5)Fiscal 2016 results include the Company’s share of a net gain recognized by A+E in connection with an acquisition of an interest in Vice ($0.13 per diluted share).
33
TABLE OF CONTENTS
ITEM 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
CONSOLIDATED RESULTS
(in millions, except per share data)
 20202019% Change
Better
(Worse)
Revenues:
Services$59,265  $60,579  (2) %
Products6,123  9,028  (32) %
Total revenues65,388  69,607  (6) %
Costs and expenses:
Cost of services (exclusive of depreciation and amortization)(39,406) (36,493) (8) %
Cost of products (exclusive of depreciation and amortization)(4,474) (5,568) 20  %
Selling, general, administrative and other(12,369) (11,549) (7) %
Depreciation and amortization(5,345) (4,167) (28) %
Total costs and expenses(61,594) (57,777) (7) %
Restructuring and impairment charges(5,735) (1,183) >(100) %
Other income, net1,038  4,357  (76) %
Interest expense, net(1,491) (978) (52) %
Equity in the income (loss) of investees, net651  (103) nm
Income (loss) from continuing operations before income taxes(1,743) 13,923  nm
Income taxes from continuing operations(699) (3,026) 77  %
Net income (loss) from continuing operations(2,442) 10,897  nm
Income (loss) from discontinued operations, net of income tax benefit (expense) of $10 and ($39), respectively(32) 687  nm
Net income (loss)(2,474) 11,584  nm
Less: Net income from continuing operations attributable to noncontrolling and redeemable noncontrolling interests(390) (472) 17  %
Less: Net income from discontinued operations attributable to noncontrolling interests—  (58) 100  %
Net income (loss) attributable to Disney$(2,864) $11,054  nm
Earnings (loss) per share attributable to Disney:
Diluted(1)
Continuing operations$(1.57)$6.26nm
Discontinued operations(0.02)0.38nm
$(1.58)$6.64nm
Basic(1)
Continuing operations$(1.57)$6.30nm
Discontinued operations(0.02)0.38nm
$(1.58)$6.68nm
Weighted average number of common and common equivalent shares outstanding:
Diluted1,8081,666
Basic1,8081,656
(1)Total may not equal the sum of the column due to rounding.
34
TABLE OF CONTENTS
Organization of Information
Management’s Discussion and Analysis provides a narrative on the Company’s financial performance and condition that should be read in conjunction with the accompanying financial statements. It includes the following sections:
•Significant Developments
•Consolidated Results and Non-Segment Items
•Business Segment Results
•Corporate and Unallocated Shared Expenses
•Restructuring Activities
•Liquidity and Capital Resources
•Supplemental Guarantor Financial Information
•Contractual Obligations, Commitments and Off Balance Sheet Arrangements
•Critical Accounting Policies and Estimates
•Forward-Looking Statements
In Item 7, we discuss fiscal 2020 and 2019 results and comparisons of fiscal 2020 results to fiscal 2019 results. Discussions of fiscal 2018 results and comparisons of fiscal 2019 results to fiscal 2018 results can be found in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part II, Item 7 of the Company’s Annual Report on Form 10-K for the fiscal year ended September 28, 2019.
SIGNIFICANT DEVELOPMENTS
Strategic Reorganization
In October 2020, the Company announced a strategic reorganization of our media and entertainment businesses to accelerate the growth of our DTC strategy. The operations of the Media Networks, Studio Entertainment and DTCI segments were reorganized into four groups: three content groups (Studios, General Entertainment and Sports), which are focused on developing and producing content that will be used across all of our traditional and DTC platforms and a distribution group, which is focused on distribution and commercialization activities across these platforms and which has full accountability for media and entertainment operating results globally.
COVID-19 Pandemic
During fiscal 2020 and continuing into fiscal 2021, the world has been, and continues to be, impacted by COVID-19. COVID-19 and measures to prevent its spread impacted our segments in a number of ways, most significantly at Parks, Experiences and Products where our theme parks were closed or operating at significantly reduced capacity for a significant portion of the year, cruise ship sailings and guided tours were suspended since late in the second quarter and retail stores were closed for a significant portion of the year. We also had an adverse impact on our merchandise licensing business. Our Studio Entertainment segment has delayed, or in some cases, shortened or cancelled, theatrical releases, and stage play performances have been suspended since late in the second quarter. We also had adverse impacts on advertising sales at Media Networks and Direct-to-Consumer & International. Since March 2020, we have experienced significant disruptions in the production and availability of content, including the shift of key live sports programming from our third quarter to the fourth quarter and into fiscal 2021, as well as the suspension of production of most film and television content since late in the second quarter, although some film and television production resumed in the fourth quarter.
We have taken a number of mitigation efforts in response to the impacts of COVID-19 on our businesses. We have significantly increased cash balances through the issuance of senior notes in March and May 2020, and we entered into an additional $5.0 billion credit facility in April 2020. The Company (or our Board of Directors, as applicable) did not declare a dividend with respect to fiscal 2020 operations; suspended certain capital projects; reduced certain discretionary expenditures (such as spending on marketing); reduced management compensation for several months and temporarily eliminated Board of Director retainers and committee fees. In addition, we furloughed over 120,000 of our employees (who continued to receive Company provided medical benefits), many of which have returned from furlough as certain business operations have reopened. At the end of September, the Company announced a workforce reduction plan that would primarily impact Parks, Experiences and Products. Overall, approximately 32,000 employees will be terminated in the first half of fiscal 2021. We may take additional mitigation actions in the future such as raising additional financing; not declaring future dividends; reducing, or not making, certain payments, such as some contributions to our pension and postretirement medical plans; further suspending capital spending, reducing film and television content investments; or implementing additional furloughs or reductions in force. Some of these measures may have an adverse impact on our businesses.
35
TABLE OF CONTENTS
The most significant impact of COVID-19 on fiscal 2020 operating results was an estimated detriment of approximately $6.9 billion on operating income at our Parks, Experiences and Products segment due to revenue lost as a result of the closures or reduced operating capacities. The impacts at the Media Networks, Direct-to-Consumer & International and Studio Entertainment segments were less significant. Media Networks had a modest benefit reflecting the deferral of sports programming costs to fiscal 2021, when we expect rescheduled events to occur, partially offset by lower advertising revenue. At Direct-to-Consumer & International, lower advertising revenue was partially offset by lower costs including the deferral of sports programming costs into fiscal 2021. At Studio Entertainment, lower revenues due to the deferral or cancellation of significant film releases as a result of theater closures were partially offset by lower amortization, marketing and distribution costs. In total, we estimate the net adverse impact of COVID-19 on our full year segment operating income across all of our businesses was approximately $7.4 billion, inclusive of the impact at Parks, Experiences and Products. The estimated impact is net of approximately $500 million in government credits, from the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) in the U.S. and a similar program in France, both primarily at our Parks, Experiences and Products segment. The impact in fiscal 2020 is not necessarily indicative of the impact on future period results, including the impact of sports programming cost deferrals.
The impact of these disruptions and the extent of their adverse impact on our financial and operational results will be dictated by the length of time that such disruptions continue, which will, in turn, depend on the currently unknowable duration and severity of the impacts of COVID-19, and among other things, the impact and duration of governmental actions imposed in response to COVID-19 and individuals’ and companies’ risk tolerance regarding health matters going forward. While we cannot be certain as to the duration of the impacts of COVID-19, we currently expect COVID-19 to adversely impact our financial results at least through fiscal 2021.
Some of our businesses have reopened with limited operations. We have incurred and will continue to incur additional costs to address government regulations and the safety of our employees, talent and guests. For example, as we reopened theme parks and retail stores, we incurred and will continue to incur costs for such things as additional custodial services, personal protection equipment, temperature screenings and testing, sanitizer and cleaning supplies and signage, among other items. As we resume production of film and television content, including live sporting events, we anticipate incurring similar costs and productions may take longer to complete. The timing, duration and extent of these costs will depend on the timing and scope of the resumption of our operations. We currently estimate these costs may total approximately $1 billion in fiscal 2021. Some of these costs may be capitalized and amortized over future periods. With the unknown duration of COVID-19 and yet to be determined timing of the phased reopening of certain businesses, it is not possible to precisely estimate the impact of COVID-19 on our operations in future quarters. As we reopen our businesses, we will no longer benefit from certain savings related to the closure of those businesses, such as related furloughs. The reopening or closure of our businesses is dependent on applicable government requirements, which vary by location, are subject to ongoing changes, which could result from increasing COVID-19 cases.
Additionally, see Part I., Item 1A. Risk Factors - The adverse impact of COVID-19 on our businesses will continue for an unknown length of time and may continue to impact certain of our key sources of revenue.
Direct-to-Consumer
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 the Spring of 2020. In April 2020, our Hotstar service in India was converted to Disney+Hotstar, and in June 2020, current subscribers of the Disney Deluxe service in Japan were converted to Disney+. In September 2020, Disney+ was launched in additional European countries and Disney+ Hotstar was launched in Indonesia. In November 2020, Disney+ was launched in Latin America. Additional launches are planned for various Asia-Pacific territories in calendar year 2021.
The Company also plans to launch a general entertainment DTC video streaming offering under the Star brand outside the U.S. in calendar year 2021.
As we will use our branded film and television content on our DTC offerings, we are forgoing certain licensing revenue from the sale of this content to third parties in TV/SVOD markets. We also expect to forgo revenue as we shut down channels in certain markets as a result of investment in our DTC offerings. In addition, we are increasing programming and production investments to create exclusive content for our DTC offerings.
CONSOLIDATED RESULTS AND NON-SEGMENT ITEMS
Fiscal 2019 includes the consolidated results of TFCF and Hulu for the period March 20, 2019 through September 28, 2019, whereas the fiscal 2020 results include the consolidated results of TFCF and Hulu for the full year. We refer to the impact of the approximately six month non-comparable period as “the consolidation of TFCF and Hulu”.
36
TABLE OF CONTENTS
The Company’s fiscal year end is on the Saturday closest to September 30 and consists of fifty-two weeks with the exception that approximately every six years, we have a fifty-three week year. Fiscal 2020 is a fifty-three week year, which began on September 29, 2019 and ended on October 3, 2020. We estimate that the additional week of operations in fiscal 2020 resulted in a benefit to pre-tax income of approximately $200 million, primarily at the Media Networks segment.
Revenues for fiscal 2020 decreased 6%, or $4.2 billion, to $65.4 billion; net income attributable to Disney decreased $13.9 billion, to a loss of $2.9 billion; and diluted earnings per share from continuing operations attributable to Disney decreased to a loss of $1.57 compared to income of $6.26 in the prior year. The EPS decrease for the year was due to lower segment operating income, goodwill and intangible asset impairments at our International Channels business, the comparison to a prior-year non-cash gain in connection with the acquisition of Hulu (Hulu gain), higher amortization of intangible assets and fair value step-up on film and television costs from the TFCF acquisition and the consolidation of Hulu and higher interest expense. These decreases were partially offset by an investment gain in the current year and the comparison to investment impairments and a charge for the extinguishment of debt recorded in the prior year. The decrease in segment operating income was due to lower results at Parks, Experiences and Products and higher losses at Direct-to-Consumer & International, partially offset by an increase at our Media Networks segment. Segment operating results for the current period include a $0.5 billion net benefit from the consolidation of TFCF and Hulu.
Revenues
Service revenues for fiscal 2020 decreased 2%, or $1.3 billion, to $59.3 billion, driven by lower volumes at our theme parks, resorts and cruise line, a decrease in theatrical distribution and stage play revenues, lower advertising revenue and a decrease in sales of our television and film programs to third parties. These decreases were partially offset by the consolidation of TFCF and Hulu and an increase in subscription revenue from Disney+/Disney+Hotstar and Hulu. Theme park, resort, cruise line, theatrical distribution, stage play and advertising revenue were adversely impacted by COVID-19.
Product revenues for fiscal 2020 decreased 32%, or $2.9 billion, to $6.1 billion, due to lower volumes at our theme parks and resorts, which were impacted by being closed or operating at reduced capacity for a significant part of the year as a result of COVID-19.
Costs and expenses
Cost of services for fiscal 2020 increased 8%, or $2.9 billion, to $39.4 billion, due to the consolidation of TFCF and Hulu and an increase in programming and production costs, partially offset by lower theatrical and TV/SVOD production cost amortization and distribution costs and decreased volumes at our theme parks, resorts and cruise line. The increase in programming and production costs reflected costs for Disney+ programming, partially offset by a decrease due to a shift in timing of major sporting events to fiscal 2021.
Cost of products for fiscal 2020 decreased 20%, or $1.1 billion, to $4.5 billion, due to lower volumes at our theme parks and resorts.
Selling, general, administrative and other costs for fiscal 2020 increased 7%, or $0.8 billion, to $12.4 billion, due to the consolidation of TFCF and Hulu, partially offset by lower marketing costs. The decrease in marketing costs reflected lower spending at the theatrical distribution and theme parks and resorts businesses, partially offset by increased spend for Disney+.
Depreciation and amortization costs increased 28%, or $1.2 billion, to $5.3 billion due to the amortization of intangible assets arising from the acquisition of TFCF and consolidation of Hulu and, to a lesser extent, higher depreciation for new attractions at our domestic parks and resorts.
Restructuring and Impairment Charges
Restructuring and impairment charges of $5.7 billion for fiscal 2020 were due to $4,953 million of impairment charges for goodwill and intangible assets at our International Channels business and $782 million of restructuring costs. Restructuring costs were primarily for severance costs and contract termination charges in connection with the acquisition and integration of TFCF and severance in connection with the reduction-in-force at our Parks, Experiences and Products segment.
Restructuring and impairment charges of $1.2 billion in fiscal 2019 were primarily for severance and equity-based compensation costs in connection with the acquisition and integration of TFCF.
37
TABLE OF CONTENTS
Other Income, net
(in millions)20202019% Change
Better (Worse)
DraftKings Gain$973   $0   nm
Gain on sale of an investment65 0 nm
Hulu Gain0   4,794   nm
Insurance recoveries related to legal matters0   46   nm
Gain recognized in connection with the acquisition of TFCF—   28   nm
Charge for the extinguishment of a portion of the debt originally assumed in the TFCF acquisition0   (511)  nm
Other income, net$1,038   $4,357   (76) %
In fiscal 2020, the Company recognized a non-cash gain of $973 million to adjust its investment in DraftKings, Inc. to fair value (DraftKings gain). In addition, the Company recognized a gain of $65 million on the sale of an investment.
In fiscal 2019, the Company recognized the $4,794 million Hulu gain, recorded insurance recoveries of $46 million in connection with the settlement of legal matters, and recorded a gain of $28 million on the deemed settlement of preexisting relationships with TFCF pursuant to acquisition accounting guidance. In addition, the Company recorded a charge of $511 million for the extinguishment of a portion of the debt originally assumed in the TFCF acquisition.
Interest Expense, net
(in millions)20202019% Change
Better (Worse)
Interest expense$(1,647)  $(1,246)  (32) %
Interest income, investment income and other156   268   (42) %
Interest expense, net$(1,491)  $(978)  (52) %
The increase in interest expense was due to higher average debt balances, partially offset by lower average interest rates.
The decrease in interest income, investment income and other was due to a lower benefit from pension and postretirement benefit costs, other than service cost and higher net investment impairments, partially offset by higher imputed interest income on long-term receivables for film and television program sales driven by the consolidation of TFCF.
Equity in the Income (Loss) of Investees
Equity in the income (loss) of investees reflected income of $651 million in the current year compared to a loss of $103 million in the prior year. The change reflected the comparison to impairments in the prior year on our investment in Vice Group Holding Inc. and on an investment in a cable channel at A+E Television Networks and lower equity losses from Hulu as a result of our consolidation of Hulu following the TFCF acquisition.
Effective Income Tax Rate
20202019Change
Better (Worse)
Effective income tax rate - continuing operations(40.1)%21.7%(61.8)ppt
The change in effective income tax rate is due to the fiscal 2020 impairment of International Channels goodwill, which is not tax deductible, and foreign losses in fiscal 2020 for which we are unable to recognize a tax benefit.
Noncontrolling Interests
(in millions)20202019% Change
Better (Worse)
Net income from continuing operations attributable to noncontrolling interests$(390)$(472)17%
The decrease in net income from continuing operations attributable to noncontrolling interests was due to lower results at Hong Kong Disneyland Resort and Shanghai Disney Resort, partially offset by a higher adverse impact from the accretion of the Hulu redeemable noncontrolling interest due to the consolidation of Hulu.
Net income attributable to noncontrolling interests is determined on income after royalties and management fees, financing costs and income taxes, as applicable.
38
TABLE OF CONTENTS
Discontinued Operations
Net income from discontinued operations in fiscal 2019 reflected the operations of the RSNs.
Certain Items Impacting Comparability
Results for fiscal 2020 were impacted by the following:
•Goodwill and intangible asset impairments of $4,953 million and restructuring charges of $782 million
•Amortization expense of $2,846 million related to TFCF and Hulu intangible assets and fair value step-up on film and television costs
•The DraftKings gain of $973 million
•A gain of $65 million on the sale of an investment
Results for fiscal 2019 were impacted by the following:
•The Hulu Gain of $4,794 million
•A benefit of $74 million consisting of $46 million from insurance recoveries related to a legal matter and a gain of $28 million recognized on the settlement of preexisting relationships with TFCF pursuant to acquisition accounting guidance
•A benefit of $34 million from U.S. federal income tax legislation enacted in fiscal 2018
•Amortization expense of $1,595 million related to TFCF and Hulu intangible assets and fair value step-up on film and television costs
•Restructuring and impairment charges of $1,183 million
•Impairments of $538 million on equity investments
•A charge of $511 million for the extinguishment of a portion of debt originally assumed in the TFCF acquisition
A summary of the impact of these items on EPS is as follows:
(in millions, except per share data)Pre-Tax Income (Loss)
Tax Benefit (Expense)(1)
After-Tax Income (Loss)
EPS Favorable (Adverse)(2)
Year Ended October 3, 2020:
Restructuring and impairment charges$(5,735)  $571   $(5,164)  $(2.86)  
Amortization of TFCF and Hulu intangible assets and fair value step-up on film and television costs(3)
(2,846)  662   (2,184)  (1.17)  
DraftKings gain973   (227)  746   0.41   
Gain on sale of an investment65   (15)  50   0.03   
Total$(7,543)  $991   $(6,552)  $(3.59)  
Year Ended September 28, 2019:
Hulu Gain$4,794 $(1,103)$3,691 $2.22 
Insurance recoveries and gains on the settlement of preexisting relationships74 (17)57 0.03 
Benefit from the Tax Act— 34 34 0.02 
Amortization of TFCF and Hulu intangible assets and fair value step-up on film and television costs(3)
(1,595)355 (1,240)(0.74)
Restructuring and impairment charges(1,183)273 (910)(0.55)
Impairment of equity investments(538)123 (415)(0.25)
Charge for the extinguishment of debt(511)118 (393)(0.24)
Total$1,041 $(217)$824 $0.50 
(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.
39
TABLE OF CONTENTS
BUSINESS SEGMENT RESULTS — 2020 vs. 2019
Below is a discussion of the major revenue and expense categories for our business segments. Costs and expenses for each segment consist of operating expenses, selling, general, administrative and other costs, and depreciation and amortization. Selling, general, administrative and other costs include third-party and internal marketing expenses.
Our Media Networks segment primarily generates revenue from affiliate fees, advertising (excluding addressable ad sales) and the sale and distribution of television programs in TV/SVOD markets. Significant expenses include amortization of programming and production costs, participations and residuals expense, technical support costs, operating labor and distribution costs.
Our Parks, Experiences and Products segment primarily generates revenue from the sale of admissions to theme parks, the sale of food, beverage and merchandise at our theme parks and resorts, charges for room nights at hotels, sales of cruise vacations, sales and rentals of vacation club properties, royalties from licensing intellectual properties and the sale of branded merchandise. Revenues are also generated from sponsorships and co-branding opportunities, real estate rent and sales, and royalties from Tokyo Disney Resort. Significant expenses include operating labor, costs of goods sold, infrastructure costs, depreciation and other operating expenses. Infrastructure costs include information systems expense, repairs and maintenance, utilities and fuel, property taxes, retail occupancy costs, insurance and transportation. Other operating expenses include costs for such items as supplies, commissions and entertainment offerings.
Our Studio Entertainment segment primarily generates revenue from the distribution of films in the theatrical, home entertainment and TV/SVOD markets, stage play ticket sales and licensing of our intellectual properties for use in live entertainment productions. Significant expenses include amortization of production, participations and residuals costs, marketing and sales costs, distribution expenses and costs of sales.
Our Direct-to-Consumer & International segment primarily generates revenue from subscription fees for our DTC streaming services, affiliate fees and advertising sales (including addressable ad sales). Significant expenses include operating expenses, selling general and administrative costs and depreciation and amortization. Operating expenses include programming and production costs (including programming, production and branded digital content obtained from other Company segments), technology support costs, operating labor and distribution costs.
The Company evaluates the performance of its operating segments based on segment operating income, and management uses total segment operating income as a measure of the overall performance of the operating businesses. Total segment operating income is not a financial measure defined by GAAP, should be reviewed in conjunction with the relevant GAAP financial measure and may not be comparable to similarly titled measures reported by other companies. The Company believes that information about total segment operating income assists investors by allowing them to evaluate changes in the operating results of the Company’s portfolio of businesses separate from factors other than business operations that affect net income.
The following table reconciles income (loss) from continuing operations before income taxes to total segment operating income:
(in millions)20202019% Change
Better (Worse)
Income (loss) from continuing operations before income taxes$(1,743)  $13,923   nm
Add/(subtract):
Corporate and unallocated shared expenses817   987   17  %
Restructuring and impairment charges5,735   1,183   >(100) %
Other income, net(1,038)  (4,357)  (76) %
Interest expense, net1,491   978   (52) %
Amortization of TFCF and Hulu intangible assets and fair value step-up on film and television costs(1)
2,846   1,595   (78) %
Impairment of equity investments—   538   100  %
Total segment operating income$8,108   $14,847   (45) %
(1)Includes amortization of intangibles related to TFCF equity investees
40
TABLE OF CONTENTS
The following is a summary of segment revenue and operating income:
(in millions)20202019% Change
Better (Worse)
Revenues:
Media Networks$28,393   $24,827   14  %
Parks, Experiences and Products16,502   26,225   (37) %
Studio Entertainment9,636   11,127   (13) %
Direct-to-Consumer & International16,967   9,386   81  %
Eliminations(6,110)  (1,958)  >(100) %
$65,388   $69,607   (6) %
Segment operating income (loss):
Media Networks$9,022   $7,479   21  %
Parks, Experiences and Products(81)  6,758   nm
Studio Entertainment2,501   2,686   (7) %
Direct-to-Consumer & International(2,806)  (1,835)  (53) %
Eliminations(528)  (241)  >(100) %
$8,108   $14,847   (45) %

Media Networks
Operating results for the Media Networks segment are as follows:
 Year Ended% Change
Better
(Worse)
(in millions)October 3, 2020September 28, 2019
Revenues
Affiliate fees$15,018   $13,433   12  %
Advertising6,374   6,965   (8) %
TV/SVOD distribution and other7,001   4,429   58  %
Total revenues28,393   24,827   14  %
Operating expenses(17,387)  (15,499)  (12) %
Selling, general, administrative and other(2,514)  (2,361)  (6) %
Depreciation and amortization(207)  (191)  (8) %
Equity in the income of investees737   703   5  %
Operating Income$9,022   $7,479   21 %
Revenues
The increase in affiliate fees was due to increases of 8% from higher contractual rates, 6% from the consolidation of TFCF and 2% from the benefit of an additional week in the current year, partially offset by a decrease of 4% from fewer subscribers. The subscriber decline was net of a benefit from the ACC Network which launched in August 2019.
The decline in advertising revenues was due to decreases of $392 million at Cable Networks, from $3,503 million to $3,111 million and $199 million at Broadcasting, from $3,462 million to $3,263 million. Cable Networks advertising revenue reflected a decrease of 22% from lower impressions reflecting lower average viewership due to the impact COVID-19 had on live sports events. This decrease was partially offset by increases of 7% from the consolidation of TFCF, 4% from the benefit of an additional week of operations, which included MLB and NBA events, and 2% from higher rates. Broadcasting advertising revenue reflected decreases of 9% from lower network impressions reflecting lower average viewership and 3% from the owned television stations. These decreases were partially offset by increases of 3% from higher network rates, 2% from the benefit of an additional week of operations and 2% from the consolidation of TFCF.
The increase in TV/SVOD distribution and other revenue of $2,572 million was due to the consolidation of TFCF, which consisted primarily of program sales, and higher program sales at Disney Television Studios, Disney Channel and FX. The increase in Disney Television Studios was primarily due to sales of original titles to Hulu and library titles to Hulu and
41
TABLE OF CONTENTS
Disney+. The increases at Disney Channel and FX were due to program sales to Disney+ and Hulu, respectively. These increases were partially offset by lower sales to third parties.
Costs and Expenses
Operating expenses include programming and production costs, which increased $1,857 million from $14,697 million to $16,554 million. At Cable Networks, programming and production costs increased $435 million due to the consolidation of TFCF, contractual increases for college football, NFL and NBA programming, higher program sales and costs for the ACC Network. These increases were partially offset by the deferral of costs for NBA, MLB and college football to fiscal 2021 when these events occurred or are scheduled to occur. At Broadcasting, programming and production costs increased $1,422 million due to the consolidation of TFCF and higher program sales at Disney Television Studios, partially offset by lower costs driven by production shutdowns and delays as a result of COVID-19.
Selling, general, administrative and other costs increased $153 million from $2,361 million to $2,514 million due to the consolidation of TFCF, partially offset by lower marketing costs at the ABC Television Network, FX Networks and ESPN due to the impact of COVID-19.
Equity in the Income of Investees
Income from equity investees increased $34 million, from $703 million to $737 million, driven by higher income from A+E Television Networks due to lower programming costs and higher program sales, partially offset by lower advertising revenue.
Segment Operating Income
Segment operating income increased 21%, or $1,543 million, to $9,022 million due to the consolidation of TFCF and increases at ESPN, the FX Networks, Disney Television Studios and the ABC Television Network.
The following table provides supplemental revenue and operating income detail for the Media Networks segment:
 Year Ended% Change
Better
(Worse)
(in millions)October 3, 2020September 28, 2019
Supplemental revenue detail
Cable Networks$17,966   $16,486   9 %
Broadcasting10,427   8,341   25 %
$28,393   $24,827   14 %
Supplemental operating income detail
Cable Networks$6,283   $5,425   16 %
Broadcasting2,002   1,351   48 %
Equity in the income of investees737   703   5 %
$9,022   $7,479   21 %
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:
Year Ended% Change
Better
(Worse)
(in millions)October 3,
2020		September 28,
2019
Amortization of TFCF intangible assets and fair value step-up on film and television costs(1)
$(1,305)  $(684)  (91) %
Restructuring and impairment charges(51)  (105)  51  %
Impairment of equity investments—   (184)  —  %
(1)In the current year, amortization of step-up on film and television costs was $695 million and amortization of intangible assets was $610 million. In the prior year, amortization of step-up on film and television costs was $359 million and amortization of intangible assets was $325 million.
42
TABLE OF CONTENTS
Parks, Experiences and Products
Operating results for the Parks, Experiences and Products segment are as follows:
 Year Ended% Change
Better
(Worse)
(in millions)October 3, 2020September 28, 2019
Revenues
Theme park admissions$4,038   $7,540   (46) %
Parks & Experiences merchandise, food and beverage3,441   5,963   (42) %
Resorts and vacations3,402   6,266   (46) %
Merchandise licensing and retail4,185   4,519   (7) %
Parks licensing and other1,436   1,937   (26) %
Total revenues16,502   26,225   (37) %
Operating expenses(11,485)  (14,015)  18  %
Selling, general, administrative and other(2,642)  (3,133)  16  %
Depreciation and amortization(2,437)  (2,306)  (6) %
Equity in the loss of investees(19)  (13)  (46) %
Operating Income$(81)  $6,758   nm
Revenues
The decrease in theme park admissions revenue was due to a decrease of 49% from lower attendance, partially offset by an increase of 3% from higher average ticket prices. Our parks were closed for a significant portion of the fiscal year due to COVID-19, and those that reopened were operating at significantly reduced capacity.
Parks & Experiences merchandise, food and beverage revenue was lower compared to the prior year due to a decrease of 48% from lower volumes, partially offset by an increase of 4% from higher average guest spending.
The decrease in resorts and vacations revenue was due to decreases of 22% from lower occupied room nights and 15% from fewer passenger cruise days driven by the suspension of cruise ship sailings.
Merchandise licensing and retail revenue was lower due to decreases of 4% from retail and 3% from merchandise licensing. The decrease in revenues at retail was driven by the closure of our retail stores for a significant portion of the fiscal year as a result of COVID-19 and the prior-year sale of rights to a video game, partially offset by higher online sales. The decrease at merchandise licensing was primarily due to lower minimum guarantee shortfall recognition and a decrease in sales of merchandise based on Toy Story, Avengers and Disney Classics, partially offset by higher sales of Frozen merchandise. Merchandise licensing revenues for the current year were adversely impacted by COVID-19.
The decrease in parks licensing and other revenue was primarily due to lower sponsorship revenue and a decrease in royalties from Tokyo Disney Resort, which was closed or operating at reduced capacity for a significant portion of the fiscal year.
43
TABLE OF CONTENTS
The following table presents supplemental park and hotel statistics:
 Domestic
International(1)
Total
 Fiscal 2020Fiscal 2019Fiscal 2020Fiscal 2019Fiscal 2020Fiscal 2019
Parks
Increase (decrease)
Attendance(2)
(47) %— %(53) %(7) %(49) %(2) %
Per Capita Guest Spending(3)
8  %7  %(3) %13  %7  %8  %
Hotels
Occupancy(4)
43  %90  %35  %81  %41  %88  %
Available Room Nights (in thousands)(5)
11,11410,0303,2073,18214,32113,212
Per Room Guest Spending(6)
$367$353$312$316$356$345
(1)Per capita guest spending growth rate is stated on a constant currency basis. Per room guest spending is stated at the average foreign exchange rate for the same period in the prior year.
(2)Attendance is used to analyze volume trends at our theme parks and is based on the number of unique daily entries, i.e. a person visiting multiple theme parks in a single day is counted only once. Our attendance count includes complimentary entries but excludes entries by children under the age of three.
(3)Per capita guest spending is used to analyze guest spending trends and is defined as total revenue from ticket sales and sales of food, beverage and merchandise in our theme parks, divided by total theme park attendance.
(4)Occupancy is used to analyze the usage of available capacity at hotels and is defined as the number of room nights occupied by guests as a percentage of available hotel room nights.
(5)Available hotel room nights are defined as the total number of room nights that are available at our hotels and at DVC properties located at our theme parks and resorts that are not utilized by DVC members. Available hotel room nights include rooms temporarily taken out of service.
(6)Per room guest spending is used to analyze guest spending at our hotels and is defined as total revenue from room rentals and sales of food, beverage and merchandise at our hotels, divided by total occupied hotel room nights.
Costs and Expenses
Operating expenses include operating labor, which decreased $1,304 million from $6,174 million to $4,870 million, cost of sales and distribution costs, which decreased $716 million from $2,918 million to $2,202 million, and infrastructure costs, which decreased $47 million from $2,469 million to $2,422 million. The decrease in operating labor was due to furloughs in response to lower volumes and the benefit of government credits for certain employee costs, partially offset by inflation and new guest offerings. Lower cost of goods sold and distribution costs were due to lower volumes. The decrease in infrastructure costs was due to lower operations support costs reflecting reduced volumes, partially offset by the write-down of assets at our retail stores and higher costs for new guest offerings. Other operating expenses, which include costs for such items as supplies, commissions/fees and entertainment offerings, decreased $463 million, from $2,454 million to $1,991 million, due to lower volumes, partially offset by higher charges for capital project abandonments.
Selling, general, administrative and other costs decreased $491 million from $3,133 million to $2,642 million due to marketing and general and administrative cost reduction initiatives to mitigate the impacts of COVID-19.
Depreciation and amortization increased $131 million from $2,306 million to $2,437 million, primarily due to new attractions at our domestic parks and resorts.
Segment Operating Income
Segment operating income decreased $6,839 million, to a loss of $81 million due to decreases at our domestic and international parks and experiences and, to a lesser extent, our retail and merchandise licensing businesses.
44
TABLE OF CONTENTS
The following table presents supplemental revenue and operating income detail for the Parks, Experiences and Products segment:
Year Ended% Change
Better
(Worse)
(in millions)October 3,
2020		September 28,
2019
Supplemental revenue detail
Parks & Experiences
Domestic$10,226   $17,369   (41) %
International2,020   4,223   (52) %
Consumer Products4,256   4,633   (8) %
$16,502   $26,225   (37) %
Supplemental operating income detail
Parks & Experiences
Domestic$(623)  $4,412   nm
International(1,073)  507   nm
Consumer Products1,615   1,839   (12) %
$(81)  $6,758   nm
Items Excluded from Segment Operating Income Related to Parks, Experiences and Products
The following table presents supplemental information for items related to the Parks, Experiences and Products segment that are excluded from segment operating income:
Year Ended% Change
Better
(Worse)
(in millions)October 3,
2020		September 28,
2019
Restructuring and impairment charges$(265)  $(13)  >(100) %
Amortization of TFCF intangible assets(8)  (4)  (100) %

Studio Entertainment
Operating results for the Studio Entertainment segment are as follows:
 Year Ended% Change
Better
(Worse)
(in millions)October 3, 2020September 28, 2019
Revenues
Theatrical distribution$2,134   $4,726   (55) %
Home entertainment1,528   1,734   (12) %
TV/SVOD distribution and other5,974   4,667   28  %
Total revenues9,636   11,127   (13) %
Operating expenses(4,619)  (5,187)  11  %
Selling, general, administrative and other(2,369)  (3,119)  24  %
Depreciation and amortization(146)  (135)  (8) %
Equity in the loss of investees(1)  —   nm
Operating Income$2,501   $2,686   (7) %
Revenues
The decrease in theatrical distribution revenue was due to fewer significant releases, which included the impact of theater closures as a result of COVID-19, partially offset by the consolidation of TFCF. Significant titles in the current year included Frozen II, Star Wars: The Rise of Skywalker and Maleficent: Mistress Of Evil. Significant titles in the prior year included Avengers: Endgame, The Lion King, Captain Marvel, Toy Story 4, Aladdin, Ralph Breaks the Internet, Mary Poppins Returns and Dumbo.
45
TABLE OF CONTENTS
Lower home entertainment revenue was due to decreases of 21% from lower unit sales of both new releases and catalog titles and 4% from lower average net effective pricing, partially offset by an increase of 14% from the consolidation of TFCF. New release titles in the current year included Frozen II,Star Wars: The Rise Of Skywalker, The Lion King and Toy Story 4, whereas the prior year included Avengers: Endgame, Incredibles 2, Captain Marvel, Ant-Man And The Wasp, Ralph Breaks The Internet, Avengers: Infinity War, Bohemian Rhapsody and Aladdin. The decrease in average net effective pricing was primarily due to a lower mix of new release titles.
Higher TV/SVOD distribution and other revenue was due to increases of 21% from TV/SVOD distribution and 14% from the consolidation of TFCF, partially offset by a decrease of 8% from stage plays reflecting the impact of theater closures in response to COVID-19. The increase in TV/SVOD distribution 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 include amortization of production, participation and residual costs, which decreased $119 million, from $3,762 million to $3,643 million, primarily due to lower theatrical distribution and home entertainment revenue, partially offset by higher TV/SVOD distribution revenue and the consolidation of TFCF. Operating expenses also include cost of goods sold and distribution costs, which decreased $449 million, from $1,425 million to $976 million. Lower cost of goods sold and distribution costs were primarily due to decreases in theatrical and stage play distribution costs due to fewer theatrical releases and stage play performances, partially offset by the consolidation of TFCF.
Selling, general, administrative and other costs decreased $750 million from $3,119 million to $2,369 million due to lower theatrical and home entertainment marketing costs, partially offset by the consolidation of TFCF.
The increase in depreciation and amortization was due to the consolidation of TFCF.
Segment Operating Income
Segment operating income decreased 7%, or $185 million to $2,501 million due to lower theatrical and stage play results, partially offset by an increase in TV/SVOD distribution results.
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:
Year Ended% Change
Better
(Worse)
(in millions)October 3,
2020		September 28,
2019
Amortization of TFCF intangible assets and fair value step-up on film and television costs(1)
$(291)  $(206)  (41) %
Restructuring and impairment charges(114)  (219)  48  %
(1)In the current year, amortization of step-up on film and television costs was $184 million and amortization of intangible assets was $107 million. In the prior year, amortization of step-up on film and television costs was $179 million and amortization of intangible assets was $27 million.
46
TABLE OF CONTENTS
Direct-to-Consumer & International
Operating results for the Direct-to-Consumer & International segment are as follows:
 Year Ended% Change
Better
(Worse)
(in millions)October 3, 2020September 28, 2019
Revenues
Subscription fees$7,645   $2,115   >100  %
Affiliate fees3,673   2,768   33  %
Advertising4,477   3,542   26  %
TV/SVOD distribution and other1,172   961   22  %
Total revenues16,967   9,386   81  %
Operating expenses(15,072)  (8,540)  (76) %
Selling, general, administrative and other(4,201)  (2,116)  (99) %
Depreciation and amortization(460)  (325)  (42) %
Equity in the loss of investees(40)  (240)  83  %
Operating Loss$(2,806)  $(1,835)  (53) %
Revenues
The increase in subscription fees was due to the launch of Disney+ starting in November 2019, the consolidation of Hulu, subscriber growth at Hulu, and to a lesser extent, increased subscribers at ESPN+.
The increase in affiliate fees was due to an increase of 44% from the consolidation of TFCF, partially offset by decreases of 9% from fewer subscribers driven by the expiration of certain carriage agreements and channel closures, both primarily in Europe, and 3% from an unfavorable foreign exchange impact.
The increase in advertising revenues was due to an increase of 30% from higher addressable advertising sales, partially offset by a decrease of 4% from our International Channels. Higher addressable advertising sales were due to the consolidation of Hulu and, to a lesser extent, TFCF and higher impressions, partially offset by lower rates. The increase in impressions was due to growth at Hulu, partially offset by the timing of cricket programming and the impact of lower impressions at our other digital platforms. The decrease in rates was primarily due to lower rates at Hulu. The decrease in advertising revenues at our International Channels was driven by lower impressions, partially offset by the consolidation of TFCF. The decrease in impressions reflected the impact of COVID-19, including a shift in the timing of Indian Premier League (IPL) cricket matches to fiscal 2021, and the comparison to the prior-year broadcast of International Cricket Council World Cup (ICC WC) matches. The ICC WC is held every four years.
Growth in TV/SVOD distribution and other revenue was due to higher Ultimate Fighting Championship (UFC) pay-per-view fees, the consolidation of TFCF and, to a lesser extent, Hulu and Disney+ Premier Access revenues from Mulan. These increases were partially offset by the comparison to the sub-licensing of ICC WC rights to third-party broadcasters in the prior year and lower revenue from streaming technology services.
The following table presents the number of paid subscribers(1) (in millions) for Disney+, ESPN+ and Hulu as of:
 % Change
October 3,
2020		September 28,
2019		Better
(Worse)
Disney+(3)
73.7 — nm
ESPN+10.3 3.5 >100  %
Hulu
SVOD Only32.5 25.6 27  %
Live TV + SVOD4.1 2.9 41  %
Total Hulu36.6 28.5 28  %
47
TABLE OF CONTENTS
The following table presents the average monthly revenue per paid subscriber(2) for the fiscal year ended:
 % Change
October 3,
2020		September 28,
2019		Better
(Worse)
Disney+(3) (4)
$4.80$—nm
ESPN+(5)
$4.35$5.12(15) %
Hulu(6)
SVOD Only$12.24$13.09(6) %
Live TV + SVOD$67.24$55.9820  %
(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. Subscribers include 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. When we aggregate the total number of paid subscribers across our DTC services, whether acquired individually, through a wholesale arrangement or via the bundle, we refer to them as paid subscriptions.
(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 fiscal year ended October 3, 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 provided to both wholesale and bundled subscribers, annual subscriptions and other limited term promotional offers. The bundled discount is allocated to each service based on the relative retail price of each service on a standalone basis. In general, wholesale arrangements have a lower average monthly revenue per paid subscriber than subscribers that we acquire directly or through third party platforms like Apple.
(3)Disney+ Hotstar launched on April 3, 2020 in India (as a conversion of the preexisting Hotstar service) and on September 5, 2020 in Indonesia, and is included in the number of paid subscribers and average monthly revenue per paid subscriber. The average monthly revenue per paid subscriber for Disney+ Hotstar in India and Indonesia is significantly lower than the average monthly revenue per paid subscriber in North America and Europe.
(4)Excludes Disney+ Premier Access revenue.
(5)Excludes Pay-Per-View revenue.
(6)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).
The average monthly revenue per paid subscriber for ESPN+ decreased from $5.12 to $4.35 due to the introduction of a bundled subscription package offering of Disney+, ESPN+ and Hulu beginning in November 2019 and lower per-subscriber advertising revenue, partially offset by an increase in retail pricing in August 2020. 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 $13.09 to $12.24 driven by a decrease in retail pricing, lower per-subscriber advertising revenue and the introduction of the bundled offering, partially offset by a lower mix of promotional and wholesale subscribers. The average monthly revenue per paid subscriber for the Hulu Live TV + SVOD service increased from $55.98 to $67.24 due to an increase in retail pricing in December 2019 and higher per-subscriber Live TV advertising and premium add-on revenue, partially offset by the introduction of the bundled offering.
Costs and Expenses
Operating expenses include a $5,381 million increase in programming and production costs, from $6,925 million to $12,306 million, and a $1,151 million increase in other operating expenses, from $1,615 million to $2,766 million. Programming and production costs include the costs of content provided by other segments. The increase in programming and production costs was due to the consolidation of Hulu and TFCF, the launch of Disney+ and higher costs at Hulu, partially offset by lower costs for sports programming. The increase in costs at Hulu was driven by higher subscriber-based fees for programming on the Live TV service. Lower costs for sports programming were primarily due to the comparison to the ICC WC in the prior year and the shift in the timing of IPL, partially offset by higher costs for UFC programming rights. Other operating expenses, which include technical support and distribution costs, increased due to the launch of Disney+ and the consolidation of Hulu and TFCF.
48
TABLE OF CONTENTS
Selling, general, administrative and other costs increased $2,085 million, from $2,116 million to $4,201 million, due to the launch of Disney+ and the consolidation of Hulu and TFCF.
Depreciation and amortization increased $135 million, from $325 million to $460 million, due to the consolidation of Hulu and TFCF and the launch of Disney+.
Equity in the Loss of Investees
Loss from equity investees in the prior year of $240 million improved by $200 million to a loss of $40 million, due to the consolidation of Hulu. In the current year, Hulu’s results are reported in revenues and expenses. In the prior year, 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 from $1,835 million to $2,806 million, due to costs associated with the launch of Disney+, the consolidation of Hulu and a decrease at our International Channels. These decreases were partially offset by the consolidation of TFCF and improved results at ESPN+ and Hulu.
The following table presents supplemental revenue and operating income (loss) detail for the Direct-to-Consumer & International segment:
 Year Ended% Change
(in millions)October 3,
2020		September 28,
2019		Better
(Worse)
Supplemental revenue detail
Direct-to-Consumer services$10,444   $3,347   >100  %
International Channels5,413   4,727   15  %
Other(1)
1,110   1,312   (15) %
$16,967 $9,386 81  %
Supplemental operating income (loss) detail
Direct-to-Consumer services(3,294)  (1,849)  (78) %
International Channels872   649   34  %
Other(1)
(344)  (395)  13  %
Equity in the loss of investees(40)  (240)  83  %
$(2,806)  $(1,835)  (53) %
(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:
Year Ended% Change
Better
(Worse)
(in millions)October 3,
2020		September 28,
2019
Amortization of TFCF and Hulu intangible assets and fair value step-up on film and television costs(1)
$(1,242)  $(701)  (77) %
Hulu Gain—   4,822   (100) %
Restructuring and impairment charges(2)
(5,229)  (456)  >(100) %
Impairment of equity investments—   (354)  100  %
(1)In the current year, amortization of intangible assets was $1,196 million, amortization of intangible assets related to TFCF equity investees was $26 million and amortization of step-up on film and television costs was $20 million. In the prior year, amortization of intangible assets was $687 million and amortization of intangible assets related to TFCF equity investees was $15 million.
(2)The current year includes goodwill and intangible asset impairments at our International Channels business ($4,953 million).
49
TABLE OF CONTENTS
Eliminations
Intersegment content transactions are as follows:
Year Ended% Change
(in millions)October 3,
2020		September 28,
2019		Better
(Worse)
Revenues
Studio Entertainment:
Content transactions with Media Networks$(188)  $(106)  (77) %
Content transactions with Direct-to-Consumer & International(2,108)  (272)  >(100) %
Media Networks:
Content transactions with Direct-to-Consumer & International(3,814)  (1,580)  >(100) %
Total$(6,110)  $(1,958)  >(100) %
Operating income
Studio Entertainment:
Content transactions with Media Networks$3   $(19)  nm
Content transactions with Direct-to-Consumer & International(158)  (80)  (98) %
Media Networks:
Content transactions with Direct-to-Consumer & International(373)  (142)  >(100) %
Total$(528)  $(241)  >(100) %
Revenues
The increase in revenue eliminations was due to sales of Media Networks content to Hulu and Disney+ and sales of Studio Entertainment content to Disney+. The increase in Media Networks sales to Hulu was due to higher sales of original titles, driven by Little Fires Everywhere and Mrs. America, and library titles. Higher Media Networks sales also included an increase in affiliate fees received from Hulu for networks in the Hulu Live TV + SVOD service. Media Networks sales to Disney+ were due to sales of library series, including The Simpsons and Disney Channel titles, and original series. Studio Entertainment content sold to Disney+ included original titles Noelle, Lady and the Tramp, and Artemis Fowl and theatrically released titles Frozen II, The Lion King, Toy Story 4 and Star Wars: The Rise of Skywalker.
Operating Income
The increase in the impact from eliminations was due to sales of Media Networks content to Hulu and Disney+ and sales of Studio Entertainment content to Disney+.
CORPORATE AND UNALLOCATED SHARED EXPENSES
Corporate and unallocated shared expenses are as follows:
(in millions)20202019% Change
Better (Worse)
Corporate and unallocated shared expenses$(817)$(987)17%
The decrease in corporate and unallocated shared expenses was due to lower costs related to TFCF and 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 decrease in costs related to TFCF was due to lower acquisition and integration costs, partially offset by the consolidation of TFCF.
RESTRUCTURING ACTIVITIES
See Note 19 to the Consolidated Financial Statements for information regarding the Company’s restructuring activities in connection with the acquisition of TFCF and from a workforce reduction plan, primarily at the Parks, Experiences and Products segment.
50
TABLE OF CONTENTS
LIQUIDITY AND CAPITAL RESOURCES
The change in cash, cash equivalents and restricted cash is as follows:
(in millions)20202019
Cash provided by operations - continuing operations$7,616  $5,984  
Cash used in investing activities - continuing operations(3,850) (15,096) 
Cash provided by (used in) financing activities - continuing operations8,480  (464) 
Cash provided by operations - discontinued operations2  622  
Cash provided by investing activities - discontinued operations213  10,978  
Cash used in financing activities - discontinued operations—  (626) 
Impact of exchange rates on cash, cash equivalents and restricted cash38  (98) 
Change in cash, cash equivalents and restricted cash$12,499  $1,300  
Operating Activities
Continuing operations
Cash provided by operating activities for fiscal 2020 increased 27% or $1.6 billion to $7.6 billion, due to lower tax payments, driven by the payment of approximately $7.6 billion of tax obligations that arose from the spin-off of Fox Corporation in connection with the TFCF acquisition and the sale of the RSNs acquired with TFCF in the prior year, and higher current year operating cash flow at Media Networks. These increases were partially offset by lower operating cash flow at Parks, Experiences and Products and Direct-to-Consumer & International. The increase at Media Networks was due to higher operating cash receipts driven by an increase in revenue. Lower operating cash flows at Parks, Experiences and Products were due to lower cash receipts driven by decreased revenues, partially offset by lower cash disbursements. Lower cash disbursements were due to lower operating expenses. The decrease at Direct-to-Consumer & International was 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 the consolidation of TFCF and Hulu and the launch of Disney+.
Depreciation expense is as follows:
(in millions)20202019
Media Networks
Cable Networks$120$107
Broadcasting8384
Total Media Networks203191
Parks, Experiences and Products
Domestic1,6341,474
International694724
Total Parks, Experiences and Products2,3282,198
Studio Entertainment8774
Direct-to-Consumer & International348214
Corporate174167
Total depreciation expense$3,140$2,844
Amortization of intangible assets is as follows:
(in millions)20202019
Media Networks$4$—
Parks, Experiences and Products109108
Studio Entertainment5961
Direct-to-Consumer & International112111
TFCF and Hulu1,9211,043
Total amortization of intangible assets$2,205$1,323
51
TABLE OF CONTENTS
Produced and licensed content costs
The Company’s Studio Entertainment, Media Networks and Direct-to-Consumer & International segments incur costs to license and produce film and television programming. Film and television production costs include all internally produced content such as live-action and animated 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.
The Company’s film and television production and programming activity for fiscal 2020 and 2019 are as follows:
(in millions)20202019
Beginning balances:
Production and programming assets$27,407  $9,202  
Programming liabilities(4,061) (1,178) 
23,346  8,024  
Spending:
Television program licenses and rights12,077  10,517  
Film and television production8,104  7,104  
20,181  17,621  
Amortization:
Television program licenses and rights(11,241) (10,608) 
Film and television production(9,337) (6,471) 
(20,578) (17,079) 
Change in film and television production and
programming costs
(397) 542  
Film and television production costs from the TFCF acquisition and consolidation of Hulu, net of programming liabilities assumed—  14,769  
Other non-cash activity145  11  
Ending balances:
Production and programming assets27,193  27,407  
Programming liabilities(4,099) (4,061) 
$23,094  $23,346  
Discontinued operations
Cash provided by operating activities for discontinued operations in fiscal 2019 reflected the operations of the RSNs.
52
TABLE OF CONTENTS
Investing Activities
Continuing operations
Investing activities consist principally of investments in parks, resorts and other property and acquisition and divestiture activity. The Company’s investments in parks, resorts and other property for fiscal 2020 and 2019 are as follows:
(in millions)20202019
Media Networks
Cable Networks$61  $93  
Broadcasting51  81  
Parks, Experiences and Products
Domestic2,145  3,294  
International759  852  
Studio Entertainment77  88  
Direct-to-Consumer & International594  258  
Corporate335  210  
$4,022  $4,876  
Capital expenditures at Media Networks primarily reflect investments in facilities and equipment for expanding and upgrading broadcast centers, production facilities and television station facilities.
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 capital expenditures at our domestic parks and resorts in fiscal 2020 compared to fiscal 2019 was primarily due to lower spend on Star Wars: Galaxy’s Edge at both the Walt Disney World and Disneyland resorts. Capital spending in fiscal 2020 also reflected the suspension of certain capital projects as a result of COVID-19.
Capital expenditures at Direct-to-Consumer & International primarily reflect investments in technology. The increase in fiscal 2020 compared to fiscal 2019 was due to spending on technology to support our streaming services.
Capital expenditures at Corporate primarily reflect investments in facilities, information technology infrastructure and equipment. The increase in fiscal 2020 compared to fiscal 2019 was due to higher spending on facilities.
The Company currently expects its fiscal 2021 capital expenditures will be approximately $0.6 billion higher than fiscal 2020 capital expenditures of $4.0 billion due to increased spending on facilities at Corporate and spending on technology at Direct-to-Consumer & International, partially offset by lower investments at our domestic parks and resorts, in part reflecting a reduction in spending in response to COVID-19.
Other Investing Activities
The fiscal 2019 spending of $9.9 billion on acquisitions 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 Consolidated Financial Statements). Cash provided by other investing activities of $172 million in fiscal 2020 reflects the proceeds from the sale of an investment while cash used in other investing activities of $319 million in fiscal 2019 reflects contributions of $347 million to Hulu prior to the consolidation of Hulu.
Discontinued operations
Cash provided by investing activities from discontinued operations in fiscal 2019 reflects the sale of the RSNs.
Financing Activities
Continuing operations
Cash provided by financing activities was $8.5 billion in fiscal 2020 compared to cash used in financing activities of $0.5 billion in fiscal 2019. Cash provided by financing activities in fiscal 2020 was due to borrowings, partially offset by dividend payments and settlement of acquisition related obligations. The increase in cash provided by financing activities in fiscal 2020 compared to fiscal 2019 was from higher cash proceeds from net borrowings ($11.2 billion in fiscal 2020 compared to $3.7 billion in fiscal 2019).
53
TABLE OF CONTENTS
Discontinued operations
Cash used in financing activities by discontinued operations in fiscal 2019 was due to redemption of noncontrolling interests of the RSNs.
Borrowings activities and other
During the year ended October 3, 2020, the Company’s borrowing activity was as follows:
(in millions)September 28, 2019BorrowingsPaymentsOther
Activity		October 3, 2020
Commercial paper with original maturities less than three months(1)
$1,934  $—  $(1,961) $27  $—  
Commercial paper with original maturities greater than three months3,408  11,500  (12,893) 8  2,023  
U.S. dollar denominated notes(2)
39,424  16,968  (3,405) (251) 52,736  
Asia Theme Parks borrowings1,114  175  (88) 102  1,303  
Foreign currency denominated debt and other(3)
1,106  977  (40) 523  2,566  
$46,986  $29,620  $(18,387) $409  $58,628  
(1)Borrowings and reductions of borrowings are reported net.
(2)The other activity is primarily due to the amortization of purchase price adjustments on debt assumed in the TFCF acquisition and debt issuance fees.
(3)The other activity is due to market value adjustments for debt with qualifying hedges.
See Note 9 to the Consolidated Financial Statements for information regarding the Company’s bank facilities. 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 Consolidated Financial Statements for a summary of the Company’s dividends in fiscal 2020 and 2019. The Company did not repurchase any of its shares in fiscal 2020 or 2019.
The Company’s operating cash flow and access to the capital markets can be impacted by factors outside of its control, including COVID-19, which has 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 senior notes in March and May 2020. In addition, we entered into an additional $5.0 billion credit facility in April 2020, bringing the total capacity of our 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 as well as future capital expenditures related to the expansion of existing businesses and development of new projects, although certain of these activities have been scaled back or suspended in light of COVID-19. 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 (which the Board of Directors did not declare with respect to fiscal 2020 operations); reducing, or not making certain payments, such as some contributions to our pension and postretirement medical plans; raising additional financing; further suspending capital spending; reducing film and television content investments; or implementing additional furloughs or reductions in force.
The Company’s borrowing costs can also be impacted by short- and long-term debt ratings assigned by nationally recognized rating agencies, which are based, in significant part, on the Company’s performance as measured by certain credit metrics such as leverage and interest coverage ratios. As of October 3, 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-2, respectively, and Fitch’s long- and short-term debt ratings for the Company were A- and F2, respectively. In addition, Fitch has placed the Company’s long-term debt rating on Negative Outlook. On November 18, 2020, Standard and Poor’s lowered the Company’s long-term rating to BBB+ and placed the Company’s long-term ratings on Negative Outlook. The Company’s bank facilities contain only one financial covenant, relating to interest coverage, which the Company met on October 3, 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.
54
TABLE OF CONTENTS
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 flows may require us to rely more heavily on external funding sources, 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 October 3, 2020 was as follows:
TWDCLegacy Disney
(in millions)Par ValueCarrying ValuePar ValueCarrying Value
Registered debt with unconditional guarantee$38,646  $41,077  $12,541  $12,751  
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.
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)Fiscal Year Ended October 3, 2020
Revenues$— 
Costs and expenses— 
Net income (loss) from continuing operations(1,158)
Net income (loss)(1,158)
Net income (loss) attributable to TWDC shareholders(1,158)

55
TABLE OF CONTENTS
Balance Sheet (in millions)October 3, 2020September 28, 2019
Current assets$12,899  $1,145  
Noncurrent assets2,076  1,398  
Current liabilities6,155  9,405  
Noncurrent liabilities (excluding intercompany to non-Guarantors)57,809  41,728  
Intercompany payables to non-Guarantors146,748  143,574  

CONTRACTUAL OBLIGATIONS, COMMITMENTS AND OFF BALANCE SHEET ARRANGEMENTS
The Company has various contractual obligations, which are recorded as liabilities in our consolidated financial statements. Other items, such as certain purchase commitments and other executory contracts, are not recognized as liabilities in our consolidated financial statements but are required to be disclosed in the footnotes to the financial statements. For example, the Company is contractually committed to acquire broadcast programming and make certain minimum lease payments for the use of property under operating lease agreements.
The following table summarizes our significant contractual obligations and commitments on an undiscounted basis at October 3, 2020 and the future periods in which such obligations are expected to be settled in cash. In addition, the table reflects the timing of principal and interest payments on outstanding borrowings based on their contractual maturities. Additional details regarding these obligations are provided in the Notes to the Consolidated Financial Statements, as referenced in the table:
 Payments Due by Period
(in millions)TotalLess than
1 Year		1-3
Years		4-5
Years		More than
5 Years
Borrowings (Note 9)(1)
$87,273$7,718$8,743$10,064$60,748
Operating lease commitments (Note 16)4,2118401,1296771,565
Finance lease obligations (Note 16)7205610775482
Sports programming commitments (Note 15)40,5789,49212,6499,2719,166
Broadcast programming commitments (Note 15)5,8002,5512,013759477
Total programming commitments46,37812,04314,66210,0309,643
Other(2)
12,3903,0513,2792,3233,737
Total contractual obligations(3)
$150,972$23,708$27,920$23,169$76,175
(1)Excludes market value adjustments, which increased borrowings by $509 million. Includes interest payments based on contractual terms for fixed rate debt and on current interest rates for variable rate debt. In 2023, the Company has the ability to call a debt instrument prior to its scheduled maturity, which if exercised by the Company would reduce future interest payments by $1.0 billion.
(2)Primarily contracts for the construction of three new cruise ships, creative talent and employment agreements and unrecognized tax benefits. Creative talent and employment agreements include obligations to actors, producers, sports, television and radio personalities and executives.
(3)Contractual commitments include the following:
Liabilities recorded on the balance sheet$65,524
Commitments not recorded on the balance sheet85,448
$150,972
The Company also has obligations with respect to its pension and postretirement medical benefit plans. See Note 11 to the Consolidated Financial Statements.
Contingent Commitments and Contractual Guarantees
See Notes 4, 7 and 15 to the Consolidated Financial Statements for information regarding the Company’s contingent commitments and contractual guarantees.
Legal and Tax Matters
As disclosed in Notes 10 and 15 to the Consolidated Financial Statements, the Company has exposure for certain tax and legal matters.
56
TABLE OF CONTENTS
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
We believe that the application of the following accounting policies, which are important to our financial position and results of operations, require significant judgments and estimates on the part of management. For a summary of our significant accounting policies, including the accounting policies discussed below, see Note 2 to the Consolidated Financial Statements.
Produced and Acquired/Licensed Content Costs
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. 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 Consolidated Financial Statements for further discussion.
Production costs that are classified as individual are amortized based upon the ratio of the current period’s revenues to the estimated remaining total revenues (Ultimate Revenues).
With respect to produced films intended for theatrical release, the most sensitive factor affecting our estimate of Ultimate Revenues is theatrical performance. Revenues derived from other markets subsequent to the theatrical release are generally highly correlated with theatrical performance. Theatrical performance varies primarily based upon the public interest and demand for a particular film, the popularity of competing films at the time of release and the level of marketing effort. Upon a film’s release and determination of the theatrical performance, the Company’s estimates of revenues from succeeding windows, 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 2 to the Consolidated Financial Statements for our revenue recognition policies.
Pension and Postretirement Medical Plan Actuarial Assumptions
The Company’s pension and postretirement medical benefit obligations and related costs are calculated using a number of actuarial assumptions. Two critical assumptions, the discount rate and the expected return on plan assets, are important elements of expense and/or liability measurement, which we evaluate annually. Other assumptions include the healthcare cost trend rate and employee demographic factors such as retirement patterns, mortality, turnover and rate of compensation increase.
The discount rate enables us to state expected future cash payments for benefits as a present value on the measurement date. A lower discount rate increases the present value of benefit obligations and increases pension and postretirement medical expense. The guideline for setting this rate is a high-quality long-term corporate bond rate. We reduced our discount rate to 2.82% at the end of fiscal 2020 from 3.22% at the end of fiscal 2019 to reflect market interest rate conditions at our fiscal 2020 year-end measurement date. The Company’s discount rate was determined by considering yield curves constructed of a large population of high-quality corporate bonds and reflects the matching of the plans’ liability cash flows to the yield curves. A one percentage point decrease in the assumed discount rate would increase total benefit expense for fiscal 2021 by approximately $351 million and would increase the projected benefit obligation at October 3, 2020 by approximately $4.0 billion. A one
57
TABLE OF CONTENTS
percentage point increase in the assumed discount rate would decrease total benefit expense and the projected benefit obligation by approximately $303 million and $3.4 billion, respectively.
To determine the expected long-term rate of return on the plan assets, we consider the current and expected asset allocation, as well as historical and expected returns on each plan asset class. Our expected return on plan assets is 7.00%. A lower expected rate of return on plan assets will increase pension and postretirement medical expense. A one percentage point change in the long-term asset return assumption would impact fiscal 2021 annual expense by approximately $164 million.
Goodwill, Other Intangible Assets, Long-Lived Assets and Investments
The Company is required to test goodwill and other indefinite-lived intangible assets for impairment on an annual basis and if current events or circumstances require, on an interim basis.
Goodwill is allocated to various reporting units, which are an operating segment or one level below the operating segment. To test goodwill for impairment, the Company first performs a qualitative assessment to determine if it is more likely than not that the carrying amount of a reporting unit exceeds its fair value. If it is, a quantitative assessment is required. Alternatively, the Company may bypass the qualitative assessment and perform a quantitative impairment test.
The qualitative assessment requires the consideration of factors such as recent market transactions, macroeconomic conditions, and changes in projected future cash flows of the reporting unit.
The quantitative assessment compares the fair value of each goodwill reporting unit to its carrying amount, and to the extent the carrying amount exceeds the fair value, an impairment of goodwill is recognized for the excess up to the amount of goodwill allocated to the reporting unit.
In fiscal 2020, the Company performed a qualitative assessment of goodwill for impairment.
The impairment test for goodwill requires judgment related to the identification of reporting units, the assignment of assets and liabilities to reporting units including goodwill, and the determination of fair value of the reporting units. To determine the fair value of our reporting units, we apply what we believe to be the most appropriate valuation methodology for each of our reporting units. We generally use a present value technique (discounted cash flows) corroborated by market multiples when available and as appropriate. The projected cash flows of our reporting units reflect intersegment revenues and expenses for the sale and use of intellectual property. The discounted cash flow analyses are sensitive to our estimates of future revenue growth and margins for these businesses as well as the discount rates used to calculate the present value of future cash flows. In times of adverse economic conditions in the global economy, the Company’s long-term cash flow projections are subject to a greater degree of uncertainty than usual.
To test its other indefinite-lived intangible assets for impairment, the Company first performs a qualitative assessment to determine if it is more likely than not that the carrying amount of each of its indefinite-lived intangible assets exceeds its fair value. If it is, a quantitative assessment is required. Alternatively, the Company may bypass the qualitative assessment and perform a quantitative impairment test.
The qualitative assessment requires consideration of recent market transactions, macroeconomic conditions, and changes in projected future cash flows.
The quantitative assessment compares the fair value of an indefinite-lived intangible asset to its carrying amount. If the carrying amount of an indefinite-lived intangible asset exceeds its fair value, an impairment loss is recognized for the excess. Fair values of indefinite-lived intangible assets are determined based on discounted cash flows or appraised values, as appropriate.
The Company tests long-lived assets, including amortizable intangible assets, for impairment whenever events or changes in circumstances (triggering events) indicate that the carrying amount may not be recoverable. Once a triggering event has occurred, the impairment test employed is based on whether the Company’s intent is to hold the asset for continued use or to hold the asset for sale. The impairment test for assets held for use requires a comparison of the estimated undiscounted future cash flows expected to be generated over the useful life of an asset group to the carrying amount of the asset group. An asset group is generally established by identifying the lowest level of cash flows generated by a group of assets that are largely independent of the cash flows of other assets. If the carrying amount of an asset group exceeds the estimated undiscounted future cash flows, an impairment is measured as the difference between the fair value of the asset group and the carrying amount of the asset group. For assets held for sale, to the extent the carrying amount is greater than the asset’s fair value less costs to sell, an impairment loss is recognized for the difference. Determining whether a long-lived asset is impaired requires various estimates and assumptions, including whether a triggering event has occurred, the identification of asset groups, estimates of future cash flows and the discount rate used to determine fair values.
58
TABLE OF CONTENTS
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.
The Company recorded non-cash impairment charges of $5.2 billion and $0.6 billion in fiscal 2020 and 2019, respectively.
The fiscal 2020 impairment charges primarily related to impairments of MVPD agreement intangibles assets ($1.9 billion) and goodwill ($3.1 billion) at the International Channels’ business as discussed below under “Impacts of COVID-19 on Accounting Policies and Estimates.”
The fiscal 2019 charges primarily related to impairments of investments accounted for under the equity method of accounting recorded in “Equity in the income (loss) of investees” in the Consolidated Statements of Operations.
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.
Contingencies and Litigation
We are currently involved in certain legal proceedings and, as required, have accrued estimates of the probable and estimable losses for the resolution of these proceedings. These estimates are based upon an analysis of potential results, assuming a combination of litigation and settlement strategies and have been developed in consultation with outside counsel as appropriate. From time to time, we are also involved in other contingent matters for which we accrue estimates for a probable and estimable loss. It is possible, however, that future results of operations for any particular quarterly or annual period could be materially affected by changes in our assumptions or the effectiveness of our strategies related to legal proceedings or our assumptions regarding other contingent matters. See Note 15 to the Consolidated Financial Statements for more detailed information on litigation exposure.
Income Tax
As a matter of course, the Company is regularly audited by federal, state and foreign tax authorities. From time to time, these audits result in proposed assessments. Our determinations regarding the recognition of income tax benefits are made in consultation with outside tax and legal counsel, where appropriate, and are based upon the technical merits of our tax positions in consideration of applicable tax statutes and related interpretations and precedents and upon the expected outcome of proceedings (or negotiations) with taxing and legal authorities. The tax benefits ultimately realized by the Company may differ from those recognized in our future financial statements based on a number of factors, including the Company’s decision to settle rather than litigate a matter, relevant legal precedent related to similar matters and the Company’s success in supporting its filing positions with taxing authorities.
Impacts of COVID-19 on Accounting Policies and Estimates
In light of the currently unknown ultimate duration and severity of COVID-19, we face a greater degree of uncertainty than normal in making the judgments and estimates needed to apply our significant accounting policies. 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 canceled. The duration of the delay, market conditions when we release the content, or a change in our release strategy (e.g. bypassing certain distribution windows) could have an impact on Ultimate Revenues, which may accelerate amortization or result in an impairment of capitalized film and television production costs.
Given the ongoing uncertainty around the resumption and continuation of 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.
59
TABLE OF CONTENTS
Revenue Recognition
Certain of our affiliate contracts contain commitments with respect to the content to be aired on our television networks (e.g. live sports or original content). If there are delays or cancellations of live sporting events or disruptions to film and television content production activities, we may need to assess the impact on our contractual obligations and adjust the revenue that we recognize related to these contracts.
Goodwill, Other Intangible Assets, Long-Lived Assets and Investments
Given the ongoing impacts of COVID-19 across our businesses, the projected cash flows that we use to assess the fair value of our businesses and assets for purposes of impairment testing are subject to greater uncertainty than normal. If in the future we reduce our estimate of cash flow projections, we may need to impair some of these assets.
Our International Channels reporting unit, which is part of the Direct-to-Consumer & International segment, comprises the Company’s international television networks. Our international television networks primarily derive revenues from affiliate fees charged to MVPDs for the right to deliver our programming under multi-year licensing agreements and the sales of advertising time/space on the networks. 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.
The International Channels business has been negatively impacted by the COVID-19 pandemic resulting in decreased viewership and lower advertising revenue related to the availability of content, including the deferral or cancellation of certain live sporting events. The Company’s increased focus on DTC distribution in international markets is expected to negatively impact the International Channels business as we shift the primary means of monetizing our film and television content from licensing of linear channels to use on our DTC services because the International Channels reporting unit valuation does not include the value derived from this shift, which is reflected in other reporting units. In addition, the industry shift to DTC, including by us and many of our distributors, who are pursuing their own DTC strategies, has changed the competitive dynamics for the International Channels business and resulted in unfavorable affiliation renewal terms for certain of our distribution agreements.
In the third quarter of fiscal 2020, we assessed the International Channels’ long-lived assets and goodwill for impairment and recorded impairments of $1.9 billion primarily related to MVPD agreement intangible assets and $3.1 billion related to goodwill.
See Note 19 to the Consolidated Financial Statements for discussion of the impairment tests performed in the third quarter of fiscal 2020.
Risk Management Contracts
The Company employs a variety of financial instruments (derivatives) including interest rate and cross-currency swap agreements and forward and option contracts to manage its exposure to fluctuations in interest rates, foreign currency exchange rates and commodity prices.
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.
New Accounting Pronouncements
See Note 20 to the Consolidated Financial Statements for information regarding new accounting pronouncements.
FORWARD-LOOKING STATEMENTS
The Private Securities Litigation Reform Act of 1995 provides a safe harbor for “forward-looking statements” made by or on behalf of the Company. We may from time to time make written or oral statements that are “forward-looking,” including statements contained in this report and other filings with the Securities and Exchange Commission and in reports to our shareholders. Such statements may, for example, express expectations, projections, estimates or future impacts; actions that we may take (or not take); or developments beyond our control, including changes in domestic or global economic conditions. All forward-looking statements are made on the basis of management’s views and assumptions regarding future events and business performance as of the time the statements are made and the Company does not undertake any obligation to update its disclosure relating to forward-looking matters. Actual results may differ materially from those expressed or implied. Significant factors affecting these expectations are set forth under Item 1A – Risk Factors of this Report on Form 10-K as well as in this Item 7 - Management’s Discussion and Analysis and Item 1 - Business.
60
TABLE OF CONTENTS
ITEM 7A. Quantitative and Qualitative Disclosures About Market Risk
The Company is exposed to the impact of interest rate changes, foreign currency fluctuations, commodity fluctuations and changes in the market values of its investments.
Policies and Procedures
In the normal course of business, we employ established policies and procedures to manage the Company’s exposure to changes in interest rates, foreign currencies and commodities using a variety of financial instruments.
Our objectives in managing exposure to interest rate changes are to limit the impact of interest rate volatility on earnings and cash flows and to lower overall borrowing costs. To achieve these objectives, we primarily use interest rate swaps to manage net exposure to interest rate changes related to the Company’s portfolio of borrowings. By policy, the Company targets fixed-rate debt as a percentage of its net debt between minimum and maximum percentages.
Our objective in managing exposure to foreign currency fluctuations is to reduce volatility of earnings and cash flow in order to allow management to focus on core business issues and challenges. Accordingly, the Company enters into various contracts that change in value as foreign exchange rates change to protect the U.S. dollar equivalent value of its existing foreign currency assets, liabilities, commitments and forecasted foreign currency revenues and expenses. The Company utilizes option strategies and forward contracts that provide for the purchase or sale of foreign currencies to hedge probable, but not firmly committed, transactions. The Company also uses forward and option contracts to hedge foreign currency assets and liabilities. The principal foreign currencies hedged are the euro, Japanese yen, British pound, Chinese yuan and Canadian dollar. Cross-currency swaps are used to effectively convert foreign currency denominated borrowings to U.S. dollar denominated borrowings. By policy, the Company maintains hedge coverage between minimum and maximum percentages of its forecasted foreign exchange exposures generally for periods not to exceed four years. The gains and losses on these contracts offset changes in the U.S. dollar equivalent value of the related exposures. The economic or political conditions in a country could reduce our ability to hedge exposure to currency fluctuations in the country or our ability to repatriate revenue from the country.
Our objectives in managing exposure to commodity fluctuations are to use commodity derivatives to reduce volatility of earnings and cash flows arising from commodity price changes. The amounts hedged using commodity swap contracts are based on forecasted levels of consumption of certain commodities, such as fuel oil and gasoline.
It is the Company’s policy to enter into foreign currency and interest rate derivative transactions and other financial instruments only to the extent considered necessary to meet its objectives as stated above. The Company does not enter into these transactions or any other hedging transactions for speculative purposes.
Value at Risk (VAR)
The Company utilizes a VAR model to estimate the maximum potential one-day loss in the fair value of its interest rate, foreign exchange, commodities and market sensitive equity financial instruments. The VAR model estimates were made assuming normal market conditions and a 95% confidence level. Various modeling techniques can be used in a VAR computation. The Company’s computations are based on the interrelationships between movements in various interest rates, currencies, commodities and equity prices (a variance/co-variance technique). These interrelationships were determined by observing interest rate, foreign currency, commodity and equity market changes over the preceding quarter for the calculation of VAR amounts at each fiscal quarter end. The model includes all of the Company’s debt as well as all interest rate and foreign exchange derivative contracts, commodities and market sensitive equity investments. Forecasted transactions, firm commitments, and accounts receivable and payable denominated in foreign currencies, which certain of these instruments are intended to hedge, were excluded from the model.
The VAR model is a risk analysis tool and does not purport to represent actual losses in fair value that will be incurred by the Company, nor does it consider the potential effect of favorable changes in market factors.
VAR on a combined basis increased to $323 million at October 3, 2020 from $322 million at September 28, 2019.
61
TABLE OF CONTENTS
The estimated maximum potential one-day loss in fair value, calculated using the VAR model, is as follows (unaudited, in millions):
Fiscal 2020Interest Rate
Sensitive
Financial
Instruments		Currency
Sensitive
Financial
Instruments		Equity 
Sensitive
Financial
Instruments		Commodity Sensitive Financial InstrumentsCombined
Portfolio
Year end fiscal 2020 VAR$304$29$81$1$323
Average VAR43937323448
Highest VAR71857815742
Lowest VAR2211911223
Year end fiscal 2019 VAR3172812322
The VAR for Hong Kong Disneyland Resort and Shanghai Disney Resort is immaterial as of October 3, 2020 and accordingly has been excluded from the above table.
ITEM 8. Financial Statements and Supplementary Data
See Index to Financial Statements and Supplemental Data on page 70.
ITEM 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None.
ITEM 9A. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
We have established disclosure controls and procedures to ensure that the information required to be disclosed by the Company in the reports that it files or submits under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms and that such information is accumulated and made known to the officers who certify the Company’s financial reports and to other members of senior management and the Board of Directors as appropriate to allow timely decisions regarding required disclosure.
Based on their evaluation as of October 3, 2020, the principal executive officer and principal financial officer of the Company have concluded that the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934) are effective.
Management’s Report on Internal Control Over Financial Reporting
Management’s report set forth on page 71 is incorporated herein by reference.
Changes in Internal Controls
There have been no changes in our internal control over financial reporting during the fourth quarter of the fiscal year ended October 3, 2020 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
ITEM 9B. Other Information
None.

62
TABLE OF CONTENTS
PART III
ITEM 10. Directors, Executive Officers and Corporate Governance
Information regarding Section 16(a) compliance, the Audit Committee, the Company’s code of ethics, background of the directors and director nominations appearing under the captions “Section 16(a) Beneficial Ownership Reporting Compliance,” “Committees,” “Governing Documents,” “Director Selection Process” and “Election of Directors” in the Company’s Proxy Statement for the 2021 annual meeting of Shareholders is hereby incorporated by reference.
Information regarding executive officers is included in Part I of this Form 10-K as permitted by General Instruction G(3).
ITEM 11. Executive Compensation
Information appearing under the captions “Director Compensation,” “Compensation Discussion and Analysis” and “Compensation Tables” in the 2021 Proxy Statement (other than the “Compensation Committee Report,” which is deemed furnished herein by reference) is hereby incorporated by reference.
ITEM 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Information setting forth the security ownership of certain beneficial owners and management appearing under the caption “Stock Ownership” and information appearing under the caption “Equity Compensation Plans” in the 2021 Proxy Statement is hereby incorporated by reference.
ITEM 13. Certain Relationships and Related Transactions, and Director Independence
Information regarding certain related transactions appearing under the captions “Certain Relationships and Related Person Transactions” and information regarding director independence appearing under the caption “Director Independence” in the 2021 Proxy Statement is hereby incorporated by reference.
ITEM 14. Principal Accounting Fees and Services
Information appearing under the captions “Auditor Fees and Services” and “Policy for Approval of Audit and Permitted Non-Audit Services” in the 2021 Proxy Statement is hereby incorporated by reference.
63
TABLE OF CONTENTS
PART IV
ITEM 15. Exhibits and Financial Statement Schedules
(1)Financial Statements and Schedules
See Index to Financial Statements and Supplemental Data on page 70.

(2)Exhibits
The documents set forth below are filed herewith or incorporated herein by reference to the location indicated.
ExhibitLocationCHAIR AND CHIEF EXECUTIVE OFFICER, GENERAL MOTORS COMPANY
1.1

LOGO

Age: 61

Director since: 2017

Committees:

Compensation

Underwriting Agreement, dated March 19, 2020, among The Walt Disney Company, TWDC Enterprises 18 Corp. and BofA Securities, Inc., Citigroup Global Markets Inc. and J.P. Morgan Securities LLC, as representatives of the several underwriters named therein
Exhibit 1.1 to the Current Report on Form 8-K of the
  

Experience:

2016–Present


2014–2016

2013–2014


2011–2013

2009–2011

2008–2009


Chair and Chief Executive Officer, General Motors Company filed March 23, 2020(an automotive manufacturing company)

Chief Executive Officer, General Motors Company

Executive Vice President, Global Product Development, Purchasing and Supply Chain, General Motors Company

Senior Vice President, Global Product Development, General Motors Company

Vice President, Global Human Resources, General Motors Company

Vice President, Global Manufacturing Engineering, General Motors Company

1.2Underwriting Agreement, dated March 26, 2020, among The Walt Disney Company, TWDC Enterprises 18 Corp. and Merrill Lynch Canada Inc., HSBC Securities (Canada) Inc. and RBC Dominion Securities Inc.

Exhibit 1.1 to the Current Report on Form 8-K of the company filed March 30, 2020Other Public Company Directorships:

General Motors Company (2014–Present)

1.3

Underwriting Agreement, dated May 11, 2020, among The Walt DisneyFormer Public Company TWDC Enterprises 18 Corp. and BNP Paribas Securities Corp., Credit
Suisse Securities (USA) LLC, Deutsche Bank Securities Inc., Goldman Sachs & Co. LLC and Morgan Stanley & Co. LLC, as representatives of the several underwriters named therein.Directorships:

General Dynamics Corporation (2011–2017)

Exhibit 1.1 to the Current Report on form 8-K of the Company filed May 13, 2020
2.1

Notable Experience Aligned with Disney’s Strategy and Key Board Contributions

•  Ms. Barra has deep experience in strategy and brand evolution through her role in driving General Motors’ transformation to electric and autonomous vehicles, which provides a critical perspective on the Board throughout the Company’s own strategic progression and embracing of technological change and shifts in consumer sentiment

•  Ms. Barra’s position as Chief Executive Officer of General Motors affords her the ability to provide invaluable insight to both the leadership team and fellow Board members on long-term strategic decision making, large-scale cost rationalization and organizational restructuring and maintaining strong brand leadership

•  She brings meaningful experience in human capital management and executive compensation-related matters in her role on the Company’s Compensation Committee, where she focuses on aligning incentive structures with shareholder value creation and execution of long-term strategic priorities

Other Key Skill Sets

•  Overseeing and managing diverse and inclusive executive teams and a sizeable global workforce, with an emphasis on development and marketing of technology-based consumer-facing products and managing supply chain and inflationary product environments through her various executive roles at General Motors

•  Governance and public policy thought leadership, understanding of worldwide consumer markets and risks facing large public companies with complex retail operations through her role as chair of the Business Roundtable

2

Amended and Restated Agreement and Plan of Merger, dated as of June 20, 2018, among Twenty-First Century Fox, Inc., The Walt Disney Company, TWDC Holdco 613 Corp., WDC Merger Enterprises I, Inc., and WDC Merger Enterprises II, Inc.*
Exhibit 2.1 to the Current Report on Form 8-K of Legacy Disney filed June 21, 2018Safra A. Catz 
2.2Equity Purchase Agreement, dated as of May 3, 2019, among The Walt Disney Company, Fox Cable Networks, LLC and Diamond Sports Group, LLC*
3.1Restated Certificate of Incorporation of The Walt Disney Company, effective as of March 19, 2019
3.2Certificate of Amendment to the Restated Certificate of Incorporation of The Walt Disney Company, effective as of March 20, 2019
3.3Amended and Restated Bylaws of The Walt Disney Company, effective as of March 20, 2019
3.4Amended and Restated Certificate of Incorporation of TWDC Enterprises 18 Corp., effective as of March 20, 2019
3.5Amended and Restated Bylaws of TWDC Enterprises 18 Corp., effective as of March 20, 2019
3.6Certificate of Elimination of Series B Convertible Preferred Stock of The Walt Disney Company, as filed with the Secretary of State of the State of Delaware on November 28, 2018
4.1Senior Debt Securities Indenture, dated as of September 24, 2001, between TWDC Enterprises 18 Corp. and Wells Fargo Bank, N.A., as Trustee
4.2First Supplemental Indenture, dated as of March 20, 2019, among The Walt Disney Company, TWDC Enterprises 18 Corp. and Wells Fargo Bank, N.A., as Trustee
4.3Indenture, dated as of March 20, 2019, by and among The Walt Disney Company, as issuer, and TWDC Enterprises 18 Corp., as guarantor, and Citibank, N.A., as trustee
64
TABLE OF CONTENTS

ExhibitLocationCHIEF EXECUTIVE OFFICER, ORACLE CORPORATION
4.4

LOGO

Age: 61

Director since: 2018

Committees:

Audit (Sitting Chair)

Registration Rights Agreement, dated as of March 20, 2019, by and among The Walt Disney Company, as issuer, TWDC Enterprises 18 Corp., as guarantor, and Citigroup Global Markets Inc., J.P. Morgan Securities LLC, BNP Paribas Securities Corp., HSBC Securities (USA) Inc. and RBC Capital Markets, LLC, as dealer managers
Exhibit 4.5 to the Current Report on Form 8-K of the Company filed March 20, 2019
  

Experience:

2014–Present

2011–2014

2008–2011

2005–2008

2004–2005

1999–2004


Chief Executive Officer, Oracle Corporation (a computer technology corporation)

President and Chief Financial Officer, Oracle Corporation

President, Oracle Corporation

President and Chief Financial Officer, Oracle Corporation

President, Oracle Corporation

Various positions, Oracle Corporation

4.5

Other Public Company Directorships:

Oracle Corporation (2001–Present)

Notable Experience Aligned with Disney’s Strategy and Key Board Contributions

•  Through Ms. Catz’s position as Chief Executive Officer and formerly Chief Financial Officer of Oracle Corporation, she provides invaluable insight to both the leadership team and fellow Board members on long-term borrowing instruments are omitted pursuantstrategic planning and execution and large-scale cost rationalization and organizational structure evaluation

•  Ms. Catz oversaw the successful acquisition and integration of companies at Oracle, a key skill set to Item 601(b)(4)(iii) of Regulation S-K. The Company undertakes to furnish copies of such instrumentscontribute to the Commission upon requestBoard throughout Disney’s prior acquisition strategies and future development

•  Ms. Catz’s executive leadership roles at Oracle also allow her to offer impactful guidance to the Board and leadership team on the rapidly changing technological landscape that affects our businesses

•  Her experience leading the financial function of a complex, global technology company strengthens her role on the Audit Committee through the extensive financial and accounting and risk management expertise she brings to the Board and committee

Other Key Skill Sets

•  Cybersecurity oversight, including the protection of electronically stored data from her executive roles at Oracle

•  Brand management and governance thought leadership developed through the oversight of the strategic direction of Oracle

3

4.6Amy L. Chang Description of Registrant’s Securities
10.1Amended and Restated Voting Agreement, dated as of June 20, 2018, among The Walt Disney Company, Murdoch Family Trust, and Cruden Financial Services LLC
10.2Employment Agreement dated as of February 24, 2020 between the Company and Robert Chapek †
10.3Amended and Restated Employment Agreement, dated as of October 6, 2011, between the Company and Robert A. Iger †
10.4Amendment dated July 1, 2013 to Amended and Restated Employment Agreement, dated as of October 6, 2011, between the Company and Robert A. Iger †
10.5Amendment dated October 2, 2014 to Amended and Restated Employment Agreement, dated as of October 6, 2011, between the Company and Robert A. Iger †
10.6Amendment dated March 22, 2017 to Amended and Restated Employment Agreement, dated as of October 6, 2011, between the Company and Robert A. Iger †
10.7Amendment dated December 13, 2017 to Amended and Restated Employment Agreement, dated as of October 6, 2011, between the Company and Robert A. Iger †
10.8Amendment to Amended and Restated Employment Agreement, Dated as of October 6, 2011, as amended, between the Company and Robert A. Iger, dated November 30, 2018 †
10.9Amendment to Amended and Restated Employment Agreement, Dated as of October 6, 2011, as amended, between the Company and Robert A. Iger, dated March 4, 2019 †
10.10Amendment to Amended and Restated Employment Agreement, Dated as of October 6, 2011 and as previously amended, between the Company and Robert A. Iger, dated February 24, 2020 †
10.11Employment Agreement, dated as of September 27, 2013 between the Company and Alan N. Braverman †
10.12Amendment dated February 4, 2015 to the Employment Agreement dated as of September 27, 2013 between the Company and Alan N. Braverman †
10.13Amendment dated August 15, 2017 to the Employment Agreement dated as of September 27, 2013 between the Company and Alan N. Braverman †
10.14Amendment dated December 3, 2018 to the Employment Agreement, dated as of September 27, 2013, as amended, between the Company and Alan N. Braverman †
65
TABLE OF CONTENTS

ExhibitLocationFORMER EXECUTIVE VICE PRESIDENT, CISCO SYSTEMS, INC.
10.15

LOGO

Age: 46

Director since: 2021

Committees:

Governance and Nominating

Amendment dated October 8, 2019 to the Employment Agreement, dated as of September 27, 2013, as amended, between the Company and Alan N. Braverman †
Exhibit 10.1 to the Current Report on Form 8-K
  

Experience:

2018–2020


2013–2018


2005–2012


Executive Vice President and General Manager, Collaboration, Cisco Systems, Inc. (a networking hardware company)

Founder and Chief Executive Officer, Accompany, Inc. (a relationship intelligence platform company)

Global Head of the Company filed October 11, 2019Product, Google Ads Measurement; various additional positions, Google, Inc. (a technology company)

10.16

Employment Agreement dated August 15, 2017 and effective between theOther Public Company and Jayne Parker †Directorships:

Procter & Gamble (2017–Present)

Former Public Company Directorships:

Marqeta, Inc. (2021–2022)

Cisco Systems, Inc. (2016–2018)

Splunk, Inc. (2015–2017)

Exhibit 10.1 to the Current Report on Form 8-K of Legacy Disney filed August 17, 2017
10.17

Notable Experience Aligned with Disney’s Strategy and Key Board Contributions

•  Ms. Chang has developed expertise across the technology sector from her time as an Executive Vice President at Cisco Systems, Inc., leading product development for Google Ads Measurement and Reporting and a founder of a digital startup

•  She provides a unique viewpoint of emerging technology trends and the implementation of innovative technological business strategies that are particularly important to our Media and Entertainment Distribution business

•  Ms. Chang also provides valuable perspective on talent attraction and retention for key technical roles that are vital to Disney’s content creation and digitally driven teams and an understanding of large-scale cost rationalization and analysis of organizational structure from her tenure as a public company director and an executive at Google and Cisco

Other Key Skill Sets

•  Risk management oversight experience specific to digital and technology-forward companies, including cybersecurity, gained through her tenure at Cisco

•  Deep understanding of strategic planning, corporate governance, social initiatives and executive management succession planning gained through public company board leadership

4

Employment Agreement dated as of July 1, 2015 between the Company and Christine M. McCarthy †
10.18Amendment dated August 15, 2017 to the Employment Agreement dated as of July 1, 2015 between the Company and Christine M. McCarthy †
10.19Francis A. deSouza Employment Agreement, dated as of September 27, 2018 between the Company and Zenia Mucha †
10.20Voluntary Non-Qualified Deferred Compensation
Plan †
10.21Description of Directors Compensation
10.22Form of Indemnification Agreement for certain officers and directors †Annex C to the Proxy Statement for the 1987 annual meeting of DEI
10.23Form of Assignment and Assumption of Indemnification Agreement for certain officers and directors †

10.241995 Stock Option Plan for Non-Employee Directors
10.25Amended and Restated 2002 Executive Performance Plan †
10.26Management Incentive Bonus Program †
10.27Amended and Restated 1997 Non-Employee Directors Stock and Deferred Compensation Plan
10.28Amended and Restated The Walt Disney Company/Pixar 2004 Equity Incentive Plan †
10.29Amended and Restated 2011 Stock Incentive Plan †
10.30Disney Key Employees Retirement Savings Plan †
10.31Amendments dated April 30, 2015 to the Amended and Restated The Walt Disney Productions and Associated Companies Key Employees Deferred Compensation and Retirement Plan, Amended and Restated Benefit Equalization Plan of ABC, Inc. and Disney Key Employees Retirement Savings Plan †
10.32Group Personal Excess Liability Insurance Plan †
10.33Amended and Restated Severance Pay Plan †
10.34Form of Restricted Stock Unit Award Agreement (Time-Based Vesting) †
10.35Form of Performance-Based Stock Unit Award Agreement (Section 162(m) Vesting Requirement) †

66
TABLE OF CONTENTS
ExhibitLocationPRESIDENT AND CHIEF EXECUTIVE OFFICER, ILLUMINA, INC.
10.36

LOGO

Age: 52

Director since: 2018

Committees:

Audit

Form of Performance-Based Stock Unit Award Agreement (Three-Year Vesting subject to Total Shareholder Return/EPS Growth Tests/
Section 162(m) Vesting Requirement) †
Exhibit 10.11 to the Form 10-Q
  

Experience:

2016–Present

2013–2016

2011–2013

2009–2011

Prior


President and Chief Executive Officer, Illumina, Inc. (a biotechnology company)

President, Illumina, Inc.

President, Products and Services, Symantec Corporation (a cybersecurity company)

Senior Vice President, Enterprise Security Group, Symantec Corporation

Founder of Legacy Disney for the quarter ended December 29, 2018various technology businesses

10.37

Form of Performance-Based Stock Unit Award Agreement (Three-Year Vesting subject to Total Shareholder Return/EPS Growth Tests) †Other Public Company Directorships:

Illumina, Inc. (2014–Present)

Exhibit 10.10 to the Form 10-Q of Legacy Disney for the quarter ended December 29, 2018
10.38

Notable Experience Aligned with Disney’s Strategy and Key Board Contributions

•  Through his experience as Chief Executive Officer of Illumina, Inc. and prior senior leadership roles at Symantec Corporation and other technology companies, Mr. deSouza provides a deep understanding of executive management and international business operations, in addition to a strong knowledge of brand management and product development

•  Mr. deSouza has unique experience with the growth and maturation of technology businesses, providing insight to the Board and leadership team on the risks and opportunities involved in the development of diverse and changing businesses and the technological developments that affect our business

•  Through first-hand experience, he brings deep knowledge of overseeing business operations while incorporating public health considerations, which has served as an invaluable perspective as the Company navigates the continued challenges coming out of the COVID-19 pandemic

Other Key Skill Sets

•  Cybersecurity expertise through experience at Symantec

•  Knowledge of finance and accounting gained through experience in Chief Executive Officer and other leadership positions

•  Oversight of strategic integration and experience with consumer awareness of corporate social responsibility practices through his leadership of and commitment to Illumina’s corporate social responsibility program

5

Form of Non-Qualified Stock Option Award Agreement †
Exhibit 10.12 to the Form 10-Q of Legacy Disney for the quarter ended December 29, 2018Carolyn N. Everson 
10.39Performance-Based Stock Unit Award (Four-Year Vesting subject to Total Shareholder Return Test/Section 162(m) Vesting Requirements) for Robert A. Iger dated as of December 13, 2017 †
10.40Performance-Based Stock Unit Award (Four-Year Vesting subject to Total Shareholder Return Test) as Amended and Restated November 30, 2018 by and between the Company and Robert A. Iger †
10.41Performance-Based Stock Unit Award (Section 162(m) Vesting Requirement) for Robert A. Iger dated as of December 13, 2017 †
10.42Form of Performance-Based Restricted Stock Unit Award Agreement (Three-Year Vesting subject to Total Shareholder Return/ROIC Tests) †
10.43Disney Savings and Investment Plan as Amended and Restated Effective January 1, 2015 †
10.44First Amendment dated December 19, 2016 to the Disney Savings and Investment Plan as amended and restated effective January 1, 2015 †
10.45Second Amendment dated December 3, 2012 to the Disney Savings and Investment Plan †
10.46Third Amendment dated December 18, 2014 to the Disney Savings and Investment Plan †
10.47Fourth Amendment dated April 30, 2015 to the Disney Savings and Investment Plan †
10.48Disney Hourly Savings and Investment Plan Amended and Restated Effective January 1, 2015 †
10.49First Amendment to the Disney Hourly Savings and Investment Plan as Amended and Restated Effective January 1, 2015 †
10.50Twenty-First Century Fox, Inc. 2013 Long-Term Incentive Plan †
10.51Five-Year Credit Agreement dated as of March 9, 2018
10.52First Amendment dated as of December 19, 2018 to the Five-Year Credit Agreement dated as of March 9, 2018
10.53Five-Year Credit Agreement dated as of March 6, 2020
10.54364-Day Credit Agreement dated as of March 6, 2020
10.55364-Day Credit Agreement, dated as of April 10, 2020, among The Walt Disney Company, as borrower, TWDC Enterprises 18 Corp., as guarantor, the lenders party thereto, and Citibank, N.A., as designated agent

67
TABLE OF CONTENTS
ExhibitLocationFORMER PRESIDENT, INSTACART
21

LOGO

Age: 51

Director since: 2022

Committees:

Incoming Compensation member

Subsidiaries
  

Experience:

2022–Present

2021

2011–2021

2010–2011


2004–2010


2000–2003


Senior Adviser, Permira (a global private equity firm)

President, Instacart (a grocery retail company)

Vice President, Global Marketing Solutions, Meta Platforms, Inc. (a technology company)

Corporate Vice President, Global Advertising Sales, Strategy & Marketing, Microsoft Corporation (a technology corporation)

Various positions (most recently Chief Operating Officer and Executive Vice President, Advertising Sales), MTV Networks Company (a media entertainment company)

Various positions (including Vice President, Classifieds and Direct Response Advertising, and Vice President and General Manager, PriMedia Teen Digital Group), PriMedia, Inc. (an advertising company)

Other Public Company Directorships:

The Coca-Cola Company (2022–Present)

Former Public Company Directorships:

The Hertz Corporation (2013–2018)

Notable Experience Aligned with Disney’s Strategy and Key Board Contributions

•  Ms. Everson offers strong insight to the Board and leadership team on branded, consumer-facing technology and media subject matters, informed by her experience leading marketing solutions and global sales teams at Instacart, Meta Platforms, Inc. and Microsoft Corporation

•  Through her experience in global digital advertising, she provides impactful perspectives on the intersection of marketing and direct-to-consumer (“DTC”) technology, an important aspect of Disney’s strategy as we continue to expand our customer base

•  Through her public company board leadership experience, Ms. Everson maintains an understanding of large-scale cost rationalization and effective organizational structure

•  Ms. Everson further expands the Board’s collective skill sets through her experience in the advertising technology space and enhances its strategic oversight

Other Key Skill Sets

•  Understanding of business development and executive management processes gained through leadership of strategy teams at global technology companies

•  Risk management and corporate governance oversight through her public company board experience

The Company entered into a support agreement with Third Point pursuant to which the Company appointed Ms. Everson as a director and agreed to include Ms. Everson as a director nominee for the 2023 Annual Meeting and Third Point agreed to customary standstill, voting and other provisions through the 2024 Annual Meeting.

6

Michael B. G. Froman 
VICE CHAIRMAN AND PRESIDENT, STRATEGIC GROWTH, MASTERCARD INCORPORATED

LOGO

Age: 60

Director since: 2018

Committees:

Governance and Nominating

  

Experience:

2018–Present


2013–2017

2009–2013


1999–2009


Vice Chairman and President, Strategic Growth, Mastercard Incorporated (a financial services company)

United States Trade Representative, Executive Office of the President

Assistant to the President and Deputy National Security Advisor for International Economic Policy, Executive Office of the President

Various positions (including Chief Executive Officer of CitiInsurance and Chief Operating Officer of alternative investments business), Citigroup (a financial services company)

Notable Experience Aligned with Disney’s Strategy and Key Board Contributions

•  Mr. Froman delivers strategic insight to the Board and leadership team on complex international affairs gained from his experience as the Assistant to the President and Deputy National Security Advisor for International Economic Policy, and as the United States Trade Representative

•  His roles overseeing strategic growth and leveraging technology to expand digital inclusion at Mastercard and as a Distinguished Fellow on the Council of Foreign Relations enable him to offer guidance to the Company on international markets in which we participate, factors affecting international trade and the balance of risks and opportunities in a dynamic marketplace, including digital governance issues and cybersecurity risks

•  Mr. Froman’s perspective is particularly impactful given our strategic focus on innovation in changing markets and the global growth of our customer base

Other Key Skill Sets

•  International trade, finance, executive and brand management and risk management gained through executive leadership roles at Citigroup

•  Meaningful experience with alternative investments business and environmental and social policy implementation

7

Robert A. Iger 
CHIEF EXECUTIVE OFFICER, THE WALT DISNEY COMPANY

LOGO

Age: 71

Director since: 2022; 2000-2021

Committees:

Executive

  

Experience:

2022–Present

2020–2021

2012–2020

2005–2012

2000–2005

1999–2000

1994–1999


Chief Executive Officer, The Walt Disney Company

Chairman of the Board and Executive Chairman, The Walt Disney Company

Chairman and Chief Executive Officer, The Walt Disney Company

President and Chief Executive Officer, The Walt Disney Company

President and Chief Operating Officer, The Walt Disney Company

Chairman, ABC Group; President, Walt Disney International

President and Chief Operating Officer, ABC, Inc. (a broadcasting company)

Former Public Company Directorships:

The Walt Disney Company (2000–2021)

Apple Inc. (2011–2019)

Notable Experience Aligned with Disney’s Strategy and Key Board Contributions

•  Gained through his experience serving as Chief Executive Officer of Disney for 15 years, Mr. Iger has an unmatched knowledge of the Company and the creative content it produces, and an in-depth understanding of fostering innovation through technology and connecting to audiences in our markets around the world

•  Throughout Mr. Iger’s tenure at Disney, he successfully expanded the Company’s geographic presence, identified new revenue streams and initiated the Company’s DTC efforts, expanding the scale and global reach of Disney’s storytelling and streaming services

•  Mr. Iger has also furthered Disney’s rich history of storytelling through the successful landmark acquisitions and integration of Pixar, Marvel, Lucasfilm and 21st Century Fox

•  Mr. Iger carried the same level of dedication into his role as Executive Chairman, where he oversaw Disney’s creative endeavors, providing audiences with engaging stories and compelling characters, and as a consultant to the Board and leadership team throughout 2022

•  His detailed understanding of all facets of the Company, prior experience leading Disney through various market conditions and implementing successful strategic shifts throughout his career have uniquely positioned Mr. Iger to serve as Chief Executive Officer of Disney and a member of the Board of Directors at this time

Other Key Skill Sets

•  Knowledge of finance and accounting and operational expertise gained through experience in Chief Executive Officer and other leadership positions

•  Deep understanding of risk management and corporate governance and social initiatives gained through his public company board experience

The Company has agreed in Mr. Iger’s employment agreement to nominate him for re-election as a member of the Board at the expiration of each term of office during the term of the agreement, and he has agreed to continue to serve on the Board if elected.

8

Filed herewithMaria Elena Lagomasino 
22
List of Guarantor Subsidiaries
23Consent of PricewaterhouseCoopers LLPCHIEF EXECUTIVE OFFICER AND MANAGING PARTNER, WE FAMILY OFFICES

LOGO

Age: 73

Director since: 2015

Committees:

Governance and

Nominating;

Compensation

(Chair)

  

Experience:

2013–Present


2005–2012


2001–2005


1983–2001


Chief Executive Officer and Managing Partner, WE Family Offices (a wealth management company and registered investment advisor)

Chief Executive Officer, GenSpring Family Offices, LLC, an affiliate of SunTrust Banks, Inc. (a bank holding company)

Chairman and Chief Executive Officer, JP Morgan Private Bank, a division of JP Morgan Chase & Co. (an investment banking company)

Various positions (most recently Managing Director, Global Private Banking Group), The Chase Manhattan Bank (a consumer banking company)

Other Public Company Directorships:

The Coca-Cola Company (2008–Present)

Notable Experience Aligned with Disney’s Strategy and Key Board Contributions

•  As the founder of the Institute for the Fiduciary Standard and advisory board member of the Millstein Center for Global Markets and Corporate Ownership, Ms. Lagomasino is an expert in the field of governance and social thought leadership

•  As an executive leader in private banking industries and as a member of the Council on Foreign Relations, she has deep wealth management, investment and fiduciary expertise and extensive experience in leading complex organizations and evaluating businesses in a variety of industries with varying size and complexities

•  She brings meaningful experience in executive compensation-related matters from her role as Chair of the Company’s Compensation Committee, where she focuses on overseeing the alignment of incentive structures with shareholder value creation and execution of long-term strategic priorities

•  Significant knowledge of global brands, business development, executive management succession planning and risk management through experience on public company boards

Other Key Skill Sets

•  Extensive experience across domestic and international finance, investment and capital markets through her roles at WE Family Offices and JP Morgan

9

Calvin R. McDonald 
CHIEF EXECUTIVE OFFICER, LULULEMON ATHLETICA INC.

LOGO

Age: 51

Director since: 2021

Committees:

Compensation

  

Experience:

2018–Present

2013–2018


2011–2013


Chief Executive Officer, lululemon athletica inc. (an athletic apparel company)

President and Chief Executive Officer, Sephora Americas, a division of the LVMH group of luxury brands

President and Chief Executive Officer, Sears Canada (a department store company)

Other Public Company Directorships:

lululemon athletica inc. (2018–Present)

Former Public Company Directorships:

Sephora Americas (2013–2018)

Notable Experience Aligned with Disney’s Strategy and Key Board Contributions

•  Mr. McDonald has over 25 years of retail experience, bringing powerful insight to the Board on integrating customer experience and brand awareness

•  As Chief Executive Officer of lululemon athletica, he has led the company in innovating integrated guest experiences and offers valuable perspective on the growth, development and guest innovation of an international consumer business that is particularly relevant to Disney’s leadership team

•  Mr. McDonald is responsible for the growth, development and consumer product operations of lululemon athletica, including overseeing the company’s incorporation and expansion of a DTC offering and creative product design, providing him a fundamental understanding of consumer strategies that support and accelerate customer engagement

Other Key Skill Sets

•  Deep understanding of management, leadership and executive management from his experience at lululemon athletica

•  Strong knowledge of finance and accounting, risk management and corporate governance and social initiatives gained through his role as a public company chief executive officer

10

Mark G. Parker 
EXECUTIVE CHAIRMAN, NIKE, INC.

LOGO

Age: 67

Director since: 2016

Committees:

Compensation; Incoming Executive Committee Chair; Incoming Governance and Nominating Chair

  

Experience:

2020–Present

2006–2020

1979–2006


Executive Chairman, NIKE, Inc. (a footwear and apparel company)

President and Chief Executive Officer, NIKE, Inc.

Various positions (including product research, design and development, marketing and brand management), NIKE, Inc.

Other Public Company Directorships:

NIKE, Inc. (2006–Present)

Notable Experience Aligned with Disney’s Strategy and Key Board Contributions

•  As the former President and Chief Executive Officer of NIKE, Mr. Parker has overseen and managed the growth of a complex, global organization, and has experience exercising cost discipline and oversight of organizational structure, as well as executive management succession planning, bringing a valuable perspective to fellow directors and the broader leadership team

•  Through this experience, Mr. Parker brings first-hand knowledge of workforce and human capital management including managing creative talent and compensation, a critical skill set for Disney’s Board given our continued focus on human capital management oversight

•  Mr. Parker offers a unique insight to the Company regarding the design, production, marketing and distribution of consumer products and managing a major international consumer brand through various market evolutions over a more than 40-year time period

Other Key Skill Sets

•  Financial and executive management and risk management background gained through roles as President and Chief Executive Officer, as well as Executive Chairman of NIKE

•  Experience in integrating environmental and social practices into corporate strategy through his leadership at NIKE as the company integrated sustainable innovation into product development and manufacturing

11

Derica W. Rice 
FORMER EXECUTIVE VICE PRESIDENT, CVS HEALTH CORPORATION

LOGO

Age: 57

Director since: 2019

Committees:

Audit (Incoming Chair)

  

Experience:

2018–2020

2018–2020


2006–2017


2003–2006

1990–2005


Executive Vice President, CVS Health Corporation (a pharmacy company)

President, CVS Caremark, the pharmacy benefits management business of CVS Health Corporation

Chief Financial Officer and Executive Vice President of Global Services, Eli Lilly and Company (a pharmaceutical company)

Vice President and Controller, Eli Lilly and Company

Various Executive Positions, Eli Lilly and Company

Other Public Company Directorships:

The Carlyle Group Inc. (2021–Present)

Bristol-Myers Squibb Company (2020–Present)

Target Corporation (2007–2018); (2020–Present)

Notable Experience Aligned with Disney’s Strategy and Key Board Contributions

•  Mr. Rice offers deep experience on the alignment of financial and strategic objectives and an understanding of cost discipline and effective organizational structure, a primary focus of the Company’s Board and management team particularly throughout Disney’s strategic evolution, through his experience in key financial and operational roles at global companies, including as Chief Financial Officer of Eli Lilly for more than a decade

•  His strong knowledge of large brand-focused organizations gained through experience leading the pharmacy benefits management business of CVS Health and as Chief Financial Officer of Eli Lilly has been a valuable addition to the Board

•  Mr. Rice provides expertise in financial oversight and accounting through his financial executive experience, as well his experience as an audit committee member of public companies, enhancing Disney’s Audit Committee oversight of risks that may arise out of financial planning and reporting, internal controls and information technology

Other Key Skill Sets

•  Strong understanding of broader risk management oversight and complex, global business operations through senior operation roles at CVS and Eli Lilly

•  Deep understanding of strategic planning, corporate governance and social initiatives through service on other public company boards

“Incoming” as used above under “Committees” indicates that the Board intends to appoint the Director to such committee, in the case of Ms. Everson, or as Chair of such committee, in the case of Mr. Parker and Mr. Rice, following the 2023 Annual Meeting.

12

Audit Committee

Members: Safra A. Catz (Sitting Chair), Francis A. deSouza and Derica W. Rice (Incoming Chair)

The Audit Committee is responsible for, among other things, overseeing the Company’s financial statements, internal controls and audit, compliance with legal and regulatory requirements and independent auditor. The Committee also has oversight of cybersecurity and data security risks and mitigation strategies. The Committee also reviews the Company’s policies and practices with respect to risk assessment and risk management. The Committee met 9 times during fiscal 2022. All of the members of the Committee are independent within the meaning of SEC regulations, the listing standards of the New York Stock Exchange and the Company’s Corporate Governance Guidelines. The Board has determined that all members of the Committee, Ms. Catz, Mr. deSouza and Mr. Rice, are qualified as audit committee financial experts within the meaning of SEC regulations and that they have accounting and related financial management expertise within the meaning of the listing standards of the New York Stock Exchange and that Mr. Froman, who served on the Committee through January 10, 2022, is financially literate within the meaning of the listing standards of the New York Stock Exchange. The Board has determined that Mr. Rice’s simultaneous service on the audit committees of more than three public companies will not impair his ability to effectively serve on the Committee. Following the 2023 Annual Meeting, the Board intends to appoint Mr. Rice as the Chair of the Committee. Ms. Catz will remain as a member of the Committee.

Corporate Governance Documents

The Board has adopted Corporate Governance Guidelines, which set forth a flexible framework within which the Board, assisted by its committees, directs the affairs of the Company. The Guidelines address, among other things, the composition and functions of the Board, Director independence, stock ownership by and compensation of Directors, management succession and review, Board leadership, Board committees and selection of new Directors.

The Company has Standards of Business Conduct, which are applicable to all employees of the Company, including the principal executive officer, the principal financial officer and the principal accounting officer. The Board has a separate Code of Business Conduct and Ethics for Directors, which contains provisions specifically applicable to Directors.

Each standing committee of the Board is governed by a charter adopted by the Board.

The Corporate Governance Guidelines, the Standards of Business Conduct, the Code of Business Conduct and Ethics for Directors and each of the Audit, Compensation and Governance and Nominating Committee charters are available on the Company’s Investor Relations website under the “Corporate Governance” heading at www.disney.com/investors and in print to any shareholder who requests them from the Company’s Secretary. If the Company amends or waives the Code of Business Conduct and Ethics for Directors or the Standards of Business Conduct with respect to the principal executive officer, principal financial officer or principal accounting officer, it will post the amendment or waiver at the same location on its website.

13

Director Selection Process

Working closely with the full Board, the Governance and Nominating Committee develops criteria for open Board positions. Applying these criteria, the Committee considers candidates for Board membership suggested by Committee members, other Board members, management and shareholders. The Committee retains third-party executive search firms to identify and review candidates, including to generate candidate pools consistent with the criteria below, upon request of the Committee from time to time.

Once the Committee has identified a prospective nominee — including prospective nominees recommended by shareholders — it determines whether to conduct a full evaluation. The Committee may request the third-party search firm to gather additional information about the prospective nominee’s background and experience and to report its findings. The Committee then evaluates the prospective nominee against the specific criteria that it has established for the position, as well as the standards and qualifications set out in the Company’s Corporate Governance Guidelines, including but not limited to:

the ability of the prospective nominee to represent the interests of the shareholders of the Company;

the extent to which the prospective nominee contributes to the range of talent, skill and expertise appropriate for the Board; and

the extent to which the prospective nominee helps the Board reflect the diversity of the Company’s shareholders, employees, customers and guests and the communities in which it operates.

After completing this evaluation and an interview, the Committee makes a recommendation to the full Board, which makes the final determination whether to nominate or appoint the new director after considering the Committee’s report.

In selecting director nominees, the Board seeks to achieve a mix of members who together bring experience and personal backgrounds relevant to the Company’s strategic priorities and the scope and complexity of the Company’s business. The current nominees’ qualifications set forth in their individual biographies under the section titled “Directors” sets out how each of the current nominees (comprised of all current Directors other than Ms. Arnold) contributes to the mix of experience and qualifications the Board seeks. The Board also considers the tenure policy under the Corporate Governance Guidelines, pursuant to which the Board will not nominate for re-election any non-management Director that completed fifteen years of service as a member of the Board on or prior to the date of election or any Director that turned 75 years of age of older in the calendar year preceding the related annual meeting, in each case, unless the Board concludes that such Director’s continuing service would better serve the best interests of the shareholders.

In making its recommendations with respect to the nomination for election or re-election of existing Directors at the annual shareholders meeting, the Committee assesses the composition of the Board at the time and considers the extent to which the Board continues to reflect the criteria set forth above.

During fiscal 2023, the Board appointed two new directors: Carolyn Everson and Bob Iger. Ms. Everson was recommended by non-management directors, a third-party search firm and a shareholder. In connection with Ms. Everson’s appointment, the Company entered into a support agreement with Third Point pursuant to which the Company appointed Ms. Everson as a director and agreed to include Ms. Everson as a director nominee for the 2023 Annual Meeting and Third Point agreed to customary standstill, voting and other provisions through the 2024 Annual Meeting. Mr. Iger was recommended by non-management directors. The Company has agreed in Mr. Iger’s employment agreement to nominate him for re-election as a member of the Board at the expiration of each term of office during the term of the agreement, and he has agreed to continue to serve on the Board if elected.

A shareholder who wishes to recommend a prospective nominee for the Board should notify the Company’s Secretary or any member of the Governance and Nominating Committee in writing with whatever supporting material the shareholder considers appropriate. The Governance and Nominating Committee will also consider whether to nominate any person nominated by a shareholder pursuant to the provisions of the Company’s Bylaws relating to shareholder nominations.

14

ITEM 11. Executive Compensation

Director Compensation

Fiscal 2022

The elements of annual Director compensation for fiscal 2022 were as follows:

  

Annual Board retainer

 $115,000 

Annual committee retainer (except Executive Committee)1

 $10,000 

Annual Governance and Nominating Committee chair retainer2

 $20,000 

Annual Compensation Committee chair retainer2

 $25,000 

Annual Audit Committee chair retainer2

 $27,500 

Annual deferred stock unit grant

 $240,000 

Annual retainer for independent Chairman3

 $145,000 

1

Per committee.

2

This is in addition to the annual committee retainer the Director receives for serving on the committee.

3

This is in addition to the annual Board retainer, committee fees and the annual deferred stock unit grant and at least 50% must be paid in stock.

To encourage Directors to experience the Company’s products, services and entertainment offerings personally, each non-employee Director may receive Company products and services up to a maximum of $15,000 in fair market value per calendar year plus reimbursement of associated tax liabilities. Each first-year non-employee Director may receive Company products and services up to a maximum of $25,000 in fair market value plus reimbursement of associated tax liabilities for one year following their respective start date. After the first anniversary of their start date, such first-year non-employee Directors will have an additional allowance of $15,000 prorated for the balance of the remaining calendar year. Directors’ spouses, children and grandchildren may also participate in this benefit within each Director’s limit.

Family members of Directors may accompany Directors traveling on Company aircraft for business purposes on a space-available basis.

Directors participate in the Company’s employee gift matching program on the same terms as senior executives. Under this program, the Company matches contributions of up to $20,000 per calendar year per Director to charitable and educational institutions meeting the Company’s criteria. Beginning in calendar 2022, the Board amended the Directors’ participation in the Company’s employee gift matching program to decrease the maximum amount of contributions matched by the Company from $50,000 to $20,000 per calendar year.

Directors who are also employees of the Company receive no additional compensation for service as a Director.

Under the Company’s Corporate Governance Guidelines, non-employee Director compensation is determined annually by the Board acting on the recommendation of the Governance and Nominating Committee. In formulating its recommendation, the Governance and Nominating Committee receives input from the third-party compensation consultant retained by the Compensation Committee regarding market practices for Director compensation.

15

Director Compensation for Fiscal 2022

The following table sets forth compensation earned during fiscal 2022 by each person who served as a non-employee Director during the year.

   

FEES

EARNED

OR PAID

IN CASH

   

STOCK

AWARDS

   

ALL OTHER

COMPENSATION

   TOTAL 

Susan E. Arnold

  $214,327   $289,953    $67,701   $571,981 

Mary T. Barra

   125,000    236,657    —    361,657 

Safra A. Catz

   152,486    236,657    50,000    439,143 

Amy L. Chang

   125,000    236,657    41,520    403,177 

Francis A. deSouza

   125,000    236,657    5,296    366,953 

Michael B.G. Froman

   125,000    236,657    71,968    433,625 

Maria Elena Lagomasino

   159,973    236,657    100    396,730 

Calvin R. McDonald

   125,000    236,657    —    361,657 

Mark G. Parker

   125,000    236,657    —    361,657 

Derica W. Rice

   125,000    236,657    70,000    431,657 

Fees Earned or Paid in Cash. “Fees Earned or Paid in Cash” includes the annual Board retainer and annual committee and committee-chair retainers, whether paid currently or deferred by the Director to be paid in cash or shares after service ends. Directors are permitted to elect each year to receive all or part of their retainers in Disney stock and, whether paid in cash or stock, to defer all or part of their retainers until after service as a Director ends. Directors who elect to receive deferred compensation in cash receive a credit each quarter and the balance in their deferred cash account earns interest at an annual rate equal to 120% of the Applicable Long-Term Federal Interest Rate, as determined from time to time by the United States Internal Revenue Service. For fiscal 2022, the average interest rate was 3.67%.

The following table sets forth the form of fees received by each Director who elected to receive any portion of the compensation in a form other than currently paid cash. The number of stock units awarded is equal to the dollar amount of fees accruing each quarter divided by the average over the last ten trading days of the quarter of the average of the high and low trading price for shares of Company common stock on each day in the ten-day period. Stock units distributed currently were accumulated throughout the year and distributed as shares following December 31, 2022.

   CASH   STOCK UNITS 
   

PAID

CURRENTLY

   DEFERRED   

VALUE

DISTRIBUTED

CURRENTLY

   

VALUE

DEFERRED

   

NUMBER

OF

UNITS

 

Mary T. Barra

   —    —    —    $125,000    1,065 

Safra A. Catz

   —    —    $152,486    —    1,300 

Francis A. deSouza

   —    —    125,000    —    1,065 

Michael B.G. Froman

   —    —    125,000    —    1,065 

Maria Elena Lagomasino

   —    —    —    159,973    1,364 

Calvin R. McDonald

   —    —    125,000    —    1,065 

Mark G. Parker

   —    —    —    125,000    1,065 

Derica W. Rice

   —    —    —    125,000    1,065 

16

Stock Awards. “Stock Awards” sets forth the market value of the deferred stock unit grants to Directors and the amount reported is equal to the market value of the Company’s common stock on the date of the award times the number of shares underlying the units. Units are awarded at the end of each quarter and the number of units is determined by dividing the amount payable with respect to the quarter by the average over the last ten trading days of the quarter of the average of the high and low trading price for shares of the Company common stock on each day in the ten-day period. Each Director other than Ms. Arnold was awarded 2,044 units in fiscal 2022. Ms. Arnold was awarded 2,544 units in fiscal 2022 due to the annual retainer for independent Chairman.

Unless a Director elects to defer receipt of shares until after the Director’s service ends, shares with respect to annual deferred stock unit grants are normally distributed to the Director on the second anniversary of the award date, whether or not the Director is still a Director on the date of distribution.

At the end of any quarter in which dividends are distributed to shareholders, Directors receive additional stock units with a value (based on the average of the high and low trading prices of the Company common stock averaged over the last ten trading days of the quarter) equal to the amount of dividends they would have received on all stock units held by them at the end of the prior quarter. Shares with respect to these additional units are distributed when the underlying units are distributed. Units awarded in respect of dividends are included in the fair value of the stock units when the units are initially awarded and therefore are not included in the tables above, but they are included in the total units held at the end of the fiscal year in the table below.

The following table sets forth all stock units held by each non-management Director serving during fiscal 2022, as of the end of fiscal 2022. All stock units are fully vested when granted, but shares are distributed with respect to the units only later, as described above. Stock units in this table are included in the stock ownership table in Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters - “Stock Ownership” except to the extent they may have been distributed as shares and sold prior to the date of the stock ownership table.

STOCK

UNITS

Susan E. Arnold

25,646

Mary T. Barra

13,043

Safra A. Catz

4,157

Amy L. Chang

2,417

Francis A. deSouza

5,891

Michael B.G. Froman

3,968

Maria Elena Lagomasino

19,333

Calvin R. McDonald

3,278

Mark G. Parker

17,763

Derica W. Rice

8,533

The Company’s Corporate Governance Guidelines encourage Directors to own or acquire within three years of first becoming a Director, shares of Company common stock (including stock units received as Director compensation) having a market value of at least five times the amount of the annual Board retainer for the Director. Unless the Board exempts a Director, each Director is also required to retain stock representing no less than 50% of the after-tax value of exercised options and shares received upon distribution of deferred stock units until such Director meets the stock holding guideline described above.

All Other Compensation. “All Other Compensation” includes:

Reimbursement of tax liabilities associated with the product familiarization benefits. The value of the product familiarization benefits themselves and travel benefits are not included in the table as permitted by SEC rules because the aggregate incremental cost to the Company of providing these benefits did not exceed $10,000 for any Director. The reimbursement of associated tax liabilities was $1,475 for Ms. Arnold, $6,520 for Ms. Chang, $5,296 for Mr. deSouza, $16,968 for Mr. Froman and $100 for Ms. Lagomasino.

17

Interest earned on deferred cash compensation, which was less than $10,000 for each Director.

The matching charitable contribution of the Company, which was $25,000 for Ms. Arnold, $50,000 for Ms. Catz, $35,000 for Ms. Chang, $55,000 for Mr. Froman and $70,000 for Mr. Rice. Matched amounts exceed $20,000 in a fiscal year if contributions for separate calendar years are made in the same fiscal year or if there were delays in processing earlier year matches and due to the change in maximum amount of contributions matched by the Company in calendar 2022.

In fiscal 2022, the Company reimbursed security charges to Ms. Arnold totaling $32,985 for equipment and security services.

Executive Compensation

Compensation Discussion and Analysis

Fiscal 2022 Performance Highlights

As described in more detail under “Executive Compensation — Compensation Discussion and Analysis — Individual Compensation Decisions” below, our named executive officers (“NEOs”) who remain with the Company showed strong performance and leadership both in managing the Company and in driving a transformation of our businesses, building long-term value. In fiscal 2022, we continued to see strong demand and growth across our businesses and execute on our long-term strategy. Our content, across our unmatched collection of brands, formats and distribution platforms, continues to meaningfully resonate with audiences around the world and fuel our portfolio of businesses. We continue to invest in our Media and Entertainment Distribution businesses, ending the fiscal year with over 235 million total DTC subscriptions, preparing to launch the advertising-based tier of Disney+ and generating nearly $3.5 billion at the global box office. At our Parks, Experiences and Products business, we are beyond pleased with our recovery coming out of the pandemic, launching several new attractions and experiences, resulting in the segment’s largest full year revenue, operating income and margin.

While our share price performance was in line with many Media Industry peers this past year, fiscal 2022 share price performance was challenging for the Company. As we look forward, our leadership team remains focused on building long-term value for our shareholders, and our Compensation Committee remains committed to an executive compensation program that motivates executives to achieve these goals and aligns pay outcomes with Company performance.

18

FISCAL 2022 COMPENSATION PRACTICES

Executive Compensation Objectives and Methods: We maintain an integrated approach to attract and retain high-caliber executives in a competitive market for talent, while adhering to key corporate governance best practices summarized below.

Shareholder engagement and responsiveness

Investor Relations and members of the Board regularly engage in investor outreach. With regard to executive compensation, the Compensation Committee has addressed shareholder feedback and made changes to compensation for fiscal 2022, including:

•  Utilized the structure of 50% of the CEO’s fiscal 2022 equity award as performance-based restricted stock units (“PBUs”), in response to feedback to prioritize pay for performance.

•  Increased PBUs from 30% to 50% of the overall long-term incentive grant value for the NEOs other than the CEO.

•  Increased the rigor of the test for the total shareholder return (“TSR”) portion of PBUs by setting target performance at the 55th percentile of the S&P 500 companies, an increase from the 50th percentile, with maximum payout at 200% of target.

•  For the fiscal 2022 annual bonus plan, significantly increased the required revenue and operating income amounts to achieve target-level payouts year-over-year.

Incentive plan non-financial metrics

Fiscal 2022 bonus plan maintains incorporation of diversity and inclusion (e.g., representation, retention and content), which has the highest weighting among a limited number of focused non-financial metrics.

Equity retention guidelines

NEOs must hold a meaningful amount of the Company’s stock. The CEO must hold equity valued at five times his salary within five years of becoming CEO, while other NEOs must hold equity valued at three times their salary within five years of becoming an executive officer.

Compensation at risk

A majority of NEO compensation is tied to either short- or long-term Company performance. For Robert A. Chapek in fiscal 2022, 90% of his total target compensation was tied to financial performance, contributions towards organization goals, equity compensation or stock price performance. This includes 50% of his annual equity grant awarded in PBUs.

Annual risk assessment

Each year, the Compensation Committee’s compensation consultant completes a risk assessment of the Company’s compensation programs. Based on this assessment for fiscal 2022, the Compensation Committee determined that risks arising from the Company’s policies and practices are not reasonably likely to have a material adverse effect on the Company.

Clawback policy

The Board may recover or cancel any bonus or incentive payments in cases where an executive’s misconduct results in either financial or reputational harm.

Disallow hedging and pledging

Board members, NEOs and all other Section 16 filers are prohibited from hedging and pledging the Company’s securities.

No option re-pricing or cash buyouts

The Company does not allow re-pricing or cash buyouts of underwater stock options without shareholder approval.

No excise tax gross-ups

The Company does not provide excise tax gross-ups.

Independent compensation consultant

The Compensation Committee has retained a compensation consultant whose relationship with the Company was confirmed to be independent for fiscal 2022.

19

CHANGES FOR FISCAL 2023

After fiscal year 2022, on November 20, 2022, the Company exercised its right to involuntarily terminate Mr. Chapek’s employment. For details of his separation, please see the section titled “Executive Compensation — Compensation Tables — Potential Payments and Rights on Termination or Change in Control” below.

On November 20, 2022, the Company entered into an employment agreement with Mr. Iger and he was appointed as CEO. In connection with the agreement, Mr. Iger’s annual base salary was set at $1,000,000 and he is eligible for an annual bonus determined through financial and individual performance objectives with a target of 100% of base salary (up to a maximum of 200%). Mr. Iger’s annual long-term incentive grant target is $25,000,000 and will have the following vehicle mix: 60% PBUs and 40% stock options. The PBUs have a 2-year performance period aligned with the term of his employment agreement. The Committee determined that Mr. Iger’s interest in the value of his existing equity holdings aligned with his mandate to develop a long-term successor by 2024.

The Committee also evaluated the long-term incentive structure of the CEO and NEOs’ executive compensation programs. Starting in fiscal 2020, 50% of PBUs were eligible to vest based on return on invested capital (“ROIC”) performance. While the initial intent was to set a full 3-year ROIC goal, due to challenges in forecasting posed by the COVID-19 pandemic, ROIC goals have been set and measured each year of the 3-year performance period for grants made in fiscal 2020 through fiscal 2022. In November 2022, the Compensation Committee determined that long-term incentive grants made in fiscal 2023 (i.e., in December 2022) will utilize a full 3-year goal for the ROIC portion of PBUs, excluding Mr. Iger’s long-term incentive grant, which will have a 2-year performance period to reflect his 2-year employment term.

Increase to

60%

Performance-Based Units

for the CEO

Return to full

3-year

Return On Invested
Capital goal for other
NEOs

The following chart shows the percentage of the target total direct annual compensation for Mr. Iger that varies with performance and equity versus being fixed with respect to fiscal 2023. Performance-based and equity compensation represents target performance-based bonus and equity awards while fixed compensation represents base salary.

LOGO

20

Executive Compensation Program Structure — Objectives and Methods

We design our executive compensation program to drive the creation of long-term shareholder value. We do this by tying compensation to the achievement of performance goals that promote the creation of shareholder value and by designing compensation to attract and retain high-caliber executives in a competitive market for talent. We aim to provide compensation opportunities that take into account compensation levels and practices of our peers. For a more detailed description of the peer groups we use for compensation purposes, see the discussion under the heading, “Executive Compensation — Other Compensation Information — Peer Groups,” set forth below. Total direct compensation comprises a mix of variable and fixed compensation that is heavily weighted toward variable performance-based compensation. Our performance-based compensation includes a short-term annual performance-based bonus and longer-term equity awards that deliver value based on stock price performance and in the case of performance-based stock units, whose vesting depends on meeting performance targets. As prospective performance targets are central to our business strategy, for competitive reasons we do not publicly disclose them for either the short-term annual performance-based bonus plan or the long-term incentive plan. The Company enters into employment agreements with our senior executives when the Compensation Committee determines that it is appropriate to attract or retain an executive or where an employment agreement is consistent with our practices with respect to other similarly situated executives.

21

The following table sets forth the elements of total direct compensation in fiscal 2022 and fiscal 2023 and the objectives and key features of each element:

OBJECTIVES AND KEY FEATURES

LOGO   

LOGO

SALARY

Objectives:

The Compensation Committee sets salaries to reflect job responsibilities and to provide competitive fixed pay to balance performance-based risks.

Key Features:

•  Minimum salaries set in employment agreement

•  Committee discretion to adjust annually based on changes in experience, nature and responsibility of the position, competitive considerations and CEO recommendation (except in the case of the CEO)

LOGO   

PERFORMANCE-BASED BONUS

Objectives:

The Compensation Committee structures the bonus program to incentivize performance at the high end of the financial performance measure ranges that it establishes each year. The Committee believes that incentivizing performance in this fashion will lead to long-term, sustainable gains in shareholder value.

Key Features:

•  Target bonus for each NEO set by the Committee early in the fiscal year in light of employment agreement provisions, competitive considerations, CEO recommendation (except targets for the CEO) and other factors the Committee deems appropriate; bonus opportunity normally limited to 200% of target bonus

•  Unless otherwise adjusted downward by the Committee, payout on 70% of target is formulaic and determined by performance against financial performance ranges developed by the Committee early in the fiscal year

•  Unless otherwise determined by the Committee, payout on 30% of target determined by Company-wide Other Performance Factors and the Committee’s assessment of individual performance based both on other performance objectives and on CEO recommendation (except the payouts for the CEO)

LOGO

EQUITY AWARDS

Objectives:

The Compensation Committee structures equity awards to directly reward long-term gains in shareholder value. Equity awards carry vesting terms that now extend for three years and include PBUs whose value depends on Company performance, including performance relative to the S&P 500. These awards provide incentives to create and sustain long-term growth in shareholder value.

Key Features:

•  Combined value of options, performance units and time-based units determined by the Committee in light of employment agreement provisions, competitive market conditions, evaluation of executive’s performance and CEO recommendation (except awards for the CEO)

•  For fiscal 2022, allocation of annual awards for Mr. Iger in his role as Executive Chairman (based on award value): 50% PBUs; 50% stock options. For fiscal 2023, in his role as CEO, the allocation of annual awards will be: 60% PBUs and 40% stock options

•  Allocation of annual awards for other NEOs including Mr. Chapek in fiscal 2022 (based on award value): 50% PBUs; 25% time-based restricted stock units; 25% stock options

STOCK OPTION AWARDS

Key Features:

•  Exercise price equal to average of the high and low trading prices on day of award

•  Option re-pricing without shareholder approval is prohibited

•  Ten-year term

•  Vest one-third per year

ANNUAL PERFORMANCE-BASED RESTRICTED STOCK UNITS

Key Features:

•  PBUs reward executives only if specified financial performance measures are met

•  PBUs vest subject to the level of achievement under multiple multi-year performance tests

•  Half of awards vest based on three-year cumulative TSR relative to the S&P 500; the other half vest based on three-year ROIC measured over three one-year performance periods. For fiscal 2022, ROIC awards included three measurement periods of one year each due to continued financial uncertainties resulting from the COVID-19 pandemic. For fiscal 2023, ROIC awards include one measurement period of three years (two years in the case of Mr. Iger). Awards as described in the section titled “Executive Compensation — Compensation Tables — Fiscal 2022 Grants of Plan Based Awards Table”

ANNUAL TIME-BASED RESTRICTED STOCK UNITS

Key Features:

•  One-third vests each year following grant date

•  Annual units awarded to executive officers are subject to Section 162(m) test to the extent necessary and available to obtain tax deductibility by the Company of the payments

•  For fiscal 2023, Mr. Iger will not receive time-based RSUs

22

COMPENSATION AT RISK

The Compensation Committee believes that most of the compensation for NEOs should be at risk and tied to a combination of long-term and short-term Company performance. In fiscal 2022, our NEOs consisted of Mr. Chapek, Christine McCarthy, Horacio Gutierrez, Paul Richardson, Kristina Schake, Mr. Iger and Geoffrey Morrell.

In establishing a mix of fixed to variable compensation, the composition of equity awards, target bonus levels, grant date equity award values and performance ranges, the Committee seeks to maintain its goal of making compensation overwhelmingly tied to performance, while also providing compensation opportunities that are competitive with alternatives available to the executive. In particular, the Committee expects that performance at the high-end of ranges will result in overall compensation that is sufficiently attractive relative to compensation available at successful competitors and that performance at the low-end of ranges will result in overall compensation that is less than that available from competitors with more successful performance.

The following charts show the percentage of the target total direct annual compensation for first, Mr. Chapek, and second, all NEOs other than Mr. Chapek and Mr. Iger, that varies with performance and equity versus being fixed with respect to fiscal 2022. Performance-based and equity compensation represents target performance-based bonus and equity awards while fixed compensation represents base salary.

LOGO

Beginning in fiscal 2022, the Compensation Committee determined to increase PBUs from 30% to 50% of the overall long-term incentive grant value for the NEOs other than the CEO, who already had 50% in the form of PBUs (and who will have 60% in the form of PBUs for fiscal 2023). This shift reflects a meaningful increase in at-risk compensation, as evidenced by the actual results realized with respect to recent PBU grants. For example, below is a table reflecting annual grant PBUs vesting in the last five years which resulted in below target payouts:

   VESTED IN
DECEMBER 2018		   VESTED IN
DECEMBER 2019		   VESTED IN
DECEMBER 2020		   VESTED IN
DECEMBER 2021		   VESTED IN
DECEMBER 2022		 

% of Target Payout

   85%    96%    62%    48%    50% 

23

The fiscal 2021 ROIC test resulted in a 150% payout, which is being assessed for outstanding PBU grants made in December 2019 and 2020. The fiscal 2022 ROIC test had a threshold, target and maximum of 1.6%, 4.1% and 5.4% respectively. Actual fiscal 2022 ROIC performance was just under 5.4%, which resulted in 148% payout for the fiscal 2022 portion of the ROIC test, which is being assessed for outstanding PBU grants made in December 2019 and 2020. As the maximum payout for fiscal 2022 PBU awards increased to 200% of target, ROIC performance of approximately 5.4% resulted in a 196% payout for the fiscal 2022 ROIC portion of grants made in December 2021. The Compensation Committee believes this PBU structure strongly aligns pay and performance, which is underscored by the decision to further increase the weighting of PBUs for other NEOs.

COMPENSATION PROCESS

The following table outlines the process for determining annual compensation awards for NEOs:

SALARIES

PERFORMANCE-BASED BONUS

•  Annually at the end of the calendar year, the Chief Executive Officer recommends salaries for NEOs other than himself for the following calendar year

•  Compensation Committee reviews proposed salary changes with input from its consultant (described under “Executive Compensation — Compensation Discussion and Analysis — Executive Compensation Program Structure—Objectives and Methods — Compensation Consultant”)

•  Committee determines annual salaries for all NEOs

•  Committee reviews determinations with the other non-management directors

•   Compensation Committee participates in regular Board review of operating plans and results and review of annual operating plan at the beginning of the fiscal year

•   Management recommends financial and other performance measures, weightings and ranges

•   Early in the fiscal year, the Committee reviews proposed performance measures and ranges with input from its consultant and develops performance measures and ranges that it believes establish appropriate goals

•   Chief Executive Officer recommends bonus targets for NEOs other than himself

•   Early in the fiscal year, the Committee reviews bonus measure ranges with input from its consultant and in light of the targets established by employment agreements and competitive conditions and determines bonus target opportunity as a percentage of fiscal year-end salary for each NEO

•   After the end of the fiscal year, management presents financial results to the Committee

•   Chief Executive Officer recommends Other Performance Factor multipliers for NEOs other than himself

•   Committee reviews the results and determines whether to make any adjustments to financial results, determines other performance factor multipliers and establishes bonus

•   Committee reviews determinations with the other non-management directors and, in the case of the Chief Executive Officer, seeks their concurrence in the Committee’s determination

EQUITY AWARDS

•  In first fiscal quarter, the Chief Executive Officer recommends grant date fair value of awards for NEOs other than himself

•  Compensation Committee reviews proposed awards with input from its consultant and reviews with other non-management directors

•  Committee determines the dollar values of awards

•  Exercise price and number of options and restricted stock units are determined by formula based on market price of common shares on the date of award

24

MANAGEMENT INPUT

In addition to the Chief Executive Officer recommendations described above, management regularly:

provides data, analysis and recommendations to the Compensation Committee regarding the Company’s executive compensation programs and policies;

administers those programs and policies as directed by the Committee;

provides an ongoing review of the effectiveness of the compensation programs, including competitiveness and alignment with the Company’s objectives; and

recommends changes to compensation programs if needed to help achieve program objectives.

The Committee meets regularly in executive session without management present to discuss compensation decisions and matters relating to the design and operation of the executive compensation program.

COMPENSATION CONSULTANT

The Compensation Committee retained Pay Governance LLC as the compensation consultant for fiscal 2022. The consultant assists the Committee’s development and evaluation of compensation policies and practices and the Committee’s determinations of compensation awards through various services, including providing third-party data, advice and expertise on proposed executive compensation awards and plan designs; reviewing briefing materials prepared by management and outside advisers; and advising the Committee on the matters included in these materials and preparing its own analysis of compensation matters.

The Committee considers input from the consultant as one factor in making decisions on compensation matters, along with information and analyses it receives from management and its own judgment and experience.

The Committee has adopted a policy requiring its consultant to be independent of Company management. The Committee performs an annual assessment of the consultant’s independence to determine whether the consultant is independent. The Committee assessed Pay Governance LLC’s independence in December 2022 and confirmed that the firm’s work has not raised any conflict of interest and the firm is independent. Pay Governance LLC does not provide any services to the Company other than the services provided to the Compensation Committee.

Fiscal 2022 Compensation Decisions

This section discusses the specific decisions made by the Compensation Committee in fiscal 2022. These decisions were made taking into consideration the results of the most recent shareholder advisory vote on executive compensation. Based on the results of the advisory vote on executive compensation, members of management and the Board engaged in extensive outreach to shareholders. The Board took several actions in response to the shareholder feedback received.

PERFORMANCE GOALS

The Compensation Committee normally develops performance goals for each fiscal year early in that year and evaluates performance against those goals after the fiscal year has ended to arrive at its compensation decisions.

ANNUAL INCENTIVE GOALS

Annual Incentive Financial Performance

In November 2021, the Compensation Committee reviewed the annual performance-based bonus program. The Committee

determined to retain the financial measures and relative weights for calculating the portion of the NEOs bonuses that is based on financial performance as follows:

adjusted segment operating income—50%

25

adjusted revenue—25%

•

adjusted after-tax free cash flow—25%

The Committee also developed performance ranges for each of the measures in November 2021. These ranges are used to determine the multiplier that is applied to 70% of each NEO’s target bonus. The overall financial performance multiple is equal to the weighted average of the performance multiples for each of these three measures. The performance multiple for each measure is zero if performance is below the bottom of the range and varies from 35% at the low end of the range to a maximum of 200% at the top end of the range. The Committee believes the top of each range represents extraordinary performance and the bottom represents satisfactory performance, below which no award would be provided. In addition, 30% of each NEO’s target bonus is based on performance against key strategic goals for the Company, called “Other Performance Factors.” We believe the mix between key financial and strategic factors is appropriate, given the majority of the bonus opportunity is focused on Company financial performance, while still recognizing the importance that Other Performance Factors have on establishing a successful culture that supports the Company’s strategic goals.

For fiscal 2022, with the recovery from the pandemic and our desire to deliver strong results for our shareholders, the Committee significantly increased performance ranges year-over-year for all three financial metrics. In addition, for fiscal 2022, the Committee expanded the width of the performance range (i.e., the difference between the maximum performance and threshold performance) for adjusted revenue in order to account for both upside and downside risks. The following table shows the performance ranges approved by the Committee for fiscal 2022 and actual performance (dollars in millions):

   

FISCAL 2022

PERFORMANCE

THRESHOLD

  

FISCAL 2022

PERFORMANCE

TARGET

  

FISCAL 2022

PERFORMANCE

MAXIMUM

   

FISCAL 2022

ACTUAL
PERFORMANCE

   

FISCAL 2022

ACTUAL
PERFORMANCE

AS % OF
TARGET

 

Segment Operating Income

   $  6,556   $  9,856   $12,656    $12,121    181% 

Revenue

   71,577   83,527   89,020    82,722    96% 

Adjusted After-Tax Free Cash Flow*

   (2,534)   (534)   1,466    1,043    179% 

*

For purposes of the annual performance-based bonuses, “adjusted after-tax free cash flow” was defined as cash provided by operations less investments in parks, resorts and other properties, all on a consolidated basis and reflects the adjustments described under “— Evaluating Performance” below.

Other Performance Factors

The Compensation Committee developed Other Performance Factors for the fiscal 2022 annual bonus in November 2021. For fiscal 2022, the Other Performance Factors continued to emphasize the importance of diversity and inclusion, which had the highest weighting among the Other Performance Factors. The Committee established the following factors based on the strategic objectives of the Company:

•

Diversity & Inclusion – Meaningful progress building an inclusive culture through increased representation, recruitment, retention and/or promotion of women and underrepresented groups globally; advance inclusive content by increasing underrepresented groups in creative hiring exploring culturally diverse and authentic themes, characters and narratives; ensure transparency and accountability of efforts that align with our values and advance change/impact to the business

•

Collaboration on strategic priorities – Actively promote collaboration and synergy on key strategic priorities of the Company with a one-company mindset and drive clear accountabilities and partnership across all lines of business, in support of developing content and product for our key franchises, accelerating our DTC initiatives and enabling the success of creative, operating and corporate teams

•

Efforts towards creativity & innovation – Drive Company growth through innovation and creativity, using quality franchise content and experiences that can be leveraged across the Company to create new sources of revenue

26

EVALUATING PERFORMANCE

The Compensation Committee reviewed the overall operating results of the Company in fiscal 2022, evaluating them against the bonus plan performance ranges developed by the Committee early in the fiscal year. The Compensation Committee approved no adjustments to actual fiscal 2022 total segment operating income and revenue. After-tax free cash flow performance for incentive purposes was overall adjusted downward to exclude non-recurring items, such as litigation proceeds and restructuring payments.

In fiscal 2022, the Company achieved strong financial growth for all three financial metrics, even after ranges were significantly increased for fiscal 2022. The financial performance achieved included: segment operating income of $12,121 million, revenue of $82,722 million and adjusted after-tax free cash flow of $1,043 million. Based on these results and due to the increase in targets, the weighted financial performance factor was 159% in fiscal 2022 compared to a performance factor of 200% in fiscal 2021. Additional details regarding the performance of the Company are set forth in our Annual Report on Form 10-K for fiscal 2022.

With respect to the Other Performance Factors, the Committee recognizes that while we still have more work ahead of us, the NEOs delivered results on these key strategic objectives, including:

Diversity & Inclusion

Adjusted pay ratios of over 99% for base pay for U.S. women and people of color. For more details on the adjusted pay ratio analysis and our commitment to expand pay ratio analyses further going forward, please see our Pay Ratio Dashboard on the “ESG Reporting” page of our CSR website.

We expanded our efforts to increase diverse representation, which helped produce year-over-year growth, especially at the executive and management levels. Representation for women increased 2.2 and 1.2 percentage points at the executive and management levels, respectively. Representation for people of color increased 2.8 and 1.8 percentage points at the executive and management levels, respectively. For more detailed results, please see our Diversity Dashboard on the “ESG Reporting” page of our CSR website. The Diversity Dashboard includes our commitment to further disclosures in the future.

Efforts also resulted in positive trends in hires and promotions of women and people of color to executive and manager positions, as well as in our overall employee population. In addition, the Company was able to retain and develop diverse executives and management in an extremely competitive market for talent.

•

Released award-winning and critically-acclaimed diverse content with diverse talent across our platforms, such as Encanto, Abbott Elementary, Prey, Turning Red, Reservation Dogs, Dr. Strange in the Multiverse of Madness, Moon Knight and Andor.

Established a new Pride 365 Collective of senior-level leaders of the Company to support the LGBTQIA+ community, such as providing a financial commitment to organizations who support the LGBTQIA+ community.

Collaboration on strategic priorities

Successfully increased subscribers at Disney+ (+39%), Hulu (+8%) and ESPN+ (+42%) during fiscal 2022, while launching DTC platforms in several key international markets, including 154 different countries and territories.

Launched inaugural Disney+ Day in November 2021, requiring coordination across the Company, highlighting the breadth of content that our services offer and driving subscriber growth. Expanded Disney+ Day in September 2022 to offer unique benefits with National Geographic, Disney Cruises and Walt Disney World.

Advanced NextGen Storytelling to offer personalized content and experiences across our businesses that drives engagement and discoverability and celebrates consumers’ history with Disney.

Efforts towards creativity & innovation

Successfully launched Genie+ and Lightning Lane at our domestic parks, enhancing both the experience for our guests and revenue.

27

Introduced new guest offerings, including Disney Cruise Line’s Disney Wish, Star Wars: Galactic Starcruiser and Guardians of the Galaxy: Cosmic Rewind at Walt Disney World and Toy Story Hotel at Tokyo Disney Resort.

Launched Monday Night Football with Peyton & Eli, an innovative alternate telecast for our Monday Night Football broadcast, leading to increased weekly viewership.

See tabular disclosure for each NEO below under “Executive Compensation — Compensation Discussion and Analysis — Individual Compensation Decisions” for additional information regarding key contributions and accomplishments of each NEO.

Individual Compensation Decisions

ANNUAL COMPENSATION DECISIONS

The following table summarizes annual compensation decisions made by the Compensation Committee with respect to each of the NEOs. The Committee established the salary and performance-based bonus target multiple of salary for each of the NEOs early in the fiscal year following the processes described above. The final bonus award was calculated after the fiscal year ended using the financial performance factor of 159% described above. Given the enterprise-wide nature of the Other Performance Factors and the contributions of each currently employed NEO, the Committee established a consistent Other Performance Factor of 114% for the NEOs listed in the following table below.

For Mr. Chapek, the Committee determined to provide a bonus at 90% of target. For more discussion of Mr. Chapek’s separation, including the rationale, see the section titled “Executive Compensation — Compensation Tables — Potential Payments and Rights on Termination or Change in Control.” Details of Mr. Morrell’s separation, including the rationale for providing him certain enhanced payments, are presented in the section titled ”Executive Compensation — Compensation Tables — Potential Payments and Rights on Termination or Change in Control.”

  SALARY  PERFORMANCE-BASED BONUS  EQUITY AWARDS 
  

FISCAL YEAR

END 2022

ANNUAL SALARY

  TARGET  

FINANCIAL

PERFORMANCE

FACTOR1

  

OTHER

PERFORMANCE

FACTOR2

  

AWARD

AMOUNT

  VALUE 3  

TARGET

PERFORMANCE

UNITS3,4

  

TIME-

BASED

UNITS4

  OPTIONS4 

Christine M. McCarthy

  $2,000,000  $4,000,000   159%   114%  $5,820,000  $12,310,836   33,627   22,490   70,808 

Horacio E. Gutierrez

  1,300,000   2,600,000   159%   114%   3,783,000   8,451,814   23,394   18,884   57,632 

Paul J. Richardson

  765,000   1,147,500   159%   114%   1,670,000   2,915,109   7,031   5,735   18,056 

Kristina K. Schake

  725,000   906,250   159%   114%   1,320,000   3,045,653   155   21,783   25,817 

Robert A. Iger5

  3,000,000   12,000,000   159%   114%   4,370,000   7,065,625   30,365   —   50,249 

1

Multiplied by 70% of the target amount.

2

Multiplied by 30% of the target amount.

3

Includes ROIC portions of fiscal 2020 and 2021 PBUs.

4

The number of restricted stock units and options was calculated from the value of the award as described in the table in the section titled “Executive Compensation — Compensation Tables — Fiscal 2022 Grants of Plan Based Awards Table.”

5

Mr. Iger retired from the Company effective December 31, 2021. Mr. Iger was eligible for a 2022 pro-rated bonus per his employment agreement for his services during fiscal 2022. The Committee awarded Mr. Iger a bonus of $4,370,000.

The compensation set forth above and described below differs from the total compensation reported in the Summary Compensation Table as follows:

•

the compensation set forth above does not include the change in pension value and non-qualified deferred compensation earnings, as these items do not reflect decisions made by the Committee during the fiscal year.

28

the compensation set forth above does not include perquisites and benefits and other compensation, as these items are generally determined by contract and do not reflect decisions made by the Committee during the fiscal year.

The Compensation Committee’s determination on each of these matters was based on the recommendation of Mr. Iger (except in the case of his own and Mr. Chapek’s compensation), the parameters established by the executive’s employment agreement and the factors described below. In determining equity awards, the Committee considered its overall long-term incentive guidelines for all executives, which, in the context of the competitive market for executive talent, attempt to balance the benefits of incentive compensation tied to performance of the Company’s common stock with the dilutive effect of equity compensation awards.

MR. CHAPEK

SALARY

Mr. Chapek’s 2022 annual salary was unchanged from the annual salary set at the time of his promotion to Chief Executive Officer and was equal to the amount set in his employment agreement.

PERFORMANCE-BASED BONUS

Target Bonus

Mr. Chapek’s target bonus for fiscal 2022 is equal to three times his fiscal year-end salary, as set forth in his employment agreement.

The Committee determined to provide the contractually required bonus at 90% of target, below that received by other NEOs. In making this determination, the Committee considered the Company’s strong performance against preset financial metrics, balanced with Mr. Chapek’s performance, including items that contributed to Mr. Chapek’s separation, discussed in the section titled “Executive Compensation — Compensation Tables — Potential Payments and Rights on Termination or Change in Control.”

EQUITY AWARD
VALUE

The annual equity award value for Mr. Chapek reflects 60% of his total annual compensation for fiscal 2022. Mr. Chapek did not receive an annual equity award in December 2022 as a result of his separation from the Company in November 2022.

29

MS. MCCARTHY

SALARY

The Committee increased Ms. McCarthy’s 2022 annual salary by 4.2% to reflect changes in the market for executive talent and her continued outstanding performance.

PERFORMANCE-BASED BONUS

Target Bonus

As set forth in her employment agreement, Ms. McCarthy’s target bonus for fiscal 2022 is equal to two times her fiscal year-end salary.

Other Performance Factor

The Compensation Committee applied a factor of 114% with respect to Other Performance Factors for Ms. McCarthy in fiscal 2022. In fiscal 2021 the Other Performance Factor was 200%.

Performance Highlights:

•  Launched the 2022 Disney Accelerator, one of only a few female-led Accelerators in the industry; selected a diverse cohort of six startups through a competitive screening process.

•  Supported development of future talent pipeline externally through initiatives like Risk Management’s Emerging Leaders Program at University of Southern California.

•  Supported parks reopening and expansion efforts, including the newest cruise ship, Disney Wish.

•  Continued to realize efficiencies from the Twenty-First Century Fox, Inc. (“TFCF”) acquisition through integration of employees and systems, divestitures, dispositions and restructurings.

•  Managed the Company’s liquidity and credit ratings through the pandemic and DTC investments.

EQUITY AWARD
VALUE

The annual equity award value for Ms. McCarthy reflects 61% of her total annual compensation for fiscal 2022, providing performance-based awards tied to long-term gains in shareholder value, including the strategic shift in business, business recovery and leadership continuity.

MR. GUTIERREZ

SALARY

The Committee set Mr. Gutierrez’s 2022 annual salary upon his hire.

PERFORMANCE-BASED BONUS

Target Bonus

As set forth in his employment agreement, Mr. Gutierrez’s target bonus for fiscal 2022 is equal to two times his fiscal year-end salary.

Other Performance Factor

The Compensation Committee applied a factor of 114% with respect to Other Performance Factors for Mr. Gutierrez in fiscal 2022.

Performance Highlights:

•  Continued promotion of diversity and inclusion in the Legal department, resulting in positive trends within the Legal department for promotions and new hires among women and people of color, and served actively as a member of the Leadership Council on Legal Diversity.

•  Advised on corporate governance and public policy issues.

•  Oversaw the regulatory work associated with launches of our DTC products.

•  Counseled regarding risks associated with a number of new strategic initiatives.

•  Continued leadership of the Company’s legal and public policy positions on litigation matters, transactions and regulatory developments.

EQUITY AWARD
VALUE

The new hire equity award value for Mr. Gutierrez reflects 56% of his total annual compensation for fiscal 2022.

30

MR. RICHARDSON

SALARY

The Committee increased Mr. Richardson’s 2022 annual salary by 2.0% to reflect changes in the market for executive talent and his continued outstanding performance.

PERFORMANCE-BASED BONUS

Target Bonus

As set forth in his employment agreement, Mr. Richardson’s target bonus for fiscal 2022 is equal to 1.5 times his full fiscal year-end annual salary.

Other Performance Factor

The Compensation Committee applied a factor of 114% with respect to Other Performance Factors for Mr. Richardson in fiscal 2022.

Performance Highlights:

•  Created a new Diversity, Equity and Inclusion (“DEI”) dashboard that will drive consistency across the businesses and shape deeper dialogue and insights to further DEI progress.

•  DEI efforts led to increased representation for both women and people of color at the executive and management levels.

•  Collaborated with certain historically Black colleges and universities to continue to build a robust, long-term pipeline of Black talent through student internships, mentorship opportunities and inclusive hiring practices.

•  Won Business Group on Health’s 2022 Best Employers: Excellence in Health & Well-Being Award.

•  Supported the formation of the International Content and Operations (“ICO”) business unit and identified ICO’s high-level operating model.

EQUITY AWARD
VALUE

The annual equity award value for Mr. Richardson reflects 53% of his total annual compensation for fiscal 2022, providing performance-based awards tied to long-term gains in shareholder value, including the strategic shift in business, business recovery and leadership continuity.

31

MS. SCHAKE

SALARY

The Committee set Ms. Schake’s 2022 annual salary upon her promotion to Senior Executive Vice President and Chief Communications Officer.

PERFORMANCE-BASED BONUS

Target Bonus

As set forth in her employment agreement, Ms. Schake’s target bonus for fiscal 2022 is equal to 1.25 times her fiscal year-end salary.

Other Performance Factor

The Compensation Committee applied a factor of 114% with respect to Other Performance Factors for Ms. Schake in fiscal 2022.

Performance Highlights:

•  Led significant efforts to protect and enhance the Company’s reputation with a wide range of stakeholders.

•  Executed highly successful D23 Expo—the first since before the pandemic—which generated media value, impressions and record revenue.

•  Oversaw communications supporting the Company’s philanthropic efforts, ranging from financial contributions made to nonprofit organizations, in-kind support and virtual volunteering opportunities for employees through the Disney VoluntEARS program.

EQUITY AWARD
VALUE

The total equity award value for Ms. Schake reflects 49% of her total annual compensation for fiscal 2022, reflecting new hire equity award provided upon joining the Company in her previous role as Executive Vice President, Global Communications. In addition, in connection with her promotion, Ms. Schake received additional grants of RSUs, PBUs and options on September 28, 2022.

MR. IGER

SALARY

Mr. Iger’s 2022 annual salary was equal to the amount set in his employment agreement. Mr. Iger retired on December 31, 2021, before the fiscal year end, resulting in a salary less than his full annual salary.

PERFORMANCE-BASED BONUS

Target Bonus

Mr. Iger was eligible for a 2022 pro-rated bonus per his employment agreement for his services during 2022. The Committee awarded Mr. Iger a bonus of $4,370,000.

EQUITY AWARD
VALUE

The Committee maintained the value of Mr. Iger’s annual equity award per his employment agreement, pro-rated for the time Mr. Iger spent in his role in fiscal 2022. This award reflects 47% of his total annual compensation for fiscal 2022.

32

Compensation Committee Report

The Compensation Committee has:

(1)

reviewed and discussed with management the Compensation Discussion and Analysis included in this Amendment No. 1 on Form 10-K/A and to be included in the Company’s proxy statement relating to the 2023 Annual Meeting of Shareholders; and

(2)

based on this review and discussion, recommended to the Board of Directors that the Compensation Discussion and Analysis be included in the Company’s proxy statement relating to the 2023 Annual Meeting of Shareholders.

Members of the Compensation Committee

Maria Elena Lagomasino (Chair)

Mary T. Barra

Calvin R. McDonald

Mark G. Parker

33

Compensation Tables

Fiscal 2022 Summary Compensation Table

The following table provides information concerning the total compensation earned in fiscal 2020, fiscal 2021 (except for Mr. Gutierrez, Mr. Richardson and Ms. Schake) and fiscal 2022 by the Chief Executive Officer, the Chief Financial Officer and three other persons serving as executive officers at the end of fiscal 2022 who were the most highly compensated executive officers of the Company in fiscal 2022. In addition, this information is provided with respect to Mr. Iger and Mr. Morrell, for whom disclosure would have been provided but for the fact that they were not serving as an executive officer of the Company at the end of fiscal 2022. These seven officers are referred to as the named executive officers or NEOs in this report. Information regarding the amounts in each column follows the table.

NAME AND

PRINCIPAL POSITION

 

FISCAL

YEAR

  SALARY  BONUS  

STOCK

AWARDS1

  

OPTION

AWARDS

  

NON-EQUITY

INCENTIVE PLAN

COMPENSATION

  

CHANGE IN

PENSION VALUE

AND NON-

QUALIFIED

DEFERRED

COMPENSATION

EARNINGS

  

ALL OTHER

COMPENSATION

  TOTAL 

ROBERT A. CHAPEK

Chief Executive Officer2

  2022   $2,500,000   $            —   $10,810,832   $3,750,020   $  6,750,000   $            —   $    372,151   $24,183,003 
  2021   2,500,000   —   10,215,466   3,750,012   14,330,000   1,358,505   310,310   32,464,293 
  2020   1,814,608   —   6,129,442   3,373,548   —   2,705,712   140,626   14,163,936 

CHRISTINE M. MCCARTHY

Senior Executive Vice

President and Chief

Financial Officer

  2022   1,980,000   —   8,935,794   3,375,042   5,820,000   —   124,833   20,235,669 
  2021   1,903,754   —   6,922,854   5,000,015   7,680,000   103,152   119,440   21,729,215 
  2020   1,661,815   —   4,712,459   3,766,425   —   761,321   94,985   10,997,005 

HORACIO E. GUTIERREZ3

Senior Executive Vice
President and General

Counsel

  2022   870,000   2,000,000   5,951,801   2,500,013   3,783,000   —   93,194   15,198,008 

PAUL J. RICHARDSON

Senior Executive Vice
President and Chief Human
Resources Officer

  2022   761,250   —   2,054,475   860,634   1,670,000   —   159,130   5,505,489 
    —       

KRISTINA K. SCHAKE4

Senior Executive Vice
President and Chief
Communications Officer

  2022   361,250   1,500,000   2,132,366   913,287   1,320,000   —   5,444   6,232,347 

ROBERT A. IGER

Former Chief Executive
Officer2;

Former Executive Chairman

  2022   1,096,154   —   4,670,521   2,395,104   4,370,000   —   2,466,520   14,998,299 
  2021   3,000,000   —   9,479,879   9,293,921   22,920,000   —   1,205,996   45,899,796 
  2020   1,569,581   —   6,958,847   9,586,037   —   1,777,334   1,139,590   21,031,389 

GEOFFREY S. MORRELL5

Former Senior Executive Vice

President and Chief

Corporate Affairs Officer

  2022   489,500   2,750,000   2,902,313   1,187,541   —   —   1,036,049   8,365,403 

1

Stock awards for each fiscal year include awards subject to performance conditions that were valued based on the probability that performance targets will be achieved. For Mr. Chapek, Ms. McCarthy and Mr. Iger, fiscal 2022 includes $1,859,149, $879,301 and $2,863,899, respectively, related to the portion of awards from fiscal 2020 and fiscal 2021 having ROIC targets, which were established on November 30, 2021. Assuming the highest level of performance conditions are achieved, the grant date stock awards values are outlined below:

                                                                                                                                            

FISCAL YEAR

 MR. CHAPEK MS. MCCARTHY  MR. GUTIERREZ   MR. RICHARDSON  MS. SCHAKE  MR. IGER  MR. MORRELL  

2022

 $15,733,462 $12,969,186   $8,694,020    $2,970,936   $2,143,642   $7,489,338   $3,828,779  

2021

 11,963,950 7,767,106   —    —   —   12,101,153   —  

2020

 7,687,385 5,319,273   —    —   —   9,195,978   —  

34

2

For fiscal 2020, Mr. Iger served as Chief Executive Officer until February 24, 2020, when he was appointed Executive Chairman. Mr. Chapek was appointed Chief Executive Officer on February 24, 2020 and served as Chief Executive Officer until November 20, 2022, at which time Mr. Iger again assumed the role of Chief Executive Officer. In fiscal 2022, Mr. Chapek was entitled to receive compensation under the annual performance-based bonus program pursuant to his employment agreement because his termination occurred after the end of the fiscal year. For details on the treatment of Mr. Chapek’s equity awards following his separation from the Company, please see the section titled “— Potential Payments and Rights on Termination or Change in Control — Termination Pursuant to Company Termination Right Other Than for Cause or By Executive for Good Reason” below.

3

Mr. Gutierrez joined the Company on February 1, 2022. In connection with his hiring, Mr. Gutierrez received a cash sign-on bonus of $2,000,000, primarily to replace forgone compensation from his previous employer.

4

Ms. Schake joined the Company on April 1, 2022 as Executive Vice President, Global Communications. In connection with her hiring, Ms. Schake received a cash sign-on bonus of $1,500,000 given her outstanding qualifications and extraordinary experience in both the public and private sectors, and to secure her acceptance of employment with the Company. On June 29, 2022, Ms. Schake was promoted to Senior Executive Vice President and Chief Communications Officer.

5

Mr. Morrell joined the Company on January 24, 2022. In connection with his hiring, Mr. Morrell received a cash sign-on bonus of $2,750,000 primarily to replace forgone compensation from his previous employer. The Company made the unilateral decision to exercise its right to terminate Mr. Morrell’s employment effective June 30, 2022. Included in the table above is the compensation provided to Mr. Morrell as part of his new hire package, as well as $500,000 provided to accommodate the cost expended by Mr. Morrell with regards to the international relocation of his family. Further details of Mr. Morrell’s separation, including treatment of Mr. Morrell’s equity awards following his separation from the Company, are presented in the section titled “Executive Compensation — Compensation Tables — Potential Payments and Rights on Termination or Change in Control.”

Salary. This column sets forth the base salary earned during each fiscal year. Fiscal 2020 reflects the voluntary reduction of the salary of NEOs in response to the COVID-19 pandemic. Each of the Company’s NEOs serving at that time agreed to temporarily reduce their base salary, effective with the payroll period commencing April 5, 2020. Mr. Iger agreed to forgo his salary through the end of the fiscal year. Mr. Chapek agreed to forgo 50% and Ms. McCarthy agreed to forgo 30% of the base salary that would otherwise have been payable through August 22, 2020.

Stock Awards. This column sets forth the grant date fair value of the restricted stock unit awards granted to the NEOs during each fiscal year as part of the Company’s long-term incentive compensation program. The grant date fair value of these awards was calculated by multiplying the number of units awarded by the average of the high and low trading price of the Company’s common stock on the grant date, subject to valuation adjustments for restricted stock unit awards subject to vesting conditions other than, where applicable, the test to assure deductibility under Section 162(m) of the Internal Revenue Code. The valuation adjustments for performance-based awards reflect the fact that the number of shares received on vesting varies based on the level of performance achieved and were determined using a Monte Carlo simulation that determines the probability that the performance targets will be achieved. The grant date fair value of the restricted stock unit awards granted during fiscal 2022 is also included in the Fiscal 2022 Grants of Plan Based Awards Table.

Option Awards. This column sets forth the grant date fair value of options to purchase shares of the Company’s common stock granted to the NEOs during each fiscal year. The grant date fair value of these options was calculated using a binomial option pricing model. The assumptions used in estimating the fair value of these options are set forth in footnote 12 to the Company’s Audited Financial Statements for fiscal 2022. The grant date fair value of the options granted during fiscal 2022 is also included in the Fiscal 2022 Grants of Plan Based Awards Table.

Non-Equity Incentive Plan Compensation. This column sets forth the amount of compensation earned by the NEOs under the Company’s annual performance-based bonus program during each fiscal year. A description of the Company’s annual performance-based bonus program is included in the section “Executive Compensation — Compensation Discussion and Analysis — Executive Compensation Program Structure—Objectives and Methods” and the determination of performance-based bonuses for fiscal 2022 is described in the section “Executive Compensation — Compensation Discussion and Analysis — Fiscal 2022 Compensation Decisions.” As a result of the COVID-19 pandemic, fiscal 2020 reflects the Compensation Committee’s determination to pay no bonuses to the NEOs, despite achievement of certain performance metrics and considerations that might have otherwise supported a bonus payment.

Change in Pension Value and Non-Qualified Deferred Compensation Earnings. This column reflects the aggregate change in the actuarial present value of each NEO’s accumulated benefits under all defined benefit plans, including supplemental plans, during each fiscal year. The amounts reported in this column vary with a number of factors, including the discount rate applied to determine

35

the value of future payment streams, the NEO’s age and additional earned benefits as a result of an additional year of service. The discount rate used pursuant to pension accounting rules to calculate the present value of future payments was 2.82% for fiscal 2020, 2.88% for fiscal 2021 and 5.44% for fiscal 2022. Neither increases nor decreases in pension value resulting from changes in the discount rate result in any increase or decrease in benefits payable to participants under the plan. As Mr. Gutierrez, Ms. Schake and Mr. Morrell all joined the Company in 2022, they are not eligible for the Company’s defined benefit pension. For Mr. Chapek, Ms. McCarthy, Mr. Richardson and Mr. Iger, the increase in interest rate for fiscal 2022 drove the change in pension value for such year to be negative (-$2,910,803, - $1,304,748, -$690,638 and -$5,303,886, respectively).

Mr. Chapek and Ms. McCarthy had losses on deferred compensation as disclosed below under “Executive Compensation — Compensation Tables — Fiscal 2022 Non-Qualified Deferred Compensation Table.”

All Other Compensation. This column sets forth all of the compensation for each fiscal year that we could not properly report in any other column of the table, including:

the incremental cost to the Company of perquisites and other personal benefits;

the amount of Company contributions to employee savings plans;

the dollar value of insurance premiums paid by the Company with respect to excess liability insurance for the NEOs; and

the dollar amount of matching charitable contributions made to charities pursuant to the Company’s charitable gift matching program, which is available to all regular U.S. employees with at least one year of service.

The dollar amount of matching charitable contributions was $27,600 for Mr. Chapek, $32,000 for Ms. McCarthy, $10,000 for Mr. Richardson and $65,000 for Mr. Iger. Matched amounts exceed $50,000 in a fiscal year if contributions for separate calendar years are made in the same fiscal year or if there were delays in processing earlier year matches.

Upon his retirement on December 31, 2021, the consulting period established under Mr. Iger’s then current employment agreement with the Company commenced. In connection with his consulting agreement, Mr. Iger received quarterly payments of $500,000 for each quarter he served in this capacity; for fiscal 2022 he received $1,500,000.

In accordance with the SEC’s interpretations of its rules, this column also sets forth the incremental cost to the Company of certain items that are provided to the NEOs for business purposes but which may not be considered integrally related to duties.

The following table sets forth the incremental cost to the Company of each other perquisite and other personal benefit that exceeded the greater of $25,000 or 10% of the total amount of perquisites and personal benefits for an NEO in fiscal 2022.

   

PERSONAL

AIR TRAVEL

   SECURITY   RELOCATION   OTHER   TOTAL  

Robert A. Chapek

   $282,762    $            —    $            —   $53,820   $336,582  

Christine M. McCarthy

   69,631    —    —    15,400    85,031  

Horacio E. Gutierrez

   —    —    81,246    10,800    92,046  

Paul J. Richardson

   —    —    125,021    16,180    141,201  

Kristina K. Schake

   —    —    —    4,800    4,800  

Robert A. Iger

   47,769    830,437    —    22,350    900,556  

Geoffrey S. Morrell

   —    —    527,438    506,310    1,033,748  

36

The incremental cost to the Company of the items specified above was determined as follows:

•

Personal air travel: the actual catering costs, landing and ramp fees, fuel costs and lodging costs incurred by flight crew plus a per hour charge based on the average hourly maintenance costs for the aircraft during the year for flights that were purely personal in nature, and a pro-rata portion of catering costs where personal guests accompanied an NEO on flights that were business in nature. Where a personal flight coincided with the repositioning of an aircraft following a business flight, only the incremental costs of the flight compared to an immediate repositioning of the aircraft are included. As noted below, our CEO is, and Executive Chairman was, required for security reasons to use corporate aircraft for all of their personal travel.

Security: the actual costs incurred by the Company for providing security services and equipment.

Relocation: the actual amount provided to accommodate the cost expended by Mr. Gutierrez, Mr. Richardson and Mr. Morrell with regards to their relocation.

The “Other” column in the table above includes, to the extent an NEO elected to receive any of these benefits, the incremental cost to the Company of the vehicle benefit, personal air travel (except for the NEOs whose personal air travel is separately identified in the “personal air travel” column in the table above), reimbursement of up to $1,000 per calendar year for wellness-related purposes such as fitness and nutrition management, reimbursement of expenses for financial consulting and for officers at the vice president level and higher before October 1, 2012, a fixed monthly payment to offset the costs of owning and maintaining an automobile. In addition, included for Mr. Morrell is a $500,000 payment, paid on June 25, 2022, which was provided to account for his unique circumstances, including costs expended by Mr. Morrell, who was in the process of relocating his family internationally.

The Company provides employees with benefits and perquisites based on competitive market conditions. All salaried employees, including the NEOs, receive the following benefits: (i) health care coverage; (ii) life and disability insurance protection; (iii) reimbursement of certain educational expenses; (iv) access to favorably priced group insurance coverage; and (v) Company matching of gifts of up to $25,000 per employee (and $50,000 per Senior Executive Vice President and Chairman directly reporting to the CEO) each calendar year to qualified charitable organizations. Additionally, employees at the vice president level and above, including NEOs, receive the following benefits, each of which involved no incremental cost to the Company: (i) complimentary access to the Company’s theme parks and some resort facilities; (ii) discounts on Company merchandise and resort facilities; and (iii) personal use of tickets acquired by the Company for business entertainment when they become available because no business use has been arranged.

37

Fiscal 2022 Grants of Plan Based Awards Table

The following table provides information concerning the range of awards available to the NEOs under the Company’s annual performance-based bonus program for fiscal 2022 and information concerning the option grants and restricted stock unit awards made to the NEOs during fiscal 2022. Additional information regarding the amounts reported in each column follows the table.

   ESTIMATED FUTURE
PAYOUTS UNDER NON-EQUITY
INCENTIVE PLAN AWARDS		     ESTIMATED FUTURE PAYOUTS
UNDER EQUITY INCENTIVE
PLAN AWARDS		  

ALL OTHER

OPTION
AWARDS:
NUMBER OF
SECURITIES
UNDERLYING
OPTIONS

 

  

EXERCISE

OR BASE
PRICE OF
OPTION
AWARDS

 

  

GRANT

DATE
CLOSING
PRICE OF
SHARES
UNDERLYING
OPTIONS

 

  

GRANT

DATE FAIR
VALUE OF
STOCK AND
OPTION
AWARDS

 

 
     

GRANT

DATE

  THRESHOLD  TARGET  MAXIMUM     THRESHOLD  TARGET  MAXIMUM 

ROBERT A.

CHAPEK

   12/14/2021          78,675   $150.07   $149.10   $3,750,020 
  (A)   12/14/2021        24,989       3,750,099 
  (B)   12/14/2021       15,317   30,635   61,269      5,201,5841 
    $2,625,000   $  7,500,000   $15,000,000         
  (B)   11/30/2021       6,402   12,805   19,207      1,859,1491 

CHRISTINE M. MCCARTHY

   12/14/2021          70,808   150.07   149.10   3,375,042 
  (A)   12/14/2021        22,490       3,375,074 
  (B)   12/14/2021       13,786   27,571   55,142      4,681,4191 
    1,400,000   4,000,000   8,000,000         
  (B)   11/30/2021       3,028   6,056   9,084      879,3011 

HORACIO E. GUTIERREZ

   3/8/2022          57,632   132.39   131.75   2,500,013 
  (A)   3/8/2022        18,884       2,500,006 
    910,000   2,600,000   5,200,000         
  (B)   3/8/2022       11,697   23,394   46,787      3,451,7951 

PAUL J. RICHARDSON

   12/14/2021          18,056   150.07   149.10   860,634 
  (A)   12/14/2021        5,735       860,651 
    401,625   1,147,500   2,295,000         
  (B)   12/14/2021       3,516   7,031   14,062      1,193,8241 

KRISTINA K. SCHAKE

   6/27/2022          25,454   97.02   96.61   900,028 
   9/28/2022          363   97.66   99.40   13,259 
  (A)   6/27/2022        21,647       2,100,086 
  (A)   9/28/2022        136       13,282 
    317,188   906,250   1,812,500         
  (B)   9/28/2022       78   155   310      18,9981 

ROBERT A. IGER2

   12/14/2021          50,249   150.07   149.10   2,395,104 
  (B)   12/14/2021       5,320   10,640   21,280      1,806,6221 
    4,200,000   12,000,000   24,000,000         
  (B)   11/30/2021       9,862   19,725   29,587      2,863,8991 

GEOFFREY S. MORRELL3

   3/8/2022          27,376   132.39   131.75   1,187,541 
  (A)   3/8/2022        8,970       1,187,516 
    525,000   1,500,000   3,000,000         
  (B)   3/8/2022                   4,988   9,976   19,951               1,714,7971 

1

Stock awards for fiscal 2022 subject to performance conditions were valued based on the probability that performance targets will be achieved. Assuming the highest level of performance conditions are achieved, the grant date stock award values would be $11,983,363, $9,594,111, $6,194,014, $2,110,284, $30,275, $7,489,338 and $2,641,263 for Mr. Chapek, Ms. McCarthy, Mr. Gutierrez, Mr. Richardson, Ms. Schake, Mr. Iger and Mr. Morrell, respectively, for the performance-based awards made on November 30, 2021 (for Mr. Chapek, Ms. McCarthy and Mr. Iger) and December 14, 2021.

2

Mr. Iger retired from the Company as Executive Chairman effective December 31, 2021. In connection with his partial year of service for fiscal 2022, his target bonus has been prorated to $3,000,000. Mr. Iger’s fiscal 2022 awards continued to vest upon his retirement.

3

Mr. Morrell received RSUs, PBUs and stock option awards in fiscal 2022. For details of Mr. Morrell’s separation, including treatment of Mr. Morrell’s equity awards following his separation from the Company, please see the section titled “Executive Compensation — Compensation Tables — Potential Payments and Rights on Termination or Change in Control.”

38

Grant Date. The Compensation Committee made the annual grant of stock options and restricted stock unit awards for fiscal 2022 on December 14, 2021. As ROIC targets for fiscal 2022 were set on November 30, 2021, fiscal 2020 and 2021 ROIC portions were considered granted on that date. A portion of the fiscal 2022 PBUs granted on December 14, 2021 are subject to the ROIC performance test, as described below. One-third of such units were eligible to vest based on the ROIC performance target established for fiscal 2022. Because the performance targets for fiscal 2023 and 2024 have not yet been established, the grant date value of such portion of these awards was not determinable in fiscal 2022. Therefore, the grant date fair value listed for fiscal 2022 includes only the grant date value of that portion of such awards subject to the 2022 ROIC target. Based on the Company’s fiscal 2022 ROIC, 148% of the reported portion of fiscal 2020 and fiscal 2021 awards will vest and 196% of the reported portion of fiscal 2022 awards will vest. ROIC Targets for fiscal 2023 and fiscal 2024 will be set early each year for the remaining portion of those grants, and the grant date values for the remaining portions of those grants will be reported for the appropriate fiscal year when the applicable targets are established.

Estimated Possible Payouts Under Non-Equity Incentive Plan Awards.As described in the section “Executive Compensation — Compensation Discussion and Analysis,” the Compensation Committee sets the target bonus opportunity for the NEOs at the beginning of the fiscal year as a percentage of fiscal year-end salary, and the actual bonuses for the NEOs may, except in special circumstances such as unusual challenges or extraordinary successes, range from 35% to 200% of the target level based on the Compensation Committee’s evaluation of financial and other performance factors for the fiscal year. The bonus amount may be zero if actual performance is below the specified threshold levels or less than the calculated amounts if the Compensation Committee otherwise decides to reduce the bonus. As addressed in the discussion of “Executive Compensation — Compensation Discussion and Analysis,” the employment agreements of each executive officer require that the target used to calculate the bonus opportunity (but not the actual bonus awarded) be at least the amount specified in each agreement. This column shows the range of potential bonus payments for each NEO from the threshold to the maximum based on the target range set at the beginning of the fiscal year. The actual bonus amounts received for fiscal 2022 are set forth in the “Non-Equity Incentive Plan Compensation” column of the “Fiscal 2022 Summary Compensation Table.”

Estimated Future Payouts Under Equity Incentive Plan Awards. This column sets forth the number of restricted stock units awarded to the NEOs during fiscal 2022 that are subject to performance tests as described below. These include units awarded to each of the NEOs as part of the annual grant in December 2021 and, for Mr. Chapek, Ms. McCarthy and Mr. Iger, when fiscal 2022 ROIC targets were set with respect to fiscal 2020 and 2021 grants in November 2021. The vesting dates for all of the outstanding restricted stock unit awards held by the NEOs as of the end of fiscal 2022 are set forth in the “Fiscal 2022 Outstanding Equity Awards at Fiscal Year-End Table” below.

All units in Row B are subject to the following vesting conditions: Half of the units subject to the performance test are subject to a TSR test and half of the units are subject to a ROIC test.

For the half of the units subject to the TSR performance test:

•

None of the units related to this measure vest if the Company’s TSR is below the 25th percentile of the S&P 500 for that measure.

•

If the Company’s TSR is at or above the 25th percentile of the S&P 500 for the related measure, the number of units related to that measure that vest will vary from 50% of the target number related to that measure (at the 25th percentile) to 100% of the target number related to that measure (at the 55th percentile) to 200% of the target number related to that measure (at or above the 75th percentile) (in each case, plus dividend equivalent units).

For the half of the units subject to the ROIC performance test:

None of the units related to this measure vest if the Company’s fiscal year ROIC performance in each of the applicable fiscal years is below threshold of target ROIC.

If the Company’s ROIC is above the threshold in any fiscal year, the number of units related to that measure for that year that vest will vary from 50% of the target number related to that measure (equals threshold) to 200% of the target number related to that measure (exceeds maximum) (in each case, plus dividend equivalent units). For ROIC portions from the fiscal 2020 and 2021 grants, maximum payout was 150% of target.

39

ROIC for the Company is adjusted (i) to exclude the effect of extraordinary, unusual and/or nonrecurring items and (ii) to reflect such other factors, as the Committee deems appropriate to fairly reflect ROIC for the applicable fiscal year.

When dividends are distributed to shareholders, dividend equivalents are credited in an amount equal to the dollar amount of dividends on the number of units held on the dividend record date divided by the fair market value of the Company’s shares of common stock on the dividend distribution date. Dividend equivalents vest only when, if and to the extent that the underlying units vest.

All Other Option Awards: Number of Securities Underlying Options. This column sets forth the options to purchase shares of the Company’s common stock granted to the NEOs as part of the annual grant in December 2021. The vesting dates for these options are set forth in the “Fiscal 2022 Outstanding Equity Awards at Fiscal Year-End Table” below. These options are scheduled to expire ten years after the date of grant.

Exercise or Base Price of Option Awards; Grant Date Closing Price of Shares Underlying Options. These columns set forth the exercise price for each option grant and the closing price of the Company’s common stock on the date of grant. The exercise price is equal to the average of the high and low trading price on the grant date, which may be higher or lower than the closing price on the grant date.

Grant Date Fair Value of Stock and Option Awards. This column sets forth the grant date fair value of the stock and option awards granted during fiscal 2022 calculated in accordance with applicable accounting requirements. The grant date fair value of all restricted stock unit awards and options is determined as described in the section “Grant Date” above.

40

Fiscal 2022 Outstanding Equity Awards at Fiscal Year-End Table

The following table provides information concerning outstanding unexercised options and unvested restricted stock unit awards held by the NEOs as of October 1, 2022. Additional information regarding the amounts reported in each column follows the table.

  

 

OPTION AWARDS(A)

  

 

STOCK AWARDS

 
     

 

NUMBER OF SECURITIES
UNDERLYING UNEXERCISED
OPTIONS

               EQUITY INCENTIVE PLAN
AWARDS		 
  

GRANT

DATE

  EXERCISABLE  UNEXERCISABLE  

OPTION

EXERCISE

PRICE

   

OPTION

EXPIRATION

DATE

  

NUMBER OF

UNITS THAT

HAVE NOT

VESTED(A)

  

MARKET

VALUE OF

UNITS THAT

HAVE NOT

VESTED(B)

  

NUMBER OF

UNEARNED

UNITS THAT

HAVE NOT

VESTED(C)(D)

  

MARKET

VALUE OF

UNEARNED

UNITS THAT

HAVE NOT

VESTED(B)

 

ROBERT A. CHAPEK

  1/16/2013   60,860   —   $  51.29    1/16/2023   —   —   —   — 
  12/19/2013   53,233   —   72.59    12/19/2023   —   —   —   — 
  12/18/2014   53,077   —   92.24    12/18/2024   —   —   —   — 
  12/17/2015   39,796   —   113.23    12/17/2025   —   —   —   — 
  12/21/2016   49,621   —   105.21    12/21/2026   —   —   —   — 
  12/19/2017   45,691   —   111.58    12/19/2027   —   —   —   — 
  12/19/2018   56,420   18,807   110.54    12/19/2028   3,552   335,060   —   — 
  12/17/2019   31,523   31,524   148.04    12/17/2029   5,547   523,249   7,127   672,243 
  2/28/2020   19,482   19,482   115.76    2/28/2030   4,463   420,995   19,064(E)   1,798,307 
  12/17/2020   22,447   44,894   173.40    12/17/2030   13,775   1,299,396   25,032   2,361,221 
  12/14/2021   —   78,675   150.07    12/14/2031   24,989   2,357,212   30,635   2,889,752 

CHRISTINE M. MCCARTHY

  1/16/2013   42,533   —   51.29    1/16/2023   —   —   —   — 
  12/19/2013   30,687   —   72.59    12/19/2023   —   —   —   — 
  12/18/2014   28,839   —   92.24    12/18/2024   —   —   —   — 
  12/17/2015   41,722   —   113.23    12/17/2025   —   —   —   — 
  12/21/2016   50,396   —   105.21    12/21/2026   —   —   —   — 
  12/19/2017   64,252   —   111.58    12/19/2027   —   —   —   — 
  12/19/2018   57,465   19,156   110.54    12/19/2028   —   —   3,786   357,133 
  12/17/2019   51,801   51,802   148.04    12/17/2029   —   —   21,250   2,004,513 
  12/17/2020   29,930   59,858   173.40    12/17/2030   13,772   1,299,113   12,516   1,180,634 
  12/14/2021   —   70,808   150.07    12/14/2031   22,490   2,121,482   27,571   2,600,772 

HORACIO E. GUTIERREZ

  3/8/2022   —   57,632(F)   132.39    3/8/2032   18,884(G)   1,781,328   23,394(H)   2,206,709 

PAUL J. RICHARDSON

  12/19/2017   13,922   —   111.58    12/19/2027   —   —   —   — 
  12/19/2018   9,926   3,309   110.54    12/19/2028   1,308   123,384   —   — 
  12/17/2019   5,364   5,364   148.04    12/17/2029   1,976   186,396   —   — 
  12/17/2020   1,180   2,358   173.40    12/17/2030   1,767   166,681   —   — 
  3/8/2021   948   1,895   198.41    3/8/2031   1,544   145,646   —   — 
  6/22/2021   1,254   2,507   173.53    6/22/2031   1,766   166,587   —   — 
  12/14/2021   —   18,056   150.07    12/14/2031   5,735   540,983   7,031   663,234 

KRISTINA K. SCHAKE

  6/27/2022   —   25,454(I)   97.02    6/27/2032   21,647(J)   2,041,962   —   — 
  9/28/2022   —   363   97.66    9/28/2032   136   12,829   155   14,621 

ROBERT A. IGER

  12/18/2014   372,412   —   92.24    12/18/2024   —   —   —   — 
  12/17/2015   271,331   —   113.23    12/17/2025   —   —   —   — 
  12/21/2016   321,694   —   105.21    12/21/2026   —   —   —   — 
  12/19/2017   295,237   —   111.58    12/19/2027   —   —   —   — 
  12/19/2018   218,918   72,973   110.54    12/19/2028   —   —   —   — 
  3/21/2019   35,102   11,701(K)   109.26    3/21/2029   —   —   —   — 
  12/17/2019   131,841   131,842   148.04    12/17/2029   —   —   43,169   4,072,085 
  12/17/2020   55,632   111,264   173.40    12/17/2030   —   —   35,732   3,370,600 
  12/14/2021   —   50,249   150.07    12/14/2031   —   —   10,640   1,003,671 

GEOFFREY S. MORRELL

  3/8/2022   —   27,376   132.39    3/8/2032   8,970   846,140   9,976   940,989 

41

Number of Securities Underlying Unexercised Options: Exercisable and Unexercisable. These columns set forth, for each NEO and for each grant made to the officer, the number of shares of the Company’s common stock that could be acquired upon exercise of outstanding options at the end of fiscal 2022. The vesting schedule for each option with unexercisable shares is shown under “Vesting Schedule” below. The vesting of options held by the NEOs may be accelerated in the circumstances described under the section “Executive Compensation — Compensation Tables — Potential Payments and Rights on Termination or Change in Control” below.

Number; Market Value of Units of Stock That Have Not Vested. These columns report the number and market value, respectively, of shares underlying each grant of restricted stock units to each officer that is not subject to performance vesting conditions nor the test to assure eligibility for deduction pursuant to Section 162(m). The number of shares includes dividend equivalent units that have accrued for dividends payable through October 1, 2022. The market value is equal to the number of shares underlying the units times the closing market price of the Company’s common stock on September 30, 2022, the last trading day of the Company’s fiscal year. The vesting schedule for each grant is shown below, with grants identified by the letter following the number of shares underlying the grant. Vesting of restricted stock units held by NEOs may be accelerated in the circumstances described under the section “Executive Compensation — Compensation Tables — Potential Payments and Rights on Termination or Change in Control” below.

Number; Market Value of Unearned Units That Have Not Vested.These columns set forth the target number and market value, respectively, of shares of the Company’s common stock underlying each restricted stock unit award held by each NEO that is subject to performance-based vesting conditions and/or the test to assure eligibility for deduction pursuant to Section 162(m). The number of shares includes dividend equivalent units that have accrued for dividends payable through October 1, 2022. The market value is equal to the number of shares underlying the units multiplied by the closing market price of the Company’s common stock on September 30, 2022, the last trading day of the Company’s fiscal year. The vesting schedule and performance tests and/or the test to assure eligibility under Section 162(m) are shown in “Vesting Schedule” below.

Vesting Schedule.The options reported above that are not yet exercisable and restricted stock unit awards that have not yet vested are scheduled to become exercisable and vest as set forth below.

(A) Unless otherwise noted, stock options and restricted stock units granted before December 2020 will vest 25% on each of the first four anniversaries of the grant date. Grants made in or after December 2020 will vest one-third on each of the first three anniversaries of the grant date.

(B) Amounts may not sum to total due to rounding.

(C) PBUs will cliff vest on the third anniversary of grant date, based on 3-year TSR versus S&P 500 and absolute ROIC tests for each of the fiscal years in the 3-year period (targets set each year). Grants before 2020 for Ms. McCarthy are subject to performance under Section 162(m).

(D) While restricted stock units will vest 25% on each of the first four anniversaries of the grant date for grants made before December 2020 and one-third on each of the first three anniversaries of the grant date for grants made in or after December 2020, grants before 2020 for Ms. McCarthy are also subject to a performance test to assure eligibility for deduction under Section 162(m).

(E) Restricted stock units granted February 28, 2020 in connection with Mr. Chapek’s appointment as Chief Executive Officer. The units are scheduled to vest on December 17, 2022 subject to satisfaction of a 3-year TSR test and 3 1-year ROIC tests, with the number of units vesting depending on the level at which the tests were satisfied.

(F) Unexercisable options will vest one-third on December 14, 2022, December 14, 2023 and December 14, 2024.

(G) Restricted stock units will vest one-third on December 14, 2022, December 14, 2023 and December 14, 2024.

(H) PBUs will cliff vest on December 14, 2024, based on 3-year TSR versus S&P 500 and absolute ROIC tests for each of the fiscal years in the 3-year period (targets set each year).

42

(I) Unexercisable options will vest one-sixth on December 27, 2022, June 27, 2023, December 27, 2023, June 27, 2024, December 27, 2024 and June 27, 2025.

(J) Restricted stock units will vest one-sixth on December 27, 2022, June 27, 2023, December 27, 2023, June 27, 2024, December 27, 2024 and June 27, 2025.

(K) Options granted March 21, 2019 following the close of the TFCF acquisition. The remaining unexercisable options are scheduled to become exercisable on December 19, 2022.

Extended Vesting of Equity Awards

Options and restricted stock units continue to vest beyond retirement (and options remain exercisable) if (1) they were awarded at least one year prior to the date of an employee’s retirement and (2) the employee was age 60 or older and had at least ten years of service on the date such employee retired. In these circumstances:

Options continue to vest following retirement according to the original vesting schedule. They remain exercisable for up to five years following retirement. Options do not, however, remain exercisable beyond the original expiration date of the option.

Restricted stock units continue to vest following retirement according to the original vesting schedule, but vesting remains subject to any applicable performance conditions (except, in some cases, the test to ensure that the compensation is deductible pursuant to Section 162(m)).

In addition, the grants to Mr. Iger made in fiscal 2022 continue to vest (and options remain exercisable) beyond his retirement as Executive Chairman at December 31, 2021. The extended vesting and exercisability is not available to certain employees outside the United States.

Options and restricted stock units awarded to executive officers with employment agreements also continue to vest (and options remain exercisable) beyond termination of employment if the executive’s employment is terminated by the Company without cause or by the executive with good reason. In this case, options and restricted stock units continue to vest (and options remain exercisable) as though the executive remained employed through the end of the stated term of the employment agreement. If the executive would be age 60 or older and have at least ten years of service as of the end of the stated term of the employment agreement, the options and restricted stock units awarded at least one year prior to the end of the stated term of the agreement would continue to vest (and options remain exercisable) beyond the stated term of the employment agreement. In addition, the grants to Mr. Iger in fiscal 2022 continue to vest (and options remain exercisable) upon his retirement at December 31, 2021.

Fiscal 2022 Option Exercises and Stock Vested Table

The following table provides information concerning the exercise of options and vesting of restricted stock unit awards held by the NEOs during fiscal 2022.

 

 

  OPTION AWARDS   STOCK AWARDS 
   NUMBER OF
SHARES
ACQUIRED ON
EXERCISE		   VALUE
REALIZED ON
EXERCISE		   NUMBER OF
SHARES
ACQUIRED ON
VESTING		   VALUE
REALIZED ON
VESTING		 

ROBERT A. CHAPEK

   —   $—    26,350    $     3,909,801 

CHRISTINE M. MCCARTHY

   45,342    5,254,524    26,517    3,932,408 

PAUL J. RICHARDSON

   —    —    6,189    856,542 

ROBERT A. IGER

   435,220    34,866,407    770,744    119,652,474 

The value realized on the exercise of options is equal to the amount per share at which the NEO sold shares acquired on exercise (all of which occurred on the date of exercise) minus the exercise price of the option times the number of shares acquired on exercise of

43

the options. The value realized on the vesting of stock awards is equal to the closing market price of the Company’s common stock on the date of vesting times the number of shares acquired upon vesting. The number of shares and value realized on vesting includes shares that were withheld at the time of vesting to satisfy tax withholding requirements.

Equity Compensation Plans

The following table summarizes information, as of October 1, 2022, relating to equity compensation plans of the Company pursuant to which grants of options, restricted stock, restricted stock units or other rights to acquire shares of the Company’s common stock may be granted from time to time.

PLAN CATEGORY

  

NUMBER OF SECURITIES

TO BE ISSUED

UPON EXERCISE

OF OUTSTANDING

OPTIONS, WARRANTS

AND RIGHTS

(A)

  

WEIGHTED-AVERAGE
EXERCISE PRICE OF
OUTSTANDING OPTIONS,
WARRANTS AND RIGHTS
(B)

  

NUMBER OF SECURITIES
REMAINING AVAILABLE FOR
FUTURE ISSUANCE UNDER
EQUITY COMPENSATION
PLANS (EXCLUDING SECURITIES
REFLECTED IN COLUMN (A))

(C)

 

Equity compensation plans approved by security holders1

   35,751,4982;3   $121.284   124,262,1673;5 

Equity compensation plans not approved by security holders

   —   —   — 

Total

   35,751,4982;3   $121.284   124,262,1673;5 

1

These plans are the Company’s Amended and Restated 2011 Stock Incentive Plan (“2011 Stock Incentive Plan”), The Walt Disney Company/Pixar 2004 Equity Incentive Plan (the “Disney/Pixar Plan”, which was assumed by the Company in connection with the acquisition of Pixar) and The Walt Disney Company/TFCF 2013 Equity Incentive Plan (the “Disney/TFCF Plan”, which was assumed by the Company in connection with the acquisition of TFCF).

2

Includes an aggregate of 17,970,581 time-based restricted stock units and PBUs. Includes an aggregate of 23,281 restricted stock units granted under the Disney/Pixar Plan, which was approved by the shareholders of Pixar prior to the Company’s acquisition.

3

Assumes shares issued upon vesting of PBUs vest at 100% of target number of units. For awards granted in fiscal 2020 and 2021, the actual number of shares issued on vesting of PBUs could be zero to 150% of the target number of PBUs. For awards granted in fiscal 2022, the actual number of shares issued on vesting of PBUs could be zero to 200% of the target number of PBUs.

4

Reflects the weighted average exercise price of outstanding options; excludes restricted stock units and PBUs.

5

Includes 382,356 securities available for future issuance under the Disney/Pixar Plan, which was approved by the shareholders of Pixar prior to the Company’s acquisition. Includes 27,720,535 securities available for future issuance under the Disney/TFCF Plan, which was approved by the shareholders of TFCF prior to the Company’s acquisition. Assumes all awards are made in the form of options. Each award of one restricted stock unit under the 2011 Stock Incentive Plan reduces the number of shares available under the plan by two, so the number of securities available for issuance will be smaller to the extent awards are made as restricted stock units.

Pension Benefits

The Company maintains a tax-qualified, noncontributory retirement plan, called the Disney Salaried Pension Plan D, for salaried employees who commenced employment before January 1, 2012. Benefits are based on a percentage of total average monthly compensation multiplied by years of credited service. For service years after 2012, average monthly compensation includes overtime, commission and regular bonus and is calculated based on the highest five consecutive years of compensation during the ten-year period prior to termination of employment or retirement, whichever is earlier. For service years prior to 2012, average monthly compensation considers only base salary, benefits were based on a somewhat higher percentage of average monthly compensation and benefits included a flat dollar amount based solely on years and hours of service. Retirement benefits are non-forfeitable after three years of vesting service (five years of vesting service prior to 2012) or at age 65 after one year of service. Actuarially reduced benefits are paid to participants whose benefits are non-forfeitable and who retire before age 65 but on or after age 55. The early retirement reduction is 50% at age 55, decreasing to 0% at age 65.

In calendar year 2022, the maximum compensation limit under a tax-qualified plan was $305,000 and the maximum annual benefit that may be accrued under a tax-qualified defined benefit plan was $245,000. To provide additional retirement benefits for key salaried employees, the Company maintains a supplemental non-qualified, unfunded plan, the Amended and Restated Key Plan,

44

which provides retirement benefits in excess of the compensation limitations and maximum benefit accruals under tax-qualified plans. Under this plan, benefits are calculated in the same manner as under the Disney Salaried Pension Plan D, including the differences in benefit determination for years before and after January 1, 2012, described above, except as follows:

starting on January 1, 2017, average annual compensation used for calculating benefits under the plans for any participant was capped at the greater of $1,000,000 or the participant’s average annual compensation determined as of January 1, 2017; and

benefits for persons who were NEOs on January 1, 2012 are limited to the amount the executive officer would have received had the plan in effect prior to its January 1, 2012 amendment continued without change.

Company employees who either transferred to the Company from ABC, Inc. after the Company’s acquisition of ABC or worked for a legacy ABC company (e.g., ESPN) are also eligible to receive benefits under the Disney Salaried Pension Plan A (formerly known as the ABC, Inc. Retirement Plan) and a Benefit Equalization Plan, which, like the Amended and Restated Key Plan, provides eligible participants retirement benefits in excess of the compensation limits and maximum benefit accruals that apply to tax-qualified plans. Mr. Iger received credited years of service under those plans for the years prior to the Company’s acquisitions of ABC, Inc. A term of the 1995 purchase agreement between ABC, Inc. and the Company provides that employees transferring employment to coverage under a Disney pension plan will receive an additional benefit under Disney plans equal to (a) the amount the employee would receive under the Disney pension plans if all of the employee’s ABC service were counted under the Disney pension less (b) the combined benefits the employee receives under the ABC plan (for service prior to the transfer) and the Disney plan (for service after the transfer). Mr. Iger transferred from ABC and Mr. Richardson worked for a legacy ABC company and, as such, each receives a pension benefit under the Disney plans to bring the employee’s total benefit up to the amount the employee would have received if all the employee’s years of service had been credited under the Disney plans. The effect of these benefits is reflected in the present value of benefits under the Disney plans in the table below.

As of the end of fiscal 2022, Mr. Chapek and Mr. Richardson were eligible for early retirement; Ms. McCarthy was eligible for retirement and Mr. Iger had elected retirement.

Fiscal 2022 Pension Benefits Table

The following table sets forth the present value of the accumulated pension benefits that each NEO is eligible to receive under each of the plans described above.

NAME

  PLAN NAME  

NUMBER OF

YEARS OF

CREDITED

SERVICE AT

FISCAL

YEAR-END

     

PRESENT VALUE OF

ACCUMULATED

BENEFIT AT

FISCAL YEAR-END1

   

PAYMENTS DURING

LAST FISCAL YEAR1

 

ROBERT A. CHAPEK

  Disney Salaried Pension Plan D   30     $   1,630,512    — 
  Disney Amended and Restated Key Plan   30      12,325,167    — 
         

Total

  

 

$ 13,955,679

 

  

 

—

 

CHRISTINE M. MCCARTHY  

  Disney Salaried Pension Plan D   23     $   1,536,823    — 
  Disney Amended and Restated Key Plan   23      3,846,973    — 
         

Total

  

 

$   5,383,796

 

  

 

—

 

PAUL J. RICHARDSON

  Disney Salaried Pension Plan A   15     $      554,220    — 
  Benefit Equalization Plan of ABC, Inc.   15      1,594,383    — 
         

Total

  

 

$   2,148,603

 

  

 

—

 

ROBERT A. IGER

  Disney Salaried Pension Plan D   22     $   1,528,400    $     81,674 
  Disney Amended and Restated Key Plan   22     12,343,985    732,241 
  Disney Salaried Pension Plan A   25     746,335    39,915 
  Benefit Equalization Plan of ABC, Inc.   25      5,892,310    349,211 
         

Total

  

 

$ 20,511,030

 

  

 

$1,203,041

 

1

Amounts may not sum to total due to rounding.

45

These present values assume that each NEO retires at age 65 (or their age on October 1, 2022, if older) for purposes of the Disney Salaried Pension Plan D and the Amended and Restated Key Plan, and age 62 (or their age on October 1, 2022, if older) for purposes of the Disney Salaried Pension Plan A and the Benefit Equalization Plan of ABC, Inc. Age 65 is the normal retirement age under each of the plans and is also the age at which unreduced benefits are payable, except the earliest age at which unreduced benefits are payable under the ABC plans is age 62 for service years prior to 2012. The values also assume a straight life-annuity payment for an unmarried participant. Participants may elect other actuarially reduced forms of payment, such as joint and survivor benefits and payment of benefits for a period certain irrespective of the death of the participant. The present values were calculated using the 5.44% discount rate assumption set forth in footnote 10 to the Company’s Audited Financial Statements for fiscal 2022 and using actuarial factors including Pri-2012 annuitant mortality table, projected generationally with a modified version of the MP-2019 scale for males and females. The present values reported in the table are not available as lump sum payments under the plans.

Fiscal 2022 Non-Qualified Deferred Compensation Table

Under the Company’s Non-Qualified Deferred Compensation Plan, U.S.-based executives at the level of Vice President or above may defer a portion of their compensation and applicable taxes with an opportunity to earn a tax-deferred return on the deferred amounts. The plan gives eligible executives the opportunity to defer up to 50% of their base salary and up to 100% of their annual performance-based bonus award until retirement or termination of employment or, at the executive’s election, until an earlier date at least five years following the date the compensation is earned. The Company also has the option to make a contribution into an executive’s deferred compensation account on terms and subject to any conditions (such as vesting conditions) the Company chooses. Amounts in an executive’s deferred account earn a return based on the executive’s election among a series of mutual funds designated by the Company, which are generally the same funds available under the Company’s qualified deferred compensation plans. Returns on the funds available for the deferred account ranged from -30.55% to 0.68% for the year ended October 1, 2022.

The deferred amounts and any deemed earnings on the amounts are not actual investments and are obligations of the Company. Ms. McCarthy participated in this plan in fiscal 2022 and her contributions and aggregate earnings during the fiscal year and aggregate balance at the end of the fiscal year are reflected in the table below. Ms. McCarthy’s contributions represent deferred salary in the amount of $989,231 and bonus in the amount of $5,565,846. Mr. Chapek had a negative return on the year, but he did not make a contribution in fiscal 2022.

From 2000 through 2005, $500,000 per year of Mr. Iger’s annual base salary was deferred. The interest rate is adjusted annually in March and the weighted average interest rate for fiscal 2022 was 1.118%. There were no additions during the fiscal year to the deferred amount by either the Company or Mr. Iger other than these earnings and no withdrawals during the fiscal year. In connection with his retirement, and in order to avoid the imposition of an additional tax on Mr. Iger under Section 409A of the Internal Revenue Code, Mr. Iger was paid $4,569,183 on July 1, 2022. With this payment, Mr. Iger no longer has an outstanding non-qualified deferred compensation balance.

   

EXECUTIVE

CONTRIBUTIONS

IN LAST

FISCAL YEAR

   

AGGREGATE

EARNINGS

IN LAST

FISCAL YEAR

   

AGGREGATE

BALANCE AT

LAST FISCAL

YEAR-END

 

Robert A. Chapek

  $—    $  (1,643,605)    $   6,887,528 

Christine M. McCarthy

   6,555,077    (11,344,002)    43,968,031 

46

Because the earnings accrued under these programs were not “above market” or preferential, these amounts are not reported in the Fiscal 2022 Summary Compensation Table. A portion of the aggregate balances at last fiscal year-end were however included in the Summary Compensation Table since fiscal 2020, as follows:

 

 

   

 

  AMOUNT INCLUDED IN SUMMARY
COMPENSATION TABLE		 
   FISCAL
YEAR		  SALARY   NON-EQUITY
INCENTIVE
PLAN		   TOTAL   

Robert A. Chapek

  2022  $—   $—   $—   
  2021   —    —    —   
  2020   —    —    —   

Christine M. McCarthy

  2022   989,231    —    989,231   
  2021   951,242    7,336,137    8,287,379   
   2020   830,389    —    830,389   

Potential Payments and Rights on Termination or Change in Control

Our NEOs may receive compensation in connection with termination of their employment. This compensation is payable pursuant to (a) the terms of compensation plans applicable by their terms to all participating employees and (b) the terms of employment agreements with each of our NEOs. During fiscal 2022, we had employment agreements with our NEOs with the following end dates: June 30, 2025 for Mr. Chapek, June 30, 2024 for Ms. McCarthy, December 31, 2024 for Mr. Gutierrez, June 30, 2024 for Mr. Richardson, June 29, 2025 for Ms. Schake, December 31, 2021 for Mr. Iger and December 31, 2024 for Mr. Morrell. As Mr. Iger retired from the Company as Executive Chairman before fiscal year end, he was not entitled to termination payments as of October 1, 2022. In fiscal 2023, the Company entered into a new employment agreement with Mr. Iger as Chief Executive Officer with an end date of December 31, 2024.

In June 2022, the Board agreed to extend Mr. Chapek’s employment agreement based on Mr. Chapek’s work navigating the Company through the unprecedented challenges of the pandemic and growing the Company’s streaming business. The Board continued to spend significant time discussing the leadership of the Company in the months that followed and determined that Mr. Chapek was no longer the right person to serve in the CEO role. The significant developments and change in the broader macroeconomic environment over this period informed how the Board viewed the appropriate leader in light of the rapidly evolving industry and market dynamics. The Board therefore concluded that, as Disney embarks on an increasingly complex period of industry transformation, Mr. Iger is best situated to lead the Company while an appropriate longer-term successor is identified. On November 20, 2022 (after fiscal 2022), the Board decided to exercise its right to terminate Mr. Chapek’s employment without cause. In connection with this termination, in the event that Mr. Chapek successfully completes all of the terms of his post-employment consulting agreement and does not violate the terms of the employment agreement that survive his termination or the general release, Mr. Chapek’s severance would strictly conform to the terms of his employment agreement such that he would be entitled to the following cash termination payments:

$6,527,397 in remaining base salary through the scheduled expiration date of his employment agreement, as amended; and

•

$1,027,397 equivalent to a pro-rated target bonus for fiscal 2023.

Although the Company made the unilateral decision to exercise its right to terminate Mr. Morrell’s employment during fiscal 2022, Mr. Morrell was not entitled to termination payments during fiscal 2022. In the event that Mr. Morrell successfully completes all of the terms of his post-employment consulting agreement and general release, he would be entitled to the following cash based payments:

$2,506,849 in remaining base salary through the end of his original employment agreement term;

47

$1,500,000 equivalent to a target bonus for fiscal 2022; and

a buyout of the home Mr. Morrell purchased in Southern California. Consistent with past relocation practices for unique circumstances, a third-party vendor purchased Mr. Morrell’s property on the Company’s behalf in June 2022 for the same price at which the property was originally purchased. The Company will go through the sale process and realize any gains or losses on the sale of the property. In no situation will Mr. Morrell monetarily benefit from the sale of the property. As of October 1, 2022 and the date of the filing of this report, the property has not been sold.

The treatment of the equity awards held by Mr. Chapek and Mr. Morrell at their respective termination dates under their employment agreements is described below in the section titled “Executive Compensation — Compensation Tables — Termination Pursuant to Company Termination Right Other Than For Cause or By Executive For Good Reason.”

It is the standard practice of the Compensation Committee to only approve termination payments for a senior executive within the obligations of the Company’s plans and current employment agreements. The Committee approved the termination payments and conditions for Mr. Morrell due to unique factors specific to his situation that involved an international move for Mr. Morrell and his family. This decision was made in the best interest of the Company and, we believe, will mitigate further disruption to the Company.

The termination provisions included in our executive officers’ employment agreements serve a variety of purposes, including: providing the benefits of equity incentive plans to the executive and the executive’s family in case of death or disability; defining when the executive may be terminated with cause and receive no further compensation; and clearly defining rights in the event of a termination in other circumstances. The availability, nature and amount of compensation on termination differ depending on whether employment terminates because of:

death or disability;

the Company’s termination of the executive pursuant to the Company’s termination right or the executive’s decision to terminate because of action the Company takes or fails to take;

the Company’s termination of the executive for cause; or

expiration of an employment agreement, retirement or other voluntary termination.

The compensation that each of our NEOs may receive under each of these termination circumstances is described below.

It is important to note that the amounts of compensation set forth in the tables below are based on the specific assumptions noted and do not predict the actual compensation that our NEOs would receive. Actual compensation received would be a function of a number of factors that are unknowable at this time, including: the date of the executive’s termination of employment; the executive’s base salary at the time of termination; the executive’s age and service with the Company at the time of termination; and, because many elements of the compensation are performance-based pursuant to the Company’s compensation philosophy described in “Executive Compensation — Compensation Discussion and Analysis” above, the future performance of the Company.

Moreover, the option and restricted stock unit acceleration amounts in case of a termination without cause or by the executive for good reason assume that these awards immediately accelerate, which is not the case in the absence of a change in control. Rather, options and units continue to vest over time and in most cases are subject to the same performance measures that apply if there had been no termination. (The performance measures do not apply to vesting of restricted stock unit awards when termination is due to death or disability and the test to assure deductibility under Section 162(m) does not apply if it is not necessary to preserve deductibility.)

In each of the circumstances described below, our NEOs are eligible to receive earned, unpaid salary through the date of termination and benefits that are unconditionally accrued as of the date of termination pursuant to policies applicable to all employees. This includes the deferred compensation and earnings on these deferred amounts as described under the “Fiscal 2022 Non-Qualified Deferred Compensation Table.” This earned compensation is not described or quantified below because these amounts represent earned, vested benefits that are not contingent on the termination of employment, but we do describe and quantify benefits that continue beyond the date of termination that are in addition to those provided for in the applicable benefit plans. The executive’s accrued benefits include the pension benefits described under “Executive Compensation — Compensation Tables — Pension Benefits,” which become payable to all participants who have reached retirement age. Because they have reached early retirement or retirement age under the plans, Mr. Chapek, Ms. McCarthy and Mr. Richardson would have been eligible to receive these benefits if

48

their employment had terminated at the end of fiscal 2022. Because the pension benefits do not differ from those described under “Executive Compensation — Compensation Tables — Pension Benefits” except in ways that are equally applicable to all salaried employees, the nature and amount of their pension benefits are not described or quantified below.

DEATH AND DISABILITY

The employment agreement of each NEO provides for payment of any unpaid bonus for any fiscal year that had been completed at the time of the executive’s death or termination of employment due to disability. The amount of the bonus will be determined by the Compensation Committee using the same criteria used for determining a bonus as if the executive remained employed.

In addition to the compensation and rights in employment agreements, the 2011 Stock Incentive Plan and award agreements thereunder provide that all options awarded to a participant (including the NEOs) become fully exercisable upon the death or disability of the participant and remain exercisable for 18 months in the case of death and 12 months in the case of disability (or 18 months in the case of participants who are eligible for immediate retirement benefits or 36 to 60 months, depending on the original grant date, in the case of participants who would at the time of termination due to disability be over 60 years of age and have at least ten years of service and where the options have been outstanding for one year at such time), and if the performance measurement has not been made at the time of death or disability, all restricted stock units awarded to the participant under the 2011 Stock Incentive Plan will, to the extent the units had not previously been forfeited, fully vest and become payable upon the death or disability of the participant. If a performance measurement has been made at the time of death or disability with respect to restricted stock units, the restricted stock units will vest and accelerate based on the performance measurement.

The following table sets forth the value of the estimated payments and benefits each of our NEOs would have received under our compensation plans and their employment agreements if their employment had terminated at the close of business on the last day of fiscal 2022 as a result of death or disability. The value of option acceleration is equal to the difference between the $94.33 closing market price of shares of the Company’s common stock on September 30, 2022 (the last trading day in fiscal 2022) and the weighted average exercise price of options with an exercise price less than the market price times the number of shares subject to such options that would accelerate as a result of termination. The value of restricted stock unit acceleration is equal to the $94.33 closing market price of shares of the Company’s common stock on September 30, 2022 multiplied by the number of units that would accelerate as a result of termination, which, for PBUs, is equal to the target number of units.

   

CASH 

PAYMENT1

   

OPTION

ACCELERATION

   

RESTRICTED

STOCK UNIT

ACCELERATION

 

Robert A. Chapek

   $6,750,000    $                    —    $12,657,435 

Christine M. McCarthy

   5,820,000    —    9,563,647 

Horacio E. Gutierrez

   3,783,000    —    3,988,037 

Paul J. Richardson

   1,670,000    —    1,992,910 

Kristina K. Schake

   1,320,000    —    2,069,412 

1

This amount is equal to the bonus awarded to the NEOs with respect to fiscal 2022 and set forth in the “Non-Equity Incentive Plan Compensation” column of the “Fiscal 2022 Summary Compensation Table”. In fiscal 2022, Mr. Chapek was entitled to receive compensation under the annual performance-based bonus program pursuant to his employment agreement because his termination occurred after the end of the fiscal year.

TERMINATION PURSUANT TO COMPANY TERMINATION RIGHT OTHER THAN FOR CAUSE OR BY EXECUTIVE FOR GOOD REASON

The employment agreement with each NEO provides that the executive officer will receive a bonus for any fiscal year that had been completed at the time of termination of employment if the executive officer’s employment is terminated by the Company pursuant to the Company’s termination right other than for cause (as described below) or by the NEO with good reason (as described below). The amount of the bonus will be determined by the Compensation Committee using the same criteria used for determining a bonus if the executive remained employed.

49

In addition, each NEO’s employment agreement provides that the NEO will receive the following compensation and rights conditioned on the NEO executing a general release of claims and agreeing to provide the Company with consulting services for a period of six months after the NEO’s termination (or, if shorter, until the employment agreement expiration date):

A lump sum payment equal to the base salary the NEO would have earned had the NEO remained employed during the term of the NEO’s consulting agreement, paid six months and one day after termination.

If the consulting agreement was terminated other than as a result of the NEO’s material breach of the consulting agreement, a further lump sum payment equal to the base salary the NEO would have earned had the NEO remained employed after the termination of the NEO’s consulting agreement and until the employment agreement expiration date, paid six months and one day after termination of employment.

•

A bonus for the year in which the NEO is terminated equal to a pro-rata portion of a target bonus amount determined in accordance with the employment agreement.

All options that had vested as of the termination date or were scheduled to vest no later than three months after the employment agreement expiration date will remain or become exercisable as though the NEO were employed until that date. The options will remain exercisable until the earlier of (a) the scheduled expiration date of the options and (b) three months after the employment agreement expiration date. In addition, as is true for all employees, options awarded at least one year before termination will continue to vest and will remain exercisable until the earlier of the expiration date of the option and five years after the termination date if the officer would have attained age 60 and have completed at least ten years of service as of that date. Pursuant to employment agreements with each of the NEOs, the termination date for these purposes will be deemed to be the employment agreement expiration date. For any employee that is eligible for immediate retirement benefits, options awarded within, but less than, one year of termination will vest to the extent they are scheduled to vest within three months of termination and will remain exercisable for 18 months following termination.

All restricted stock units that were scheduled to vest prior to the employment agreement expiration date will vest as though the NEO were employed until that date to the extent applicable performance tests are met (but any test to assure deductibility of compensation under Section 162(m) will be waived for any units scheduled to vest after the fiscal year in which the termination of employment occurs unless application of the test is necessary to preserve deductibility). As is true for all employees, restricted stock units awarded at least one year before termination will continue to vest through the end of the vesting schedule to the extent applicable performance criteria are met if the officer would be over 60 years of age and have at least ten years of service as of the termination date. Pursuant to employment agreements with each of the NEOs, the termination date for these purposes will be deemed to be the employment agreement expiration date.

The employment agreements provide that the Company has the right to terminate the NEO’s employment subject to payment of the foregoing compensation in its sole, absolute and unfettered discretion for any reason or no reason whatsoever. A termination for cause does not constitute an exercise of this right and would be subject to the compensation provisions described below under the section “— Termination for Cause.”

The employment agreements provide that an NEO can terminate the NEO’s employment for “good reason” following notice to the Company within three months of the NEO having actual notice of the occurrence of any of the following events (except that the Company will have 30 days after receipt of the notice to cure the conduct specified in the notice):

(i)    a reduction in the NEO’s base salary, annual target bonus opportunity or (where applicable) annual target long-term incentive award opportunity;

(ii)    the removal from the NEO’s position;

(iii)    a material reduction in the NEO’s duties and responsibilities;

(iv)    the assignment to the NEO of duties that are materially inconsistent with the NEO’s position or duties or that materially impair the NEO’s ability to function in the NEO’s office;

(v)    relocation of the NEO’s principal office to a location that is more than 50 miles outside of the greater Los Angeles area; or

(vi)    a material breach of any material provision of the NEO’s employment agreement by the Company.

50

An NEO (or any employee holding equity awards) can also terminate for “good reason” after a change in control (as defined in the 2011 Stock Incentive Plan) if, within 12 months following the change in control, a “triggering event” occurs and in that case the 2011 Stock Incentive Plan provides that any outstanding options, restricted stock units, PBUs or other plan awards will generally become fully vested and, in certain cases, paid to the plan participant. A “triggering event” is defined to include: (a) a termination of employment by the Company other than for death, disability or “cause;” or (b) a termination of employment by the participant following a reduction in position, pay or other “constructive termination.” Under the 2011 Stock Incentive Plan, “cause” has the same meaning as in the NEO’s employment agreement, as defined below under “— Termination for Cause.” Any such payments that become subject to the excess parachute tax rules may be reduced in certain circumstances.

Each NEO’s employment agreement specifies that any compensation resulting from subsequent employment will not be offset against amounts described above.

The following table provides a quantification of benefits (as calculated in the following paragraph) each of the NEOs would have received if their employment had been terminated at the end of fiscal 2022 (under their employment agreements as in effect at that time) by the Company pursuant to its termination right or by the executive with good reason.

The “option valuation” amount is (a) the difference between the $94.33 closing market price of shares of the Company’s common stock on September 30, 2022 and the weighted average exercise price of options with an exercise price less than the market price times (b) the number of options with in-the-money exercise prices that would become exercisable despite the termination. The “restricted stock unit valuation” amount is the $94.33 closing market price on September 30, 2022, times the target number of units that could vest. However, as described above, options do not become immediately exercisable and restricted stock units do not immediately vest (and would eventually vest only to the extent applicable performance conditions are met) absent a change in control. The actual value realized from the exercise of the options and the vesting of restricted stock units may therefore be more or less than the amount shown below depending on changes in the market price of the Company’s common stock and the satisfaction of applicable performance tests.

   

CASH

PAYMENT1

  

OPTION

VALUATION

   

RESTRICTED

STOCK UNIT

VALUATION

 

Robert A. Chapek

     

No change in control

     $13,634,6152   $                    —      $12,657,4353 

Change in control

   13,634,6152   —    12,657,4353 

Christine M. McCarthy

     

No change in control

   9,320,000   —    9,563,647 

Change in control

   9,320,000   —    9,563,647 

Horacio E. Gutierrez

     

No change in control

   6,718,000   —    3,988,037 

Change in control

   6,718,000   —    3,988,037 

Paul J. Richardson

     

No change in control

   3,008,750   —    1,149,317 

Change in control

   3,008,750   —    1,992,910 

Kristina K. Schake

     

No change in control

   3,313,750   —    2,050,451 

Change in control

   3,313,750   —    2,069,412 

1

This amount is equal to the bonus awarded to the NEOs with respect to fiscal 2022 and set forth in the “Non-Equity Incentive Plan Compensation” column of the “Fiscal 2022 Summary Compensation Table,” plus the lump sum payments based on salary through the end of the employment term as described above.

51

2

While this is the payment Mr. Chapek would have earned had he been separated at the end of fiscal 2022, the actual cash amounts to which he is actually entitled are described under the section titled “Executive Compensation — Compensation Tables — Potential Payments and Rights on Termination or Change in Control” in connection with his separation. In fiscal 2022, Mr. Chapek was entitled to receive compensation under the annual performance-based bonus program pursuant to his employment agreement because his termination occurred after the end of the fiscal year.

3

This amount represents the estimated values that would have been ascribed to the enhanced vesting of his outstanding equity awards had Mr. Chapek been separated at the end of fiscal 2022. However, because these awards will continue to vest on the same basis as though Mr. Chapek had remained employed, the values that will actually derive will be based on the value of the underlying shares if and when they become vested or exercisable. Moreover, because Mr. Chapek had attained age 60 and completed 10 years of service, had Mr. Chapek retired upon November 20, 2022, all of the equity awards taken into account in the above table, except those granted in fiscal 2022, would nonetheless have remained outstanding and eligible to vest as though he remained employed under the policies generally applicable to retirement.

TERMINATION FOR CAUSE

Each NEO’s employment agreement provides that, if the NEO’s employment is terminated by the Company for cause, the NEO will only be eligible to receive the compensation earned and benefits vested through the date of such termination of employment, including any rights the NEO may have under the NEO’s indemnification agreement with the Company or the equity plans of the Company.

“Termination for Cause” is defined in each NEO’s employment agreements as termination by the Company due to gross negligence, gross misconduct, willful nonfeasance or willful material breach of the agreement by the executive unless, if the Company determines that the conduct or cause is curable, such conduct or cause is timely cured by the NEO.

EXPIRATION OF EMPLOYMENT TERM; RETIREMENT

Each of the NEOs is eligible to receive earned, unpaid salary and unconditionally vested accrued benefits (including continued vesting of restricted stock units and vesting and exercisability of options awarded more than one year prior to retirement if they are over 60 years of age with at least ten years of service) if the NEO’s employment terminates at the expiration of the NEO’s employment agreement or the NEO otherwise retires, but except as described below, they are not contractually entitled to any additional compensation in this circumstance.

Under the terms of Mr. Iger’s employment agreement as in effect at December 31, 2021, to enable the Company to have access to Mr. Iger’s unique skills, knowledge and experience with regard to the media and entertainment business and his institutional knowledge of the Company and its strategic evolution, upon his retirement, Mr. Iger was to serve as a consultant to the Company for a period of five years. In this capacity, Mr. Iger would provide assistance, up to certain specified monthly and annual maximum time commitments, on such matters as his successor as Chief Executive Officer may request from time to time. In consideration of his consulting services, Mr. Iger is to receive a quarterly fee of $500,000 for each of the quarters of this five-year period. For the five years following termination of employment, the Company would also provide Mr. Iger with the same security services (other than the personal use of a Company-provided or Company-leased aircraft) as it has made available to him as Chief Executive Officer. Under his employment agreement entered into on November 20, 2022, upon the re-commencement of his employment, the parties’ obligations in respect of these post-employment commitments are suspended and will resume to be fulfilled for the remaining term when Mr. Iger again terminates his employment with the Company.

Other NEO employment agreements each provide that the Chief Executive Officer will recommend to the Compensation Committee an annual cash bonus for the fiscal year in which their respective employment agreements end based on the executive’s contributions during that fiscal year.

As in the case of a termination under the Company’s termination right other than for cause or the executive’s right to terminate for good reason, vested options and restricted stock units will remain exercisable for 18 months for executives eligible to receive retirement benefits, and options and restricted stock units outstanding for at least one year will continue to vest, and options will

52

remain exercisable, for up to three or five years (depending on the original grant date) if the NEO was age 60 or greater and had at least ten years of service at the date of retirement. In addition, under the terms of his employment agreement as in effect at December 31, 2021, the equity grants made to Mr. Iger in fiscal 2022 became eligible to continue to vest (and options remain exercisable) upon his retirement at December 31, 2021.

Pay Ratio

In accordance with SEC rules, we are providing the ratio of the annual total compensation of our Chief Executive Officer to the annual total compensation of the Company’s median employee. The ratio is a reasonable estimate calculated in a manner consistent with SEC rules and the methodology described below.

Per SEC rules, the Company is permitted to use the same median employee as was used in fiscal 2021. However, since the median employee used for the past two years has separated from the Company, we have conducted an analysis and selected a similarly situated employee. Our methodology to confirm the median employee is consistent with last year. We reviewed the annual base salary of the global workforce as of the last business day of the fiscal year, October 1, 2022. Due to population size, we identified a band of employees with a base salary that approximates the median base salary for the Company. The median base salary reflects a workforce with large populations of seasonal, part-time and international employees working in multiple, distinct lines of business. We calculated the median employee’s total annual compensation for fiscal 2022 (which consisted of an increase to base salary, overtime pay and the Company’s contribution to health insurance premiums) and ensured the median employee’s compensation did not contain distortive compensation features (e.g., abnormal amounts of overtime, special premium pay or commissions/tips, etc.).

The median Disney employee works in a full-time hourly role in parks and has been with the Company for over eleven years. For fiscal 2022, the median employee’s total annual compensation was $54,256. Mr. Chapek’s total annual compensation, including the Company’s contribution to health insurance premiums (which are not included in the Fiscal 2022 Summary Compensation Table in this report), was $24,198,254. The ratio of these amounts was 446:1.

Other Compensation Information

Risk Management Considerations

The Compensation Committee believes that the following features of performance-based bonus and equity programs appropriately incentivize the creation of long-term shareholder value while discouraging behavior that could lead to excessive risk:

•

Financial Performance Measures.The financial metrics used to determine the amount of an executive’s bonus are measures the Committee believes drive long-term shareholder value. The ranges set for these measures are intended to reward success without encouraging excessive risk-taking.

•

Limit on Bonus.The overall bonus opportunity is not expected to exceed two times the target amount, no matter how much financial performance exceeds the ranges established at the beginning of the fiscal year.

•

Equity Vesting Periods.Performance-based stock units generally vest in three years. Time-based stock units and options vest annually for up to four years and options remain exercisable for ten years. These periods are designed to reward sustained performance over several periods, rather than performance in a single period.

•

Equity Retention Guidelines.NEOs are required to acquire within five years of becoming an executive officer and hold as long as they are executive officers of the Company, shares (including restricted stock units) having a value of at least three times their base salary amounts, or five times in the case of the Chief Executive Officer. If these levels have not been reached, these officers are required to retain ownership of shares representing at least 75% of the net after-tax gain (100% in the case of the Chief Executive Officer) realized on exercise of options for a minimum of twelve months.

53

•

No Hedging or Pledging.The Company’s insider trading compliance program prohibits members of the Board of Directors, NEOs and all other employees subject to the Company’s insider trading compliance program from entering into any transaction designed to hedge, or having the effect of hedging, the economic risk of owning the Company’s securities and prohibits certain persons, including members of the Board of Directors and the NEOs, from pledging Company securities.

•

Clawback Policy.If the Company is required to restate its financial results due to material noncompliance with financial reporting requirements under the securities laws as a result of misconduct by an executive officer, applicable law permits the Company to recover incentive compensation from that executive officer (including profits realized from the sale of Company securities). In such a situation, the Board of Directors would exercise its business judgment to determine what action it believes is appropriate.

Action may include recovery or cancellation of any bonus or incentive payments made to an executive on the basis of having met or exceeded performance targets during a period of fraudulent activity or a material misstatement of financial results if the Board determines that such recovery or cancellation is appropriate due to intentional misconduct by the executive officer that resulted in performance targets being achieved that would not have been achieved absent such misconduct. Under the 2011 Stock Incentive Plan approved at the Company’s 2020 Annual Meeting, equity awards pursuant to the plan may be clawed back where there is reputational or financial harm to the Company, even in the absence of a restatement.

Equity awards are generally approved on dates the Compensation Committee meets. Committee meetings are normally scheduled well in advance and are not scheduled with an eye to announcements of material information regarding the Company. The Committee may make an award with an effective date in the future, including awards contingent on commencement of employment, execution of a new employment agreement or some other subsequent event, or may act by unanimous written consent on the date of such an event when the proposed issuances have been reviewed by the Committee prior to the date of the event.

At the Compensation Committee’s request, management conducted its annual assessment of the risk profile of our compensation programs in December 2022. The assessment included an inventory of the compensation programs at each of the Company’s segments and an evaluation of whether any program contained elements that created risks that could have a material adverse impact on the Company. Management provided the results of this assessment to Pay Governance LLC, the Committee’s compensation consultant, which evaluated the findings and reviewed them with the Committee. As a result of this review, the Committee determined that the risks arising from the Company’s policies and practices are not reasonably likely to have a material adverse effect on the Company.

54

Peer Groups

SUMMARY OF PEER GROUPS

The following graph summarizes the three distinct peer groups we use for three distinct purposes and the companies that met these criteria and were included at the beginning of fiscal 2022, described in more detail below:

LOGO

General Industry Peers

•  Alphabet, Inc.

•  Amazon.com, Inc.

•  Apple, Inc.

•  AT&T Inc.

•  Charter Communications, Inc.

•  Cisco Systems

•  Comcast Corporation

•  IBM Corporation

•  Intel

•  Meta Platforms, Inc.

•  Microsoft Corporation

•  Netflix, Inc.

•  Oracle Corporation

•  Paramount Global

•  Verizon Communications Inc.

•  Warner Bros. Discovery, Inc.1

Media Industry Peers

•  Alphabet, Inc.

•  Amazon.com, Inc.

•  Apple, Inc.

•  AT&T Inc.

•  Comcast Corporation

•  Meta Platforms, Inc.

•  Netflix, Inc.

•  Paramount Global

•  Warner Bros. Discovery, Inc.1

1 In April 2022, Discovery Inc. completed its acquisition of the WarnerMedia assets from AT&T and became Warner Bros. Discovery, Inc.

MEDIA INDUSTRY PEERS

The media industry peer group helps evaluate compensation levels for the NEOs. The Compensation Committee believes that there is a limited pool of talent with the set of creative and organizational skills needed to run a global creative organization like the Company. The Committee also understands that executives with the background needed to manage a company such as ours have career options with compensation opportunities that normally exceed those available in most other industries, and that compensation levels within the peer group are driven by the dynamics of compensation in the entertainment industry and not the ownership structure of a particular company. Accordingly, the market for executive talent to lead the Company, and the group against which to compare our executive compensation, is best represented by the companies in our media industry peer group.

GENERAL INDUSTRY PEERS

The general industry peer group helps evaluate general compensation structure, policies and practices. The Compensation Committee believes that the features of the Company’s overall compensation structure, policies and practices should normally be consistent for all executives. Because our operations span multiple industries, the Committee believes that a consistent approach across the breadth of the Company’s operations with respect to features of our overall executive compensation structure is best achieved by reference to a group of General Industry Peers that is broader than the Media Industry Peers.

The peer group used for establishing compensation structure, policies and practices consists of companies that have:

A consumer orientation and/or strong brand recognition;

A global presence and operations;

Annual revenue no less than 40% and no more than two and a half times our annual revenue; and

55

•

As a general matter, a market capitalization in the range of approximately one-quarter to four times our market capitalization.

Additionally, the general industry peer group includes companies that do not meet the revenue or market cap test, but that are included in the peer groups used by one or more of the Media Industry Peers.

PERFORMANCE PEERS

The performance peers help evaluate relative economic performance of the Company. The overall financial performance of the Company is driven by the Company’s diverse businesses, which compete in multiple sectors of the overall market. The Compensation Committee believes that, given the span of the Company’s businesses, the best measure of relative performance is how the Company’s diverse businesses have fared in the face of the economic trends that impact companies in the overall market and that the best benchmark for measuring such success is the Company’s relative performance compared to that of the companies comprising the S&P 500. Accordingly, the Committee has selected the S&P 500 to set the context for evaluating the Company’s performance and to measure relative performance for PBU awards.

CHANGES FOR FISCAL 2023

Advised by its independent compensation consultant, the Compensation Committee reviewed the criteria for selecting members of the Company’s peer groups during fiscal 2022 and made the following changes for fiscal 2023:

With AT&T’s divestiture of its Media assets, the Company moved AT&T from the media industry peer group to the general industry peer group.

•

Given their primary focus on IT hardware/semiconductors more strongly oriented toward business-to-business sales, the Committee removed Cisco and Intel from the general industry peer group.

As it reflects a prominent global brand with strong consumer orientation and a broadening focus on digital sales and applications, the Committee added NIKE, Inc. to the general industry peer group.

The Committee will continue to monitor the competitive landscapes in which the Company’s various business units operate and implement changes to the peer group as it deems appropriate.

Deductibility of Compensation

For taxable years commencing after 2017, Section 162(m) of the Internal Revenue Code generally disallows a tax deduction to public corporations for compensation over $1 million paid to any person whose compensation was required to be included in this report for any fiscal year after 2016 because such person was either the Company’s Chief Executive Officer or Chief Financial Officer or was one of the Company’s three other most highly compensated executive officers for such fiscal year. Accordingly, to the extent that compensation in excess of $1 million is payable to any such person in any fiscal year after fiscal 2018, such excess amount is likely to be non-deductible by the Company for federal income tax purposes. However, Section 162(m) exempts qualifying performance-based compensation paid after fiscal 2018 pursuant to a binding written agreement in effect on November 2, 2017. Thus, performance-based awards that were outstanding on that date or awarded thereafter pursuant to a binding written agreement can be exempt from the deduction limit if applicable requirements are met. For fiscal 2022, none of the executive officers served under employment agreements that were in place without amendment prior to November 2, 2017.

However, awards to executive officers under the annual performance-based bonus program and the long-term incentive program that were (i) granted prior to November 2, 2017, or (ii) may continue to qualify for the exemption because they were granted pursuant to a binding written agreement in effect on such date, have been or will be made payable or vest subject to achievement of a performance test based on adjusted net income in order to qualify for the exemption from Section 162(m), to the extent available. If this test is satisfied, the additional performance tests described in the Compensation Discussion and Analysis are applied to determine the actual payout of such bonuses and awards, which in order to remain deductible may not be more than the maximum level funded based on achievement of the Section 162(m) test. Adjusted net income means net income adjusted, as appropriate, to exclude the following items or variances: change in accounting principles; acquisitions; dispositions of a business; asset impairments; restructuring

56

charges; extraordinary, unusual or infrequent items; and extraordinary litigation costs and insurance recoveries. For fiscal 2022, the adjusted net income target was $2.5 billion and the Company achieved adjusted net income of $6.4 billion. Net income was adjusted to account for transaction purchase accounting, restructuring and impairment charges, gain on sale of equity investments and litigation settlement.

Therefore, the Section 162(m) test was satisfied with respect to restricted stock units vesting based on fiscal 2022 results.

57

ITEM 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

Stock Ownership

Based on a review of filings with the SEC, the Company has determined that the following persons hold more than 5% of the outstanding shares of Disney common stock. Applicable percentage ownership is based on 1,826,281,507 shares outstanding as of January 3, 2023.

  NAME AND ADDRESS OF BENEFICIAL OWNER  SHARES  PERCENT OF CLASS 

The Vanguard Group
100 Vanguard Blvd.
Malvern, PA 19355

   137,951,5801   7.6% 

Blackrock, Inc.
55 East 52nd Street
New York, NY 10055

   116,787,0532   6.4% 

To our knowledge, except as noted above, no person or entity is the beneficial owner of more than 5% of the voting power of the Company’s stock.

1

According to Vanguard’s Schedule 13G/A filing with the SEC, Vanguard has sole voting power with respect to no shares, shared voting power with respect to 2,872,987 shares, sole dispositive power with respect to 130,617,298 shares and shared dispositive power with respect to 7,334,282 shares.

2

According to Blackrock’s Schedule 13G/A filing with the SEC, Blackrock has sole voting power with respect to 99,791,576 shares, shared voting power with respect to no shares, sole dispositive power with respect to 116,787,053 shares and shared dispositive power with respect to no shares.

The following table shows the amount of Disney common stock beneficially owned (unless otherwise indicated) by Directors, nominees and NEOs and by Directors, nominees and executive officers as a group. Except as otherwise indicated, all information is as of January 3, 2023.

  NAME  SHARES1,2   

STOCK

UNITS3

   

SHARES ACQUIRABLE

WITHIN 60 DAYS4

   PERCENT OF CLASS 

Susan E. Arnold

   18,937    26,545    —    * 

Mary T. Barra

   229    14,093    —    * 

Safra A. Catz

   8,459    5,016    —    * 

Amy L. Chang

   120    3,108    —    * 

Robert A. Chapek

   16,763    —    527,364    * 

Francis A. deSouza

   4,835    6,941    —    * 

Carolyn N. Everson

   208    428    —    * 

Michael B.G. Froman

   6,220    4,747    —    * 

Horacio E. Gutierrez

   3,185    —    19,211    * 

Robert A. Iger

   186,874    —    1,925,144    * 

Maria Elena Lagomasino

   2,815    20,484    —    * 

Christine M. McCarthy

   186,049    —    496,214    * 

Calvin R. McDonald

   451    4,328    —    * 

Geoffrey S. Morrell

   195    —    —    * 

Mark G. Parker

   129    18,813    —    * 

Paul J. Richardson

   1    9,583    —    * 

Derica W. Rice

   5,935    —    45,783    * 

Kristina K. Schake

   1,818    —    4,242    * 

All Directors, nominees and executive officers as a group (16 persons)

   426,264    114,086    2,490,594    * 

*

Less than 1% of outstanding shares.

58

1

The number of shares shown includes shares that are individually or jointly owned, as well as shares over which the individual has either sole or shared investment or voting authority. Some Directors and executive officers disclaim beneficial ownership of some of the shares included in the table, as follows: Ms. Barra — 229 shares held in a trust and by spouse in trust; Ms. Chang — 120 shares held in a trust; Mr. Chapek — 214 shares held in a trust and by adult child; Mr. Froman — 20 shares held in a trust; and Mr. Iger — 156 shares held by spouse. All Directors and executive officers as of January 3, 2023 as a group disclaim beneficial ownership of a total of 525 shares.

2

For NEOs, the number of shares listed includes interests in shares held in Company savings and investment plans as of January 3, 2023: Mr. Chapek — 3,597 shares; Mr. Iger — 20,552 shares; Ms. McCarthy — 4,219 shares; and all executive officers as of January 3, 2023 as a group — 24,771 shares.

3

Reflects the number of stock units credited as of January 3, 2023 to the account of each non-employee Director participating in the 2011 Stock Incentive Plan. These units are payable solely in shares of Company common stock as described under Item 11. Directors, Executive Officers and Corporate Governance — “Director Compensation,” but do not have current voting or investment power. Excludes unvested restricted stock units awarded to executives under the 2011 Stock Incentive Plan that vest on a performance basis and other restricted stock units awarded to executives that have not vested under their vesting schedules.

4

Reflects the number of shares that could be purchased by exercise of options exercisable at January 3, 2023, or within 60 days thereafter under the Company’s stock option plans and the number of shares underlying restricted stock units that vest within 60 days of January 3, 2023, excluding dividend equivalent units that will vest in that period.

Equity Compensation Plans

Information regarding the equity compensation plans of the Company is set forth in Item 11. Executive Compensation — “Executive Compensation — Compensation Tables — Equity Compensation Plans.”

ITEM 13. Certain Relationships and Related Transactions, and Director Independence

Certain Relationships and Related Person Transactions

The Board has adopted a written policy for review of transactions in any fiscal year in which the Company is a participant and in which any Director, Director nominee, executive officer, holder of more than 5% of our outstanding shares or any immediate family member of any of these persons has a direct or indirect material interest. Directors, Director nominees, 5% shareholders and executive officers are required to inform the Company of any such transaction promptly after they become aware of it and the Company collects information from Directors, Director nominees and executive officers about their affiliations and affiliations of their family members so the Company can search its records for any such transactions. Transactions are presented to the Governance and Nominating Committee of the Board (or to the Chair of the Committee if the Committee delegates this responsibility) for approval before they are entered into or, if this is not possible, for ratification after the transaction has been entered into. The Committee approves or ratifies a transaction if it determines that the transaction is consistent with the best interests of the Company, including whether the transaction impairs independence of a Director.

Each of the investment management firms, Vanguard Group, Inc. and Blackrock, Inc., through their affiliates, held more than 5% of the Company’s shares during fiscal 2022. Funds managed by affiliates of Vanguard and Blackrock are included as investment options in defined contribution plans offered to Company employees. In addition, Blackrock manages investment portfolios for the Company’s pension funds and provides a risk analytics platform related to management of investments in the pension funds. Vanguard and Blackrock received fees of approximately $1 million and $11 million, respectively, in fiscal 2022 based on the amounts invested in funds managed by them. The ongoing relationships were reviewed and approved in fiscal 2022 by the Governance and Nominating Committee under the Related Person Transaction Approval Policy.

Beginning in fiscal 2021, MVL Productions LLC, a subsidiary of the Company, contracted with a company wholly owned by Mr. Chapek’s son, Brian Chapek (“Mr. B. Chapek”), for Mr. B. Chapek’s exclusive services for a three-year period. The contract provides for Mr. B. Chapek to receive an annual base payment of $322,000 in fiscal 2021, $342,000 in fiscal 2022 and $367,000 in fiscal 2023. These amounts are inclusive of a payment in lieu of benefits. Additionally, Mr. B. Chapek will receive a $200,000 fee for each film on which he serves as lead producer and an additional bonus calculated by a predetermined formula based on the worldwide box office of films on which he works, consistent with a range and structure typical of producer deals at Walt Disney Studios. For fiscal 2022, Mr. B. Chapek received his $342,000 base payment plus $40,000, 20% of his producer fee. In fiscal 2023, Mr. B. Chapek will receive an additional bonus of $31,000 pursuant to the terms of his contract. This relationship was reviewed and approved in fiscal 2022 by the Governance and Nominating Committee under the Related Person Transaction Approval Policy.

59

In fiscal 2022, Daniel McCormick, son of Christine McCarthy, Senior Executive Vice President and Chief Financial Officer, was employed as Senior Manager-Research in the General Entertainment Content business. For fiscal 2022, Mr. McCormick’s base salary was $64,466 and his benefits were approximately $4,904, each prorated for the period of fiscal 2022 that he was employed by the Company (April 4, 2022 to October 1, 2022), and his bonus was $24,300. On an annualized basis, his fiscal 2022 base salary would have been $130,000, his benefits would have been approximately $10,626 and his target bonus would be $19,500. Mr. McCormick was paid an amount and his compensation was structured the same as similarly situated employees. This relationship was reviewed and approved in fiscal 2022 by the Governance and Nominating Committee under the Related Person Transaction Approval Policy.

Director Independence

The provisions of the Company’s Corporate Governance Guidelines regarding Director independence meet and, in some respects, exceed the listing standards of the New York Stock Exchange. The Corporate Governance Guidelines are available on the Company’s Investor Relations website under the “Corporate Governance” heading at www.disney.com/investors and in print to any shareholder who requests them from the Company’s Secretary.

Pursuant to the Corporate Governance Guidelines, the Board undertook its annual review of Director independence in November 2022. During this review, the Board considered transactions and relationships between the Company and its subsidiaries and affiliates on the one hand, and on the other hand, Directors, immediate family members of Directors or entities of which a Director or an immediate family member is an executive officer, general partner or significant equity holder. The Board also considered whether there were any transactions or relationships between any of these persons or entities and the Company’s executive officers or their affiliates. As provided in the Corporate Governance Guidelines, the purpose of this review was to determine whether any such relationships or transactions existed that were inconsistent with a determination that the Director is independent.

As a result of this review, the Board affirmatively determined that all of the Directors serving in fiscal 2022 or nominated for election at the 2023 Annual Meeting are independent of the Company and its management under the standards set forth in the Corporate Governance Guidelines, with the exception of Mr. Iger and Mr. Chapek, neither of which is considered independent because of employment as a senior executive of the Company. Additionally, Mr. Chapek’s son provided producer services to the Company in fiscal 2022, as discussed under the section titled “Certain Relationships and Related Person Transactions” above.

In determining the independence of each Director, the Board considered and deemed immaterial to the Directors’ independence transactions involving the sale of products and services in the ordinary course of business between the Company on the one hand, and on the other, companies or organizations at which some of our Directors or their immediate family members were officers or employees during fiscal 2022. In each case, the amount paid to or received from these companies or organizations in each of the last three years was below the 2% of total revenue threshold in the Corporate Governance Guidelines. The Board determined that none of the relationships it considered impaired the independence of the Directors.

60

ITEM 14. Principal Accounting Fees and Services

Auditor Fees and Services

The following table presents fees for professional services rendered by PricewaterhouseCoopers LLP for the audit of the Company’s annual financial statements and internal control over financial reporting for fiscal 2022 and fiscal 2021, together with fees for audit-related, tax and other services rendered by PricewaterhouseCoopers LLP during fiscal 2022 and fiscal 2021. Audit-related services consisted principally of audits and agreed upon procedures of other entities related to the Company, viewership rankings and other attest projects, and consultations on the impact of new accounting rules. Tax services consisted principally of planning and advisory services and tax compliance assistance. Other services consisted of other miscellaneous services, including accounting research software and other non-audit-related attestation services. The Audit Committee directs and reviews the negotiations associated with the Company’s retention of its independent registered public accountants.

  

 

FISCAL 2022

  

 

FISCAL 2021

 
  (IN MILLIONS) 

Audit fees

  $30.1   $28.6  

Audit-related fees

  2.3   2.1  

Tax fees

  2.5   2.9  

All other fees

  0.1   0.1  

Policy for Approval of Audit and Permitted Non-Audit Services

All audit, audit-related, tax and other services were pre-approved by the Audit Committee, which concluded that the provision of such services by PricewaterhouseCoopers LLP was compatible with the maintenance of that firm’s independence in the conduct of its auditing functions. The Audit Committee’s Outside Auditor Independence and Pre-Approval Policy provides for pre-approval of specifically described audit, audit-related, tax and other services by the Committee on an annual basis, but individual engagements anticipated to exceed pre-established thresholds must be separately approved. The policy also requires specific approval by the Committee if total fees for audit-related, tax and other services would exceed total fees for audit services in any fiscal year. The policy authorizes the Committee to delegate to one or more of its members pre-approval authority with respect to permitted services, and the Committee has delegated to the Chair of the Committee the authority to pre-approve services in certain circumstances.

61

PART IV

ITEM 15. Exhibits and Financial Statement Schedules

(1) Financial Statements and Schedules

No financial statement or supplemental data are filed with this report on Form 10-K/A. See Index to Financial Statements and Supplemental Data of the Original Form 10-K.

(2) Exhibits

The documents set forth below are filed herewith.

Exhibit

Location

31(a)Rule 13a-14(a) Certification of Chief Executive Officer of the Company in accordance with Section 302 of the Sarbanes-Oxley Act of 2002Filed herewith
31(b)Rule 13a-14(a) Certification of Chief Financial Officer of the Company in accordance with Section 302 of the Sarbanes-Oxley Act of 2002
32(a)Section 1350 Certification of Chief Executive Officer of the Company in accordance with Section 906 of the Sarbanes-Oxley Act of 2002**
32(b)Section 1350 Certification of Chief Financial Officer of the Company in accordance with Section 906 of the Sarbanes-Oxley Act of 2002**
99Waiver of Rights to Extension Bonus, dated as of December 20, 2019, by Robert A. Iger †
101The following materials from the Company’s Annual Report on Form 10-K for the year ended October 3, 2020 formatted in Inline Extensible Business Reporting Language (iXBRL): (i) the Consolidated Statements of Operations, (ii) the Consolidated Statements of Comprehensive Income, (iii) the Consolidated Balance Sheets, (iv) the Consolidated Statements of Cash Flows, (v) the Consolidated Statements of Equity and (vi) related notesFiled herewith
104Cover Page Interactive Data File (embedded within the Inline XBRL document)Filed herewith

*Certain schedules and exhibits have been omitted pursuant to Item 601(b)(2) of Regulation S-K. A copy of any omitted schedule or exhibit will be furnished supplementally to the SEC upon request.
**A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the SEC or its staff upon request.
†Management contract or compensatory plan or arrangement.

ITEM 16. Form 10-K Summary
None.
68

62

TABLE OF CONTENTS

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

THE WALT DISNEY COMPANY
(Registrant)
Date:November 25, 2020By:/s/    ROBERT A. Chapek
(Robert A. Chapek,
Chief Executive Officer and Director)
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. 
SignatureTitleDate
Principal Executive Officer
/s/    ROBERT A. CHAPEKChief Executive Officer and DirectorNovember 25, 2020
(Robert A. Chapek)
Principal Financial and Accounting Officers
/s/    CHRISTINE M. MCCARTHYSenior Executive Vice President
and Chief Financial Officer		November 25, 2020
(Christine M. McCarthy)
/s/    BRENT A. WOODFORDExecutive Vice President-Controllership, Financial Planning and TaxNovember 25, 2020
(Brent A. Woodford)
Directors
/s/    SUSAN E. ARNOLDDirectorNovember 25, 2020
(Susan E. Arnold)
/s/    MARY T. BARRADirectorNovember 25, 2020
(Mary T. Barra)
/s/    SAFRA A. CATZDirectorNovember 25, 2020
(Safra A. Catz)
/s/    FRANCIS A. DESOUZADirectorNovember 25, 2020
(Francis A. deSouza)
/s/    MICHAEL FROMANDirectorNovember 25, 2020
(Michael Froman)
/s/    ROBERT A. IGERExecutive Chairman, Chairman of the Board and DirectorNovember 25, 2020
(Robert A. Iger)
/s/ MARIA ELENA LAGOMASINODirectorNovember 25, 2020
(Maria Elena Lagomasino)
/s/    MARK G. PARKERDirectorNovember 25, 2020
(Mark G. Parker)
/s/    DERICA W. RICEDirectorNovember 25, 2020
(Derica W. Rice)

69
TABLE OF CONTENTS
THE WALT DISNEY COMPANY AND SUBSIDIARIES
INDEX TO FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA
Page
Management’s Report on Internal Control Over Financial Reporting
71
Report of Independent Registered Public Accounting Firm
72
Consolidated Financial Statements of The Walt Disney Company and Subsidiaries
Consolidated Statements of Operations for the Years Ended October 3, 2020, September 28, 2019 and September 29, 2018
74
Consolidated Statements of Comprehensive Income (Loss) for the Years Ended October 3, 2020, September 28, 2019 and September 29, 2018
75
Consolidated Balance Sheets as of October 3, 2020 and September 28, 2019
76
Consolidated Statements of Cash Flows for the Years Ended October 3, 2020, September 28, 2019 and September 29, 2018
77
Consolidated Statements of Shareholders’ Equity for the Years Ended October 3, 2020, September 28, 2019 and September 29, 2018
78
Notes to Consolidated Financial Statements
79
Quarterly Financial Summary (unaudited)
133

All schedules are omitted for the reason that they are not applicable or the required information is included in the financial statements or notes.
70
TABLE OF CONTENTS
MANAGEMENT’S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
Management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rule 13a-15(f). The Company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the Company’s assets that could have a material effect on the financial statements.
Internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements prepared for external purposes in accordance with generally accepted accounting principles. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Under the supervision and with the participation of management, including our principal executive officer and principal financial officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission in 2013. Based on our evaluation under the framework in Internal Control - Integrated Framework, management concluded that our internal control over financial reporting was effective as of October 3, 2020.
The effectiveness of our internal control over financial reporting as of October 3, 2020 has been audited by PricewaterhouseCoopers LLP, an independent registered public accounting firm, as stated in their report, which is included herein.
71
TABLE OF CONTENTS
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders of The Walt Disney Company
Opinions on the Financial Statements and Internal Control over Financial Reporting
We have audited the accompanying consolidated balance sheets of The Walt Disney Company and its subsidiaries (the “Company”) as of October 3, 2020 and September 28, 2019, and the related consolidated statements of operations, comprehensive income (loss), shareholders’ equity and cash flows for each of the three years in the period ended October 3, 2020, including the related notes (collectively referred to as the “consolidated financial statements”). We also have audited the Company’s internal control over financial reporting as of October 3, 2020, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of October 3, 2020 and September 28, 2019, and the results of its operations and its cash flows for each of the three years in the period ended October 3, 2020 in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of October 3, 2020, based on criteria established in Internal Control - Integrated Framework (2013) issued by the COSO.
Change in Accounting Principle
As discussed in Note 2 to the consolidated financial statements, the Company changed the manner in which it accounts for leases in fiscal year 2020.
Basis for Opinions
The Company’s management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control Over Financial Reporting. Our responsibility is to express opinions on the Company’s consolidated financial statements and on the Company’s internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.
Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.
Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
72
TABLE OF CONTENTS
Critical Audit Matters
The critical audit matters communicated below are matters arising from the current period audit of the consolidated financial statements that were communicated or required to be communicated to the audit committee and that (i) relate to accounts or disclosures that are material to the consolidated financial statements and (ii) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.
Goodwill – Interim Impairment Assessment for International Channels Reporting Unit
As described in Notes 2, 4 and 19 to the consolidated financial statements, the Company’s consolidated goodwill balance was $77.7 billion as of October 3, 2020. Management tests goodwill for impairment on an annual basis, and if current events or circumstances require, on an interim basis. In the third quarter of fiscal 2020, management performed an impairment test of the International Channels’ goodwill. The carrying value of the International Channels exceeded the fair value and management recorded a non-cash impairment charge of $3.1 billion to fully impair the International Channels reporting unit goodwill. The fair value was determined using a discounted cash flow analysis. The determination of fair value required management to make assumptions and estimates about how market participants would value the International Channels. The more sensitive inputs used in the discounted cash flow analysis include future revenue growth and projected margins as well as the discount rates used to calculate the present value of future cash flows.
The principal considerations for our determination that performing procedures relating to the goodwill interim impairment assessment of the International Channels reporting unit is a critical audit matter are the significant judgment required of management when determining the fair value of the International Channels reporting unit, which in turn led to a high degree of auditor judgment, subjectivity, and effort in performing procedures to evaluate management’s significant assumptions related to future revenue growth, projected margins, and the discount rates used in the fair value measurement of the International Channels reporting unit. In addition, the audit effort involved the use of professionals with specialized skill and knowledge.
Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. These procedures included testing the effectiveness of controls relating to management’s goodwill interim impairment assessment, including controls over the valuation of the International Channels reporting unit. These procedures also included, among others, testing management’s process for determining the fair value estimates, which included (i) evaluating the appropriateness of the discounted cash flow model; (ii) testing the completeness and accuracy of underlying data used in the model; and (iii) evaluating the significant assumptions used by management related to the future revenue growth, projected margins and discount rates. Evaluating management’s assumptions related to future revenue growth and projected margins involved evaluating whether the assumptions used by management were reasonable considering (i) the current and past performance of the reporting unit, (ii) the consistency with external market and industry data, and (iii) whether these assumptions were consistent with evidence obtained in other areas of the audit. Professionals with specialized skill and knowledge were used to assist in the evaluation of the Company’s discount rates.
Amortization of Produced Content Cost – Predominantly Monetized as a Group
As described in Note 8 to the consolidated financial statements, the Company produces content for its Direct-to-Consumer (“DTC”) streaming services and linear television networks. The Company generally classifies the content that is initially intended for use on their DTC services or on their linear television networks as group assets. 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. For the year ended October 3, 2020, the Company recognized $5.0 billion of amortization expense related to produced content cost predominantly monetized as a group, which is primarily included in “Cost of services” in the Consolidated Statements of Operations.
The principal considerations for our determination that performing procedures relating to amortization of produced content costs predominantly monetized as a group is a critical audit matter are the high degree of auditor subjectivity and effort in performing procedures and evaluating audit evidence relating to management’s estimate of projected usage used in the amortization calculation.
Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. These procedures included testing the effectiveness of controls relating to amortization of produced content costs predominantly monetized as a group including controls over the estimation of projected usage. These procedures also included, among others, evaluating the content amortization method and testing the completeness and accuracy of the historical viewership data used to calculate the estimate of projected usage.
/s/ PricewaterhouseCoopers LLP
Los Angeles, California
November 25, 2020
We have served as the Company’s auditor since 1938.
73
TABLE OF CONTENTS
CONSOLIDATED STATEMENTS OF OPERATIONS
(in millions, except per share data)
202020192018
Revenues:
Services$59,265  $60,579  $50,869  
Products6,123  9,028  8,565  
Total revenues65,388  69,607  59,434  
Costs and expenses:
Cost of services (exclusive of depreciation and amortization)(39,406) (36,493) (27,528) 
Cost of products (exclusive of depreciation and amortization)(4,474) (5,568) (5,198) 
Selling, general, administrative and other(12,369) (11,549) (8,860) 
Depreciation and amortization(5,345) (4,167) (3,011) 
Total costs and expenses(61,594) (57,777) (44,597) 
Restructuring and impairment charges(5,735) (1,183) (33) 
Other income, net1,038  4,357  601  
Interest expense, net(1,491) (978) (574) 
Equity in the income (loss) of investees651  (103) (102) 
Income (loss) from continuing operations before income taxes(1,743) 13,923  14,729  
Income taxes on continuing operations(699) (3,026) (1,663) 
Net income (loss) from continuing operations(2,442) 10,897  13,066  
Income (loss) from discontinued operations, net of income tax benefit (expense) of $10, ($39) and $0, respectively(32) 687  0  
Net income (loss)(2,474) 11,584  13,066  
Net income from continuing operations attributable to noncontrolling and redeemable noncontrolling interests(390) (472) (468) 
Net income from discontinued operations attributable to noncontrolling interests0  (58) 0  
Net income (loss) attributable to The Walt Disney Company (Disney)$(2,864) $11,054  $12,598  
Earnings (loss) per share attributable to Disney(1):
Diluted
Continuing operations$(1.57) $6.26  $8.36  
Discontinued operations(0.02) 0.38  0  
$(1.58) $6.64  $8.36  
Basic
Continuing operations$(1.57) $6.30  $8.40  
Discontinued operations(0.02) 0.38  0  
$(1.58) $6.68  $8.40  
Weighted average number of common and common equivalent shares outstanding:
Diluted1,808  1,666  1,507  
Basic1,808  1,656  1,499  
(1)Total may not equal the sum of the column due to rounding.
See Notes to Consolidated Financial Statements
74
TABLE OF CONTENTS
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(in millions)
202020192018
Net income (loss)$(2,474) $11,584  $13,066  
Other comprehensive income (loss), net of tax:
Market value adjustments, primarily for hedges(251) (37) 214  
Pension and postretirement medical plan adjustments(1,476) (2,446) 434  
Foreign currency translation and other115  (396) (289) 
Other comprehensive income (loss)(1,612) (2,879) 359  
Comprehensive income (loss)(4,086) 8,705  13,425  
Net income from continuing operations attributable to noncontrolling interests(390) (530) (468) 
Other comprehensive income (loss) attributable to noncontrolling interests(93) 65  72  
Comprehensive income (loss) attributable to Disney$(4,569) $8,240  $13,029  
See Notes to Consolidated Financial Statements
75
TABLE OF CONTENTS
CONSOLIDATED BALANCE SHEETS
(in millions, except share data)
October 3,
2020		September 28,
2019
ASSETS
Current assets
Cash and cash equivalents$17,914  $5,418  
Receivables12,708  15,481  
Inventories1,583  1,649  
Licensed content costs and advances2,171  4,597  
Other current assets875  979  
Total current assets35,251  28,124  
Produced and licensed content costs25,022  22,810  
Investments3,903  3,224  
Parks, resorts and other property
Attractions, buildings and equipment62,111  58,589  
Accumulated depreciation(35,517) (32,415) 
26,594  26,174  
Projects in progress4,449  4,264  
Land1,035  1,165  
32,078  31,603  
Intangible assets, net19,173  23,215  
Goodwill77,689  80,293  
Other assets8,433  4,715  
Total assets$201,549  $193,984  
LIABILITIES AND EQUITY
Current liabilities
Accounts payable and other accrued liabilities$16,801  $17,762  
Current portion of borrowings5,711  8,857  
Deferred revenue and other4,116  4,722  
Total current liabilities26,628  31,341  
Borrowings52,917  38,129  
Deferred income taxes7,288  7,902  
Other long-term liabilities17,204  13,760  
Commitments and contingencies (Note 15)
Redeemable noncontrolling interests9,249  8,963  
Equity
Preferred stock0  0  
Common stock, $.01 par value, Authorized – 4.6 billion shares, Issued – 1.8 billion shares54,497  53,907  
Retained earnings38,315  42,494  
Accumulated other comprehensive loss(8,322) (6,617) 
Treasury stock, at cost, 19 million shares(907) (907) 
Total Disney Shareholders’ equity83,583  88,877  
Noncontrolling interests4,680  5,012  
Total equity88,263  93,889  
Total liabilities and equity$201,549  $193,984  
See Notes to Consolidated Financial Statements
76
TABLE OF CONTENTS
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in millions)
202020192018
OPERATING ACTIVITIES
Net income (loss) from continuing operations$(2,442) $10,897  $13,066  
Depreciation and amortization5,345  4,167  3,011  
Goodwill and intangible asset impairments4,953  0  0  
Net gain on investments, acquisitions and dispositions(920) (4,733) (560) 
Deferred income taxes(392) 117  (1,573) 
Equity in the (income) loss of investees(651) 103  102  
Cash distributions received from equity investees774  754  775  
Net change in produced and licensed content costs and advances397  (542) (523) 
Net change in operating lease right of use assets / liabilities31  0  0  
Equity-based compensation525  711  393  
Other641  154  441  
Changes in operating assets and liabilities, net of business acquisitions:
Receivables1,943  55  (720) 
Inventories14  (223) (17) 
Other assets(157) 932  (927) 
Accounts payable and other liabilities(2,293) 191  235  
Income taxes(152) (6,599) 592  
Cash provided by operations - continuing operations7,616  5,984  14,295  
INVESTING ACTIVITIES
Investments in parks, resorts and other property(4,022) (4,876) (4,465) 
Acquisitions0  (9,901) (1,581) 
Other172  (319) 710  
Cash used in investing activities - continuing operations(3,850) (15,096) (5,336) 
FINANCING ACTIVITIES
Commercial paper borrowings (payments), net(3,354) 4,318  (1,768) 
Borrowings18,120  38,240  1,056  
Reduction of borrowings(3,533) (38,881) (1,871) 
Dividends(1,587) (2,895) (2,515) 
Repurchases of common stock0  0  (3,577) 
Proceeds from exercise of stock options305  318  210  
Contributions from / sales of noncontrolling interests94  737  399  
Acquisition of noncontrolling and redeemable noncontrolling interests0  (1,430) 0  
Other(1,565) (871) (777) 
Cash provided by (used in) financing activities - continuing operations8,480  (464) (8,843) 
CASH FLOWS FROM DISCONTINUED OPERATIONS
Cash provided by operations - discontinued operations2  622  0  
Cash provided by investing activities - discontinued operations213  10,978  0  
Cash used in financing activities - discontinued operations0  (626) 0  
Cash provided by discontinued operations215  10,974  0  
Impact of exchange rates on cash, cash equivalents and restricted cash38  (98) (25) 
Change in cash, cash equivalents and restricted cash12,499  1,300  91  
Cash, cash equivalents and restricted cash, beginning of year5,455  4,155  4,064  
Cash, cash equivalents and restricted cash, end of year$17,954  $5,455  $4,155  
Supplemental disclosure of cash flow information:
Interest paid$1,559  $1,142  $631  
Income taxes paid$738  $9,259  $2,503  
See Notes to Consolidated Financial Statements
77
TABLE OF CONTENTS
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
(in millions)
 Equity Attributable to Disney  
SharesCommon
Stock		Retained
Earnings		Accumulated
Other
Comprehensive
Income
(Loss)		Treasury
Stock		Total
Disney
Equity
Non-controlling
Interests(1)
Total Equity
Balance at September 30, 20171,517 $36,248  $72,606  $(3,528) $(64,011) $41,315  $3,689  $45,004  
Comprehensive income— —  12,598  431  —  13,029  425  13,454  
Equity compensation activity6 518  —  —  —  518  —  518  
Common stock repurchases(35)—  —  —  (3,577) (3,577) —  (3,577) 
Dividends— 14  (2,529) —  —  (2,515) —  (2,515) 
Contributions— —  —  —  —  —  488  488  
Distributions and other— (1) 4  —  —  3  (543) (540) 
Balance at September 29, 20181,488 $36,779  $82,679  $(3,097) $(67,588) $48,773  $4,059  $52,832  
Comprehensive income— —  11,054  (2,814) —  8,240  371  8,611  
Equity compensation activity7 912  —  —  —  912  —  912  
Dividends— 18  (2,913) —  —  (2,895) —  (2,895) 
Contributions— —  —  —  —  —  737  737  
Acquisition of TFCF307 33,774  —  —  —  33,774  10,408  44,182  
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— —  192  —  —  192  —  192  
Revenues from Contracts with Customers— —  (116) —  —  (116) —  (116) 
Other— —  22  (15) —  7  —  7  
Retirement of treasury stock— (17,563) (49,118) —  66,681  —  —  —  
Reclassification to redeemable noncontrolling interest— —  —  —  —  —  (7,770) (7,770) 
Redemption of noncontrolling interest— —  —  —  —  —  (1,430) (1,430) 
Sales of the RSNs— —  —  —  —  —  (744) (744) 
Distributions and other— (13) 3  —  —  (10) (619) (629) 
Balance at September 28, 20191,802 $53,907  $42,494  $(6,617) $(907) $88,877  $5,012  $93,889  
Comprehensive income (loss)— —  (2,864) (1,705) —  (4,569) 198  (4,371) 
Equity compensation activity8 590  —  —  —  590  —  590  
Dividends— 9  (1,596) —  —  (1,587) —  (1,587) 
Contributions— —  —  —  —  —  94  94  
Adoption of new lease accounting guidance— —  197  —  —  197  —  197  
Distributions and other— (9) 84  —  —  75  (624) (549) 
Balance at October 3, 20201,810 $54,497  $38,315  $(8,322) $(907) $83,583  $4,680  $88,263  
(1)Excludes redeemable noncontrolling interest
See Notes to Consolidated Financial Statements
78
TABLE OF CONTENTS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular dollars in millions, except where noted and per share amounts)
1Description of the Business and Segment Information
The Walt Disney Company, together with the subsidiaries through which businesses are conducted (the Company), is a diversified worldwide entertainment company with operations in the following business segments: Media Networks; Parks, Experiences and Products; Studio Entertainment; and Direct-to-Consumer & International (DTCI). In October 2020, the Company announced a strategic reorganization of our media and entertainment businesses to accelerate the growth of our direct-to-consumer (DTC) strategy. The operations of the Media Networks, Studio Entertainment and DTCI segments were reorganized into four groups: three content groups (Studios, General Entertainment and Sports), which are focused on developing and producing content that will be used across all of our traditional and DTC platforms and a distribution group, which is focused on distribution and commercialization activities across these platforms and which has full accountability for media and entertainment operating results globally.
The terms “Company”, “we”, “our” and “us” are used in this report to refer collectively to the parent company and the subsidiaries through which various businesses are conducted. The term “TWDC” is used to refer to the parent company.
Impact of COVID-19
During fiscal 2020 and continuing into fiscal 2021, the world has been, and continues to be, impacted by the novel coronavirus (COVID-19) pandemic. COVID-19 and measures to prevent its spread impacted our segments in a number of ways, most significantly at Parks, Experiences and Products where our theme parks were closed or operating at significantly reduced capacity for a significant portion of the year, cruise ship sailings and guided tours were suspended since late in the second quarter and retail stores were closed for a significant portion of the year. We also had an adverse impact on our merchandise licensing business. Our Studio Entertainment segment has delayed, or in some cases, shortened or cancelled, theatrical releases, and stage play performances have been suspended since late in the second quarter. We also had adverse impacts on advertising sales at Media Networks and Direct-to-Consumer & International. Since March 2020, we have experienced significant disruptions in the production and availability of content, including the shift of key live sports programming from our third quarter to the fourth quarter and into fiscal 2021 as well as the suspension of production of most film and television content since late in the second quarter, although some film and television production resumed in the fourth quarter.
The impact of these disruptions and the extent of their adverse impact on our financial and operating results will be dictated by the length of time that such disruptions continue, which will, in turn, depend on the currently unknowable duration and severity of the impacts of COVID-19, and among other things, the impact of governmental actions imposed in response to COVID-19 and individuals’ and companies’ risk tolerance regarding health matters going forward. As some of our businesses have reopened, we have incurred additional costs to address government regulations and the safety of our employees, talent and guests.
In fiscal 2020, the Company recorded goodwill and intangible asset impairments totaling $5.0 billion, in part due to the negative impact COVID-19 has had on the International Channels business (see Note 19).
Acquisition of TFCF
On March 20, 2019, the Company acquired Twenty-First Century Fox, Inc., a diversified global media and entertainment company, which was subsequently renamed TFCF Corporation (TFCF). Prior to the acquisition, TFCF and a newly-formed subsidiary of TFCF (New Fox) entered into a separation agreement, pursuant to which TFCF transferred to New Fox a portfolio of TFCF’s news, sports and broadcast businesses and certain other assets. TFCF retained all of the assets and liabilities not transferred to New Fox, the most significant of which were the Twentieth Century Fox film and television studios, certain cable networks (primarily FX and National Geographic), TFCF’s international television businesses (including Star) and TFCF’s 30% interest in Hulu LLC (Hulu). Under the terms of the agreement governing the acquisition, the Company will generally phase-out Fox brands by 2024, but has perpetual rights to certain Fox brands, including Twentieth Century Fox and Fox Searchlight, although these have been rebranded to Twentieth Century Studios and Searchlight Pictures, respectively.
As a result of the acquisition, the Company’s ownership in Hulu LLC (Hulu) increased from 30% to 60% (67% as of October 3, 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 (RSNs) (sold in August 2019 for approximately $11 billion) and sports media operations in Brazil and Mexico. In addition, the Company agreed to divest its interest in certain European cable channels that were controlled by A+E Television Networks (A+E) (sold in April 2019 for an amount that was not material). In the third quarter of fiscal 2020, the Company
79
TABLE OF CONTENTS
received regulatory approval to retain the sports media operation in Brazil. The RSNs and sports media operation in Mexico, along with certain other businesses to be divested, are presented as discontinued operations in the Consolidated Statements of Operations. At October 3, 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 Consolidated Balance Sheets. The sports media operation in Brazil was previously presented as discontinued operations, with its assets and liabilities considered held for sale, but is now reported as continuing operations in the current and prior periods. The impact on the previously reported Consolidated Statements of Operations, Consolidated Balance Sheets and Consolidated Statements of Cash Flows was not material.
See Note 4 for additional information on these transactions.
DESCRIPTION OF THE BUSINESS
Media Networks
Significant operations:
•Disney, ESPN, Freeform, FX and National Geographic branded domestic cable networks
•ABC branded broadcast television network and eight owned domestic television stations
•Television production and distribution
•A 50% equity investment in A+E
Significant revenues:
•Affiliate fees - Fees charged to multi-channel video programming distributors (i.e. cable, satellite, telecommunications and digital over-the-top (e.g. Hulu, YouTube TV) service providers) (MVPDs) and to television stations affiliated with the ABC Network for the right to deliver our programming to their customers
•Advertising - Sales of advertising time/space on our domestic networks and related platforms (“ratings-based ad sales”, which excludes advertising on digital platforms that is not ratings-based) and the sale of advertising time on our domestic television stations. Ratings-based ad sales are generally determined using viewership measured with Nielsen ratings. Non-ratings-based advertising on digital platforms is reported by DTCI
•TV/SVOD distribution - Licensing fees and other revenues from the right to use our television programs and productions and revenue from content transactions with other Company segments (“program sales”)
Significant expenses:
•Operating expenses consisting primarily of programming and production costs, participations and residuals expense, technical support costs, operating labor and distribution costs
•Selling, general and administrative costs
•Depreciation and amortization
Parks, Experiences and Products
Significant operations:
•Parks & Experiences:
◦Theme parks and resorts, which include: Walt Disney World Resort in Florida; Disneyland Resort in California; Disneyland Paris; Hong Kong Disneyland Resort (48% ownership interest); Shanghai Disney Resort (43% ownership interest), all of which are consolidated in our results. Additionally, the Company licenses our intellectual property to a third party to operate Tokyo Disney Resort
◦Disney Cruise Line, Disney Vacation Club, National Geographic Expeditions (73% ownership interest), Adventures by Disney and Aulani, a Disney Resort & Spa in Hawaii
•Consumer Products:
◦Licensing of our trade names, characters, visual, literary and other intellectual properties to various manufacturers, game developers, publishers and retailers throughout the world, for use on merchandise, published materials and games
◦Sale of branded merchandise through retail, online and wholesale businesses, and development and publishing of books, comic books and magazines (except National Geographic, which is reported in Media Networks)
Significant revenues:
•Theme park admissions - Sales of tickets for admission to our theme parks
•Parks & Experiences merchandise, food and beverage - Sales of merchandise, food and beverages at our theme parks and resorts and cruise ships
•Resorts and vacations - Sales of room nights at hotels, sales of cruise and other vacations and sales and rentals of vacation club properties
80
TABLE OF CONTENTS
•Merchandise licensing and retail:
◦Merchandise licensing - Royalties from intellectual property licensing
◦Retail - Sales of merchandise at The Disney Stores and through branded internet shopping sites, as well as, to wholesalers (including books, comic books and magazines)
•Parks licensing and other - Revenues from sponsorships and co-branding opportunities and real estate rent and sales. In addition, we earn royalties on Tokyo Disney Resort revenues
Significant expenses:
•Operating expenses consisting primarily of operating labor, costs of goods sold, infrastructure costs, supplies, commissions and entertainment offerings. Infrastructure costs include information systems expense, repairs and maintenance, property taxes, utilities and fuel, retail occupancy costs, insurance and transportation
•Selling, general and administrative costs
•Depreciation and amortization
Studio Entertainment
Significant operations:
•Motion picture production and distribution under the Walt Disney Pictures, Twentieth Century Studios, Marvel, Lucasfilm, Pixar, Searchlight Pictures and Blue Sky Studios banners
•Development, production and licensing of live entertainment events on Broadway and around the world (stage plays)
•Music production and distribution
•Post-production services through Industrial Light & Magic and Skywalker Sound
Significant revenues:
•Theatrical distribution - Rentals from licensing our motion pictures to theaters
•Home entertainment - Sale of our motion pictures to retailers and distributors in physical (DVD and Blu-ray) and electronic formats
•TV/SVOD distribution and other - Licensing fees and other revenue from the right to use our motion picture productions, revenue from content transactions with other Company segments, ticket sales from stage plays, fees from licensing our intellectual properties for use in live entertainment productions, revenue from licensing our music and revenue from post-production services
Significant expenses:
•Operating expenses consisting primarily of amortization of production, participations and residuals costs, distribution costs and costs of sales
•Selling, general and administrative costs
•Depreciation and amortization
Direct-to-Consumer & International
Significant operations:
•Direct-to-consumer (DTC) video streaming services, which include Disney+ / Disney+Hotstar, ESPN+ and Hulu. Disney+ launched in November 2019 in the U.S. and 4 other countries and has expanded to select Western European countries in the Spring of 2020. In April, our Hotstar service in India was converted to Disney+Hotstar, and in June 2020, current subscribers of the Disney Deluxe service in Japan were converted to Disney+. In September 2020, Disney+ was launched in additional European countries and Disney+Hotstar was launched in Indonesia. In November 2020, Disney+ was launched in Latin America. The Company also plans to launch a general entertainment DTC video streaming service under the Star brand outside the U.S. in calendar year 2021
•Branded international television networks and channels, which include Disney, ESPN, Fox, National Geographic and Star (International Channels)
•Other digital content distribution platforms and services including branded apps and websites, the Disney Movie Club and Disney Digital Network and streaming technology support services
•Equity investments:
◦A 50% ownership interest in Endemol Shine Group, which was sold on July 2, 2020
◦A 20% ownership interest (49% economic interest) in Seven TV, which operates an advertising-supported, free-to-air Disney Channel in Russia
◦A 30% effective ownership interest in Tata Sky Limited, which operates a direct-to-home satellite distribution platform in India
81
TABLE OF CONTENTS
◦An approximate 24% effective ownership interest (14% fully diluted) in Vice Group Holding Inc. (Vice), which is a media company that targets millennial audiences. Vice operates Viceland, which is owned 50% by Vice and 50% by A+E
Significant revenues:
•Subscription fees - Fees charged to customers/subscribers for our DTC services
•Advertising - Sales of advertising time/space on our International Channels and sales of non-ratings-based advertising time/space on digital media platforms (“addressable ad sales”) across the Company. In general, addressable ad sales are delivered using technology that allows for dynamic insertion of advertisements into video content, which can be targeted to specific viewer groups
•Affiliate fees - Fees charged to MVPDs for the right to deliver our International Channels to their customers
•TV/SVOD distribution - Program sales, sub-licensing fees for sports programming rights and fees charged to customers to view our sports programming (“pay-per-view”) and Premier Access content
Significant expenses:
•Operating expenses consisting primarily of programming and production costs (including amortization of content obtained from other Company segments), technical support costs, operating labor and distribution costs
•Selling, general and administrative costs
•Depreciation and amortization
SEGMENT INFORMATION
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 for 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 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 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.
82
TABLE OF CONTENTS
The following tables provide select segment and regional financial information:
202020192018
Revenues
Media Networks$28,393  $24,827  $21,922  
Parks, Experiences and Products
Third parties17,038  26,786  25,257  
Intersegment(536) (561) (556) 
16,502  26,225  24,701  
Studio Entertainment
Third parties9,100  10,566  9,509  
Intersegment536  561  556  
9,636  11,127  10,065  
Direct-to-Consumer & International16,967  9,386  3,414  
Eliminations(1)
(6,110) (1,958) (668) 
Total consolidated revenues$65,388  $69,607  $59,434  
Segment operating income (loss)
Media Networks$9,022  $7,479  $7,338  
Parks, Experiences and Products(81) 6,758  6,095  
Studio Entertainment2,501  2,686  3,004  
Direct-to-Consumer & International(2,806) (1,835) (738) 
Eliminations(1)
(528) (241) (10) 
Total segment operating income(2)
$8,108  $14,847  $15,689  
Reconciliation of segment operating income to income from continuing operations before income taxes
Segment operating income$8,108  $14,847  $15,689  
Corporate and unallocated shared expenses(817) (987) (744) 
Restructuring and impairment charges(5,735) (1,183) (33) 
Other income, net1,038  4,357  601  
Interest expense, net(1,491) (978) (574) 
Amortization of TFCF and Hulu intangible assets and fair value step-up on film and television costs(3)
(2,846) (1,595) 0  
Impairment of equity investments(4)
0  (538) (210) 
Income (loss) from continuing operations before income taxes$(1,743) $13,923  $14,729  
Capital expenditures
Media Networks
Cable Networks$61  $93  $96  
Broadcasting51  81  107  
Parks, Experiences and Products
Domestic2,145  3,294  3,223  
International759  852  677  
Studio Entertainment77  88  96  
Direct-to-Consumer & International594  258  107  
Corporate335  210  159  
Total capital expenditures$4,022  $4,876  $4,465  

83
TABLE OF CONTENTS
202020192018
Depreciation expense
Media Networks$203  $191  $199  
Parks, Experiences and Products
Domestic1,634  1,474  1,449  
International694724768
Studio Entertainment877455
Direct-to-Consumer & International348  214  106  
Depreciation expense included in segment operating income2,966  2,677  2,577  
Corporate174  167  181  
Total depreciation expense$3,140  $2,844  $2,758  
Amortization of intangible assets
Media Networks$4  $0  $0  
Parks, Experiences and Products109  108  110  
Studio Entertainment59  61  64  
Direct-to-Consumer & International112  111  79  
Amortization of intangible assets included in segment operating income284  280  253  
TFCF and Hulu intangible assets1,921  1,043  0  
Total amortization of intangible assets$2,205  $1,323  $253  
October 3, 2020September 28, 2019
Identifiable assets(5)
Media Networks$62,220  $63,519  
Parks, Experiences and Products42,320  41,978  
Studio Entertainment32,811  34,323  
Direct-to-Consumer & International45,538  48,606  
Corporate(6)
19,691  6,025  
Eliminations(1,031) (467) 
Total consolidated assets$201,549  193,984  
202020192018
Revenues
Americas$51,992  $53,805  $46,877  
Europe7,333  8,006  7,026  
Asia Pacific6,063  7,796  5,531  
$65,388  $69,607  $59,434  
Segment operating income
Americas$5,819  $10,247  $11,898  
Europe1,273  2,433  1,922  
Asia Pacific1,016  2,167  1,869  
$8,108  $14,847  $15,689  

84
TABLE OF CONTENTS
October 3, 2020September 28, 2019
Long-lived assets(7)
Americas$141,674  $138,674  
Europe7,672  10,793  
Asia Pacific12,235  12,703  
$161,581  $162,170  
(1)Intersegment content transactions are as follows:
202020192018
Revenues:
Studio Entertainment:
Content transactions with Media Networks$(188) $(106) $(169) 
Content transactions with Direct-to-Consumer & International(2,108) (272) (28) 
Media Networks:
Content transactions with Direct-to-Consumer & International(3,814) (1,580) (471) 
Total$(6,110) $(1,958) $(668) 
Operating Income:
Studio Entertainment:
Content transactions with Media Networks$3  $(19) $(8) 
Content transactions with Direct-to-Consumer & International(158) (80) 0  
Media Networks:
Content transactions with Direct-to-Consumer & International(373) (142) (2) 
Total$(528) $(241) $(10) 
(2)Equity in the income (loss) of investees is as follows:
202020192018
Media Networks$737  $703  $711  
Parks, Experiences and Products(19) (13) (23) 
Studio Entertainment(1) 0  0  
Direct-to-Consumer & International(40) (240) (580) 
Equity in the income of investees included in segment operating income677  450  108  
Impairment of equity investments0  (538) (210) 
Amortization of TFCF intangible assets related to equity investees(26) (15) 0  
Equity in the income (loss) of investees$651  $(103) $(102) 
(3)For fiscal 2020, amortization of intangible assets, fair value step-up on film and television costs and intangibles related to TFCF equity investees were $1,921 million, $899 million and $26 million respectively. For fiscal 2019, amortization of intangible assets, fair value step-up on film and television costs and intangibles related to TFCF equity investees were $1,043 million, $537 million and $15 million, respectively.
(4)Impairment of equity investments for fiscal 2019 primarily reflects the impairments of Vice Group Holding Inc. and of an investment in a cable channel at A+E Television Networks ($353 million and $170 million, respectively). Impairment of equity investments for fiscal 2018 reflects impairments of Vice Group Holding Inc. and Villages Nature ($157 million and $53 million, respectively).
85
TABLE OF CONTENTS
(5)Equity method investments included in identifiable assets by segment are as follows:
October 3, 2020September 28, 2019
Media Networks$2,002  $2,018  
Parks, Experiences and Products3  3  
Studio Entertainment2  8  
Direct-to-Consumer & International570  821  
Corporate55  72  
$2,632  $2,922  
Intangible assets included in identifiable assets by segment are as follows:
October 3, 2020September 28, 2019
Media Networks$7,242  $7,861  
Parks, Experiences and Products3,066  3,177  
Studio Entertainment2,031  2,140  
Direct-to-Consumer & International6,814  9,962  
Corporate20  75  
$19,173  $23,215  
(6)Primarily fixed assets and cash and cash equivalents.
(7)Long-lived assets are total assets less: current assets, long-term receivables, deferred taxes, financial investments and the fair value of derivative instruments.
2Summary of Significant Accounting Policies
Principles of Consolidation
The consolidated financial statements of the Company include the accounts of The Walt Disney Company and its majority-owned or controlled subsidiaries. Intercompany accounts and transactions have been eliminated in consolidation.
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.
Reporting Period
The Company’s fiscal year ends on the Saturday closest to September 30 and consists of fifty-two weeks with the exception that approximately every six years, we have a fifty-three week year. When a fifty-three week year occurs, the Company reports the additional week in the fourth quarter. Fiscal 2019 and 2018 were fifty-two week years. Fiscal 2020 is a fifty-three week year, which began on September 29, 2019 and ended on October 3, 2020.
Reclassifications
Certain reclassifications have been made in the fiscal 2019 and fiscal 2018 financial statements and notes to conform to the fiscal 2020 presentation.
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.
86
TABLE OF CONTENTS
Revenues and Costs from Services and Products
The Company generates revenue from the sale of both services and tangible products and revenues and operating costs are classified under these two categories in the Consolidated Statements of Operations. Certain costs related to both the sale of services and tangible products are not specifically allocated between the service or tangible product revenue streams but are instead attributed to the principal revenue stream. The cost of services and tangible products exclude depreciation and amortization.
Significant service revenues include:
•Affiliate fees
•Advertising revenues
•Subscription fees to our DTC streaming services
•Revenue from the licensing and distribution of film and television properties
•Admissions to our theme parks, charges for room nights at hotels and sales of cruise vacation packages
•Licensing of intellectual property for use on consumer merchandise, published materials and in multi-platform games
Significant operating costs related to the sale of services include:
•Amortization of programming and production costs and participations and residuals costs
•Distribution costs
•Operating labor
•Facilities and infrastructure costs
Significant tangible product revenues include:
•The sale of food, beverage and merchandise at our retail locations
•The sale of DVDs and Blu-ray discs
•The sale of books, comic books and magazines
Significant operating costs related to the sale of tangible products include:
•Costs of goods sold
•Amortization of programming and production costs and participations and residuals costs
•Distribution costs
•Operating labor
•Retail occupancy costs
Revenue Recognition
At the beginning of fiscal 2019, the Company adopted Financial Accounting Standards Board (FASB) guidance that replaced the existing accounting guidance for revenue recognition with a single comprehensive five-step model (“new revenue guidance”). The core principle is to recognize revenue upon the transfer of control of goods or services to customers at an amount that reflects the consideration expected to be received. We adopted the new revenue guidance using the modified retrospective method; therefore, results for reporting periods beginning after September 30, 2018 are presented under the new revenue guidance, while prior period amounts have not been adjusted and continue to be reported in accordance with our historical accounting. Upon adoption, we recorded a net reduction of $116 million to opening fiscal 2019 retained earnings.
The most significant changes to the Company’s revenue recognition policies resulting from the adoption of the new revenue guidance are as follows:
•For television and film content licensing agreements with multiple availability windows with the same licensee, the Company now defers more revenue to future windows than under the previous accounting guidance.
•For licenses of character images, brands and trademarks with minimum guaranteed license fees, the excess of the minimum guaranteed amount over actual amounts earned based on a percentage of the licensee’s underlying sales (“shortfall”) is now recognized straight-line over the remaining license period once an expected shortfall is probable. Previously, shortfalls were recognized at the end of the contract period.
•For licenses that include multiple television and film titles with a minimum guaranteed license fee across all titles that earns out against the aggregate fees based on the licensee’s underlying sales, the Company now allocates the minimum guaranteed license fee to each title at contract inception and recognizes the allocated license fee as revenue when the title is made available to the customer. License fees earned by titles in excess of their allocated amount are deferred until the minimum guaranteed license fee across all titles is exceeded. Once the minimum guaranteed license fee across all titles is exceeded, license fees are recognized as earned based on the licensee’s underlying sales. Previously,
87
TABLE OF CONTENTS
license fees were recognized as earned based on the licensee’s underlying sales with any shortfalls recognized at the end of the contract period.
•For renewals or extensions of license agreements for television and film content, revenues are now recognized when the licensed content becomes available under the renewal or extension. Previously, revenues were recognized when the agreement was renewed or extended.
The impact on the Consolidated Statement of Operations for fiscal 2019 due to the adoption of the new revenue guidance was as follows:
Results Assuming
Historical Accounting		Impact of New Revenue GuidanceReported
Revenues$69,262  $345  $69,607  
Cost and Expenses(57,523) (254) (57,777) 
Income Taxes(3,005) (21) (3,026) 
Net Income11,514  70  11,584  
The most significant impact was at the Studio Entertainment reflecting a change in the timing of revenue recognition related to film content licensing agreements with multiple availability windows.
The Company generates revenue from the sale of both services and products. The Company has four broad categories of service revenues: licenses of rights to use our intellectual property (“IP”), sales to guests at our Parks and Experiences businesses, sales of advertising time/space and subscriptions to DTC services. The Company’s primary product revenues include the sale of food, beverage and merchandise at our parks, resorts and retail stores and the sale of film and television productions in physical formats (DVD and Blu-ray).
The new revenue guidance defines two types of IP licenses: IP that has “standalone functionality,” which is called functional IP, and all other IP, which is called symbolic IP. Revenue related to the license of functional IP is generally recognized upon delivery (availability) of the IP to the customer. The substantial majority of the Company’s film and television content distribution activities at the Media Networks, Studio Entertainment and DTCI segments is considered licensing of functional IP. Revenue related to the license of symbolic IP is generally recognized over the term of the license. The Company’s primary revenue stream derived from symbolic IP is the licensing of trade names, characters and visual and literary properties at the Parks, Experiences and Products segment.
More detailed information about the revenue recognition policies for our key revenues is as follows:
•Affiliate fees - Fees charged to affiliates (i.e., MVPDs or television stations) for the right to deliver our television network programming on a continuous basis to their customers are recognized as the programming is provided based on contractually specified per subscriber rates and the actual number of the affiliate’s customers receiving the programming.
For affiliate contracts with fixed license fees, the fees are recognized ratably over the contract term.
If an affiliate contract includes a minimum guaranteed license fee, the guaranteed license fee is recognized ratably over the guaranteed period and any fees earned in excess of the guarantee are recognized as earned once the minimum guarantee has been exceeded.
Affiliate agreements may also include a license to use the network programming for on demand viewing. As the fees charged under these contracts are generally based on a contractually specified per subscriber rate for the number of underlying subscribers of the affiliate, revenues are recognized as earned.
•Subscription fees - Fees charged to customers/subscribers and wholesale distributors for our streaming services are recognized ratably over the term of the subscription.
•Advertising - Sales of advertising time/space on our television networks, digital platforms and television stations are recognized as revenue, net of agency commissions, when commercials are aired. For contracts that contain a guaranteed number of impressions, revenues are recognized based on impressions delivered. When the guaranteed number of impressions is not met (“ratings shortfall”), revenues are not recognized for the ratings shortfall until the additional impressions are delivered.
•Theme park admissions - Sales of theme park tickets are recognized when the tickets are used. Sales of annual passes are recognized ratably over the period for which the pass is available for use.
•Resorts and vacations - Sales of hotel room nights and cruise vacations and rentals of vacation club properties are recognized as revenue as the services are provided to the guest. Sales of vacation club properties are recognized as revenue upon the later of when title transfers to the customer or when construction activity is deemed complete.
88
TABLE OF CONTENTS
•Merchandise, food and beverage - Sales of merchandise, food and beverages at our theme parks and resorts, cruise ships and Disney Stores are recognized at the time of sale. Sales from our branded internet shopping sites and to wholesalers are recognized upon delivery. We estimate returns and customer incentives based upon historical return experience, current economic trends and projections of consumer demand for our products.
•TV/SVOD distribution licensing - Fixed license fees charged for the right to use our television and film productions are recognized as revenue when the content is available for use by the licensee. License fees based on the underlying sales of the licensee are recognized as revenue as earned based on the contractual royalty rate applied to the licensee sales.
For TV/SVOD licenses that include multiple titles with a fixed license fee across all titles, each title is considered a separate performance obligation. The fixed license fee is allocated to each title at contract inception and the allocated license fee is recognized as revenue when the title is available for use by the licensee.
When the license contains a minimum guaranteed license fee across all titles, the license fees earned by titles in excess of their allocated amount are deferred until the minimum guaranteed license fee across all titles is exceeded. Once the minimum guaranteed license fee is exceeded, revenue is recognized as earned based on the licensee’s underlying sales.
TV/SVOD distribution contracts may limit the licensee’s use of a title to certain defined periods of time during the contract term. In these instances, each period of availability is generally considered a separate performance obligation. For these contracts, the fixed license fee is allocated to each period of availability at contract inception based on relative standalone selling price using management’s best estimate. Revenue is recognized at the start of each availability period when the content is made available for use by the licensee.
When the term of an existing agreement is renewed or extended, revenues are recognized when the licensed content becomes available under the renewal or extension.
•Theatrical distribution licensing - Fees charged for licensing of our films to theatrical distributors are recognized as revenue based on the contractual royalty rate applied to the distributor’s underlying sales from exhibition of the film.
•Merchandise licensing - Fees charged for the use of our trade names and characters in connection with the sale of a licensee’s products are recognized as revenue as earned based on the contractual royalty rate applied to the licensee’s underlying product sales. For licenses with minimum guaranteed license fees, the excess of the minimum guaranteed amount over actual royalties earned (“shortfall”) is recognized straight-line over the remaining license period once an expected shortfall is probable.
•Home entertainment - Sales of our films to retailers and distributors in physical formats (DVD and Blu-ray) are recognized as revenue on the later of the delivery date or the date that the product can be sold by retailers. We reduce home entertainment revenues for estimated future returns of merchandise and sales incentives based upon historical return experience, current economic trends and projections of consumer demand for our products. Sales of our films in electronic formats are recognized as revenue when the product is available for use by the consumer.
•Taxes - Taxes collected from customers and remitted to governmental authorities are excluded from revenue.
•Shipping and handling - Fees collected from customers for shipping and handling are recorded as revenue and the related shipping expenses are recorded in cost of products upon delivery of the product to the consumer.
Allowance for Doubtful Accounts
The Company maintains an allowance for doubtful accounts to reserve for potentially uncollectible receivables. The allowance for doubtful accounts is estimated based on our analysis of trends in overall receivables aging, specific identification of certain receivables that are at risk of not being paid, past collection experience and current economic trends.
Advertising Expense
Advertising costs are expensed as incurred. Advertising expense for fiscal 2020, 2019 and 2018 was $4.7 billion, $4.3 billion and $2.8 billion, respectively. The increase in advertising expense for fiscal 2020 compared to fiscal 2019 was primarily due to the consolidation of TFCF and Hulu, partially offset by lower advertising expense at Studio Entertainment and Parks, Experience and Products segments reflecting the impact of COVID-19 on these segments. The increase in advertising expense for fiscal 2019 compared to fiscal 2018 was primarily due to the consolidation of TFCF and Hulu.
Cash and Cash Equivalents
Cash and cash equivalents consist of cash on hand and marketable securities with original maturities of three months or less.
Cash and cash equivalents subject to contractual restrictions and not readily available are classified as restricted cash. The Company’s restricted cash balances are primarily made up of cash posted as collateral for certain derivative instruments.
89
TABLE OF CONTENTS
The following table provides a reconciliation of cash, cash equivalents and restricted cash reported in the Consolidated Balance Sheet to the total of the amounts in the Consolidated Statement of Cash Flows.
October 3, 2020September 28, 2019September 29, 2018
Cash and cash equivalents$17,914$5,418$4,150
Restricted cash included in:
Other current assets3261
Other assets37114
Total cash, cash equivalents and restricted cash in the statement of cash flows$17,954$5,455$4,155
Investments
Investments in equity securities with a readily determinable fair value, not accounted for under the equity method, are recorded at that value with unrealized gains and losses included in earnings. For equity securities without a readily determinable fair value, the investment is recorded at cost, less any impairment, plus or minus adjustments related to observable transactions for the same or similar securities, with unrealized gains and losses included in earnings.
For equity method investments, the Company regularly reviews its investments to determine whether there is a decline in fair value below book value. If there is a decline that is other-than-temporary, the investment is written down to fair value.
Translation Policy
Generally, the U.S. dollar is the functional currency for our international film and television distribution and licensing businesses and the branded International Channels. Generally, the local currency is the functional currency for the Asia Theme Parks, Disneyland Paris, the branded International Channels that primarily source and exploit their content locally (primarily Star branded channels in India and international sports channels) and international locations of The Disney Stores.
For U.S. dollar functional currency locations, foreign currency assets and liabilities are remeasured into U.S. dollars at end-of-period exchange rates, except for non-monetary balance sheet accounts, which are remeasured at historical exchange rates. Revenue and expenses are remeasured at average exchange rates in effect during each period, except for those expenses related to the non-monetary balance sheet amounts, which are remeasured at historical exchange rates. Gains or losses from foreign currency remeasurement are included in income.
For local currency functional locations, assets and liabilities are translated at end-of-period rates while revenues and expenses are translated at average rates in effect during the period. Equity is translated at historical rates and the resulting cumulative translation adjustments are included as a component of accumulated other comprehensive income (loss) (AOCI).
Inventories
Inventory primarily includes vacation timeshare units, merchandise, food, materials and supplies. Carrying amounts of vacation ownership units are recorded at the lower of cost or net realizable value. Carrying amounts of merchandise, food, materials and supplies inventories are generally determined on a moving average cost basis and are recorded at the lower of cost or net realizable value.
Film and Television Content Costs
At the beginning of fiscal 2020, the Company adopted new FASB guidance that updates the accounting for film and television content costs. See Note 8 for discussion of the new guidance and the Company’s accounting policy for capitalization and amortization of film and television content costs.
Internal-Use Software Costs
The Company expenses costs incurred in the preliminary project stage of developing or acquiring internal use software, such as research and feasibility studies as well as costs incurred in the post-implementation/operational stage, such as maintenance and training. Capitalization of software development costs occurs only after the preliminary-project stage is complete, management authorizes the project and it is probable that the project will be completed and the software will be used for the function intended. As of October 3, 2020 and September 28, 2019, capitalized software costs, net of accumulated depreciation, totaled $778 million and $927 million, respectively. The capitalized costs are amortized on a straight-line basis over the estimated useful life of the software up to 10 years.
90
TABLE OF CONTENTS
Parks, Resorts and Other Property
Parks, resorts and other property are carried at historical cost. Depreciation is computed on the straight-line method, generally over estimated useful lives as follows:
Attractions, buildings and improvements20 – 40 years
Furniture, fixtures and equipment3 – 25 years
Land improvements20 – 40 years
Leasehold improvementsLife of lease or asset life if less
Leases
At the beginning of fiscal 2020, the Company adopted new FASB guidance that requires lessees to record the present value of operating lease payments as right-of-use assets and lease liabilities on the balance sheet. See Note 16 for discussion of the new guidance and the Company’s accounting policy.
Goodwill, Other Intangible Assets and Long-Lived Assets
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. To test goodwill for impairment, the Company first performs a qualitative assessment to determine if it is more likely than not that the carrying amount of a reporting unit exceeds its fair value. If it is, a quantitative assessment is required. Alternatively, the Company may bypass the qualitative assessment and perform a quantitative impairment test.
The qualitative assessment requires consideration of recent market transactions, macroeconomic conditions, and changes in projected future cash flows of the reporting unit.
The quantitative assessment compares the fair value of each goodwill reporting unit to its carrying amount, and to the extent the carrying amount exceeds the fair value, an impairment of goodwill is recognized for the excess up to the amount of goodwill allocated to the reporting unit.
In fiscal 2020, the Company performed a qualitative assessment of goodwill for impairment.
The impairment test for goodwill requires judgment related to the identification of reporting units, the assignment of assets and liabilities to reporting units including goodwill, and the determination of fair value of the reporting units. To determine the fair value of our reporting units, we 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 methodology for each of our reporting units. 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. The discounted cash flow analyses are sensitive to our estimates of future revenue growth and margins for these businesses as well as the discount rates used to calculate the present value of future cash flows.
In times of adverse economic conditions in the global economy, the Company’s long-term cash flow projections are subject to a greater degree of uncertainty than usual. If we had established different reporting units or utilized different valuation methodologies or assumptions, the impairment test results could differ, and we could be required to record impairment charges.
To test its other indefinite-lived intangible assets for impairment, the Company first performs a qualitative assessment to determine if it is more likely than not that the carrying amount of each of its indefinite-lived intangible assets exceeds its fair value. If it is, a quantitative assessment is required. Alternatively, the Company may bypass the qualitative assessment and perform a quantitative impairment test.
The qualitative assessment requires the consideration of factors such as recent market transactions, macroeconomic conditions, and changes in projected future cash flows.
The quantitative assessment compares the fair values of 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 indefinite-lived intangible assets are determined based on discounted cash flows or appraised values, as appropriate. The Company has determined that there are currently no legal, competitive, economic or other factors that materially limit the useful life of our FCC licenses and trademarks.
Amortizable intangible assets are generally amortized on a straight-line basis over periods up to 40 years. The costs to periodically renew our intangible assets are expensed as incurred.
91
TABLE OF CONTENTS
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 amount 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 amount of an asset group exceeds the estimated undiscounted future cash flows, an impairment would be measured as the difference between the fair value of the group’s long-lived assets and the carrying amount 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 amount of each asset is above its fair value. For assets held for sale, to the extent the carrying amount is greater than the asset’s fair value less costs to sell, an impairment loss is recognized for the difference.
The Company recorded non-cash impairment charges of $5.2 billion, $0.6 billion, and $0.2 billion in fiscal 2020, 2019 and 2018, respectively.
The fiscal 2020 impairment charges primarily related to impairments of MVPD agreement intangibles assets ($1.9 billion) and goodwill ($3.1 billion) at the International Channels’ business. See Note 19 to the Consolidated Financial Statements for additional discussion on these impairment charges.
The fiscal 2019 and 2018 charges primarily related to impairments of investments accounted for under the equity method of accounting recorded in “Equity in the income (loss) of investees” in the Consolidated Statements of Operations.
The Company expects its aggregate annual amortization expense for amortizable intangible assets for fiscal 2021 through 2025 to be as follows:
2021$2,055
20221,995
20231,808
20241,570
20251,471
Risk Management Contracts
In the normal course of business, 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.
The Company formally documents all relationships between hedges and hedged items as well as its risk management objectives and strategies for undertaking various hedge transactions. The Company primarily enters into 2 types of derivatives: hedges of fair value exposure and hedges of cash flow exposure. Hedges of fair value exposure are entered into in order to hedge the fair value of a recognized asset, liability, or a firm commitment. Hedges of cash flow exposure are entered into in order to hedge a forecasted transaction (e.g. forecasted revenue) or the variability of cash flows to be paid or received, related to a recognized liability or asset (e.g. floating rate debt).
The Company designates and assigns the derivatives as hedges of forecasted transactions, specific assets or specific liabilities. When hedged assets or liabilities are sold or extinguished or the forecasted transactions being hedged occur or are no longer expected to occur, the Company recognizes the gain or loss on the designated derivatives.
The Company’s hedge positions are measured at fair value on the balance sheet. Realized gains and losses from hedges are classified in the income statement consistent with the accounting treatment of the items being hedged. The Company accrues the differential for interest rate swaps to be paid or received under the agreements as interest rates change as adjustments to interest expense over the lives of the swaps. Gains and losses on the termination of effective swap agreements, prior to their original maturity, are deferred and amortized to interest expense over the remaining term of the underlying hedged transactions.
The Company enters into derivatives that are not designated as hedges and do not qualify for hedge accounting. These derivatives are intended to offset certain economic exposures of the Company and are carried at fair value with changes in value recorded in earnings. Cash flows from hedging activities are classified in the Consolidated Statements of Cash Flows under the same category as the cash flows from the related assets, liabilities or forecasted transactions (see Notes 9 and 18).
Income Taxes
Deferred income tax assets and liabilities are recorded with respect to temporary differences in the accounting treatment of items for financial reporting purposes and for income tax purposes. Where, based on the weight of available evidence, it is
92
TABLE OF CONTENTS
more likely than not that some amount of recorded deferred tax assets will not be realized, a valuation allowance is established for the amount that, in management’s judgment, is sufficient to reduce the deferred tax asset to an amount that is more likely than not to be realized.
A tax position must meet a minimum probability threshold before a financial statement benefit is recognized. The minimum threshold is defined as a tax position that is more likely than not to be sustained upon examination by the applicable taxing authority, including resolution of any related appeals or litigation processes, based on the technical merits of the position. The tax benefit to be recognized is measured as the largest amount of benefit that is greater than 50 percent likely of being realized upon ultimate settlement.
Redeemable Noncontrolling Interests
The Company consolidates the results of certain subsidiaries that are less than 100% owned and for which the noncontrolling interest shareholders have rights to require the Company to purchase their interests in these subsidiaries. The most significant of these are BAMTech and Hulu.
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 has the right to sell its interest to the Company and the Company has the right to buy MLB’s interest 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 2021 for $350 million. The Company has the right to acquire the NHL interest in fiscal 2021 for $500 million.
The MLB and NHL interests are required to be recorded at a minimum value equal to the greater of (i) their acquisition date fair value adjusted for their share (if any) of earnings, losses, or dividends (“adjusted value”) or (ii) an accreted value from the date of the acquisition to the applicable redemption date (“accreted value”). As the accreted value is generally always higher than the adjusted value, the MLB and NHL interests are not allocated their portion of BAMTech losses. Therefore, the MLB and NHL interests are accreted to the estimated redemption value as of the earliest redemption date. As of October 3, 2020, the guaranteed floor value for the MLB interest, accreted from the date of acquisition was $710 million. The NHL previously had a right to sell its interest to the Company in fiscal 2020 for $300 million, which expired unexercised in the fourth quarter. As the NHL’s remaining right to sell its interest to the Company in fiscal 2021 is for $350 million, the Company began accreting the NHL interest to $350 million. As of October 3, 2020, the accreted value of the NHL interest was $313 million.
As part of the TFCF acquisition, the Company acquired TFCF’s 30% interest in Hulu increasing our ownership in Hulu to 60%. Subsequent to the acquisition, Hulu redeemed Warner Media LLC’s (WM) 10% interest in Hulu. The redemption was funded by the Company and Hulu’s remaining noncontrolling interest holder, NBC Universal (NBCU). This resulted in the Company’s and NBCU’s interests in Hulu increasing to 67% and 33%, respectively.
On May 13, 2019, the Company entered into a put/call agreement with 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 interest in Hulu and the Company has the option to require NBCU to sell its interest in Hulu to the Company, 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 estimated redemption value. At October 3, 2020, NBCU’s interest in Hulu is recorded in the Company’s financial statements at $8.1 billion.
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 Consolidated Statements of Operations.
Earnings Per Share
The Company presents both basic and diluted earnings per share (EPS) amounts. Basic EPS is calculated by dividing net income attributable to Disney by the weighted average number of common shares outstanding during the year. Diluted EPS is based upon the weighted average number of common and common equivalent shares outstanding during the year, which is calculated using the treasury-stock method for equity-based awards (Awards). Common equivalent shares are excluded from the computation in periods for which they have an anti-dilutive effect. Stock options for which the exercise price exceeds the average market price over the period are anti-dilutive and, accordingly, are excluded from the calculation.
93
TABLE OF CONTENTS
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:
202020192018
Weighted average number of common and common equivalent shares outstanding (basic)1,8081,6561,499
Weighted average dilutive impact of Awards(1)
0108
Weighted average number of common and common equivalent shares outstanding (diluted)1,8081,6661,507
Awards excluded from diluted earnings per share35712
(1)Amounts exclude all potential common and common equivalent shares for periods when there is a net loss from continuing operations.
3Revenues
The following table presents our revenues by segment and major source:
2020
Media
Networks		Parks, Experiences and Products
Studio
Entertainment
Direct-to-Consumer & InternationalEliminationsConsolidated
Affiliate fees$15,018$0$0$3,673$(762)$17,929
Advertising6,374404,477010,855
Subscription fees0007,64507,645
Theme park admissions—4,038———4,038
Resort and vacations—3,402———3,402
Retail and wholesale sales of merchandise, food and beverage—4,952———4,952
TV/SVOD distribution licensing6,48904,557745(5,348)6,443
Theatrical distribution licensing002,134002,134
Merchandise licensing02,6745363203,242
Home entertainment001,5288401,612
Other5121,43288131103,136
Total revenues$28,393$16,502$9,636$16,967$(6,110)$65,388

2019
Media
Networks		Parks, Experiences and Products
Studio
Entertainment
Direct-to-Consumer & InternationalEliminationsConsolidated
Affiliate fees$13,433$0$0$2,768$(253)$15,948
Advertising6,965603,542010,513
Subscription fees0002,11502,115
Theme park admissions—7,540———7,540
Resort and vacations—6,266———6,266
Retail and wholesale sales of merchandise, food and beverage—7,716———7,716
TV/SVOD distribution licensing4,04602,920482(1,705)5,743
Theatrical distribution licensing004,726004,726
Merchandise licensing02,7685615103,380
Home entertainment001,7349701,831
Other3831,9291,18633103,829
Total revenues$24,827$26,225$11,127$9,386$(1,958)$69,607

94
TABLE OF CONTENTS
2018
Media
Networks		Parks, Experiences and Products
Studio
Entertainment
Direct-to-Consumer & InternationalEliminationsConsolidated
Affiliate fees$11,907$0$0$1,372$0$13,279
Advertising6,586701,31107,904
Subscription fees0001680168
Theme park admissions—7,183———7,183
Resort and vacations—5,938———5,938
Retail and wholesale sales of merchandise, food and beverage—7,365———7,365
TV/SVOD distribution licensing3,12002,340105(668)4,897
Theatrical distribution licensing004,303004,303
Merchandise licensing02,5665567003,192
Home entertainment001,64710301,750
Other3091,6421,21928503,455
Total revenues$21,922$24,701$10,065$3,414$(668)$59,434
Amounts for fiscal 2018 reflect our historical accounting prior to the adoption of new revenue guidance.
The following table presents our revenues by segment and primary geographical markets:
2020
Media
Networks		Parks, Experiences and Products
Studio
Entertainment
Direct-to-Consumer & InternationalEliminationsConsolidated
Americas$26,566$12,524$5,671$12,498$(5,267)$51,992
Europe1,3781,9822,6092,016(652)7,333
Asia Pacific4491,9961,3562,453(191)6,063
Total revenues$28,393$16,502$9,636$16,967$(6,110)$65,388

2019
Media
Networks		Parks, Experiences and Products
Studio
Entertainment
Direct-to-Consumer & InternationalEliminationsConsolidated
Americas$23,767$19,868$6,050$5,759$(1,639)$53,805
Europe7853,1352,9561,260(130)8,006
Asia Pacific2753,2222,1212,367(189)7,796
Total revenues$24,827$26,225$11,127$9,386$(1,958)$69,607
Revenues recognized in the current and prior year 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 fiscal 2020, $1.4 billion was recognized related to performance obligations satisfied as of September 28, 2019. For fiscal 2019, $1.2 billion was recognized related to performance obligations satisfied prior to September 30, 2018.
As of October 3, 2020, revenue for unsatisfied performance obligations expected to be recognized in the future is $16 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 $7 billion in fiscal 2021, $4 billion in fiscal 2022, $2 billion in fiscal 2023 and $3 billion thereafter. These amounts include only fixed 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.
Payment terms vary by the type and location of our customers and the products or services offered. For certain products or services and customer types, we require payment before the products or services are provided to the customer; in other cases, after appropriate credit evaluations, payment is due in arrears. Advertising contracts, which are generally short term, are billed monthly with payments generally due within 30 days. Payments due under affiliate arrangements are calculated monthly and are generally due within 30 days of month end. Home entertainment terms generally require payment within 60 to 90 days of availability date to the customer. Licensing payment terms vary by contract but are generally collected in advance or over the license term.
95
TABLE OF CONTENTS
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:
October 3,
2020		September 28,
2019
Contract assets$70  $150  
Accounts Receivable
Current11,340  12,755  
Non-current1,789  1,962  
Allowance for credit losses(460) (375) 
Deferred revenues
Current3,688  4,050  
Non-current513  619  
Contract assets primarily relate to certain multi-season TV/SVOD licensing contracts. Activity for fiscal 2020 and 2019 related to contract assets was not material. The allowance for credit losses increased from $375 million at September 28, 2019 to $460 million at October 3, 2020 due to additional provisions recorded in fiscal 2020.
For fiscal 2020, the Company recognized revenues of $3.4 billion, primarily related to theme park admissions and vacation packages, licensing advances and content sales included in the deferred revenue balance at September 28, 2019. For fiscal 2019, the Company recognized revenues of $2.7 billion primarily related to theme park admissions and vacation packages and licensing and publishing advances included in the deferred revenue balance at September 30, 2018. As a result of COVID-19, the Company has allowed refunds of certain non-refundable deposits that were previously reported as deferred revenue, the most significant of which related to park admission tickets and deposits for vacation packages. Remaining deferred amounts related to these deposits are now classified in “Accounts payable and other accrued liabilities” in the Consolidated Balance Sheet.
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.
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. These receivables are discounted to present value at an appropriate discount rate at contract inception, and the related revenues are recognized at the discounted amount.
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 whom 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 $1.0 billion as of October 3, 2020. The activity in the allowance for credit loss for fiscal 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 $0.7 billion as of October 3, 2020. The activity in the allowance for credit loss for fiscal 2020 was not material.
4Acquisitions
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).
96
TABLE OF CONTENTS
We acquired TFCF to enhance the Company’s position as a premier, global entertainment company by increasing our portfolio of creative assets and branded content to be monetized through our film and television studio, theme parks and direct-to-consumer offerings.
In connection with the acquisition, outstanding TFCF performance stock units and restricted stock units were either vested upon closing of the acquisition or replaced with new restricted stock units (which require additional service for vesting). The purchase price for TFCF includes $361 million related to TFCF awards that were settled or replaced in connection with the acquisition, and for fiscal 2019, the Company recognized compensation expense of $164 million related to awards that were accelerated to vest upon closing of the acquisition. Additionally, compensation expense of $219 million related to awards that were replaced with new restricted stock units is being recognized over the post-acquisition service period of up to approximately two years.
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 $4.8 billion (Hulu Gain) from remeasuring our initial 30% interest to its estimated fair value, which was determined based on a discounted cash flow analysis. On April 15, 2019, Hulu redeemed WM’s 10% interest in Hulu for $1.4 billion. The redemption was funded by the Company and NBCU. This resulted in the Company’s and NBCU’s interests in Hulu increasing to 67% and 33%, respectively.
NBCU’s interest is classified as a redeemable noncontrolling interest on the Company’s Consolidated Balance Sheet. See Note 2 for further discussion of NBCU’s interest.
Upon closing of the TFCF acquisition, the Company exchanged new Disney notes for outstanding notes issued by 21st Century Fox America, Inc. with a principal balance of $16.8 billion (see Note 9).
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.
In determining the fair value of assets acquired and liabilities assumed, the Company primarily used discounted cash flow analyses. Inputs to the discounted cash flow analyses and other aspects of the allocation of purchase price require judgment. The more significant inputs used in the discounted cash flow analyses and other areas of judgment include (i) future revenue growth or attrition rates (ii) projected margins (iii) discount rates used to present value future cash flows (iv) the amount of synergies expected from the acquisition (v) the economic useful life of assets and; (vi) the evaluation of historical tax positions of TFCF.
The following table summarizes our allocation of the purchase price (in billions)(1):
Cash and cash equivalents$25.7 
Receivables5.1 
Film and television costs17.7 
Investments1.0 
Intangible assets17.9 
Net assets held for sale11.4 
Accounts payable and other liabilities(12.5)
Borrowings(21.7)
Deferred income taxes(2)
(5.7)
Other net liabilities acquired(4.0)
Noncontrolling interests(10.4)
Goodwill(2)
49.8 
Fair value of net assets acquired74.2 
Less: Disney’s previously held 30% interest in Hulu(4.7)
Total purchase price$69.5 
(1) Total may not equal the sum of the column due to rounding.
(2) In the fourth quarter of fiscal 2020, we adjusted the amount of deferred tax liabilities by $0.6 billion and recorded an offsetting adjustment to increase goodwill for this amount.
Intangible assets primarily consist of MVPD agreements, with a weighted average useful life of 9 years, and advertising networks and trade names, with a weighted average useful life of 16 years.
97
TABLE OF CONTENTS
The goodwill reflects the value to Disney of increasing our global portfolio of creative assets and branded content to be monetized through our DTC services, film and television studios and theme parks. The amount of goodwill that is deductible for tax purposes is not material.
The fair value of investments acquired in the acquisition primarily consist of a 30% interest in Tata Sky Limited and a 50% interest in Endemol Shine Group (sold in July 2020 for $147 million).
The fair value of the assets acquired included current trade receivables of $5.2 billion. The gross amount due under the contracts is $5.5 billion.
For fiscal 2019, the Company incurred $0.3 billion of acquisition-related expenses, of which $0.2 billion is included in Selling, general, administrative and other, and $0.1 billion related to financing fees is included in “Interest expense, net” in the Company’s Consolidated Statements of Operations.
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 Consolidated Statements of Operations for fiscal 2020 and fiscal 2019. In addition, the table provides the impact of intercompany eliminations of transactions between the Company, TFCF and Hulu:
Year Ended
October 3, 2020September 28, 2019
TFCF (before intercompany eliminations):
Revenues$12,999  $7,228  
Net loss from continuing operations(245) (958) 
Hulu (before intercompany eliminations):
Revenues$7,052  $2,865  
Net loss from continuing operations(1,017) (695) 
Intercompany eliminations:
Revenues$(2,956) $(1,205) 
Net loss from continuing operations(225) (151) 
The following pro forma summary presents consolidated information of the Company as if the acquisition of TFCF and consolidation of Hulu had occurred on October 1, 2017:
20192018
Revenues$78,047$76,468
Net income7,51113,733
Net income attributable to Disney7,20613,923
Earnings per share attributable to Disney:
Diluted$3.68$7.66
Basic3.707.71
These pro forma results include adjustments for purposes of consolidating the historical financial results of TFCF and Hulu (net of adjustments to eliminate transactions between Disney and TFCF, Disney and Hulu and Hulu and TFCF). These pro formas for fiscal 2019 and 2018 include $3.1 billion and $3.4 billion (of which $0.4 billion and $0.8 billion related to the RSNs), respectively, to reflect the incremental amortization as a result of recording film and television programming and production costs and finite lived intangible assets at fair value. Interest expense of $0.4 billion and $0.5 billion is included to reflect the cost of borrowings to finance the TFCF acquisition for fiscal 2019 and 2018, respectively. The pro forma results also include $0.9 billion and $0.6 billion of net income attributable to Disney for fiscal 2019 and 2018, respectively, related to TFCF businesses that have been or will be divested (see Note 1).
Additionally, fiscal 2018 pro forma results include the Hulu Gain, compensation expense of $0.2 billion related to TFCF equity and cash awards that were accelerated to vest upon closing of the acquisition, and $0.4 billion of acquisition-related expenses. These amounts were recognized by Disney and TFCF in fiscal 2019 but have been excluded from the fiscal 2019 pro forma results.
The pro forma results exclude a $10.8 billion gain on sale and $0.5 billion of equity earnings recorded by TFCF in 2019 and 2018, respectively, related to its 39% interest in Sky plc, which was sold by TFCF in October 2018.
98
TABLE OF CONTENTS
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 are as follows:
Media
Networks		Parks,
Experiences
and Products		Studio EntertainmentDirect-to-Consumer & InternationalTotal
Balance at Sept. 29, 2018$15,989  $4,487  $7,094  $3,699  $31,269  
Acquisitions(1)
17,434  1,048  10,711  19,892  49,085  
Dispositions0  0  0  0  0  
Other, net0  0  (8) (53) (61) 
Balance at Sept. 28, 2019$33,423  $5,535  $17,797  $23,538  $80,293  
Acquisitions(2)
568  15  98  51  732  
Dispositions0  0  0  0  0  
Impairments (See Note 19)0  0  0  (3,074) (3,074) 
Currency translation adjustments and other, net0  0  (100) (162) (262) 
Balance at Oct. 3, 2020$33,991  $5,550  $17,795  $20,353  $77,689  
(1)Represents the acquisition of TFCF and consolidation of Hulu.
(2)Reflects updates to allocation of purchase price for the acquisition of TFCF.
5Other Income
Other income, net is as follows:
202020192018
DraftKings gain$973  $0  $0  
Gain on sale of an investment65  0  0  
Hulu gain (see Note 4)0  4,794  0  
Insurance recoveries related to legal matters0  46  38  
Charge for the extinguishment of a portion of the debt originally assumed in the TFCF acquisition (see Note 9)0  (511) 0  
Gain on sale of real estate, property rights and other0  28  563  
Other income, net$1,038  $4,357  $601  
The Company recognized a non-cash gain to adjust its investment in DraftKings, Inc. to fair value (DraftKings gain).
6Investments
Investments consist of the following:
October 3,
2020		September 28,
2019
Investments, equity basis$2,632  $2,922  
Investments, other1,271  302  
$3,903$3,224
Investments, Equity Basis
The Company’s significant equity investments primarily consist of media investments and include A+E (50% ownership), CTV Specialty Television, Inc. (30% ownership), Endemol Shine Group (50% ownership until sale of the interest in July 2020), Seven TV (20% ownership) and Tata Sky Limited (30% ownership).
99
TABLE OF CONTENTS
A summary of combined financial information for equity investments is as follows:
Results of Operations:202020192018
Revenues$7,849  $9,405  $9,085  
Net income (loss)1,187  133  (152) 

Balance SheetOctober 3,
2020		September 28,
2019		September 29,
2018
Current assets$4,133  $3,350  $4,542  
Non-current assets6,776  9,666  9,998  
$10,909$13,016$14,540
Current liabilities$2,224  $2,182  $3,197  
Non-current liabilities3,784  5,452  4,840  
Redeemable preferred stock0  0  1,362  
Shareholders’ equity4,901  5,382  5,141  
$10,909  $13,016  $14,540  
As of October 3, 2020, the book value of the Company’s equity method investments exceeded our share of the book value of the investees’ underlying net assets by approximately $0.9 billion, which represents amortizable intangible assets and goodwill arising from acquisitions.
The Company enters into transactions in the ordinary course of business with our equity investees, primarily related to the licensing of television and film programming. Revenues from these transactions were $0.3 billion, $0.5 billion and $0.8 billion in fiscal 2020, 2019 and 2018, respectively. The Company defers a portion of its profits from transactions with investees and recognizes the deferred amounts as the investee expenses the programming cost. The portion that is deferred reflects our ownership interest in the investee.
Investments, Other
As of October 3, 2020, the Company has $1.1 billion of securities recorded at fair value and $215 million of net book value related to non-publicly traded securities without a readily determinable fair value. At September 28, 2019, the Company held $290 million of non-publicly traded securities without a readily determinable fair value. Securities held at fair value at September 28, 2019 were not material.
In fiscal 2020, the Company recognized $973 million of unrealized gains on securities recorded at fair value in “Other income, net” in the Consolidated Statements of Operations. Realized gains on securities in fiscal 2020 were not material. In fiscal 2019 and 2018, realized gains, unrealized gains and losses and impairments on securities were not material. All other gains and losses on securities are reported in “Interest expense, net” in the Consolidated Statements of Operations.
7International Theme Parks
The Company has a 48% ownership interest in the operations of Hong Kong Disneyland Resort and a 43% ownership interest in the operations of Shanghai Disney Resort (together, the Asia Theme Parks), which are both VIEs consolidated in the Company’s financial statements. See Note 2 for the Company’s policy on consolidating VIEs. In addition, the Company has 100% ownership of Disneyland Paris. The Asia Theme Parks and Disneyland Paris are collectively referred to as the International Theme Parks.
100
TABLE OF CONTENTS
The following table summarizes the carrying amounts of the Asia Theme Parks’ assets and liabilities included in the Company’s Consolidated Balance Sheets:
 October 3, 2020September 28, 2019
Cash and cash equivalents$372  $655  
Other current assets91  102  
Total current assets463  757  
Parks, resorts and other property6,720  6,608  
Other assets191  9  
Total assets$7,374  $7,374  
Current liabilities$486  $447  
Borrowings - long-term1,213  1,114  
Other long-term liabilities403  189  
Total liabilities$2,102  $1,750  
The following table summarizes the International Theme Parks’ revenues and costs and expenses included in the Company’s Consolidated Statement of Operations for fiscal 2020:
Revenues$1,805
Costs and expenses(3,032)
Equity in the loss of investees(19)
Asia Theme Parks’ royalty and management fees of $74 million for fiscal 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 fiscal 2020 Consolidated Statement of Cash Flows were $637 million used in operating activities, $756 million used in investing activities and $172 million generated from financing activities. Approximately a quarter of the cash flows used in operating activities, 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 52% and a 48% 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 $145 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 October 3, 2020.
Hong Kong Disneyland is undergoing a multi-year expansion estimated to cost HK $10.9 billion ($1.4 billion). The Company and HKSAR have agreed to fund the expansion on an equal basis through equity contributions, which totaled $188 million and $160 million in fiscal 2020 and 2019, respectively. To date, the Company and HKSAR have funded a total of $526 million.
HKSAR has the right to receive additional shares over time to the extent Hong Kong Disneyland Resort exceeds certain return on asset performance targets. The amount of additional shares HKSAR can receive is capped on both an annual and cumulative basis and could decrease the Company’s equity interest by up to an additional 6 percentage points over a period no shorter than 12 years. Assuming HK $10.9 billion is contributed in the expansion, the impact to the Company’s equity interest would be limited to 4 percentage points.
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 $863 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
101
TABLE OF CONTENTS
million line of credit bearing interest at 8%. As of October 3, 2020, the total amount outstanding under the line of credit was $65 million. These balances are eliminated in consolidation.
Shendi has provided Shanghai Disney Resort with loans totaling 7.6 billion yuan (approximately $1.1 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 October 3, 2020, the total amount outstanding under the line of credit was $0.6 billion yuan (approximately $90 million).
8Produced 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. This change did not 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:
•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 that is predominantly monetized individually 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. Participations and residuals are expensed over the applicable product life cycle based upon the ratio of the current period’s revenues to the estimated remaining total revenues for each production.
Production costs that are 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. Participations and residuals are generally expensed in line with the pattern of usage.
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
102
TABLE OF CONTENTS
payments related to each season approximate each season’s estimated relative value, we expense the related contractual payments during the applicable season.
Acquired film and television libraries are generally amortized on a straight-line basis over 20 years from the date of acquisition. Acquired film and television libraries include content that was initially released three years prior to its acquisition, except it excludes the prior seasons of episodic television programming still in production at the date of its acquisition.
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.
Total capitalized produced, licensed and acquired library content by predominant monetization strategy is as follows:
As of October 3, 2020
Predominantly Monetized IndividuallyPredominantly
Monetized
as a Group		Total
Produced and acquired library content
Theatrical film costs
Released, less amortization$3,000 $2,601 $5,601 
Completed, not released522 210 732 
In-process3,322   259   3,581   
In development or pre-production262 16 278 
$7,106 $3,086 10,192 
Television costs
Released, less amortization$2,090 $5,584 $7,674 
Completed, not released33 510 543 
In-process263 1,831 2,094 
In development or pre-production6 87 93 
$2,392 $8,012 10,404 
Licensed content - Programming rights and advances6,597 
Total produced, licensed and acquired library content$27,193 
Current portion$2,171 
Non-current portion$25,022 
Amortization of produced, licensed and acquired library content is as follows:
Year Ended October 3, 2020
Predominantly
Monetized
Individually		Predominantly
Monetized
as a Group		Total
Theatrical film costs$1,711$962$2,673
Television costs2,594  4,070  6,664  
Total produced and acquired library content costs$4,305$5,0329,337
Licensed content - Programming rights and advances11,241
Total produced, licensed and acquired library content costs(1)
$20,578
(1)Primarily included in “Costs of services” in the Consolidated Statements of Operations.
103
TABLE OF CONTENTS
Amortization of produced, licensed and acquired library content for the year ended September 28, 2019 was $17.1 billion.
Total expected amortization by fiscal year of completed (released and not released) produced, licensed and acquired library content on the balance sheet as of October 3, 2020 is as follows:
Predominantly Monetized IndividuallyPredominantly
Monetized
as a Group		Total
Produced content
Theatrical film costs
Released
2021$731 $460 $1,191 
2022347 387 734 
2023195   207   402   
Completed, not released
2021488   8   496   
Television costs
Released
2021$893 $1,476 $2,369 
2022460 892 1,352 
2023286   570   856   
Completed, not released
20214   182   186   
Licensed content - Television programming rights and advances
2021$0 $3,882 $3,882 
20220 1,338 1,338 
20230   606   606   
Approximately $2.3 billion of accrued participations and residual liabilities will be paid in fiscal 2021.
At October 3, 2020, acquired film and television libraries have remaining unamortized costs of $3.7 billion, which are generally being amortized straight-line over a weighted-average remaining period of approximately 18 years.
104
TABLE OF CONTENTS
9Borrowings
The Company’s borrowings, including the impact of interest rate and cross-currency swaps, are summarized as follows:
   October 3, 2020
 Oct. 3, 2020Sept. 28, 2019
Stated
Interest
Rate(1)
Pay Floating Interest rate and Cross-
Currency Swaps(2)
Effective
Interest
Rate(3)
Swap
Maturities
Commercial paper$2,023  $5,342  0$00.96%
U.S. dollar denominated notes(4)
52,736  39,424  3.81%13,8753.08%2021-2031
Foreign currency denominated debt1,983  1,044  2.99%1,9202.47%2027
Other(5)
583  62  0
57,325  45,872  3.64%15,7952.98%
Asia Theme Parks borrowings1,303  1,114  2.11%05.51%
Total borrowings58,628  46,986  3.57%15,7953.04%
Less current portion5,711  8,857  3.24%7502.76%
Total long-term borrowings$52,917  $38,129  $15,045
(1)The stated interest rate represents the weighted-average coupon rate for each category of borrowings. For floating rate borrowings, interest rates are the rates in effect at October 3, 2020; these rates are not necessarily an indication of future interest rates.
(2)Amounts represent notional values of interest rate and cross-currency swaps outstanding as of October 3, 2020.
(3)The effective interest rate includes the impact of existing and terminated interest rate and cross-currency swaps, purchase accounting adjustments and debt issuance premiums, discounts and costs.
(4)Includes net debt issuance discounts, costs and purchase accounting adjustments totaling a net premium of $2.2 billion and a net premium of $2.5 billion at October 3, 2020 and September 28, 2019, respectively.
(5)Includes market value adjustments for debt with qualifying hedges, which increase borrowings by $509 million and $31 million at October 3, 2020 and September 28, 2019, respectively.
Commercial Paper
At October 3, 2020, the Company’s bank facilities, which are with a syndicate of lenders, were as follows:
Committed
Capacity		Capacity
Used		Unused
Capacity
Facility expiring March 2021$5,250$0$5,250
Facility expiring April 20215,00005,000
Facility expiring March 20234,00004,000
Facility expiring March 20253,00003,000
Total$17,250$0$17,250
These bank facilities (other than the facility expiring April 2021) support commercial paper borrowings. All of the facilities allow for borrowings at LIBOR-based rates plus a spread depending on the credit default swap spread applicable to the Company’s debt, or a fixed spread in the case of the facility expiring in April 2021, 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 1.80%. 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 October 3, 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 October 3, 2020, the Company has $988 million of outstanding letters of credit, of which none were issued under this facility.
105
TABLE OF CONTENTS
Commercial paper activity is as follows:
Commercial paper with original maturities less than three months, net(1)
Commercial paper with original maturities greater than three monthsTotal
Balance at Sept. 29, 2018$50  $955  $1,005  
Additions1,881  6,889  8,770  
Payments0  (4,452) (4,452) 
Other Activity3  16  19  
Balance at Sept. 28, 2019$1,934  $3,408  $5,342  
Additions0  11,500  11,500  
Payments(1,961) (12,893) (14,854) 
Other Activity27  8  35  
Balance at Oct. 3, 2020$0  $2,023  $2,023  
(1)Borrowings and reductions of borrowings are reported net.
U.S. Dollar Denominated Notes
At October 3, 2020, the Company had $52.7 billion of U.S. dollar denominated notes with maturities ranging from 1 to 76 years. The debt outstanding includes $51.2 billion of fixed rate notes, which have stated interest rates that range from 1.65% to 9.50% and $1.5 billion of floating rate notes that bear interest at U.S. LIBOR plus or minus a spread. At October 3, 2020, the effective rate on the floating rate notes was 0.61%.
On March 20, 2019, the Company assumed public debt with a fair value of $21.2 billion (principal balance of $17.4 billion) upon completion of the TFCF acquisition. On March 20, 2019, 96% (principal balance of $16.8 billion) of the assumed debt was exchanged for senior notes of TWDC, with essentially the same terms. In September 2019, the Company repurchased previously exchanged debt with a carrying value of approximately $3.5 billion (principal balance of approximately $2.7 billion) and TFCF debt with a carrying value of approximately $280 million (principal balance of approximately $260 million) for $4.3 billion and recognized a charge of $511 million in “Other income, net” in the fiscal 2019 Consolidated Statement of Operations.
Foreign Currency Denominated Debt
In fiscal 2018, the Company issued Canadian $1.3 billion ($0.9 billion) of fixed rate senior notes, which bears interest at 2.76% and matures in October 2024. The Company also entered into pay-floating interest rate and cross currency swaps that effectively convert the borrowing to a variable rate U.S. dollar denominated borrowing indexed to LIBOR.
On March 30, 2020, the Company issued Canadian $1.3 billion ($1.0 billion) of fixed rate senior notes, which bear interest at 3.057% and mature in March 2027. The Company also entered into pay-floating interest rate and cross currency swaps that effectively convert the borrowing to a variable rate U.S. dollar denominated borrowing indexed to LIBOR.
RSN Debt
On March 20, 2019, as part of the TFCF acquisition, the Company assumed $1.1 billion of debt related to one of the RSNs. In August 2019, the RSN was sold and the buyer has assumed the outstanding debt obligation.
Credit Facilities to Acquire TFCF
On March 20, 2019, the Company borrowed $31.1 billion under two 364-day unsecured bridge loan facilities with a bank syndicate to fund the cash component of the TFCF acquisition. On March 21, 2019, the Company repaid one bridge loan facility in the amount of $16.1 billion, utilizing cash acquired in the TFCF transaction, and terminated the facility. The remaining 364-day unsecured bridge loan facility in the amount of $15.0 billion was repaid and terminated during the fourth quarter of fiscal 2019 using the after-tax proceeds from the divestiture of the RSNs and proceeds from new borrowings.
Cruise Ship Credit Facilities
The Company has credit facilities to finance up to 80% of the contract price of three new cruise ships, which were originally scheduled to be delivered in 2021, 2022 and 2023. The impact of COVID-19 on the shipyard has resulted in a delay to the delivery of the cruise ships, which are now scheduled to be delivered in 2022, 2024 and 2025. As a result, the Company revised the availability periods for the credit facilities. Under the facilities, $1.0 billion in financing is available beginning in October 2021, $1.1 billion is available beginning in August 2023 and $1.1 billion is available beginning in August 2024. Each tranche of financing may be utilized for a period of 18 months from the initial availability date. If utilized, the interest rates will
106
TABLE OF CONTENTS
be fixed at 3.48%, 3.80% and 3.74%, respectively, and the loan and interest will be payable semi-annually over a 12-year period from the borrowing date. Early repayment is permitted subject to cancellation fees.
Asia Theme Parks Borrowings
HKSAR provided Hong Kong Disneyland Resort with loans totaling HK$0.8 billion ($97 million). The interest rate is three month HIBOR plus 2%, and the maturity date is September 2025.
Shendi has provided Shanghai Disney Resort with loans totaling 7.6 billion yuan (approximately $1.1 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 October 3, 2020 the total amount outstanding under the line of credit was 0.6 billion yuan (approximately $90 million).
Total borrowings, excluding market value adjustments and debt issuance premiums, discounts and costs, have the following scheduled maturities:
Fiscal Year:Before 
Asia
Theme Parks
Consolidation		Asia 
Theme Parks		Total
2021$5,620$92$5,712
20223,85803,858
20231,24201,242
20242,86902,869
20253,64003,640
Thereafter37,3871,21138,598
$54,616$1,303$55,919
The Company capitalizes interest on assets constructed for its parks and resorts and on certain film and television productions. In fiscal 2020, 2019 and 2018, total interest capitalized was $157 million, $222 million and $125 million, respectively. Interest expense, net of capitalized interest, for fiscal 2020, 2019 and 2018 was $1,647 million, $1,246 million and $682 million, respectively.
10Income Taxes
U.S. Tax Cuts and Jobs Act
In December 2017, new federal income tax legislation, the “Tax Cuts and Jobs Act” (Tax Act), was signed into law. The most significant impacts on the Company are as follows:
•Effective January 1, 2018, the U.S. corporate federal statutory income tax rate was reduced from 35.0% to 21.0%. Because of our fiscal year end, the Company’s fiscal 2018 statutory federal tax rate was 24.5% and is 21.0% in fiscal 2019 and thereafter.
•The Company remeasured its U.S. federal deferred tax assets and liabilities at the rate that the Company expects to be in effect when those deferred taxes will be realized (either 24.5% for fiscal 2018 or 21.0% thereafter) (Deferred Remeasurement). In fiscal 2018, the Company recognized a benefit of approximately $2.2 billion from the Deferred Remeasurement.
•A one-time tax was due on certain accumulated foreign earnings (Deemed Repatriation Tax), payable over eight years beginning in fiscal 2018. The effective tax rate was generally 15.5% on the portion of the earnings held in cash and cash equivalents and 8% on the remainder. In fiscal 2018, the Company recognized a charge for the Deemed Repatriation Tax of approximately $0.4 billion. Generally there will no longer be a U.S. federal income tax cost arising from the repatriation of foreign earnings.
•The Company will generally be eligible to claim an immediate deduction for investments in qualified fixed assets acquired and film and television productions commenced after September 27, 2017 and placed in service by the end of fiscal 2022. The immediate deduction phases out for assets placed in service in fiscal years 2023 through 2027.
•The domestic production activity deduction was eliminated in fiscal 2019 and thereafter.
•Starting in fiscal 2019, certain foreign derived income may be taxed in the U.S. at an effective rate of approximately 13% (which increases to approximately 16% in 2025) rather than the general statutory rate of 21%.
107
TABLE OF CONTENTS
•Starting in fiscal 2019, certain foreign earnings may be taxed at a minimum effective rate of approximately 13% (which increases to approximately 16% in 2025). The Company’s policy is to expense the tax on these earnings in the period the earnings are taxable in the U.S.
Provision for Income Taxes and Deferred Tax Assets and Liabilities
Income (Loss) Before Income Taxes202020192018
Domestic (including U.S. exports)$4,706  $12,389  $12,914  
Foreign subsidiaries(1)
(6,449) 1,534  1,815  
Total income (loss) from continuing operations(1,743) 13,923  14,729  
Income (loss) from discontinued operations(42) 726  0  
$(1,785) $14,649  $14,729  
(1) Includes goodwill and intangible asset impairment in fiscal 2020.
Income Tax Expense (Benefit)
Current202020192018
Federal$95  $14  $2,240  
State148  112  362  
Foreign(1)
731  824  642  
974  950  3,244  
Deferred
Federal(2)
279  1,829  (1,577) 
State(29) 259  (20) 
Foreign(3)
(525) (12) 16  
(275) 2,076  (1,581) 
Income tax expense from continuing operations699  3,026  1,663  
Income tax expense from discontinued operations(10) 39  0  
$689  $3,065  $1,663  
(1)Includes foreign withholding taxes.
(2)Includes the Tax Act Deferred Remeasurement in fiscal 2018.
(3)Includes the tax effect of the intangible impairment in fiscal 2020.
108
TABLE OF CONTENTS
Components of Deferred Tax (Assets) and LiabilitiesOctober 3, 2020September 28, 2019
Deferred tax assets
Net operating losses and tax credit carryforwards(1)
$(3,137) $(2,181) 
Accrued liabilities(2,952) (2,575) 
Lease liabilities(825) (23) 
Other(652) (540) 
Total deferred tax assets(7,566) (5,319) 
Deferred tax liabilities
Depreciable, amortizable and other property8,574  7,710  
Investment in U.S. entities1,956  2,258  
Right-of-use assets740  0  
Licensing revenues189  573  
Investment in foreign entities266  146  
Other390  212  
Total deferred tax liabilities12,115  10,899  
Net deferred tax liability before valuation allowance4,549  5,580  
Valuation allowance2,410  1,912  
Net deferred tax liability$6,959  $7,492  
(1)As of October 3, 2020 and September 28, 2019, includes approximately $1.4 billion and $1.0 billion, respectively, of International Theme Park net operating losses and approximately $0.7 billion and $0.2 billion, respectively of foreign tax credits in the U.S. The International Theme Park net operating losses are primarily in France and, to a lesser extent, Hong Kong and China. Losses in France and Hong Kong have an indefinite carryforward period and losses in China have a five-year carryforward period. Foreign tax credits in the U.S. have a ten-year carryforward period.
The following table details the change in valuation allowance for fiscal 2020, 2019 and 2018 (in billions):
Balance at Beginning of PeriodCharges to Tax ExpenseChanges Due to
TFCF Acquisition		Balance at End of Period
Year ended October 3, 2020$1.9  $0.6  $(0.1) $2.4  
Year ended September 28, 20191.4  (0.1) 0.6  1.9  
Year ended September 29, 20181.7  (0.3) 0  1.4  
Reconciliation of the effective income tax rate to the federal rate for continuing operations
202020192018
Federal income tax rate21.0 %  21.0 %  24.5 %  
State taxes, net of federal benefit3.4 2.2 1.9 
Foreign derived income0 (1.1)0 
Domestic production activity deduction0 0 (1.4)
Goodwill impairment(41.1)0 0 
Earnings in jurisdictions taxed at rates different from the statutory U.S. federal rate(13.2)0.1 (1.1)
Legislative changes4.4 (0.3)(11.5)
Valuation allowance(14.6)0.1 0.4 
Other, including tax reserves and related interest0 (0.3)(1.5)
(40.1 %)21.7 %11.3 %
109
TABLE OF CONTENTS
Unrecognized tax benefits
A reconciliation of the beginning and ending amount of gross unrecognized tax benefits, excluding the related accrual for interest, is as follows:
202020192018
Balance at the beginning of the year$2,952  $648  $832  
Increases due to acquisitions34  2,728  0  
Increases for current year tax positions26  84  64  
Increases for prior year tax positions134  143  48  
Decreases in prior year tax positions(99) (61) (135) 
Settlements with taxing authorities(307) (590) (161) 
Balance at the end of the year$2,740  $2,952  $648  
The fiscal year-end 2020, 2019 and 2018 balances include $2.1 billion, $2.4 billion and $0.5 billion, respectively, that if recognized, would reduce our income tax expense and effective tax rate. These amounts are net of the offsetting benefits from other tax jurisdictions.
At October 3, 2020, September 28, 2019 and September 29, 2018, the Company had $1.1 billion, $1.0 billion and $0.2 billion, respectively, in accrued interest and penalties related to unrecognized tax benefits. During fiscal 2020, 2019 and 2018, the Company recorded additional interest and penalties of $211 million, $802 million (of which the substantial majority is due to the acquisition of TFCF) and $47 million, respectively, and recorded reductions in accrued interest and penalties of $101 million, $96 million and $100 million, respectively, as a result of audit settlements and other prior-year adjustments. The Company’s policy is to report interest and penalties as a component of income tax expense.
The Company is no longer subject to U.S. federal examination for years prior to 2017 for The Walt Disney Company and for years prior to 2014 for TFCF. The Company is no longer subject to examination in any of its major state or foreign tax jurisdictions for years prior to 2008.
In the next twelve months, it is reasonably possible that our unrecognized tax benefits could change due to the resolution of certain tax matters, which could include payments on those tax matters. These resolutions and payments could reduce our unrecognized tax benefits by $334 million.
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 $0.2 billion deferred tax asset with an offsetting increase to retained earnings.
Other
In fiscal 2020, 2019 and 2018, the Company recognized income tax benefits of $64 million, $41 million and $52 million, respectively for the excess of equity-based compensation deductions over amounts recorded based on the grant date fair value.
11Pension and Other Benefit Programs
The Company maintains pension and postretirement medical benefit plans covering certain of its employees not covered by union or industry-wide plans. The Company has defined benefit pension plans that cover employees hired prior to January 1, 2012. For employees hired after this date, the Company has a defined contribution plan. Benefits under these pension plans are generally based on years of service and/or compensation and generally require 3 years of vesting service. Employees generally hired after January 1, 1987 for certain of our media businesses and other employees generally hired after January 1, 1994 are not eligible for postretirement medical benefits.
In addition, the Company has a defined benefit plan for TFCF employees for which benefits stopped accruing in June 2017.
Defined Benefit Plans
The Company measures the actuarial value of its benefit obligations and plan assets for its defined benefit pension and postretirement medical benefit plans at September 30 and adjusts for any plan contributions or significant events between September 30 and our fiscal year end.
In connection with our fiscal 2019 acquisition of TFCF, we assumed net pension and postretirement obligations of $237 million ($824 million in obligations and $587 million in plan assets).
110
TABLE OF CONTENTS
The following chart summarizes the benefit obligations, assets, funded status and balance sheet impacts associated with the defined benefit pension and postretirement medical benefit plans:
 Pension PlansPostretirement Medical Plans
 October 3,
2020		September 28,
2019		October 3,
2020		September 28,
2019
Projected benefit obligations
Beginning obligations$(18,531) $(14,500) $(1,946) $(1,609) 
Acquisition of TFCF0  (759) 0  (65) 
Service cost(410) (345) (10) (8) 
Interest cost(527) (592) (56) (67) 
Actuarial loss(1)
(1,958) (2,923) (127) (234) 
Plan amendments and other1  32  (12) (11) 
Benefits paid662  534  47  48  
Curtailments3  22  0  0  
Ending obligations$(20,760) $(18,531) $(2,104) $(1,946) 
Fair value of plans’ assets
Beginning fair value$14,878  $12,728  $762  $731  
Acquisition of TFCF0  587  0  0  
Actual return on plan assets770  690  38  33  
Contributions664  1,461  9  37  
Benefits paid(662) (534) (47) (48) 
Expenses and other(52) (54) 9  9  
Ending fair value$15,598  $14,878  $771  $762  
Underfunded status of the plans$(5,162) $(3,653) $(1,333) $(1,184) 
Amounts recognized in the balance sheet
Non-current assets$20  $5  $0  $0  
Current liabilities(59) (54) (5) (5) 
Non-current liabilities(5,123) (3,604) (1,328) (1,179) 
$(5,162) $(3,653) $(1,333) $(1,184) 
(1)The actuarial loss for both fiscal 2020 and 2019 was primarily due to a reduction in the discount rate from the rate that was used in the preceding fiscal year.
The components of net periodic benefit cost are as follows:
 Pension PlansPostretirement Medical Plans
 202020192018202020192018
Service cost$410  $345  $350  $10  $8  $10  
Other costs (benefits):
Interest cost527  592  489  56  67  60  
Expected return on plan assets(1,084) (978) (901) (57) (56) (53) 
Amortization of prior-year service costs13  13  13  0  0  0  
Recognized net actuarial loss544  260  348  14  0  14  
Total other costs (benefits)0  (113) (51) 13  11  21  
Net periodic benefit cost$410  $232  $299  $23  $19  $31  
In fiscal 2019, the Company adopted new FASB accounting guidance on the presentation of the components of net periodic pension and postretirement benefit cost (“net periodic benefit cost”). This guidance requires the Company to present the service cost component of net periodic benefit cost in the same line items on the statement of operations as other compensation costs of the related employees (i.e. “Costs and expenses” in the Consolidated Statements of Operations). All of the other components of net periodic benefit cost (“other costs/benefits”) are presented as a component of “Interest expense,
111
TABLE OF CONTENTS
net” in the Consolidated Statements of Operations. The other costs/benefits in fiscal 2018 were not material and are reported in “Costs and expenses”.
In fiscal 2021, we expect pension and postretirement medical costs to increase by $143 million to $576 million due to the impacts of updated mortality assumptions and a lower discount rate.
Key assumptions are as follows:
 Pension PlansPostretirement Medical Plans
 202020192018202020192018
Discount rate used to determine the fiscal year‑end benefit obligation2.82 %3.22 %4.31 %2.80 %3.22 %4.31 %
Discount rate used to determine the interest cost component of net periodic benefit cost2.94 %4.09 %3.46 %2.95 %4.10 %3.49 %
Rate of return on plan assets7.00 %7.25 %7.50 %7.00 %7.25 %7.50 %
Weighted average rate of compensation increase to determine the fiscal year‑end benefit obligation3.20 %3.20 %3.20 %n/an/an/a
Year 1 increase in cost of benefitsn/an/an/a7.00 %7.00 %7.00 %
Rate of increase to which the cost of benefits is assumed to decline (the ultimate trend rate)n/an/an/a4.25 %4.25 %4.25 %
Year that the rate reaches the ultimate trend raten/an/an/a203420332032
AOCI, before tax, as of October 3, 2020 consists of the following amounts that have not yet been recognized in net periodic benefit cost:
Pension PlansPostretirement
Medical Plans		Total
Prior service cost$27  $0  $27  
Net actuarial loss8,915  429  9,344  
Total amounts included in AOCI8,942  429  9,371  
Prepaid (accrued) pension cost(3,780) 904  (2,876) 
Net balance sheet liability$5,162  $1,333  $6,495  
Plan Funded Status
The projected benefit obligation, accumulated benefit obligation and aggregate fair value of plan assets for pension plans with accumulated benefit obligations in excess of plan assets were $19.5 billion, $18.1 billion and $14.4 billion, respectively, as of October 3, 2020 and $17.5 billion, $16.1 billion and $13.9 billion, respectively, as of September 28, 2019.
For pension plans with projected benefit obligations in excess of plan assets, the projected benefit obligation and aggregate fair value of plan assets were $19.8 billion and $14.6 billion, respectively, as of October 3, 2020 and $18.5 billion and $14.8 billion respectively, as of September 28, 2019.
The Company’s total accumulated pension benefit obligations at October 3, 2020 and September 28, 2019 were $19.1 billion and $17.0 billion, respectively. Approximately 98% was vested as of both October 3, 2020 and September 28, 2019.
The accumulated postretirement medical benefit obligations and fair value of plan assets for postretirement medical plans with accumulated postretirement medical benefit obligations in excess of plan assets were $2.1 billion and $0.8 billion, respectively, at October 3, 2020 and $1.9 billion and $0.8 billion, respectively, at September 28, 2019.
Plan Assets
A significant portion of the assets of the Company’s defined benefit plans are managed in third-party master trusts. The investment policy and allocation of the assets in the master trusts were approved by the Company’s Investment and
112
TABLE OF CONTENTS
Administrative Committee, which has oversight responsibility for the Company’s retirement plans. The investment policy ranges for the major asset classes are as follows:
Asset ClassMinimumMaximum
Equity investments30%60%
Fixed income investments20%40%
Alternative investments10%30%
Cash & money market funds0%10%
The primary investment objective for the assets within the master trusts is the prudent and cost effective management of assets to satisfy benefit obligations to plan participants. Financial risks are managed through diversification of plan assets, selection of investment managers and through the investment guidelines incorporated in investment management agreements. Investments are monitored to assess whether returns are commensurate with risks taken.
The long-term asset allocation policy for the master trusts was established taking into consideration a variety of factors that include, but are not limited to, the average age of participants, the number of retirees, the duration of liabilities and the expected payout ratio. Liquidity needs of the master trusts are generally managed using cash generated by investments or by liquidating securities.
Assets are generally managed by external investment managers pursuant to investment management agreements that establish permitted securities and risk controls commensurate with the account’s investment strategy. Some agreements permit the use of derivative securities (futures, options, interest rate swaps, credit default swaps) that enable investment managers to enhance returns and manage exposures within their accounts.
Fair Value Measurements of Plan Assets
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 of the fair value hierarchy:
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
Investments that are valued using the net asset value (NAV) (or its equivalent) practical expedient are excluded from the fair value hierarchy disclosure.
The following is a description of the valuation methodologies used for assets reported at fair value. The methodologies used at October 3, 2020 and September 28, 2019 are the same.
Level 1 investments are valued based on reported market prices on the last trading day of the fiscal year. Investments in common and preferred stocks are valued based on an exchange-listed price or a broker’s quote in an active market. Investments in U.S. Treasury securities are valued based on a broker’s quote in an active market.
Level 2 investments in government and federal agency bonds, corporate bonds and mortgage-backed securities (MBS) and asset-backed securities are valued using a broker’s quote in a non-active market or an evaluated price based on a compilation of reported market information, such as benchmark yield curves, credit spreads and estimated default rates. Derivative financial instruments are valued based on models that incorporate observable inputs for the underlying securities, such as interest rates or foreign currency exchange rates.
113
TABLE OF CONTENTS
The Company’s defined benefit plan assets are summarized by level in the following tables:
As of October 3, 2020
DescriptionLevel 1Level 2TotalPlan Asset Mix
Cash$207  $0  $207  1%
Common and preferred stocks(1)
3,308  0  3,308  20%
Mutual funds1,154  0  1,154  7%
Government and federal agency bonds, notes and MBS2,326  354  2,680  16%
Corporate bonds0  935  935  6%
Other mortgage- and asset-backed securities0  106  106  1%
Derivatives and other, net(2) 7  5  0%
Total investments in the fair value hierarchy$6,993  $1,402  $8,395  
Assets valued at NAV as a practical expedient:
Common collective funds3,993  24%
Alternative investments3,375  21%
Money market funds and other606  4%
Total investments at fair value$16,369  100%

As of September 28, 2019
DescriptionLevel 1Level 2TotalPlan Asset Mix
Cash$197  $0  $197  1%
Common and preferred stocks(1)
3,468  0  3,468  22%
Mutual funds1,140  0  1,140  7%
Government and federal agency bonds, notes and MBS2,042  404  2,446  16%
Corporate bonds0  580  580  4%
Other mortgage- and asset-backed securities0  127  127  1%
Derivatives and other, net(6) (21) (27) 0%
Total investments in the fair value hierarchy$6,841  $1,090  $7,931  
Assets valued at NAV as a practical expedient:
Common collective funds3,691  24%
Alternative investments2,725  17%
Money market funds and other1,293  8%
Total investments at fair value$15,640  100%
(1)Includes 2.9 million shares of Company common stock valued at $355 million (2% of total plan assets) and 2.9 million shares valued at $373 million (2% of total plan assets) at October 3, 2020 and September 28, 2019, respectively.
Uncalled Capital Commitments
Alternative investments held by the master trust include interests in funds that have rights to make capital calls to the investors. In such cases, the master trust would be contractually obligated to make a cash contribution at the time of the capital call. At October 3, 2020, the total committed capital still uncalled and unpaid was $1.0 billion.
Plan Contributions
During fiscal 2020, the Company made $673 million of contributions to its pension and postretirement medical plans. The Company currently expects to make approximately $500 million to $600 million in pension and postretirement medical plan contributions in fiscal 2021. Final minimum funding requirements for fiscal 2021 will be determined based on a January 1, 2021 funding actuarial valuation, which is expected to be received during the fourth quarter of fiscal 2021.
114
TABLE OF CONTENTS
Estimated Future Benefit Payments
The following table presents estimated future benefit payments for the next ten fiscal years:
Pension
Plans
Postretirement
Medical Plans(1)
2021$678$59
202266163
202369167
202472972
202577176
2026 – 20304,433446
(1)Estimated future benefit payments are net of expected Medicare subsidy receipts of $85 million.
Assumptions
Assumptions, such as discount rates, long-term rate of return on plan assets and the healthcare cost trend rate, have a significant effect on the amounts reported for net periodic benefit cost as well as the related benefit obligations.
Discount Rate — The assumed discount rate for pension and postretirement medical plans reflects the market rates for high-quality corporate bonds currently available. 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. The Company measures service and interest costs by applying the specific spot rates along that yield curve to the plans’ liability cash flows.
Long-term rate of return on plan assets — The long-term rate of return on plan assets represents an estimate of long-term returns on an investment portfolio consisting of a mixture of equities, fixed income and alternative investments. When determining the long-term rate of return on plan assets, the Company considers long-term rates of return on the asset classes (both historical and forecasted) in which the Company expects the pension funds to be invested. The following long-term rates of return by asset class were considered in setting the long-term rate of return on plan assets assumption:
Equity Securities6 %to10 %
Debt Securities2 %to4 %
Alternative Investments6 %to11 %
Healthcare cost trend rate — The Company reviews external data and its own historical trends for healthcare costs to determine the healthcare cost trend rates for the postretirement medical benefit plans. The 2020 actuarial valuation assumed a 7.00% annual rate of increase in the per capita cost of covered healthcare claims with the rate decreasing in even increments over fourteen years until reaching 4.25%.
Sensitivity — A one percentage point (ppt) change in the discount rate and expected long-term rate of return on plan assets would have the following effects on the projected benefit obligations for pension and postretirement medical plans as of October 3, 2020 and on cost for fiscal 2021:
 Discount RateExpected Long-Term
Rate of Return On Assets
Increase (decrease)Benefit
Expense		Projected Benefit ObligationsBenefit
Expense
1 ppt decrease$351  $3,988  $164  
1 ppt increase(303) (3,380) (164) 
Multiemployer Benefit Plans
The Company participates in a number of multiemployer pension plans under union and industry-wide collective bargaining agreements that cover our union-represented employees and expenses its contributions to these plans as incurred. These plans generally provide for retirement, death and/or termination benefits for eligible employees within the applicable collective bargaining units, based on specific eligibility/participation requirements, vesting periods and benefit formulas. The risks of participating in these multiemployer plans are different from single-employer plans. For example:
•Assets contributed to the multiemployer plan by one employer may be used to provide benefits to employees of other participating employers.
115
TABLE OF CONTENTS
•If a participating employer stops contributing to the multiemployer plan, the unfunded obligations of the plan may become the obligation of the remaining participating employers.
•If a participating employer chooses to stop participating in these multiemployer plans, the employer may be required to pay those plans an amount based on the underfunded status of the plan.
The Company also participates in several multiemployer health and welfare plans that cover both active and retired employees. Health care benefits are provided to participants who meet certain eligibility requirements under the applicable collective bargaining unit.
The following table sets forth our contributions to multiemployer pension and health and welfare benefit plans:
202020192018
Pension plans$221$189$144
Health & welfare plans217218172
Total contributions$438$407$316
Defined Contribution Plans
The Company has defined contribution retirement plans for domestic employees who began service after December 31, 2011 and are not eligible to participate in the defined benefit pension plans. In general, the Company contributes from 3% to 9% of an employee’s compensation depending on the employee’s age and years of service with the Company up to plan limits. The Company has savings and investment plans that allow eligible employees to contribute up to 50% of their salary through payroll deductions depending on the plan in which the employee participates. The Company matches 50% of the employee’s contribution up to plan limits. In fiscal 2020, 2019 and 2018, the costs of these defined contribution plans were $217 million, $208 million and $162 million, respectively. The Company also has defined contribution retirement plans for employees in our international operations. The costs of these defined contribution plans were $25 million, $25 million and $21 million in fiscal years 2020, 2019 and 2018, respectively.
12Equity
The Company paid the following dividends in fiscal 2020, 2019 and 2018:
Per ShareTotal PaidPayment TimingRelated to Fiscal Period
$0.88$1.6 billionSecond Quarter of Fiscal 2020Second Half 2019
$0.88$1.6 billionFourth Quarter of Fiscal 2019First Half 2019
$0.88$1.3 billionSecond Quarter of Fiscal 2019Second Half 2018
$0.84$1.2 billionFourth Quarter of Fiscal 2018First Half 2018
$0.84$1.3 billionSecond Quarter of Fiscal 2018Second Half 2017
The Board of Directors did not declare a dividend with respect to fiscal year 2020 operations.
As a result of the acquisition of TFCF, TWDC became the parent entity of both TFCF and TWDC Enterprises 18 Corp. (formerly known as The Walt Disney Company and referred to herein as Legacy Disney). TWDC issued 307 million shares of common stock to acquire TFCF (see Note 4), and all the outstanding shares of Legacy Disney (other than shares of Legacy Disney held in treasury that were not held on behalf of a third party) were converted on a one-for-one basis into new publicly traded shares of TWDC.
In March 2019, Legacy Disney terminated its share repurchase program, and 1.4 billion treasury shares were canceled, which resulted in a decrease to common stock and retained earnings of $17.6 billion and $49.1 billion, respectively. The cost of treasury shares canceled was allocated to common stock based on the ratio of treasury shares to total shares outstanding, with the excess allocated to retained earnings. At October 3, 2020, TWDC held 19 million treasury shares.
TWDC’s authorized share capital consists of 4.6 billion common shares at $0.01 par value and 100 million preferred shares at $0.01 par value, both of which represent the same authorized capital structure in effect prior to the completion of the TFCF acquisition and as of September 29, 2018. As of September 29, 2018, Legacy Disney had 40 thousand preferred series B shares authorized with $0.01 par value, which were eliminated in fiscal 2019.
In fiscal 2018, the Company repurchased 35 million shares of its common stock for $3.6 billion.
116
TABLE OF CONTENTS
The following table summarizes the changes in each component of accumulated other comprehensive income (loss) (AOCI) including our proportional share of equity method investee amounts:
 
Market Value Adjustments(1)
Unrecognized
Pension and 
Postretirement
Medical 
Expense		Foreign
Currency
Translation
and Other		AOCI
AOCI, before tax
Balance at September 30, 2017$(93) $(4,906) $(523) $(5,522) 
Unrealized gains (losses) arising during the period259  203  (204) 258  
Reclassifications of net (gains) losses to net income35  380  0  415  
Balance at September 29, 2018$201  $(4,323) $(727) $(4,849) 
Unrealized gains (losses) arising during the period136  (3,457) (359) (3,680) 
Reclassifications of net (gains) losses to net income(185) 278  0  93  
Reclassifications to retained earnings(23) 0  0  (23) 
Balance at September 28, 2019$129  $(7,502) $(1,086) $(8,459) 
Unrealized gains (losses) arising during the period(57) (2,468) (2) (2,527) 
Reclassifications of net (gains) losses to net income(263) 547  0  284  
Balance at October 3, 2020$(191) $(9,423) $(1,088) $(10,702) 

 
Market Value Adjustments(1)
Unrecognized
Pension and 
Postretirement
Medical 
Expense		Foreign
Currency
Translation
and Other		AOCI
Tax on AOCI
Balance at September 30, 2017$39  $1,839  $116  $1,994  
Unrealized gains (losses) arising during the period(68) (47) (13) (128) 
Reclassifications of net (gains) losses to net income(12) (102) 0  (114) 
Balance at September 29, 2018$(41) $1,690  $103  $1,752  
Unrealized gains (losses) arising during the period(31) 797  28  794  
Reclassifications of net (gains) losses to net income43  (64) 0  (21) 
Reclassifications to retained earnings(2)
0  (667) (16) (683) 
Balance at September 28, 2019$(29) $1,756  $115  $1,842  
Unrealized gains (losses) arising during the period8  572  24  604  
Reclassifications of net (gains) losses to net income61  (127) 0  (66) 
Balance at October 3, 2020$40  $2,201  $139  $2,380  
117
TABLE OF CONTENTS

 
Market Value Adjustments(1)
Unrecognized
Pension and 
Postretirement
Medical 
Expense		Foreign
Currency
Translation
and Other		AOCI
AOCI, after tax
Balance at September 30, 2017$(54) $(3,067) $(407) $(3,528) 
Unrealized gains (losses) arising during the period191  156  (217) 130  
Reclassifications of net (gains) losses to net income23  278  0  301  
Balance at September 29, 2018$160  $(2,633) $(624) $(3,097) 
Unrealized gains (losses) arising during the period105  (2,660) (331) (2,886) 
Reclassifications of net (gains) losses to net income(142) 214  0  72  
Reclassifications to retained earnings(2)
(23) (667) (16) (706) 
Balance at September 28, 2019$100  $(5,746) $(971) $(6,617) 
Unrealized gains (losses) arising during the period(49) (1,896) 22  (1,923) 
Reclassifications of net (gains) losses to net income(202) 420  0  218  
Balance at October 3, 2020$(151) $(7,222) $(949) $(8,322) 
(1)Primarily reflects market value adjustments for cash flow hedges.
(2)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.
Details about AOCI components reclassified to net income are as follows:
Gains (losses) in net income:Affected line item in the Consolidated Statements of Operations:202020192018
Market value adjustments, primarily cash flow hedgesPrimarily revenue$263  $185  $(35) 
Estimated taxIncome taxes(61) (43) 12  
202  142  (23) 
Pension and postretirement medical expenseCost and expenses0  0  (380) 
Interest expense, net(547) (278) 0  
Estimated taxIncome taxes127  64  102  
(420) (214) (278) 
Total reclassifications for the period$(218) $(72) $(301) 

13Equity-Based Compensation
Under various plans, the Company may grant stock options and other equity-based awards to executive, management and creative personnel. The Company’s approach to long-term incentive compensation contemplates awards of stock options and restricted stock units (RSUs). Certain RSUs awarded to senior executives vest based upon the achievement of market or performance conditions (Performance RSUs).
Stock options are generally granted at exercise prices equal to or exceeding the market price at the date of grant and become exercisable ratably over a four-year period from the grant date. The contractual terms for our outstanding stock option grants are 10 years. At the discretion of the Compensation Committee of the Company’s Board of Directors, options can occasionally extend up to 15 years after date of grant. RSUs generally vest ratably over four years and Performance RSUs generally fully vest after three years, subject to achieving market or performance conditions. Equity-based award grants
118
TABLE OF CONTENTS
generally provide continued vesting, in the event of termination, for employees that reach age 60 or greater, have at least ten years of service and have held the award for at least one year.
Each share granted subject to a stock option award reduces the number of shares available under the Company’s stock incentive plans by one share while each share granted subject to a RSU award reduces the number of shares available by two shares. As of October 3, 2020, the maximum number of shares available for issuance under the Company’s stock incentive plans (assuming all the awards are in the form of stock options) was approximately 160 million shares and the number available for issuance assuming all awards are in the form of RSUs was approximately 77 million shares. The Company satisfies stock option exercises and vesting of RSUs with newly issued shares. Stock options and RSUs are generally forfeited by employees who terminate prior to vesting.
Each year, generally during the first half of the year, the Company awards stock options and restricted stock units to a broad-based group of management, technology and creative personnel. The fair value of options is estimated based on the binomial valuation model. The binomial valuation model takes into account variables such as volatility, dividend yield and the risk-free interest rate. The binomial valuation model also considers the expected exercise multiple (the multiple of exercise price to grant price at which exercises are expected to occur on average) and the termination rate (the probability of a vested option being canceled due to the termination of the option holder) in computing the value of the option.
The weighted average assumptions used in the option-valuation model were as follows:
202020192018
Risk-free interest rate1.8%2.8%2.4%
Expected volatility23%23%23%
Dividend yield1.36%1.61%1.57%
Termination rate5.8%4.8%4.8%
Exercise multiple1.83 1.75 1.75 
Although the initial fair value of stock options is not adjusted after the grant date, changes in the Company’s assumptions may change the value of, and therefore the expense related to, future stock option grants. The assumptions that cause the greatest variation in fair value in the binomial valuation model are the expected volatility and expected exercise multiple. Increases or decreases in either the expected volatility or expected exercise multiple will cause the binomial option value to increase or decrease, respectively. The volatility assumption considers both historical and implied volatility and may be impacted by the Company’s performance as well as changes in economic and market conditions.
Compensation expense for RSUs and stock options is recognized ratably over the service period of the award. Compensation expense for RSUs is based on the market price of the shares underlying the awards on the grant date. Compensation expense for Performance RSUs reflects the estimated probability that the market or performance conditions will be met.
Compensation expense related to stock options and RSUs is as follows:
202020192018
Stock option$101  $84  $87  
RSUs(1)
424  627  306  
Total equity-based compensation expense(2)
525  711  393  
Tax impact(118) (161) (99) 
Reduction in net income$407  $550  $294  
Equity-based compensation expense capitalized during the period$87  $81  $70  
(1)Fiscal 2019 includes a $164 million charge for acceleration of TFCF performance RSUs converted to Company RSUs in connection with the TFCF acquisition (see Note 4).
(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.
119
TABLE OF CONTENTS
The following table summarizes information about stock option transactions in fiscal 2020 (shares in millions):
 SharesWeighted  
Average
Exercise Price
Outstanding at beginning of year23$90.05
Awards forfeited(1) 127.94
Awards granted4147.04
Awards exercised(3) 80.17
Outstanding at end of year23$101.41
Exercisable at end of year13$84.50
The following tables summarize information about stock options vested and expected to vest at October 3, 2020 (shares in millions):
Vested
Range of Exercise PricesNumber of
Options		Weighted Average
Exercise Price		Weighted Average
Remaining Years of 
Contractual Life
$0 —$50 2$40.541.2
$51 —$80 361.032.7
$81 —$110 498.655.3
$111 —$140 4112.326.5
13
Expected to Vest
Range of Exercise Prices
Number of
Options(1)
Weighted Average
Exercise Price		Weighted Average
Remaining Years of 
Contractual Life
$100 —$125 5$110.067.6
$126 —$150 4147.849.2
9
(1)Number of options expected to vest is total unvested options less estimated forfeitures.
The following table summarizes information about RSU transactions in fiscal 2020 (shares in millions):
 UnitsWeighted Average
Grant-Date Fair Value
Unvested at beginning of year12$110.84
Granted(1)
6142.77
Vested(5) 108.13
Forfeited(1) 117.25
Unvested at end of year (2)(3)
12$128.56
(1)Includes 0.2 million Performance RSUs.
(2)Includes 1.4 million Performance RSUs.
(3)Excludes Performance RSUs issued in September 2018 and December 2019, for which vesting is subject to service conditions and the number of units vesting is subject to the discretion of the CEO. At October 3, 2020, the maximum number of these Performance RSUs that could be issued upon vesting is 0.1 million.
The weighted average grant-date fair values of options granted during fiscal 2020, 2019 and 2018 were $36.19, $28.76 and $28.01, respectively. The total intrinsic value (market value on date of exercise less exercise price) of options exercised and RSUs vested during fiscal 2020, 2019 and 2018 totaled $989 million, $646 million and $585 million, respectively. The aggregate intrinsic values of stock options vested and expected to vest at October 3, 2020 were $514 million and $63 million, respectively.
120
TABLE OF CONTENTS
As of October 3, 2020, unrecognized compensation cost related to unvested stock options and RSUs was $140 million and $850 million, respectively. That cost is expected to be recognized over a weighted-average period of 1.6 years for stock options and 1.9 years for RSUs.
Cash received from option exercises for fiscal 2020, 2019 and 2018 was $305 million, $318 million and $210 million, respectively. Tax benefits realized from tax deductions associated with option exercises and RSUs vesting for fiscal 2020, 2019 and 2018 was approximately $220 million, $145 million and $160 million, respectively.
14Detail of Certain Balance Sheet Accounts
Current receivablesOctober 3,
2020		September 28,
2019
Accounts receivable$11,299  $12,930  
Other1,835  2,894  
Allowance for doubtful accounts(426) (343) 
$12,708  $15,481  

Parks, resorts and other property
Attractions, buildings and improvements$31,279  $29,509  
Furniture, fixtures and equipment22,976  21,265  
Land improvements6,828  6,649  
Leasehold improvements1,028  1,166  
62,111  58,589  
Accumulated depreciation(35,517) (32,415) 
Projects in progress4,449  4,264  
Land1,035  1,165  
$32,078  $31,603  

Intangible assets
Character/franchise intangibles, copyrights and trademarks$10,572  $10,577  
MVPD agreements8,098  9,900  
Other amortizable intangible assets4,309  4,291  
Accumulated amortization(5,598) (3,393) 
Net amortizable intangible assets17,381  21,375  
Indefinite lived intangible assets1,792  1,840  
$19,173  $23,215  

Accounts payable and other accrued liabilities
Accounts payable$12,663  $13,778  
Payroll and employee benefits2,925  3,010  
Other1,213  974  
$16,801  $17,762  

Other long-term liabilities
Pension and postretirement medical plan liabilities$6,451  $4,783  
Other10,753  8,977  
$17,204  $13,760  

121
TABLE OF CONTENTS
15Commitments and Contingencies
Commitments
The Company has various contractual commitments for broadcast rights for sports, films and other programming, totaling approximately $46.4 billion, including approximately $3.1 billion for available programming as of October 3, 2020, and approximately $40.6 billion related to sports programming rights, primarily for college football (including bowl games and the College Football Playoff) and basketball, NBA, NFL, UFC, MLB, Cricket, US Open Tennis, Top Rank Boxing, the PGA Championship and various soccer rights.
The Company has entered into operating leases for various real estate and equipment needs, including office space for general and administrative purposes, production facilities, retail outlets and distribution centers for consumer products, land and content broadcast equipment. In addition, the Company has non-cancelable financing leases, primarily for land and broadcast equipment. See Note 16 for discussion of the Company’s operating and financing lease commitments.
The Company also has contractual commitments for the construction of three new cruise ships, creative talent and employment agreements and unrecognized tax benefits. Creative talent and employment agreements include obligations to actors, producers, sports, television and radio personalities and executives.
Contractual commitments for broadcast programming rights and other commitments including cruise ships and creative talent totaled $58.8 billion at October 3, 2020, payable as follows:
Fiscal Year:Broadcast
Programming		OtherTotal
2021$12,043  $3,051  $15,094  
20228,632  2,291  10,923  
20236,030  988  7,018  
20244,972  1,263  6,235  
20255,058  1,060  6,118  
Thereafter9,643  3,737  13,380  
$46,378  $12,390  $58,768  
Certain broadcast programming rights have payments that are variable based primarily on revenues and are not included in the table above.
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 October 3, 2020, the remaining debt service obligation guaranteed by the Company was $232 million. To the extent that tax 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.
16Leases
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
122
TABLE OF CONTENTS
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 of approximately $3.7 billion of right-of-use assets and lease liabilities, 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 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 October 3, 2020, our operating leases have a weighted-average remaining lease term of approximately 10 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 6.3%, for our operating leases and finance leases, respectively. Additionally, as of October 3, 2020, the Company had signed non-cancelable lease agreements with total estimated future lease payments of approximately $277 million that had not yet commenced and therefore are not included in the measurement of the right-of-use asset and lease liability.
123
TABLE OF CONTENTS
The Company’s operating and finance right-of-use assets and lease liabilities are as follows:
October 3, 2020
Right-of-use assets(1)
Operating leases$3,687 
Finance leases361 
Total right-of-use assets4,048 (Registrant)
Short-term lease liabilities(2)
Date: January 24, 2023
Operating leasesBy:747 
Finance leases37 /S/  ROBERT A. IGER
784 
Long-term lease liabilities(3)
(Robert A. Iger
Operating leases2,640 
Finance leases271 
2,911 
Total lease liabilities$3,695 
(1)Included in “Other assets” in the Consolidated Balance Sheet. 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 Consolidated Balance Sheet.
(3)Included in “Other long-term liabilities” in the Consolidated Balance Sheet.
The components of lease expense for the year ended October 3, 2020 are as follows:
Finance lease cost
Amortization of right-of-use assets$37 
Interest on lease liabilities16 
Operating lease cost899 
Variable fees and other(1)
491 
Total lease cost$1,443 
(1)Includes variable lease payments related to our operating and finance leases and costs of Short-term leases, net of sublease income.
Rental expense for operating leases during fiscal 2019 and 2018, including common-area maintenance and contingent rentals, was $1.1 billion and $0.9 billion, respectively.
Cash paid during the year ended October 3, 2020 for amounts included in the measurement of lease liabilities as of the beginning of the reporting period is as follows:
Cash paid for amounts included in the measurement of lease liabilities
Operating cash flows for operating leases$879 
Operating cash flows for finance leases16 
Financing cash flows for finance leases37 
Total$932 
124
TABLE OF CONTENTS
Future minimum lease payments, as of October 3, 2020, are as follows:
OperatingFinancing
Fiscal year:
2021$840  $56  
2022635  56  
2023494  51  
2024367  40  
2025310  35  
Thereafter1,565  482  
Total undiscounted future lease payments4,211  720  
Less: Imputed interest(824) (412) 
Total reported lease liability$3,387  $308  
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 
2021849 20 
2022670 19 
2023532 17 
2024407 16 
Thereafter2,491 458 
Total minimum obligations$5,931   549   
Less: amount representing interest(398)
Present value of net minimum obligations$151 

125
TABLE OF CONTENTS
17Fair Value Measurement
The Company’s assets and liabilities measured at fair value are summarized in the following tables by fair value measurement Level. See Note 11 for definitions of fair value measures and the Levels within the fair value hierarchy.
 Fair Value Measurement at October 3, 2020
DescriptionLevel 1 Level 2Level 3Total
Assets
Investments$0  $1,057  $0  $1,057  
Derivatives
Interest rate0  515  0  515  
Foreign exchange0  505  0  505  
Other0  1  0  1  
Liabilities
Derivatives
Interest rate0  (4) 0  (4) 
Foreign exchange0  (549) 0  (549) 
Other0  (22) 0  (22) 
Total recorded at fair value$0  $1,503  $0  $1,503  
Fair value of borrowings$0  $63,370  $1,448  $64,818  

 Fair Value Measurement at September 28, 2019
DescriptionLevel 1Level 2Level 3Total
Assets
Investments$13  $0  $0  $13  
Derivatives
Interest rate0  89  0  89  
Foreign exchange0  771  0  771  
Other0  1  0  1  
Liabilities
Derivatives
Interest rate0  (93) 0  (93) 
Foreign exchange0  (544) 0  (544) 
Other0  (4) 0  (4) 
Total recorded at fair value13  220  0  233  
Fair value of borrowings$0  $48,709  $1,249  $49,958  
The fair values of Level 2 investments are based on quoted market prices, adjusted for trading restrictions.
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 Company also has assets that are required to be recorded at fair value on a non-recurring basis. These assets are evaluated when certain triggering events occur (including a decrease in estimated future cash flows) that indicate the asset
126
TABLE OF CONTENTS
should be evaluated for impairment. In the third quarter of fiscal 2020, the Company recorded impairment charges for goodwill and intangible assets as disclosed in Note 19. The fair value of these assets reflected the estimated discounted future cash flows, which is a Level 3 valuation technique (see Note 19 for a discussion of the more significant inputs used in our discounted cash flow analysis).
Credit Concentrations
The Company monitors its positions with, and the credit quality of, the financial institutions that are counterparties to its financial instruments on an ongoing basis and does not currently anticipate nonperformance by the counterparties.
The Company does not expect that it would realize a material loss, based on the fair value of its derivative financial instruments as of October 3, 2020, in the event of nonperformance by any single derivative counterparty. The Company generally enters into derivative transactions only with counterparties that have a credit rating of A- or better and requires collateral in the event credit ratings fall below A- or aggregate exposures exceed limits as defined by contract. In addition, the Company limits the amount of investment credit exposure with any one institution.
The Company does not have material cash and cash equivalent balances with financial institutions that have below investment grade credit ratings and maintains short-term liquidity needs in high quality money market funds. As of October 3, 2020, the Company’s balances with individual financial institutions that exceeded 10% of the Company’s total cash and cash equivalents were 26% of total cash and cash equivalents. At October 3, 2020, the Company did not have balances (excluding money market funds) with individual financial institutions that exceeded 10% of the Company’s total cash and cash equivalents.
The Company’s trade receivables and financial investments do not represent a significant concentration of credit risk at October 3, 2020 due to the wide variety of customers and markets in which the Company’s products are sold, the dispersion of our customers across geographic areas and the diversification of the Company’s portfolio among financial institutions.
18Derivative 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 October 3, 2020
 Current
Assets		Other AssetsOther
Current
Liabilities		Other Long-
Term
Liabilities
Derivatives designated as hedges
Foreign exchange$184  $132  $(77) $(273) 
Interest rate0  515  (4) 0  
Other1  0  (15) (4) 
Derivatives not designated as hedges
Foreign exchange53  136  (98) (101) 
Interest Rate0  0  0  0  
Other0  0  (3) 0  
Gross fair value of derivatives238  783  (197) (378) 
Counterparty netting(143) (378) 184  338  
Cash collateral (received) paid(26) (142) 0  9  
Net derivative positions$69  $263  $(13) $(31) 

127
TABLE OF CONTENTS
 As of September 28, 2019
 Current
Assets		Other AssetsOther
Current
Liabilities		Other Long-
Term
Liabilities
Derivatives designated as hedges
Foreign exchange$302  $241  $(67) $(244) 
Interest rate0  89  (82) 0  
Other1  0  (3) (1) 
Derivatives not designated as hedges
Foreign exchange65  163  (107) (126) 
Interest Rate0  0  0  (11) 
Gross fair value of derivatives368  493  (259) (382) 
Counterparty netting(231) (345) 258  318  
Cash collateral (received) paid(55) (6) 0  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 October 3, 2020 and September 28, 2019, the total notional amount of the Company’s pay-floating interest rate swaps was $15.8 billion and $9.9 billion, respectively.
The following table summarizes fair value hedge adjustments to hedged borrowings:
Carrying Amount of Hedged Borrowings(1)
Fair Value Adjustments Included in Hedged Borrowings(1)
October 3, 2020September 28, 2019October 3, 2020September 28, 2019
Borrowings:
Current$753  $1,121  $4  $(3) 
Long-term16,229  9,562  505  34  
$16,982  $10,683  $509  $31  
(1)Includes $34 million and $37 million of gains on terminated interest rate swaps as of October 3, 2020 and September 28, 2019, respectively.
The following amounts are included in “Interest expense, net” in the Consolidated Statements of Operations:
 202020192018
Gain (loss) on:
Pay-floating swaps$479  $337  $(230) 
Borrowings hedged with pay-floating swaps(479) (337) 230  
Benefit (expense) associated with interest accruals on pay-floating swaps28  (58) (15) 
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 October 3, 2020 or at September 28, 2019, and gains and losses related to pay-fixed swaps recognized in earnings for fiscal 2020, 2019 and 2018 were not material.
128
TABLE OF CONTENTS
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 Company repurchased these options in July 2020 for $2 million. The fair values of these contracts were $1 million and $11 million at June 27, 2020 and September 28, 2019, respectively. The options were not designated as hedges and did not qualify for hedge accounting; accordingly, changes in their fair value were recorded in earnings. Gains and losses on the options for fiscal 2020, 2019 and 2018 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 October 3, 2020 and September 28, 2019, the notional amounts of the Company’s net foreign exchange cash flow hedges were $4.6 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 next twelve months total $106 million. The following table summarizes the effect of foreign exchange cash flow hedges on AOCI:
20202019
Gain (loss) recognized in Other Comprehensive Income$(63)$156
Gain (loss) reclassified from AOCI into the Statement of Operations(1)
269  183
(1)Primarily recorded in revenue.
The Company designates cross currency swaps as fair value hedges of foreign currency denominated borrowings. The impact of the designated exposure is recorded to “Interest Expense, net” to offset the foreign currency impact of the foreign currency denominated borrowing. The non-hedged exposure is recorded to AOCI and is amortized over the life of the cross currency swap. As of October 3, 2020, the total notional amount of the Company’s designated cross currency swaps was Canadian $1.3 billion ($979 million). There were no designated cross currency swaps as of September 28, 2019. Fiscal 2020, gains and losses on cross currency swaps and related hedged items were not material, and there were no gains or losses in fiscal 2019 and 2018.
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 October 3, 2020 and September 28, 2019 were $3.5 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 by the corresponding line item in which they are recorded in the Consolidated Statements of Operations:
Costs and ExpensesInterest expense, netIncome Tax Expense
202020192018202020192018202020192018
Net gains (losses) on foreign currency denominated assets and liabilities$10  $(188) $(146) $1  $16  $39  $(35) $50  $29  
Net gains (losses) on foreign exchange risk management contracts not designated as hedges(56) 123  104  0  (19) (46) 33  (51) (19) 
Net gains (losses)$(46) $(65) $(42) $1  $(3) $(7) $(2) $(1) $10  
129
TABLE OF CONTENTS
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 October 3, 2020 and September 28, 2019 and related gains or losses recognized in earnings were not material for fiscal 2020, 2019 and 2018.
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 October 3, 2020 and September 28, 2019 were not material. The related gains or losses recognized in earnings were not material for fiscal 2020, 2019 and 2018.
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 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 $53 million and $65 million at October 3, 2020 and September 28, 2019, respectively.
19Restructuring and Impairment Charges
Goodwill and Intangible Asset Impairment
Our International Channels reporting unit, which is part of the Direct-to-Consumer & International segment, comprises the Company’s international television networks. Our international television networks primarily derive revenues from affiliate fees charged to multi-channel video programming distributors (i.e. cable, satellite, telecommunications and digital over-the-top service providers) (MVPDs) for the right to deliver our programming under multi-year licensing agreements and the sales of advertising time/space on the networks. 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.
The International Channels business has been negatively impacted by the COVID-19 pandemic resulting in decreased viewership and lower advertising revenue related to the availability of content, including the deferral of certain live sporting events. The Company’s increased focus on DTC distribution in international markets is expected to negatively impact the International Channels business as we shift the primary means of monetizing our film and television content from licensing of linear channels to use on our DTC services because the International Channels reporting unit valuation does not include the value derived from this shift, which is reflected in other reporting units. In addition, the industry shift to DTC, including by us and many of our distributors, who are pursuing their own DTC strategies, has changed the competitive dynamics for the International Channels business and resulted in unfavorable renewal terms for certain of our distribution agreements.
Due to these circumstances, in the third quarter of fiscal 2020, we tested the International Channels’ goodwill and long-lived assets (including intangible assets) for impairment.
The impairment test 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. Assets are grouped at the lowest level for which identifiable cash flows are largely independent of the cash flows of other groups of assets. If the carrying value of an asset group exceeds the estimated undiscounted future cash flows, an impairment is 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.
We determined the appropriate asset groups for our International Channels to be the regions in which they operate. We estimated the projected undiscounted cash flows over the remaining useful life of an asset group. The more significant inputs used in determining our estimate of the projected undiscounted cash flows included future revenue growth and projected margins as well as the estimate of the remaining useful life of an asset group.
If the carrying value of an asset group exceeded the estimated undiscounted cash flows, the impairment loss is the excess of the carrying value over the fair value. The determination of fair value requires us to make assumptions and estimates about
130
TABLE OF CONTENTS
how market participants would value the asset groups. The most sensitive factors affecting the fair value of an asset group are the future revenue growth and projected margins for these businesses as well as the discount rates used to calculate the present value of future cash flows.
In the third quarter of fiscal 2020, we recorded a non-cash impairment charge primarily on our MVPD agreement intangible assets of $1.9 billion. As of October 3, 2020, the remaining balance of the International Channels MVPD agreement intangible assets is approximately $3.0 billion.
We tested the International Channels reporting unit goodwill for impairment on an interim basis by comparing the fair value of the International Channels reporting unit to its carrying value. The fair value was determined using a discounted cash flow analysis. The determination of fair value requires us to make assumptions and estimates about how market participants would value the International Channels. The more sensitive inputs used in the discounted cash flow analysis include future revenue growth and projected margins as well as the discount rates used to calculate the present value of future cash flows. Given the ongoing impacts of COVID-19, the projected cash flows and underlying assumptions are subject to greater uncertainty than normal.
In the third quarter of fiscal 2020, the carrying value of the International Channels exceeded the fair value, and we recorded a non-cash impairment charge of $3.1 billion to fully impair the International Channels reporting unit goodwill.
The $1.9 billion impairment of our MVPD relationships and $3.1 billion impairment of goodwill are recorded in “Restructuring and impairment charges” in the Consolidated Statements of Operations.
TFCF Integration
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. The restructuring plan is substantially complete as of the end of fiscal 2020. In connection with this plan, during fiscal 2020, the Company recorded $0.5 billion of restructuring charges, which included $0.4 billion of severance (including employee contract terminations). To date, we have recorded restructuring charges of $1.7 billion, including $1.2 billion related to severance 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. These charges are recorded in “Restructuring and impairment charges” in the Consolidated Statements of Operations. With the TFCF integration efforts nearly complete, the Company expects that total severance and other restructuring charges will remain at approximately $1.7 billion.
The changes in restructuring reserves related to the TFCF integration for fiscal 2019 and 2020 are as follows:
Balance at September 29, 2018$0 
Additions in fiscal 2019:
Media Networks90 
Parks, ExperiencesChief Executive Officer and Products11 
Studio Entertainment197 
Direct-to-Consumer & International426 
Corporate182 
Total additions in fiscal 2019906 
Payments in fiscal 2019(230)
Balance at September 28, 2019676 
Additions in fiscal 2020:
Media Networks26 
Parks, Experiences and Products9 
Studio Entertainment92 
Direct-to-Consumer & International264 
Corporate62 
Total additions in fiscal 2020453 
Payments in fiscal 2020(772)
Balance at October 3, 2020$357 Director)
Other
In the fourth quarter of fiscal 2020, the Company approved a workforce reduction plan, primarily at the Parks, Experiences and Products segment, which we expect to be completed by the end of fiscal 2021. The Company recorded
131

63

TABLE OF CONTENTS
$287 million of restructuring charges for severance related to this plan in fiscal 2020. These charges are recorded in “Restructuring and impairment charges” in the Consolidated Statements of Operations.
20New Accounting Pronouncements
Accounting Pronouncements Adopted in Fiscal 2020
•Leases - See Note 16
•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 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). We currently do not expect the new guidance will have a material impact on our 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 the allowance for credit losses to be measured based on expected losses over the life of the asset rather than incurred losses. The guidance is effective at the beginning of the Company’s 2021 fiscal year. The adoption will not have a material impact on our financial statements.
132
TABLE OF CONTENTS
QUARTERLY FINANCIAL SUMMARY
(in millions, except per share data)
(unaudited)
Q1(1)
Q2(1)
Q3(1)
Q4(1)
2020
Revenues$20,877  $18,025  $11,779  $14,707  
Income (loss) from continuing operations before income taxes2,626  1,051  (4,840) (580) 
Segment operating income(9)
3,996  2,407  1,099  606  
Net income (loss) from continuing operations2,168  528  (4,509) (629) 
Net income (loss) attributable to Disney2,107  460  (4,721) (710) 
Loss from discontinued operations, net of tax(21) (8) (3) 0  
Earnings (loss) per share:
Diluted - continuing operations$1.17 (2)$0.26 (3)$(2.61)(5)$(0.39)(7)
Diluted - total1.16 0.25 (2.61)(0.39)
Basic - continuing operations1.18 0.26 (2.61)(0.39)
Basic - total1.17 0.25 (2.61)(0.39)
2019
Revenues$15,303 $14,924 $20,262 $19,118 
Income from continuing operations before income taxes3,431 7,236 2,009 1,247 
Segment operating income(9)
3,655 3,815 3,952 3,425 
Net income from continuing operations2,786 5,589 1,616 906 
Net income attributable to Disney2,788 5,452 1,760 1,054 
Income from discontinued operations, net of tax0 22 366 299 
Earnings per share:
Diluted - continuing operations$1.86 $3.53 (4)$0.79 (6)$0.43 (8)
Diluted - total1.86 3.55 0.97 

0.58 

Basic - continuing operations1.87 3.55 0.79 0.43 
Basic1.87 3.56 0.98 0.58 
(1)On March 20, 2019, the Company began consolidating the results of TFCF and Hulu (see Note 4). As a result, revenues and operating results in fiscal 2020 and the third and fourth quarter of fiscal 2019 reflected the impact of this transaction.
(2)Results included amortization related to TFCF and Hulu intangible assets and fair value step-up on film and television costs (adverse impact of $0.30 on diluted earnings (loss) per share (EPS)) and restructuring and impairment charges (adverse impact of $0.06 on EPS).
(3)Results included amortization related to TFCF and Hulu intangible assets and fair value step-up on film and television costs (adverse impact of $0.27 on EPS) and restructuring and impairment charges (adverse impact of $0.06 on EPS).
(4)Results included the Hulu gain (favorable impact of $2.46 on EPS), restructuring and impairment charges (adverse impact of $0.33 on EPS), an impairment in our investment in Vice (adverse impact of $0.18 on EPS), and amortization related to TFCF and Hulu intangible assets and fair value step-up on film and television costs (adverse impact of $0.05 on EPS).
(5)Results included goodwill and intangible asset impairments at our International Channels business (adverse impact of $2.53 on EPS), amortization related to TFCF and Hulu intangible assets and fair value step-up on film and television costs (adverse impact of $0.28 on EPS), restructuring and impairment charges (adverse impact of $0.04 on EPS), and the DraftKings gain (favorable impact of $0.16 on EPS).
(6)Results included amortization related to TFCF and Hulu intangible assets and fair value step-up on film and television costs (adverse impact of $0.34 on EPS), restructuring and impairment charges (adverse impact of $0.09 on EPS), equity investment impairments (adverse impact of $0.08 on EPS), and an adjustment to the Hulu gain (adverse impact of $0.05 on EPS).
(7)Results included amortization related to TFCF and Hulu intangible assets and fair value step-up on film and television costs (adverse impact of $0.30 on EPS), restructuring and impairment charges (adverse impact of $0.17 on EPS), the DraftKings gain (favorable impact of $0.25 on EPS), and a non-cash gain on the sale of an investment (favorable impact of $0.03 on EPS).
(8)Results included amortization related to TFCF and Hulu intangible assets and fair value step-up on film and television costs (adverse impact of $0.30 on EPS), a charge for the settlement of a portion of the debt originally assumed in the TFCF acquisition (adverse impact of $0.22 on EPS), and restructuring and impairment charges (adverse impact of $0.13), and a gain on the deemed settlement of preexisting relationships with TFCF as part of the accounting for the acquisition (favorable impact of $0.01 on EPS).
(9)Segment operating results reflect earnings before the corporate and unallocated shared expenses, restructuring and impairment charges, other income, net, interest expense, net, income taxes and noncontrolling interests.
133