0001744489 us-gaap:ForeignExchangeContractMember us-gaap:NondesignatedMember 2019-03-30


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
 
x☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 30, 2019January 1, 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
dis-20220101_g1.jpg
Delaware83-0940635
State or Other Jurisdiction ofI.R.S. Employer Identification
Incorporation or Organization
Delaware83-0940635
State or Other Jurisdiction ofI.R.S. Employer Identification
Incorporation or Organization
500 South Buena Vista Street, Burbank, California91521
Address of Principal Executive OfficesZip Code
(818) 560-1000
Registrant’s Telephone Number, Including Area Code
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 classTrading Symbol(s)Name of each exchange on which registered
Common Stock, $0.01 par valueDISNew York Stock Exchange
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  ¨
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 (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes  x☒    No  ¨
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 filerx☒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 is a shell company (as defined in Rule 12b-2 of the Act).    Yes  ☐    No  ☒¨    No  x
Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of each exchange on which registered
Common Stock, $0.01 par valueDISNew York Stock Exchange
There were 1,799,698,9221,820,633,408 shares of common stock outstanding as of May 1, 2019.February 2, 2022.




PART I. FINANCIAL INFORMATION
Item 1: Financial Statements
THE WALT DISNEY COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(unaudited; in millions, except per share data)
 Quarter Ended
 January 1,
2022		January 2,
2021
Revenues:
Services$19,542 $14,871 
Products2,277 1,378 
Total revenues21,819 16,249 
Costs and expenses:
Cost of services (exclusive of depreciation and amortization)(13,161)(10,738)
Cost of products (exclusive of depreciation and amortization)(1,406)(1,037)
Selling, general, administrative and other(3,787)(2,917)
Depreciation and amortization(1,269)(1,298)
Total costs and expenses(19,623)(15,990)
Restructuring and impairment charges— (113)
Other expense, net(436)— 
Interest expense, net(311)(324)
Equity in the income of investees239 224 
Income from continuing operations before income taxes1,688 46 
Income taxes on continuing operations(488)(16)
Net income from continuing operations1,200 30 
Loss from discontinued operations, net of income tax benefit of $14 and $4, respectively(48)(12)   
Net income1,152 18 
Net income from continuing operations attributable to noncontrolling interests(48)(1)
Net income attributable to Disney$1,104    $17 
Earnings (loss) per share attributable to Disney(1):
Diluted
Continuing operations$0.63 $0.02 
Discontinued operations(0.03)(0.01)
$0.60 $0.01 
Basic
Continuing operations$0.63 $0.02 
Discontinued operations(0.03)(0.01)
$0.61 $0.01 
Weighted average number of common and common equivalent shares outstanding:
Diluted1,828 1,823 
Basic1,819 1,812 
(1)
 Quarter Ended Six Months Ended
 March 30,
2019		 March 31,
2018		 March 30,
2019		 March 31,
2018
Revenues:       
Services$13,006
 $12,520
 $25,872
 $25,504
Products1,916
 2,028
 4,353
 4,395
Total revenues14,922
 14,548
 30,225
 29,899
Costs and expenses:       
Cost of services (exclusive of depreciation and amortization)(7,167) (6,313) (14,731) (13,637)
Cost of products (exclusive of depreciation and amortization)(1,209) (1,228) (2,646) (2,633)
Selling, general, administrative and other(2,327) (2,239) (4,479) (4,326)
Depreciation and amortization(828) (731) (1,560) (1,473)
Total costs and expenses(11,531) (10,511) (23,416) (22,069)
Restructuring and impairment charges(662) (13) (662) (28)
Other income4,963
 41
 4,963
 94
Interest expense, net(143) (143) (206) (272)
Equity in the income / (loss) of investees, net(312) 6
 (236) 49
Income from continuing operations before income taxes7,237
 3,928
 10,668
 7,673
Income taxes from continuing operations(1,647) (813) (2,292) (85)
Net income from continuing operations5,590
 3,115
 8,376
 7,588
Income (loss) from discontinued operations (net of income taxes of $5, $0, $5 and $0, respectively)21
 —
 21
 —
Consolidated net income5,611
 3,115
 8,397
 7,588
Less: Net income attributable to noncontrolling interests(159) (178) (157) (228)
Net income attributable to The Walt Disney Company (Disney)$5,452
 $2,937
 $8,240
 $7,360
        
Earnings per share attributable to Disney:       
Continuing operations$3.53
 $1.95
 $5.42
 $4.86
Discontinued operations0.01
 —
 0.01
 —
Diluted$3.55
 $1.95
 $5.43
 $4.86
        
Continuing operations$3.55
 $1.95
 $5.44
 $4.88
Discontinued operations0.01
 —
 0.01
 —
Basic$3.56
 $1.95
 $5.46
 $4.88
        
Weighted average number of common and common equivalent shares outstanding:       
Diluted1,537
 1,510
 1,517
 1,515
        
Basic1,530
 1,503
 1,510
 1,507
Total may not equal the sum of the column due to rounding.
See Notes to Condensed Consolidated Financial Statements

2

THE WALT DISNEY COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(unaudited; in millions)
 
 Quarter Ended Six Months Ended
 March 30,
2019		 March 31,
2018		 March 30,
2019		 March 31,
2018
Consolidated net income$5,611
 $3,115
 $8,397
 $7,588
Other comprehensive income/(loss), net of tax:       
Market value adjustments for investments(4) 7
 (4) 6
Market value adjustments for hedges(80) (112) (89) (94)
Pension and postretirement medical plan adjustments68
 94
 121
 155
Foreign currency translation and other46
 144
 25
 231
Other comprehensive income30
 133
 53
 298
Comprehensive income5,641
 3,248
 8,450
 7,886
Net income attributable to noncontrolling interests, including redeemable noncontrolling interests(159) (178) (157) (228)
Other comprehensive income attributable to noncontrolling interests(34) (74) (36) (115)
Comprehensive income attributable to Disney$5,448
 $2,996
 $8,257
 $7,543

 Quarter Ended
 January 1,
2022		January 2,
2021
Net income$1,152 $18 
Other comprehensive income (loss), net of tax:
Market value adjustments for hedges50 (173)
Pension and postretirement medical plan adjustments155 150    
Foreign currency translation and other(22)277 
Other comprehensive income183 254 
Comprehensive income1,335 272 
Net income from continuing operations attributable to noncontrolling interests(48)(1)
Other comprehensive loss attributable to noncontrolling interests(19)(73)
Comprehensive income attributable to Disney$1,268    $198 
See Notes to Condensed Consolidated Financial Statements




3

THE WALT DISNEY COMPANY
CONDENSED CONSOLIDATED BALANCE SHEETS
(unaudited; in millions, except per share data)
 March 30,
2019		 September 29,
2018
ASSETS   
Current assets   
Cash and cash equivalents$10,108
 $4,150
Receivables14,593
 9,334
Inventories1,445
 1,392
Television costs and advances5,408
 1,314
Other current assets1,257
 635
Assets held for sale1,466
 —
Total current assets34,277
 16,825
Film and television costs24,353
 7,888
Investments4,080
 2,899
Parks, resorts and other property   
Attractions, buildings and equipment57,991
 55,238
Accumulated depreciation(33,132) (30,764)
 24,859
 24,474
Projects in progress4,984
 3,942
Land1,174
 1,124
 31,017
 29,540
Intangible assets, net26,985
 6,812
Goodwill75,057
 31,269
Noncurrent assets held for sale13,182
 —
Other assets5,391
 3,365
Total assets$214,342
 $98,598
    
LIABILITIES AND EQUITY   
Current liabilities   
Accounts payable and other accrued liabilities$20,503
 $9,479
Current portion of borrowings19,158
 3,790
Deferred revenue and other4,281
 4,591
Liabilities held for sale434
 —
Total current liabilities44,376
 17,860
Borrowings37,803
 17,084
Deferred income taxes11,208
 3,109
Noncurrent liabilities held for sale2,659
 —
Other long-term liabilities12,854
 6,590
Commitments and contingencies (Note 13)


 


Redeemable noncontrolling interests1,103
 1,123
Equity   
Preferred stock—
 —
Common stock, $0.01 par value, Authorized – 4.6 billion shares, Issued – 1.8 billion shares at
March 30, 2019 and 2.9 billion shares at September 29, 2018
53,419
 36,779
Retained earnings41,212
 82,679
Accumulated other comprehensive loss(3,786) (3,097)
 90,845
 116,361
Treasury stock, at cost, 19 million shares at March 30, 2019 and 1.4 billion shares at September 29, 2018(907) (67,588)
Total Disney Shareholders’ equity89,938
 48,773
Noncontrolling interests14,401
 4,059
Total equity104,339
 52,832
Total liabilities and equity$214,342
 $98,598
January 1,
2022		October 2,
2021
ASSETS
Current assets
Cash and cash equivalents$14,444 $15,959 
Receivables, net14,882 13,367 
Inventories1,345 1,331 
Content advances1,125 2,183 
Other current assets1,117 817 
Total current assets32,913 33,657 
Produced and licensed content costs30,669 29,549 
Investments3,549 3,935 
Parks, resorts and other property
Attractions, buildings and equipment65,257    64,892    
Accumulated depreciation(38,505)(37,920)
26,752 26,972 
Projects in progress4,808 4,521 
Land1,121 1,131 
32,681 32,624 
Intangible assets, net16,574 17,115 
Goodwill78,052 78,071 
Other assets8,873 8,658 
Total assets$203,311 $203,609 
LIABILITIES AND EQUITY
Current liabilities
Accounts payable and other accrued liabilities$18,709 $20,894 
Current portion of borrowings6,783 5,866 
Deferred revenue and other4,545 4,317 
Total current liabilities30,037 31,077 
Borrowings47,349 48,540 
Deferred income taxes8,124 7,246 
Other long-term liabilities14,208 14,522 
Commitments and contingencies (Note 13)00
Redeemable noncontrolling interests9,283 9,213 
Equity
Preferred stock— — 
Common stock, $0.01 par value, Authorized – 4.6 billion shares, Issued – 1.8 billion shares55,500 55,471 
Retained earnings41,547 40,429 
Accumulated other comprehensive loss(6,276)(6,440)
Treasury stock, at cost, 19 million shares(907)(907)
Total Disney Shareholders’ equity89,864 88,553 
Noncontrolling interests4,446 4,458 
Total equity94,310 93,011 
Total liabilities and equity$203,311 $203,609 
See Notes to Condensed Consolidated Financial Statements

4

THE WALT DISNEY COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited; in millions)
 Six Months Ended
 March 30,
2019		 March 31,
2018
OPERATING ACTIVITIES   
Net income from continuing operations$8,376
 $7,588
Depreciation and amortization1,560
 1,473
Gain on acquisition(4,917) —
Deferred income taxes1,190
 (1,623)
Equity in the (income) / loss of investees236

(49)
Cash distributions received from equity investees370
 389
Net change in film and television costs and advances(281) (490)
Equity-based compensation475
 194
Other121
 155
Changes in operating assets and liabilities, net of business acquisitions:   
Receivables(386) (1,004)
Inventories(19) 64
Other assets46
 (248)
Accounts payable and other liabilities(283) (92)
Income taxes(474) 406
Cash provided by operations - continuing operations6,014
 6,763
    
INVESTING ACTIVITIES   
Investments in parks, resorts and other property(2,390) (2,044)
Acquisitions(9,901) (1,581)
Other(392) (180)
Cash used in investing activities - continuing operations(12,683) (3,805)
    
FINANCING ACTIVITIES   
Commercial paper borrowings, net376
 1,372
Borrowings31,145
 1,048
Reduction of borrowings(17,398) (1,350)
Dividends(1,310) (1,266)
Repurchases of common stock—
 (2,608)
Proceeds from exercise of stock options83
 91
Other(200) (169)
Cash provided by / (used in) financing activities - continuing operations12,696
 (2,882)
    
CASH FLOWS FROM DISCONTINUED OPERATIONS   
Cash used in operations - discontinued operations(35) —
    
Impact of exchange rates on cash, cash equivalents and restricted cash75
 55
    
Change in cash, cash equivalents and restricted cash6,067
 131
Cash, cash equivalents and restricted cash, beginning of period4,155
 4,064
Cash, cash equivalents and restricted cash, end of period$10,222
 $4,195
 Quarter Ended
January 1,
2022		January 2,
2021
OPERATING ACTIVITIES
Net income from continuing operations$1,200 $30 
Depreciation and amortization1,269    1,298 
Net (gain) loss on investments436 (80)
Deferred income taxes726    (105)
Equity in the income of investees(239)(224)
Cash distributions received from equity investees223 193    
Net change in produced and licensed content costs and advances507 771 
Equity-based compensation196 134 
Pension and postretirement medical benefit cost amortization155 194 
Other, net(7)(68)
Changes in operating assets and liabilities:
Receivables(1,401)(1,324)
Inventories(14)94 
Other assets(115)(136)
Accounts payable and other liabilities(2,579)(642)
Income taxes(566)(60)
Cash (used in) provided by operations - continuing operations(209)75 
INVESTING ACTIVITIES
Investments in parks, resorts and other property(981)(760)
Other, net(6)28 
Cash used in investing activities - continuing operations(987)(732)
FINANCING ACTIVITIES
Commercial paper payments, net(124)(179)
Borrowings33 1 
Reduction of borrowings— (139)
Proceeds from exercise of stock options33 209 
Other, net(222)(225)
Cash used in financing activities - continuing operations(280)(333)
CASH FLOWS FROM DISCONTINUED OPERATIONS
Cash provided by operations - discontinued operations8 9 
Cash used in financing activities - discontinued operations(12)— 
Cash (used in) provided by discontinued operations(4)9 
Impact of exchange rates on cash, cash equivalents and restricted cash(35)139 
Change in cash, cash equivalents and restricted cash(1,515)(842)
Cash, cash equivalents and restricted cash, beginning of period16,003 17,954 
Cash, cash equivalents and restricted cash, end of period$14,488 $17,112 
See Notes to Condensed Consolidated Financial Statements

5

THE WALT DISNEY COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF EQUITY
(unaudited; in millions)
  Quarter Ended
  Equity Attributable to Disney    
  Shares Common Stock Retained Earnings
Accumulated
Other
Comprehensive
Income
(Loss)
Treasury Stock Total Disney Equity 
Non-controlling
   Interests (1)
 
Total
Equity
Balance at December 29, 2018 1,490
 $36,799
 $84,887
 $(3,782) $(67,588) $50,316
 $4,077
 $54,393
Comprehensive income —
 —
 5,452
 (4) —
 5,448
 191
 5,639
Equity compensation activity 1
 395
 —
 —
 —
 395
 —
 395
Dividends —
 8
 (8) —
 —
 —
 —
 —
Contributions —
 —
 —
 —
 —
 —
 27
 27
Acquisition of 21CF 307
 33,804
 —
 —
 —
 33,804
 10,638
 44,442
Retirement of treasury stock —
 (17,563) (49,118) —
 66,681
 —
 —
 —
Distributions and other —
 (24) (1) —
 —
 (25) (532) (557)
Balance at March 30, 2019 1,798
 $53,419
 $41,212
 $(3,786) $(907) $89,938
 $14,401
 $104,339
                 
Balance at December 30, 2017 1,507
 $36,254
 $75,763
 $(3,404) $(65,324) $43,289
 $3,794
 $47,083
Comprehensive income —
 —
 2,937
 59
 —
 2,996
 251
 3,247
Equity compensation activity 1
 157
 —
 —
 —
 157
 —
 157
Common stock repurchases (12) —
 —
 —
 (1,295) (1,295) —
 (1,295)
Distributions and other —
 —
 4
 —
 —
 4
 (545) (541)
Balance at March 31, 2018 1,496
 $36,411
 $78,704
 $(3,345) $(66,619) $45,151
 $3,500
 $48,651

(1)

 Quarter Ended
Equity Attributable to Disney
 SharesCommon StockRetained EarningsAccumulated
Other
Comprehensive
Income
(Loss)		Treasury StockTotal Disney Equity
Non-controlling
 Interests(1)
Total
Equity
Balance at October 2, 20211,818 $55,471 $40,429 $(6,440)$(907)$88,553 $4,458 $93,011 
Comprehensive income— — 1,104 164 — 1,268 (4)1,264 
Equity compensation activity3 29 — — — 29 — 29 
Contributions— — — — — — 29 29 
Distributions and other— — 14 — — 14 (37)(23)
Balance at January 1, 20221,821 $55,500 $41,547 $(6,276)$(907)$89,864 $4,446 $94,310 
Balance at October 3, 20201,810 $54,497 $38,315 $(8,322)$(907)$83,583 $4,680 $88,263 
Comprehensive income— — 17    181— 198 (6)192 
Equity compensation activity4 165 — — — 165 — 165 
Contributions— — — — — — 5 5 
Cumulative effect of accounting change—    —    110 —    — 110    —    110    
Distributions and other— 1 14 — — 15 (22)(7)
Balance at January 2, 20211,814 $54,663 $38,456 $(8,141)$(907)$84,071 $4,657 $88,728 
(1)Excludes redeemable noncontrolling interests.
Excludes redeemable noncontrolling interest.
See Notes to Condensed Consolidated Financial Statements



6

THE WALT DISNEY COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF EQUITY
(unaudited; in millions)
  Six Months Ended
  Equity Attributable to Disney    
  Shares Common Stock Retained Earnings
Accumulated
Other
Comprehensive
Income
(Loss)
Treasury Stock Total Disney Equity 
Non-controlling
   Interests (1)
 
Total
Equity
Balance at September 29, 2018 1,488
 $36,779
 $82,679
 $(3,097) $(67,588) $48,773
 $4,059
 $52,832
Comprehensive income —
 —
 8,240
 17
 —
 8,257
 190
 8,447
Equity compensation activity 3
 415
 —
 —
 —
 415
 —
 415
Dividends —
 8
 (1,318) —
 —
 (1,310) —
 (1,310)
Contributions —
 —
 —
 —
 —
 —
 47
 47
Acquisition of 21CF 307
 33,804
 —
 —
 —
 33,804
 10,638
 44,442
Adoption of new accounting guidance:   

            
Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income —
 —
 691
 (691) —
 —
 —
 —
Intra-Entity Transfers of Assets Other Than Inventory —
 —
 129
 —
 —
 129
 —
 129
Revenues from Contracts with Customers —
 —
 (116) —
 —
 (116) —
 (116)
Other —
 —
 22
 (15) —
 7
 —
 7
Retirement of treasury stock —
 (17,563) (49,118) —
 66,681
 —
 —
 —
Distributions and other —
 (24) 3
 —
 —
 (21) (533) (554)
Balance at March 30, 2019 1,798
 $53,419
 $41,212
 $(3,786) $(907) $89,938
 $14,401
 $104,339
                 
Balance at September 30, 2017 1,517
 $36,248
 $72,606
 $(3,528) $(64,011) $41,315
 $3,689
 $45,004
Comprehensive income —
 —
 7,360
 183
 —
 7,543
 348
 7,891
Equity compensation activity 4
 163
 —
 —
 —
 163
 —
 163
Common stock repurchases (25) —
 —
 —
 (2,608) (2,608) —
 (2,608)
Dividends —
 —
 (1,266) —
 —
 (1,266) —
 (1,266)
Distributions and other —
 —
 4
 —
 —
 4
 (537) (533)
Balance at March 31, 2018 1,496
 $36,411
 $78,704
 $(3,345) $(66,619) $45,151
 $3,500
 $48,651
(1)
Excludes redeemable noncontrolling interest.
See Notes to Condensed Consolidated Financial Statements




THE WALT DISNEY COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited; tabular dollars in millions, except for per share data)
 
1.Principles of Consolidation
1.Principles of Consolidation
These Condensed Consolidated Financial Statements have been prepared in accordance with accounting principles generally accepted in the United States of America (GAAP) for interim financial information and the instructions to Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. We believe that we have included all normal recurring adjustments necessary for a fair presentationstatement of the results for the interim period. Operating results for the six monthsquarter endedMarch 30, 2019 January 1, 2022 are not necessarily indicative of the results that may be expected for the year ending September 28, 2019.October 1, 2022.
The terms “Company,” “Disney,” “we,” “us,” and “our” are used in this report to refer collectively to the parent company, andThe Walt Disney Company, as well as the subsidiaries through which ourits various businesses are actually conducted. The term “TWDC” is used to refer to the parent company.
These financial statements should be read in conjunction with the Company’s 20182021 Annual Report on Form 10-K.
On March 20, 2019The Fox sports media business in Mexico was sold in November 2021. The Company recognized a $58 million loss on the Company acquired Twenty-First Century Fox, Inc. (“21CF”) (see Note 4). As part of the acquisition, the Company agreed to sell 21CF’s Regional Sports Networks and certain sportssale, which is presented as discontinued operations in Brazil and Mexico. Thethe Condensed Consolidated Statements of Income. At October 2, 2021, the assets and liabilities of these operations are reported as held for salethe Fox sports media business in Mexico were not material and were included in other assets and other liabilities in the income and cash flows are reported as discontinued operations. In addition, as a result of the 21CF acquisition the Company’s ownership interest in Hulu LLC (Hulu) increased to 60% and the Company started consolidating the results of Hulu. 21CF and Hulu results are consolidated from the acquisition date through March 30, 2019.Condensed Consolidated Balance Sheets.
Variable Interest Entities
The Company enters into relationships with or makes investments within other entities that may be variable interest entities (VIE). A VIE is consolidated in the financial statements if the Company has the power to direct activities that most significantly impact the economic performance of the VIE and has the obligation to absorb losses or the right to receive benefits from the VIE that could potentially be significant (as defined by ASC 810-10-25-38) to the VIE. Hong Kong Disneyland Resort and Shanghai Disney Resort (together the Asia Theme Parks) are VIEs in which the Company has less than 50% equity ownership. Company subsidiaries (the Management Companies) have management agreements with the Asia Theme Parks, which provide the Management Companies, subject to certain protective rights of joint venture partners, with the ability to direct the day-to-day operating activities and the development of business strategies that we believe most significantly impact the economic performance of the Asia Theme Parks. In addition, the Management Companies receive management fees under these arrangements that we believe could be significant to the Asia Theme Parks. Therefore, the Company has consolidated the Asia Theme Parks in its financial statements.
Redeemable Noncontrolling Interests
The Company consolidates the results of certain subsidiaries that are less than 100% owned and for which the noncontrolling interest shareholders have the rights to require the Company to purchase their interests in these subsidiaries. The most significant of these are Hulu LLC (Hulu) and BAMTech LLC (BAMTech).
Hulu provides direct-to-consumer (DTC) streaming services and is owned 67% by the Company and 33% by NBC Universal (NBCU). In May 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, in either case at a redemption value based on NBCU’s equity ownership percentage of the greater of Hulu’s then equity fair value or a guaranteed floor value of $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 2019 agreement date accreted to the January 2024 estimated redemption value. At January 1, 2022, NBCU’s interest in Hulu is recorded in the Company’s financial statements at $8.5 billion.
BAMTech provides streaming technology services to third parties and is owned 85% by the Company and 15% by Major League Baseball (MLB). 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 in either case at a redemption value based on MLB’s equity ownership percentage of the greater of MLB’s then equity fair value or a guaranteed floor value ($563 million accreting at 8% annually for eight years from the date of acquisition).
7
THE WALT DISNEY COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited; tabular dollars in millions, except for per share data)
The MLB interest is required to be carried at a minimum value equal to its acquisition date fair value accreted to its estimated redemption value through the applicable redemption date. Therefore, the MLB interest is generally not allocated its portion of BAMTech losses. As of January 1, 2022, the MLB interest was recorded in the Company’s financial statements at $822 million.
Our estimate of the redemption value of noncontrolling interests requires management to make significant judgments with respect to the future value of the noncontrolling interests. We are accreting the noncontrolling interests of both BAMTech and Hulu to their guaranteed floor values. If our estimate of the future redemption value increased above either of the guaranteed floor values, we would change our rate of accretion, which would generally increase earnings recorded in “Net income from continuing operations attributable to noncontrolling interests” and thus reduce “Net income attributable to Disney” on the Condensed Consolidated Statements of Income.
Use of Estimates
The preparation of financial statements in conformity with generally accepted accounting principlesGAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and footnotes thereto. Actual results may differ from those estimates.
Reclassifications
Certain reclassifications have been made in the fiscal 20182021 financial statements and notes to conform to the fiscal 20192022 presentation.
2.Description of Business and Segment Information
2.Segment Information
The Company’s operations are conducted in the Disney Media and Entertainment Distribution (DMED) and Disney Parks, Experiences and Products (DPEP) segments. Our operating segments report separate financial information, which is evaluated regularly by the Chief Executive Officer in order to decide how to allocate resources and to assess performance.
Effective in fiscal 2019, the Company started reporting its results in the following operating segments:
Media Networks;
Parks, Experiences and Products;
Studio Entertainment; and
Direct-to-Consumer & International
The Parks, Experiences and Products segment reflects the combination of the former Parks & Resorts and Consumer Products & Interactive Media segments. Certain businesses that were previously reported in Media Networks, Studio
THE WALT DISNEY COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited; tabular dollars in millions, except for per share data)


Entertainment and Consumer Products & Interactive Media are now reported in Direct-to-Consumer & International (DTCI). Fiscal 2018 segment operating results have been recast to align with the fiscal 2019 presentation.
Results for 21CF in the current quarter are not included in these segments and are reported separately. We currently plan to include 21CF’s results in our historical segments when we report third-quarter results. Hulu’s results for the period of consolidation and for the period the Company recorded equity method earnings are reported as part of DTCI.
DESCRIPTION OF BUSINESS
Media Networks
Significant operations:
◦Disney, ESPN and Freeform branded domestic cable networks
◦ABC branded broadcast television network and eight owned domestic television stations
◦Television programming, production and distribution
◦A 50% equity investment in A+E Television Networks (A+E), which operates a variety of cable networks including A&E, HISTORY and Lifetime
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 ad 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 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 for the right to use our television programs and productions and 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; and 47% and 43% interests in Hong Kong Disneyland Resort and Shanghai Disney Resort, respectively, 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 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
▪Sale of branded merchandise through retail, online and wholesale businesses, and development and publishing of books, magazines, comic books and games. As of the end of fiscal 2018, the segment had substantially exited the vertical games development business
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 vacations and sales and rentals of vacation club properties
◦Merchandise licensing and retail
THE WALT DISNEY COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited; tabular dollars in millions, except for per share data)


▪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 sales of published materials and games)
◦Parks licensing and other - Revenues from sponsorships and co-branding opportunities, real estate rent and sales, and royalties from Tokyo Disney Resort
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, utilities and fuel, property taxes, 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, Pixar, Marvel, Lucasfilm and Touchstone banners
◦Development, production and licensing of live entertainment events on Broadway and around the world (“Stage plays”)
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 for the right to use our motion picture productions, content transactions with other Company segments, ticket sales from stage plays and fees from licensing our intellectual properties for use in live entertainment productions
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:
◦Disney and ESPN branded international television networks and channels (“International Channels”)
◦Direct-to-consumer (DTC) businesses:
▪Hulu streaming service, which aggregates acquired television and film entertainment content and produces original content. The content is distributed digitally to internet-connected devices. Prior to the acquisition of 21CF, Hulu was reported as an equity investment
▪ESPN+ streaming service, which was launched in April 2018
▪Disney+ streaming service, which we plan to launch in late 2019
◦Other Company branded digital content distribution platforms and services
◦BAMTech LLC (BAMTech) (owned 75% by the Company since September 25, 2017), which provides streaming technology services
◦Equity investments:
▪A 21% effective ownership in Vice Group Holdings, Inc. (Vice), which is a media company that targets millennial audiences. 21CF has an additional 6% interest in Vice. Vice operates Viceland, which is owned 50% by Vice and 50% by A+E
Significant revenues:
◦Affiliate fees - Fees charged to MVPDs for the right to deliver our International Channels to their customers
◦Advertising - Sales of ad time/space on our International Channels. Sales of non-ratings based ad time/space on digital platforms (“addressable ad sales”). 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
THE WALT DISNEY COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited; tabular dollars in millions, except for per share data)


◦Subscription fees and other - Fees charged to customers/subscribers for our streaming and technology services
Significant expenses:
◦Operating expenses consisting primarily of programming and production costs (including digital 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 purchaseacquisition accounting amortization of 21CFTFCF Corporation (TFCF) and Hulu assets (i.e. intangible assets and the fair value step-up for film and television costs) recognized in connection with the 21CF acquisition.TFCF acquisition in fiscal 2019 (TFCF and Hulu acquisition amortization). Corporate and unallocated shared expenses principally consist of corporate functions, executive management and certain unallocated administrative support functions.
IntersegmentSegment 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.
Impact of COVID-19
Since early 2020, the world has been, and continues to be, impacted by the novel coronavirus (COVID-19) and its variants. COVID-19 and measures to prevent its spread have impacted our segments in a number of ways, most significantly at the DPEP segment where our theme parks and resorts were closed and cruise ship sailings and guided tours were suspended. These operations resumed at various points since May 2020, initially at reduced operating capacities as a result of COVID-19 restrictions. In fiscal 2020 and 2021, we delayed, or in some cases, shortened or cancelled theatrical releases. In addition, we experienced significant disruptions in the production and availability of content, transactions (e.g. featureincluding the delay of key live sports programming during fiscal 2020 and fiscal 2021.
In fiscal 2022, our domestic parks and experiences are generally operating without significant mandatory COVID-19-related capacity restrictions, such as those that were in place during the prior year; however, we continue to manage capacity to address ongoing COVID-19 considerations with respect to guest and cast health and safety. Certain of our international operations continue to be impacted by mandatory COVID-19-related capacity and travel restrictions. At the DMED segment, our film and television productions have generally resumed, although we have seen disruptions of production activities depending on local circumstances. We have generally been able to release our films airedtheatrically in the current quarter, although certain markets continue to impose restrictions on theater openings and capacity.
The impact of these disruptions and the extent of their adverse impact on our financial and operating results will depend on the ABC Television Network, our networks streaminglength of time that such disruptions continue. This will, in turn, depend on our DTC services) are presented “gross” (i.e. the segment producingduration and severity of the content reports revenueimpacts of COVID-19 and profit from intersegment transactionsits variants, and among other things, the impact of governmental actions imposed in a manner similarresponse to the reporting of third-party transactions,COVID-19 and individuals’ and companies’ risk tolerance regarding health matters going forward. We have incurred and will continue to incur additional costs to address government regulations and the required eliminations are reported on a separate “Eliminations” line when presenting a summarysafety of our segment results). Previously, these transactions were reported “net”,employees, guests and the intersegment revenue was eliminated in the results of the segment producing the content. Fiscal 2018 intersegment content transactions have been recast to align with the fiscal 2019 presentation.
Segment revenues and segment operating income are as follows:talent.
8
 Quarter Ended Six Months Ended
 March 30,
2019		 March 31,
2018		 March 30,
2019		 March 31,
2018
Revenues (1):
       
Media Networks$5,525

$5,508

$11,446

$11,063
Parks, Experiences and Products6,169

5,903

12,993

12,430
Studio Entertainment2,134

2,499

3,958

5,008
Direct-to-Consumer & International955

831

1,873

1,762
21CF373
 —
 373
 —
Eliminations(2)
(234) (193) (418) (364)
 $14,922
 $14,548
 $30,225
 $29,899
Segment operating income (1):
       
Media Networks$2,185
 $2,258
 $3,515
 $3,501
Parks, Experiences and Products1,506
 1,309
 3,658
 3,263
Studio Entertainment534
 874
 843
 1,699
Direct-to-Consumer & International(393) (188) (529) (230)
21CF25
 —
 25
 —
Eliminations(2)
(41) (16) (41) (10)
 $3,816
 $4,237
 $7,471
 $8,223
(1)
Studio Entertainment revenues and operating income include an allocation of Parks, Experiences and Products revenues, which is meant to reflect royalties on sales of merchandise based on film properties. The increase to Studio Entertainment revenues and operating income and corresponding decrease to Parks, Experiences and Products revenues and operating income was $126 million and $136 million for the quarters ended March 30, 2019 and March 31, 2018, respectively, and $280 million and $307 million for the six months ended March 30, 2019 and March 31, 2018, respectively.
THE WALT DISNEY COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited; tabular dollars in millions, except for per share data)


(2)
Intersegment content transactions are as follows:
 Quarter Ended Six Months Ended
(in millions)March 30,
2019		 March 31,
2018		 March 30,
2019		 March 31,
2018
Revenues:       
Studio Entertainment:       
Content transactions with Media Networks$(13) $(64) $(34) $(95)
Content transactions with Direct-to-Consumer & International(82) (8) (100) (16)
Media Networks:       
Content transactions with Direct-to-Consumer & International(139) (121) (284) (253)
 $(234) $(193) $(418) $(364)
        
Operating income:       
Studio Entertainment:       
Content transactions with Media Networks$5
 $(16) $5
 $(9)
Content transactions with Direct-to-Consumer & International(46) —
 (44) —
Media Networks:       
Content transactions with Direct-to-Consumer & International—
 —
 (2) (1)
Total$(41) $(16) $(41) $(10)

Segment revenues and segment operating income (loss) are as follows:
 Quarter Ended
 January 1,
2022		January 2,
2021
Revenues:
Disney Media and Entertainment Distribution$14,585 $12,661 
Disney Parks, Experiences and Products7,234 3,588 
Total consolidated revenues$21,819 $16,249 
Segment operating income (loss):
Disney Media and Entertainment Distribution$808 $1,451 
Disney Parks, Experiences and Products2,450 (119)
Total segment operating income(1)
$3,258 $1,332 
(1) Equity in the income/(loss)income of investees is included in segment operating income as follows:
 Quarter Ended
 January 1,
2022		January 2,
2021
Disney Media and Entertainment Distribution$245   $235   
Disney Parks, Experiences and Products(3)(8) 
Equity in the income of investees included in segment operating income242 227 
Amortization of TFCF intangible assets related to equity investees(3)(3)
Equity in the income of investees, net$239 $224 
A reconciliation of segment operating income to income from continuing operations before income taxes is as follows:
 Quarter Ended
 January 1,
2022		January 2,
2021
Segment operating income$3,258 $1,332   
Corporate and unallocated shared expenses(228)  (232)
Restructuring and impairment charges— (113)
Other expense, net(436)— 
Interest expense, net(311)(324)
TFCF and Hulu acquisition amortization(1)
(595)(617)
Income from continuing operations before income taxes$1,688 $46 
(1)For the quarter ended January 1, 2022 amortization of intangible assets, step-up of film and television costs and intangibles related to TFCF equity investees were $435 million, $157 million and $3 million, respectively. For the quarter ended January 2, 2021 amortization of intangible assets, step-up of film and television costs and intangibles related to TFCF equity investees were $447 million, $167 million, and $3 million, respectively.
Goodwill
 Quarter Ended Six Months Ended
 March 30,
2019		 March 31,
2018		 March 30,
2019		 March 31,
2018
Media Networks$182
 $182
 $361
 $341
Parks, Experiences and Products—
 (7) (12) (14)
Direct-to-Consumer & International(141) (169) (232) (278)
Equity in the income of investees included in segment operating income41
 6
 117
 49
Vice Impairment(353) —
 (353) —
Equity in the income / (loss) of investees, net$(312) $6
 $(236) $49
The changes in the carrying amount of goodwill are as follows:

DMEDDPEPTotal
Balance at October 2, 2021$72,521 $5,550 $78,071 
Currency translation adjustments and other, net(19)— (19)
Balance at January 1, 2022$72,502 $5,550 $78,052 
9
THE WALT DISNEY COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited; tabular dollars in millions, except for per share data)


A reconciliation of segment operating income to income from continuing operations before income taxes is as follows:
 Quarter Ended Six Months Ended
 March 30,
2019		 March 31,
2018		 March 30,
2019		 March 31,
2018
Segment operating income$3,816
 $4,237
 $7,471
 $8,223
Corporate and unallocated shared expenses(279) (194) (440) (344)
Restructuring and impairment charges(662) (13) (662) (28)
Other income4,963
 41
 4,963
 94
Interest expense, net(143) (143) (206) (272)
Amortization of 21CF and Hulu intangible assets and fair value step-up on film and television costs(105) —
 (105) —
Impairment of equity investment(353) —
 (353) —
Income from continuing operations before income taxes$7,237
 $3,928
 $10,668
 $7,673

3.Revenues
At the beginning of fiscal 2019, the Company adopted Financial Accounting Standards Board (FASB) guidance, which 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 retained earnings in the first quarter of fiscal 2019.
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, 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 adoption of the new revenue guidance resulted in certain reclassifications on the Condensed Consolidated Balance Sheet. The primary changes are the reclassification of sales returns reserves (previously reported as a reduction of receivables) to other accrued liabilities ($133 million at March 30, 2019) and the reclassification of refundable customer advances (previously reported as deferred revenues) to other accrued liabilities ($1.0 billion at March 30, 2019).
THE WALT DISNEY COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited; tabular dollars in millions, except for per share data)


The cumulative effect of adoption at September 29, 2018 and the impact at March 30, 2019 (had we not applied the new revenue guidance) on the Condensed Consolidated Balance Sheet is as follows:
 September 29, 2018 March 30, 2019
 Fiscal 2018 Ending Balances as Reported Effect of Adoption Q1 2019 Opening Balances 
Balances Assuming
Historical Accounting
 Impact of New Revenue guidance Q2 2019 Ending Balances as Reported
Assets           
Receivables - current/non-current$11,262
 $(241) $11,021
 16,735
 $(130) $16,605
Film and television costs and advances - current/non-current9,202
 48
 9,250
 29,737
 24
 29,761
            
Liabilities           
Accounts payable and other accrued liabilities9,479
 1,039
 10,518
 19,369
 1,134
 20,503
Deferred revenue and other4,591
 (1,082) 3,509
 5,446
 (1,165) 4,281
Deferred income taxes3,109
 (34) 3,075
 11,236
 (28) 11,208
            
Equity52,832
 (116) 52,716
 104,387
 (48) 104,339

3.
The impact on the Condensed Consolidated Statement of Income for the quarter and six months ended March 30, 2019, due to the adoption of the new revenue guidance is as follows:
 Quarter Ended March 30, 2019 Six Months Ended March 30, 2019
 
Results Assuming
Historical Accounting
 Impact of New Revenue guidance Reported 
Results Assuming
Historical Accounting
 Impact of New Revenue guidance Reported
Revenues$14,901
 $21
 $14,922
 $30,010
 $215
 $30,225
Cost and Expenses(11,483) (48) (11,531) (23,289) (127) (23,416)
Income Taxes(1,653) 6
 (1,647) (2,272) (20) (2,292)
Consolidated Net Income5,632
 (21) 5,611
 8,329
 68
 8,397

Revenues
The most significant impacts were at the Studio Entertainment, Parks, Experiences and Products and Media Networks segments. Studio Entertainment was impacted by a change in the timing of revenue recognition related to film content licensing agreements with multiple availability windows, and the Parks, Experiences and Products and Media Networks segments were impacted by a change in the timing of revenue recognition on contracts with minimum guarantees.
Summary of Significant Revenue Recognition Accounting Policies
The Company generates revenue from the sale of both services and products. Revenue is recognized when control of the services or products is transferred to the customer. The amount of revenue recognized reflects the consideration the Company expects to receive in exchange for the services or products.
The Company has three broad categories of service revenues: licenses of rights to use our intellectual property, sales to guests at our Parks and Experiences businesses and advertising. 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 licenses of intellectual property (“IP”): 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, visual and literary properties at the Parks, Experiences and Products segment.
THE WALT DISNEY COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited; tabular dollars in millions, except for per share data)


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 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 the services are provided to the guest. Sales of vacation club properties are recognized when title to the property transfers to the customer.
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 motion picture 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 motion pictures 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.
THE WALT DISNEY COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited; tabular dollars in millions, except for per share data)


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 motion pictures 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 motion pictures 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.
The following table presents our revenues by segment and major source:
Quarter Ended March 30, 2019Quarter Ended January 1, 2022Quarter Ended January 2, 2021
Media
Networks
 Parks, Experiences and Products 
Studio
Entertainment
 Direct-to-Consumer & International 21CF Eliminations ConsolidatedDMEDDPEPTotalDMEDDPEPTotal
Affiliate fees$3,177
 $—
 $—
 $335
 $134
 $(12) $3,634
Affiliate fees$4,371$— $4,371 $4,402 $— $4,402 
Advertising1,596
 1
 —
 357
 118
 —
 2,072
Advertising3,8681 3,869 3,763 1 3,764 
Subscription feesSubscription fees3,598— 3,598 2,546 — 2,546 
Theme park admissions—
 1,768
 —
 —
 —
 —
 1,768
Theme park admissions—2,152 2,152 — 549 549 
Resort and vacations—
 1,502
 —
 —
 —
 —
 1,502
Resort and vacations—1,445 1,445 — 433 433 
Retail and wholesale sales of merchandise, food and beverage—
 1,768
 —
 —
 —
 —
 1,768
Retail and wholesale sales of merchandise, food and beverage—2,089    2,089    —    1,163 1,163 
TV/SVOD distribution licensing678
 —
 709
 24
 91
 (222) 1,280
TV/SVOD distribution licensing1,396— 1,396 1,169 —    1,169    
Theatrical distribution licensing—
 —
 745
 —
 7
 —
 752
Theatrical distribution licensing529— 529 31 — 31 
Merchandise licensing—
 635
 126
 12
 —
 —
 773
Merchandise licensing—1,119 1,119 5 1,090 1,095 
Home entertainment—
 —
 263
 21
 10
 —
 294
Home entertainment294— 294 300 — 300 
Other74
 495
 291
 206
 13
 —
 1,079
Other529428 957 445 352 797 
Total revenues$5,525
 $6,169
 $2,134
 $955
 $373
 $(234) $14,922
$14,585$7,234 $21,819 $12,661 $3,588 $16,249 
 
Quarter Ended March 31, 2018(1)
 
Media
Networks
 Parks, Experiences and Products 
Studio
Entertainment
 Direct-to-Consumer & International 21CF Eliminations Consolidated
Affiliate fees$3,043
 $—
 $—
 $354
 $—
 $—
 $3,397
Advertising1,643
 2
 —
 301
 —
 —
 1,946
Theme park admissions—
 1,690
 —
 —
 —
 —
 1,690
Resort and vacations—
 1,461
 —
 —
 —
 —
 1,461
Retail and wholesale sales of merchandise, food and beverage—
 1,707
 —
 —
 —
 —
 1,707
TV/SVOD distribution licensing761
 —
 619
 28
 —
 (193) 1,215
Theatrical distribution licensing—
 —
 956
 —
 —
 —
 956
Merchandise licensing—
 625
 139
 19
 —
 —
 783
Home entertainment—
 —
 471
 24
 —
 —
 495
Other61
 418
 314
 105
 —
 —
 898
Total revenues$5,508
 $5,903
 $2,499
 $831
 $—
 $(193) $14,548
(1)
Amounts presented are based on our historical accounting prior to the adoption of the new revenue guidance.
THE WALT DISNEY COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited; tabular dollars in millions, except for per share data)


 Six Months Ended March 30, 2019
 
Media
Networks
 Parks, Experiences and Products 
Studio
Entertainment
 Direct-to-Consumer & International 21CF Eliminations Consolidated
Affiliate fees$6,252
 $—
 $—
 $658
 $134
 $(12) $7,032
Advertising3,619
 3
 —
 774
 118
 —
 4,514
Theme park admissions—
 3,701
 —
 —
 —
 —
 3,701
Resort and vacations—
 3,033
 —
 —
 —
 —
 3,033
Retail and wholesale sales of merchandise, food and beverage—
 3,890
 —
 —
 —
 —
 3,890
TV/SVOD distribution licensing1,400
 —
 1,314
 58
 91
 (406) 2,457
Theatrical distribution licensing—
 —
 1,118
 —
 7
 —
 1,125
Merchandise licensing—
 1,376
 280
 27
 —
 —
 1,683
Home entertainment—
 —
 688
 49
 10
 —
 747
Other175
 990
 558
 307
 13
 —
 2,043
Total revenues$11,446
 $12,993
 $3,958
 $1,873
 $373
 $(418) $30,225
 
Six Months Ended March 31, 2018(1)
 
Media
Networks
 Parks, Experiences and Products 
Studio
Entertainment
 Direct-to-Consumer & International 21CF Eliminations Consolidated
Affiliate fees$5,910
 $—
 $—
 $692
 $—
 $—
 $6,602
Advertising3,606
 4
 —
 712
 —
 —
 4,322
Theme park admissions—
 3,522
 —
 —
 —
 —
 3,522
Resort and vacations—
 2,924
 —
 —
 —
 —
 2,924
Retail and wholesale sales of merchandise, food and beverage—
 3,766
 —
 —
 —
 —
 3,766
TV/SVOD distribution licensing1,385
 —
 1,138
 53
 —
 (364) 2,212
Theatrical distribution licensing—
 —
 2,125
 —
 —
 —
 2,125
Merchandise licensing—
 1,401
 310
 37
 —
 —
 1,748
Home entertainment—
 —
 832
 54
 —
 —
 886
Other162
 813
 603
 214
 —
 —
 1,792
Total revenues$11,063
 $12,430
 $5,008
 $1,762
 $—
 $(364) $29,899
(1)
Amounts presented are based on our historical accounting prior to the adoption of the new revenue guidance.
The following table presents our revenues by segment and primary geographical markets:
 Quarter Ended March 30, 2019
 
Media
Networks
 Parks, Experiences and Products 
Studio
Entertainment
 Direct-to-Consumer & International 21CF Eliminations Consolidated
United States and Canada$5,307
 $4,700
 $1,066
 $294
 $149
 $(208) $11,308
Europe167
 631
 550
 147
 68
 (22) 1,541
Asia Pacific47
 789
 393
 135
 121
 (4) 1,481
Latin America4
 49
 125
 379
 35
 —
 592
Total revenues$5,525
 $6,169
 $2,134
 $955
 $373
 $(234) $14,922
THE WALT DISNEY COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited; tabular dollars in millions, except for per share data)


 Six months ended March 30, 2019
 
Media
Networks
 Parks, Experiences and Products 
Studio
Entertainment
 Direct-to-Consumer & International 21CF Eliminations Consolidated
United States and Canada$10,995
 $9,841
 $2,104
 $519
 $149
 $(372) $23,236
Europe309
 1,486
 963
 336
 68
 (37) 3,125
Asia Pacific110
 1,550
 679
 269
 121
 (9) 2,720
Latin America32
 116
 212
 749
 35
 —
 1,144
Total revenues$11,446
 $12,993
 $3,958
 $1,873
 $373
 $(418) $30,225

Quarter Ended January 1, 2022Quarter Ended January 2, 2021
DMEDDPEPTotalDMEDDPEPTotal
Americas$11,830 $5,711 $17,541 $10,291 $2,456 $12,747 
Europe1,538    865    2,403    1,293    487    1,780    
Asia Pacific1,217 658 1,875 1,077 645 1,722 
Total revenues$14,585 $7,234 $21,819 $12,661 $3,588 $16,249 
Revenues recognized in the current periodand prior-year periods from performance obligations satisfied (or partially satisfied) in previous reporting periods primarily relate to revenues earned on theatrical and TV/SVOD distribution licensee sales onlicenses for titles made available to the licensee in previous reporting periods. For the quarter ended March 30, 2019, $431 millionJanuary 1, 2022, $0.4 billion was recognized related to performance obligations satisfied prior to December 30, 2018.as of October 2, 2021. For the six monthsquarter ended March 30, 2019, $476 millionJanuary 2, 2021, $0.4 billion was recognized related to performance obligations satisfied prior to September 30, 2018.as of October 3, 2020.
As of March 30, 2019,January 1, 2022, revenue for unsatisfied performance obligations expected to be recognized in the future is $17.6$14 billion, which primarily relates tofor content and other intellectual property (IP) to be deliveredmade available in the future under existing agreements with television station affiliates, merchandise licensees and TV/SVOD licensees.DTC subscribers. Of this amount, we expect to recognize approximately $3.7$5 billion in the remainder of fiscal 2019, $5.42022, $4 billion in fiscal 2020, $3.52023, $2 billion in fiscal 20212024 and $5$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 include 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. 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 (see Note 13). 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.
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 areis recognized as accounts receivable. Deferred revenues are recognized as (or when) the Company performs under the contract. Contract assets, accounts receivable and deferred revenues from contracts with customers are as follows:
 March 30,
2019		 September 30,
2018
Contract assets$110
 $89
Accounts Receivable   
Current13,565
 8,553
Non-current2,318
 1,640
Allowance for doubtful accounts(263) (226)
Deferred revenues   
Current3,950
 2,926
Non-current572
 609
10

Contract assets relate to certain multi-season TV/SVOD licensing contracts. Activity for the quarter and six months ended March 30, 2019 related to contract assets and the allowance for doubtful accounts was not material.
Deferred revenue primarily relates to non-refundable consideration received in advance for (i) licensing contracts, theme park annual passes, theme park tickets and vacation packages and (ii) the deferral of advertising revenues due to ratings shortfalls. The increase in the deferred revenue balance for the six months ended March 30, 2019 was primarily due to the
THE WALT DISNEY COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited; tabular dollars in millions, except for per share data)


receipt of additional prepaid park admissions, non-refundable travel depositsContract assets, accounts receivable and advances on certain licensing arrangements, and the acquisition of 21CF (see Note 4) on March 20, 2019 which increased deferred revenues by $0.6 billion. from contracts with customers are as follows:
January 1,
2022		October 2,
2021
Contract assets$142 $155 
Accounts receivable
Current12,649   11,190   
Non-current1,341 1,359 
Allowance for credit losses(199)(194)
Deferred revenues
Current4,278 4,067 
Non-current575 581 
Contract assets primarily relate to certain multi-season TV/SVOD licensing contracts. Activity for the current and prior-year quarters related to contract assets was not material.
For the quarterquarters ended January 1, 2022 and six months ended March 30, 2019,January 2, 2021, the Company recognized revenues of $0.7$1.9 billion and $2.3$1.5 billion respectively, primarily related to theme park admissions and vacation packages included in the deferred revenue balance at September 30, 2018.October 2, 2021 and October 3, 2020, respectively. The revenues recognized in both periods were primarily for DTC subscriptions and advances from merchandise and TV/SVOD licensees.
4.Acquisitions
Twenty-First Century Fox
On March 20, 2019,We evaluate our allowance for credit losses and estimate collectability of current and non-current accounts receivable based on historical bad debt experience, our assessment of the Company acquired the outstanding capital stockfinancial condition of Twenty-First Century Fox, Inc. (“21CF”), a diversified global mediaindividual companies with which we do business, current market conditions, and entertainment company. Priorreasonable and supportable forecasts of future economic conditions. In times of economic turmoil, our estimates and judgments with respect to the acquisition, 21CF and a newly-formed subsidiarycollectability of 21CF (“New Fox”) entered into a separation agreement, pursuantour receivables are subject to which 21CF transferredgreater uncertainty than in more stable periods.
The Company has accounts receivable with original maturities greater than one year related to New Fox a portfoliothe sale of 21CF’s news, sports and broadcast businesses and certain other assets. 21CF retained all of the assets and liabilities not transferred to New Fox, including the Twentieth Century Fox film and television studios, certain cable networksprogram rights and 21CF’s international TV businesses; these remaining assetsvacation club properties. These receivables are discounted to present value at contract inception and businessesthe related revenues are held directly or indirectly byrecognized at the acquired 21CF entity.discounted amount.
The acquisition purchase price totaled $69.5 billion,balance 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).
We acquired 21CF 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 parksprogram sales receivables recorded in other non-current assets, net of an allowance for credit losses that is not material, was $0.8 billion as of January 1, 2022. The activity in the allowance for credit losses for the quarter ended January 1, 2022 was not material.
The balance of vacation club receivables recorded in other non-current assets, net of an allowance for credit losses that is not material, was $0.6 billion as of January 1, 2022. The activity in the allowance for credit losses for the quarter ended January 1, 2022 was not material.
4.Other Expense, net
Other expense, net is as follows:
 Quarter Ended
 January 1,
2022		January 2,
2021
DraftKings loss$(432)$(186)
fuboTV gain—    186    
Other, net(4)— 
Other income expense, net$(436)$— 
For the quarter ended January 1, 2022 and direct-to-consumer offerings.
In connection with the acquisition, outstanding 21CF performance stock units and restricted stock units were either vested upon closing of the acquisition or replaced with Disney restricted stock units (which require additional service for vesting). The purchase price for 21CF includes approximately $340 million related to 21CF awards that were settled or replaced in connection with the acquisition. Additionally,January 2, 2021, the Company recognized compensation expensea non-cash loss of $184$432 million relatedand $186 million, respectively, from the adjustment of its investment in DraftKings, Inc. to awards that were accelerated to vest upon closing offair value (DraftKings loss).
For the acquisition. Approximately $218 million of compensation expense related to awards that were replaced with Disney restricted stock units and will be recognized over the remaining service period of up to approximately two years.
As part of the 21CF acquisition,quarter ended January 2, 2021, the Company acquired 21CF’s 30% interest in Hulu increasing our ownership to 60%. Asrecognized a result, the Company began consolidating Hulu and recorded a one-timenon-cash gain of $4.9 billion$186 million from remeasuring our initial 30% interestthe adjustment of its investment in fuboTV Inc. to its estimated fair value which was determined based on a discounted cash flow analysis.
On April 15, 2019, Hulu redeemed Warner Media LLC’s (WM) approximate 10% interest in Hulu for approximately $1.4 billion. The redemption was funded via a loan from the Company to Hulu. Pursuant to the redemption agreement, Hulu’s remaining noncontrolling interest holder, NBC Universal (NBCU), may elect to participate in the redemption by contributing its proportionate share of the purchase price to Hulu. NBCU must make this election within 90 days from the transaction date. If NBCU elects to participate, the Company’s interest in Hulu will increase to 67%. If NBCU does not elect to participate, the Company’s interest in Hulu will increase to 70%(fuboTV gain).
Upon closing of the acquisition, the Company exchanged new Disney notes for outstanding notes issued by 21st Century Fox America, Inc. (“21CFA Notes”) with a principal balance of $16.8 billion (see Note 6).
11
The Company also assumed 21CF commitments totaling $31 billion, of which $22 billion relate to the Regional Sports Networks (see Discontinued Operations below). The remaining commitments are primarily for sports and entertainment programming rights. In addition, we entered into commitments with New Fox totaling $0.3 billion, primarily for the lease of production facilities and office space. Hulu commitments total $3.4 billion and relate primarily to programming rights.
The Company is required to allocate the 21CF purchase price to tangible and identifiable intangible assets acquired and liabilities assumed based on their fair values. The excess of the purchase price over those fair values is recorded as goodwill. The Company is in the process of obtaining additional information necessary to finalize the valuation of the assets acquired and liabilities assumed including income tax related amounts. Therefore, the preliminary fair values set forth below are subject to adjustment as additional information is obtained and the valuations are completed.
THE WALT DISNEY COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited; tabular dollars in millions, except for per share data)


The following table summarizes our initial allocation of the purchase price:
 Estimated Fair Value
Cash and cash equivalents$25,666
Receivables4,746
Film and television costs20,120
Investments1,471
Intangible assets20,385
Net assets held for sale11,704
Accounts payables and other liabilities(10,753)
Borrowings(21,723)
Deferred income taxes(6,497)
Other net liabilities acquired(3,865)
Noncontrolling interests(10,638)
Goodwill43,751
Fair value of net assets acquired74,367
Less: Disney’s previously held 30% interest in Hulu(4,860)
Total purchase price$69,507

Intangible assets primarily consist of MVPD agreements, advertising networks5.Cash, Cash Equivalents, Restricted Cash and trade names with estimated useful lives ranging from 2 to 40 years and a weighted average life of 12 years.
The goodwill reflects the value to Disney of increasing our global portfolio of creative assets and branded content to be monetized through our film and television studio, theme parks and direct-to-consumer offerings.
The goodwill is not deductible for tax purposes.
The fair value of investments acquired in the acquisition include $1.2 billion of equity method investments and $0.3 billion of equity investments. Equity method investments primarily consist of a 50% interest in Endemol Shine Group, a global multi-platform content provider and a 30% interest in Tata Sky Limited, a satellite operator in India).
The fair value of the assets acquired includes current trade receivables of $4.7 billion. The gross amount due under the contracts is $4.9 billion, of which $0.2 billion is expected to be uncollectible.
For the six months ended March 30, 2019, the Company incurred $211 million of acquisition-related expenses of which $111 million is included in Selling, general, administrative and other and $100 million related to financing fees is included in Interest expense, net in the Company’s Condensed Consolidated Statement of Income.
The revenues and net loss from continuing operations (including purchase accounting amortization) of 21CF and Hulu included in the Company’s Condensed Consolidated Statement of Income since the date of acquisition through March 30, 2019 is $518 million and $115 million, respectively.
The following pro forma summary presents consolidated information of the Company as if the acquisition had occurred on October 1, 2017:
 Six Months Ended
 March 30,
2019		 March 31,
2018
Revenues$38,764
 $38,651
Net income4,000
 9,472
Net income attributable to Disney4,119
 9,609
Earnings per share attributable to Disney:   
Diluted$2.28
 $5.27
Basic2.29
 5.30

Borrowings
These pro forma results include adjustments for purposes of consolidating the historical financial results of 21CF and Hulu (net of adjustments to eliminate transactions between Disney and 21CF, Disney and Hulu and Hulu and 21CF). These pro
THE WALT DISNEY COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited; tabular dollars in millions, except for per share data)


formas also include an adjustment of $2.1 billion for both the six months ended March 30, 2019 and 2018, to reflect the preliminary estimate of incremental amortization as a result of recording film and television programming and production costs and finite lived intangible assets at fair value. Interest expense was adjusted by $259 million to reflect the cost of borrowings to finance the 21CF acquisition for both the six months ended March 30, 2019 and 2018, which assumed an estimated weighted average interest rate of 3.5%. The six months ended March 30, 2019 and 2018, include a benefit of $109 million, to reflect lower interest expense using an effective interest method to adjust 21CF’s long-term debt to preliminary fair value.
Additionally, the pro forma earnings for the six months ended March 31, 2018 include the impact of remeasuring our initial 30% interest in Hulu to fair value, compensation expense of $184 million related to 21CF equity awards that were accelerated to vest upon closing of the acquisition, and $400 million of acquisition-related expenses.
The pro forma results exclude a $10.8 billion gain on sale and $237 million of equity earnings recorded by 21CF for the six months ended March 30, 2019 and 2018, respectively, related to its 39% interest in Sky plc which was sold by 21CF in October 2018. The pro forma results include $314 million and $321 million of net income recorded by 21CF for the six months ended March 30, 2019 and 2018, respectively, related to the 21CF businesses that we are required to divest as a condition of the acquisition (see the Assets to be Disposed and Discontinued Operations section below).
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.
Assets to be Disposed and Discontinued Operations
Pursuant to a consent decree with the U.S. Department of Justice (DOJ), we are required to sell 21CF’s twenty-two Regional Sports Networks (the “RSNs”) (the “RSN Divestiture”) within 90 days of the closing of the 21CF acquisition, with the possibility that the DOJ can grant extensions of time up to another 90 days. The DOJ must approve the purchaser(s) and terms and conditions of the RSN Divestiture. On May 3, 2019, the Company entered into a definitive agreement with Sinclair Broadcast Group, Inc. to sell twenty-one of the RSNs (not including the YES Network), for a sales price of approximately $10 billion. Completion of the transaction is subject to customary closing conditions, including the approval of the DOJ.
Additionally, the Company has agreed with Conselho Administrativo de Defesa Economica (CADE) to sell 21CF’s sports operations in Brazil (the “Brazil Divestiture”) and agreed with the Instituto Federal de Telecomunicaciones (IFT) to sell 21CF’s sports operations in Mexico (the “Mexico Divestiture”). The Company will have 180 days from the date of the 21CF acquisition to complete the Brazil Divestiture. The Company will have six months, with the possibility that the IFT can grant extensions of time up to another six months, for the Mexico Divestiture. CADE and the IFT must approve the purchaser(s) and terms and conditions of the Brazil and Mexico Divestitures, respectively.
The European Commission approved the acquisition on the condition that the Company divest its interests in certain cable channels in the European Economic Area that are controlled by A+E, including History, H2, Crime & Investigation, Blaze and Lifetime (“the EEA Channels”). The Company divested its interests in the entities that operate the EEA Channels on April 12, 2019. The EEA Channels are not presented as assets held for sale or discontinued operations.
The RSNs and the Brazil and Mexico sports operations are presented as assets held for sale and discontinued operations in the Condensed Consolidated Balance Sheets and Statements of Income, respectively.
THE WALT DISNEY COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited; tabular dollars in millions, except for per share data)


The preliminary fair values of the major classes of assets and liabilities of the RSNs and the Brazil and Mexico sports operations classified as held for sale on our Condensed Consolidated Balance Sheets are presented below and are subject to change based on developments during the sales process.
 March 30, 2019
Cash$100
Receivables and other current assets855
Television costs and advances511
Total current assets classified as held for sale1,466
Film and television costs1,730
Property and equipment and other assets67
Intangible assets, net7,569
Goodwill3,816
Total assets classified as held for sale$14,648
  
Accounts payable and other accrued liabilities$371
Current portion of borrowings33
Deferred revenue and other30
Total current liabilities classified as held for sale

434
Borrowings1,036
Other long-term liabilities138
Redeemable noncontrolling interests1,485
Total liabilities classified as held for sale$3,093

Goodwill
The changes in the carrying amount of goodwill for the six months ended March 30, 2019 are as follows:
 
Media
Networks
 
Parks and
Resorts
Studio
Entertainment
Consumer
Products & Interactive Media
 Parks, Experiences and ProductsDirect-to-Consumer & InternationalUnallocated Total
Balance at Sept. 29, 2018$19,388
 $291
 $7,164
 $4,426
 $—
 $—
 $—
 $31,269
Segment recast (1)
(3,399) (291) (70) (4,426) 4,487
 3,699
 —
 —
Acquisitions (2)
—
 —
 —
 —
 —
 —
 43,751
 43,751
Other, net—
 —
 14
 —
 —
 23
 —
 37
Balance at Mar. 30, 2019$15,989
 $—
 $7,108
 $—
 $4,487
 $3,722
 $43,751
 $75,057

(1) Represents the reallocation of goodwill as a result of the Company recasting its segments (see Note 2).
(2) Represents the acquisition of 21CF and consolidation of Hulu.
THE WALT DISNEY COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited; tabular dollars in millions, except for per share data)


5.
Other Income
Other income is as follows:
 Quarter Ended Six Months Ended
 March 30,
2019		 March 31,
2018		 March 30,
2019		 March 31,
2018
Hulu gain (see Note 4)$4,917
 $—
 $4,917
 $—
Insurance recoveries related to legal matters46
 38
 46
 38
Gain on the sale of property rights and other—
 3
 —
 56
Other income$4,963
 $41
 $4,963
 $94

6.Cash, Cash Equivalents, Restricted Cash and Borrowings
Cash, Cash Equivalents and Restricted Cash
The following table provides a reconciliation of cash, cash equivalents and restricted cash reported in the Condensed Consolidated Balance SheetSheets to the total of the amounts reported in the Condensed Consolidated Statements of Cash Flows.
  March 30,
2019		 September 29,
2018
Cash and cash equivalents $10,108
 $4,150
Restricted cash included in:    
Other current assets 9
 1
Other assets 5
 4
Cash included in current assets held for sale 100
 —
Total cash, cash equivalents and restricted cash in the statement of cash flows $10,222
 $4,155

January 1,
2022		October 2,
2021
Cash and cash equivalents$14,444 $15,959 
Restricted cash included in:
Other current assets3    3    
Other assets41 41 
Total cash, cash equivalents and restricted cash in the statement of cash flows$14,488 $16,003 
Borrowings
During the six monthsquarter ended March 30, 2019,January 1, 2022, the Company’s borrowing activity was as follows:
October 2,
2021		BorrowingsPaymentsOther
Activity		January 1,
2022
Commercial paper with original maturities greater than three months$1,992 $200 $(324)$2 $1,870 
U.S. dollar denominated notes(1)
49,090 — — (34)49,056 
Asia Theme Parks borrowings(2)
1,331    33    —    27    1,391    
Foreign currency denominated debt and other(3)
1,993 — — (178)1,815 
$54,406 $233 $(324)$(183)$54,132 
(1)The other activity is primarily due to the amortization of purchase price adjustments on debt assumed in the TFCF acquisition and debt issuance fees.
 September 29,
2018		 Borrowings Payments Borrowings Assumed in Acquisition of 21CF 
Other
Activity
 March 30,
2019
Commercial paper with original maturities less than three months(1)
$50
 $440
 $—
 $—
 $8
 $498
Commercial paper with original maturities greater than three months955
 992
 (1,056) —
 7
 898
U.S. and European notes17,942
 —
 (1,250) 21,174
 (33) 37,833
Credit facilities to acquire 21CF—
 31,100
 (16,100) —
 —
 15,000
Asia Theme Parks borrowings1,145
 —
 (48) —
 54
 1,151
Foreign currency denominated debt and other(2)
782
 45
 —
 549
 205
 1,581
 20,874
 32,577
 (18,454) 21,723
 241
 56,961
Liabilities held for sale—
 —
 —
 1,069
 —
 1,069
 $20,874
 $32,577
 $(18,454) $22,792
 $241
 $58,030

(2)The other activity is driven by the impact of changes in foreign currency exchange rates.
(1)
(3)The other activity is due to market value adjustments for debt with qualifying hedges.
Borrowings and reductions of borrowings are reported net.
(2)
The other activity is due to market value adjustments for debt with qualifying hedges, partially offset by the impact of changes in foreign currency exchange rates.
THE WALT DISNEY COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited; tabular dollars in millions, except for per share data)


The Company hasAt January 1, 2022, the Company’s bank facilities, which are with a syndicate of lenders toand support our commercial paper borrowings, were as follows:
Committed
Capacity		Capacity
Used		Unused
Capacity
Facility expiring March 2022$5,250 $— $5,250 
Facility expiring March 20234,000    —    4,000    
Facility expiring March 20253,000 — 3,000 
Total$12,250 $— $12,250 
 
Committed
Capacity
 
Capacity
Used
 
Unused
Capacity
Facility expiring March 2020$6,000
 $—
 $6,000
Facility expiring March 20212,250
 —
 2,250
Facility expiring March 20234,000
 —
 4,000
Total$12,250
 $—
 $12,250

All of the above bankThe facilities expiring in March 2023 and March 2025 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 March 2022, subject to a cap and floor that vary with the Company’s debt ratingratings assigned by Moody’s Investors Service and Standard &and Poor’s. The spread above LIBOR can range from 0.18% to 1.63%. The bank facilities specifically exclude certain entities, including the Asia Theme Parks, from any representations, covenants or events of default anddefault. The bank facilities contain only one financial covenant, relating towhich is interest coverage whichof 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 January 1, 2022 the Companyfinancial covenant was met on March 30, 2019 by a significant margin. The Company also has the ability to issue up to $500 million of letters of credit under the facility expiring in March 2023, which if utilized, reduces available borrowings under this facility. As of March 30, 2019,January 1, 2022, the Company has $1.4 billion of outstanding letters of credit, of which none were issued under this facility. Outstanding letters of credit include letters of credit assumed in the acquisition of 21CF primarily in support of international sports programming rights.
U.S. and European Notes
12
On March 20, 2019, the Company assumed public debt with a fair value of $21.2 billion (principal balance of $17.4 billion) upon the completion of the 21CF acquisition. The debt has maturities ranging from 1 to 78 years and stated rates ranging from 3.00% to 9.50%. On March 20, 2019, 96% ($16.8 billion) of the assumed debt was exchanged for senior notes of The Walt Disney Company, with essentially the same terms. The exchange was with qualified institutional buyers pursuant to Rule 144A under the Securities Act of 1933, as amended (the “Securities Act”), and outside the United States with investors who are not U.S. persons pursuant to Regulation S under the Securities Act. At March 30, 2019, the weighted-average stated interest rates and effective interest rates were 5.94% and 3.86%, respectively.
Credit Facilities to Acquire 21CF
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 21CF acquisition. On March 21, 2019, the Company repaid one bridge loan facility in the amount of $16.1 billion, utilizing cash acquired in the 21CF transaction, and terminated the facility. The remaining 364-day unsecured bridge loan facility has $15.0 billion outstanding and is anticipated to be paid down with the after-tax net proceeds from the divestiture of the RSNs. The $15.0 billion loan facility bears interest at LIBOR plus 0.875% (3.51% as of March 30, 2019).
Foreign Currency Denominated Debt and Other
On March 20, 2019, the Company assumed a term loan and various unsecured credit facilities with an outstanding balance of $211 million upon the completion of the 21CF acquisition. The term loan and credit facilities have stated rates ranging from 7.80% to 10.05%. At March 30, 2019, the weighted-average stated interest rates was 8.56% and the term loan and unsecured credit facilities have been recorded in current borrowings.
On March 20, 2019, the Company consolidated Hulu and now reports its term loan with an outstanding balance of $338 million. The term loan matures in August 2022 and bears interest at LIBOR plus 0.917% (3.71% as of March 30, 2019). Two-thirds of the loan is guaranteed by the Company and one-third is guaranteed by Comcast Corporation and certain of its subsidiaries.
Liabilities Held for Sale
On March 20, 2019 as part of the 21CF acquisition, the Company assumed debt related to the The Yankees Entertainment and Sports Network (the “Yes Network”). The Yes Network has a $1.6 billion secured revolving credit facility and term loan facility that expires in December 2023. As of March 30, 2019, outstanding borrowings under the term loan facility and secured revolving credit facility were $1.1 billion and $10 million, respectively. The credit facilities bear interest at rates that are reset quarterly and are based on the leverage ratio of the Yes Network. The credit facilities contain restrictive covenants and are collateralized by a substantial portion of assets of the Yes Network. The Yes Network is one of the RSNs that is held for sale (see Note 4).
Cruise Ship Credit Facilities
In October 2016 and December 2017, the Company entered into credit facilities to finance three new cruise ships, which are expected to be delivered in 2021, 2022 and 2023. The financings may be used for up to 80% of the contract price of the
THE WALT DISNEY COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited; tabular dollars in millions, except for per share data)


Cruise Ship Credit Facilities
The Company has credit facilities to finance up to 80% of the contract price of three new cruise ships.ships, which are scheduled to be delivered in 2022, 2024 and 2025. Under the agreements,facilities, $1.0 billion in financing is available beginning in Aprilas of October 2021, another $1.1 billion is available beginning in May 2022August 2023 and another $1.1 billion is available beginning in April 2023.August 2024. Each tranche of financing may be utilized for a period of 18 months from the initial availability date. If utilized, the interest rates will be fixed at 3.48%, 3.72%3.80% and 3.74%, respectively, and the loansloan and interest will be payable semi-annually over a 12-year period from the borrowing date. Early repayment is permitted subject to cancellation fees.
Interest expense, net
Interest expense net
Interest expense,(net of amounts capitalized), interest and investment income, and net periodic pension and postretirement benefit costs (other than service costs) (see Note 9) are reported net in the Condensed Consolidated Statements of Income and consist of the following (net of capitalized interest):
 Quarter Ended Six Months Ended
 March 30,
2019		 March 31,
2018		 March 30,
2019		 March 31,
2018
Interest expense$(198) $(172) $(361) $(318)
Interest and investment income30
 29
 105
 46
Net periodic pension and postretirement benefit costs (other than service costs)25
 —
 50
 —
Interest expense, net$(143) $(143) $(206) $(272)

following:
Quarter Ended
January 1,
2022		January 2,
2021
Interest expense$(361)$(404)
Interest and investment income34    113    
Net periodic pension and postretirement benefit costs (other than service costs)16 (33)
Interest expense, net$(311)$(324)
Interest and investment income includes gains and losses on certain publicly traded and non-publicly tradednon-public investments, investment impairments and interest earned on cash and cash equivalents and certain receivables.
7.International Theme Parks
6.International Theme Parks
The Company has a 47%48% ownership interest in the operations of Hong Kong Disneyland Resort and a 43% ownership interest in the operations of Shanghai Disney Resort. The Asia Theme Parks together with Disneyland Paris are collectively referred to as the International Theme Parks.
The following table summarizes the carrying amounts of the InternationalAsia Theme Parks’ assets and liabilities included in the Company’s Condensed Consolidated Balance Sheets asSheets:
 January 1,
2022		October 2, 2021
Cash and cash equivalents$304 $287 
Other current assets104 95 
Total current assets408 382 
Parks, resorts and other property6,947    6,928    
Other assets172 176 
Total assets$7,527 $7,486 
Current liabilities$488 $473 
Long-term borrowings1,358 1,331 
Other long-term liabilities414 422 
Total liabilities$2,260 $2,226 
The following table summarizes the International Theme Parks’ revenues and costs and expenses included in the Company’s Condensed Consolidated Statements of March 30, 2019 and September 29, 2018:
 March 30, 2019 September 29, 2018
Cash and cash equivalents$736
 $834
Other current assets356
 400
Total current assets1,092
 1,234
Parks, resorts and other property8,950
 8,973
Other assets106
 103
Total assets (1)
$10,148
 $10,310
    
Current liabilities$667
 $921
Long-term borrowings1,151
 1,106
Other long-term liabilities364
 382
Total liabilities (1)
$2,182
 $2,409

Income for the quarter ended January 1, 2022:
(1)
Revenues		Total assets$792
Costs and expenses(826)
Equity in the loss of the Asia Theme Parks were $8 billion at both March 30, 2019 and September 29, 2018 including parks, resorts and other property of $7 billion. Total liabilities of the Asia Theme Parks were $2 billion at both March 30, 2019 and September 29, 2018.     investees(3)
13
THE WALT DISNEY COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited; tabular dollars in millions, except for per share data)


The following table summarizes the International Theme Parks’ revenues and costs and expenses included in the Company’s Condensed Consolidated Statement of Income for the six months ended March 30, 2019:
 March 30, 2019
Revenues$1,749
Costs and expenses(1,762)
Equity in the loss of investees(12)

Asia Theme Parks’ royalty and management fees of $71$26 million for the six monthsquarter ended March 30, 2019January 1, 2022 are eliminated in consolidation, but are considered in calculating earnings attributable to noncontrolling interests.
International Theme Parks’ cash flows included in the Company’s Condensed Consolidated StatementStatements of Cash Flows for the six monthsquarter ended March 30, 2019January 1, 2022 were $315$109 million generated fromprovided by operating activities, $439$193 million used in investing activities and no change in cash from$62 million provided by financing activities. Approximately two thirds of cash flows generated from operating activities and used in investing activities, were for the Asia Theme Parks.
Hong Kong Disneyland Resort
The Government of the Hong Kong Special Administrative Region (HKSAR) and the Company have a 53%52% and a 47%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 $144$150 million and $96$100 million, respectively. The interest rate on both loans 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 ($269 million), which bears interest at a rate of three month HIBOR plus 1.25% and matures in December 2023. There is noThe outstanding balance under the line of credit at March 30, 2019.January 1, 2022 was $124 million. The Company’s line of credit is eliminated in consolidation.
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 $813$905 million, bearing interest at rates up to 8% and maturing in 2036, with early repayment permitted. In addition, the Company has an outstanding balance of $130 million due from Shanghai Disney Resort primarily related to royalties. The Company has also provided Shanghai Disney Resort with a $157 million1.0 billion yuan (approximately $0.2 billion) line of credit bearing interest at 8%. There is noAs of January 1, 2022, the total amount outstanding balance under the line of credit at March 30, 2019.was 0.2 billion yuan (approximately $25 million). These balances are eliminated in consolidation.
Shendi has provided Shanghai Disney Resort with loans totaling 7.18.0 billion yuan (approximately $1.1$1.3 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%. There is noAs of January 1, 2022 the total amount outstanding balance under the line of credit at March 30, 2019.was 0.2 billion yuan (approximately $33 million).
8.Income Taxes
U.S. Tax Cuts7.Produced and Jobs ActAcquired/Licensed Content Costs and Advances
In December 2017, new federal income tax legislation,The Company classifies its capitalized produced and acquired/licensed content costs as long-term assets and classifies advances for live programming rights made prior to the “Tax Cutslive event as short-term assets. For purposes of amortization and Jobs Act” (Tax Act), was signed into law. The most significant impactsimpairment, the capitalized content costs are classified based on the Company aretheir predominant monetization strategy as follows:
Effective January 1, 2018,•Individual - lifetime value is predominantly derived from third-party revenues that are directly attributable to the U.S. corporate federal statutory income tax rate was reducedspecific film or television title (e.g. theatrical revenues or sales to third-party television programmers)
•Group - lifetime value is predominantly derived from 35.0%third-party revenues that are attributable only to 21.0%. Becausea bundle of our fiscal year end, the Company’s fiscal 2018 statutory federal tax rate was 24.5%. The Company’s statutory federal tax rate is 21.0%titles (e.g. subscription revenue for fiscal 2019 (and thereafter).a DTC service or affiliate fees for a cable television network)
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 are realized (either 24.5% if in 2018 or 21.0% thereafter) (Deferred Remeasurement). The Company recognized a benefit of approximately $2.2 billion from the Deferred Remeasurement, the majority of which was recognized in the first quarter of fiscal 2018.
A one-time tax is due on certain accumulated foreign earnings (Deemed Repatriation Tax), which is payable over eight years. The effective tax rate is generally 15.5% on the portion of the earnings held in cash and cash equivalents
14
THE WALT DISNEY COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited; tabular dollars in millions, except for per share data)


Total capitalized produced and licensed content by predominant monetization strategy is as follows:
As of January 1, 2022As of October 2, 2021
Predominantly Monetized IndividuallyPredominantly Monetized
as a Group		TotalPredominantly Monetized IndividuallyPredominantly Monetized
as a Group		Total
Produced content
Released, less amortization$5,296 $10,036 $15,332 $4,944 $9,779 $14,723 
Completed, not released300 992 1,292 630 762 1,392 
In-process4,408   5,466   9,874   4,371   4,623   8,994   
In development or pre-production205 129 334 351 162 513 
$10,209 $16,623 26,832 $10,296 $15,326 25,622 
Licensed content - Television programming rights and advances4,962 6,110 
Total produced and licensed content$31,794 $31,732 
Current portion$1,125 $2,183 
Non-current portion$30,669 $29,549 
Amortization of produced and 8%licensed content is as follows:
Quarter Ended
January 1,
2022		January 2,
2021
Produced content
Predominantly monetized individually$1,033$612 
Predominantly monetized as a group1,6181,198   
2,6511,810 
Licensed programming rights and advances4,8114,539 
Total produced and licensed content costs(1)
$7,462$6,349 
(1)Primarily included in “Costs of services” in the Condensed Consolidated Statements of Income.
8.Income Taxes
Interim Period Tax Expense
Generally, we record interim period tax expense based on the remainder. The Companyestimated annual effective tax rate using projections of full-year pre-tax earnings and income tax expense, adjusted for tax expense amounts recognized a charge for the Deemed Repatriation Tax of approximately $0.4 billion, the majority of which was recognizedfully in the firstquarter they occur. We used this approach to determine tax expense in the current quarter of fiscal 2018. Generally there will no longer be a U.S. federal2022. For interim periods in fiscal 2021, because of the uncertainties associated with the impact of COVID-19 on our projections of full-year pre-tax earnings and income tax cost arising from the repatriationexpense, our normal approach of foreign earnings.
The Company is eligible to claimcalculating interim period tax expense produced an immediate deduction for investments in qualified fixed assets acquired and film and television productions that 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 2023 through fiscal 2027.
Beginning in fiscal 2019:
◦The domestic production activity deduction is eliminated.
◦Certain foreign derived income will 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%.
◦
Certain foreign earnings will 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.
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 consequencesprovision that was not meaningful. Accordingly, we calculated interim period fiscal 2021 tax expense based on the year-to-date earnings before tax, a blended U.S. Federal and state statutory tax rate of an intra-entity transfer of an asset (other than inventory) whenapproximately 23% adjusted for tax expense amounts recognized fully in the transfer occurs instead of when the asset is ultimately sold to an outside party. In the first quarter of fiscal 2019, the Company recorded a $0.1 billion deferred tax asset with an offsetting increase to retained earnings.they occurred.
Unrecognized Tax Benefits
During the six months ended March 30, 2019, the Company increased its grossThe Company’s unrecognized tax benefits by $2.2 billion from $0.6 billion to $2.8at both January 1, 2022 and October 2, 2021 were approximately $2.6 billion (before interest and penalties). The increase includes $2.1 billion related to 21CF. Interest and penalty reserves related to 21CF unrecognized tax benefits are $0.9 billion. In the next twelve months, it is reasonably possible that our unrecognized tax benefits could change due to resolutions of open tax matters. These resolutionsmatters, which would reduce our unrecognized tax benefits by $0.2 billion, of which $0.1 billion would reduce our income tax expense and effective tax rate if recognized.
9.Pension and Other Benefit Programs
The components of net periodic benefit cost are as follows:$0.3 billion.
 Pension Plans Postretirement Medical Plans
 Quarter Ended Six Months Ended Quarter Ended Six Months Ended
 Mar. 30,
2019		 Mar. 31,
2018		 Mar. 30,
2019		 Mar. 31,
2018		 Mar. 30,
2019		 Mar. 31,
2018		 Mar. 30,
2019		 Mar. 31,
2018
Service costs$83
 $87
 $166
 $175
 $2
 $2
 $4
 $5
Other costs (benefits):               
Interest costs144
 122
 289
 245
 17
 15
 33
 30
Expected return on plan assets(240) (227) (479) (452) (14) (13) (28) (26)
Amortization of prior-year service costs4
 5
 7
 8
 —
 —
 —
 —
Recognized net actuarial loss67
 88
 131
 175
 —
 4
 —
 7
Total other costs (benefits)(25) (12) (52) (24) 3
 6
 5
 11
Net periodic benefit cost$58
 $75
 $114
 $151
 $5
 $8
 $9
 $16
15

At the beginning of 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 Condensed Consolidated Statement of Income). All of the other components of net periodic benefit cost (“other costs / benefits”) are presented as a component of “Interest expense, net” in the Condensed Consolidated Statement of Income (see Note 6). The other costs / benefits in fiscal 2018 were not material and are reported in Costs and expenses.
THE WALT DISNEY COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited; tabular dollars in millions, except for per share data)


9.Pension and Other Benefit Programs
The components of net periodic benefit cost are as follows:
 Pension PlansPostretirement Medical Plans
 Quarter EndedQuarter Ended
 January 1,
2022		January 2,
2021		January 1,
2022		January 2,
2021
Service costs$100 $108 $2 $3 
Other costs (benefits):
Interest costs124   114   13   12   
Expected return on plan assets(293)(275)(15)(14)
Amortization of previously deferred service costs1 2 — — 
Recognized net actuarial loss147 186 7 7 
Total other costs (benefits)(21)27 5 5 
Net periodic benefit cost$79 $135 $7 $8 
During the six monthsquarter ended March 30, 2019,January 1, 2022, the Company did not make any material contributions to its pension and postretirement medical plans. The Company currently expects totalto make approximately $100 million to $150 million in pension and postretirement medical planplans contributions in fiscal 2019 of approximately $750 million. However, final2022. Final minimum funding amountsrequirements for fiscal 20192022 will be assesseddetermined based on oura January 1, 20192022 funding actuarial valuation, which willis expected to be available inreceived by the end of the fourth quarter of fiscal 2019.2022.
In connection with our acquisition of 21CF, we assumed net pension obligations of $237 million ($824 million in obligations and $587 million in plan assets), which is anticipated to have an immaterial impact on our fiscal 2019 Condensed Consolidated Statement of Income. The Company expects to contribute approximately $50 million to the 21CF plans in fiscal 2019.
10.Earnings Per Share
10.Earnings Per Share
Diluted earnings per share amounts are based upon the weighted average number of common and common equivalent shares outstanding during the period and are calculated using the treasury stock method for equity-based compensation awards (Awards). A reconciliation of the weighted average number of common and common equivalent shares outstanding and the number of Awards excluded from the diluted earnings per share calculation, as they were anti-dilutive, are as follows:
 Quarter Ended
 January 1,
2022		January 2,
2021
Shares (in millions):
Weighted average number of common and common equivalent shares outstanding (basic)1,819   1,812   
Weighted average dilutive impact of Awards9 11 
Weighted average number of common and common equivalent shares outstanding (diluted)1,828 1,823 
Awards excluded from diluted earnings per share4 8 
 Quarter Ended Six Months Ended
 March 30,
2019		 March 31,
2018		 March 30,
2019		 March 31,
2018
Shares (in millions):       
Weighted average number of common and common equivalent shares outstanding (basic)1,530
 1,503
 1,510
 1,507
Weighted average dilutive impact of Awards7
 7
 7
 8
Weighted average number of common and common equivalent shares outstanding (diluted)1,537
 1,510
 1,517
 1,515
Awards excluded from diluted earnings per share14
 12
 13
 13
16

11.Equity
The Company paid the following dividends in fiscal 2019 and 2018:
Per ShareTotal PaidPayment TimingRelated to Fiscal Period
$0.88$1.3 billionSecond quarter of Fiscal 2019Second Half of 2018
$0.84$1.2 billionFourth Quarter of Fiscal 2018First Half of 2018
$0.84$1.3 billionSecond Quarter of Fiscal 2018Second Half of 2017

As a result of our acquisition of 21CF, the TWDC became the parent entity of both 21CF 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 21CF (see Note 4), and all the outstanding shares of Legacy Disney (other than treasury shares, shares held by subsidiaries of Legacy Disney and shares held on behalf of third parties) were converted on a one-for-one basis into new publicly traded shares of TWDC.
On March 20, 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 March 30, 2019, 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 21CF 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 during the first quarter of fiscal 2019.
THE WALT DISNEY COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited; tabular dollars in millions, except for per share data)


11.Equity
The following tables summarize the changes in each component of accumulated other comprehensive income (loss) (AOCI) including our proportional share of equity method investee amounts:
 Market Value Adjustments for HedgesUnrecognized
Pension and 
Postretirement
Medical 
Expense		Foreign
Currency
Translation
and Other		AOCI
AOCI, before tax
First quarter of fiscal 2022
Balance at October 2, 2021$(152)$(7,025)$(1,047)$(8,224)
Quarter Ended January 1, 2022:
Unrealized gains (losses) arising during the period87 47 (37)97 
Reclassifications of realized net (gains) losses to net income(18)155 — 137 
Balance at January 1, 2022$(83)$(6,823)$(1,084)$(7,990)
First quarter of fiscal 2021
Balance at October 3, 2020$(191)$(9,423)$(1,088)$(10,702)
Quarter Ended January 2, 2021:
Unrealized gains (losses) arising during the period(185)   2    211    28    
Reclassifications of realized net (gains) losses to net income(43)194 — 151 
Balance at January 2, 2021$(419)$(9,227)$(877)$(10,523)
 Market Value Adjustments for HedgesUnrecognized
Pension and 
Postretirement
Medical 
Expense		Foreign
Currency
Translation
and Other		AOCI
Tax on AOCI
First quarter of fiscal 2022
Balance at October 2, 2021$42 $1,653 $89 $1,784 
Quarter Ended January 1, 2022:
Unrealized gains (losses) arising during the period(23)(11)(4)(38)
Reclassifications of realized net (gains) losses to net income4 (36)— (32)
Balance at January 1, 2022$23 $1,606 $85 $1,714 
First quarter of fiscal 2021
Balance at October 3, 2020$40 $2,201 $139 $2,380 
Quarter Ended January 2, 2021:
Unrealized gains (losses) arising during the period46    (1)   (7)   38    
Reclassifications of realized net (gains) losses to net income9 (45)— (36)
Balance at January 2, 2021$95 $2,155 $132 $2,382 
17
     Unrecognized
Pension and 
Postretirement
Medical 
Expense		 Foreign
Currency
Translation
and Other		 AOCI
 Market Value Adjustments 
AOCI, before taxInvestments Cash Flow Hedges 
Second quarter of fiscal 2019         
Balance at December 29, 2018$—
 $166
 $(4,254) $(743) $(4,831)
Quarter Ended March 30, 2019:        

Unrealized gains (losses) arising during the period(5) (82) 19
 15
 (53)
Reclassifications of realized net (gains) losses to net income—
 (22) 72
 —
 50
Balance at March 30, 2019$(5) $62
 $(4,163) $(728) $(4,834)
          
Second quarter of fiscal 2018         
Balance at December 30, 2017$14
 $(69) $(4,810) $(461) $(5,326)
Quarter Ended March 31, 2018:         
Unrealized gains (losses) arising during the period10
 (165) 24
 103
 (28)
Reclassifications of realized net (gains) losses to net income—
 37
 96
 —
 133
Balance at March 31, 2018$24
 $(197) $(4,690) $(358) $(5,221)
          
First and second quarter of fiscal 2019        
Balance at September 29, 2018$24
 $177
 $(4,323) $(727) $(4,849)
Six Months Ended March 30, 2019:         
Unrealized gains (losses) arising during the period(5) (55) 19
 (1) (42)
Reclassifications of net (gains) losses to net income—
 (61) 141
 —
 80
Reclassifications to retained earnings(24) 1
 —
 —
 (23)
Balance at March 30, 2019$(5) $62
 $(4,163) $(728) $(4,834)
          
First and second quarter of fiscal 2018        
Balance at September 30, 2017$15
 $(108) $(4,906) $(523) $(5,522)
Six Months Ended March 31, 2018:         
Unrealized gains (losses) arising during the period9
 (146) 24
 165
 52
Reclassifications of net (gains) losses to net income—
 57
 192
 —
 249
Balance at March 31, 2018$24
 $(197) $(4,690) $(358) $(5,221)
THE WALT DISNEY COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited; tabular dollars in millions, except for per share data)


 Market Value Adjustments for HedgesUnrecognized
Pension and 
Postretirement
Medical 
Expense		Foreign
Currency
Translation
and Other		AOCI
AOCI, after tax
First quarter of fiscal 2022
Balance at October 2, 2021$(110)$(5,372)$(958)$(6,440)
Quarter Ended January 1, 2022:
Unrealized gains (losses) arising during the period64 36 (41)59 
Reclassifications of realized net (gains) losses to net income(14)119 — 105 
Balance at January 1, 2022$(60)$(5,217)$(999)$(6,276)
First quarter of fiscal 2021
Balance at October 3, 2020$(151)$(7,222)$(949)$(8,322)
Quarter Ended January 2, 2021:
Unrealized gains (losses) arising during the period(139)1 204 66 
Reclassifications of realized net (gains) losses to net income(34)149 — 115 
Balance at January 2, 2021$(324)$(7,072)$(745)$(8,141)
Details about AOCI components reclassified to net income are as follows:
Gain (loss) in net income:Affected line item in the
  Condensed Consolidated
  Statements of Operations:
Quarter Ended
January 1,
2022		January 2,
2021
Market value adjustments, primarily cash flow hedgesPrimarily revenue$18 $43 
Estimated taxIncome taxes(4)(9)
14 34 
Pension and postretirement medical expenseInterest expense, net(155)(194)
Estimated taxIncome taxes36   45   
(119)(149)
Total reclassifications for the period$(105)$(115)
12.Equity-Based Compensation
Compensation expense related to stock options and restricted stock units (RSUs) is as follows:
 Quarter Ended
 January 1,
2022		January 2,
2021
Stock options$24 $25 
RSUs172   109   
Total equity-based compensation expense(1)
$196 $134 
Equity-based compensation expense capitalized during the period$30 $34 
(1)Equity-based compensation expense is net of capitalized equity-based compensation and estimated forfeitures and excludes amortization of previously capitalized equity-based compensation costs.
Unrecognized compensation cost related to unvested stock options and RSUs was $160 million and $2.2 billion, respectively, as of January 1, 2022.
18
     Unrecognized
Pension and 
Postretirement
Medical 
Expense		 Foreign
Currency
Translation
and Other		 AOCI
 Market Value Adjustments 
Tax on AOCIInvestments Cash Flow Hedges 
Second quarter of fiscal 2019         
Balance at December 29, 2018$—
 $(38) $1,007
 $80
 $1,049
Quarter Ended March 30, 2019:        

Unrealized gains (losses) arising during the period1
 19
 (6) (3) 11
Reclassifications of realized net (gains) losses to net income—
 5
 (17) —
 (12)
Balance at March 30, 2019$1
 $(14) $984
 $77
 $1,048
          
Second quarter of fiscal 2018         
Balance at December 30, 2017$(7) $25
 $1,804
 $100
 $1,922
Quarter Ended March 31, 2018:        

Unrealized gains (losses) arising during the period(3) 25
 (3) (33) (14)
Reclassifications of realized net (gains) losses to net income—
 (9) (23) —
 (32)
Balance at March 31, 2018$(10) $41
 $1,778
 $67
 $1,876
          
First and second quarter of fiscal 2019        
Balance at September 29, 2018$(9) $(32) $1,690
 $103
 $1,752
Six Months Ended March 30, 2019:         
Unrealized gains (losses) arising during the period1
 13
 (6) (10) (2)
Reclassifications of net (gains) losses to net income—
 14
 (33) —
 (19)
Reclassifications to retained earnings (1)
9
 (9) (667) (16) (683)
Balance at March 30, 2019$1
 $(14) $984
 $77
 $1,048
          
First and second quarter of fiscal 2018        
Balance at September 30, 2017$(7) $46
 $1,839
 $116
 $1,994
Six Months Ended March 31, 2018:         
Unrealized gains (losses) arising during the period(3) 12
 (3) (49) (43)
Reclassifications of net (gains) losses to net income—
 (17) (58) —
 (75)
Balance at March 31, 2018$(10) $41
 $1,778
 $67
 $1,876
THE WALT DISNEY COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited; tabular dollars in millions, except for per share data)


     Unrecognized
Pension and 
Postretirement
Medical 
Expense		 Foreign
Currency
Translation
and Other		 AOCI
 Market Value Adjustments 
AOCI, after taxInvestments Cash Flow Hedges 
Second quarter of fiscal 2019         
Balance at December 29, 2018$—
 $128
 $(3,247) $(663) $(3,782)
Quarter Ended March 30, 2019:         
Unrealized gains (losses) arising during the period(4) (63) 13
 12
 (42)
Reclassifications of realized net (gains) losses to net income—
 (17) 55
 —
 38
Balance at March 30, 2019$(4) $48
 $(3,179) $(651) $(3,786)
          
Second quarter of fiscal 2018         
Balance at December 30, 2017$7
 $(44) $(3,006) $(361) $(3,404)
Quarter Ended March 31, 2018:         
Unrealized gains (losses) arising during the period7
 (140) 21
 70
 (42)
Reclassifications of realized net (gains) losses to net income—
 28
 73
 —
 101
Balance at March 31, 2018$14
 $(156) $(2,912) $(291) $(3,345)
          
First and second quarter of fiscal 2019        
Balance at September 29, 2018$15
 $145
 $(2,633) $(624) $(3,097)
Six Months Ended March 30, 2019:         
Unrealized gains (losses) arising during the period(4) (42) 13
 (11) (44)
Reclassifications of net (gains) losses to net income—
 (47) 108
 —
 61
Reclassifications to retained earnings (1)
(15) (8) (667) (16) (706)
Balance at March 30, 2019$(4) $48
 $(3,179) $(651) $(3,786)
          
First and second quarter of fiscal 2018        
Balance at September 30, 2017$8
 $(62) $(3,067) $(407) $(3,528)
Six Months Ended March 31, 2018:         
Unrealized gains (losses) arising during the period6
 (134) 21
 116
 9
Reclassifications of net (gains) losses to net income—
 40
 134
 —
 174
Balance at March 31, 2018$14
 $(156) $(2,912) $(291) $(3,345)
(1)
At the beginning of fiscal 2019, the Company adopted new FASB accounting guidance, Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income, and reclassified $691 million from AOCI to retained earnings.
In addition, at the beginning of fiscal 2019, the Company adopted new FASB accounting guidance, Recognition and Measurement of Financial Assets and Liabilities, and reclassified $24 million ($15 million after tax) of market value adjustments on investments previously recorded in AOCI to retained earnings.
THE WALT DISNEY COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited; tabular dollars in millions, except for per share data)


Details about AOCI components reclassified to net income are as follows:
Gains/(losses) in net income: 
Affected line item in the
  Condensed Consolidated
  Statements of Income:
 Quarter Ended Six Months Ended
  March 30,
2019		 March 31,
2018		 March 30,
2019		 March 31,
2018
Cash flow hedges Primarily revenue $22
 $(37) $61
 $(57)
Estimated tax Income taxes (5) 9
 (14) 17
    17
 (28) 47
 (40)
           
Pension and postretirement
  medical expense
 Costs and expenses —
 (96) —
 (192)
  Interest expense, net (72) —
 (141) —
Estimated tax Income taxes 17
 23
 33
 58
    (55) (73) (108) (134)
           
Total reclassifications for the period   $(38) $(101) $(61) $(174)

12.Equity-Based Compensation
Compensation expense related to stock options and restricted stock units (RSUs) is as follows:
 Quarter Ended Six Months Ended
 March 30,
2019		 March 31,
2018		 March 30,
2019		 March 31,
2018
Stock options$24
 $23
 $43
 $46
RSUs (1)
100
 77
 173
 148
Total equity-based compensation expense (2)
$124
 $100
 $216
 $194
Equity-based compensation expense capitalized during the period$22
 $18
 $38
 $37

(1)
Excludes 21CF RSUs converted to Company RSUs in connection with the acquisition of 21CF (see Note 4). The Company recognized $259 million of equity based compensation in connection with the 21CF acquisition.
(2)
Equity-based compensation expense is net of capitalized equity-based compensation and excludes amortization of previously capitalized equity-based compensation costs.
Unrecognized compensation cost related to unvested stock options and RSUs was $170 millionand $827 million, respectively, as of March 30, 2019, including $141 million of unrecognized compensation cost related to equity awards assumed and converted to Company RSUs in the 21CF acquisition.
The weighted average grant date fair values of options granted during the six monthsquarter ended March 30, 2019January 1, 2022 and March 31, 2018January 2, 2021 were $28.67$47.66 and $28.01,$55.28, respectively.
During the six monthsquarter ended March 30, 2019,January 1, 2022, the Company made equity compensation grants consisting of 3.91.6 million stock options and 3.39.1 million RSUs.
13.Commitments and Contingencies
13.Commitments and Contingencies
Legal Matters
The Company, together with, in some instances, certain of its directors and officers, is a defendant in various legal actions involving copyright, breach of contract and various other claims incident to the conduct of its businesses. Management does not believe that the Company has incurred a probable material loss by reason of any of those actions.
Contractual Guarantees
The Company has guaranteed bond issuances by the Anaheim Public Authority that were used by the City of Anaheim to finance construction of infrastructure and a public parking facility adjacent to the Disneyland Resort. Revenues from sales, occupancy and property taxes from the Disneyland Resort and non-Disney hotels are used by the City of Anaheim to repay the bonds, which have various maturities through 2037. In the event of a debt service shortfall, the Company will be responsible to14.Fair Value Measurements
THE WALT DISNEY COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited; tabular dollars in millions, except for per share data)


fund the shortfall. As of March 30, 2019, the remaining debt service obligation guaranteed by the Company was $290 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.
Long-Term Receivables and the Allowance for Credit Losses
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. Allowances for credit losses are established against these receivables as necessary.
The Company estimates the allowance for credit losses related to receivables from the sale of film and television programs based upon a number of factors, including historical experience and the financial condition of individual companies with which we do business. The balance of film and television program sales receivables recorded in other non-current assets, net of an immaterial allowance for credit losses, was $0.9 billion as of March 30, 2019. The activity for the quarter and six-month periods ended March 30, 2019 and March 31, 2018 related to the allowance for credit losses 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 a related allowance for credit losses of approximately 4%, was $0.8 billion as of March 30, 2019. The activity for the quarter and six-month periods ended March 30, 2019 and March 31, 2018 related to the allowance for credit losses was not material.
14.Fair Value Measurements
Fair value is defined as the amount that would be received for selling an asset or paid to transfer a liability in an orderly transaction between market participants and is generally classified in one of the following categories:
Level 1 - Quoted prices for identical instruments in active markets
Level 2 - Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations in which all significant inputs and significant value drivers are observable in active markets
Level 3 - Valuations derived from valuation techniques in which one or more significant inputs or significant value drivers are unobservable
The Company’s assets and liabilities measured at fair value are summarized in the following tables by fair value measurement Level:
 Fair Value Measurement at January 1, 2022
 Level 1Level 2Level 3Total
Assets
Investments$527 $— $— $527 
Derivatives
Interest rate— 100 — 100 
Foreign exchange— 696 — 696 
Other—    18    —    18    
Liabilities
Derivatives
Interest rate— (353)— (353)
Foreign exchange— (525)— (525)
Other— (2)— (2)
Other— (438)— (438)
Total recorded at fair value$527 $(504)$— $23 
Fair value of borrowings$— $58,177 $1,475 $59,652 
19
 Fair Value Measurement at March 30, 2019
 Level 1 Level 2 Level 3 Total
Assets       
 Investments$20
 $—
 $—
 $20
Derivatives       
Interest rate—
 18
 —
 18
Foreign exchange—
 525
 —
 525
Other—
 6
 —
 6
Liabilities       
Derivatives       
Interest rate—
 (158) —
 (158)
Foreign exchange—
 (425) —
 (425)
Other—
 (2) —
 (2)
Total recorded at fair value$20
 $(36) $—
 $(16)
Fair value of borrowings$—
 $41,482
 $17,833
 $59,315
THE WALT DISNEY COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited; tabular dollars in millions, except for per share data)


 Fair Value Measurement at September 29, 2018
 Level 1 Level 2 Level 3 Total
Assets       
 Investments$38
 $—
 $—
 $38
Derivatives       
Foreign exchange—
 469
 —
 469
Other—
 15
 —
 15
Liabilities       
Derivatives       
Interest rate—
 (410) —
 (410)
Foreign exchange—
 (274) —
 (274)
Total recorded at fair value$38
 $(200) $—
 $(162)
Fair value of borrowings$—
 $19,826
 $1,171
 $20,997

 Fair Value Measurement at October 2, 2021
 Level 1Level 2Level 3Total
Assets
Investments$950 $— $— $950 
Derivatives
Interest rate— 186 — 186 
Foreign exchange—    707    —    707    
Other— 10 — 10 
Liabilities
Derivatives
Interest rate— (287)— (287)
Foreign exchange— (618)— (618)
Other— (8)— (8)
Other— (375)— (375)
Total recorded at fair value$950 $(385)$— $565 
Fair value of borrowings$— $58,913 $1,411 $60,324 
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 materialhad an impact on derivative fair value estimates.estimates that was not material.
Level 2 other liabilities are primarily arrangements that are valued based on the fair value of underlying investments, which are generally measured using Level 1 and Level 2 fair value techniques.
Level 2 borrowings, which include commercial paper, U.S. and Europeandollar 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. Level 3 borrowings at March 30, 2019 also include a bridge loan facility used to finance the acquisition of 21CF. The carrying value approximates fair value of this floating rate financial instrument.
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 should be evaluated for impairment. For the quarter and six-month period ending March 30, 2019, the Company recorded an impairment charge of $353 million for the write-off of an equity method investment as a result of a level 3 fair value measurement. The impairment was recorded in “15.Equity in the income / (loss) of investees, net” in the Condensed Consolidated Statements of Income.Derivative Instruments
15.Derivative Instruments
The Company manages its exposure to various risks relating to its ongoing business operations according to a risk management policy. The primary risks managed with derivative instruments are interest rate risk and foreign exchange risk.
20
THE WALT DISNEY COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited; tabular dollars in millions, except for per share data)


The Company’s derivative positions measured at fair value are summarized in the following tables:
 As of January 1, 2022
 Current
Assets		Other AssetsOther Current LiabilitiesOther Long-
Term
Liabilities
Derivatives designated as hedges
Foreign exchange$220 $264 $(127)$(100)
Interest rate17 83 (353)— 
Other8    1    (1)   (1)   
Derivatives not designated as hedges
Foreign exchange109 103 (153)(145)
Other9 — — — 
Gross fair value of derivatives363 451 (634)(246)
Counterparty netting(253)(326)394 185 
Cash collateral (received) paid(26)(4)234 41 
Net derivative positions$84 $121 $(6)$(20)
 As of March 30, 2019
 
Current
Assets
 Other Assets Other Current Liabilities 
Other Long-
Term
Liabilities
Derivatives designated as hedges       
Foreign exchange$192
 $176
 $(72) $(148)
Interest rate—
 18
 (121) —
Other5
 1
 (1) (1)
Derivatives not designated as hedges       
Foreign exchange44
 113
 (129) (76)
Interest rate—
 —
 —
 (37)
Gross fair value of derivatives241
 308
 (323) (262)
Counterparty netting(156) (253) 229
 180
Cash collateral (received)/paid(8) —
 65
 —
Net derivative positions$77
 $55
 $(29) $(82)
 As of September 29, 2018
 
Current
Assets
 Other Assets Other Current Liabilities 
Other Long-
Term
Liabilities
Derivatives designated as hedges       
Foreign exchange$166
 $169
 $(80) $(39)
Interest rate—
 —
 (329) —
Other13
 2
 —
 —
Derivatives not designated as hedges       
Foreign exchange38
 96
 (95) (60)
Interest rate—
 —
 —
 (81)
Gross fair value of derivatives217
 267
 (504) (180)
Counterparty netting(158) (227) 254
 131
Cash collateral (received)/paid—
 —
 135
 5
Net derivative positions$59
 $40
 $(115) $(44)

 As of October 2, 2021
 Current
Assets		Other AssetsOther Current LiabilitiesOther Long-
Term
Liabilities
Derivatives designated as hedges
Foreign exchange$165 $240 $(122)$(83)
Interest rate— 186 (287)— 
Other10    —    —    —    
Derivatives not designated as hedges
Foreign exchange183 119 (208)(205)
Other(8)— — — 
Gross fair value of derivatives350 545 (617)(288)
Counterparty netting(301)(360)460 201 
Cash collateral (received) paid(3)(51)157 73 
Net derivative positions$46 $134 $— $(14)
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 ratevariable-rate borrowings indexed to LIBOR. As of March 30, 2019 and September 29, 2018, theThe total notional amount of the Company’s pay-floating interest rate swaps at both January 1, 2022 and October 2, 2021, was $7.2 billion and $7.6 billion, respectively.$15.1 billion.
21
THE WALT DISNEY COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited; tabular dollars in millions, except for per share data)


The following table summarizes fair value hedge adjustments to hedged borrowings at March 30, 2019 and September 29, 2018:borrowings:
Carrying Amount of Hedged BorrowingsFair Value Adjustments Included
in Hedged Borrowings
January 1,
2022		October 2, 2021January 1,
2022		October 2, 2021
Borrowings:
Current$1,512    $505    $14    $5    
Long-term13,957 15,136 (290)(103)
$15,469 $15,641 $(276)$(98)
 
Carrying Amount of Hedged Borrowings (1)
 
Fair Value Adjustments Included
in Hedged Borrowings (1)
 March 30, 2019 September 29, 2018 March 30, 2019 September 29, 2018
Borrowings:       
Current$1,245
 $1,585
 $(4) $(14)
Long-term6,623
 6,425
 (66) (290)
 $7,868
 $8,010
 $(70) $(304)
(1)
Includes $39 million and $41 million of gains on terminated interest rate swaps as of March 30, 2019 and September 29, 2018, respectively.
The following amounts are included in “Interest expense, net” in the Condensed Consolidated Statements of Income:
 Quarter Ended
 January 1,
2022		January 2,
2021
Gain (loss) on:
Pay-floating swaps$(178)$(147)
Borrowings hedged with pay-floating swaps178   147   
Benefit (expense) associated with interest accruals on pay-floating swaps37 35 
 Quarter Ended Six Months Ended
 March 30,
2019		 March 31,
2018		 March 30,
2019		 March 31,
2018
Gain (loss) on:       
Pay-floating swaps$117
 $(102) $234
 $(166)
Borrowings hedged with pay-floating swaps(117) 102
 (234) 166
Benefit (expense) associated with interest accruals on pay-floating swaps(18) —
 (32) 7

The Company may designate pay-fixed interest rate swaps as cash flow hedges of interest payments on floating-rate borrowings. Pay-fixed interest rate swaps effectively convert floating-rate borrowings to fixed-rate borrowings. The unrealized gains or losses from these cash flow hedges are deferred in AOCI and recognized in interest expense as the interest payments occur. The Company did not have pay-fixed interest rate swaps that were designated as cash flow hedges of interest payments at March 30, 2019January 1, 2022 or at September 29, 2018,October 2, 2021, and gains and losses related to pay-fixed interest rate swaps recognized in earnings for the quarter ended January 1, 2022 and six months ended March 30, 2019 and March 31, 2018 were not material.
To facilitate its interest rate risk management activities, the Company sold options in November 2016, October 2017 and April 2018 to enter into a future pay-floating interest rate swaps indexed to LIBOR for $2.0 billion in future borrowings. The fair values of these contracts as of March 30, 2019 or at September 29, 2018 were not material. The options are not designated as hedges and do not qualify for hedge accounting; accordingly, changes in their fair value are recorded in earnings. Gains and losses on the options for the quarter and six months ended March 30, 2019 and March 31, 2018January 2, 2021 were not material.
Foreign Exchange Risk Management
The Company transacts business globally and is subject to risks associated with changing foreign currency exchange rates. The Company’s objective is to reduce earnings and cash flow fluctuations associated with foreign currency exchange rate changes, enabling management to focus on core business issues and challenges.
The Company enters into option and forward contracts that change in value as foreign currency exchange rates change to protect the value of its existing foreign currency assets, liabilities, firm commitments and forecasted but not firmly committed foreign currency transactions. In accordance with policy, the Company hedges its forecasted foreign currency transactions for periods generally not to exceed four years within an established minimum and maximum range of annual exposure. The gains and losses on these contracts offset changes in the U.S. dollar equivalent value of the related forecasted transaction, asset, liability or firm commitment. The principal currencies hedged are the euro, Japanese yen, British pound, Chinese yuan and Canadian dollar. Cross-currency swaps are used to effectively convert foreign currency denominated borrowings into U.S. dollar denominated borrowings.
The Company designates foreign exchange forward and option contracts as cash flow hedges of firmly committed and forecasted foreign currency transactions. As of March 30, 2019January 1, 2022 and September 29, 2018,October 2, 2021, the notional amounts of the Company’s net foreign exchange cash flow hedges were $6.4$8.1 billion and $6.2$6.9 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 $119 million. The following table summarizes the effect of foreign exchange cash flow hedges on AOCI:
Quarter Ended
January 1,
2022		January 2,
2021
Gain (loss) recognized in Other Comprehensive Income$79 $(151)
Gain (loss) reclassified from AOCI into the Statements of Operations(1)
13    44    
(1)Primarily recorded in revenue.
22
THE WALT DISNEY COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited; tabular dollars in millions, except for per share data)


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 January 1, 2022 and October 2, 2021, the total notional amounts of the Company’s designated cross currency swaps were Canadian $1.3 billion ($1.0 billion) and Canadian $1.3 billion ($1.0 billion), respectively.
the next twelve months total $131 million. The following table summarizesamounts are included in “Interest expense, net” in the effectCondensed Consolidated Statements of foreign exchange cash flow hedges on AOCI for the quarter and six months ended March 30, 2019:Income:
Quarter Ended
January 1,
2022		January 2,
2021
Gain (loss) on:
Cross currency swaps$1 $42 
Borrowings hedged with cross currency swaps(1)(42)
Quarter Ended: 
Gain/(loss) recognized in Other Comprehensive Income$(91)
Gain/(loss) reclassified from AOCI into the Statement of Income (1)
20
  
Six Months Ended: 
Gain/(loss) recognized in Other Comprehensive Income(41)
Gain/(loss) reclassified from AOCI into the Statement of Income (1)
57
(1)
Primarily recorded in revenue.
Foreign exchange risk management contracts with respect to foreign currency denominated assets and liabilities are not designated as hedges and do not qualify for hedge accounting. The notional amounts of these foreign exchange contracts at March 30, 2019January 1, 2022 and September 29, 2018October 2, 2021 were $2.5$3.9 billion and $3.3$3.5 billion, respectively. The following table summarizes the net foreign exchange gains or losses recognized on foreign currency denominated assets and liabilities and the net foreign exchange gains or losses on the foreign exchange contracts we entered into to mitigate our exposure with respect to foreign currency denominated assets and liabilities for the quarter and six months ended March 30, 2019 and March 31, 2018by the corresponding line item in which they are recorded in the Condensed Consolidated Statements of Income:
Costs and ExpensesInterest expense, netIncome Tax Expense
Quarter Ended:Quarter Ended:January 1,
2022		January 2,
2021		January 1,
2022		January 2,
2021		January 1,
2022		January 2,
2021
Net gains (losses) on foreign currency denominated assets and liabilitiesNet gains (losses) on foreign currency denominated assets and liabilities$(63)$158 $1 $(41)$8 $(59)
Net gains (losses) on foreign exchange risk management contracts not designated as hedgesNet gains (losses) on foreign exchange risk management contracts not designated as hedges33   (187)  —   43   (8)  50   
Net gains (losses)Net gains (losses)$(30)$(29)$1 $2 $— $(9)
Costs and Expenses Interest expense, net Income Tax expense
Quarter Ended:March 30,
2019		 March 31,
2018		 March 30,
2019		 March 31,
2018		 March 30,
2019		 March 31,
2018
Net gain (loss) on foreign currency denominated assets and liabilities$1
 $64
 $(12) $24
 $—
 $(15)
Net gain (loss) on foreign exchange risk management contracts not designated as hedges(4) (77) 11
 (27) (4) 17
Net gain (loss)$(3) $(13) $(1) $(3) $(4) $2
           
Six Months Ended:           
Net gains (losses) on foreign currency denominated assets and liabilities$(26) $81
 $28
 $27
 $15
 $(12)
Net gains (losses) on foreign exchange risk management contracts not designated as hedges20
 (91) (28) (28) (22) 16
Net gains (losses)$(6) $(10) $—
 $(1) $(7) $4
Commodity Price Risk Management
The Company is subject to the volatility of commodities prices and the Company designates certain commodity forward contracts as cash flow hedges of forecasted commodity purchases. Mark-to-market gains and losses on these contracts are deferred in AOCI and are recognized in earnings when the hedged transactions occur, offsetting changes in the value of commodity purchases. The notional amount of these commodities contracts at March 30, 2019January 1, 2022 and September 29, 2018October 2, 2021 and related gains or losses recognized in earnings for the quarter and six monthsquarter ended March 30, 2019January 1, 2022 and March 31, 2018January 2, 2021 were not material.
Risk Management – Other Derivatives Not Designated as Hedges
The Company enters into certain other risk management contracts that are not designated as hedges and do not qualify for hedge accounting. These contracts, which include certain total return 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 valueamounts of these contracts at March 30, 2019both January 1, 2022 and September 29, 2018October 2, 2021 were not material.$0.4 billion. The related gains or losses recognized in earnings were not material for the quarterquarters ended January 1, 2022 and six months ended March 30, 2019 and March 31, 2018 were not material.January 2, 2021.
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
THE WALT DISNEY COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited; tabular dollars in millions, except for per share data)


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 $176$301 million and $299$244 million on March 30, 2019January 1, 2022 and September 29, 2018,October 2, 2021, respectively.
16.Restructuring Charges
The Company has begun implementing a restructuring and integration plan as a part of its initiative to realize previously announced cost synergies from the acquisition of 21CF. Although our plans are not yet finalized, we currently anticipate that the total severance and related costs could be on the order of $1.5 billion. To date, we have recorded severance and related costs totaling $403 million in connection with the plan. In addition, we recorded charges totaling $259 million for equity based compensation, primarily for 21CF awards that were accelerated to vest upon the closing of the 21CF acquisition. These charges are recorded in “Restructuring and impairment charges” in the Condensed Consolidated Statements of Income. The Company may incur other costs in connection with the plan such as lease termination costs, but is unable to estimate those amounts at this time. For the prior-year quarter and six-month period, restructuring and impairment charges were not material.
The following table summarizes the changes in restructuring reserves:
 
Beginning
Balance
 Additions Payments Other 
Ending
Balance
Quarter ended March 30, 2019:         
Restructuring reserves$39
 $403
 $(19) $—
 $423
23


17.Condensed Consolidating Financial Information
Legacy Disney has outstanding public debt that has been fully and unconditionally guaranteed by TWDC. In addition, Legacy Disney has provided a full and unconditional guarantee of debt held by TWDC. Legacy Disney is a 100% owned subsidiary of TWDC.
Set forth below are condensed consolidating financial statements presenting the results of operations, financial position and cash flows of TWDC, Legacy Disney and non-guarantor subsidiaries on a combined basis along with eliminations necessary to arrive at the reported information on a consolidated basis. This condensed consolidating financial information has been prepared and presented pursuant to the Securities and Exchange Commission Regulation S-X Rule 3-10, “Financial Statements of Guarantors and Issuers of Guaranteed Securities Registered or being Registered.” This information is not intended to present the financial position, results of operations and cash flows of the individual companies or groups of companies in accordance with U.S. GAAP. Eliminations represent adjustments to eliminate investments in subsidiaries and intercompany balances and transactions.
Prior to March 20, 2019, Legacy Disney was the parent entity of TWDC. TWDC was formed in June 2018 and did not have any activity prior to fiscal 2019.
THE WALT DISNEY COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited; tabular dollars in millions, except for per share data)


SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF INCOME
For the Quarter Ended March 30, 2019
(unaudited; in millions)
 TWDC Legacy Disney Non-Guarantor Subsidiaries Reclassifications & Eliminations Total
Revenues$—
 $—
 $14,896
 $26
 $14,922
Costs and expenses         
Operating expenses—
 —
 (8,376) —
 (8,376)
Selling, general, administrative and other—
 (218) (2,109) —
 (2,327)
Depreciation and amortization—
 (1) (827) —
 (828)
Total costs and expenses—
 (219) (11,312) —
 (11,531)
Restructuring and impairment charges—
 —
 (662) —
 (662)
Allocations to non-guarantor subsidiaries—
 203
 (203) —
 —
Other income, net—
 19
 4,970
 (26) 4,963
Interest expense, net(109) (112) 78
 —
 (143)
Equity in the income (loss) of investees, net—
 —
 (312) —
 (312)
Income from continuing operations before income taxes(109) (109) 7,455
 —
 7,237
Income taxes from continuing operations25
 25
 (1,697) —
 (1,647)
Earnings from subsidiary entities317
 5,982
 —
 (6,299) —
Net income from continuing operations233
 5,898
 5,758
 (6,299) 5,590
Income (loss) from discontinued operations21
 —
 21
 (21) 21
Consolidated net income254
 5,898
 5,779
 (6,320) 5,611
Less: Net income attributable to noncontrolling interests—
 —
 (159) —
 (159)
Net income excluding noncontrolling interests$254
 $5,898
 $5,620
 $(6,320) $5,452
Comprehensive income excluding noncontrolling interests$254
 $5,895
 $5,634
 $(6,335) $5,448
SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF INCOME
For the Quarter Ended March 31, 2018
(unaudited; in millions)
 TWDC Legacy Disney Non-Guarantor Subsidiaries Reclassifications & Eliminations Total
Revenues$—
 $—
 $14,586
 $(38) $14,548
Costs and expenses         
Operating expenses—
 —
 (7,541) —
 (7,541)
Selling, general, administrative and other—
 (158) (2,081) —
 (2,239)
Depreciation and amortization—
 —
 (731) —
 (731)
Total costs and expenses—
 (158) (10,353) —
 (10,511)
Restructuring and impairment charges—
 1
 (14) —
 (13)
Allocations to non-guarantor subsidiaries—
 147
 (147) —
 —
Other income, net—
 (108) 111
 38
 41
Interest expense, net—
 (173) 30
 —
 (143)
Equity in the income (loss) of investees, net—
 —
 6
 —
 6
Income before taxes—
 (291) 4,219
 —
 3,928
Income taxes—
 70
 (883) —
 (813)
Earnings from subsidiary entities—
 3,158
 —
 (3,158) —
Consolidated net income—
 2,937
 3,336
 (3,158) 3,115
Less: Net income attributable to noncontrolling interests—
 —
 (178) —
 (178)
Net income excluding noncontrolling interests$—
 $2,937
 $3,158
 $(3,158) $2,937
Comprehensive income excluding noncontrolling interests$—
 $2,996
 $3,250
 $(3,250) $2,996
THE WALT DISNEY COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited; tabular dollars in millions, except for per share data)


SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF INCOME
For the Six Months Ended March 30, 2019
(unaudited; in millions)
 TWDC Legacy Disney Non-Guarantor Subsidiaries Reclassifications & Eliminations Total
Revenues$—
 $—
 $30,144
 $81
 $30,225
Costs and expenses         
Operating expenses—
 —
 (17,377) —
 (17,377)
Selling, general, administrative and other—
 (359) (4,120) —
 (4,479)
Depreciation and amortization—
 (1) (1,559) —
 (1,560)
Total costs and expenses—
 (360) (23,056) —
 (23,416)
Restructuring and impairment charges—
 —
 (662) —
 (662)
Allocations to non-guarantor subsidiaries—
 330
 (330) —
 —
Other income, net—
 95
 4,949
 (81) 4,963
Interest expense, net(175) (236) 205
 —
 (206)
Equity in the income (loss) of investees, net—
 —
 (236) —
 (236)
Income from continuing operations before income taxes(175) (171) 11,014
 —
 10,668
Income taxes from continuing operations38
 37
 (2,367) —
 (2,292)
Earnings from subsidiary entities317
 8,886
 —
 (9,203) —
Net income from continuing operations180
 8,752
 8,647
 (9,203) 8,376
Income (loss) from discontinued operations21
 —
 21
 (21) 21
Consolidated net income201
 8,752
 8,668
 (9,224) 8,397
Less: Net income attributable to noncontrolling interests—
 —
 (157) —
 (157)
Net income excluding noncontrolling interests$201
 $8,752
 $8,511
 $(9,224) $8,240
Comprehensive income excluding noncontrolling interests$200
 $8,770
 $8,486
 $(9,199) $8,257
SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF INCOME
For the Six Months Ended March 31, 2018
(unaudited; in millions)
 TWDC Legacy Disney Non-Guarantor Subsidiaries Reclassifications & Eliminations Total
Revenues$—
 $—
 $29,953
 $(54) $29,899
Costs and expenses         
Operating expenses—
 —
 (16,270) —
 (16,270)
Selling, general, administrative and other—
 (285) (4,041) —
 (4,326)
Depreciation and amortization—
 —
 (1,473) —
 (1,473)
Total costs and expenses—
 (285) (21,784) —
 (22,069)
Restructuring and impairment charges—
 —
 (28) —
 (28)
Allocations to non-guarantor subsidiaries—
 266
 (266) —
 —
Other income, net—
 (127) 167
 54
 94
Interest expense, net—
 (314) 42
 —
 (272)
Equity in the income (loss) of investees, net—
 —
 49
 —
 49
Income before taxes—
 (460) 8,133
 —
 7,673
Income taxes—
 35
 (120) —
 (85)
Earnings from subsidiary entities—
 7,785
 —
 (7,785) —
Consolidated net income—
 7,360
 8,013
 (7,785) 7,588
Less: Net income attributable to noncontrolling interests—
 —
 (228) —
 (228)
Net income excluding noncontrolling interests$—
 $7,360
 $7,785
 $(7,785) $7,360
Comprehensive income excluding noncontrolling interests$—
 $7,543
 $7,929
 $(7,929) $7,543

THE WALT DISNEY COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited; tabular dollars in millions, except for per share data)


CONDENSED CONSOLIDATING BALANCE SHEETS
As of March 30, 2019
(unaudited; in millions)
 TWDC Legacy Disney Non-Guarantor Subsidiaries Reclassifications & Eliminations Total
ASSETS         
Current assets         
Cash and cash equivalents$4,133
 $3
 $5,972
 $—
 $10,108
Receivables, net231
 —
 14,362
 —
 14,593
Inventories—
 4
 1,441
 —
 1,445
Television costs and advances—
 —
 5,408
 —
 5,408
Other current assets—
 96
 1,161
 —
 1,257
Assets held for sale—
 —
 1,466
 —
 1,466
Total current assets4,364
 103
 29,810
 —
 34,277
Film and television costs—
 —
 24,353
 —
 24,353
Investments in subsidiaries125,651
 158,701
 —
 (284,352) —
Other investments—
 —
 4,080
 —
 4,080
Parks, resorts and other property, net—
 11
 31,006
 —
 31,017
Intangible assets, net—
 —
 26,985
 —
 26,985
Goodwill—
 —
 75,057
 —
 75,057
Noncurrent assets held for sale—
 —
 13,182
 —
 13,182
Intercompany receivables4,226
 —
 139,527
 (143,753) —
Other assets110
 736
 5,176
 (631) 5,391
Total assets$134,351
 $159,551
 $349,176
 $(428,736) $214,342
LIABILITIES AND EQUITY         
Current liabilities         
Accounts payable and other accrued liabilities$169
 $292
 $20,042
 $—
 $20,503
Current portion of borrowings16,396
 2,506
 256
 —
 19,158
Deferred revenues and other—
 26
 4,255
 —
 4,281
Liabilities held for sale—
 —
 434
 —
 434
Total current liabilities16,565
 2,824
 24,987
 —
 44,376
Non-current liabilities         
Borrowings$20,353
 $14,880
 $2,570
 $—
 $37,803
Deferred income taxes—
 —
 11,839
 (631) 11,208
Noncurrent liabilities held for sale—
 —
 2,659
 —
 2,659
Other long-term liabilities751
 2,863
 9,240
 —
 12,854
Intercompany payables6,744
 132,342
 4,667
 (143,753) —
Total non-current liabilities27,848
 150,085
 30,975
 (144,384) 64,524
Redeemable noncontrolling interests—
 —
 1,103
 —
 1,103
Total Disney Shareholders’ equity89,938
 6,642
 277,710
 (284,352) 89,938
Noncontrolling interests—
 —
 14,401
 —
 14,401
Total equity89,938
 6,642
 292,111
 (284,352) 104,339
Total liabilities and equity$134,351
 $159,551
 $349,176
 $(428,736) $214,342
THE WALT DISNEY COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited; tabular dollars in millions, except for per share data)


CONDENSED CONSOLIDATING BALANCE SHEETS
As of September 29, 2018
(unaudited; in millions)
 TWDC Legacy Disney Non-Guarantor Subsidiaries Reclassifications & Eliminations Total
ASSETS         
Current assets         
Cash and cash equivalents$—
 $1,367
 $2,783
 $—
 $4,150
Receivables, net—
 155
 9,179
 —
 9,334
Inventories—
 4
 1,388
 —
 1,392
Television costs and advances—
 —
 1,314
 —
 1,314
Other current assets—
 152
 483
 —
 635
Total current assets—
 1,678
 15,147
 —
 16,825
Film and television costs—
 —
 7,888
 —
 7,888
Investments in subsidiaries—
 149,586
 —
 (149,586) —
Other investments—
 —
 2,899
 —
 2,899
Parks, resorts and other property, net—
 12
 29,528
 —
 29,540
Intangible assets, net—
 —
 6,812
 —
 6,812
Goodwill—
 —
 31,269
 —
 31,269
Intercompany receivables—
 —
 79,499
 (79,499) —
Other assets—
 911
 3,178
 (724) 3,365
Total assets$—
 $152,187
 $176,220
 $(229,809) $98,598
LIABILITIES AND EQUITY         
Current liabilities         
Accounts payable and other accrued liabilities$—
 $688
 $8,791
 $—
 $9,479
Current portion of borrowings—
 3,751
 39
 —
 3,790
Deferred revenues and other—
 115
 4,476
 —
 4,591
Total current liabilities—
 4,554
 13,306
 —
 17,860
Non-current liabilities         
Borrowings$—
 $15,676
 $1,408
 $—
 $17,084
Deferred income taxes—
 —
 3,833
 (724) 3,109
Other long-term liabilities—
 3,685
 2,905
 —
 6,590
Intercompany payables—
 79,499
 —
 (79,499) —
Total non-current liabilities—
 98,860
 8,146
 (80,223) 26,783
Redeemable noncontrolling interests—
 —
 1,123
 —
 1,123
Total Disney Shareholders’ equity—
 48,773
 149,586
 (149,586) 48,773
Noncontrolling interests—
 —
 4,059
 —
 4,059
Total equity—
 48,773
 153,645
 (149,586) 52,832
Total liabilities and equity$—
 $152,187
 $176,220
 $(229,809) $98,598

16.Restructuring and Impairment Charges
THE WALT DISNEY COMPANYThe Company recognized approximately $0.1 billion of restructuring charges during the quarter ended January 2, 2021, primarily for severance. These charges are recorded in “Restructuring and impairment charges” in the Condensed Consolidated Statements of Income.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited; tabular dollars in millions, except for per share data)


CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
For the Six Months Ended March 30, 2019
(unaudited; in millions)
 TWDC Legacy Disney Non-Guarantor Subsidiaries Reclassifications & Eliminations Total
OPERATING ACTIVITIES         
Cash provided by operations$534
 $(763) $6,403
 $(160) $6,014
          
INVESTING ACTIVITIES         
Investments in parks, resorts and other property—
 —
 (2,390) —
 (2,390)
Acquisitions(35,702) —
 25,801
 —
 (9,901)
Intercompany investing activities, net22,900
 —
 —
 (22,900) —
Other—
 —
 (392) —
 (392)
Cash used in investing activities(12,802) —
 23,019
 (22,900) (12,683)
         
FINANCING ACTIVITIES        
Commercial paper, net1,387
 (1,009) (2) —
 376
Borrowings31,100
 —
 45
 —
 31,145
Reduction of borrowings(16,100) (1,250) (48) —
 (17,398)
Dividends—
 (1,310) —
 —
 (1,310)
Repurchases of common stock—
 —
 —
 —
 —
Proceeds from exercise of stock options—
 83
 —
 —
 83
Intercompany financing and other, net14
 3,134
 (26,208) 23,060
 —
Other—
 (241) 41
 —
 (200)
Cash used in financing activities16,401
 (593) (26,172) 23,060
 12,696
          
Discontinued operations—
 —
 (35) —
 (35)
          
Impact of exchange rates on cash, cash equivalents and restricted cash—
 —
 75
 —
 75
          
Change in cash, cash equivalents and restricted cash4,133
 (1,356) 3,290
 —
 6,067
Cash, cash equivalents and restricted cash, beginning of year—
 1,367
 2,788
 —
 4,155
Cash, cash equivalents and restricted cash, end of period$4,133
 $11
 $6,078
 $—
 $10,222
THE WALT DISNEY COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited; tabular dollars in millions, except for per share data)


CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
For the Six Months Ended March 31, 201817.New Accounting Pronouncements
(unaudited; in millions)
 TWDC Legacy Disney Non-Guarantor Subsidiaries Reclassifications & Eliminations Total
OPERATING ACTIVITIES         
Cash provided by operations$—
 $507
 $6,282
 $(26) $6,763
          
INVESTING ACTIVITIES         
Investments in parks, resorts and other property—
 (17) (2,027) —
 (2,044)
Acquisitions—
 —
 (1,581) —
 (1,581)
Intercompany investing activities, net—
 (1,581) —
 1,581
 —
Other—
 —
 (180) —
 (180)
Cash used in investing activities—
 (1,598) (3,788) 1,581
 (3,805)
         
FINANCING ACTIVITIES        
Commercial paper, net—
 1,372
 —
 —
 1,372
Borrowings—
 997
 51
 —
 1,048
Reduction of borrowings—
 (1,300) (50) —
 (1,350)
Dividends—
 (1,266) (26) 26
 (1,266)
Repurchases of common stock—
 (2,608) —
 —
 (2,608)
Intercompany financing and other, net—
 4,297
 (2,716) (1,581) —
Proceeds from exercise of stock options—
 91
 —
 —
 91
Other—
 (159) (10) —
 (169)
Cash used in financing activities—
 1,424
 (2,751) (1,555) (2,882)
          
Impact of exchange rates on cash, cash equivalents and restricted cash—
 —
 55
 —
 55
          
Change in cash, cash equivalents and restricted cash—
 333
 (202) —
 131
Cash, cash equivalents and restricted cash, beginning of year—
 693
 3,371
 —
 4,064
Cash, cash equivalents and restricted cash, end of period$—
 $1,026
 $3,169
 $—
 $4,195

18.New Accounting Pronouncements
Accounting Pronouncements Adopted in Fiscal 20192022
Revenues from Contracts with Customers - See Note 3
Intra-Entity Transfers of Assets Other Than Inventory - See Note 8
ImprovingSimplifying the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost - See Note 9
Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income - See Note 11
Recognition and Measurement of Financial Assets and Liabilities - See Note 11
Targeted Improvements to Accounting for Hedging Activities -Income Taxes
In December 2019, the Financial Accounting Standards Board (FASB) issued guidance which simplifies the accounting for income taxes. The adoptionguidance 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 Company adopted the new guidance in the first quarter of fiscal 2022. The adoption did not have a material impact on our consolidated financial statementsstatements.
LeasesFacilitation of the Effects of Reference Rate Reform
In February 2016,March 2020, the FASB issued new lease accounting guidance which requiresprovides optional expedients and exceptions for applying current GAAP to contracts, hedging relationships, and other transactions affected by the present valuetransition from the use of committed operating lease paymentsLIBOR to be recorded as right-of-use lease assets and lease liabilities on the balance sheet.an alternative reference rate. The guidance is effective at the beginning of the Company’s 2020 fiscal year. We expectapplicable to adopt the guidance without restating prior periods.
The new guidance provides a number of practical expedients for transition upon adoption.contracts entered into before January 1, 2023. The Company expects to elect the practical expedients that permit the Company not to reassess its prior conclusions concerning whether:
Arrangements contain a lease
•
The Company’s lease arrangements are operating or capital leases (financing)
Initial direct costs should be capitalized
THE WALT DISNEY COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited; tabular dollars in millions, except for per share data)


Existing land easements are leases
The Company is currently assessing the impact ofadopted the new guidance on its financial statements. We believein the most significant effectsfirst quarter of fiscal 2022. The adoption will be:
Recognizing new right-of-use assets and lease liabilities on our balance sheet for our operating leases
Reclassifying a deferred gain of approximately $350 million related to a prior sale-leaseback transaction to retained earnings
As of September 29, 2018, the Company had an estimated $3.6 billion in undiscounted future minimum lease commitments. The Company also assumed an estimated $1 billion in undiscounted future minimum lease commitments in connection with the acquisition of 21CF and consolidation of Hulu.
Improvements to Accounting for Costs of Films and License Agreements for Program Materials
In March 2019, the FASB updated guidance for the accounting for film and television content costs. The new guidance impacts the capitalization, amortization and impairment of these costs as follows:
Eliminates the limitation on capitalization of production costs for episodic content, aligning the capitalization model with film content;
Requires production costs amortized using estimated usage to be reviewed and updated each reporting period, with any changes in estimated usage applied prospectively; and
Requires produced and acquired programming costs to be tested for impairment based on the lowest level of identifiable cash flows using the predominant monetization strategy for the produced content (i.e., monetized individually or in a group)
While we currently dodid not expect the new guidance will have a material impact on our financial statements, it is relevantstatements.
Accounting Pronouncements Not Yet Adopted
Disclosures by Business Entities about Government Assistance
In November 2021, the FASB issued guidance requiring annual disclosures about transactions with a government that are accounted for by analogizing to a grant or contribution accounting model. The new guidance requires the disclosure of the nature of the transactions, the accounting for content to be usedthe transactions, and the effect of the transactions on our streaming services.the financial statements. The guidance is effective atfor annual periods beginning with the beginning of the Company’s 2021Company’s 2023 fiscal year (with early adoption permitted) and requires prospective adoption.. The Company plans to adoptis currently assessing the newimpacts this guidance by the beginning of fiscal 2020.will have on its financial statements.



24


MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Item 2: Management’s Discussion and Analysis of Financial Condition and Results of Operations
This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Forward-looking statements generally relate to future events or our future financial or operating performance and may include statements concerning, among other things, financial results, the impact of COVID-19 on our businesses and operations, results of operations and competition. In some cases, you can identify forward-looking statements because they contain words such as “may,” “will,” “should,” “expects,” “plans,” “could,” “intends,” “target,” “projects,” “believes,” “estimates,” “potential” or “continue” or the negative of these words or other similar terms or expressions that concern our expectations, strategy, plans or intentions. These statements reflect our current views with respect to future events and are based on assumptions as of the date of this report. These statements are subject to known and unknown risks, uncertainties and other factors, includingthose described in “Risk Factors” in our 2021 Annual Report on Form 10-K, that may cause our actual results, performance or achievements to be materially different from expectations or results projected or implied by forward-looking statements.
A forward-looking statement is neither a prediction nor a guarantee of future events or circumstances. You should not place undue reliance on the forward-looking statements. Unless required by federal securities laws, we assume no obligation to update any of these forward-looking statements, or to update the reasons actual results could differ materially from those anticipated, to reflect circumstances or events that occur after the statements are made.
ORGANIZATION OF INFORMATION
Management’s Discussion and Analysis provides a narrative of the Company’s financial performance and condition that should be read in conjunction with the accompanying financial statements. It includes the following sections:
•Consolidated Results and Non-segment Items
Seasonality•Significant Developments
•Current Quarter Results Compared to Prior-Year Quarter
•Seasonality
•Business Segment Results
Restructuring in Connection with the Acquisition of 21CF•Corporate and Unallocated Shared Expenses
•Financial Condition
•Supplemental Guarantor Financial Information
•Commitments and Contingencies
•Other Matters
•Market Risk
CONSOLIDATED RESULTS AND NON-SEGMENT ITEMS
Our summary consolidated results are presented below:
25
 Quarter Ended % Change Six Months Ended % Change
(in millions, except per share data)March 30,
2019		 March 31,
2018		 
Better/
(Worse)
 March 30,
2019		 March 31,
2018		 Better/
(Worse)
Revenues:          

Services$13,006
 $12,520
 4 % $25,872
 $25,504
 1 %
Products1,916
 2,028
 (6) % 4,353
 4,395
 (1) %
Total revenues14,922
 14,548
 3 % 30,225
 29,899
 1 %
Costs and expenses:    

     

Cost of services (exclusive of depreciation and amortization)(7,167) (6,313) (14) % (14,731) (13,637) (8) %
Cost of products (exclusive of depreciation and amortization)(1,209) (1,228) 2 % (2,646) (2,633) — %
Selling, general, administrative and other(2,327) (2,239) (4) % (4,479) (4,326) (4) %
Depreciation and amortization(828) (731) (13) % (1,560) (1,473) (6) %
Total costs and expenses(11,531) (10,511) (10) % (23,416) (22,069) (6) %
Restructuring and impairment charges(662) (13) >(100) % (662) (28) >(100) %
Other income4,963
 41
 >100 % 4,963
 94
 >100 %
Interest expense, net(143) (143) — % (206) (272) 24 %
Equity in the income / (loss) of investees, net(312) 6
 nm
 (236) 49
 nm
Income from continuing operations before income taxes7,237
 3,928
 84 % 10,668
 7,673
 39 %
Income taxes from continuing operations(1,647) (813) >(100) % (2,292) (85) >(100) %
Net income from continuing operations5,590
 3,115
 79 % 8,376
 7,588
 10 %
Income (loss) from discontinued operations (net of income taxes of $5, $0, $5 and $0, respectively)21
 —
 nm
 21
 —
 nm
Consolidated net income5,611
 3,115
 80 % 8,397
 7,588
 11 %
Less: Net income attributable to noncontrolling interests(159) (178) 11 % (157) (228) 31 %
Net income attributable to Disney$5,452
 $2,937
 86 % $8,240
 $7,360
 12 %
Diluted earnings per share from continuing operations attributable to Disney$3.53
1.9450331126
$1.95
 81 % $5.42
4.8580858086
$4.86
 12 %
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS — (continued)


CONSOLIDATED RESULTS
The Company’s financial results for fiscal 2019 are presented
Quarter Ended% Change
Better
(Worse)
(in millions, except per share data)January 1,
2022		January 2,
2021
Revenues:
Services$19,542 $14,871 31  %
Products2,277 1,378 65  %
Total revenues21,819 16,249 34  %
Costs and expenses:
Cost of services (exclusive of depreciation and amortization)(13,161)(10,738)(23) %
Cost of products (exclusive of depreciation and amortization)(1,406)(1,037)(36) %
Selling, general, administrative and other(3,787)(2,917)(30) %
Depreciation and amortization(1,269)(1,298)2  %
Total costs and expenses(19,623)(15,990)(23) %
Restructuring and impairment charges— (113)100  %
Other expense, net(436)— nm
Interest expense, net(311)(324)4  %
Equity in the income of investees239 224 7  %
Income from continuing operations before income taxes1,688 46 >100  %
Income taxes on continuing operations(488)(16)>(100) %
Net income from continuing operations1,200    30    >100  %
Loss from discontinued operations, net of income tax benefit of $14 and $4, respectively(48)(12)>(100) %
Net income1,152 18 >100  %
Net income from continuing operations attributable to noncontrolling interests(48)(1)>(100) %
Net income attributable to Disney$1,104 $17 >100  %
Diluted earnings per share from continuing operations attributable to Disney$0.63 $0.02 >100  %

SIGNIFICANT DEVELOPMENTS
COVID-19 Pandemic
Since early 2020, the world has been, and continues to be, impacted by COVID-19 and its variants. COVID-19 and measures to prevent its spread have impacted our segments in accordance with new accounting guidance for revenue recognition (ASC 606) that we adopteda number of ways, most significantly at the beginning of fiscal 2019. Prior period results have not been restated to reflect this change in accounting guidance. Current quarterDPEP segment operating income includes a $27 million unfavorable impact from the ASC 606 adoption while the current six-month segment operating income includes an $88 million benefit. For the current quarter the most significant ASC 606 impacts were a $63 million decrease at Parks, Experiences and Products and a $30 million decrease at Media Networks, both of which reflected a change in timing of revenue recognition on contracts with minimum guarantees. These impacts were partially offset by a $71 million increase at Studio Entertainment, which reflected a change in the timing of revenue recognition at our TV/SVOD distribution business. For the six months, the most significant benefit from ASC 606 was a $90 million increase at Studio Entertainment for the timing of revenue recognition at our TV/SVOD distribution business. We do not anticipate the impact of adoption of ASC 606 on our full-year fiscal 2019 results will be material. Further information about our adoption of ASC 606 is provided in Note 3 to the Condensed Consolidated Financial Statements.
Results for 21CF in the current quarter and six months are not included in our segments results and are reported separately. We currently plan to include 21CF’s results in our historical segments when we report third-quarter results. Hulu’s results for the period of consolidation and for the period the Company recorded equity method earnings are reported as part of Direct to Consumer & International.
Quarter Results
Revenues for the quarter increased 3%, or $0.4 billion, to $14.9 billion; net income attributable to Disney increased by $2.5 billion, to $5.5 billion; and diluted earnings per share from continuing operations attributable to Disney (EPS) increased 81% from $1.95 to $3.53. The EPS increase for the quarter was due to a non-cash gain recognized in connection with the acquisition of a controlling interest in Hulu (Hulu gain), partially offset by lower segment operating income, severance and related charges and equity based compensation costs in connection with the acquisition and integration of 21CF and the absence of a benefit in the prior-year quarter related to new federal income tax legislation, the “Tax Cuts and Jobs Act” (Tax Act) (See Note 8 to the Condensed Consolidated Financial Statements). Lower segment operating income was due to a decrease at Studio Entertainment, increased losses at Direct-to-Consumer & International and a decrease at Media Networks, partially offset by growth at Parks, Experiences and Products.
Revenues
Service revenues for the quarter increased 4%, or $0.5 billion, to $13.0 billion due to the consolidation of 21CF and Hulu, higher affiliate fees and growth in guest spending atwhere our theme parks and resorts partially offset by lowerwere closed and cruise ship sailings and guided tours were suspended. These operations resumed at various points since May 2020, initially at reduced operating capacities as a result of COVID-19 restrictions. In fiscal 2020 and 2021, we delayed, or in some cases, shortened or canceled, theatrical distribution revenuereleases. In addition, we experienced significant disruptions in the production and a decrease in program salesavailability of content, including the delay of key live sports programming during fiscal 2020 and fiscal 2021.
The most significant impact on operating income since the onset of COVID-19 has been at our Media Networks segment. Service revenues reflected an approximate 1 percentage point decreasethe DPEP segment due to an unfavorable movementrevenue lost. In fiscal 2022, our domestic parks and experiences are generally operating without significant mandatory COVID-19-related capacity restrictions, such as those that were in place during the prior-year quarter; however, we continue to manage capacity to address ongoing COVID-19 considerations with respect to guest and cast health and safety. Certain of our international operations continue to be impacted by mandatory COVID-19-related capacity and travel restrictions. At the DMED segment, our film and television productions have generally resumed, although we have seen disruptions of production activities depending on local circumstances. We have generally been able to release our films theatrically in the current quarter, although certain markets continue to impose restrictions on theater openings and capacity.
We have incurred, and will continue to incur, costs to address government regulations and the safety of our employees, guests and talent, of which certain costs are capitalized and will be amortized over future periods.
The impact of the U.S. dollar against major currencies includingdisruptions on our businesses and costs to address government regulations and the impactsafety of our hedging program (FX Impact).employees, guests and talent (and the extent of their adverse impact on our financial and operational results) will depend on the length of time that such disruptions continue. This will, in turn, depend on the duration and severity of the impacts of
Product revenues for the quarter decreased 6%, or $0.1 billion, to $1.9 billion due to lower home entertainment volumes, partially offset by guest spending growth at our theme parks and resorts. Product revenues reflected an approximate 1 percentage point decrease due to an unfavorable FX Impact.
26
Costs and expenses
Cost of services for the quarter increased 14%, or $0.9 billion, to $7.2 billion due to the consolidation of 21CF and Hulu, higher programming and production costs, an increase in technical support costs at our DTC business and labor cost inflation at our theme parks and resorts.
Cost of products for the quarter decreased 2%, or $19 million, to $1.2 billion due to lower home entertainment volumes partially offset by higher guest spending costs at our theme parks and resorts. Cost of products reflected an approximate 2 percentage point decrease due to a favorable FX Impact.
Selling, general, administrative and other costs increased 4%, or $88 million, to $2.3 billion driven by the consolidation of 21CF and Hulu and costs associated with the acquisition of 21CF. Selling, general, administrative and other costs reflected an approximate 3 percentage point decrease due to a favorable FX Impact.
Depreciation and amortization increased 13%, or $97 million, to $828 million, due to the consolidation of 21CF and Hulu and depreciation of technology investments at our Direct-to-Consumer & International segment.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS — (continued)


COVID-19 and its variants, and among other things, the impact and duration of governmental actions imposed in response to COVID-19 and individuals’ and companies’ risk tolerance regarding health matters going forward.
CURRENT QUARTER RESULTS COMPARED TO PRIOR-YEAR QUARTER
Revenues for the quarter increased 34%, or $5.6 billion, to $21.8 billion; net income attributable to Disney increased to $1.1 billion from $17 million; and diluted earnings per share from continuing operations attributable to Disney (EPS) was $0.63 compared to $0.02 in the prior-year quarter. The EPS increase for the quarter was due to higher segment operating results at DPEP, partially offset by lower operating results at DMED.
Revenues
Service revenues for the quarter increased 31%, or $4.7 billion, to $19.5 billion due to increased volumes at our theme parks and resorts, higher DTC subscription revenue and higher theatrical revenues. The increase in theme parks and resorts volumes reflects the impact of operating with mandatory capacity restrictions in the prior-year quarter as a result of COVID-19. The increase in subscription revenue was due to subscriber growth and higher retail pricing at Disney+, Hulu, and to a lesser extent, ESPN+.
Product revenues for the quarter increased 65%, or $0.9 billion to $2.3 billion due to higher merchandise, food and beverage sales at our theme parks and resorts.
Costs and expenses
Cost of services for the quarter increased 23%, or $2.4 billion, to $13.2 billion due to higher programming and production costs and technical support expenses at Direct-to-Consumer, increased volumes at our theme parks and resorts, higher sports programming costs at Linear Networks and higher theatrical production cost amortization and theatrical distribution costs at Content Sales/Licensing and Other.
Cost of products for the quarter increased 36%, or $0.4 billion, to $1.4 billion due to higher merchandise, food and beverage sales at our theme parks and resorts.
Selling, general, administrative and other costs increased 30%, or $0.9 billion, to $3.8 billion due to higher marketing costs.
Restructuring and impairment charges
Restructuring and impairment charges of $662$113 million for the current quarter were for severance and related charges and equity based compensation costs in connection with the acquisition and integration of 21CF.
Restructuring and impairment charges of $13 million in the prior-year quarter were primarily severance costs.
Other incomedue to severance.
Other income of $5.0 billion inexpense, net
In the current year wasquarter, the Company recognized $436 million in Other expense, net due to the Hulu gain.a non-cash loss of $432 million to adjust its investment in DraftKings to fair value.
Other income of $41 million inIn the prior-year quarter, was duethe Company recognized $186 million non-cash loss to insurance recoveries relatedadjust its investment in DraftKings to fair value, offset by a legal matter.$186 million non-cash gain to adjust its investment in fuboTV to fair value.
Interest expense, net
Interest expense, net is as follows:
Quarter Ended 
Quarter Ended
(in millions)March 30,
2019		 March 31,
2018		 
% Change
Better/(Worse)
(in millions)January 1,
2022		January 2,
2021		% Change
Better (Worse)
Interest expense$(198) $(172) (15) %Interest expense$(361)$(404)11  %
Interest income, investment income and other55
 29
 90 %
Interest income, investment income (loss) and otherInterest income, investment income (loss) and other50    80    (38) %
Interest expense, net$(143) $(143) — %Interest expense, net$(311)$(324)4  %
The increasedecrease in interest expense was due to higherlower average interest rates and financing costs related to the 21CF acquisition, partially offset by market value adjustments on pay-floating interest rate swap optionsdebt balances and higher capitalized interest.
The increasedecrease in interest income, investment income (loss) and other was due to the inclusionlower investment gains, partially offset by a favorable comparison of a $22 million benefit related to pension and postretirement benefit costs, other than service cost. cost, which was a benefit in the current quarter and an expense in the prior-year quarter.
27
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS — (continued)
Effective Income Tax Rate
Quarter Ended
January 1,
2022		January 2,
2021
Income from continuing operations before income taxes$1,688 $46
Income tax on continuing operations488 16
Effective income tax rate - continuing operations28.9%34.8%
The Company adopted new accounting guidanceeffective income tax rate in fiscal 2019 and now presents the elements of pension and postretirement plan costs, othercurrent quarter was higher than service cost, in “Interest expense, net.”the U.S. statutory rate due to unfavorable adjustments related to prior years. The comparable benefit of $6 millioneffective income tax rate in the prior-year quarter was reported in “Costs and expenses.” The benefit inhigher than the current quarter was due to the expected return on pension plan assets exceeding interest expense on plan liabilities and amortization of prior net actuarial losses.
Equity in the income / (loss) of investees
Equity in the income / (loss) of investees decreased $318 million to a loss of $312 million for the quarterU.S. statutory rate primarily due to an impairment of our investment in Vice,unfavorable impact from foreign earnings taxed at rates higher than the U.S. statutory rate, partially offset by the impact of consolidating Hulu. In the current quarter, 11 days of Hulu’s results are reported in revenues and expenses. Priorfavorable adjustments related to the consolidation of Hulu, the Company recognized its ownership share of Hulu’s results in equity in the income of investees.prior years.
Effective Income Tax RateNoncontrolling Interests
Quarter Ended
(in millions)January 1,
2022		January 2,
2021		% Change
Better (Worse) 
Net income from continuing operations attributable to noncontrolling interests$(48)$(1)>(100) %
 Quarter Ended  
 March 30,
2019		 March 31,
2018		 
Change
Better/(Worse)
Effective income tax rate22.8% 20.7% (2.1)ppt
The increase in the effectivenet income tax rate was due to the comparison to a $0.1 billion benefit related to the Tax Act recognized in the prior-year quarter and an unfavorable impact in the current year from a change in our full year estimated effective tax rate. The estimated full year effective rate is used to determine the quarterly income tax provision and is adjusted each quarter based on information available at the end of that quarter. These increases were partially offset by a reduction in the Company’s U.S. statutory federal income tax rate to 21.0% in fiscal 2019 from 24.5% in fiscal 2018.Noncontrolling Interests
 Quarter Ended  
(in millions)March 30,
2019		 March 31,
2018		 
% Change
Better/(Worse) 
Net income attributable to noncontrolling interests$(159) $(178) 11%
The decrease in net incomecontinuing operations attributable to noncontrolling interests was due todriven by lower losses at Hong Kong Disneyland Resort and Shanghai Disney Resort, partially offset by a higher loss fromat our direct-to-consumerDTC sports business and the consolidation of a loss at Hulu, partially offset by growth at ESPN and Hong Kong Disneyland Resort.business.
Net income attributable to noncontrolling interests is determined on income after royalties and management fees, financing costs and income taxes, as applicable.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS — (continued)


Certain Items Impacting ComparabilityResults in the Quarter
Results for the quarter ended March 30, 2019January 1, 2022 were impacted by the following:
•TheTFCF and Hulu gainacquisition amortization of $4.9 billion
•A benefit of $46 million from insurance recoveries related to a legal matter
•Restructuring charges of $662$595 million
•An impairmentOther expense of our investment in Vice$436 million due to the DraftKings loss of $353$432 million
Amortization of $105 million related to 21CF and Hulu intangible assets and fair value step-up on film and television costs
Results for the quarter ended March 31, 2018January 2, 2021 were impacted by the following:
•A benefitTFCF and Hulu acquisition amortization of $134$617 million from the Tax Act
•A benefit of $38 million from insurance recoveries related to a legal matter
•Restructuring charges of $13$113 million
A summary of the impact of these items on EPS is as follows:
(in millions, except per share data)Pre-Tax Income (Loss)
Tax Benefit (Expense)(1)
After-Tax Income (Loss)
EPS Favorable (Adverse)(2)
Quarter Ended January 1, 2022:
TFCF and Hulu acquisition amortization$(595)$139  $(456)$(0.24)   
Other expense, net(436)102    (334)   (0.18)
Total$(1,031)$241  $(790)$(0.43)
Quarter Ended January 2, 2021:
TFCF and Hulu acquisition amortization$(617)$144  $(473)$(0.25)   
Restructuring and impairment charges(113)28    (85)   (0.05)
Total$(730)$172  $(558)$(0.30)
(1)Tax benefit (expense) amounts are determined using the tax rate applicable to the individual item.
(in millions, except per share data)Pre-Tax Income/(Loss) 
Tax Benefit/(Expense)(1)
 After-Tax Income/(Loss) 
EPS Favorable/(Adverse) (2)
Quarter Ended March 30, 2019:       
Hulu gain$4,917
 $(1,131) $3,786
 $2.46
Insurance recoveries related to a legal matters46
 (11) 35
 0.02
Restructuring and impairment charges(662) 152
 (510) (0.33)
Impairment of Vice(353) 81
 (272) (0.18)
Amortization of 21CF and Hulu intangible assets and fair value step-up on film and television costs(105) 24
 (81) (0.05)
Total$3,843
 $(885) $2,958
 $1.92
        
Quarter Ended March 31, 2018:       
Net benefit from the Tax Act$—
 $(134) $(134) $0.09
Insurance recoveries related to a legal matter38
 (10) 28
 0.02
Restructuring and impairment charges(13) 3
 (10) (0.01)
Total$25
 $(141) $(116) $0.10
(2)(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.

Six-Month Results
Revenues for the six-month period increased 1%, or $326 million, to $30.2 billion; net income attributable to Disney increased 12%, or $0.9 billion, to $8.2 billion; and EPS increased 12% from $4.86 to $5.42. The EPS increase for the six-month period was due the Hulu gain, partially offset by the comparison to a benefit from the Tax Act in the prior year, lower segment operating income and severance and related charges and equity compensation costs in connection with the acquisition and integration of 21CF. The decrease in segment operating income was due to lower results at Studio Entertainment and increased losses at Direct-to-Consumer & International, partially offset by growth at Parks, Experiences and Products.rounding.
Revenues
28
Service revenues for the six-month period increased 1%, or $368 million, to $25.9 billion due to the consolidation of 21CF and Hulu, higher guest spending at our theme parks and resorts, affiliate fee growth and an increase in TV/SVOD distribution revenue. These increases were partially offset by lower theatrical distribution revenue.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS — (continued)


Product revenues for the six-month period decreased 1%, or $42 million, to $4.4 billion due to lower domestic home entertainment volumes, partially offset by increases in guest spending at our theme parks and resorts. Product revenues reflected an approximate 1 percentage point decrease due to an unfavorable FX Impact.
Costs and expenses
Cost of services for the six-month period increased 8%, or $1.1 billion, to $14.7 billion, due to the consolidation of 21CF and Hulu, higher programming and production costs, higher technical support costs at our DTC business and labor cost inflation at our theme parks and resorts. These increases were partially offset by a decrease in film cost amortization driven by the impact of lower theatrical distribution revenue.
Cost of products for the six-month period was comparable to the prior-year period at $2.6 billion as labor cost inflation at our theme parks and resorts was offset by lower home entertainment volumes. Cost of products reflected an approximate 2 percentage point decrease due to a favorable FX Impact.
Selling, general, administrative and other costs for the six-month period increased 4%, or $0.2 billion, to $4.5 billion, primarily due to the consolidation of 21CF and Hulu, costs associated with the acquisition of 21CF and higher marketing costs. Selling, general, administrative and other costs reflected an approximate 2 percentage point decrease due to a favorable FX Impact.
Depreciation and amortization increased 6%, or $87 million, to $1,560 million, due to the consolidation of 21CF and Hulu and depreciation of technology investments at our Direct-to-Consumer & International segment.
Restructuring and impairment charges
Restructuring and impairment charges of $662 million for the current period were for severance and related charges and equity compensation costs in connection with the acquisition and integration of 21CF.
Restructuring and impairment charges of $28 million in the prior-year period were primarily severance costs.
Other income
Other income of $5.0 billion in the current period was due to the Hulu gain.
Other income of $94 million for the prior-year period reflects a gain from the sale of property rights and insurance recoveries related to a legal matter.
Interest expense, net
Interest expense, net is as follows: 
 Six Months Ended  
(in millions)March 30,
2019		 March 31,
2018		 
% Change
Better/(Worse)
Interest expense$(361) $(318) (14) %
Interest income, investment income and other155
 46
 >100 %
Interest expense, net$(206) $(272) 24 %
The increase in interest expense for the six-month period was due to financing costs related to the 21CF acquisition and higher average interest rates, partially offset by higher capitalized interest, market value adjustments on pay-floating interest rate swap options and lower average debt balances.
The increase in interest income, investment income and other was due to unrealized investment gains in the current six month period and the inclusion of a $47 million benefit related to pension and postretirement benefit costs, other than service cost. The comparable benefit of $13 million in the prior-year six month period was reported in “Costs and expenses.” The benefit in the current six month period was due to the expected return on pension plan assets exceeding interest expense on plan liabilities and amortization of prior net actuarial losses.
Equity in the income / (loss) of investees
Equity in the income / (loss) of investees decreased $285 million to a loss of $236 million for the current period due to an impairment of our investment in Vice, partially offset by lower equity losses from Hulu as a result of our consolidation of Hulu following the 21CF acquisition and higher income from A+E Television Network (A+E). Hulu results were due to higher subscription and advertising revenue, partially offset by higher programming costs. The increase at A+E was driven by higher program sales revenue, lower marketing costs and affiliate revenue growth.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS — (continued)


Effective Income Tax Rate
 Six Months Ended  
 March 30,
2019		 March 31,
2018		 
Change
Better/(Worse)
Effective income tax rate21.5% 1.1% (20.4)ppt
The increase in the effective income tax rate reflected the comparison to a $1.7 billion (22.1 percentage point) net benefit related to the Tax Act that was recognized in the prior-year period. The current period benefited from a reduction in the Company’s U.S. statutory federal income tax rate to 21.0% in fiscal 2019 from 24.5% in fiscal 2018.
Refer to Note 8 of the Condensed Consolidated Financial Statements for further information on the impact of the Tax Act on the Company.
Noncontrolling Interests
 Six Months Ended  
(in millions)March 30,
2019		 March 31,
2018		 
% Change
Better/(Worse) 
Net income attributable to noncontrolling interests$(157) $(228) 31%
The decrease in net income attributable to noncontrolling interests for the six-month period was due to higher losses from our direct-to-consumer sports business, lower earnings at ESPN (largely due to a Tax Act benefit recognized in the prior-year period) and the consolidation of losses from Hulu.
Certain Items Impacting Comparability
Results for the six months ended March 30, 2019 were impacted by the following:
•The Hulu gain totaling $4.9 billion
•A benefit of $46 million from insurance recoveries related to a legal matter
•A benefit of $34 million from the Tax Act
•Restructuring charges of $662 million
•An impairment of our investment in Vice of $353 million
Amortization of $105 million related to 21CF and Hulu intangible assets and fair value step-up on film and television costs
Results for the six months ended March 31, 2018 were impacted by the following:
•A benefit of $1.7 billion from the Tax Act
•Gains of $53 million from the sale of property rights
•A benefit of $38 million from insurance recoveries related to a legal matter
•Restructuring charges of $28 million
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS — (continued)


A summary of the impact of these items on EPS is as follows:
(in millions, except per share data)Pre-Tax Income/(Loss) 
Tax Benefit/(Expense)(1)
 After-Tax Income/(Loss) 
EPS Favorable/(Adverse) (2)
Six Months Ended March 30, 2019:       
Hulu gain$4,917
 $(1,131) $3,786
 $2.50
Insurance recoveries related to a legal matter46
 (11) 35
 0.02
Net benefit from the Tax Act—
 34
 34
 0.02
Restructuring and impairment charges(662) 152
 (510) (0.33)
Impairment of Vice(353) 81
 (272) (0.18)
Amortization of 21CF and Hulu intangible assets and fair value step-up on film and television costs(105) 24
 (81) (0.05)
Total$3,843
 $(851) $2,992
 $1.98
        
Six Months Ended March 31, 2018:       
Net benefit from the Tax Act$—
 $(1,691) $(1,691) $1.10
Gain from sale of property rights53
 (12) 41
 0.03
Insurance recoveries related to a legal matter38
 (10) 28
 0.02
Restructuring and impairment charges(28) 6
 (22) (0.01)
Total$63
 $(1,707) $(1,644) $1.14
(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.
SEASONALITY
The Company’s businesses are subject to the effects of seasonality. Consequently, the operating results for the six monthsquarter ended March 30, 2019January 1, 2022 for each business segment, and for the Company as a whole, are not necessarily indicative of results to be expected for the full year.
Media NetworksDMED revenues are subject to seasonal advertising patterns, changes in viewership and subscriber levels, timing and performance of film releases in the theatrical and home entertainment markets, timing of program sales.and demand for film and television programs, and the availability of and demand for sports programming. In general, domestic advertising revenues are typically somewhat higher during the fall and somewhat lower during the summer months. Affiliate feesIn addition, advertising revenues generated from sports programming are generally recognized ratably throughout the year. Effective at the beginning of fiscal 2019, the Company adopted ASC 606, which changedimpacted by the timing of affiliate revenue recognition for certain contracts,sports seasons and events, which varies throughout the year or may result in higher revenue intake place periodically (e.g. biannually, quadrennially). Affiliate revenues vary with the first quartersubscriber trends of our fiscal year.multi-channel video programming distributors (i.e. cable, satellite telecommunications and digital over-the-top service providers). Theatrical release dates are determined by several factors, including competition and the timing of vacation and holiday periods.
Parks, Experiences and ProductsDPEP revenues fluctuate with changes in theme park attendance and resort occupancy resulting from the seasonal nature of vacation travel and leisure activities, and seasonal consumer purchasing behavior, which generally results in increasedhigher revenues during the Company’s first and fourth fiscal quarter.quarters. Peak attendance and resort occupancy generally occur during the summer months when school vacations occur and during early-winterearly winter and spring-holidayspring holiday periods. Consumer products revenue fluctuates with consumer purchasing behavior, which generally results in higher revenues during the Company’s first fiscal quarter due to the winter holiday season and in the fourth quarter due to back-to-school. In addition, licensing revenues fluctuate with the timing and performance of our theatrical releasesfilm and cabletelevision content.
BUSINESS SEGMENT RESULTS
Below is a discussion of the major revenue and expense categories for our business segments. Costs and expenses for each segment consist of operating expenses, selling, general, administrative and other costs, and depreciation and amortization. Selling, general, administrative and other costs include third-party and internal marketing expenses.
Our DMED segment primarily generates revenue across three significant lines of business/distribution platforms: Linear Networks, Direct-to-Consumer and Content Sales/Licensing. Programming and production costs are generally allocated across these businesses based on the estimated relative value of the distribution windows. Programming and production costs to support these businesses/distribution platforms are largely incurred across three content creation groups: Studios, General Entertainment and Sports. Programming and production costs include amortization of acquired licensed programming broadcasts.rights (including sports rights), amortization of capitalized production costs (including participations and residuals) and production costs related to live programming such as news and sports. Costs for initial marketing campaigns are generally recognized in the distribution platform of initial exploitation.
Studio Entertainment revenues fluctuate dueThe Linear Networks business generates revenue from affiliate fees and advertising sales and from fees from sub-licensing of sports programming to third parties. Operating expenses include programming and production costs, technical support costs, operating labor and distribution costs.
The Direct-to-Consumer business generates revenue from subscription fees, advertising sales and pay-per-view and Premier Access fees. Operating expenses include programming and production costs, technology support costs, operating labor and distribution costs. Operating expenses also includes fees paid to Linear Networks for the timingright to air the linear networks feed and performanceother services.
The Content Sales/Licensing business generates revenue from the sale of releasesfilm and episodic television content in the TV/SVOD and home entertainment markets, distribution of films in the theatrical home entertainmentmarket, licensing of our music rights, sales of tickets to stage play performances and television markets. Release dates are determined by several factors, including competitionlicensing of our IP for use in stage plays. Operating expenses include programming and production costs, distribution expenses and costs of sales.
Our DPEP segment primarily generates revenue from the sale of admissions to theme parks, the sale of food, beverage and merchandise at our theme parks and resorts, charges for room nights at hotels, sales of cruise vacations, sales and rentals of vacation club properties, royalties from licensing our IP for use on consumer goods and the timingsale of vacationbranded merchandise. Revenues are also generated from sponsorships and holiday periods.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.
Direct-to-Consumer & International revenues fluctuate based on:The Company evaluates the timing and performance of releases of our digital media content; viewership levels on our cable channels and digital platforms; changes in subscriber levels; and the demand for sports and Disney content. Each of these may depend on the availability of content, which varies from time to time throughout the yearits operating segments based on among other things, sports seasonssegment operating income, and content production schedules.management uses total segment operating income as a measure of the overall performance of the operating businesses separate from non-
In general, 21CF revenues are similar to revenues generated at Media Networks and Studio Entertainment and are subject to similar fluctuations.
29
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS — (continued)


BUSINESS SEGMENT RESULTS
The Company evaluates the performance of its operating segments based onfactors. Total segment operating income which is shown below alongnot 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 revenues:
 Quarter Ended % Change Six Months Ended % Change
(in millions)March 30,
2019		 March 31,
2018		 Better/
(Worse)		 March 30,
2019		 March 31,
2018		 Better/
(Worse)
Revenues:           
Media Networks$5,525
 $5,508
 — % $11,446
 $11,063
 3 %
Parks, Experiences and Products6,169
 5,903
 5 % 12,993
 12,430
 5 %
Studio Entertainment2,134
 2,499
 (15) % 3,958
 5,008
 (21) %
Direct-to-Consumer & International955
 831
 15 % 1,873
 1,762
 6 %
21CF373
 —
 nm
 373
 —
 nm
Eliminations(234) (193) (21) % (418)
(364) (15) %
 $14,922
 $14,548
 3 % $30,225
 $29,899
 1 %
Segment operating income/(loss):           
Media Networks$2,185
 $2,258
 (3) % $3,515
 $3,501
 — %
Parks, Experiences and Products1,506
 1,309
 15 % 3,658
 3,263
 12 %
Studio Entertainment534
 874
 (39) % 843
 1,699
 (50) %
Direct-to-Consumer & International(393) (188) >(100) % (529) (230) >(100) %
21CF25
 —
 nm
 25
 —
 nm
Eliminations(41) (16) >(100) % (41) (10) >(100) %
 $3,816
 $4,237
 (10) % $7,471
 $8,223
 (9) %
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, thus providing separate insight into both operations and other factors that affect reported results.
The following table reconciles income from continuing operations before income taxes to total segment operating income:
 Quarter Ended% Change
Better
(Worse)
(in millions)January 1,
2022		January 2,
2021
Income from continuing operations before income taxes$1,688 $46 >100  %
Add (subtract):
Corporate and unallocated shared expenses228 232 2  %
Restructuring and impairment charges— 113 100  %
Other expense, net436 — nm
Interest expense, net311 324 4  %
TFCF and Hulu acquisition amortization595   617   4  %
Total segment operating income$3,258 $1,332 >100  %
The following is a summary of segment revenue and operating income (loss):
 Quarter Ended% Change
Better
(Worse)
(in millions)January 1,
2022		January 2,
2021
Revenues:
Disney Media and Entertainment Distribution$14,585 $12,661 15  %
Disney Parks, Experiences and Products7,234 3,588 >100  %
$21,819 $16,249 34  %
Segment operating income:
Disney Media and Entertainment Distribution$808 $1,451 (44) %
Disney Parks, Experiences and Products2,450   (119) nm
$3,258 $1,332 >100  %
Depreciation expense is as follows:
 Quarter Ended% Change
Better
(Worse)
(in millions)January 1,
2022		January 2,
2021
Disney Media and Entertainment Distribution$153 $167 8  %
Disney Parks, Experiences and Products
Domestic398   388   (3) %
International168 176 5  %
Total Disney Parks, Experiences and Products566 564 —  %
Corporate48 46 (4) %
Total depreciation expense$767 $777 1  %
30
 Quarter Ended % Change Six Months Ended % Change
(in millions)March 30,
2019		 March 31,
2018		 Better/
(Worse)		 March 30,
2019		 March 31,
2018		 Better/
(Worse)
Income from continuing operations before income taxes$7,237
 $3,928
 84 % $10,668
 $7,673
 39 %
Add/(subtract):           
Corporate and unallocated shared expenses279
 194
 (44) % 440
 344
 (28) %
Restructuring and impairment charges662
 13
 >(100) % 662
 28
 >(100) %
Other income(4,963) (41) >100 % (4,963) (94) >100 %
Interest expense, net143

143
 — % 206

272

24 %
Amortization of 21CF and Hulu intangible assets and fair value step-up on film and television costs105
 —
 nm
 105
 —
 nm
Impairment of equity investment353
 —
 nm
 353
 —
 nm
Segment Operating Income$3,816

$4,237
 (10) % $7,471
 $8,223
 (9) %
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS — (continued)


Depreciation expense is as follows:
 Quarter Ended % Change Six Months Ended % Change
(in millions)March 30,
2019		 March 31,
2018		 Better/
(Worse)		 March 30,
2019		 March 31,
2018		 Better/
(Worse)
Media Networks           
Cable Networks$25
 $28
 11 % $49
 $57
 14 %
Broadcasting20
 23
 13 % 40
 46
 13 %
Total Media Networks45
 51
 12 % 89
 103
 14 %
Parks, Experiences and Products    

      
Domestic367
 364
 (1) % 719
 727
 1 %
International182
 185
 2 % 368
 367
 — %
Total Parks, Experiences and Products549
 549
 — % 1,087
 1,094
 1 %
Studio Entertainment16
 14
 (14) % 30
 27
 (11) %
Direct-to-Consumer & International35
 27
 (30) % 67
 49
 (37) %
21CF4
 —
 nm
 4
 —
 nm
Corporate42
 46
 9 % 81
 91
 11 %
Total depreciation expense$691
 $687
 (1) % $1,358
 $1,364
 — %
Amortization of intangible assets is as follows:
 Quarter Ended% Change
Better
(Worse)
(in millions)January 1,
2022		January 2,
2021
Disney Media and Entertainment Distribution$40$4715 %
Disney Parks, Experiences and Products2727—  %
TFCF and Hulu4354473  %
Total amortization of intangible assets$502$5214  %
BUSINESS SEGMENT RESULTS - Current Quarter Results Compared to Prior-Year Quarter
 Quarter Ended % Change Six Months Ended % Change
(in millions)March 30,
2019		 March 31,
2018		 Better/
(Worse)		 March 30,
2019		 March 31,
2018		 Better/
(Worse)
Media Networks$—
 $—
 nm
 $—
 $—
 nm
Parks, Experiences and Products27
 28
 4 % 54
 55
 2 %
Studio Entertainment15
 15
 — % 31
 32
 3 %
Direct-to-Consumer & International23
 1
 >(100) % 45
 22
 >(100) %
21CF and Hulu72
 —
 nm
 72
 —
 nm
Total amortization of intangible assets$137
 $44
 >(100) % $202
 $109
 (85) %
Disney Media and Entertainment Distribution
Revenue and operating results for the DMED segment are as follows:
 Quarter Ended% Change
Better
(Worse)
(in millions)January 1,
2022		January 2,
2021
Revenues:
Linear Networks$7,706   $7,693   —  %
Direct-to-Consumer4,690 3,504 34  %
Content Sales/Licensing and Other2,433 1,702 43  %
Elimination of Intrasegment Revenue(1)
(244)(238)(3) %
$14,585 $12,661 15  %
Segment operating income (loss):
Linear Networks$1,499 $1,729 (13) %
Direct-to-Consumer(593) (466)(27) %
Content Sales/Licensing and Other(98)188 nm
$808 $1,451 (44) %
(1) Reflects fees received by the Linear Networks from other DMED businesses for the right to air our Linear Networks and related services.
Linear Networks
Operating results for Linear Networks are as follows:
 Quarter Ended% Change
Better
(Worse)
(in millions)January 1,
2022		January 2,
2021
Revenues
Affiliate fees$4,615 $4,640 (1) %
Advertising2,839   2,835   —  %
Other252 218 16  %
Total revenues7,706 7,693 —  %
Operating expenses(5,656)(5,421)(4) %
Selling, general, administrative and other(755)(724)(4) %
Depreciation and amortization(38)(53)28  %
Equity in the income of investees242 234 3  %
Operating Income$1,499 $1,729 (13) %
31
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS — (continued)


Revenues
Media Networks
Operating results for the Media Networks segment areAffiliate revenue is as follows:
 Quarter Ended % Change
(in millions)March 30,
2019		 March 31,
2018		 Better/
(Worse)
Revenues     
Affiliate fees$3,177
 $3,043
 4 %
Advertising1,596
 1,643
 (3) %
TV/SVOD distribution and other752
 822
 (9) %
Total revenues5,525
 5,508
 — %
Operating expenses(3,012) (2,917) (3) %
Selling, general, administrative and other(465) (464) — %
Depreciation and amortization(45) (51) 12 %
Equity in the income of investees182
 182
 — %
Operating Income$2,185
 $2,258
 (3) %
Revenues
 Quarter Ended% Change
Better
(Worse)
(in millions)January 1,
2022		January 2,
2021
Domestic Channels$3,862 $3,773 2  %
International Channels753 867 (13) %
$4,615 $4,640   (1) %
The increase in affiliate feesrevenue at the Domestic Channels was due to growthan increase of 7%6% from higher contractual rates, partially offset by a 2% decrease of 4% from fewer subscribers and a 1% decrease from the adoption of ASC 606.subscribers.
The decrease in advertising revenuesaffiliate revenue at the International Channels was due to decreases of $31 million at Broadcasting,12% from $898 million to $867 million,fewer subscribers driven by channel closures in Europe and $16 million at Cable Networks,Asia and 3% from $745 million to $729 million. Broadcasting advertising revenue reflected a decrease of 9% from lower network impressions due to lower average viewership,an unfavorable foreign exchange impact, partially offset by an increase of 5%2% from higher networkcontractual rates.

Advertising revenue is as follows:
 Quarter Ended% Change
Better
(Worse)
(in millions)January 1,
2022		January 2,
2021
Cable$1,293 $1,217 6  %
Broadcasting900 984 (9) %
Domestic Channels2,193 2,201 —  %
International Channels646 634 2  %
$2,839 $2,835 —  %

The increase in Cable Networks advertising revenue reflectedwas due to an increase of 6% from higher impressions, partially offset by a decrease of 7%1% from lower rates, partially offset by an increase of 5% from higher impressions. Rates reflected the impact of the shift in the mix of College Football Playoff (CFP) games. Three “host” games and the championship were aired in the current quarter, whereas one host game, two semi-finals and the championship were aired in the prior-year quarter. Semi-final games generally generate more advertising revenue than host games.rates. The increase in impressions reflected more units delivered and higher average viewership.
The decrease in Broadcasting advertising revenue was due to decreases of 12% from fewer impressions at ABC, reflecting lower average viewership, and 8% from the owned television stations, partially offset by lower average viewership.
TV/SVOD distribution and other revenue decreased $70 millionan increase of 11% from higher rates at ABC. The decrease at the owned television stations was due to lower program sales including lower salespolitical advertising.
The increase in International Channels advertising revenue was due to an increase of Grey’s Anatomy, Agents of S.H.I.E.L.D. and Criminal Minds,6% from higher rates, partially offset by higher salesdecreases of How3% from an unfavorable foreign exchange impact and 1% from fewer impressions, reflecting lower average viewership. The decrease in viewership was driven by COVID-19-related timing shifts of Indian Premier League (IPL) cricket matches, which resulted in fewer matches in the current quarter compared to Get Away With Murder.
Coststhe prior-year quarter. This decrease was partially offset by an increase from the airing of International Cricket Council (ICC) T20 World Cup matches in the current quarter. The ICC T20 World Cup generally occurs every two years and Expenses
Operating expenses include programming and production costs, which increased $104 million, from $2,766 million to $2,870 million. At Broadcasting, programming and production costs increased $71 millionwas not held in the prior-year quarter due to higher production cost write-downsCOVID-19. IPL cricket matches typically occur in our second and third fiscal quarters. As a result of COVID-19-related timing shifts, we aired 13 matches in the current quarter and an increase44 matches in the average cost of network programming. At Cable Networks, programming and production costsprior-year quarter.
Other revenue increased $33$34 million, to $252 million from $218 million, due to contractual rate increases for CFP, NBA, college sports and NFL programming and higher sports production costs. These increases weresub-licensing fees from ICC T20 World Cup matches in the current quarter, partially offset by lower sub-licensing fees as a result of fewer IPL cricket matches in the timing of sports costs allocated between quarters duecurrent quarter compared to the shift in the mix of CFP bowl games. Host games generally have a lower cost than semi-final games.prior-year quarter.
Segment Operating Income
32
Segment operating income decreased 3%, or $73 million, to $2,185 million due to a decrease at the ABC Network and lower income from program sales, partially offset by an increase at ESPN.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS — (continued)


Costs and Expenses
Operating expenses primarily consist of programming and production costs, which are as follows:
 Quarter Ended% Change
Better
(Worse)
(in millions)January 1,
2022		January 2,
2021
Cable$(3,583) $(3,404)  (5) %
Broadcasting(800) (747)  (7) %
Domestic Channels(4,383) (4,151) (6) %
International Channels(894) (914) 2  %
$(5,277) $(5,065) (4) %
The increase in programming and production costs at Cable was primarily due to higher rights costs for the College Football Playoffs (CFP), NFL and MLB and an increase in sports production costs due to the cancellation of events in the prior-year quarter. These increases were partially offset by lower costs for NBA and golf programming. The increases in CFP and NFL rights costs were due to higher contractual rates. Higher MLB rights costs were due to airing one playoff game in the current quarter, compared to airing no MLB games in the prior-year quarter. Lower NBA and golf programming costs were due to the shift of certain NBA games and the Masters out of fiscal 2020 and into the first quarter of fiscal 2021 due to COVID-19.
The increase in programming and production costs at Broadcasting was due to a higher cost mix of programming aired on ABC in the current quarter.
Programming and production costs at the International Channels decreased due to lower costs for general entertainment programming, the impact of channel closures and a favorable foreign exchange impact, partially offset by an increase in sports programming costs. The decrease in general entertainment programming costs was driven by a lower cost mix of programming in the current quarter. The increase in sports programming costs was due to higher costs for cricket programming, partially offset by lower soccer programming costs reflecting fewer games in the current quarter. Higher costs for cricket programming were driven by costs for ICC T20 World Cup matches in the current quarter, partially offset by the impact of fewer IPL matches in the current quarter compared to the prior-year quarter.
Operating Income from Linear Networks
Operating income from Linear Networks decreased $230 million, to $1,499 million from $1,729 million, due to decreases at Cable and Broadcasting.
The following table presentsprovides supplemental revenue and operating income detail for the Media Networks segment:Linear Networks:
 Quarter Ended% Change
Better
(Worse)
(in millions)January 1,
2022		January 2,
2021
Supplemental revenue detail
Domestic Channels$6,152 $6,070 1  %
International Channels1,554 1,623 (4) %
$7,706 $7,693 —  %
Supplemental operating income detail
Domestic Channels$888 $1,120 (21) %
International Channels369 375 (2) %
Equity in the income of investees242 234 3  %
$1,499 $1,729 (13) %
33
 Quarter Ended % Change
(in millions)March 30,
2019		 March 31,
2018		 Better/
(Worse)
Supplemental revenue detail     
Cable Networks$3,708
 $3,653
 2 %
Broadcasting1,817
 1,855
 (2) %
 $5,525
 $5,508
 — %
Supplemental operating income detail     
Cable Networks$1,756
 $1,728
 2 %
Broadcasting247
 348
 (29) %
Equity in the income of investees182
 182
 — %
 $2,185
 $2,258
 (3) %

Parks, Experiences and Products
Operating results for the Parks Experiences, and Products segment are as follows:
 Quarter Ended % Change
(in millions)March 30,
2019		 March 31,
2018		 Better/
(Worse)
Revenues     
Theme park admissions$1,768
 $1,690
 5 %
Parks & Experiences merchandise, food and beverage1,411
 1,352
 4 %
Resorts and vacations1,501
 1,461
 3 %
Merchandise licensing and retail992
 980
 1 %
Parks licensing and other497
 420
 18 %
Total revenues6,169
 5,903
 5 %
Operating expenses(3,339) (3,245) (3) %
Selling, general, administrative and other(748) (765) 2 %
Depreciation and amortization(576) (577) — %
Equity in the loss of investees—
 (7) — %
Operating Income$1,506
 $1,309
 15 %
Revenues
Parks, Experiences and Products results include an adverse impact from a shift in the timing of the Easter holiday. In the current year, the entire Easter holiday falls in the third quarter, while the second quarter of the prior year included one week of the Easter holiday.
The increase in theme parks admissions revenue was due to an increase of 5% from higher average ticket prices, partially offset by a decrease of 1% from an unfavorable FX Impact.
Parks & Experiences merchandise, food and beverage revenue growth was due to an increase of 5% from higher average guest spending.
The increase in resorts and vacations revenue was primarily due to increases of 1% each from average ticket prices for cruise line sailings, passenger cruise days and average daily hotel room rates.
Merchandise licensing and retail revenues were higher due to an increase of 5% from higher revenue at our games business, partially offset by decreases of 1% from lower merchandise licensing revenue and 1% from our retail stores. The increase in games revenue was due to the sale of rights to a video game and royalties from the licensed title, Kingdom Hearts III, which was released in the current quarter. Lower merchandise licensing revenues were due to a decrease in minimum guarantee shortfall recognition from the adoption of ASC 606, partially offset by a favorable FX Impact. The decrease at our retail stores was primarily due to lower comparable store sales.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS — (continued)


Direct-to-Consumer
Operating results for Direct-to-Consumer are as follows:
 Quarter Ended% Change
Better
(Worse)
(in millions)January 1,
2022		January 2,
2021
Revenues
Subscription fees$3,598 $2,546 41  %
Advertising980   882   11  %
TV/SVOD distribution and other112 76 47  %
Total revenues4,690 3,504 34  %
Operating expenses(3,922)(2,921)(34) %
Selling, general, administrative and other(1,275)(970)(31) %
Depreciation and amortization(86)(79)(9) %
Operating Loss$(593)$(466)(27) %
Revenues
The increase in parks licensingsubscription fees was due to increases of 23% from higher subscribers, driven by growth at Disney+, Hulu, and ESPN+, and 18% from higher rates due to increases in retail pricing at Disney+, Hulu, and to a lesser extent, ESPN+.
Higher advertising revenue reflected increases of 6% from higher rates due to an increase at Hulu and 5% from higher impressions due to increases at Disney+ and ESPN+.
The increase in TV/SVOD distribution and other revenue was driven by the adoption of ASC 606,due to higher Ultimate Fighting Championship (UFC) pay-per-view fees, which required certain cost reimbursements from licensees to be recognized as revenue (rather than recorded asreflected an offset to operating expenses).
The following table presents supplemental park and hotel statistics: 
 Domestic 
International (2)
 Total
 Quarter Ended Quarter Ended Quarter Ended
 Mar. 30,
2019		 Mar. 31,
2018		 Mar. 30,
2019		 Mar. 31,
2018		 Mar. 30,
2019		 Mar. 31,
2018
Parks           
Increase/(decrease)           
Attendance1% 5% (3) % 1% —% 4%
Per Capita Guest Spending4% 6% 10 % 10% 6% 7%
Hotels (1)
           
Occupancy93% 90% 79 % 84% 89% 88%
Available Room Nights (in thousands)2,484
 2,509
 787
 787
 3,271
 3,296
Per Room Guest Spending
$351
 
$347
 
$287
 
$277
 
$337
 
$331
(1)
Per room guest spending consists of the average daily hotel room rate, as well as food, beverage and merchandise sales at the hotels. Hotel statistics include rentals of Disney Vacation Club units.
(2)
Per capita guest spending growth rate is stated on a constant currency basis. Per room guest spending is stated at the fiscal 2018 second quarter average foreign exchange rate.
Costs and Expenses
Operating expenses include operating labor, which increased $41 million, from $1,474 million to $1,515 million, cost of goods sold and distribution costs, which increased $18 million, from $585 million to $603 million, and infrastructure costs, which decreased $3 million, from $600 million to $597 million. The increase in operating labor was due to inflation,average buys per event and higher pricing, partially offset by the comparisonimpact of airing two events in the current quarter compared to a special domestic employee bonusthree events in the prior-year quarterquarter.
The following tables present additional information about our Disney+, ESPN+ and a favorable FX Impact. Higher cost of goods sold and distribution costs were driven by inflation. Infrastructure costs were comparable to the prior-year quarter as the comparison to costs incurred in the prior-year quarter for the dry-dock of the Hulu Direct-to-Consumer (DTC) product offeringsDisney Magic (1)was largely offset by an increase in property taxes. Other operating expenses, which include costs for such items as supplies, commissions and entertainment offerings, increased $38 million, from $586 million to $624 million due to the recognition of certain cost reimbursements as revenue (rather than recorded as an offset to operating expenses).
Selling, general, administrative and other costs decreased $17 million from $765 million to $748 million driven by a favorable FX Impact.
Segment Operating Income
Segment operating income increased Paid subscribers15%, or $197 million, to $1,506 million(2) due to increases at our domestic theme parks and resorts, consumer products business, cruise line and Hong Kong Disneyland Resort.as of:
(in millions)January 1,
2022		January 2,
2021		% Change
Better
(Worse)
Disney+
Domestic (U.S. and Canada)42.9   36.3   18 %
International (excluding Disney+ Hotstar)(3)
41.1   29.4   40 %
Disney+ (excluding Disney+ Hotstar)(4)
84.0   65.7   28 %
Disney+ Hotstar45.9   29.2   57 %
Total Disney+(4)
129.8   94.9   37 %
ESPN+21.3   12.1   76 %
Hulu
SVOD Only40.9 35.4 16 %
Live TV + SVOD4.3 4.0 8 %
Total Hulu(4)
45.3 39.4 15 %
34
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS — (continued)


Average Monthly Revenue Per Paid Subscriber(5) for the quarter ended:
 % Change
Better
(Worse)
January 1,
2022		January 2,
2021
Disney+
Domestic (U.S. and Canada)$6.68 $5.80 15  %
International (excluding Disney+ Hotstar)(3)
5.96 4.73 26  %
Disney+ (excluding Disney+ Hotstar)6.33 5.37 18  %
Disney+ Hotstar1.03 0.98 5  %
Disney+4.41 4.03 9  %
ESPN+5.16 4.48 15  %
Hulu
SVOD Only12.96 13.51 (4) %
Live TV + SVOD87.01 75.11 16  %
(1)In the U.S., Disney+, ESPN+ and Hulu SVOD Only are each offered as a standalone service or as a package that includes all three services (the SVOD Bundle). Effective December 21, 2021, Hulu Live TV + SVOD includes Disney+ and ESPN+ (new Hulu Live TV + SVOD offering), whereas previously, Hulu Live TV + SVOD was offered as a standalone service or with Disney+ and ESPN+ as optional additions (old Hulu Live TV + SVOD offering). Disney+ is available in more than 80 countries and territories outside the U.S. and Canada. In India and certain other Southeast Asian countries, our service is branded Disney+ Hotstar. In certain Latin American countries, we offer Disney+ as well as Star+, a general entertainment SVOD service, which is available on a standalone basis or together with Disney+. Depending on the market, our services can be purchased on our websites, through third party platforms/apps or via wholesale arrangements.
(2)Reflects subscribers for which we recognized subscription revenue. Subscribers cease to be a paid subscriber as of their effective cancellation date or as a result of a failed payment method. Subscribers to the SVOD Bundle are counted as a paid subscriber for each service included in the SVOD Bundle and subscribers to the old Hulu Live TV + SVOD offering and new Hulu Live TV + SVOD offering are counted as one paid subscriber for each of the Hulu Live TV + SVOD, Disney+ and ESPN+ offerings. Subscribers include those who receive a service through wholesale arrangements including those for which we receive a fee for the distribution of the service to each subscriber of an existing content distribution tier. In Latin America, if a subscriber has either the standalone Disney+ or Star+ service or both the Disney+ and Star+ services, they are counted as one Disney+ paid subscriber. When we aggregate the total number of paid subscribers across our DTC streaming services, we refer to them as paid subscriptions.
(3)Includes the Disney+ service outside the U.S. and Canada and the Star+ service in Latin America.
(4)Total may not equal the sum of the column due to rounding.
(5)Revenue per paid subscriber is calculated based on the average of the monthly average paid subscribers for each month in the period. The monthly average paid subscribers is calculated as the sum of the beginning of the month and end of the month paid subscriber count, divided by two. Disney+ average monthly revenue per paid subscriber is calculated using a daily average of paid subscribers for the period. Revenue includes subscription fees, advertising (excluding revenue earned from selling advertising spots to other Company businesses) and premium and feature add-on revenue but excludes Premier Access and Pay-Per-View revenue. The average revenue per paid subscriber is net of discounts on the SVOD Bundle or other offerings that carry more than one service. Revenue is allocated to each service based on the relative retail price of each service on a standalone basis. Starting in December 2021, revenue for the new Hulu Live TV + SVOD offering is allocated to the SVOD services based on the wholesale price of the SVOD Bundle. In general, wholesale arrangements have a lower average monthly revenue per paid subscriber than subscribers that we acquire directly or through third party platforms.
The following table presents supplementalaverage monthly revenue and operating income detailper paid subscriber for the Parks, Experiences and Products segmentdomestic Disney+ increased from $5.80 to provide continuity with our legacy reporting:
 Quarter Ended 
% Change
Better /
(Worse)
(in millions)March 30,
2019		 March 31,
2018		 
Supplemental revenue detail     
Parks & Experiences     
Domestic$4,206
 $3,965
 6%
International929
 914
 2%
Consumer Products1,034
 1,024
 1%
 $6,169
 $5,903
 5%
Supplemental operating income detail     
Parks & Experiences     
Domestic$1,046
 $931
 12%
International44
 23
 91%
Consumer Products416
 355
 17%
 $1,506
 $1,309
 15%

Studio Entertainment
Operating results for the Studio Entertainment segment are as follows:
 Quarter Ended % Change
(in millions)March 30,
2019		 March 31,
2018		 Better/
(Worse)
Revenues     
Theatrical distribution$745
 $956
 (22) %
Home entertainment263
 471
 (44) %
TV/SVOD distribution and other1,126
 1,072
 5 %
Total revenues2,134
 2,499
 (15) %
Operating expenses(965) (993) 3 %
Selling, general, administrative and other(604) (603) — %
Depreciation and amortization(31) (29) (7) %
Operating Income$534
 $874
 (39) %
Revenues
The decrease in theatrical distribution revenue was due to the success of Black Panther and the continued performance of Star Wars: The Last Jedi in the prior-year quarter compared to Captain Marvel and no comparable Star Wars title in the current quarter. This decrease was partially offset by two Disney live-action titles and the international distribution of Glass in the current quarter compared to one Disney live-action title in the prior-year quarter. The current quarter included the continued performance of Mary Poppins Returns and release of Dumbo, while the prior-year quarter included A Wrinkle in Time.
Lower home entertainment revenue was due to decreases of 36% from unit sales and 9% from net effective pricing. The decrease in unit sales was due to the performance of Thor: Ragnarok and Star Wars: The Last Jedi in the prior-year quarter compared to no comparable Marvel or Star Wars titles in the current quarter. The decrease in net effective pricing was driven by a decrease in sales of new release titles, which have a higher sales price compared to catalog titles. Net effective pricing is the wholesale selling price adjusted for discounts, sales incentives and returns.
Growth in TV/SVOD distribution and other revenue was$6.68 due to an increase in retail pricing and a lower mix of 8% from TV/SVOD distribution and an increase of 2% from higher music revenues,wholesale subscribers, partially offset by a decreasehigher mix of 3%subscribers to the SVOD Bundle.
The average monthly revenue per paid subscriber for international Disney+ (excluding Disney+ Hotstar) increased from Lucasfilm’s special effects business$4.73 to $5.96 due to fewer projects during the current quarter. increases in retail pricing.
The increaseaverage monthly revenue per paid subscriber for Disney+ Hotstar increased from TV/SVOD distribution was$0.98 to $1.03 due to the adoptionlaunches in new territories with higher average prices, partially offset by a higher mix of ASC 606 andwholesale subscribers.
35
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS — (continued)


increasesThe average monthly revenue per paid subscriber for ESPN+ increased from $4.48 to $5.16 primarily due to an increase in domestic pay television title availabilitiesretail pricing and rates,higher per-subscriber advertising revenue, partially offset by lower free television sales in part in anticipationa higher mix of subscribers to the launch of Disney+.SVOD Bundle.
Costs and Expenses
Operating expenses include a decrease of $14 million in film cost amortization,The average monthly revenue per paid subscriber for the Hulu SVOD Only service decreased from $702 million$13.51 to $688 million,$12.96 due to lower revenues, partially offset byper-subscriber advertising revenue and a higher average film cost amortization rates for theatrical releases in the current quarter. Operating expenses also include costmix of goods sold and distribution costs, which decreased $14 million, from $291 million to $277 million due to lower home entertainment volumes and fewer projects at Lucasfilm’s special effects business, partially offset by higher music distribution costs driven by higher sales.
Selling, general, administrative and other costs was comparablesubscribers to the prior-year quarter at $604 million, as higher theatrical marketing expense was largely offset by lower home entertainment marketing expenses, an insurance recovery in the current quarter and a favorable FX Impact. The increase in theatrical marketing expense was due to Captain Marvel and Dumbo in the current quartercompared to Black Panther and A Wrinkle in Time in the prior-year quarter.
Segment Operating Income
Segment operating income decreased 39%, or $340 million, to $534 million due to lower theatrical and home entertainment distribution results,SVOD Bundle, partially offset by an increase in TV/SVOD distribution.retail pricing.

Direct-to-Consumer & International
Operating resultsThe average monthly revenue per paid subscriber for the Direct-to-Consumer & International segment are as follows:
 Quarter Ended % Change
(in millions)March 30,
2019		 March 31,
2018		 Better/
(Worse)
Revenues     
Affiliate fees$335
 $354
 (5) %
Advertising357
 301
 19 %
Subscription fees and other263
 176
 49 %
Total revenues955
 831
 15 %
Operating expenses(947) (547) (73) %
Selling, general, administrative and other(202) (275) 27 %
Depreciation and amortization(58) (28) >(100) %
Equity in the loss of investees(141) (169) 17 %
Operating Loss$(393) $(188) >(100) %
Revenues
The decrease in affiliate fees wasHulu Live TV + SVOD service increased from $75.11 to $87.01 due to a decrease of 11% from an unfavorable FX Impact,increases in retail pricing and higher per-subscriber advertising revenue, partially offset by an increasethe impact of 7% from higher contractual rates.
The increase in advertising revenues was due to an increase of 20% from higher addressable ad sales driven by the consolidation ofnew Hulu as of March 20, 2019. The Company’s share of Hulu results was previously reported in equity in the loss of investees.
Subscription fees and other revenue increased due to the consolidation of Hulu and subscription fees for ESPN+, which launched in April 2018, partially offset by lower revenue from streaming technology services.Live TV + SVOD offering.
Costs and Expenses
Operating expenses include a $252 million increase in programming and production costs, from $388 million to $640 million and a $148 million increase in other operating expenses, from $159 million to $307 million. are as follows:
 Quarter Ended% Change
Better
(Worse)
(in millions)January 1,
2022		January 2,
2021
Programming and production costs
Disney+$(920) $(515) (79) %
Hulu(1,832) (1,624) (13) %
ESPN+ and other(427) (240) (78) %
Total programming and production costs(3,179) (2,379) (34) %
Other operating expense(743) (542) (37) %
$(3,922) $(2,921) (34) %
The increase in programming and production costs at Disney+ was due to more content provided on the consolidationservice.
Higher programming and production costs at Hulu were due to higher subscriber-based fees for programming the Live TV service due to rate increases and the carriage of Hulu and higher sports programming costs. more networks.
The increase in sports programming and production costs at ESPN+ and other was primarily due to the launch ofnew National Hockey League programming.
Other operating expenses increased primarily due to higher technology and distribution costs driven by growth in existing markets and to a lesser extent, expansion to new markets.
Selling, general, administrative and other costs increased $305 million, to $1,275 million from $970 million, due to higher marketing costs primarily due to growth in existing markets and to a lesser extent, expansion to new markets.
Operating Loss from Direct-to-Consumer
The operating loss from Direct-to-Consumer increased $127 million, to $593 million from $466 million, due to higher losses at Disney+, and to a lesser extent, ESPN+, partially offset by a decrease in soccer rights costs for our International Channels. Other operating expenses, which include technical support and distribution costs, increased primarily due to the realignment of our technical support operations and technology cost growth. As a result of the realignment, certain costs that were previously reported in general and administrative are now being reported as operating expense.improved results at Hulu.
36
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS — (continued)


Supplemental Historical Information for Direct-to-Consumer
Selling, general, administrativeThe following tables present the number of paid subscribers for Disney+, ESPN+ and other costs decreased $73 million from $275 million to $202 millionHulu as of:
(in millions)October 2,
2021		July 3,
2021		April 3,
2021		January 2,
2021
Disney+
Domestic38.837.937.336.3
International (excluding Disney+ Hotstar)36.033.231.129.4
Disney+ (excluding Disney+ Hotstar) (1)
74.871.168.465.7
Disney+ Hotstar43.344.935.229.2
Total Disney+ (1)
118.1116.0103.694.9
ESPN+17.114.913.812.1
Hulu
SVOD Only39.739.137.835.4
Live TV + SVOD4.03.73.84.0
Total Hulu (1)
43.842.841.639.4
(in millions)October 3,
2020		June 27,
2020		March 28,
2020		December 28,
2019
Disney+
Domestic33.831.328.425.0
International (excluding Disney+ Hotstar)19.517.55.11.5
Disney+ (excluding Disney+ Hotstar) (1)
53.348.833.526.5
Disney+ Hotstar20.38.7——
Total Disney+ (1)
73.757.533.526.5
ESPN+10.38.57.96.6
Hulu
SVOD Only32.532.128.827.2
Live TV + SVOD4.13.43.33.2
Total Hulu (1)
36.635.532.130.4
(1)Total may not equal the sum of the column due to the realignment of our technical support operations and a favorable FX Impact, partially offset by higher marketing costs. The increase in marketing costs was driven by the consolidation of Hulu and marketing costs for ESPN+.
Depreciation and amortization increased $30 million from $28 million to $58 million driven by increased investment in technology.
Equity in the Loss of Investees
Loss from equity investees decreased $28 million, from $169 million to $141 million, due to the consolidation of Hulu. In the current quarter, 11 days of Hulu’s results are reported in revenues and expenses. Prior to the consolidation of Hulu, the Company recognized its ownership share of Hulu’s results in equity in the loss of investees.
Segment Operating Loss
Segment operating loss increased to $393 million due to our ongoing investment in ESPN+, which launched in April 2018, costs associated with the upcoming launch of Disney+, the consolidation of a loss at Hulu and a loss from streaming technology services, partially offset by an increase at our International Channels.
The following table presents supplemental revenue and operating income detail for the Direct-to-Consumer & International segment to provide information on International Channels that were historically reported in the Media Networks segment:rounding
37
 Quarter Ended % Change
(in millions)March 30, 2019 March 31, 2018 
Better /
(Worse)
Supplemental revenue detail     
International Channels$440
 $458
 (4) %
Direct-to-Consumer businesses and other515
 373
 38 %
 $955
 $831
 15 %
Supplemental operating income/(loss) detail     
International Channels$91
 $49
 86 %
Direct-to-Consumer businesses and other(343) (68) >(100) %
Equity in the loss of investees(141) (169) 17 %
 $(393) $(188) >(100) %


MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS — (continued)


Eliminations
Intersegment content transactions are as follows:
 Quarter Ended % Change
(in millions)March 30,
2019		 March 31,
2018		 Better/
(Worse)
Revenues     
Studio Entertainment:    

Content transactions with Media Networks$(13) $(64) 80 %
Content transactions with Direct-to-Consumer & International(82) (8) >(100) %
Media Networks:     
Content transactions with Direct-to-Consumer & International(139) (121) (15) %
Total$(234) $(193) (21) %
      
Operating income    

Studio Entertainment:    

Content transactions with Media Networks$5
 $(16) nm
Content transactions with Direct-to-Consumer & International(46) —
 nm
Media Networks:     
Content transactions with Direct-to-Consumer & International—
 —
 nm
Total$(41) $(16) >(100) %


BUSINESS SEGMENT RESULTS - Six Month Results

Media Networks
Operating resultsThe following tables present the average monthly revenue per paid subscriber for the Media Networks segment are as follows:quarter ended:
October 2,
2021		July 3,
2021		April 3,
2021		January 2,
2021
Disney+
Domestic$6.81 $6.62 $6.01 $5.80 
International (excluding Disney+ Hotstar)5.52 5.52 5.14 4.73 
Disney+ (excluding Disney+ Hotstar)6.24 6.12 5.61 5.37 
Disney+ Hotstar0.64 0.78 0.49 0.98 
Disney+4.12 4.16 3.99 4.03 
ESPN+4.74 4.47 4.55 4.48 
Hulu
SVOD Only12.75 13.15 12.08 13.51 
Live TV + SVOD84.89 84.09 81.83 75.11 
 Six Months Ended % Change
(in millions)March 30,
2019		 March 31,
2018		 Better/
(Worse)
Revenues     
Affiliate Fees$6,252
 $5,910
 6 %
Advertising3,619
 3,606
 — %
TV/SVOD distribution and other1,575
 1,547
 2 %
Total revenues11,446
 11,063
 3 %
Operating expenses(7,260) (6,880) (6) %
Selling, general, administrative and other(943) (920) (3) %
Depreciation and amortization(89) (103) 14 %
Equity in the income of investees361
 341
 6 %
Operating Income$3,515
 $3,501
 — %
Revenues
October 3,
2020		June 27,
2020		March 28,
2020		December 28,
2019
Disney+
Domestic$5.68 $5.71 $5.64 $5.55 
International (excluding Disney+ Hotstar)4.61 4.50 5.50 5.60 
Disney+ (excluding Disney+ Hotstar)5.30 5.31 5.63 5.56 
Disney+ Hotstar0.98 0.57 — — 
Disney+4.52 4.62 5.63 5.56 
ESPN+4.54 4.18 4.24 4.44 
Hulu
SVOD Only12.59 11.39 12.06 13.15 
Live TV + SVOD71.90 68.11 67.75 59.47 
The increase in affiliate fees was due to an increase of 7% from higher contractual rates, partially offset by a 1% decrease from fewer subscribers.following tables present operating expenses for the quarter ended:
The increase in advertising revenues was due to an increase of $23 million at Broadcasting, from $1,860 million to $1,883 million, partially offset by a decrease of $10 million at Cable Networks, from $1,746 million to $1,736 million. Broadcasting advertising revenue reflected increases of 7% from higher network rates and 4% at the the owned television stations due to an increase in rates, partially offset by a decrease of 10% from lower network impressions due to lower average viewership. Cable
(in millions)October 2,
2021		July 3,
2021		April 3,
2021		January 2,
2021
Programming and production costs
Disney+$(974) $(772) $(654) $(515) 
Hulu(1,730) (1,700) (1,626) (1,624) 
ESPN+ and other(278) (297) (306) (240) 
Total programming and production costs(2,982) (2,769) (2,586) (2,379) 
Other operating expense(703) (645) (628) (542) 
$(3,685) $(3,414) $(3,214) $(2,921) 
38
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS — (continued)


(in millions)October 3,
2020		June 27,
2020		March 28,
2020		December 28,
2019
Programming and production costs
Disney+$(490) $(352) $(291) $(219) 
Hulu(1,480) (1,517) (1,396) (1,428) 
ESPN+ and other(222) (179) (277) (273) 
Total programming and production costs(2,192) (2,048) (1,964) (1,920) 
Other operating expense(532) (498) (501) (423) 
$(2,724) $(2,546) $(2,465) $(2,343) 
Networks advertising
Content Sales/Licensing and Other
Operating results for Content Sales/Licensing and Other are as follows:
 Quarter Ended% Change
Better
(Worse)
(in millions)January 1,
2022		January 2,
2021
Revenues
TV/SVOD distribution$1,195 $1,022 17  %
Theatrical distribution529   31   >100  %
Home entertainment294   300   (2) %
Other415 349 19  %
Total revenues2,433 1,702 43  %
Operating expenses(1,625)(1,074)(51) %
Selling, general, administrative and other(840)(359)>(100) %
Depreciation and amortization(69)(82)16  %
Equity in the income of investees3 1 >100  %
Operating Income$(98)$188 nm
Revenues
The increase in TV/SVOD distribution revenue reflected a decreasehigher sales of 1% from lower rates. Impressions at Cable Networks were comparable to the prior-year period as higher units delivered were offset by lower average viewership.
TV/SVOD distributionboth episodic television and other revenue increased $28 milliontheatrical film content. The increase in episodic television content sales was primarily due to the adoptionsale of ASC 606more significant titles in the current quarter. Higher theatrical film content sales were driven by an increase in sales of library content and more title availabilities in the free television window.
The increase in theatrical distribution revenue was due to the release of nine titles in the current quarter compared to no significant releases in the prior-year quarter as a result of COVID-19, and to a lesser extent, revenue from the co-production of Marvel’s Spider-Man: No Way Home. Significant releases in the current quarter included Eternals and Encanto.
The increase in other revenue was due to higher program sales.sales from stage plays as a result of more performances in the current quarter.
Costs and Expenses
Operating expenses includeare as follows:
 Quarter Ended% Change
Better
(Worse)
(in millions)January 1,
2022		January 2,
2021
Programming and production costs$(1,260) $(877)(44) %
Cost of goods sold and distribution costs(365) (197)(85) %
$(1,625) $(1,074)(51) %
The increase in programming and production costs which increased $381 million, from $6,590 million to $6,971 million. At Cable Networks, programming and production costs increased $218 million due to contractual rate increases for college sports, NFL and NBA programming. At Broadcasting, programming and production costs increased $163 millionwas due to higher averageproduction cost of network programming andamortization driven by an increase in production cost write-downs.
Selling, general, administrative and other costs increased $23 million, from $920 million to $943 million, due to higher marketing costs at the ABC Network and Freeform.
Depreciation and amortization decreased $14 million, from $103 million to $89 million, due to higher asset write-offs in the prior year.
Equity in the Income of Investees
Income from equity investees increased $20 million, from $341 million to $361 million, due to higher income from A+E driven by higher program salestheatrical revenue lower marketing costs and affiliate revenue growth.
Segment Operating Income
Segment operating income was comparable to the prior-year period as an increase at the owned television stations, growth at the Domestic Disney Channels, an increase at A+E and higher income from program sales were largely offset by decreases at the ABC Network, ESPN and Freeform.
The following table provides supplemental revenue and segment operating income detail for the Media Networks segment:film cost impairments.
39
 Six Months Ended % Change
(in millions)March 30,
2019		 March 31,
2018		 Better/
(Worse)
Revenues     
Cable Networks$7,694
 $7,486
 3 %
Broadcasting3,752
 3,577
 5 %
 $11,446
 $11,063
 3 %
Segment operating income     
Cable Networks$2,499
 $2,521
 (1) %
Broadcasting655
 639
 3 %
Equity in the income of investees361
 341
 6 %
 $3,515
 $3,501
 — %

MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS — (continued)


The increase in cost of goods sold and distribution costs was due to higher costs for stage plays as a result of more performances in the current quarter and an increase in theatrical distribution costs as a result of more theatrical releases.
Selling, general administrative and other costs increased $481 million, to $840 million from $359 million, due to higher theatrical marketing costs.
Operating Income from Content Sales/Licensing and Other
Operating income from Content Sales/Licensing and Other decreased $286 million, to a loss of $98 million from income of $188 million, due to lower theatrical distribution results and higher film cost impairments, partially offset by higher TV/SVOD distribution results.
Items Excluded from Segment Operating Income Related to Disney Media and Entertainment Distribution
The following table presents supplemental information for items related to the DMED segment that are excluded from segment operating income:
Quarter Ended% Change
Better
(Worse)
(in millions)January 1,
2022		January 2,
2021
TFCF and Hulu acquisition amortization(1)
$(593)$(615)4  %
Restructuring and impairment charges—(81)100  %
(1)In the current quarter, amortization of step-up on film and television costs was $157 million and amortization of intangible assets was $433 million. In the prior-year quarter, amortization of step-up on film and television costs was $167 million and amortization of intangible assets was $445 million.
Disney Parks, Experiences and Products
Operating results for the Parks, Experiences and ProductsDPEP segment are as follows:
 Quarter Ended% Change
Better
(Worse)
(in millions)January 1,
2022		January 2,
2021
Revenues
Theme park admissions$2,152 $549 >100  %
Parks & Experiences merchandise, food and beverage1,626   553   >100  %
Resorts and vacations1,445 433 >100  %
Merchandise licensing and retail1,563 1,698 (8) %
Parks licensing and other448 355 26  %
Total revenues7,234 3,588 >100  %
Operating expenses(3,451)(2,430)(42) %
Selling, general, administrative and other(737)(678)(9) %
Depreciation and amortization(593)(591)—  %
Equity in the loss of investees(3)(8)63  %
Operating Income (Loss)$2,450 $(119)nm
 Six Months Ended % Change
(in millions)March 30,
2019		 March 31,
2018		 Better/
(Worse)
Revenues     
Theme park admissions$3,701
 $3,522
 5 %
Parks & Experiences merchandise, food and beverage2,976
 2,847
 5 %
Resorts and vacations3,032
 2,924
 4 %
Merchandise licensing and retail2,292
 2,322
 (1) %
Parks licensing and other992
 815
 22 %
Total revenues12,993
 12,430
 5 %
Operating expenses(6,745) (6,574) (3) %
Selling, general, administrative and other(1,437) (1,430) — %
Depreciation and amortization(1,141) (1,149) 1 %
Equity in the loss of investees(12) (14) 14 %
Operating Income$3,658
 $3,263
 12 %
COVID-19
Revenues
The increase in at DPEP benefited from the comparison to the significant adverse impact of closures/reduced operating capacity as a result of the impact of COVID-19 on our theme parks admissions revenue was due to an increase of 7% from higher average ticket prices, partially offset by a decrease of 1% from an unfavorable FX Impact.
Parks & Experiences merchandise, food and beverage revenue growth was due to an increase of 5% from higher average guest spending.
The increase in resorts and vacations revenue was primarily due to increases of 2% from higher average daily hotel room rates, 1% from an increase in average ticket prices for cruise line sailings and 1% from higher occupied hotel room nights.
Merchandise licensing and retail revenues were lower driven by decreases of 2% from our merchandise licensing business and 1% from our publishing business, partially offset by an increase of 2% from our games business. The decrease in merchandise licensing and publishing revenues was primarily due to lower licensing revenue from products based on Star Wars, partially offset by higher licensing revenues from products based on Disney Classics and an increase in licensee settlements. The increase in games revenue was due to the sale of rights to a video game and royalties from the licensed title, Kingdom Hearts III, which was releasedexperiences in the current period.
The increaseprior-year quarter. In fiscal 2022, our domestic parks and experiences are generally operating without significant mandatory COVID-19-related capacity restrictions, such as those that were in parks licensingplace during the prior year; however, we continue to manage capacity to address ongoing COVID-19 considerations with respect to guest and other revenue was driven by the adoptioncast health and safety. Certain of ASC 606, which required certain cost reimbursements from licenseesour international operations continue to be recognized as revenue (rather than recorded as an offset to operating expenses).impacted by mandatory COVID-19-related capacity and travel restrictions.
Walt Disney World Resort, Shanghai Disney Resort and Tokyo Disney Resort were open for the entire quarter in both the current and prior years. Disneyland Resort and Disneyland Paris were open for the entire current quarter, whereas Disneyland Resort was closed for all of the prior-year quarter and Disneyland Paris was closed for approximately 65 days in the prior-year
40
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS — (continued)


quarter. Hong Kong Disneyland Resort was open for 68 days in the current quarter and 42 days in the prior-year quarter. Cruise ships operated at reduced capacities in the current quarter while sailings were suspended in the prior-year quarter.
The following table presents supplemental park and hotel statistics:Revenues
 Domestic 
International (2)
 Total
 Six Months Ended Six Months Ended Six Months Ended
 March 30,
2019		 March 31,
2018		 March 30,
2019		 March 31,
2018		 March 30,
2019		 March 31,
2018
Parks           
Increase/(decrease)           
Attendance1% 5% (4) % 6% (1) % 5%
Per Capita Guest Spending6% 6% 9 % 9% 7 % 7%
Hotels (1)
           
Occupancy93% 90% 83 % 84% 91 % 89%
Available Room Nights (in thousands)4,975
 5,024
 1,587
 1,587
 6,562
 6,611
Per Room Guest Spending
$355
 
$345
 
$304
 
$294
 
$344
 
$334
(1)
Per room guest spending consists of the average daily hotel room rate, as well as food, beverage and merchandise sales at the hotels. Hotel statistics include rentals of Disney Vacation Club units.
(2)
Per capita guest spending growth rate is stated on a constant currency basis. Per room guest spending is stated at the fiscal 2018 six-month average foreign exchange rate.
Costs and Expenses
Operating expenses include operating labor, which increased $93 million from $2,915 million to $3,008 million, cost of sales and distribution costs, which increased $21 million from $1,313 million to $1,334 million, and infrastructure costs, which decreased $17 million from $1,164 million to $1,147 million. The increase in operating labortheme park admissions revenue was due to inflation, partially offset by a favorable FX Impact. Higher cost of salesattendance growth and distribution costs werehigher average per capita ticket revenue, which was due to inflation. attendance mix and the introduction of Genie+ and Lightning Lane.
Parks & Experiences merchandise, food and beverage revenue growth was due to higher volumes.
The decreaseincrease in infrastructure costsresorts and vacations revenue was primarily due to the comparisonincreases in occupied hotel room nights, passenger cruise days and average daily hotel room rates.
Merchandise licensing and retail revenue was lower due to costs incurred in the prior-year quarter for the dry-docka decrease of the Disney Magic. Other operating expenses, which include costs for such items as supplies, commissions and entertainment offerings, increased $74 million,9% from $1,182 million to $1,256 million,retail due to the recognitionclosure of certain cost reimbursements asa substantial number of Disney-branded retail stores in North America and Europe in the second half of fiscal year 2021.
The increase in parks licensing and other revenue (rather than recorded as an offsetwas due to operating expenses)higher sponsorship revenue.
In addition to revenue, costs and higher third-party royalty expense, partially offset by a favorable FX Impact and lower operations support costs.
Segment Operating Income
Segment operating income, increased 12%, or $395 million,management uses the following key metrics to $3,658 million due to growth atanalyze trends and evaluate the overall performance of our domestic theme parks and resorts.resorts, and we believe these metrics are useful to investors in analyzing the business:
The following table presents supplemental revenue and operating income detail
 Domestic
International(1)
Total
 Quarter EndedQuarter EndedQuarter Ended
 Jan 1,
2022		Jan 2,
2021		Jan 1,
2022		Jan 2,
2021		Jan 1,
2022		Jan 2,
2021
Parks
Increase (decrease)
Attendance(2)
>100%(74) %>100%(61) %>100%(71) %
Per Capita Guest Spending(3)
30  %1  %14 %(9) %32 %(5) %
Hotels
Occupancy(4)
73 %28  %52 %13  %68 %24  %
Available Room Nights (in thousands)(5)
2,5422,6447997993,3413,443
Per Room Guest Spending(6)
$473$363$380$372$456$364
(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 Parks Experiences,same period in the prior year.
(2)Attendance is used to analyze volume trends at our theme parks and Products segmentis 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 provide continuity withanalyze guest spending trends and is defined as total revenue from ticket sales and sales of food, beverage and merchandise in our legacy reporting:theme parks, divided by total theme park attendance.
(4)Occupancy is used to analyze the usage of available capacity at hotels and is defined as the number of room nights occupied by guests as a percentage of available hotel room nights.
(5)Available hotel room nights are defined as the total number of room nights that are available at our hotels and at Disney Vacation Club (DVC) properties located at our theme parks and resorts that are not utilized by DVC members. Available hotel room nights include rooms temporarily taken out of service.
(6)Per room guest spending is used to analyze guest spending at our hotels and is defined as total revenue from room rentals and sales of food, beverage and merchandise at our hotels, divided by total occupied hotel room nights.
41
 Six Months Ended 
% Change
Better /
(Worse)
(in millions)March 30,
2019		 March 31,
2018		 
Supplemental revenue detail     
Parks & Experiences     
Domestic$8,679
 $8,136
 7 %
International1,941
 1,899
 2 %
Consumer Products2,373
 2,395
 (1)%
 $12,993
 $12,430
 5 %
Supplemental operating income detail     
Parks & Experiences     
Domestic$2,527
 $2,171
 16 %
International143
 132
 8 %
Consumer Products988
 960
 3 %
 $3,658
 $3,263
 12 %
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS — (continued)



Studio Entertainment
Operating results for the Studio Entertainment segment are as follows:
 Six Months Ended % Change
(in millions)March 30,
2019		 March 31,
2018		 Better/
(Worse)
Revenues     
Theatrical distribution$1,118
 $2,125
 (47) %
Home entertainment688
 832
 (17) %
TV/SVOD distribution and other2,152
 2,051
 5 %
Total revenues3,958
 5,008
 (21) %
Operating expenses(1,841) (2,019) 9 %
Selling, general, administrative and other(1,213) (1,231) 1 %
Depreciation and amortization(61) (59) (3) %
Operating Income$843
 $1,699
 (50) %
Revenues
The decrease in theatrical distribution revenue was due to the comparison of two Marvel titles, Black Panther and Thor: Ragnarok, and Star Wars: The Last Jedi in the prior-year period compared to one Marvel title, Captain Marvel, and no comparable Star Wars title in the current period. Other significant releases in the current period included Ralph Breaks the Internet, Mary Poppins Returns, The Nutcracker and the Four Realms and Dumbo, while the prior-year period included Coco and A Wrinkle in Time.
Lower home entertainment revenue was due to decreases of 13% from lower unit sales and 5% from net effective pricing. The decrease in unit sales was due to the release of Thor: Ragnarok and Star Wars: The Last Jedi in the prior-year period compared to Ant-Man and the Wasp and no comparable Star Wars release in the current period. Other significant titles in the current period included Incredibles 2, Ralph Breaks the Internet, Christopher Robin and Mary Poppins Returns, whereas the prior-year period included Cars 3, Pirates of the Caribbean: Dead Men Tell No Tales and Coco.
Higher TV/SVOD distribution and other revenue was due to an increase of 9% from TV/SVOD distribution, partially offset by a decrease of 3% from Lucasfilm’s special effects business due to fewer projects during the current period. The increase in TV/SVOD distribution was due to the impact of the adoption of ASC 606, higher pay television rates and more title availabilities in the current period, partially offset by lower free television sales in part in anticipation of the launch of Disney+.
Costs and Expenses
Operating expenses include a decrease of $107 millionare as follows:
Quarter Ended% Change
Better
(Worse)
(in millions)January 1,
2022		January 2,
2021
Operating labor$(1,515)$(1,030)(47) %
Cost of goods sold and distribution costs(798)(587)(36) %
Infrastructure costs(576)(522)(10) %
Other operating expense(562)(291)(93) %
$(3,451)$(2,430)(42) %
The increases in film cost amortization, from $1,413 million to $1,306 million, due to the impact of lower revenues, partially offset by higher average film cost amortization rates. Operating expenses also includeoperating labor, cost of goods sold and distribution costs which decreased $71and other operating expenses were due to higher volumes while the increase in infrastructure costs was due to higher volumes and increased technology spending.
Selling, general, administrative and other costs increased $59 million, to $737 million from $606 million to $535$678 million, due to lower theatrical distribution costs and decreased costs at Lucasfilm’s special effects business.higher marketing spend.
Segment Operating Income (Loss)
Segment operating income decreased 50%, or $856 million,increased from a loss of $0.1 billion to $843 milliona profit of $2.5 billion due to decreases in theatricalincreases at our domestic parks and home entertainment distribution results,resorts and, to a lesser extent, international parks and resorts, partially offset by an increase in TV/SVOD distribution.a decrease at our consumer products business.

The following table presents supplemental revenue and operating income (loss) detail for the DPEP segment:
Quarter Ended% Change
Better
(Worse)
(in millions)January 1,
2022		January 2,
2021
Supplemental revenue detail
Parks & Experiences
Domestic$4,800 $1,489 >100  %
International861   378   >100  %
Consumer Products1,573 1,721 (9) %
$7,234 $3,588 >100  %
Supplemental operating income (loss) detail
Parks & Experiences
Domestic$1,555 $(798)nm
International21 (262)nm
Consumer Products874 941 (7) %
$2,450 $(119)nm
Items Excluded from Segment Operating Income Related to Disney Parks, Experiences and Products
The following table presents supplemental information for items related to the DPEP segment that are excluded from segment operating income:
Quarter Ended% Change
Better
(Worse)
(in millions)January 1,
2022		January 2,
2021
Restructuring and impairment charges$—   $(28)  100  %
TFCF and Hulu acquisition amortization(2)  (2)  —  %


42
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS — (continued)


Direct-to-Consumer & International
Operating results for the Direct-to-Consumer & International segment are as follows:
 Six Months Ended % Change
(in millions)March 30,
2019		 March 31,
2018		 Better/
(Worse)
Revenues     
Affiliate fees$658
 $692
 (5) %
Advertising774
 712
 9 %
Subscription fees and other441
 358
 23 %
Total revenues1,873
 1,762
 6 %
Operating expenses(1,602) (1,135) (41) %
Selling, general, administrative and other(456) (508) 10 %
Depreciation and amortization(112) (71) (58) %
Equity in the loss of investees(232) (278) 17 %
Operating Loss$(529) $(230) >(100) %
Revenues
The decrease in affiliate fees was due to a decrease of 12% from an unfavorable FX Impact, partially offset by increases of 6% from higher contractual rates and 1% from subscriber growth.
The increase in advertising revenues was due to an increase of 13% from higher addressable ad sales, partially offset by a decrease of 4% from ad sales at our International Channels. The increase in addressable ad sales was due to the consolidation of Hulu and higher impressions. Lower ad sales at our International Channels was driven by a decrease in impressions and an unfavorable FX Impact.
Subscription fees and other revenue increased $83 million due to the consolidation of Hulu and subscription fees for ESPN+, which launched in April 2018, partially offset by lower revenue from streaming technology services.
Costs and Expenses
Operating expenses include a $294 million increase in programming and production costs, from $792 million to $1,086 million, and a $173 million increase in other operating expenses, from $343 million to $516 million. The increase in programming and production costs was due to higher sports rights costs and the consolidation of Hulu. The increase in sports rights costs was primarily due to the launch of ESPN+, partially offset by a decrease in soccer rights costs for our International Channels. Other operating expenses, which include technical support and distribution costs, increased due to technology cost growth and the realignment of our technical support operations. As a result of the realignment, certain costs that were previously reported in general and administrative are now being reported as operating expense.
Selling, general, administrative and other costs decreased $52 million, from $508 million to $456 million, due to a favorable FX Impact and the realignment of our technical support operations, partially offset by higher marketing costs. The increase in marketing costs was due to marketing costs for ESPN+ and the consolidation of Hulu.
Depreciation and amortization increased $41 million, from $71 million to $112 million, primarily due to increased investment in technology.
Equity in the Loss of Investees
Loss from equity investees decreased $46 million, from $278 million to $232 million, driven by a lower loss from Hulu due to increases in advertising and subscription revenue, partially offset by higher programming costs.
Segment Operating Loss
Segment operating loss increased from $230 million to $529 million due to our ongoing investment in ESPN+, which launched in April 2018, costs associated with the upcoming launch of Disney+ and a higher loss from streaming technology services. These impacts were partially offset by an increase at our International Channels.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS — (continued)


The following table presents supplemental revenue and operating income detail for the Direct-to-Consumer & International segment to provide information on International Channels that were historically reported in the Media Networks segment:
 Six Months Ended % Change
(in millions)March 30, 2019 March 31, 2018 
Better /
(Worse)
Supplemental revenue detail     
International Channels$934
 $968
 (4) %
Direct-to-Consumer businesses and other939
 794
 18 %
 $1,873
 $1,762
 6 %
Supplemental operating income/(loss) detail     
International Channels$228
 $157
 45 %
Direct-to-Consumer businesses and other(525) (109) >(100) %
Equity in the loss of investees(232) (278) 17 %
 $(529) $(230) >(100) %


Eliminations
Intersegment content transactions are as follows:
 Six Months Ended % Change
(in millions)March 30,
2019		 March 31,
2018		 Better/
(Worse)
Revenues     
Studio Entertainment:    

Content transactions with Media Networks$(34) $(95) 64 %
Content transactions with Direct-to-Consumer & International(100) (16) >(100) %
Media Networks:     
Content transactions with Direct-to-Consumer & International(284) (253) (12) %
Total$(418) $(364) (15) %
      
Operating income    

Studio Entertainment:    

Content transactions with Media Networks$5
 $(9) nm
Content transactions with Direct-to-Consumer & International(44) —
 nm
Media Networks:     
Content transactions with Direct-to-Consumer & International(2) (1) (100) %
Total$(41) $(10) >(100) %

CORPORATE AND UNALLOCATED SHARED EXPENSES
 Quarter Ended% Change
Better
(Worse)
(in millions)January 1,
2022		January 2,
2021
Corporate and unallocated shared expenses$(228)$(232)2 %
 Quarter Ended % Change Six Months Ended % Change
(in millions)March 30,
2019		 March 31,
2018		 Better/
(Worse)		 March 30,
2019		 March 31,
2018		 Better/
(Worse)
Corporate and unallocated shared expenses$(279) $(194) (44) % $(440) $(344) (28) %
Corporate and unallocated shared expenses increased $85 million to $279 million in the current quarter and increased $96 million to $440 million for the six-month period due to costs incurred in connection with the 21CF acquisition.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS — (continued)


RESTRUCTURING IN CONNECTION WITH THE ACQUISITION OF 21CF
As discussed in Note 16 to the Condensed Consolidated Financial Statements, in connection with the acquisition of 21CF, The Company has begun implementing a restructuring and integration plan as a part of its initiative to realize previously announced cost synergies from the acquisition of 21CF. Although our plans are not yet finalized, we currently anticipate that the total severance and related costs could be on the order of $1.5 billion. To date, we have recorded severance and related costs totaling $403 million in connection with the plan. In addition, we recorded charges totaling $259 million for equity based compensation, primarily for 21CF awards that were accelerated to vest upon the closing of the 21CF acquisition. These charges are recorded in “Restructuring and impairment charges” in the Condensed Consolidated Statements of Income. The Company may incur other costs in connection with the plan such as lease termination costs, but is unable to estimate those amounts at this time. For the prior-year quarter and six-month period, restructuring and impairment charges were not material.
The following table summarizes the changes in restructuring reserves:
 
Beginning
Balance
 Additions Payments Other 
Ending
Balance
Quarter ended March 30, 2019:         
Restructuring reserves$39
 $403
 $(19) $—
 $423

FINANCIAL CONDITION
The change in cash and cash equivalents is as follows:
Six Months Ended % Change
Better/
(Worse)		 Quarter Ended% Change
Better
(Worse)
(in millions)March 30,
2019		 March 31,
2018		 (in millions)January 1,
2022		January 2,
2021
Cash provided by operations - continuing operations$6,014
 $6,763
 (11) %
Cash (used in) provided by operations - continuing operationsCash (used in) provided by operations - continuing operations$(209)$75 nm
Cash used in investing activities - continuing operations(12,683) (3,805) >(100) %Cash used in investing activities - continuing operations(987)(732)(35) %
Cash provided by / (used in) financing activities - continuing operations12,696
 (2,882) nm
Cash used in operations - discontinued operations(35) —
 nm
Cash used in financing activities - continuing operationsCash used in financing activities - continuing operations(280)   (333)   16  %
Cash provided by operations - discontinued operationsCash provided by operations - discontinued operations8 9 >100  %
Cash used in financing activities - discontinued operationsCash used in financing activities - discontinued operations(12)— nm
Impact of exchange rates on cash, cash equivalents and restricted cash75
 55
 36 %Impact of exchange rates on cash, cash equivalents and restricted cash(35)139 nm
Change in cash, cash equivalents and restricted cash$6,067
 $131
 >100 %Change in cash, cash equivalents and restricted cash$(1,515)$(842)nm
Operating Activities
Cash used in continuing operating activities was $0.2 billion for the current quarter compared to cash provided by continuing operating activities decreased 11% to $6.0 billion for the current six months compared to $6.8of $0.1 billion in the prior-year six months drivenquarter. The decrease in cash provided by operations was due to lower operating cash flowsflow at Direct to Consumer & InternationalDMED, partially offset by higher operating cash flow at DPEP. The decrease in operating cash flow at DMED was due to increased programming and technical support costshigher operating cash disbursements and higher payments for interestspending on film and income taxes.television productions, partially offset by higher operating cash receipts. Higher operating cash disbursements were driven by increased operating expenses while higher operating cash receipts were due to revenue growth. The increase in operating cash flow at DPEP was due to higher operating cash receipts driven by higher revenue, partially offset by an increase in operating cash disbursements due to higher operating expenses.
FilmProduced and Television Costslicensed programming costs
The Company’s Studio Entertainment, Media Networks and Direct-to-Consumer & International segments and 21CF incurDMED segment incurs costs to acquireproduce and producelicense feature film and television programming.content. Film and television production costs include all internally produced content such as live-action and animated feature films, animated direct-to-video programming, television series, television specials and theatrical stage plays or other similar product.plays. Programming costs include film or television productcontent rights licensed for a specific period from third parties for airinguse on the Company’s broadcastLinear Networks and cable networks, television stations and direct-to-consumer streamingDTC 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.
43
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS — (continued)


The Company’s film and television production and programming activity for the six monthsquarter ended March 30, 2019January 1, 2022 and March 31, 2018January 2, 2021 are as follows:
 Quarter Ended
(in millions)January 1,
2022		January 2,
2021
Beginning balances:
Produced and licensed programming assets$31,732 $27,193 
Programming liabilities(4,113)  (4,099)  
27,619 23,094 
Spending:
Programming licenses and rights3,357 2,709 
Produced film and television content3,598 2,869 
6,955 5,578 
Amortization:
Programming licenses and rights(4,811)(4,539)
Produced film and television content(2,651)(1,810)
(7,462)(6,349)
Change in internally produced and licensed content costs(507)(771)
Other non-cash activity205 185 
Ending balances:
Produced and licensed programming assets31,794 27,352 
Programming liabilities(4,477)(4,844)
$27,317 $22,508 
 Six Months Ended
(in millions)March 30,
2019		 March 31,
2018
Beginning balances:   
Production and programming assets$9,202
 $8,759
Programming liabilities(1,178) (1,108)
 8,024
 7,651
Spending:   
Television program licenses and rights4,710
 4,092
Film and television production2,896
 3,011
 7,606
 7,103
Amortization:   
Television program licenses and rights(4,959) (4,411)
Film and television production(2,366) (2,202)
 (7,325) (6,613)
    
Change in film and television production and programming costs281
 490
Net film and television production costs from the 21CF acquisition and consolidation of Hulu14,141
 —
Other non-cash activity372
 (146)
Ending balances:   
Production and programming assets29,761
 9,188
Programming liabilities(6,943) (1,193)
 $22,818
 $7,995
The Company currently expects its fiscal 2022 spend on produced and licensed content, including sports rights, to be as much as approximately $33 billion, or approximately $8 billion more than fiscal 2021 spend of $25 billion. The increase is driven by higher spend to support our DTC expansion and generally assumes no significant disruptions to production due to COVID-19.
Investing Activities
Investing activities consist principally of investments in parks, resorts and other property and acquisition and divestiture activity. The Company’s investments in parks, resorts and other property for the six monthsquarter ended March 30, 2019January 1, 2022 and March 31, 2018January 2, 2021 are as follows:
 Six Months Ended
(in millions)March 30,
2019		 March 31,
2018
Media Networks   
Cable Networks$41
 $63
Broadcasting55
 45
Total Media Networks96
 108
Parks, Experiences and Products   
Domestic1,678
 1,419
International415
 310
Total Parks, Experiences and Products2,093
 1,729
Studio Entertainment39
 52
Direct-to-Consumer & International83
 81
21CF5
 —
Corporate74
 74
 $2,390
 $2,044
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS — (continued)


Capital expenditures for the Parks, Experiences and Products segment are principally for theme park and resort expansion, new attractions, cruise ships, capital improvements and systems infrastructure. The increase in capital expenditures was driven by higher spending on new attractions at our domestic theme parks and resorts.
(in millions)January 1,
2022		January 2,
2021
Disney Media and Entertainment Distribution$169   $177   
Disney Parks, Experiences and Products
Domestic457 336 
International202 183 
Total Disney Parks, Experiences and Products659 519 
Corporate153 64 
$981 $760 
Capital expenditures at Media Networksthe DMED segment primarily reflect investments in technology and in facilities and equipment for expanding and upgrading broadcast centers, production facilities and television station facilities.
Capital expenditures at Direct-to-Consumer & Internationalfor the DPEP segment are principally for theme park and resort expansion, new attractions, cruise ships, capital improvements and technology. The increase in the current period compared to the prior-year period was primarily reflect investmentsdue to the temporary suspension of certain capital projects in technology.the prior-year period as a result of COVID-19.
Capital expenditures at Corporate primarily reflect investments in corporate facilities, information technology infrastructure and equipment.
The Company currently expects its fiscal 2019 capital expenditures will be approximately $1 billion higher than fiscal 2018 capital expenditures of $4.5 billion due to increased investments at our domestic and international parks and resorts.
Other Investing Activities
Cash used for acquisitions of $9.9 billion in the current period reflects $35.7 billion of cash paid to acquire 21CF less $25.7 billion of cash acquired in the transaction (See Note 4 to the Condensed Consolidated Financial Statements).

Financing Activities
Cash provided by financing activities was $12.7 billion in the current six-month period, which reflected net bridge loan borrowing to finance the acquisition of 21CF, partially offset by dividend payments.
Cash provided by financing activities of $12.7 billion in the current six-month period was $15.6 billion higher than the $2.9 billion used in the prior-year six-month period as higher net borrowingsincrease in the current period compared to the prior-year six-month period ($14.1was driven by higher spend on corporate facilities.
44
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS — (continued)
The Company currently expects its fiscal 2022 capital expenditures will be approximately $6.1 billion compared to fiscal 2021 capital expenditures of $3.6 billion. The expected increase in capital expenditures is due to higher spending on cruise ship fleet expansion, corporate facilities and production facilities and technology at the DMED segment.
Financing Activities
Cash used in financing activities was $0.3 billion in the both the current quarter and the prior-year quarter. In the current quarter, the Company had a decrease in net borrowings of $0.1 billion compared to a decrease in net borrowings of $0.3 billion in the prior-year quarter. The lower decrease in net borrowings was partially offset by lower proceeds from exercise of stock options ($33 million in the current six-month periodquarter compared to $1.1 billion increase$209 million in the prior-year six-month period) and an increase of $2.6 billion due to no repurchases of common stock in the current period.quarter.)
See Note 65 to the Condensed Consolidated Financial Statements for a summary of the Company’s borrowing activities during the six monthsquarter ended March 30, 2019January 1, 2022 and information regarding the Company’s bank facilities. The Company may use operating cash flows, commercial paper borrowings up to the amount of its unused $12.25 billion bank facilities maturing in conjunction withMarch 2022, March 2023 and March 2025, and incremental term debt issuance and operating cash flow,issuances, to retire or refinance other borrowings before or as they come due.
See Note 11The Company’s operating cash flow and access to the Condensed Consolidated Financial Statements for a summarycapital markets can be impacted by factors outside of its control, including COVID-19, which had an adverse impact on the Company’s dividendsoperating cash flows in fiscal 20192020 and 2018. During the six month ended March 30, 2019, the Company did not repurchase any of its common stock to hold as treasury shares.
2021. We believe that the Company’s financial condition isremains 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. However,Depending on the Company’sunknowable duration and severity of the future impacts of COVID-19 and its variants, the Company may take mitigating actions in the future such as continuing to not declare dividends (the Company did not pay a dividend with respect to fiscal 2020 and 2021 operations and has not declared or paid a dividend with respect to fiscal 2022 operations); reducing or not making certain payments, such as some contributions to our pension and postretirement medical plans; raising financing; suspending capital spending; reducing film and television content investments; or implementing furloughs or reductions in force. The impacts on our operating cash flowflows are subject to uncertainty and accessmay require us to the capital markets can be impacted by macroeconomic factors outsiderely more heavily on external funding sources, such as debt and other types of its control. In addition to macroeconomic factors, thefinancing.
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 and leverage ratios. As of March 30, 2019,January 1, 2022, Moody’s Investors Service’s long- and short-term debt ratings for the Company were A2 and P-1 (Stable), respectively, Standard and Poor’s long- and short-term debt ratings for the Company were ABBB+ and A-1,A-2 (Stable), respectively, and Fitch’s long- and short-term debt ratings for the Company were AA- and F1,F2 (Stable), respectively. Each of Moody’s Investors Service, Standard and Poor’s and Fitch had placed the Company’s long- and short-term debt ratings on review for downgrade as a result of the pending acquisition of 21CF. On October 8, 2018, Moody’s Investor Service affirmed the Company’s long- and short-term debt ratings of A2 and P-1, respectively, with stable outlook following its review of the impact of the acquisition. On January 18, 2019, Fitch affirmed the Company’s long- and short-term debt ratings of A and F1, respectively, with stable outlook. On March 12, 2019, Standard and Poor’s finalized its review of the Company’s debt ratings and lowered the Company’s long- and short-term ratings to A and A-1, from A+ and A-1+. The Company’s bank facilities contain only one financial covenant, relating to interest coverage, which the Company met on March 30, 2019,January 1, 2022, by a significant margin. The Company’s bank facilities also specifically exclude certain entities, including the Asia Theme Parks, from any representations, covenants or events of default.

SUPPLEMENTAL GUARANTOR FINANCIAL INFORMATION
On March 20, 2019 as part of the acquisition of TFCF, The Walt Disney Company (“TWDC”) became the ultimate parent of TWDC Enterprises 18 Corp. (formerly known as The Walt Disney Company) (“Legacy Disney”). Legacy Disney and TWDC are collectively referred to as “Obligor Group”, and individually, as a “Guarantor”. Concurrent with the close of the TFCF acquisition, $16.8 billion of TFCF’s assumed public debt (which then constituted 96% of such debt) was exchanged for senior notes of TWDC (the “exchange notes”) issued pursuant to an exemption from registration under the Securities Act of 1933, as amended (the “Securities Act”), pursuant to an Indenture, dated as of March 20, 2019, between TWDC, Legacy Disney, as guarantor, and Citibank, N.A., as trustee (the “TWDC Indenture”) and guaranteed by Legacy Disney. On November 26, 2019, $14.0 billion of the outstanding exchange notes were exchanged for new senior notes of TWDC registered under the Securities Act, issued pursuant to the TWDC Indenture and guaranteed by Legacy Disney. In addition, contemporaneously with the closing of the March 20, 2019 exchange offer, TWDC entered into a guarantee of the registered debt securities issued by Legacy Disney under the Indenture dated as of September 24, 2001 between Legacy Disney and Wells Fargo Bank, National Association, as trustee (the “2001 Trustee”) (as amended by the first supplemental indenture among Legacy Disney, as issuer, TWDC, as guarantor, and the 2001 Trustee, as trustee).
45
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS — (continued)


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 January 1, 2022 was as follows:
TWDCLegacy Disney
(in millions)Par ValueCarrying ValuePar ValueCarrying Value
Registered debt with unconditional guarantee$37,339$39,008$10,588$10,617
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 is 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 GAAP.
Results of operations (in millions)Quarter Ended January 1, 2022:
Revenues$—
Costs and expenses—
Net income (loss) from continuing operations(291)
Net income (loss)(291)
Net income (loss) attributable to TWDC shareholders(291)
Balance Sheet (in millions)January 1, 2022October 2, 2021
Current assets$8,451$9,506
Noncurrent assets1,7271,689
Current liabilities7,6626,878
Noncurrent liabilities (excluding intercompany to non-Guarantors)50,15451,439
Intercompany payables to non-Guarantors147,209147,629
COMMITMENTS AND CONTINGENCIES
Legal Matters
As disclosed in Note 13 to the Condensed Consolidated Financial Statements, the Company has exposure for certain legal matters.
Guarantees
See Note 1415 to the Consolidated Financial Statements in the 20182021 Annual Report on Form 10-K for information regarding the Company’s guarantees.10-K.
Tax Matters
As disclosed in Note 910 to the Consolidated Financial Statements in the 20182021 Annual Report on Form 10-K, the Company has exposure for certain tax matters.
46
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS — (continued)
Contractual Commitments
See Note 1415 to the Consolidated Financial Statements in the 20182021 Annual Report on Form 10-K for information regarding the Company’s contractual commitments and see Note 4 to the Condensed Consolidated Financial Statements for contractual commitments assumed in the 21CF acquisition.10-K.
OTHER MATTERS
Accounting Policies and Estimates
We believe that the application of the following accounting policies, which are important to our financial position and results of operations, require significant judgments and estimates on the part of management. For a summary of our significant accounting policies, including the accounting policies discussed below, see Note 2 to the Consolidated Financial Statements in the 20182021 Annual Report on Form 10-K. In addition,
Produced and Acquired/Licensed Content Costs
We amortize and test for our revenue recognition policy, seeimpairment capitalized film and television production costs based on whether the content is predominantly monetized individually or as a group. See Note 37 to the Condensed Consolidated Financial Statements.Statements for further discussion.
Film and Television Revenues and Costs
We expense film and television production, participation and residualProduction costs over the applicable product life cyclethat are classified as individual are amortized based upon the ratio of the current period’s revenues to the estimated remaining total revenues (Ultimate Revenues) for each production. If our estimate of Ultimate Revenues decreases, amortization of film and television costs may be accelerated. Conversely, if our estimate of Ultimate Revenues increases, film and television cost amortization may be slowed. For film productions, Ultimate Revenues include revenues from all sources that will be earned within ten years from the date of the initial theatrical release. For 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..
With respect to produced films intended for theatrical release, the most sensitive factor affecting our estimate of Ultimate Revenues (and therefore affecting future film cost amortization and/or impairment) is theatrical performance. Revenues derived from other markets subsequent to the theatrical release (e.g., the home entertainment or television markets) have historically beenare generally highly correlated with the theatrical performance. Theatrical performance varies primarily based upon the public interest and demand for a particular film, the popularity of competing films at the time of release and the level of marketing effort. Upon a film’s release and determination of the theatrical performance, the Company’s estimates of revenues from succeeding windows and markets, which may include imputed license fees for content that is used on our DTC streaming services, are revised based on historical relationships and an analysis of current market trends. The most sensitive factor affecting our estimate of Ultimate Revenues for released films is the level of expected home entertainment sales. Home entertainment sales vary based on the number and quality of competing home entertainment products, as well as the manner in which retailers market and price our products.
With respect to capitalized television series or other television productions intended for broadcast,production costs that are classified as individual, the most sensitive factors affecting estimates of Ultimate Revenues are program ratings and the strength of the advertising market.content on our licensees’ platforms. Program ratings, which are an indication of market acceptance, directly affect the Company’sprogram’s ability to generate advertising and subscriber revenues duringand are correlated with the airinglicense 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 program. In addition, television series with greater market acceptance are more likely to generate incremental revenues through the licensingcurrent fiscal year. If our estimate of program rights worldwide to television distributors, SVOD services and in home entertainment formats. Alternatively, poor ratings may result in cancellationUltimate Revenues decreases, amortization of the program, which would require an immediate write-down of any unamortized production costs. A significant decline in the advertising market would also negatively impact our estimates.
We expense the cost of television broadcast rights for acquired series, movies and other programs based on the number of times the program is expected to be aired or on a straight-line basis over the useful life, as appropriate. Amortization of those television programming assets being amortized on a number of airings basiscosts may be accelerated or result in an impairment. Conversely, if we reduce the estimated future airings and slowed if we increase the estimated future airings. The numberour estimate of future airingsUltimate Revenues increases, cost amortization may be slowed.
Produced content costs that are part of a particular program is
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS — (continued)


impacted primarily by the program’s ratingsgroup and acquired/licensed content costs are amortized based on projected usage typically resulting in previous airings, expected advertising ratesan accelerated or straight-line amortization pattern. The determination of projected usage requires judgment and availability and quality of alternative programming. Accordingly, planned usage is reviewed periodically and revised if necessary. We amortize rights costs for changes. If projected usage changes we may need to accelerate or slow the recognition of amortization expense.
The amortization of multi-year sports programming arrangements during the applicable seasons based on the estimated relative value of each year in the arrangement. The estimated value of each yearrights is based on our projections of revenues over the contract period, which include advertising revenue and an allocation of affiliate revenue.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 planned usage patterns or estimated relative values by year were to change significantly, amortization of our sports rights costs may be accelerated or slowed.
Costs of film and television productions are subject to regular recoverability assessments, which compare the estimated fair values with the unamortized costs. The net realizable values of television broadcast program licenses and rights are reviewed using a daypart methodology. A daypart is defined as an aggregation of programs broadcast during a particular time of day or programs of a similar type. The Company’s dayparts are: primetime, daytime, late night, news and sports (includes broadcast and cable networks). The net realizable values of other cable programming assets are reviewed on an aggregated basis for each cable network. Individual programs are written off when there are no plans to air or sublicense the program. Estimated values are based upon assumptions about future demand and market conditions. If actual demand or market conditions are less favorable than our projections, film, television and programming cost write-downs may be required.
Revenue Recognition
The Company has revenue recognition policies for its various operating segments that are appropriate to the circumstances of each business. We have updatedRefer to Note 2 to the Consolidated Financial Statements in the 2021 Annual Report on Form 10-K for our revenue recognition policies in conjunction with our adoption of the new revenue recognition guidance as further described in Note 3 to the Condensed Consolidated Financial Statements.
Fixed license fees charged for the right to use our television and motion picture productions are recognized as revenue when the content is available for use by the licensee. TV/SVOD distribution contracts may contain more than one title and/or provide that certain titles are only available for use during defined periods of time during the contract term. In these instances, each title and/or period of availability is generally considered a separate performance obligation. For these contracts, license fees are allocated to each title and period of availability at contract inception based on relative standalone selling price using management’s best estimate. Estimates used to determine a performance obligations’ standalone selling price impact the timing of revenue recognition, but not the total revenue to be recognized under the arrangements.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. ReferSee Note 11 to the 2018Consolidated Financial Statements in the 2021 Annual Report on Form 10-K for estimated impacts of changes in these assumptions. Other assumptions include the healthcare cost trend rate and employee demographic factors such as retirement patterns, mortality, turnover and rate of compensation increase.
47
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS — (continued)
The discount rate enables us to state expected future cash payments for benefits as a present value on the measurement date. A lower discount rate increases the present value of benefit obligations and increases pension and postretirement medical expense. The guideline for setting this rate is a high-quality long-term corporate bond rate. The Company’s discount rate was determined by considering yield curves constructed of a large population of high-quality corporate bonds and reflects the matching of the plans’ liability cash flows to the yield curves.
To determine the expected long-term rate of return on the plan assets, we consider the current and expected asset allocation, as well as historical and expected returns on each plan asset class. A lower expected rate of return on pension plan assets will increase pension and postretirement medical expense.
Goodwill, Other Intangible Assets, Long-Lived Assets and Investments
The Company is required to test goodwill and other indefinite-lived intangible assets for impairment on an annual basis and if current events or circumstances require, on an interim basis. The Company performs its annual test of goodwill and indefinite-lived intangible assets for impairment in its fiscal fourth quarter.
Goodwill is allocated to various reporting units, which are an operating segment or one level below the operating segment. To test goodwill for impairment, the Company first performs a qualitative assessment to determine if it is more likely than not that the carrying amount of a reporting unit exceeds its fair value. If it is, a quantitative assessment is required. Alternatively, the Company may bypass the qualitative assessment and perform a quantitative impairment test.
The Companyqualitative 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.
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. We apply what we believe to be the most appropriate valuation methodology for each of our reporting units. The discounted cash flow analyses are sensitive to our estimates of future revenue growth and margins for these businesses. We include inbusinesses as well as the projecteddiscount rates used to calculate the present value of future cash flows an estimate of the revenue we believe the reporting unit would receive if the intellectual property developed by the reporting unit that is being used by other
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS — (continued)


reporting units was licensed to an unrelated third party at its fair market value. We believe our estimates of fair value are consistent with how a marketplace participant would value our reporting units.
flows. In times of adverse economic conditions in the global economy, the Company’s long-term cash flow projections are subject to a greater degree of uncertainty than usual. We believe our estimates are consistent with how a marketplace participant would value our reporting units. If we had established different reporting units or utilized different valuation methodologies or assumptions, the impairment test results could differ, and we could be required to record impairment charges.
The Company is required to compare the fair values ofTo test its other indefinite-lived intangible assets for impairment, the Company first performs a qualitative assessment to theirdetermine if it is more likely than not that the carrying amounts.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 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 other indefinite-lived intangible assets are determined based on discounted cash flows or appraised values, as appropriate.
The Company tests long-lived assets, including amortizable intangible assets, for impairment whenever events or changes in circumstances (triggering events) indicate that the carrying amount may not be recoverable. Once a triggering event has occurred, the impairment test employed is based on whether the Company’s intent is to hold the asset for continued use or to hold the asset for sale. The impairment test for assets held for use requires a comparison of the estimated undiscounted future cash flows expected to be generated over the useful life of the significant assets of an asset group to the carrying valueamount of the asset group. An asset group is generally established by identifying the lowest level of cash flows generated by a group of assets that are largely independent of the cash flows of other assets and could include assets used across multiple businesses or segments.businesses. If the carrying valueamount 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 assetsasset group and the carrying valueamount of the group’s long-lived assets. The impairment is allocated to the long-lived assets of the group on a pro rata basis using the relative carrying amounts, but only to the extent the carrying value of each asset is above its fair value.group. For assets held for sale, to the extent the carrying value is greater than the asset’s fair value less costs to sell, an impairment loss is recognized for the difference. Determining whether a long-lived asset is impaired requires various estimates and assumptions, including whether a
48
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS — (continued)
triggering event has occurred, the identification of the asset groups, estimates of future cash flows and the discount rate used to determine fair values. If we had established different asset groups or utilized different valuation methodologies or assumptions, the impairment test results could differ, and we could be required to record impairment charges.
The Company has cost andinvestments in equity investments. Thesecurities. For equity securities that do not have a readily determinable fair value, of these investments is dependent on thewe consider forecasted financial performance of the investee companies, as well as volatility inherent in the external markets for these investments. In assessing the potential impairment of these investments, we consider these factors as well as the forecasted financial performance of the investees and market values, where available. If these forecasts are not met, or market values indicate an other-than-temporary decline in value, impairment charges may be required.recorded.
Allowance for Doubtful AccountsCredit Losses
We evaluate our allowance for doubtful accountscredit 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.business, current market conditions, and reasonable and supportable forecasts of future economic conditions. 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. See Note 3 to the Condensed Consolidated Financial Statements for additional discussion.
Contingencies and Litigation
We are currently involved in certain legal proceedings and, as required, have accrued estimates of the probable and estimable losses for the resolution of these proceedings. These estimates are based upon an analysis of potential results, assuming a combination of litigation and settlement strategies and have been developed in consultation with outside counsel as appropriate. From time to time, we mayare also be involved in other contingent matters for which we have accruedaccrue 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 13 to the Condensed Consolidated Financial Statements for more detailed information on litigation exposure.
Income Tax Audits
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
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS — (continued)


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 and may make changes to these estimates and judgments over time. This could result in meaningful impacts to our financial statements in future periods as discussed below.
Produced and Acquired/Licensed Content Costs
Certain of our completed or in progress film and television productions have had their initial release dates delayed. The duration of the delay, market conditions when we release the content, or a change in our release strategy (e.g. bypassing certain distribution windows) could have an impact on Ultimate Revenues, which may accelerate amortization or result in an impairment of capitalized film and television production costs.
Given the ongoing uncertainty around live sporting events continuing uninterrupted, the amount and timing of revenues derived from the broadcast of these events may differ from the projections of revenues that support our amortization pattern of the rights costs we pay for these events. Such changes in revenues could result in an acceleration or slowing of the amortization of our sports rights costs.
Revenue Recognition
Certain of our affiliate contracts contain commitments with respect to the content to be aired on our television networks (e.g. live sports or original content). If there are delays or cancellations of live sporting events or disruptions to film and television content production activities, we may need to assess the impact on our contractual obligations and adjust the revenue that we recognize related to these contracts.
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MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS — (continued)
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.
Income Tax (See Note 8 to the Condensed Consolidated Financial Statements)
The determination of interim period tax provisions generally requires the use of a forecasted full-year effective tax rate, which in turn requires a full year forecast of earnings before tax and tax expense. Given the uncertainties created by COVID-19, these forecasts are subject to greater than normal variability, which could lead to volatility in our reported quarterly effective tax rates.
Risk Management Contracts
The Company employs a variety of financial instruments (derivatives) including interest rate and cross-currency swap agreements and forward and option contracts to manage its exposure to fluctuations in interest rates, foreign currency exchange rates and commodity prices.
As a result of the impact of COVID-19 on our businesses, our projected cash flows or projected usage of commodities are subject to a greater degree of uncertainty, which may cause us to recognize gains or losses on our hedging instruments in different periods than the hedged transaction.
New Accounting Pronouncements
See Note 1817 to the Condensed Consolidated Financial Statements for information regarding new accounting pronouncements.
MARKET RISK
The Company is exposed to the impact of interest rate changes, foreign currency fluctuations, commodity fluctuations and changes in the market values of its investments.
Policies and Procedures
In the normal course of business, we employ established policies and procedures to manage the Company’s exposure to changes in interest rates, foreign currencies and commodities using a variety of financial instruments.
Our objectives in managing exposure to interest rate changes are to limit the impact of interest rate volatility on earnings and cash flows and to lower overall borrowing costs. To achieve these objectives, we primarily use interest rate swaps to manage net exposure to interest rate changes related to the Company’s portfolio of borrowings. By policy, the Company targets fixed-rate debt as a percentage of its net debt between minimum and maximum percentages.
Our objective in managing exposure to foreign currency fluctuations is to reduce volatility of earnings and cash flow in order to allow management to focus on core business issues and challenges. Accordingly, the Company enters into various contracts that change in value as foreign exchange rates change to protect the U.S. dollar equivalent value of its existing foreign currency assets, liabilities, commitments and forecasted foreign currency revenues and expenses. The Company utilizes option strategies and forward contracts that provide for the purchase or sale of foreign currencies to hedge probable, but not firmly committed, transactions. The Company also uses forward and option contracts to hedge foreign currency assets and liabilities. The principal foreign currencies hedged are the euro, Japanese yen, British pound, Chinese yuan and Canadian dollar. Cross-currency swaps are used to effectively convert foreign currency denominated borrowings to U.S. dollar denominated borrowings. By policy, the Company maintains hedge coverage between minimum and maximum percentages of its forecasted foreign exchange exposures generally for periods not to exceed four years. The gains and losses on these contracts offset changes in the U.S. dollar equivalent value of the related exposures. The economic or political conditions in a country could reduce our ability to hedge exposure to currency fluctuations in the country or our ability to repatriate revenue from the country.
Our objectives in managing exposure to commodity fluctuations are to use commodity derivatives to reduce volatility of earnings and cash flows arising from commodity price changes. The amounts hedged using commodity swap contracts are based on forecasted levels of consumption of certain commodities, such as fuel oil and gasoline.
Our objectives in managing exposures to market-based fluctuations in certain retirement liabilities are to use total return swap contracts to reduce the volatility of earnings arising from changes in these retirement liabilities. The amounts hedged using total return swap contracts are based on estimated liability balances.
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.
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Item 3. Quantitative and Qualitative Disclosures about Market Risk.
See Item 2, Management’s Discussion and Analysis of Financial Condition and Results of Operations, and Note 15 to the Condensed Consolidated Financial Statements.

Item 4. 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 March 30, 2019,January 1, 2022, 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.
Changes in Internal Controls – There have been no changes in our internal controlscontrol over financial reporting during the secondfirst quarter of fiscal 20192022 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting, except as noted below.reporting.
During the quarter ended March 30, 2019, we completed the 21CF acquisition (see Note 4 to the Condensed Consolidated Financial Statements for more information). We are currently integrating 21CF into our operations and internal control processes and, pursuant to the SEC’s guidance that an assessment of a recently acquired business may be omitted from the scope of an assessment in the year of acquisition, the scope of our assessment of the effectiveness of our internal controls over financial reporting at September 28, 2019 will not include 21CF.
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PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings
As disclosed in Note 13 to the Condensed Consolidated Financial Statements, the Company is engaged in certain legal matters, and the disclosure set forth in Note 13 relating to certain legal matters is incorporated herein by reference.

ITEM 1A. Risk Factors
The Private Securities Litigation Reform Act of 1995 (the Act) 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 reportFor an enterprise as large and other filings with the Securities and Exchange Commission and in reports to our shareholders. All forward-looking statements are made on the basis of management’s views and assumptions regarding future events and business performancecomplex 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 differa wide range of factors could materially fromaffect future developments and performance, including those expressed or implied. Such differences may result from actions taken by the Company, including restructuring or strategic initiatives (including capital investments or asset acquisitions or dispositions), as well as from developments beyond the Company’s control, including: changes in domestic and global economic conditions, competitive conditions and consumer preferences; adverse weather conditions or natural disasters; health concerns; international, political or military developments; and technological developments. Such developments may affect entertainment, travel and leisure businesses generally and may, among other things, affect the performance of the Company’s theatrical and home entertainment releases, the advertising market for broadcast and cable television programming, demand for our products and services, expenses of providing medical and pension benefits, performance of some or all company businesses either directly or through their impact on those who distribute our products.
The seasonality of certain of our businesses could exacerbate negative impacts on our operations.
Each of our businesses is normally subject to seasonal variations, as described in “Management’s Discussion and Analysis - Seasonality.”
Accordingly, if a short-term negative impact on“Risk Factors” in our business occurs during a time of high seasonal demand (such as hurricane damage to our parks during the summer travel season), the effect could have a disproportionate effect on the results of that business for the year.
Consummation of the 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 21CF has increased the importance of international operations to our future operations, growth and prospects. The risks of operating internationally that we face have increased following the completion of the Acquisition.
Our consolidated indebtedness has increased substantially following completion of the Acquisition. This increased level of indebtedness could adversely affect us, including by decreasing our business flexibility.
Our consolidated indebtedness as of September 29, 2018 was approximately $20.9 billion. Upon completion of the Acquisition, we assumed $23 billion of outstanding debt of 21CF. In addition, we have $15 billion of additional debt under a 364-day credit agreement used to finance a portion of the cash consideration for the 21CF acquisition. We anticipate using proceeds from the sale of the 21CF RSNs to pay down indebtedness when those proceeds become available.
The increased indebtedness could have the effect of, among other things, reducing our flexibility to respond to changing business and economic conditions. The 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. Our financial flexibility may be further constrained by the issuance of shares of common stock in the 21CF acquisition, because of dividend payments.
Risks that impact our business as a whole may also impact the success of our direct-to-consumer business.
We may not successfully execute on technology development, service promotion, or creative development. Consumers may not be willing to pay for an expanding set of Direct-to-Consumer (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.
Additional factors are discussed in the 20182021 Annual Report on Form 10-K underand the Item 1A, “Risk Factors.”factors affecting specific business operations identified in connection with the description of these operations and the financial results of these operations elsewhere in our filings with the SEC. There have been no material changes in our risk factors from those disclosed in our 2021 Annual Report on Form 10-K.
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ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds
(a)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 January 1, 2022:
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)
October 3, 2021 - October 31, 202116,599$171.24—na
November 1, 2021 - November 30, 202123,036157.38—na
December 1, 2021 - January 1, 202228,624147.64—na
Total68,259156.67—na
(1)March 30, 201968,259 shares were purchased on the open market to provide shares to participants in the Walt Disney Investment Plan. 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.
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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)
December 30, 2018 - January 31, 2019 229,366
 $111.93
 —
 158 million
February 1, 2019 - February 28, 2019 24,341
 113.06
 —
 158 million
March 1, 2019 - March 30, 2019 25,285
 112.65
 —
 0
Total 278,992
 112.10
 —
 0
(1)

278,992 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)
On March 20, 2019, the Company terminated the repurchase program.



ITEM 5. Other Items
Costs Associated with Exit or Disposal ActivitiesNone.
The information set forth below is included herein for the purpose of providing the disclosure required under “Item 2.05 - Costs Associated with Exit or Disposal Activities” of Form 8-K.
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On May 8, 2019, the Company disclosed a restructuring and integration plan as part of its initiative to realize cost synergies from its previously announced acquisition of 21CF. We expect to complete the restructuring and integration plan by the end of Fiscal Year 2021.
The Company estimates it will incur severance and severance-related costs on the order of $1.5 billion. This amount represents an estimate which is subject to change as management finalizes its assessment. The Company may also incur other costs in connection with the plan, such as lease termination costs, but is unable to estimate those amounts at this time.


ITEM 6. Exhibits
See Index of Exhibits.

SIGNATURE
Pursuant to the requirements 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)
By:/s/ CHRISTINE M. MCCARTHY
Christine M. McCarthy,
Senior Executive Vice President and Chief Financial Officer
May 8, 2019
Burbank, California


INDEX OF EXHIBITS
Number and Description of Exhibit

(Numbers Coincide with Item 601 of Regulation S-K)
Document Incorporated by Reference from a Previous Filing or Filed Herewith, as Indicated below
3.1Restated Certificate of Incorporation of The Walt Disney Company, effective as of March 19, 2019
Exhibit 3.1 to the Current Report on Form 8-K of the Company filed March 20, 2019
3.2Certificate of Amendment to the Restated Certificate of Incorporation of The Walt Disney Company, effective as of March 20, 2019
Exhibit 3.2 to the Current Report on Form 8-K of the Company filed March 20, 2019
3.3Amended and Restated Bylaws of The Walt Disney Company, effective as of March 20, 2019
Exhibit 3.3 to the Current Report on Form 8-K of the Company filed March 20, 2019
3.4Amended and Restated Certificate of Incorporation of TWDC Enterprises 18 Corp., effective as of March 20, 2019
Exhibit 3.1 to the Current Report on Form 8-K of Legacy Disney filed March 20, 2019
3.5Amended and Restated Bylaws of TWDC Enterprises 18 Corp., effective as of March 20, 2019
Exhibit 3.2 to the Current Report on Form 8-K of Legacy Disney filed March 20, 2019
4.1First Supplemental Indenture to the Indenture dated as of September 24, 2001 between TWDC Enterprises 18 Corp. and the 2001 Indenture Trustee, dated as of March 20, 2019, by and among TWDC Enterprises 18 Corp., as issuer, The Walt Disney Company, as guarantor, and Wells Fargo Bank, National Association, as trustee
Exhibit 4.1 to the Current Report on Form 8-K of the Company filed March 20, 2019
4.2Indenture, 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
Exhibit 4.1 to the Current Report on Form 8-K of the Company filed March 20, 2019
4.3Form of Disney Make-Whole Notes (Disney 5.650% 2020 Notes, Disney 4.500% 2021 Notes, Disney 3.000% 2022 Notes, Disney 4.000% 2023 Notes, Disney 6.400% 2035 Notes, Disney 6.150% 2037 Notes, Disney 6.650% 2037 Notes, Disney 7.850% 2039 Notes, Disney 6.900% 2039 Notes, Disney 6.150% 2041 Notes and Disney 5.400% 2043 Notes)
Exhibit 4.2 to the Current Report on Form 8-K of the Company filed March 20, 2019
4.4Form of Disney Par Call Notes (Disney 3.700% 2024 Notes, Disney 3.700% 2025 Notes, Disney 3.375% 2026 Notes, Disney 4.750% 2044 Notes, Disney 4.950% 2045 Notes and Disney 4.750% 2046 Notes)
Exhibit 4.3 to the Current Report on Form 8-K of the Company filed March 20, 2019
4.5Form of Disney Non-Redeemable Notes (Disney 8.875% 2023 Notes, Disney 7.750% January 2024 Notes, Disney 7.750% February 2024 Notes, Disney 9.500% 2024 Notes, Disney 8.500% 2025 Notes, Disney 7.700% 2025 Notes, Disney 7.430% 2026 Notes, Disney 7.125% 2028 Notes, Disney 7.300% 2028 Notes, Disney 7.280% 2028 Notes, Disney 7.625% 2028 Notes, Disney 6.550% 2033 Notes, Disney 8.450% 2034 Notes, Disney 6.200% 2034 Notes, Disney 8.150% 2036 Notes, Disney 6.750% 2038 Notes, Disney 7.750% 2045 Notes, Disney 7.900% 2095 Notes and Disney 8.250% 2096 Notes )
Exhibit 4.4 to the Current Report on Form 8-K of the Company filed March 20, 2019
4.6Registration 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

10.1364-Day Bridge Credit
10.1Filed herewith
10.2
Exhibit 10.1 to the Current Report
on Form 8-K of the Company
filed March 20, 2019December 21, 2021
10.210.3364-Day CreditFiled herewith
10.4
Exhibit 10.2 to the Current Report on Form 8-K of the Company filed March 20, 2019
10.3Amendment to Amended and Restated Employment Agreement, Dated as of October 6, 2011, as amended,December 21, 2021 between the Company and Horacio E. Gutierrez †Filed herewith
10.5Filed herewith
10.6Filed herewith
10.7Filed herewith
10.8Filed herewith
10.9Filed herewith
10.10Filed herewith
10.11
Exhibit 10.1 to the Current Report on Form 8-K of Legacy Disney filed March 4, 2019Filed herewith
31(a)10.12Filed herewith
22Filed herewith
31(a)
Filed herewith
31(b)
Filed herewith
32(a)
Furnished
32(b)
Furnished
101
101The following materials from the Company’s Quarterly Report on Form 10-Q for the quarter ended March 30, 2019January 1, 2022 formatted in Inline Extensible Business Reporting Language (XBRL)(iXBRL): (i) the Condensed Consolidated Statements of Income, (ii) the Condensed Consolidated Statements of Comprehensive Income, (iii) the Condensed Consolidated Balance Sheets, (iv) the Condensed Consolidated Statements of Cash Flows, (v) the Condensed Consolidated Statements of Equity and (vi) related notesFiled herewith
104Cover Page Interactive Data File (embedded within the Inline XBRL document)Filed herewith

*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 Securities and Exchange Commission or its staff upon request.
†Management Contract or compensatory plan or arrangement.

82
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SIGNATURE
Pursuant to the requirements 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)
By:/s/ CHRISTINE M. MCCARTHY
Christine M. McCarthy,
Senior Executive Vice President and Chief Financial Officer
February 9, 2022
Burbank, California
56