UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended January ~~2, 2021~~1, 2022

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from __________ to __________.

Commission File Number 001-38842


Delaware						83-0940635
State or Other Jurisdiction of						I.R.S. Employer Identification
Incorporation or Organization

500 South Buena Vista Street

Burbank, California 91521

Address of Principal Executive Offices and Zip Code

(818) 560-1000

Registrant’s Telephone Number, Including Area Code

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock, $0.01 par value

DIS

New York Stock Exchange

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 ☒ 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 ☒ 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 filer

☒

Accelerated filer

☐

Non-accelerated filer

☐

Smaller reporting company

☐

Emerging growth company

☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No ☒

There were ~~1,815,263,899~~1,820,633,408 shares of common stock outstanding as of February ~~3, 2021.~~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 2,
2021 December 28,
2019
Revenues:
Services $ 14,871 $ 18,094
Products 1,378 2,783
Total revenues 16,249 20,877
Costs and expenses:
Cost of services (exclusive of depreciation and amortization) (10,738) (11,395)
Cost of products (exclusive of depreciation and amortization) (1,037) (1,639)
Selling, general, administrative and other (2,917) (3,709)
Depreciation and amortization (1,298) (1,299)
Total costs and expenses (15,990) (18,042)
Restructuring and impairment charges (113) (150)
Interest expense, net (324) (283)
Equity in the income of investees 224 224
Income from continuing operations before income taxes 46 2,626
Income taxes on continuing operations (16) (458)
Net income from continuing operations 30 2,168
Loss from discontinued operations, net of income tax benefit of $4 and $7, respectively (12) (21)
Net income 18 2,147
Net income from continuing operations attributable to noncontrolling interests (1) (40)
Net income attributable to The Walt Disney Company (Disney) $ 17 $ 2,107
Earnings (loss) per share attributable to Disney(1):
Diluted
Continuing operations $ 0.02 $ 1.17
Discontinued operations (0.01) (0.01)
$ 0.01 $ 1.16
Basic
Continuing operations $ 0.02 $ 1.18
Discontinued operations (0.01) (0.01)
$ 0.01 $ 1.17
Weighted average number of common and common equivalent shares outstanding:
Diluted 1,823 1,817
Basic 1,812 1,805


	Quarter Ended
	January 1, 2022		January 2, 2021
Revenues:
Services	$	19,542	$	14,871
Products	2,277		1,378
Total revenues	21,819		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 investees	239		224
Income from continuing operations before income taxes	1,688		46
Income taxes on continuing operations	(488)		(16)
Net income from continuing operations	1,200		30
Loss from discontinued operations, net of income tax benefit of $14 and $4, respectively	(48)		(12)
Net income	1,152		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:
Diluted	1,828		1,823
Basic	1,819		1,812

(1)Total may not equal the sum of the column due to rounding.

See Notes to Condensed Consolidated Financial Statements

THE WALT DISNEY COMPANY

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(unaudited; in millions)


		Quarter Ended				Quarter Ended
		January 2, 2021		December 28, 2019				January 1, 2022		January 2, 2021
Net income	Net income	$	18	$	2,147		Net income	$	1,152	$	18
Other comprehensive income (loss), net of tax:	Other comprehensive income (loss), net of tax:						Other comprehensive income (loss), net of tax:
Market value adjustments, primarily for hedges		(173)		(107)
Market value adjustments for hedges							Market value adjustments for hedges	50		(173)
Pension and postretirement medical plan adjustments	Pension and postretirement medical plan adjustments	150		107			Pension and postretirement medical plan adjustments	155		150
Foreign currency translation and other	Foreign currency translation and other	277		127			Foreign currency translation and other	(22)		277
Other comprehensive income	Other comprehensive income	254		127			Other comprehensive income	183		254
Comprehensive income	Comprehensive income	272		2,274			Comprehensive income	1,335		272
Net income from continuing operations attributable to noncontrolling interests	Net income from continuing operations attributable to noncontrolling interests	(1)		(40)			Net income from continuing operations attributable to noncontrolling interests	(48)		(1)
Other comprehensive income attributable to noncontrolling interests		(73)		(43)
Other comprehensive loss attributable to noncontrolling interests							Other comprehensive loss attributable to noncontrolling interests	(19)		(73)
Comprehensive income attributable to Disney	Comprehensive income attributable to Disney	$	198	$	2,191		Comprehensive income attributable to Disney	$	1,268	$	198

See Notes to Condensed Consolidated Financial Statements

THE WALT DISNEY COMPANY

CONDENSED CONSOLIDATED BALANCE SHEETS

(unaudited; in millions, except per share data)

January 2,
2021 October 3,
2020
ASSETS
Current assets
Cash and cash equivalents $ 17,068 $ 17,914
Receivables 14,051 12,708
Inventories 1,480 1,583
Content advances 1,423 2,171
Other current assets 852 875
Total current assets 34,874 35,251
Produced and licensed content costs 25,929 25,022
Investments 4,037 3,903
Parks, resorts and other property
Attractions, buildings and equipment 63,017 62,111
Accumulated depreciation (36,380) (35,517)
26,637 26,594
Projects in progress 4,547 4,449
Land 1,079 1,035
32,263 32,078
Intangible assets, net 18,642 19,173
Goodwill 77,800 77,689
Other assets 8,343 8,433
Total assets $ 201,888 $ 201,549
LIABILITIES AND EQUITY
Current liabilities
Accounts payable and other accrued liabilities $ 16,846 $ 16,801
Current portion of borrowings 5,397 5,711
Deferred revenue and other 4,303 4,116
Total current liabilities 26,546 26,628
Borrowings 52,878 52,917
Deferred income taxes 7,201 7,288
Other long-term liabilities 17,205 17,204
Commitments and contingencies (Note 12) 0 0
Redeemable noncontrolling interests 9,330 9,249
Equity
Preferred stock 0 0
Common stock, $0.01 par value, Authorized – 4.6 billion shares, Issued – 1.8 billion shares 54,663 54,497
Retained earnings 38,456 38,315
Accumulated other comprehensive loss (8,141) (8,322)
Treasury stock, at cost, 19 million shares (907) (907)
Total Disney Shareholders’ equity 84,071 83,583
Noncontrolling interests 4,657 4,680
Total equity 88,728 88,263
Total liabilities and equity $ 201,888 $ 201,549


	January 1, 2022		October 2, 2021
ASSETS
Current assets
Cash and cash equivalents	$	14,444	$	15,959
Receivables, net	14,882		13,367
Inventories	1,345		1,331
Content advances	1,125		2,183

Other current assets	1,117		817

Total current assets	32,913		33,657
Produced and licensed content costs	30,669		29,549
Investments	3,549		3,935
Parks, resorts and other property
Attractions, buildings and equipment	65,257		64,892
Accumulated depreciation	(38,505)		(37,920)
	26,752		26,972
Projects in progress	4,808		4,521
Land	1,121		1,131
	32,681		32,624
Intangible assets, net	16,574		17,115
Goodwill	78,052		78,071

Other assets	8,873		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 borrowings	6,783		5,866
Deferred revenue and other	4,545		4,317

Total current liabilities	30,037		31,077
Borrowings	47,349		48,540
Deferred income taxes	8,124		7,246

Other long-term liabilities	14,208		14,522
Commitments and contingencies (Note 13)	0		0
Redeemable noncontrolling interests	9,283		9,213
Equity
Preferred stock	—		—
Common stock, $0.01 par value, Authorized – 4.6 billion shares, Issued – 1.8 billion shares	55,500		55,471
Retained earnings	41,547		40,429
Accumulated other comprehensive loss	(6,276)		(6,440)

Treasury stock, at cost, 19 million shares	(907)		(907)
Total Disney Shareholders’ equity	89,864		88,553
Noncontrolling interests	4,446		4,458
Total equity	94,310		93,011
Total liabilities and equity	$	203,311	$	203,609

See Notes to Condensed Consolidated Financial Statements

THE WALT DISNEY COMPANY

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited; in millions)

Quarter Ended
January 2,
2021 December 28,
2019
OPERATING ACTIVITIES
Net income from continuing operations $ 30 $ 2,168
Depreciation and amortization 1,298     1,299
Net gain on investments (80) 3
Deferred income taxes (105)     534
Equity in the income of investees (224) (224)
Cash distributions received from equity investees 193 219
Net change in produced and licensed content costs and advances 771 (77)
Net change in operating lease right of use assets / liabilities 36 (2)
Equity-based compensation 134 115
Other 90 66
Changes in operating assets and liabilities, net of business acquisitions:
Receivables (1,324) (1,424)
Inventories 94 81
Other assets (136) (158)
Accounts payable and other liabilities (642) (714)
Income taxes (60) (256)
Cash provided by operations - continuing operations 75 1,630
INVESTING ACTIVITIES
Investments in parks, resorts and other property (760) (1,338)
Other 28 (12)
Cash used in investing activities - continuing operations (732) (1,350)
FINANCING ACTIVITIES
Commercial paper borrowings (payments), net (179) 1,172
Borrowings 1 51
Reduction of borrowings (139) (46)
Proceeds from exercise of stock options 209 126
Other (225) (186)
Cash provided by (used in) financing activities - continuing operations (333) 1,117
CASH FLOWS FROM DISCONTINUED OPERATIONS
Cash provided by (used in) operations - discontinued operations 9 (19)
Impact of exchange rates on cash, cash equivalents and restricted cash 139 41
Change in cash, cash equivalents and restricted cash (842) 1,419
Cash, cash equivalents and restricted cash, beginning of period 17,954 5,455
Cash, cash equivalents and restricted cash, end of period $ 17,112 $ 6,874


	Quarter Ended
	January 1, 2022		January 2, 2021
OPERATING ACTIVITIES
Net income from continuing operations	$	1,200	$	30
Depreciation and amortization	1,269		1,298

Net (gain) loss on investments	436		(80)
Deferred income taxes	726		(105)
Equity in the income of investees	(239)		(224)
Cash distributions received from equity investees	223		193
Net change in produced and licensed content costs and advances	507		771

Equity-based compensation	196		134
Pension and postretirement medical benefit cost amortization	155		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)
Borrowings	33		1
Reduction of borrowings	—		(139)


Proceeds from exercise of stock options	33		209


Other, net	(222)		(225)
Cash used in financing activities - continuing operations	(280)		(333)

CASH FLOWS FROM DISCONTINUED OPERATIONS
Cash provided by operations - discontinued operations	8		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 period	16,003		17,954
Cash, cash equivalents and restricted cash, end of period	$	14,488	$	17,112

See Notes to Condensed Consolidated Financial Statements

THE WALT DISNEY COMPANY

CONDENSED CONSOLIDATED STATEMENTS OF EQUITY

(unaudited; in millions)

Quarter Ended
Equity Attributable to Disney
Shares Common Stock Retained Earnings Accumulated
Other
Comprehensive
Income
(Loss) Treasury Stock Total Disney Equity
Non-controlling
   Interests(1)
Total
Equity
Balance at October 3, 2020 1,810 $ 54,497 $ 38,315 $ (8,322) $ (907) $ 83,583 $ 4,680 $ 88,263
Comprehensive income (loss) — — 17 181 — 198 (6) 192
Equity compensation activity 4 165 — — — 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, 2021 1,814 $ 54,663 $ 38,456 $ (8,141) $ (907) $ 84,071 $ 4,657 $ 88,728
Balance at September 28, 2019 1,802 $ 53,907 $ 42,494 $ (6,617) $ (907) $ 88,877 $ 5,012 $ 93,889
Comprehensive income — — 2,107     84 — 2,191 17 2,208
Equity compensation activity 3 88 — — — 88 — 88
Dividends — — (1,587) — — (1,587) — (1,587)
Contributions — — — — — — 20 20
Cumulative effect of accounting change —     —     197 —     — 197     —     197
Distributions and other — — (9) — — (9) (33) (42)
Balance at December 28, 2019 1,805 $ 53,995 $ 43,202 $ (6,533) $ (907) $ 89,757 $ 5,016 $ 94,773


	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 October 2, 2021	1,818	$	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 activity	3	29		—			—		—		29		—		29


Contributions	—	—		—			—		—		—		29		29





Distributions and other	—	—		14			—		—		14		(37)		(23)
Balance at January 1, 2022	1,821	$	55,500	$	41,547		$	(6,276)	$	(907)	$	89,864	$	4,446	$	94,310

Balance at October 3, 2020	1,810	$	54,497	$	38,315		$	(8,322)	$	(907)	$	83,583	$	4,680	$	88,263
Comprehensive income	—	—		17			181		—		198		(6)		192
Equity compensation activity	4	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, 2021	1,814	$	54,663	$	38,456		$	(8,141)	$	(907)	$	84,071	$	4,657	$	88,728

(1)Excludes redeemable noncontrolling interests.

See Notes to Condensed Consolidated Financial Statements

THE WALT DISNEY COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited; tabular dollars in millions, except for per share data)

1.Principles of Consolidation

These Condensed Consolidated Financial Statements have been prepared in accordance with accounting principles generally accepted in the United States of America (GAAP) for interim financial information and the instructions to Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. We believe that we have included all normal recurring adjustments necessary for a fair ~~presentation~~statement of the results for the interim period. Operating results for the quarter ended January ~~2, 2021~~1, 2022 are not necessarily indicative of the results that may be expected for the year ending October ~~2, 2021.~~1, 2022.

The terms “Company,” “Disney,” “we,” “us,” and “our” are used in this report to refer collectively to the parent company, ~~and~~The Walt Disney Company, as well as the subsidiaries through which ~~our~~its 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 ~~2020~~2021 Annual Report on Form 10-K.

The Fox sports media business in Mexico ~~along with another Fox business divested~~was sold in ~~fiscal 2020, are~~November 2021. The Company recognized a $58 million loss on the sale, which is presented as discontinued operations in the Condensed Consolidated Statements of Income. At ~~January~~October 2, 2021, ~~and October 3, 2020,~~ the assets and liabilities of the Fox sports media ~~operation~~business in Mexico ~~are~~were not material and ~~are~~were included in other assets and other liabilities in the Condensed Consolidated Balance ~~Sheet.~~Sheets.

Variable Interest Entities

The Company enters into relationships with or makes investments in other entities that may be variable interest entities (VIE). A VIE is consolidated in the financial statements if the Company has the power to direct activities that most significantly impact the economic performance of the VIE and has the obligation to absorb losses or the right to receive benefits from the VIE that could potentially be significant (as defined by ASC 810-10-25-38) to the VIE. Hong Kong Disneyland Resort and Shanghai Disney Resort (together the Asia Theme Parks) are VIEs in which the Company has less than 50% equity ownership. Company subsidiaries (the Management Companies) have management agreements with the Asia Theme Parks, which provide the Management Companies, subject to certain protective rights of joint venture partners, with the ability to direct the day-to-day operating activities and the development of business strategies that we believe most significantly impact the economic performance of the Asia Theme Parks. In addition, the Management Companies receive management fees under these arrangements that we believe could be significant to the Asia Theme Parks. Therefore, the Company has consolidated the Asia Theme Parks in its financial statements.

Redeemable Noncontrolling Interests

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 ~~2, 2021,~~1, 2022, NBCU’s interest in Hulu is recorded in the Company’s financial statements at ~~$8.2~~$8.5 billion.

BAMTech provides streaming technology services to third parties and is owned ~~75%~~85% by the Company and 15% by Major League Baseball (MLB) ~~and 10% by the National Hockey League (NHL), both of which have the right to sell their interests to the Company in the future.~~

. MLB has the right to sell its interest to the Company and the Company has the right to buy MLB’s interest starting five years from and ending ten years after the Company’s September 25, 2017 acquisition date of BAMTech 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). ~~The NHL~~

THE WALT DISNEY COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited; tabular dollars in millions, except for per share data)

~~can sell its interest to the Company in 2021 for $350 million. The Company has the right to acquire the NHL interest in 2021 for $500 million.~~

The MLB ~~and NHL interests are~~interest is required to be ~~recorded~~carried at a minimum value equal to ~~the greater of (i) their~~its acquisition date fair value ~~adjusted for their share (if any) of earnings, losses, or dividends (“adjusted value”) or (ii) an~~ accreted to its estimated redemption value ~~from the date of the acquisition to~~through the applicable redemption ~~date (“accreted value”). As~~date. Therefore, the ~~accreted value~~MLB interest is generally ~~always higher than the adjusted value, the MLB and NHL interests are~~ not allocated ~~their~~its portion of BAMTech losses. ~~Therefore, the MLB and NHL interests are accreted to the estimated redemption value as of the earliest redemption date.~~ As of January ~~2, 2021,~~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 ~~value for the MLB interest, accreted from the date~~values, we would change our rate of ~~acquisition, was $724 million. As of January 2, 2021, the accreted value of the NHL interest was $325 million.~~

~~Adjustments to the carrying amount of redeemable noncontrolling interests~~accretion, which would generally increase ~~or decrease income available to Company shareholders and are~~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 principles~~GAAP 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 ~~2020~~2021 financial statements and notes to conform to the fiscal ~~2021~~2022 presentation.

2.~~Description of Business and~~ 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 at the beginning of the first quarter of fiscal 2021, we changed the presentation of segment operating results as discussed below and have recast our fiscal 2020 segment operating results to align with the fiscal 2021 presentation.

~~Media and Entertainment Reorganization~~

In October 2020, the Company reorganized its media and entertainment operations, which have been previously reported in three segments: Media Networks, Studio Entertainment and Direct-to-Consumer & International. Under this reorganization, a single group is responsible for distributing all of the Company’s media and entertainment content across all platforms globally. This distribution organization will have full accountability for the financial results of the media and entertainment businesses, and content will be created by three production groups: Studios, General Entertainment and Sports.

As a result of the reorganization, effective at the beginning of the first quarter of fiscal 2021, the financial results of the media and entertainment businesses will be reported as one segment, Disney Media and Entertainment Distribution (DMED). We will report operating results for the DMED segment across three significant lines of business/distribution platforms: Direct-to-Consumer (DTC), Linear Networks and Content Sales/Licensing (primarily comprising theatrical, home entertainment and third-party television and subscription video-on-demand “TV/SVOD” distribution globally).

~~Intersegment Transfer Pricing~~

Under our previous segment structure, in certain instances production and distribution activities were in different segments. In these situations, for segment financial accounting purposes, the producer segment would recognize revenue based on an intersegment transfer price that included a “mark-up”. These transactions were reported “gross” (i.e. the segment producing the content reported revenue and the mark-up from intersegment transactions, and the required eliminations were reported on a separate “Eliminations” line when presenting a summary of our segment results). Under our new segment structure, the operating results of the production and distribution activities are reported in the same segment, and the fully loaded production cost will be allocated across the distribution platforms which are utilizing the content.

~~Elimination of Consumer Products Revenue Share~~

Under our legacy segment financial reporting, the Studio Entertainment segment received a revenue share related to the consumer products business, which is included in the Disney Parks, Experiences and Products (DPEP) segment. Under the new reporting structure, DMED will not receive a revenue share from DPEP related to the consumer products business.

~~THE WALT DISNEY COMPANY~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(unaudited; tabular dollars in millions, except for per share data)~~

~~DESCRIPTION OF BUSINESS~~

~~Disney Media and Entertainment Distribution~~

•~~Significant operations:~~

◦~~Linear Networks~~

▪~~Domestic Channels: ABC Television Network and eight owned ABC television stations (Broadcasting), and Disney, ESPN, Freeform, FX and National Geographic branded domestic television networks (Cable)~~

▪~~International Channels: Disney, ESPN, Fox, National Geographic and Star branded television networks outside the U.S.~~

▪~~A 50% equity investment in A+E Television Networks (A+E), which operates a variety of cable channels including A&E, HISTORY and Lifetime~~

◦~~Direct-to-Consumer~~

▪~~Disney+, Disney+Hotstar, ESPN+, Hulu and Star+ DTC streaming services~~

◦~~Content Sales/Licensing~~

▪~~Sale of film and television content to third-party television and subscription video-on-demand (TV/SVOD) services~~

▪~~Theatrical distribution~~

▪~~Home entertainment distribution (DVD, Blu-ray and electronic home video licenses)~~

•~~Music distribution~~

•~~Staging and licensing of live entertainment events on Broadway and around the world (Stage Plays)~~

•~~DMED also includes the following activities that are reported with Content Sales/Licensing:~~

◦~~Post-production services through Industrial Light & Magic and Skywalker Sound~~

◦~~A 30% ownership interest in Tata Sky Limited, which operates a direct-to-home satellite distribution platform in India~~

•~~Significant revenues:~~

◦Affiliate fees - Fees charged by our linear networks to multi-channel video programming distributors (i.e. cable, satellite, telecommunications and digital over-the-top (e.g. Hulu, YouTube TV) service providers) (MVPDs) and to television stations affiliated with the ABC Network for the right to deliver our programming to their customers

◦~~Advertising - Sales of advertising time/space on our networks, DTC streaming services and owned television stations~~

◦~~Subscription fees - Fees charged to customers/subscribers for our DTC services~~

◦TV/SVOD distribution - Licensing fees and other revenue for the right to use our film and television productions and revenue from fees charged to customers to view our sports programming (“pay-per-view”) and Premier Access content. TV/SVOD distribution revenue is primarily reported in Content Sales/Licensing, except for pay-per-view and Premier Access revenue, which is reported in Direct-to-Consumer

◦~~Theatrical distribution - Rentals from licensing our film productions to theaters~~

◦~~Home entertainment - Sale of our film and television content to retailers and distributors in home video formats~~

◦~~Other content sales/licensing revenue - Revenues from licensing our music, ticket sales from stage play performances and fees from licensing our intellectual properties for use in stage plays~~

◦~~Other revenue - Fees from sub-licensing of sports programming rights (reported in Linear Networks) and post-production services (reported with Content Sales/Licensing)~~

•~~Significant expenses:~~

◦Operating expenses consist primarily of programming and production costs. technical support costs, operating labor, distribution costs and costs of sales. Operating expenses also includes fees paid to Linear Networks from other DMED business for the right to air the linear networks feed and other services. Programming and production costs include amortization of acquired licensed programming rights (including sports rights), amortization of capitalized production costs (including participations and residuals) and production costs related to live

~~THE WALT DISNEY COMPANY~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(unaudited; tabular dollars in millions, except for per share data)~~

~~programming such as news and sports. Programming and production costs are largely incurred across three content creation groups, as follows:~~

▪~~Studios - Primarily capitalized production costs related to feature films produced under the Walt Disney Pictures, Twentieth Century Studios, Marvel, Lucasfilm, Pixar and Searchlight Pictures banners~~

▪General Entertainment - Primarily acquisition of rights to and internal production of episodic television programs and news content. Internal content is generally produced by the following television studios: ABC Signature; 20th Television; Disney Television Animation, FX Productions and various studios for which we commission productions for our branded channels and DTC services

▪~~Sports - Primarily acquisition of professional and college sports programming rights and related production costs~~

◦~~Selling, general and administrative costs~~

◦~~Depreciation and amortization~~

~~Disney Parks, Experiences and Products~~

•~~Significant operations:~~

◦~~Parks & Experiences:~~

▪Theme parks and resorts, which include: Walt Disney World Resort in Florida; Disneyland Resort in California; Disneyland Paris; Hong Kong Disneyland Resort; Shanghai Disney Resort. 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, for use on merchandise, published materials and games

▪~~Sale of branded merchandise through retail, online and wholesale businesses, and development and publishing of books, comic books and magazines~~

•~~Significant revenues:~~

◦~~Theme park admissions - Sales of tickets for admission to our theme parks~~

◦~~Parks & Experiences merchandise, food and beverage - Sales of merchandise, food and beverages at our theme parks and resorts and cruise ships~~

◦~~Resorts and vacations - Sales of room nights at hotels, sales of cruise and other vacations and sales and rentals of vacation club properties~~

◦~~Merchandise licensing and retail:~~

▪~~Merchandise licensing - Royalties from licensing our intellectual properties for use on consumer goods~~

▪~~Retail - Sales of merchandise at The Disney Stores and through branded internet shopping sites, as well as to wholesalers (including books, comic books and magazines)~~

◦~~Parks licensing and other - Revenues from sponsorships and co-branding opportunities and real estate rent and sales. In addition, we earn royalties on Tokyo Disney Resort revenues~~

•~~Significant expenses:~~

◦Operating expenses consist primarily of operating labor, costs of goods sold, infrastructure costs, supplies, commissions and entertainment offerings. Infrastructure costs include information systems expense, repairs and maintenance, property taxes, utilities and fuel, retail occupancy costs, insurance and transportation

◦~~Selling, general and administrative costs~~

◦~~Depreciation and amortization~~

~~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 acquisition accounting amortization of TFCF Corporation (TFCF) and Hulu assets (i.e. intangible assets and the fair value step-up for film and

~~THE WALT DISNEY COMPANY~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(unaudited; tabular dollars in millions, except for per share data)~~

television costs) recognized in connection with the 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.

Segment operating results include allocations of certain costs, including information technology, pension, legal and other shared services costs, which are allocated based on metrics designed to correlate with consumption.

Impact of COVID-19

Since early 2020, the world has been, and continues to be, impacted by the novel coronavirus (COVID-19) ~~pandemic.~~and its variants. COVID-19 and measures to prevent its spread ~~are impacting~~have impacted our segments in a number of ways, most significantly at the DPEP segment where our theme parks ~~have been~~and resorts were closed ~~or operating at significantly reduced capacity~~ and cruise ship sailings and guided tours ~~have been~~were suspended. ~~We have~~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,~~cancelled theatrical ~~releases, and stage play performances have been suspended. Since March 2020,~~releases. In addition, we ~~have~~ experienced significant disruptions in the production and availability of content, including the ~~shift~~delay of key live sports programming ~~from the third quarter of~~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 ~~fourth quarter and into fiscal 2021 as well as the suspension of most~~DMED segment, our film and television ~~content late in the second quarter~~productions have generally resumed, although we have seen disruptions of ~~fiscal 2020. Although most film and television production activities have resumed beginning in the fourth quarter of fiscal 2020, we continue to see disruption in~~ 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.

The impact of these disruptions and the extent of their adverse impact on our financial and operating results will ~~be dictated by~~depend on the length of time that such disruptions ~~continue, which~~continue. This will, in turn, depend on the ~~currently unknowable~~ duration and severity of the impacts of COVID-19 and its variants, and among other things, the impact of governmental actions imposed in response to COVID-19 and individuals’ and companies’ risk tolerance regarding health matters going forward. ~~As some of our businesses~~We have ~~reopened, we have~~ incurred and will continue to incur additional costs to address government regulations and the safety of our employees, ~~talent~~guests and ~~guests.~~

~~Segment revenues and segment operating income are as follows:~~

Quarter Ended
January 2,
2021 December 28,
2019
Revenues:
Disney Media and Entertainment Distribution $ 12,661 $ 13,297
Disney Parks, Experiences and Products 3,588 7,580
$ 16,249 $ 20,877
Segment operating income (loss):
Disney Media and Entertainment Distribution $ 1,451 $ 1,474
Disney Parks, Experiences and Products (119) 2,522
$ 1,332 $ 3,996

~~Equity in the income of investees is included in segment operating income as follows:~~

Quarter Ended
January 2,
2021 December 28,
2019
Disney Media and Entertainment Distribution $ 235 $ 235
Disney Parks, Experiences and Products (8) (3)
Equity in the income of investees included in segment operating income 227 232
Amortization of TFCF intangible assets related to equity investees (3) (8)
Equity in the income of investees, net $ 224 $ 224
talent.

118

THE WALT DISNEY COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited; tabular dollars in millions, except for per share data)

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 Products	7,234		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 Products	2,450		(119)




Total segment operating income(1)	$	3,258	$	1,332

(1) Equity in the 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 income	242		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				Quarter Ended
		January 2, 2021		December 28, 2019				January 1, 2022		January 2, 2021
Segment operating income	Segment operating income	$	1,332	$	3,996		Segment operating income	$	3,258	$	1,332
Corporate and unallocated shared expenses	Corporate and unallocated shared expenses	(232)		(237)			Corporate and unallocated shared expenses	(228)		(232)
Restructuring and impairment charges (see Note 15)		(113)		(150)

Restructuring and impairment charges							Restructuring and impairment charges	—		(113)
Other expense, net							Other expense, net	(436)		—
Interest expense, net	Interest expense, net	(324)		(283)			Interest expense, net	(311)		(324)
TFCF and Hulu acquisition amortization(1)	TFCF and Hulu acquisition amortization(1)	(617)		(700)			TFCF and Hulu acquisition amortization(1)	(595)		(617)

Income from continuing operations before income taxes	Income from continuing operations before income taxes	$	46	$	2,626		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. For the quarter ended December 28, 2019 amortization of intangible assets, step-up of film and television costs and intangibles related to TFCF equity investees were $486 million, $206 million, and $8 million, respectively.

Goodwill

The changes in the carrying amount of goodwill ~~for the quarter ended January 2, 2021~~ are as follows:

Media
Networks Disney Parks, Experiences and Products Studio
Entertainment Direct-to-Consumer & International Disney
Media and Entertainment Distribution Total
Balance at October 3, 2020 $ 33,991 $ 5,550 $ 17,795 $ 20,353 $ 0 $ 77,689
Segment recast (1)
(33,991) 0 (17,795) (20,353) 72,139 0
Currency translation adjustments and other, net 0 0 0 0 111 111
Balance at January 2, 2021 $ 0 $ 5,550 $ 0 $ 0 $ 72,250 $ 77,800

~~(1)Represents the reallocation of goodwill as a result of the Company recasting its segments.~~

3.~~Revenues~~

~~The Company has revenue recognition policies for its various operating segments that are appropriate to the circumstances of each business.~~

~~The following table presents our revenues by segment and major source:~~

Quarter Ended January 2, 2021 Quarter Ended December 28, 2019
Disney
Media and Entertainment
Distribution Disney Parks, Experiences and Products Consolidated Disney
Media and Entertainment
Distribution Disney Parks, Experiences and Products Consolidated
Affiliate fees $ 4,402 $ — $ 4,402 $ 4,440 $ — $ 4,440
Advertising 3,763 1 3,764 3,396 2 3,398
Subscription fees 2,546 — 2,546 1,326 — 1,326
Theme park admissions — 549 549 — 2,067 2,067
Resort and vacations — 432 432 — 1,631 1,631
Retail and wholesale sales of merchandise, food and beverage — 1,163 1,163 — 2,313 2,313
TV/SVOD distribution licensing 1,169 — 1,169 1,569 — 1,569
Theatrical distribution licensing 31 — 31 1,408 — 1,408
Merchandise licensing 5 1,090 1,095 8 1,048 1,056
Home entertainment 300 — 300 596 — 596
Other 445 353 798 554 519 1,073
$ 12,661 $ 3,588 $ 16,249 $ 13,297 $ 7,580 $ 20,877


	DMED			DPEP			Total




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

129

THE WALT DISNEY COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited; tabular dollars in millions, except for per share data)

3.Revenues

The following table presents our revenues by segment and major source:


	Quarter Ended January 1, 2022						Quarter Ended January 2, 2021
	DMED		DPEP		Total		DMED		DPEP		Total
Affiliate fees	$	4,371	$	—	$	4,371	$	4,402	$	—	$	4,402
Advertising	3,868		1		3,869		3,763		1		3,764
Subscription fees	3,598		—		3,598		2,546		—		2,546
Theme park admissions	—		2,152		2,152		—		549		549
Resort and vacations	—		1,445		1,445		—		433		433
Retail and wholesale sales of merchandise, food and beverage	—		2,089		2,089		—		1,163		1,163
TV/SVOD distribution licensing	1,396		—		1,396		1,169		—		1,169
Theatrical distribution licensing	529		—		529		31		—		31
Merchandise licensing	—		1,119		1,119		5		1,090		1,095
Home entertainment	294		—		294		300		—		300
Other	529		428		957		445		352		797
	$	14,585	$	7,234	$	21,819	$	12,661	$	3,588	$	16,249

The following table presents our revenues by segment and primary geographical markets:


		Quarter Ended January 2, 2021						Quarter Ended December 28, 2019							Quarter Ended January 1, 2022						Quarter Ended January 2, 2021
		Disney Media and Entertainment Distribution		Disney Parks, Experiences and Products		Consolidated		Disney Media and Entertainment Distribution		Disney Parks, Experiences and Products		Consolidated			DMED		DPEP		Total		DMED		DPEP		Total
Americas	Americas	$	10,291	$	2,456	$	12,747	$	10,417	$	5,878	$	16,295	Americas	$	11,830	$	5,711	$	17,541	$	10,291	$	2,456	$	12,747
Europe	Europe	1,293		487		1,780		1,563		933		2,496		Europe	1,538		865		2,403		1,293		487		1,780
Asia Pacific	Asia Pacific	1,077		645		1,722		1,317		769		2,086		Asia Pacific	1,217		658		1,875		1,077		645		1,722

Total revenues	Total revenues	$	12,661	$	3,588	$	16,249	$	13,297	$	7,580	$	20,877	Total revenues	$	14,585	$	7,234	$	21,819	$	12,661	$	3,588	$	16,249

Revenues recognized in the current and prior-year ~~quarter~~periods from performance obligations satisfied (or partially satisfied) in previous reporting periods primarily relate to revenues earned on TV/SVOD ~~and theatrical distribution licensee sales on~~licenses for titles made available to the licensee in previous reporting periods. For the quarter ended January 1, 2022, $0.4 billion was recognized related to performance obligations satisfied as of October 2, 2021. For the quarter ended January 2, 2021, $0.4 billion was recognized related to performance obligations satisfied as of October 3, 2020. ~~For the quarter ended December 28, 2019, $0.5 billion was recognized related to performance obligations satisfied as of September 28, 2019.~~

As of January ~~2, 2021,~~1, 2022, revenue for unsatisfied performance obligations expected to be recognized in the future is ~~$16~~$14 billion, ~~which~~ primarily ~~relates to~~for content and other intellectual property (IP) to be ~~delivered~~made 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 $5 billion in the remainder of fiscal ~~2021, $5~~2022, $4 billion in fiscal ~~2022, $3~~2023, $2 billion in fiscal ~~2023~~2024 and $3 billion thereafter. These amounts include only fixed consideration or minimum guarantees and do not include amounts related to (i) contracts with an original expected term of one year or less (such as most advertising contracts) or (ii) licenses of IP that are solely based on the sales of the licensee.

When the timing of the Company’s revenue recognition is different from the timing of customer payments, the Company recognizes either a contract asset (customer payment is subsequent to revenue recognition and subject to the Company satisfying additional performance obligations) or deferred revenue (customer payment precedes the Company satisfying the performance obligations). Consideration due under contracts with payment in arrears is recognized as accounts receivable. Deferred revenues are recognized as (or when) the Company performs under the contract.

THE WALT DISNEY COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited; tabular dollars in millions, except for per share data)

Contract assets, accounts receivable and deferred revenues from contracts with customers are as follows:

January 2,
2021 October 3,
2020
Contract assets $ 44 $ 70
Accounts receivable
Current 12,544 11,340
Non-current 1,705 1,789
Allowance for credit losses (319) (460)
Deferred revenues
Current 3,853 3,688
Non-current 559 513


	January 1, 2022		October 2, 2021
Contract assets	$	142	$	155


Accounts receivable
Current	12,649		11,190
Non-current	1,341		1,359
Allowance for credit losses	(199)		(194)
Deferred revenues
Current	4,278		4,067
Non-current	575		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. The allowance for credit losses decreased from $460 million at October 3, 2020 to $319 million at January 2, 2021 due to the adoption of new accounting guidance on the measurement of credit losses (see Note 16).

For the ~~quarter~~quarters ended January 1, 2022 and January 2, 2021, the Company recognized revenues of $1.9 billion and $1.5 billion ~~primarily related to licensing and publishing advances and content sales~~ included in the deferred revenue balance at October 2, 2021 and October 3, ~~2020. For the quarter ended December 28, 2019, the Company~~2020, respectively. The revenues recognized ~~revenues of $2.1 billion~~in both periods were primarily ~~related to theme park admissions, vacation packages~~for DTC subscriptions and ~~licensing~~ advances ~~included in the deferred revenue balance at September 28, 2019.~~from merchandise and TV/SVOD licensees.

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 financial condition of individual companies with which we do business, current market conditions, and reasonable and supportable forecasts of future economic conditions. In times of economic turmoil, ~~including COVID-19,~~ our estimates and judgments with respect to the collectability of our receivables are subject to greater uncertainty than in more stable periods.

~~THE WALT DISNEY COMPANY~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(unaudited; tabular dollars in millions, except for per share data)~~

The Company has accounts receivable with original maturities greater than one year related to the sale of film and television program rights and vacation club properties. These receivables are discounted to present value at contract inception and the related revenues are recognized at the discounted amount.

The balance of film and television program sales receivables recorded in other non-current assets, net of an ~~immaterial~~ allowance for credit losses that is not material, was ~~$1.0~~$0.8 billion as of January ~~2, 2021.~~1, 2022. The activity in the allowance for credit losses for the quarter ended January ~~2, 2021~~1, 2022 was not material.

The balance of ~~mortgage~~vacation club receivables recorded in other non-current assets, net of an ~~immaterial~~ allowance for credit losses that is not material, was ~~$0.7~~$0.6 billion as of January ~~2, 2021.~~1, 2022. The activity in the allowance for credit losses for the quarter ended January ~~2, 2021~~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 January 2, 2021, the Company recognized a non-cash loss of $432 million and $186 million, respectively, from the adjustment of its investment in DraftKings, Inc. to fair value (DraftKings loss).

For the quarter ended January 2, 2021, the Company recognized a non-cash gain of $186 million from the adjustment of its investment in fuboTV Inc. to fair value (fuboTV gain).

THE WALT DISNEY COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited; tabular dollars in millions, except for per share data)

5.Cash, Cash Equivalents, Restricted Cash and Borrowings

Cash, Cash Equivalents and Restricted Cash

The following table provides a reconciliation of cash, cash equivalents and restricted cash reported in the Condensed Consolidated Balance ~~Sheet~~Sheets to the total of the amounts reported in the Condensed Consolidated Statements of Cash Flows.

January 2,
2021 October 3,
2020
Cash and cash equivalents $ 17,068 $ 17,914
Restricted cash included in:
Other current assets 3 3
Other assets 41 37
Total cash, cash equivalents and restricted cash in the statement of cash flows $ 17,112 $ 17,954


	January 1, 2022		October 2, 2021
Cash and cash equivalents	$	14,444	$	15,959
Restricted cash included in:
Other current assets	3		3
Other assets	41		41

Total cash, cash equivalents and restricted cash in the statement of cash flows	$	14,488	$	16,003

Borrowings

During the quarter ended January ~~2, 2021,~~1, 2022, the Company’s borrowing activity was as follows:


		October 3, 2020		Borrowings		Payments		Other Activity		January 2, 2021			October 2, 2021		Borrowings		Payments		Other Activity		January 1, 2022

Commercial paper with original maturities greater than three months	Commercial paper with original maturities greater than three months	$	2,023	$	50	$	(229)	$	2	$	1,846	Commercial paper with original maturities greater than three months	$	1,992	$	200	$	(324)	$	2	$	1,870
U.S. dollar denominated notes(1)	U.S. dollar denominated notes(1)	52,736		0		0		(34)		52,702		U.S. dollar denominated notes(1)	49,090		—		—		(34)		49,056

Asia Theme Parks borrowings(2)	Asia Theme Parks borrowings(2)	1,303		0		(70)		61		1,294		Asia Theme Parks borrowings(2)	1,331		33		—		27		1,391
Foreign currency denominated debt and other(3)	Foreign currency denominated debt and other(3)	2,566		1		(69)		(65)		2,433		Foreign currency denominated debt and other(3)	1,993		—		—		(178)		1,815
		$	58,628	$	51	$	(368)	$	(36)	$	58,275		$	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.

(2)The other activity is ~~due to~~driven by the impact of changes in foreign currency exchange rates.

(3)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.~~hedges.

At January ~~2, 2021,~~1, 2022, the Company’s bank facilities, which are with a syndicate of lenders and 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 2023	4,000		—		4,000
Facility expiring March 2025	3,000		—		3,000
Total	$	12,250	$	—	$	12,250

Committed
Capacity Capacity
Used Unused
Capacity
Facility expiring March 2021 $ 5,250 $ 0 $ 5,250
Facility expiring April 2021 5,000 0 5,000
Facility expiring March 2023 4,000 0 4,000
Facility expiring March 2025 3,000 0 3,000
Total $ 17,250 $ 0 $ 17,250

~~These bank~~The facilities ~~(other than the facility~~ expiring ~~April 2021) support commercial paper borrowings. All of the facilities~~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

~~THE WALT DISNEY COMPANY~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(unaudited; tabular dollars in millions, except for per share data)~~

Company’s debt, or a fixed spread in the case of the facility expiring in ~~April 2021,~~March 2022, subject to a cap and floor that vary with the Company’s debt ~~rating~~ratings assigned by Moody’s Investors Service and Standard and Poor’s. The spread above LIBOR can range from 0.18% to ~~1.80%~~1.63%. The bank facilities specifically exclude certain entities, including the Asia Theme Parks, from any representations, covenants or events of default. The bank facilities contain only one financial covenant, which is interest coverage of three times earnings before interest, taxes, depreciation and amortization, including both intangible amortization and amortization of our film and television production and programming costs. On January ~~2, 2021~~1, 2022 the financial covenant was met by a significant margin. The Company also has the ability to issue up to $500 million of letters of credit under the facility expiring in March 2023, which if utilized, reduces available borrowings under this facility. As of January ~~2, 2021,~~1, 2022, the Company has ~~$1.2~~$1.4 billion of outstanding letters of credit, of which none were issued under this facility.

THE WALT DISNEY COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited; tabular dollars in millions, except for per share data)

Cruise Ship Credit Facilities

The Company has credit facilities to finance up to 80% of the contract price of three new cruise ships, which are scheduled to be delivered in 2022, 2024 and 2025. Under the facilities, $1.0 billion in financing is available ~~beginning in~~as of October 2021, $1.1 billion is available beginning in August 2023 and $1.1 billion is available beginning in August 2024. Each tranche of financing may be utilized for a period of 18 months from the initial availability date. If utilized, the interest rates will be fixed at 3.48%, 3.80% and 3.74%, respectively, and the loan and interest will be payable semi-annually over a 12-year period from the borrowing date. Early repayment is permitted subject to cancellation fees.

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 8)9) are reported net in the Condensed Consolidated Statements of Income and consist of the following:

Quarter Ended
January 2,
2021 December 28,
2019
Interest expense $ (404) $ (362)
Interest and investment income 113 76
Net periodic pension and postretirement benefit costs (other than service costs) (33) 3
Interest expense, net $ (324) $ (283)


	Quarter Ended
	January 1, 2022		January 2, 2021
Interest expense	$	(361)	$	(404)
Interest and investment income	34		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-public investments, investment impairments and interest earned on cash and cash equivalents and certain receivables.

5.6.International Theme Parks

The Company has a 48% ownership interest in the operations of Hong Kong Disneyland Resort and a 43% ownership interest in the operations of Shanghai Disney Resort. The Asia Theme Parks together with Disneyland Paris are collectively referred to as the International Theme Parks.

The following table summarizes the carrying amounts of the Asia Theme Parks’ assets and liabilities included in the Company’s Condensed Consolidated Balance Sheets:


	January 1, 2022		October 2, 2021
Cash and cash equivalents	$	304	$	287
Other current assets	104		95
Total current assets	408		382
Parks, resorts and other property	6,947		6,928
Other assets	172		176
Total assets	$	7,527	$	7,486

Current liabilities	$	488	$	473
Long-term borrowings	1,358		1,331
Other long-term liabilities	414		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 Income for the quarter ended January 1, 2022:



Revenues	$	792
Costs and expenses	(826)
Equity in the loss of investees	(3)

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 carrying amounts of the Asia Theme Parks’ assets and liabilities included in the Company’s Condensed Consolidated Balance Sheet:~~

January 2,
2021 October 3, 2020
Cash and cash equivalents $ 277 $ 372
Other current assets 97 91
Total current assets 374 463
Parks, resorts and other property 6,838 6,720
Other assets 189 191
Total assets $ 7,401 $ 7,374
Current liabilities $ 428 $ 486
Long-term borrowings 1,268 1,213
Other long-term liabilities 407 403
Total liabilities $ 2,103 $ 2,102



~~Revenues~~	$	~~319~~
~~Costs and expenses~~	~~(622)~~
~~Equity in the loss of investees~~	~~(8)~~

Asia Theme Parks’ royalty and management fees of ~~$22~~$26 million for the quarter ended January ~~2, 2021~~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 Statements of Cash Flows for the quarter ended January ~~2, 2021~~1, 2022 were ~~$244~~$109 million ~~used in~~provided by operating activities, ~~$183~~$193 million used in investing activities and ~~$65~~$62 million ~~used in~~provided by financing activities.

Hong Kong Disneyland Resort

The Government of the Hong Kong Special Administrative Region (HKSAR) and the Company have a 52% and a 48% equity interest in Hong Kong Disneyland Resort, respectively.

The Company and HKSAR have ~~both~~ provided loans to Hong Kong Disneyland Resort with outstanding balances of ~~$147~~$150 million and ~~$97~~$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 $2.1 billion ($~~271~~269 million), which bears interest at a rate of three month HIBOR plus 1.25% and matures in December 2023. The outstanding balance under the line of credit at January ~~2, 2021~~1, 2022 was ~~$34~~$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 ~~$872~~$905 million, bearing interest at rates up to 8% and maturing in 2036, with early repayment permitted. The Company has also provided Shanghai Disney Resort with a ~~$157 million~~1.0 billion yuan (approximately $0.2 billion) line of credit bearing interest at 8%. As of January ~~2, 2021,~~1, 2022, the total amount outstanding under the line of credit was ~~$17 million.~~0.2 billion yuan (approximately $25 million). These balances are eliminated in consolidation.

Shendi has provided Shanghai Disney Resort with loans totaling ~~7.7~~8.0 billion yuan (approximately ~~$1.2~~$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%. As of January ~~2, 2021~~1, 2022 the total amount outstanding under the line of credit was 0.2 billion yuan (approximately ~~$24~~$33 million).

~~THE WALT DISNEY COMPANY~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(unaudited; tabular dollars in millions, except for per share data)~~

6.7.Produced and Acquired/Licensed Content Costs and Advances

The Company classifies its capitalized produced and acquired/licensed content costs as long-term assets and ~~generally~~ classifies advances for live programming rights made prior to the live event as short-term assets. For purposes of amortization and impairment, the capitalized content costs are classified based on their predominant monetization strategy as follows:

•Individual - lifetime value is predominantly derived from third-party revenues that are directly attributable to the specific film or television title (e.g. theatrical revenues or sales to third-party television programmers)

•Group - lifetime value is predominantly derived from third-party revenues that are attributable only to a bundle of titles (e.g. subscription revenue for a DTC service or affiliate fees for a cable television network)

~~Total capitalized produced and licensed content by predominant monetization strategy is as follows:~~

As of January 2, 2021 As of October 3, 2020
Predominantly Monetized Individually Predominantly Monetized as a Group Total Predominantly Monetized Individually Predominantly Monetized as a Group Total
Produced content
Theatrical film costs
Released, less amortization $ 2,775 $ 2,902 $ 5,677 $ 3,000 $ 2,601 $ 5,601
Completed, not released 473 6 479 522 210 732
In-process 3,965 255 4,220 3,322 259 3,581
In development or pre-production 275 0 275 262 16 278
$ 7,488 $ 3,163 10,651 $ 7,106 $ 3,086 10,192
Television costs
Released, less amortization $ 1,893 $ 5,723 $ 7,616 $ 2,090 $ 5,584 $ 7,674
Completed, not released 58 572 630 33 510 543
In-process 255 2,627 2,882 263 1,831 2,094
In development or pre-production 4 146 150 6 87 93
$ 2,210 $ 9,068 11,278 $ 2,392 $ 8,012 10,404
Licensed content - Television programming rights and advances 5,423 6,597
Total produced and licensed content $ 27,352 $ 27,193
Current portion $ 1,423 $ 2,171
Non-current portion $ 25,929 $ 25,022

~~Amortization of produced and licensed content is as follows:~~

Quarter Ended January 2, 2021 Quarter Ended December 28, 2019
Predominantly
Monetized
Individually Predominantly
Monetized
as a Group Total Predominantly
Monetized
Individually Predominantly
Monetized
as a Group Total
Theatrical film costs $ 297 $ 240 $ 537 $ 526 $ 311 $ 837
Television costs 315 958 1,273 754 927 1,681
Total produced content costs $ 612 $ 1,198 $ 1,810 $ 1,280 $ 1,238 2,518
Television programming rights and advances 4,539 3,731
Total produced and licensed content costs(1)
$ 6,349 $ 6,249

~~(1)~~
~~Primarily included in “Costs of services” in the Condensed Consolidated Statements of Income.~~

7.~~Income Taxes~~

~~Interim Period Tax Expense~~

Because of the uncertainties associated with the impact of COVID-19 on our projections of full-year pre-tax earnings and income tax expense, as well as the projected impact of permanent tax differences and other items that are generally not proportional to full-year earnings (“Permanent Differences”), our normal approach of using an estimated full-year effective income tax rate to determine interim period tax expense produces an income tax provision for the current year-to-date period

1714

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, 2022						As of October 2, 2021
	Predominantly Monetized Individually		Predominantly Monetized as a Group		Total		Predominantly Monetized Individually		Predominantly Monetized as a Group		Total
Produced content
Released, less amortization	$	5,296	$	10,036	$	15,332	$	4,944	$	9,779	$	14,723
Completed, not released	300		992		1,292		630		762		1,392
In-process	4,408		5,466		9,874		4,371		4,623		8,994
In development or pre-production	205		129		334		351		162		513
	$	10,209	$	16,623	26,832		$	10,296	$	15,326	25,622






Licensed content - Television programming rights and advances					4,962						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 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 group	1,618		1,198
	2,651		1,810
Licensed programming rights and advances	4,811		4,539
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 estimated annual effective tax rate using projections of full-year pre-tax earnings and income tax expense, adjusted for tax expense amounts recognized fully in the quarter they occur. We used this approach to determine tax expense in the current quarter of fiscal 2022. 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 expense, our normal approach of calculating interim period tax expense produced an income tax provision that iswas not meaningful. Accordingly, we calculated ~~year-to-date~~interim period fiscal 2021 tax expense based on the year-to-date earnings before tax, ~~and using~~ a blended U.S. Federal and state statutory tax rate of approximately 23%~~, and~~ adjusted for tax expense amounts recognized fully in the ~~estimated impact of Permanent Differences.~~quarter they occurred.

Unrecognized Tax Benefits

The ~~change in the~~ Company’s ~~gross~~ unrecognized tax benefits ~~for the quarter ended~~at both January 1, 2022 and October 2, 2021 ~~was not material.~~were approximately $2.6 billion (before interest and penalties). In the next twelve months, it is reasonably possible that our unrecognized tax benefits could change due to resolutions of open tax matters, which would reduce our unrecognized tax benefits by $0.3 ~~billion, of which $0.3 billion would reduce income tax expense and the effective tax rate if recognized.~~billion.

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 Plans				Postretirement Medical Plans				Pension Plans				Postretirement Medical Plans
		Quarter Ended					Quarter Ended			Quarter Ended						Quarter Ended
		January 2, 2021		December 28, 2019				January 2, 2021			December 28, 2019			January 1, 2022		January 2, 2021		January 1, 2022		January 2, 2021
Service costs	Service costs	$	108	$	103			$	3		$	3	Service costs	$	100	$	108	$	2	$	3
Other costs (benefits):	Other costs (benefits):												Other costs (benefits):
Interest costs	Interest costs	114		133				12			14		Interest costs	124		114		13		12
Expected return on plan assets	Expected return on plan assets	(275)		(273)				(14)			(14)		Expected return on plan assets	(293)		(275)		(15)		(14)
Amortization of previously deferred service costs	Amortization of previously deferred service costs	2		3				0			0		Amortization of previously deferred service costs	1		2		—		—
Recognized net actuarial loss	Recognized net actuarial loss	186		131				7			3		Recognized net actuarial loss	147		186		7		7
Total other costs (benefits)	Total other costs (benefits)	27		(6)				5			3		Total other costs (benefits)	(21)		27		5		5
Net periodic benefit cost	Net periodic benefit cost	$	135	$	97			$	8		$	6	Net periodic benefit cost	$	79	$	135	$	7	$	8

During the quarter ended January ~~2, 2021,~~1, 2022, the Company did not make any material contributions to its pension and postretirement medical plans. The Company currently expects to make approximately ~~$0.5 billion~~$100 million to ~~$0.6 billion~~$150 million in pension and postretirement medical ~~plan~~plans contributions in fiscal ~~2021.~~2022. Final minimum funding requirements for fiscal ~~2021~~2022 will be determined based on a January 1, ~~2021~~2022 funding actuarial valuation, which is expected to be received ~~during~~by the end of the fourth quarter of fiscal ~~2021.~~2022.

9.10.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 2,
2021 December 28,
2019
Shares (in millions):
Weighted average number of common and common equivalent shares outstanding (basic) 1,812 1,805
Weighted average dilutive impact of Awards 11 12
Weighted average number of common and common equivalent shares outstanding (diluted) 1,823 1,817
Awards excluded from diluted earnings per share 8 9


	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 Awards	9	11
Weighted average number of common and common equivalent shares outstanding (diluted)	1,828	1,823
Awards excluded from diluted earnings per share	4	8

1816

THE WALT DISNEY COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited; tabular dollars in millions, except for per share data)

~~10.~~11.Equity

~~The Company paid the following dividend in fiscal 2020:~~

~~Per Share~~

~~Total Paid~~

~~Payment Timing~~

~~Related to Fiscal Period~~

~~$0.88~~

~~$1.6 billion~~

~~Second Quarter of Fiscal 2020~~

~~Second Half 2019~~

~~The Company did not pay a dividend with respect to fiscal year 2020 operations.~~

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 Hedges		Unrecognized 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 period	87		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(1)
Unrecognized
Pension and
Postretirement
Medical
Expense Foreign
Currency
Translation
and Other AOCI
AOCI, before tax
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 0 151
Balance at January 2, 2021 $ (419) $ (9,227) $ (877) $ (10,523)
First quarter of fiscal 2020
Balance at September 28, 2019 $ 129 $ (7,502) $ (1,086) $ (8,459)
Quarter Ended December 28, 2019:
Unrealized gains (losses) arising during the period (81) 0 82 1
Reclassifications of realized net (gains) losses to net income (60) 139 0 79
Balance at December 28, 2019 $ (12) $ (7,363) $ (1,004) $ (8,379)

Market Value Adjustments(1)
Unrecognized
Pension and
Postretirement
Medical
Expense Foreign
Currency
Translation
and Other AOCI
Tax on AOCI
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 period 46 (1) (7) 38
Reclassifications of realized net (gains) losses to net income 9 (45) 0 (36)
Balance at January 2, 2021 $ 95 $ 2,155 $ 132 $ 2,382
First quarter of fiscal 2020
Balance at September 28, 2019 $ (29) $ 1,756 $ 115 $ 1,842
Quarter Ended December 28, 2019:
Unrealized gains (losses) arising during the period 20 0 2 22
Reclassifications of realized net (gains) losses to net income 14 (32) 0 (18)
Balance at December 28, 2019 $ 5 $ 1,724 $ 117 $ 1,846


	Market Value Adjustments for Hedges		Unrecognized 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 income	4		(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 period	46		(1)		(7)		38
Reclassifications of realized net (gains) losses to net income	9		(45)		—		(36)

Balance at January 2, 2021	$	95	$	2,155	$	132	$	2,382

1917

THE WALT DISNEY COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited; tabular dollars in millions, except for per share data)

Market Value Adjustments(1)
Unrecognized
Pension and
Postretirement
Medical
Expense Foreign
Currency
Translation
and Other AOCI
AOCI, after tax
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 0 115
Balance at January 2, 2021 $ (324) $ (7,072) $ (745) $ (8,141)
First quarter of fiscal 2020
Balance at September 28, 2019 $ 100 $ (5,746) $ (971) $ (6,617)
Quarter Ended December 28, 2019:
Unrealized gains (losses) arising during the period (61) 0 84 23
Reclassifications of realized net (gains) losses to net income (46) 107 0 61
Balance at December 28, 2019 $ (7) $ (5,639) $ (887) $ (6,533)

~~(1)Primarily reflects market value adjustments for cash flow hedges.~~


	Market Value Adjustments for Hedges		Unrecognized 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 period	64		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 2,
2021 December 28,
2019
Market value adjustments, primarily cash flow hedges Primarily revenue $ 43 $ 60
Estimated tax Income taxes (9) (14)
34 46
Pension and postretirement medical expense Interest expense, net (194) (139)
Estimated tax Income taxes 45 32
(149) (107)
Total reclassifications for the period $ (115) $ (61)


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 hedges	Primarily revenue	$	18	$	43
Estimated tax	Income taxes	(4)		(9)
		14		34


Pension and postretirement medical expense	Interest expense, net	(155)		(194)
Estimated tax	Income taxes	36		45
		(119)		(149)





Total reclassifications for the period		$	(105)	$	(115)

~~11.~~12.Equity-Based Compensation

Compensation expense related to stock options and restricted stock units (RSUs) is as follows:

Quarter Ended
January 2,
2021 December 28,
2019
Stock options $ 25 $ 21
RSUs 109 94
Total equity-based compensation expense(1)
$ 134 $ 115
Equity-based compensation expense capitalized during the period $ 34 $ 24


	Quarter Ended
	January 1, 2022		January 2, 2021
Stock options	$	24	$	25
RSUs	172		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.

THE WALT DISNEY COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited; tabular dollars in millions, except for per share data)

~~Unrecognized compensation cost related to unvested stock options and RSUs was $165 million and $1,182 million, respectively, as of January 2, 2021.~~

The weighted average grant date fair values of options granted during the ~~quarters~~quarter ended January 1, 2022 and January 2, 2021 were $47.66 and ~~December 28, 2019 were~~ $55.28, ~~and $36.35,~~ respectively.

During the quarter ended January ~~2, 2021,~~1, 2022, the Company made equity compensation grants consisting of ~~1.1~~1.6 million stock options and ~~3.0~~9.1 million RSUs.

~~12.~~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 mature in 2037. In the event of a debt service shortfall, the Company will be responsible to fund the shortfall. As of January 2, 2021, the remaining debt service obligation guaranteed by the Company was $232 million. To the extent that tax revenues exceed the debt service payments subsequent to the Company funding a shortfall, the Company would be reimbursed for any previously funded shortfalls. To date, tax revenues have exceeded the debt service payments for these bonds.

~~13.~~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 2, 2021
Level 1 Level 2 Level 3 Total
Assets
Investments $ 1,056 $ 0 $ 0 $ 1,056
Derivatives
Interest rate 0 444 0 444
Foreign exchange 0 547 0 547
Other 0 9 0 9
Liabilities
Derivatives
Interest rate 0 (56) 0 (56)
Foreign exchange 0 (779) 0 (779)
Other 0 (6) 0 (6)
Total recorded at fair value $ 1,056 $ 159 $ 0 $ 1,215
Fair value of borrowings $ 0 $ 64,826 $ 1,372 $ 66,198


	Fair Value Measurement at January 1, 2022
	Level 1		Level 2		Level 3		Total
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

2119

THE WALT DISNEY COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited; tabular dollars in millions, except for per share data)

Fair Value Measurement at October 3, 2020
Level 1 Level 2 Level 3 Total
Assets
Investments $ 0 $ 1,057 $ 0 $ 1,057
Derivatives
Interest rate 0 515 0 515
Foreign exchange 0 505 0 505
Other 0 1 0 1
Liabilities
Derivatives
Interest rate 0 (4) 0 (4)
Foreign exchange 0 (549) 0 (549)
Other 0 (22) 0 (22)
Total recorded at fair value $ 0 $ 1,503 $ 0 $ 1,503
Fair value of borrowings $ 0 $ 63,370 $ 1,448 $ 64,818

~~The fair values of Level 2 investments are based on quoted market prices, adjusted for trading restrictions.~~


	Fair Value Measurement at October 2, 2021
	Level 1		Level 2		Level 3		Total
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 material~~had 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. dollar denominated notes and certain foreign currency denominated borrowings, are valued based on quoted prices for similar instruments in active markets or identical instruments in markets that are not active.

Level 3 borrowings include the Asia Theme Park borrowings, which are valued based on the current borrowing cost and credit risk of the Asia Theme Parks as well as prevailing market interest rates.

The Company’s financial instruments also include cash, cash equivalents, receivables and accounts payable. The carrying values of these financial instruments approximate the fair values.

~~14.~~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.

2220

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 2, 2021									As of January 1, 2022
		Current Assets		Other Assets		Other Current Liabilities		Other Long- Term Liabilities			Current Assets		Other Assets		Other Current Liabilities		Other Long- Term Liabilities
Derivatives designated as hedges	Derivatives designated as hedges									Derivatives designated as hedges
Foreign exchange	Foreign exchange	$	124	$	240	$	(205)	$	(184)	Foreign exchange	$	220	$	264	$	(127)	$	(100)
Interest rate	Interest rate	0		444		(56)		0		Interest rate	17		83		(353)		—
Other	Other	2		1		(5)		(1)		Other	8		1		(1)		(1)
Derivatives not designated as hedges	Derivatives not designated as hedges									Derivatives not designated as hedges
Foreign exchange	Foreign exchange	99		84		(214)		(176)		Foreign exchange	109		103		(153)		(145)
Interest rate		0		0		0		0

Other	Other	6		0		0		0		Other	9		—		—		—
Gross fair value of derivatives	Gross fair value of derivatives	231		769		(480)		(361)		Gross fair value of derivatives	363		451		(634)		(246)
Counterparty netting	Counterparty netting	(211)		(403)		342		272		Counterparty netting	(253)		(326)		394		185
Cash collateral (received) paid	Cash collateral (received) paid	(4)		(107)		102		41		Cash collateral (received) paid	(26)		(4)		234		41
Net derivative positions	Net derivative positions	$	16	$	259	$	(36)	$	(48)	Net derivative positions	$	84	$	121	$	(6)	$	(20)


		As of October 3, 2020									As of October 2, 2021
		Current Assets		Other Assets		Other Current Liabilities		Other Long- Term Liabilities			Current Assets		Other Assets		Other Current Liabilities		Other Long- Term Liabilities
Derivatives designated as hedges	Derivatives designated as hedges									Derivatives designated as hedges
Foreign exchange	Foreign exchange	$	184	$	132	$	(77)	$	(273)	Foreign exchange	$	165	$	240	$	(122)	$	(83)
Interest rate	Interest rate	0		515		(4)		0		Interest rate	—		186		(287)		—
Other	Other	1		0		(15)		(4)		Other	10		—		—		—
Derivatives not designated as hedges	Derivatives not designated as hedges									Derivatives not designated as hedges
Foreign exchange	Foreign exchange	53		136		(98)		(101)		Foreign exchange	183		119		(208)		(205)
Interest rate		0		0		0		0

Other	Other	0		0		(3)		0		Other	(8)		—		—		—
Gross fair value of derivatives	Gross fair value of derivatives	238		783		(197)		(378)		Gross fair value of derivatives	350		545		(617)		(288)
Counterparty netting	Counterparty netting	(143)		(378)		184		338		Counterparty netting	(301)		(360)		460		201
Cash collateral (received) paid	Cash collateral (received) paid	(26)		(142)		0		9		Cash collateral (received) paid	(3)		(51)		157		73
Net derivative positions	Net derivative positions	$	69	$	263	$	(13)	$	(31)	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 rate~~variable-rate borrowings indexed to LIBOR. ~~As of January 2, 2021 and October 3, 2020, the~~The total notional amount of the Company’s pay-floating interest rate swaps at both January 1, 2022 and October 2, 2021, was ~~$15.9 billion and $15.8 billion, respectively.~~$15.1 billion.

2321

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:

Carrying Amount of Hedged Borrowings(1)
Fair Value Adjustments Included
in Hedged Borrowings(1)
January 2,
2021 October 3, 2020 January 2,
2021 October 3, 2020
Borrowings:
Current $ 751 $ 753 $ 1 $ 4
Long-term 16,173 16,229 360 505
$ 16,924 $ 16,982 $ 361 $ 509


	Carrying Amount of Hedged Borrowings				Fair Value Adjustments Included in Hedged Borrowings
	January 1, 2022		October 2, 2021		January 1, 2022		October 2, 2021
Borrowings:
Current	$	1,512	$	505	$	14	$	5
Long-term	13,957		15,136		(290)		(103)
	$	15,469	$	15,641	$	(276)	$	(98)

~~(1)Includes $33 million and $34 million of gains on terminated interest rate swaps as of January 2, 2021 and October 3, 2020, respectively.~~

The following amounts are included in “Interest expense, net” in the Condensed Consolidated Statements of Income:

Quarter Ended
January 2,
2021 December 28,
2019
Gain (loss) on:
Pay-floating swaps $ (147) $ (113)
Borrowings hedged with pay-floating swaps 147 113
Benefit (expense) associated with interest accruals on pay-floating swaps 35 (12)


	Quarter Ended
	January 1, 2022		January 2, 2021
Gain (loss) on:
Pay-floating swaps	$	(178)	$	(147)
Borrowings hedged with pay-floating swaps	178		147
Benefit (expense) associated with interest accruals on pay-floating swaps	37		35

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 January ~~2, 2021~~1, 2022 or at October ~~3, 2020,~~2, 2021, and gains and losses related to pay-fixed interest rate swaps recognized in earnings for the quarter ended January 1, 2022 and January 2, 2021 ~~and December 28, 2019~~ were not material.

Foreign Exchange Risk Management

The Company transacts business globally and is subject to risks associated with changing foreign currency exchange rates. The Company’s objective is to reduce earnings and cash flow fluctuations associated with foreign currency exchange rate changes, enabling management to focus on core business issues and challenges.

The Company enters into option and forward contracts that change in value as foreign currency exchange rates change to protect the value of its existing foreign currency assets, liabilities, firm commitments and forecasted but not firmly committed foreign currency transactions. In accordance with policy, the Company hedges its forecasted foreign currency transactions for periods generally not to exceed four years within an established minimum and maximum range of annual exposure. The gains and losses on these contracts offset changes in the U.S. dollar equivalent value of the related forecasted transaction, asset, liability or firm commitment. The principal currencies hedged are the euro, Japanese yen, British pound, Chinese yuan and Canadian dollar. Cross-currency swaps are used to effectively convert foreign currency denominated borrowings into U.S. dollar denominated borrowings.

The Company designates foreign exchange forward and option contracts as cash flow hedges of firmly committed and forecasted foreign currency transactions. As of January ~~2, 2021~~1, 2022 and October ~~3, 2020,~~2, 2021, the notional amounts of the Company’s net foreign exchange cash flow hedges were ~~$4.9~~$8.1 billion and ~~$4.6~~$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 ~~losses~~gains recorded in AOCI for contracts that will mature in the next twelve months total ~~$102~~$119 million. The following table summarizes the effect of foreign exchange cash flow hedges on ~~AOCI for the quarter ended January 2, 2021:~~

Quarter Ended
January 2,
2021 December 28,
2019
Gain (loss) recognized in AOCI $ (151) $ (85)
Gain (loss) reclassified from AOCI into the Statement of Operations(1)
44 60
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.

2422

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 ~~2, 2021~~1, 2022 and October ~~3, 2020,~~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 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:
Cross currency swaps	$	1	$	42
Borrowings hedged with cross currency swaps	(1)		(42)

Quarter Ended
January 2,
2021 December 28,
2019
Gain (loss) on:
Cross currency swaps $ 42 $ 0
Borrowings hedged with cross currency swaps (42) 0

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 January 1, 2022 and October 2, 2021 were $3.9 billion and ~~October 3, 2020 were~~ $3.5 ~~billion.~~billion, respectively. The following table summarizes the net foreign exchange gains or losses recognized on foreign currency denominated assets and liabilities and the net foreign exchange gains or losses on the foreign exchange contracts we entered into to mitigate our exposure with respect to foreign currency denominated assets and liabilities by the corresponding line item in which they are recorded in the Condensed Consolidated Statements of Income:

Costs and Expenses Interest expense, net Income Tax Expense
Quarter Ended: January 2,
2021 December 28,
2019 January 2,
2021 December 28,
2019 January 2,
2021 December 28,
2019
Net gains (losses) on foreign currency denominated assets and liabilities $ 158 $ 69 $ (41) $ (12) $ (59) $ (15)
Net gains (losses) on foreign exchange risk management contracts not designated as hedges (187) (80) 43 10 50 17
Net gains (losses) $ (29) $ (11) $ 2 $ (2) $ (9) $ 2


	Costs and Expenses				Interest expense, net				Income Tax Expense
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 liabilities	$	(63)	$	158	$	1	$	(41)	$	8	$	(59)
Net gains (losses) on foreign exchange risk management contracts not designated as hedges	33		(187)		—		43		(8)		50
Net gains (losses)	$	(30)	$	(29)	$	1	$	2	$	—	$	(9)

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 January ~~2, 2021~~1, 2022 and October ~~3, 2020~~2, 2021 and related gains or losses recognized in earnings for the quarter and quarter ended January 1, 2022 and January 2, 2021 ~~and December 28, 2019~~ were not material.

Risk Management – Other Derivatives Not Designated as Hedges

The Company enters into certain other risk management contracts that are not designated as hedges and do not qualify for hedge accounting. These contracts, which include certain 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 value~~amounts of these contracts at both January 1, 2022 and October 2, 2021 ~~and October 3, 2020~~ were ~~$0.3~~$0.4 billion. The related gains or losses recognized in earnings were not material for the ~~quarter~~quarters ended January 1, 2022 and January 2, ~~2021 and December 28, 2019 were not material.~~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 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 ~~$227~~$301 million and ~~$53~~$244 million on January ~~2, 2021~~1, 2022 and October ~~3, 2020,~~2, 2021, respectively.

2523

THE WALT DISNEY COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited; tabular dollars in millions, except for per share data)

~~15.~~16.Restructuring and Impairment Charges

~~TFCF Integration~~

In fiscal 2019, the Company implemented a restructuring and integration plan as a part of its initiative to realize cost synergies from the acquisition of TFCF. The restructuring plan was substantially complete as of the end of fiscal 2020. We have recorded restructuring charges of $1.7 billion, including $1.3 billion related to severance (including employee contract terminations) in connection with the plan and $0.3 billion of equity based compensation costs, primarily for TFCF awards that were accelerated to vest upon the closing of the TFCF acquisition. These charges are recorded in “Restructuring and impairment charges” in the Condensed Consolidated Statements of Income. As of January 2, 2021, the remaining restructuring reserve is $0.2 billion, the majority of which is expected to be paid out by the end of fiscal 2021.

~~Other~~

The Company ~~recorded~~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.

~~16.~~17.New Accounting Pronouncements

Accounting Pronouncements Adopted in Fiscal ~~2021~~

~~Measurement of Credit Losses on Financial Instruments~~

In June 2016, the FASB issued new accounting guidance which modifies existing guidance related to the measurement of credit losses on financial instruments, including trade and loan receivables. The new guidance requires the allowance for credit losses to be measured based on expected losses over the life of the asset rather than incurred losses. The Company adopted the new guidance in the first quarter of fiscal 2021 without restating prior periods by recording the impact of adoption as an adjustment to retained earnings at the beginning of fiscal 2021. The adoption did not have a material impact on our financial statements.

~~Accounting Pronouncements Not Yet Adopted~~

~~Facilitation of the Effects of Reference Rate Reform~~

In March 2020, the FASB issued guidance which provides optional expedients and exceptions for applying current GAAP to contracts, hedging relationships, and other transactions affected by the transition from the use of LIBOR to an alternative reference rate. We are currently evaluating our contracts and hedging relationships that reference LIBOR and the potential effects of adopting this new guidance. The guidance can be adopted immediately and is applicable to contracts entered into on or before December 31, 2022.2022

Simplifying the Accounting for Income Taxes

In December 2019, the ~~FASB~~Financial Accounting Standards Board (FASB) issued guidance which simplifies the accounting for income taxes. The guidance amends the rules for recognizing deferred taxes for investments, performing intraperiod tax allocations and calculating income taxes in interim periods. It also reduces complexity in certain areas, including the accounting for transactions that result in a step-up in the tax basis of goodwill and allocating taxes to members of a consolidated group. The ~~guidance is effective at the beginning of the Company’s 2022 fiscal year (with early adoption permitted). We currently do not expect~~Company adopted the new guidance ~~will~~in the first quarter of fiscal 2022. The adoption did not have a material impact on our financial statements.

Facilitation of the Effects of Reference Rate Reform

In March 2020, the FASB issued guidance which provides optional expedients and exceptions for applying current GAAP to contracts, hedging relationships, and other transactions affected by the transition from the use of LIBOR to an alternative reference rate. The guidance is applicable to contracts entered into before January 1, 2023. The Company adopted the new guidance in the first quarter of fiscal 2022. The adoption did not have a material impact on our financial statements.

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 the transactions, and the effect of the transactions on the financial statements. The guidance is effective for annual periods beginning with the Company’s 2023 fiscal year (with early adoption permitted). The Company is currently assessing the impacts this guidance will have on its financial statements.

2624

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

•Significant Developments

•Current Quarter Results Compared to Prior-Year Quarter

•Seasonality

•Business Segment Results

•Corporate and Unallocated Shared Expenses

•Financial Condition

•Supplemental Guarantor Financial Information

•Commitments and Contingencies

•Other Matters

•Market Risk

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS — (continued)

CONSOLIDATED RESULTS


		Quarter Ended				% Change Better (Worse)	Quarter Ended				% Change Better (Worse)
(in millions, except per share data)	(in millions, except per share data)	January 2, 2021		December 28, 2019				(in millions, except per share data)	January 1, 2022				% Change Better (Worse)
Revenues:	Revenues:							Revenues:
Services	Services	$	14,871	$	18,094	(18) %		Services	$	19,542	$	14,871	31 %
Products	Products	1,378		2,783		(50) %		Products	2,277		1,378		65 %
Total revenues	Total revenues	16,249		20,877		(22) %		Total revenues	21,819		16,249		34 %
Costs and expenses:	Costs and expenses:							Costs and expenses:
Cost of services (exclusive of depreciation and amortization)	Cost of services (exclusive of depreciation and amortization)	(10,738)		(11,395)		6 %		Cost of services (exclusive of depreciation and amortization)	(13,161)		(10,738)		(23) %
Cost of products (exclusive of depreciation and amortization)	Cost of products (exclusive of depreciation and amortization)	(1,037)		(1,639)		37 %		Cost of products (exclusive of depreciation and amortization)	(1,406)		(1,037)		(36) %
Selling, general, administrative and other	Selling, general, administrative and other	(2,917)		(3,709)		21 %		Selling, general, administrative and other	(3,787)		(2,917)		(30) %
Depreciation and amortization	Depreciation and amortization	(1,298)		(1,299)		— %		Depreciation and amortization	(1,269)		(1,298)		2 %
Total costs and expenses	Total costs and expenses	(15,990)		(18,042)		11 %		Total costs and expenses	(19,623)		(15,990)		(23) %
Restructuring and impairment charges	Restructuring and impairment charges	(113)		(150)		25 %		Restructuring and impairment charges	—		(113)		100 %

Other expense, net								Other expense, net	(436)		—		nm
Interest expense, net	Interest expense, net	(324)		(283)		(14) %		Interest expense, net	(311)		(324)		4 %
Equity in the income of investees	Equity in the income of investees	224		224		— %		Equity in the income of investees	239		224		7 %
Income from continuing operations before income taxes	Income from continuing operations before income taxes	46		2,626		(98) %		Income from continuing operations before income taxes	1,688		46		>100 %
Income taxes on continuing operations	Income taxes on continuing operations	(16)		(458)		97 %		Income taxes on continuing operations	(488)		(16)		>(100) %
Net income from continuing operations	Net income from continuing operations	30		2,168		(99) %		Net income from continuing operations	1,200		30		>100 %
Loss from discontinued operations, net of income tax benefit of $4 and $7, respectively		(12)		(21)		43 %
Loss from discontinued operations, net of income tax benefit of $14 and $4, respectively								Loss from discontinued operations, net of income tax benefit of $14 and $4, respectively	(48)		(12)		>(100) %
Net income	Net income	18		2,147		(99) %		Net income	1,152		18		>100 %
Net income from continuing operations attributable to noncontrolling interests	Net income from continuing operations attributable to noncontrolling interests	(1)		(40)		98 %		Net income from continuing operations attributable to noncontrolling interests	(48)		(1)		>(100) %

Net income attributable to Disney	Net income attributable to Disney	$	17	$	2,107	(99) %		Net income attributable to Disney	$	1,104	$	17	>100 %
Diluted earnings per share from continuing operations attributable to Disney	Diluted earnings per share from continuing operations attributable to Disney	$	0.02	$	1.17	(98) %		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.~~COVID-19 and its variants. COVID-19 and measures to prevent its spread ~~are impacting~~have impacted our segments in a number of ways, most significantly at ~~Disney Parks, Experiences and Products. In~~ the ~~current quarter,~~DPEP segment where our theme parks and resorts ~~have~~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 canceled, theatrical releases. In addition, we experienced significant disruptions in the production and availability of content, including the delay of key live sports programming during fiscal 2020 and fiscal 2021.

The most significant impact on operating income since the onset of COVID-19 has been ~~closed or~~at the DPEP segment due to revenue lost. In fiscal 2022, our domestic parks and experiences are generally operating ~~at significantly reduced~~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 ~~cruise ship~~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 disruptions on our businesses and costs to address government regulations and the safety of our 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

2726

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS — (continued)

~~sailings~~COVID-19 and guided tours have been suspended. We have delayed or, in some cases, shortened or canceled, theatrical releases, and stage play performances have been suspended. Since March 2020, we have experienced significant disruptions in the production and availability of content, including the shift of key live sports programming from the third quarter of fiscal 2020 to the fourth quarter and into fiscal 2021, as well as the suspension of production of most film and television content late in the second quarter of fiscal 2020. Although most film and television production activities have resumed beginning in the fourth quarter of fiscal 2020, we continue to see disruption of production activities depending on local circumstances.

We have taken a number of mitigation efforts in response to the impacts of COVID-19 on our businesses. We have significantly increased cash balances through the issuance of senior notes in March and May 2020, and we entered into an additional $5.0 billion credit facility in April 2020. The Company did not pay a dividend with respect to fiscal 2020 operations; suspended certain capital projects; reduced certain discretionary expenditures (such as spending on marketing); reduced management compensation for several months in fiscal 2020 and temporarily eliminated Board of Director retainers and committee fees in fiscal 2020. In addition, we furloughed over 120,000 of our employees (who continued to receive Company provided medical benefits), many of which have returned from furlough as certain business operations have re-opened. At the end of fiscal 2020, the Company announced a workforce reduction plan and the majority of employees that were impacted have been terminated. As of January 2, 2021, approximately 31,000 employees, who are not scheduled for employment termination, remain on furlough. We may take additional mitigation actions in the future such as raising additional financing; not declaring future dividends; reducing, or not making, certain payments, such as some contributions to our pension and postretirement medical plans; further suspending capital spending, reducing film and television content investments; or implementing additional furloughs or reductions in force. Some of these measures may have an adverse impact on our businesses.

The most significant impact on operating income in the current quarter from COVID-19 was an estimated detriment of approximately $2.6 billion at the Disney Parks, Experiences and Products segment due to revenue lost as a result of the closures and reduced operating capacities. The impacts at our Disney Media and Entertainment Distribution segment were less significant. Higher sports programming costs reflecting the shift of key sporting events from prior quarters to the current quarter were largely offset by advertising revenue related to the broadcast of events. Lower revenues due to the deferral or cancellation of significant film releases as a result of theater closures were largely offset by a reduction in the related film cost amortization, marketing and distribution costs. The impact of COVID-19 in the current quarter is not necessarily indicative of the impact on future period results.

The impact of these disruptions and the extent of their adverse impact on our financial and operational results will be dictated by the length of time that such disruptions continue, which will, in turn, depend on the currently unknowable duration and severity of the impacts of COVID-19,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. ~~While we cannot be certain as to the duration of the impacts of COVID-19, we currently expect COVID-19 to adversely impact our financial results at least through fiscal 2021.~~

Some of our businesses have reopened with limited operations. We have incurred and will continue to incur additional costs to address government regulations and the safety of our employees, talent and guests. For example, as we reopened theme parks and retail stores, we incurred and will continue to incur costs for such things as additional custodial services, personal protection equipment, temperature screenings and testing, sanitizer and cleaning supplies and signage, among other items. As we resume production of film and television content, including live sporting events, we anticipate incurring similar costs and productions may take longer to complete. The timing, duration and extent of these costs will depend on the timing and scope of the resumption of our operations. We currently estimate these costs may total approximately $1 billion in fiscal 2021. Some of these costs may be capitalized and amortized over future periods. With the unknown duration of COVID-19 and yet to be determined timing of the phased reopening of certain businesses, it is not possible to precisely estimate the impact of COVID-19 on our operations in future quarters. As we reopen our businesses, we will no longer benefit from certain savings related to the closure of those businesses, such as related furloughs. The reopening or closure of our businesses is dependent on applicable government requirements, which vary by location, and are subject to ongoing changes, which could result from increasing COVID-19 cases.

Additionally, see Part II. Other Information, Item 1A. Risk Factors - The adverse impact of COVID-19 on our businesses will continue for an unknown length of time and may continue to impact certain of our key sources of revenue.

CURRENT QUARTER RESULTS COMPARED TO PRIOR-YEAR QUARTER

Revenues for the quarter ~~decreased 22%~~increased 34%, or ~~$4.6~~$5.6 billion, to ~~$16.2~~$21.8 billion; net income attributable to Disney ~~decreased $2.1~~increased to $1.1 billion tofrom $17 million; and diluted earnings per share from continuing operations attributable to Disney (EPS) was ~~$0.02~~$0.63 compared to ~~$1.17~~$0.02 in the prior-year quarter. The EPS ~~decrease~~increase for the quarter was due to ~~lower~~higher segment operating results at DPEP, partially offset by lower operating results at DMED.

Revenues

Service revenues for the ~~Disney Parks, Experiences~~quarter increased 31%, or $4.7 billion, to $19.5 billion due to increased volumes at our theme parks and ~~Products segment.~~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 $113 million for the prior-year quarter were due to severance.

Other expense, net

In the current quarter, the Company recognized $436 million in Other expense, net due to a non-cash loss of $432 million to adjust its investment in DraftKings to fair value.

In the prior-year quarter, the Company recognized $186 million non-cash loss to adjust its investment in DraftKings to fair value, offset by a $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
(in millions)	January 1, 2022		January 2, 2021		% Change Better (Worse)
Interest expense	$	(361)	$	(404)	11 %
Interest income, investment income (loss) and other	50		80		(38) %

Interest expense, net	$	(311)	$	(324)	4 %

The decrease in interest expense was due to lower average debt balances and higher capitalized interest.

The decrease in interest income, investment income (loss) and other was due to lower investment gains, partially offset by a favorable comparison of pension and postretirement benefit costs, other than service cost, which was a benefit in the current quarter and an expense in the prior-year quarter.

2827

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS — (continued)

~~Revenues~~

Service revenues for the quarter decreased 18%, or $3.2 billion, to $14.9 billion due to the closure/reduced operating capacity of our theme parks and resorts and lower theatrical revenues due to theater closures, both of which were driven by the impact of COVID-19, and a decrease in TV/SVOD distribution revenue driven by the shift from licensing our content to third parties to distribution on our direct-to-consumer services. These decreases were partially offset by higher DTC subscription revenue and increased advertising revenue at Hulu and our international channels. The increase in international channels advertising revenue was due to a shift of cricket events from the third quarter of the prior fiscal year to the current quarter due to COVID-19.

Product revenues for the quarter decreased 50%, or $1.4 billion, to $1.4 billion due to lower merchandise, food and beverage sales at our theme parks and resorts and a decrease in home entertainment volumes.

~~Costs and expenses~~

Cost of services for the quarter decreased 6%, or $0.7 billion, to $10.7 billion due to the closure/reduced operating capacity of our theme parks and resorts and lower theatrical production amortization and distribution costs. These decreases were partially offset by higher sports programming costs at Linear Networks and increased programming, production and technology costs at DTC.

Cost of products for the quarter decreased 37%, or $0.6 billion, to $1.0 billion due to lower merchandise, food and beverage sales at our theme parks and resorts and a decrease in home entertainment volumes.

Selling, general, administrative and other costs decreased 21%, or $0.8 billion, to $2.9 billion due to lower marketing costs driven by no significant worldwide theatrical releases and a decrease in spending at the theme parks and resorts businesses, partially offset by an increase at DTC.

~~Restructuring and impairment charges~~

~~Restructuring and impairment charges of $113 million for the current quarter were primarily due to severance.~~

~~Restructuring and impairment charges of $150 million for the prior-year quarter were primarily for severance in connection with the acquisition and integration of TFCF.~~

~~Interest expense, net~~

~~Interest expense, net is as follows:~~

Quarter Ended
(in millions) January 2,
2021 December 28,
2019 % Change
Better (Worse)
Interest expense $ (404) $ (362) (12) %
Interest income, investment income and other 80 79 1 %
Interest expense, net $ (324) $ (283) (14) %

~~The increase in interest expense was due to higher average debt balances, partially offset by lower average interest rates.~~

Interest income, investment income and other was comparable to the prior-year quarter as higher pension and postretirement benefit costs, other than service cost were offset by higher investment gains.

Effective Income Tax Rate

Quarter Ended
January 2,
2021 December 28,
2019 Change
Better (Worse)
Effective income tax rate - continuing operations 34.8% 17.4% (17.4) ppt


	Quarter Ended
	January 1, 2022		January 2, 2021
Income from continuing operations before income taxes	$	1,688	$	46
Income tax on continuing operations	488		16
Effective income tax rate - continuing operations	28.9%		34.8%

The ~~increase in the~~ effective income tax rate in the current quarter was higher than the U.S. statutory rate due to unfavorable adjustments related to prior years. The effective income tax rate in the prior-year quarter was higher than the U.S. statutory rate primarily due to an unfavorable impact from foreign ~~losses for which we are unable to recognize a tax benefit,~~earnings taxed at rates higher than the U.S. statutory rate, partially offset by higher excess tax benefits on employee share-based awards. An excess tax benefit arises when the value of an employee share-based award on the exercise or vesting date is higher than the fair value on the grant date.

~~MANAGEMENT’S DISCUSSION AND ANALYSIS OF~~

~~FINANCIAL CONDITION AND RESULTS OF OPERATIONS — (continued)~~

favorable adjustments related to prior years.

Noncontrolling Interests

Quarter Ended

(in millions)

January 2,
2021

December 28,
2019

% Change
Better (Worse)

(in millions)

January 1,
2022

January 2,
2021

% Change
Better (Worse)

Net income from continuing operations attributable to noncontrolling interests

(1)

(40)

98 %

Net income from continuing operations attributable to noncontrolling interests

(48)

(1)

>(100) %

The ~~decrease~~increase in net income from continuing operations attributable to noncontrolling interests was ~~due to~~driven by lower ~~operating results~~losses at ~~ESPN.~~Hong Kong Disneyland Resort and Shanghai Disney Resort, partially offset by a higher loss at our DTC sports business.

Net income attributable to noncontrolling interests is determined on income after royalties and management fees, financing costs and income taxes, as applicable.

Certain Items Impacting Results in the Quarter

Results for the quarter ended January 1, 2022 were impacted by the following:

•TFCF and Hulu acquisition amortization of $595 million

•Other expense of $436 million due to the DraftKings loss of $432 million

Results for the quarter ended January 2, 2021 were impacted by the following:

•TFCF and Hulu acquisition amortization of $617 million

•Restructuring charges of $113 million

•In addition, the Company recognized a non-cash gain of $186 million to adjust its investment in fuboTV Inc. to fair value, which was offset by a non-cash loss of $186 million to adjust its investment in DraftKings, Inc. to fair value.

~~Results for the quarter ended December 28, 2019 were impacted by the following:~~

•~~TFCF and Hulu acquisition amortization of $700 million~~

•~~Restructuring charges of $150 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 2, 2021:
TFCF and Hulu acquisition amortization(3)
$ (617) $ 144 $ (473) $ (0.25)
Restructuring and impairment charges (113) 28 (85)     (0.05)
Total $ (730) $ 172 $ (558) $ (0.30)
Quarter Ended December 28, 2019:
TFCF and Hulu acquisition amortization(3)
$ (700) $ 162 $ (538) $ (0.30)
Restructuring and impairment charges (150) 35 (115)     (0.06)
Total $ (850) $ 197 $ (653) $ (0.36)


(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.

(2)EPS is net of noncontrolling interest share, where applicable. Total may not equal the sum of the column due to rounding.

~~(3)Includes amortization of intangibles related to TFCF equity investees.~~

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS — (continued)

SEASONALITY

The Company’s businesses are subject to the effects of seasonality. Consequently, the operating results for the quarter ended January ~~2, 2021~~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.

~~Disney Media and Entertainment Distribution~~DMED 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 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. ~~Sports~~In addition, advertising revenues generated from sports programming ~~also depends on~~are impacted by the timing of sports seasons and events, which varies throughout the year or may take place periodically (e.g. biannually, quadrennially). Affiliate revenues vary with the subscriber trends of ~~MVPDs.~~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.

~~MANAGEMENT’S DISCUSSION AND ANALYSIS OF~~

~~FINANCIAL CONDITION AND RESULTS OF OPERATIONS — (continued)~~

~~Disney Parks, Experiences and Products~~DPEP revenues fluctuate with changes in theme park attendance and resort occupancy resulting from the seasonal nature of vacation travel and leisure activities, which generally results in higher revenues during the Company’s first and fourth fiscal quarters. Peak attendance and resort occupancy generally occur during the summer months when school vacations occur and during early winter and spring holiday periods. Consumer products revenue fluctuates with consumer purchasing behavior, which is generally results in higher ~~in our~~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 film and television 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 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.

The Linear Networks business generates revenue from affiliate fees and advertising sales and from fees from sub-licensing of sports programming to third parties. Operating expenses include programming and production costs, technical support costs, operating labor and distribution costs.

The Direct-to-Consumer business generates revenue from subscription fees, advertising sales and pay-per-view and Premier Access fees. Operating expenses include programming and production costs, technology support costs, operating labor and distribution costs. Operating expenses also includes fees paid to Linear Networks for the right to air the linear networks feed and other services.

The Content Sales/Licensing business generates revenue from the sale of film and episodic television content in the TV/SVOD and home entertainment markets, distribution of films in the theatrical market, licensing of our music rights, sales of tickets to stage play performances and licensing of our IP for use in stage plays. Operating expenses include programming and production costs, distribution expenses and costs of sales.

Our DPEP segment primarily generates revenue from the sale of admissions to theme parks, the sale of food, beverage and merchandise at our theme parks and resorts, charges for room nights at hotels, sales of cruise vacations, sales and rentals of vacation club properties, royalties from licensing our IP for use on consumer goods and the sale of branded merchandise. Revenues are also generated from sponsorships and co-branding opportunities, real estate rent and sales, and royalties 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.

The Company evaluates the performance of its operating segments based on segment operating income, and management uses total segment operating income as a measure of the overall performance of the operating businesses separate from non-

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS — (continued)

operating factors. Total segment operating income is not a financial measure defined by GAAP, should be reviewed in conjunction with the relevant GAAP financial measure and may not be comparable to similarly titled measures reported by other companies. The Company believes that information about total segment operating income assists investors by allowing them to evaluate changes in the operating results of the Company’s portfolio of businesses separate from factors other than business operations that affect net income, 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 2,
2021 December 28,
2019
Income from continuing operations before income taxes $ 46 $ 2,626 (98) %
Add:
Corporate and unallocated shared expenses 232 237 2  %
Restructuring and impairment charges 113 150 25  %
Interest expense, net 324 283 (14) %
TFCF and Hulu acquisition amortization(1)
617    700    12  %
Total segment operating income $ 1,332 $ 3,996 (67) %

~~(1)Includes amortization of intangibles related to TFCF equity investees.~~


	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 expenses	228		232		2 %
Restructuring and impairment charges	—		113		100 %
Other expense, net	436		—		nm
Interest expense, net	311		324		4 %
TFCF and Hulu acquisition amortization	595		617		4 %


Total segment operating income	$	3,258	$	1,332	>100 %

The following is a summary of segment revenue and operating ~~income:~~ income (loss):


		Quarter Ended				% Change Better (Worse)	Quarter Ended				% Change Better (Worse)
(in millions)	(in millions)	January 2, 2021		December 28, 2019				(in millions)	January 1, 2022				% Change Better (Worse)
Revenues:	Revenues:							Revenues:
Disney Media and Entertainment Distribution	Disney Media and Entertainment Distribution	$	12,661	$	13,297	(5) %		Disney Media and Entertainment Distribution	$	14,585	$	12,661	15 %
Disney Parks, Experiences and Products	Disney Parks, Experiences and Products	3,588		7,580		(53) %		Disney Parks, Experiences and Products	7,234		3,588		>100 %

		$	16,249	$	20,877	(22) %			$	21,819	$	16,249	34 %
Segment operating income:	Segment operating income:							Segment operating income:
Disney Media and Entertainment Distribution	Disney Media and Entertainment Distribution	$	1,451	$	1,474	(2) %		Disney Media and Entertainment Distribution	$	808	$	1,451	(44) %
Disney Parks, Experiences and Products	Disney Parks, Experiences and Products	(119)		2,522		nm		Disney Parks, Experiences and Products	2,450		(119)		nm

		$	1,332	$	3,996	(67) %			$	3,258	$	1,332	>100 %

Depreciation expense is as follows:


		Quarter Ended				% Change Better (Worse)	Quarter Ended				% Change Better (Worse)
(in millions)	(in millions)	January 2, 2021		December 28, 2019				(in millions)	January 1, 2022				% Change Better (Worse)

Disney Media and Entertainment Distribution	Disney Media and Entertainment Distribution	$	167	$	142	(18) %		Disney Media and Entertainment Distribution	$	153	$	167		8 %
Disney Parks, Experiences and Products	Disney Parks, Experiences and Products							Disney Parks, Experiences and Products

Domestic	Domestic	388		398		3 %		Domestic	398		388		(3) %
International	International	176		169		(4) %		International	168		176		5 %

Total Disney Parks, Experiences and Products	Total Disney Parks, Experiences and Products	564		567		1 %		Total Disney Parks, Experiences and Products	566		564		— %

Corporate	Corporate	46		31		(48) %		Corporate	48		46		(4) %
Total depreciation expense	Total depreciation expense	$	777	$	740	(5) %		Total depreciation expense	$	767	$	777	1 %

3130

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS — (continued)

Amortization of intangible assets is as follows:


		Quarter Ended				% Change Better (Worse)	Quarter Ended				% Change Better (Worse)
(in millions)	(in millions)	January 2, 2021		December 28, 2019				(in millions)	January 1, 2022				% Change Better (Worse)

Disney Media and Entertainment Distribution	Disney Media and Entertainment Distribution	$	47	$	46	(2) %		Disney Media and Entertainment Distribution	$	40	$	47		15 %
Disney Parks, Experiences and Products	Disney Parks, Experiences and Products	27		27		— %		Disney Parks, Experiences and Products	27		27		— %

TFCF and Hulu	TFCF and Hulu	447		486		8 %		TFCF and Hulu	435		447		3 %

Total amortization of intangible assets	Total amortization of intangible assets	$	521	$	559	7 %		Total amortization of intangible assets	$	502	$	521	4 %

BUSINESS SEGMENT RESULTS - Current Quarter Results Compared to Prior-Year Quarter

Disney Media and Entertainment Distribution

Revenue and operating results for the ~~Disney Media and Entertainment Distribution~~DMED segment are as follows:

Quarter Ended % Change
Better
(Worse)
(in millions) January 2,
2021 December 28,
2019
Revenues:
Linear Networks $ 7,693    $ 7,536    2  %
Direct-to-Consumer 3,504 2,025 73  %
Content Sales/Licensing and Other 1,702 3,910 (56) %
Elimination of Intrasegment Revenue(1)
(238) (174) (37) %
$ 12,661 $ 13,297 (5) %
Segment operating income (loss):
Linear Networks $ 1,729 $ 1,808 (4) %
Direct-to-Consumer (466) (1,110) 58  %
Content Sales/Licensing and Other 188 776 (76) %
$ 1,451 $ 1,474 (2)  %


	Quarter Ended				% Change Better (Worse)
(in millions)	January 1, 2022		January 2, 2021
Revenues:
Linear Networks	$	7,706	$	7,693	— %
Direct-to-Consumer	4,690		3,504		34 %
Content Sales/Licensing and Other	2,433		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 ~~the linear networks~~our Linear Networks and related services.

Linear Networks

Operating results for Linear Networks are as follows:


		Quarter Ended				% Change Better (Worse)		Quarter Ended				% Change Better (Worse)
(in millions)	(in millions)	January 2, 2021		December 28, 2019			(in millions)	January 1, 2022		January 2, 2021
Revenues	Revenues						Revenues
Affiliate fees	Affiliate fees	$	4,640	$	4,614	1 %	Affiliate fees	$	4,615	$	4,640	(1) %
Advertising	Advertising	2,835		2,731		4 %	Advertising	2,839		2,835		— %
Other	Other	218		191		14 %	Other	252		218		16 %
Total revenues	Total revenues	7,693		7,536		2 %	Total revenues	7,706		7,693		— %
Operating expenses	Operating expenses	(5,421)		(4,958)		(9) %	Operating expenses	(5,656)		(5,421)		(4) %
Selling, general, administrative and other	Selling, general, administrative and other	(724)		(918)		21 %	Selling, general, administrative and other	(755)		(724)		(4) %
Depreciation and amortization	Depreciation and amortization	(53)		(66)		20 %	Depreciation and amortization	(38)		(53)		28 %
Equity in the income of investees	Equity in the income of investees	234		214		9 %	Equity in the income of investees	242		234		3 %
Operating Income	Operating Income	$	1,729	$	1,808	(4) %	Operating Income	$	1,499	$	1,729	(13) %

3231

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS — (continued)

Revenues

Affiliate revenue is as follows:


		Quarter Ended				% Change Better (Worse)		Quarter Ended				% Change Better (Worse)
(in millions)	(in millions)	January 2, 2021		December 28, 2019			(in millions)	January 1, 2022		January 2, 2021

Domestic Channels	Domestic Channels	$	3,773	$	3,650	3 %	Domestic Channels	$	3,862	$	3,773	2 %
International Channels	International Channels	867		964		(10) %	International Channels	753		867		(13) %
		$	4,640	$	4,614	1 %		$	4,615	$	4,640	(1) %

The increase in affiliate revenue at ~~our~~the Domestic Channels was due to an increase of 8%6% from higher contractual rates, partially offset by a decrease of 5%4% from fewer subscribers.

The decrease in affiliate revenue at ~~our~~the International Channels was due to decreases of 6%12% from fewer subscribers driven by channel closures ~~primarily~~ in Europe and 2%Asia and 3% from an unfavorable foreign exchange ~~impact.~~impact, partially offset by an increase of 2% from higher contractual rates.

Advertising revenue is as follows:


		Quarter Ended				% Change Better (Worse)		Quarter Ended				% Change Better (Worse)
(in millions)	(in millions)	January 2, 2021		December 28, 2019			(in millions)	January 1, 2022		January 2, 2021

Cable	Cable	$	1,217	$	1,309	(7) %	Cable	$	1,293	$	1,217	6 %
Broadcasting	Broadcasting	984		941		5 %	Broadcasting	900		984		(9) %
Domestic Channels	Domestic Channels	2,201		2,250		(2) %	Domestic Channels	2,193		2,201		— %
International Channels	International Channels	634		481		32 %	International Channels	646		634		2 %
		$	2,835	$	2,731	4 %		$	2,839	$	2,835	— %

The ~~decrease~~increase in Cable advertising revenue was due to ~~decreases~~an increase of ~~17%~~6% from ~~lower~~higher impressions, ~~reflecting lower average viewership and 2% from the cancellation of certain college sporting events,~~ partially offset by ana decrease of 1% from lower rates. The increase ~~of 13% from~~in impressions reflected more units delivered and higher ~~rates.~~average viewership.

The ~~increase~~decrease in Broadcasting advertising revenue was due to ~~increases~~decreases of 9%12% from fewer impressions at ABC, reflecting lower average viewership, and 8% from the owned television stations, ~~due to higher political advertising, and 2% from airing~~ ~~New Year’s Rockin’ Eve~~ ~~in the current quarter, whereas in the prior fiscal year it aired in the second quarter. These increases were~~ partially offset by ~~decreases~~an increase of 4%11% from higher rates at ABC. The decrease at the owned television stations was due to lower ~~network impressions, reflecting lower average viewership, and 4% from lower network rates.~~political advertising.

The increase in International Channels advertising revenue was due to an increase inof 6% from higher rates, partially offset by decreases of 3% from an unfavorable foreign exchange impact and 1% from fewer impressions, reflecting lower average viewership. The ~~increase reflected a shift~~decrease in viewership was driven by COVID-19-related timing shifts of Indian Premier League (IPL) cricket matches, ~~for the 2020 season from the third quarter of the prior fiscal year to the current quarter as a result of COVID-19, partially offset by the absence of Board of Control for Cricket~~which resulted in ~~India (BCCI)~~fewer matches in the current quarter ~~as a result~~compared to the 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 was not held in the prior-year quarter due to COVID-19. IPL cricket matches ~~generally~~typically occur ~~during~~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 44 matches in the prior-year quarter.

Other revenue increased ~~$27~~$34 million, to $252 million from $218 million, ~~from $191 million, primarily~~ due to ~~higher~~ sub-licensing fees from ICC T20 World Cup matches in the ~~2020~~current quarter, partially offset by lower sub-licensing fees as a result of fewer IPL cricket matches ~~shifted into~~in the current quarter compared to the prior-year quarter.

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)		Quarter Ended				% Change Better (Worse)
(in millions)	(in millions)	January 2, 2021		December 28, 2019			(in millions)	January 1, 2022		January 2, 2021

Cable	Cable	$	(3,404)	$	(3,121)	(9) %	Cable	$	(3,583)	$	(3,404)	(5) %
Broadcasting	Broadcasting	(747)		(755)		1 %	Broadcasting	(800)		(747)		(7) %
Domestic Channels	Domestic Channels	(4,151)		(3,876)		(7) %	Domestic Channels	(4,383)		(4,151)		(6) %
International Channels	International Channels	(914)		(686)		(33) %	International Channels	(894)		(914)		2 %
		$	(5,065)	$	(4,562)	(11) %		$	(5,277)	$	(5,065)	(4) %

The increase in programming and production costs at ~~cable~~Cable was primarily due to ~~the timing of~~higher rights costs for the College Football Playoffs (CFP) ~~relative~~, NFL and MLB and an increase in sports production costs due to ~~our~~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 ~~periods~~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 ~~NBA~~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, ~~included six CFP bowl games~~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 provides supplemental revenue and operating income detail for 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 Channels	1,554		1,623		(4) %
	$	7,706	$	7,693	— %
Supplemental operating income detail
Domestic Channels	$	888	$	1,120	(21) %
International Channels	369		375		(2) %
Equity in the income of investees	242		234		3 %
	$	1,499	$	1,729	(13) %

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS — (continued)

to three in the prior-year quarter. As a result of delays due to COVID-19, four NBA Finals games were played in the current quarter, whereas these games would normally have occurred in the third quarter of the prior year.

The increase in programming and production costs at International Channels was due to the shift of the 2020 IPL cricket matches into the current quarter, partially offset by the absence of the BCCI matches.

~~Selling, general administrative and other costs decreased $194 million, to $724 million from $918 million, driven by lower labor costs, a decrease in bad debt expense and lower marketing costs.~~

~~Equity in the Income of Investees~~

Income from equity investees increased $20 million, to $234 million from $214 million, primarily due to higher income from A+E Television Networks due to higher program sales, partially offset by lower advertising revenue.

~~Operating Income from Linear Networks~~

Operating income from Linear Networks decreased $79 million, to $1,729 million from $1,808 million, due to decreases at our domestic cable channels, ABC Television Network and international channels. These decreases were offset by an increase at the owned television stations.

~~The following table provides supplemental revenue and operating income detail for Linear Networks:~~

Quarter Ended % Change
Better
(Worse)
(in millions) January 2,
2021 December 28,
2019
Supplemental revenue detail
Domestic Channels $ 6,070 $ 5,993 1  %
International Channels 1,623 1,543 5  %
$ 7,693 $ 7,536 2  %
Supplemental operating income detail
Domestic Channels $ 1,120 $ 1,206 (7) %
International Channels 375 388 (3) %
Equity in the income of investees 234 214 9  %
$ 1,729 $ 1,808 (4) %

Direct-to-Consumer

Operating results for Direct-to-Consumer are as follows:


		Quarter Ended				% Change Better (Worse)		Quarter Ended				% Change Better (Worse)
(in millions)	(in millions)	January 2, 2021		December 28, 2019			(in millions)	January 1, 2022		January 2, 2021
Revenues	Revenues						Revenues
Subscription fees	Subscription fees	$	2,546	$	1,326	92 %	Subscription fees	$	3,598	$	2,546	41 %
Advertising	Advertising	882		599		47 %	Advertising	980		882		11 %
TV/SVOD distribution and other	TV/SVOD distribution and other	76		100		(24) %	TV/SVOD distribution and other	112		76		47 %
Total revenues	Total revenues	3,504		2,025		73 %	Total revenues	4,690		3,504		34 %
Operating expenses	Operating expenses	(2,921)		(2,343)		(25) %	Operating expenses	(3,922)		(2,921)		(34) %
Selling, general, administrative and other	Selling, general, administrative and other	(970)		(732)		(33) %	Selling, general, administrative and other	(1,275)		(970)		(31) %
Depreciation and amortization	Depreciation and amortization	(79)		(60)		(32) %	Depreciation and amortization	(86)		(79)		(9) %

Operating Loss	Operating Loss	$	(466)	$	(1,110)	58 %	Operating Loss	$	(593)	$	(466)	(27) %

Revenues

The increase in subscription fees was due to increases of ~~87%~~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+ ~~and 7%~~.

Higher advertising revenue reflected increases of 6% from higher rates due to an increase ~~in retail pricing~~ at ~~Hulu. Higher subscribers~~Hulu and 5% from higher impressions due to increases at Disney+ ~~include a full quarter~~and ESPN+.

The increase in TV/SVOD distribution and other revenue was due to higher Ultimate Fighting Championship (UFC) pay-per-view fees, which reflected an increase in average buys per event and higher pricing, partially offset by the impact of ~~operations~~airing two events in the current quarter compared to ~~two months of operations~~three events in the prior-year ~~quarter (Disney+ launched in November 2019)~~quarter.

The following tables present additional information about our Disney+, ESPN+ and Hulu Direct-to-Consumer (DTC) product offerings(1).

Paid subscribers(2) 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+ Hotstar	45.9	29.2	57 %
Total Disney+(4)	129.8	94.9	37 %

ESPN+	21.3	12.1	76 %

Hulu
SVOD Only	40.9	35.4	16 %
Live TV + SVOD	4.3	4.0	8 %
Total Hulu(4)	45.3	39.4	15 %

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS — (continued)

~~Higher advertising revenue reflected an increase of 48% from higher impressions due to growth at Hulu.~~

~~The decrease in TV/SVOD distribution and other revenue was due to lower licensing revenue driven by the delay of the 2020/2021 National Hockey League season due to COVID-19.~~

~~The following table presents the number of paid subscribers~~Average Monthly Revenue Per Paid Subscriber~~(1)~~ ~~(in millions) for Disney+, ESPN+ and Hulu as of:~~

January 2,
2021 December 28,
2019 % Change
Better
(Worse)
Disney+(3)
94.9 26.5 >100 %
ESPN+ 12.1 6.6 83 %
Hulu
SVOD Only 35.4 27.2 30 %
Live TV + SVOD 4.0 3.2 25 %
Total Hulu 39.4 30.4 30 %

~~The following table presents the average monthly revenue per paid subscriber(2)~~(5) for the quarter ended:


						% Change Better (Worse)						% Change Better (Worse)
		January 2, 2021		December 28, 2019				January 1, 2022		January 2, 2021
Disney+~~(4)~~	Disney+~~(4)~~	$	4.03	$	5.56	(28) %	Disney+~~(4)~~
ESPN+(5)		$	4.48	$	4.44	1 %
Domestic (U.S. and Canada)							Domestic (U.S. and Canada)	$	6.68	$	5.80	15 %
International (excluding Disney+ Hotstar)(3)							International (excluding Disney+ Hotstar)(3)	5.96		4.73		26 %
Disney+ (excluding Disney+ Hotstar)							Disney+ (excluding Disney+ Hotstar)	6.33		5.37		18 %
Disney+ Hotstar							Disney+ Hotstar	1.03		0.98		5 %
Disney+							Disney+	4.41		4.03		9 %

ESPN+							ESPN+	5.16		4.48		15 %

Hulu	Hulu						Hulu
SVOD Only	SVOD Only	$	13.51	$	13.15	3 %	SVOD Only	12.96		13.51		(4) %
Live TV + SVOD	Live TV + SVOD	$	75.11	$	59.47	26 %	Live TV + SVOD	87.01		75.11		16 %

(1)~~A subscriber~~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. ~~A subscriber ceases~~Subscribers cease to be a paid subscriber as of their effective cancellation date or as a result of a failed payment method. ~~A subscription bundle is considered~~Subscribers to the SVOD Bundle are counted as a paid subscriber for each service included in the ~~bundle.~~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 ~~the~~a service through wholesale arrangements inincluding those for which we receive a fee for the distribution of ~~Disney+~~the service to each subscriber toof 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, ~~whether acquired individually, through a wholesale arrangement or via the bundle,~~ we refer to them as paid subscriptions.

~~(2)~~(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 ~~upon~~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 ~~offered~~ on ~~bundled services. The discount~~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 like Apple.~~platforms.

~~(3)~~Disney+ Hotstar launched on April 3, 2020 and September 5, 2020 in India and Indonesia, respectively, (as a conversion of the preexisting Hotstar service) and is included in the number of paid subscribers andThe average monthly revenue per paid ~~subscriber.~~ subscriber for domestic Disney+ increased from $5.80 to $6.68 due to an increase in retail pricing and a lower mix of wholesale subscribers, partially offset by a higher mix of subscribers to the SVOD Bundle.

The average monthly revenue per paid subscriber for international Disney+ (excluding Disney+ Hotstar) increased from $4.73 to $5.96 due to increases in retail pricing.

The average monthly revenue per paid subscriber for Disney+ Hotstar ~~is significantly lower than the average monthly revenue per paid subscriber for Disney+ in other markets.~~

~~(4)Excludes Premier Access revenue~~

~~(5)Excludes Pay-Per-View revenue.~~

~~The average monthly revenue per paid subscriber for Disney+ decreased~~increased from ~~$5.56~~$0.98 to ~~$4.03~~$1.03 due to ~~the launch of Disney+ Hotstar.~~

~~The~~launches in new territories with higher average ~~monthly revenue per paid subscriber for ESPN+ increased from $4.44 to $4.48 due to an increase in retail pricing,~~prices, partially offset by a higher mix of ~~subscribers to the bundled offering available in the U.S.~~

~~The average monthly revenue per paid subscriber for the Hulu SVOD Only service increased from $13.15 to $13.51 due to higher per-subscriber advertising revenue, a lower mix of~~ wholesale subscribers and an increase in per-subscriber premium and feature add-on revenue. These increases were partially offset by a higher mix of subscribers to the bundled offering. The average monthly revenue per paid subscriber for the Hulu Live TV + SVOD service increased from $59.47 to $75.11 due tosubscribers.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS — (continued)

~~increases~~The average monthly revenue per paid subscriber for ESPN+ increased from $4.48 to $5.16 primarily due to an increase in retail pricing and higher per-subscriber advertising revenue, ~~and an increase in per-subscriber premium and feature add-on revenue. These increases were~~ partially offset by a higher mix of subscribers to the ~~bundled~~SVOD Bundle.

The average monthly revenue per paid subscriber for the Hulu SVOD Only service decreased from $13.51 to $12.96 due to lower per-subscriber advertising revenue and a higher mix of subscribers to the SVOD Bundle, partially offset by an increase in retail pricing.

The average monthly revenue per paid subscriber for the Hulu Live TV + SVOD service increased from $75.11 to $87.01 due to increases in retail pricing and higher per-subscriber advertising revenue, partially offset by the impact of the new Hulu Live TV + SVOD offering.

Costs and Expenses

Operating expenses are as follows:


		Quarter Ended				% Change Better (Worse)		Quarter Ended				% Change Better (Worse)
(in millions)	(in millions)	January 2, 2021		December 28, 2019			(in millions)	January 1, 2022		January 2, 2021
Programming and production costs	Programming and production costs	$	(2,379)	$	(1,920)	(24) %	Programming and production costs
Disney+							Disney+	$	(920)	$	(515)	(79) %
Hulu							Hulu	(1,832)		(1,624)		(13) %
ESPN+ and other							ESPN+ and other	(427)		(240)		(78) %
Total programming and production costs							Total programming and production costs	(3,179)		(2,379)		(34) %
Other operating expense	Other operating expense	(542)		(423)		(28) %	Other operating expense	(743)		(542)		(37) %
		$	(2,921)	$	(2,343)	(25) %		$	(3,922)	$	(2,921)	(34) %

The increase in programming and production costs at Disney+ was due to ~~higher~~more content provided on the service.

Higher programming and production costs at ~~Disney+,~~ Hulu were due to higher subscriber-based fees for programming the Live TV service due to rate increases and the carriage of more networks.

The increase in programming and production costs at ESPN+ and other was primarily due to new 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, ~~ESPN+. The increase at Disney+ was driven by the ongoing~~ expansion ~~including launches in additional~~to new markets. Higher costs at Hulu were primarily due to an increase in subscriber-based fees for programming on the live television service. The increase at ESPN+ was driven by higher soccer programming costs. Other operating expenses, which include technical support and distribution costs, increased due to higher distribution costs at Disney+ driven by subscriber growth and a full quarter of operations.

Selling, general, administrative and other costs increased ~~$238~~$305 million, to ~~$970~~$1,275 million from ~~$732~~$970 million, due to higher marketing costs ~~at Disney+ driven by launches in additional markets.~~

~~Depreciation and amortization increased $19 million, to $79 million from $60 million,~~ primarily due to ~~the ongoing~~growth in existing markets and to a lesser extent, expansion ~~of Disney+.~~to new markets.

Operating Loss from Direct-to-Consumer

The operating loss from Direct-to-Consumer ~~decreased $644~~increased $127 million, to ~~$466~~$593 million from ~~$1,110~~$466 million, due to ~~improved results~~higher losses at ~~Hulu,~~Disney+, and to a lesser extent, ESPN+, partially offset by improved results at ~~Disney+ and ESPN+.~~

~~Content Sales/Licensing and Other~~

~~Operating results for Content Sales/Licensing and Other are as follows:~~

Quarter Ended % Change
(in millions) January 2,
2021 December 28,
2019 Better
(Worse)
Revenues
TV/SVOD distribution $ 1,022 $ 1,439 (29) %
Theatrical distribution 31    1,408    (98) %
Home entertainment 300    596    (50) %
Other 349 467 (25) %
Total revenues 1,702 3,910 (56) %
Operating expenses (1,074) (1,998) 46  %
Selling, general, administrative and other (359) (1,095) 67  %
Depreciation and amortization (82) (62) (32) %
Equity in the income of investees 1 21 (95) %
Operating Income $ 188 $ 776 (76) %

~~Revenues~~

~~The decrease in TV/SVOD distribution revenue was driven by the shift from licensing our content to third parties to distribution on our direct-to-consumer services.~~

The decrease in theatrical distribution revenue was due to no significant worldwide theatrical releases in the current quarter, which was negatively impacted by COVID-19 as many theaters globally were either closed or operating at reduced capacity. ~~Soul~~ ~~was released in limited markets in the current quarter, whereas the prior-year quarter included~~ ~~Frozen II, Star Wars: The Rise of Skywalker~~ ~~and~~ ~~Maleficent: Mistress of Evil~~.Hulu.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS — (continued)

Supplemental Historical Information for Direct-to-Consumer

The following tables present the number of paid subscribers for Disney+, ESPN+ and Hulu as of:


(in millions)	October 2, 2021	July 3, 2021	April 3, 2021	January 2, 2021
Disney+
Domestic	38.8	37.9	37.3	36.3
International (excluding Disney+ Hotstar)	36.0	33.2	31.1	29.4
Disney+ (excluding Disney+ Hotstar) (1)	74.8	71.1	68.4	65.7
Disney+ Hotstar	43.3	44.9	35.2	29.2
Total Disney+ (1)	118.1	116.0	103.6	94.9

ESPN+	17.1	14.9	13.8	12.1

Hulu
SVOD Only	39.7	39.1	37.8	35.4
Live TV + SVOD	4.0	3.7	3.8	4.0
Total Hulu (1)	43.8	42.8	41.6	39.4


(in millions)	October 3, 2020	June 27, 2020	March 28, 2020	December 28, 2019
Disney+
Domestic	33.8	31.3	28.4	25.0
International (excluding Disney+ Hotstar)	19.5	17.5	5.1	1.5
Disney+ (excluding Disney+ Hotstar) (1)	53.3	48.8	33.5	26.5
Disney+ Hotstar	20.3	8.7	—	—
Total Disney+ (1)	73.7	57.5	33.5	26.5

ESPN+	10.3	8.5	7.9	6.6

Hulu
SVOD Only	32.5	32.1	28.8	27.2
Live TV + SVOD	4.1	3.4	3.3	3.2
Total Hulu (1)	36.6	35.5	32.1	30.4

(1)Total may not equal the sum of the column due to rounding

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS — (continued)

The following tables present the average monthly revenue per paid subscriber for the 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+ Hotstar	0.64		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 Only	12.75		13.15		12.08		13.51
Live TV + SVOD	84.89		84.09		81.83		75.11


	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+ Hotstar	0.98		0.57		—		—
Disney+	4.52		4.62		5.63		5.56

ESPN+	4.54		4.18		4.24		4.44

Hulu
SVOD Only	12.59		11.39		12.06		13.15
Live TV + SVOD	71.90		68.11		67.75		59.47

The following tables present operating expenses for the quarter ended:


(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)

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)

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 distribution	529		31		>100 %
Home entertainment	294		300		(2) %
Other	415		349		19 %
Total revenues	2,433		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 investees	3		1		>100 %
Operating Income	$	(98)	$	188	nm

Revenues

The increase in TV/SVOD distribution revenue reflected higher sales of both episodic television and theatrical film content. The increase in episodic television content sales was primarily due to the sale of more 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 ~~decrease~~increase in ~~home entertainment~~theatrical distribution revenue was due to ~~a decrease~~the release of ~~42% from lower unit sales of new releases and catalog titles as there were fewer new release~~nine titles in the current quarter ~~than~~compared to no significant releases in the prior-year ~~quarter. New release titles~~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 ~~Mulan~~Eternals ~~, whereas the prior-year quarter included~~ ~~Toy Story 4~~and ~~and~~ ~~The Lion King. Other significant titles in the prior-year quarter included~~ ~~Aladdin~~, ~~Dark Phoenix~~ ~~and~~ ~~Avengers: Endgame~~Encanto.

The ~~decrease~~increase in other revenue was due to ~~lower revenues~~higher sales from stage plays ~~reflecting the impact of theater closures~~ as a result of ~~COVID-19.~~more performances in the current quarter.

Costs and Expenses

Operating expenses are as follows:


		Quarter Ended				% Change Better (Worse)		Quarter Ended				% Change Better (Worse)
(in millions)	(in millions)	January 2, 2021		December 28, 2019			(in millions)	January 1, 2022		January 2, 2021
Programming and production costs	Programming and production costs	$	(877)	$	(1,562)	44 %	Programming and production costs	$	(1,260)	$	(877)	(44) %
Cost of goods sold and distribution costs	Cost of goods sold and distribution costs	(197)		(436)		55 %	Cost of goods sold and distribution costs	(365)		(197)		(85) %
		$	(1,074)	$	(1,998)	46 %		$	(1,625)	$	(1,074)	(51) %

The ~~decrease~~increase in programming and production costs was due to ~~lower~~higher production cost amortization driven by an increase in theatrical ~~and TV/SVOD distribution~~ revenue and ~~a decrease in home entertainment volumes.~~higher film cost impairments.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS — (continued)

The ~~decrease~~increase in cost of goods sold and distribution costs was ~~driven by decreased~~due to higher costs for stage plays as a result of more performances in the current quarter and an increase in theatrical ~~and stage play~~ distribution costs ~~due to fewer~~as a result of more theatrical ~~releases and stage play performances and a decrease in home entertainment volumes.~~releases.

Selling, general administrative and other costs ~~decreased $736~~increased $481 million, to ~~$359~~$840 million from ~~$1,095~~$359 million, due to ~~lower~~higher theatrical ~~and home entertainment~~ marketing costs.

~~Depreciation and amortization increased $20 million, to $82 million from $62 million, due to increased investments in technology.~~

~~Equity in the Income of Investees~~

~~Income from equity investments decreased $20 million, to $1 million from $21 million, primarily due to the sale of our interest in Endemol Shine in July 2020.~~

Operating Income from Content Sales/Licensing and Other

Operating income from Content Sales/Licensing and Other decreased ~~$588~~$286 million, to ~~$188~~a loss of $98 million from ~~$776~~income of $188 million, due to lower theatrical distribution results and higher film cost impairments, partially offset by higher TV/SVOD ~~and home entertainment~~ 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 ~~Disney Media and Entertainment Distribution~~DMED segment that are excluded from segment operating income:


		Quarter Ended				% Change		Quarter Ended				% Change Better (Worse)
(in millions)	(in millions)	January 2, 2021		December 28, 2019		Better (Worse)	(in millions)	January 1, 2022		January 2, 2021
TFCF and Hulu acquisition amortization(1)	TFCF and Hulu acquisition amortization(1)	$	(615)	$	(698)	12 %	TFCF and Hulu acquisition amortization(1)	$	(593)	$	(615)	4 %
Restructuring and impairment charges	Restructuring and impairment charges	(81)		(127)		36 %	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 DPEP 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 beverage	1,626		553		>100 %
Resorts and vacations	1,445		433		>100 %
Merchandise licensing and retail	1,563		1,698		(8) %
Parks licensing and other	448		355		26 %
Total revenues	7,234		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

COVID-19

Revenues 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 and experiences in the prior-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 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.

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 ~~amortization of step-up on film~~ and ~~television costs~~Disneyland Paris was ~~$206 million and amortization of intangible assets was $484 million.~~closed for approximately 65 days in the prior-year

3740

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS — (continued)

~~Disney Parks, Experiences and Products~~

~~Operating results for the Disney Parks, Experiences and Products segment are as follows:~~

Quarter Ended % Change
(in millions) January 2,
2021 December 28,
2019 Better
(Worse)
Revenues
Theme park admissions $ 549 $ 2,067 (73) %
Parks & Experiences merchandise, food and beverage 553    1,691    (67) %
Resorts and vacations 433 1,631 (73) %
Merchandise licensing and retail 1,698 1,669 2  %
Parks licensing and other 355 522 (32) %
Total revenues 3,588 7,580 (53) %
Operating expenses (2,430) (3,703) 34  %
Selling, general, administrative and other (678) (758) 11  %
Depreciation and amortization (591) (594) 1  %
Equity in the loss of investees (8) (3) >(100) %
Operating Income (Loss) $ (119) $ 2,522 nm

~~COVID-19~~

Revenues at the Disney Parks, Experiences and Products segment were adversely impacted by COVID-19 as a result of the closure/reduced operating capacity of our theme parks and resorts. Disneyland Resort was closed and our cruise business was suspended for the entire current quarter. ~~Disneyland Paris closed on October 30, 2020 and~~ Hong Kong Disneyland Resort ~~closed on December 2, 2020. Walt Disney World Resort, Shanghai Disney Resort and Tokyo Disney Resort were~~was open for 68 days in the current quarter and 42 days in the prior-year quarter. ~~Our parks and resorts that were open during the quarter~~Cruise ships operated at ~~significantly~~ reduced ~~capacities. We estimate that~~capacities in the ~~adverse impact of COVID-19 on~~ current quarter ~~segment operating income was approximately $2.6 billion, which is net of cost reductions from initiatives to mitigate~~while sailings were suspended in the ~~impacts of COVID-19.~~prior-year quarter.

Revenues

The ~~decrease~~increase in ~~revenues from~~ theme park admissions revenue was due to attendance growth and higher average per capita ticket revenue, which was due to attendance mix and the introduction of Genie+ and Lightning Lane.

Parks & Experiences merchandise, food and beverage ~~sales, and~~revenue growth was due to higher volumes.

The increase in resorts and vacations revenue was primarily due to ~~the closure~~increases in occupied hotel room nights, passenger cruise days and ~~reduced operating capacity of the parks and resorts and suspension of cruise ship sailings.~~average daily hotel room rates.

Merchandise licensing and retail revenue ~~growth~~ was lower due to ~~an increase~~a decrease of 3%9% from ~~merchandise licensing~~retail due to ~~higher revenues from merchandise based on Disney Classics, Spider-Man~~the closure of a substantial number of Disney-branded retail stores in North America and ~~The Mandalorian, partially offset by a decrease~~Europe in ~~sales~~the second half of ~~merchandise based on Frozen. Higher licensing revenues from Spider-Man were driven by the current quarter release of Marvel’s~~ ~~Spider-Man: Miles Morales~~ ~~game~~.fiscal year 2021.

The ~~decrease~~increase in parks licensing and other revenue was due to ~~lower~~higher sponsorship ~~revenue and a decrease in royalties from Tokyo Disney Resort. Tokyo Disney Resort was operating at reduced capacity in the current quarter.~~

~~MANAGEMENT’S DISCUSSION AND ANALYSIS OF~~

~~FINANCIAL CONDITION AND RESULTS OF OPERATIONS — (continued)~~

revenue.

In addition to revenue, costs and operating income, management uses the following key metrics to analyze trends and evaluate the overall performance of our theme parks and resorts, and we believe these metrics are useful to investors in analyzing the business:


		Domestic		International(1)		Total			Domestic		International(1)		Total
		Quarter Ended		Quarter Ended		Quarter Ended			Quarter Ended		Quarter Ended		Quarter Ended
		Jan 2, 2021	Dec 28, 2019	Jan 2, 2021	Dec 28, 2019	Jan 2, 2021	Dec 28, 2019		Jan 1, 2022	Jan 2, 2021	Jan 1, 2022	Jan 2, 2021	Jan 1, 2022	Jan 2, 2021
Parks	Parks							Parks
Increase (decrease)	Increase (decrease)							Increase (decrease)
Attendance(2)	Attendance(2)	(74) %	2 %	(61) %	(8) %	(71) %	(1) %	Attendance(2)	>100%	(74) %	>100%	(61) %	>100%	(71) %
Per Capita Guest Spending(3)	Per Capita Guest Spending(3)	1 %	10 %	(9) %	3 %	(5) %	9 %	Per Capita Guest Spending(3)	30 %	1 %	14 %	(9) %	32 %	(5) %
Hotels	Hotels							Hotels
Occupancy(4)	Occupancy(4)	28 %	92 %	13 %	73 %	24 %	88 %	Occupancy(4)	73 %	28 %	52 %	13 %	68 %	24 %
Available Room Nights (in thousands)(5)	Available Room Nights (in thousands)(5)	2,644	2,535	799	800	3,443	3,335	Available Room Nights (in thousands)(5)	2,542	2,644	799	799	3,341	3,443
Per Room Guest Spending(6)	Per Room Guest Spending(6)	$363	$375	$355	$316	$362	$363	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 same period in the prior year.

(2)Attendance is used to analyze volume trends at our theme parks and is based on the number of unique daily entries, i.e. a person visiting multiple theme parks in a single day is counted only once. Our attendance count includes complimentary entries but excludes entries by children under the age of three.

(3)Per capita guest spending is used to analyze guest spending trends and is defined as total revenue from ticket sales and sales of food, beverage and merchandise in our theme parks, divided by total theme park attendance.

(4)Occupancy is used to analyze the usage of available capacity at hotels and is defined as the number of room nights occupied by guests as a percentage of available hotel room nights.

(5)Available hotel room nights are defined as the total number of room nights that are available at our hotels and at Disney Vacation Club (DVC) properties located at our theme parks and resorts that are not utilized by DVC members. Available hotel room nights include rooms temporarily taken out of service.

(6)Per room guest spending is used to analyze guest spending at our hotels and is defined as total revenue from room rentals and sales of food, beverage and merchandise at our hotels, divided by total occupied hotel room nights.

~~Costs and Expenses~~

~~Operating expenses are as follows:~~

Quarter Ended % Change
Better
(Worse)
(in millions) January 2,
2021 December 28,
2019
Operating labor $ (1,030) $ (1,592) 35 %
Infrastructure costs (522) (605) 14 %
Cost of goods sold and distribution costs (587) (903) 35 %
Other operating expense (291) (603) 52 %
$ (2,430) $ (3,703) 34 %

The decrease in operating labor was due to lower volumes and the benefit of approximately $0.1 billion in government credits for certain employee costs. The decrease in infrastructure costs, cost of goods sold and distribution costs and other operating expenses was due to lower volumes.

~~Selling, general, administrative and other costs decreased $80 million, to $678 million from $758 million, due to marketing cost reductions.~~

~~Segment Operating Income (Loss)~~

Segment operating income decreased from a profit of $2.5 billion to a loss of $0.1 billion due to decreases at our domestic and international parks and experiences businesses. This decrease was partially offset by an increase in operating income at our consumer products business.

3941

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS — (continued)

Costs and Expenses

Operating expenses are 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 operating labor, cost of goods sold and distribution costs and 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 $678 million, due to higher marketing spend.

Segment Operating Income (Loss)

Segment operating income increased from a loss of $0.1 billion to a profit of $2.5 billion due to increases at our domestic parks and resorts and, to a lesser extent, international parks and resorts, partially offset by a decrease at our consumer products business.

The following table presents supplemental revenue and operating income (loss) detail for the ~~Disney Parks, Experiences and Products~~DPEP segment:


		Quarter Ended				% Change Better (Worse)		Quarter Ended				% Change Better (Worse)
(in millions)	(in millions)	January 2, 2021		December 28, 2019			(in millions)	January 1, 2022		January 2, 2021
Supplemental revenue detail	Supplemental revenue detail						Supplemental revenue detail
Parks & Experiences	Parks & Experiences						Parks & Experiences
Domestic	Domestic	$	1,489	$	4,939	(70) %	Domestic	$	4,800	$	1,489	>100 %
International	International	378		950		(60) %	International	861		378		>100 %
Consumer Products	Consumer Products	1,721		1,691		2 %	Consumer Products	1,573		1,721		(9) %
		$	3,588	$	7,580	(53) %		$	7,234	$	3,588	>100 %
Supplemental operating income (loss) detail	Supplemental operating income (loss) detail						Supplemental operating income (loss) detail
Parks & Experiences	Parks & Experiences						Parks & Experiences
Domestic	Domestic	$	(798)	$	1,572	nm	Domestic	$	1,555	$	(798)	nm
International	International	(262)		51		nm	International	21		(262)		nm
Consumer Products	Consumer Products	941		899		5 %	Consumer Products	874		941		(7) %
		$	(119)	$	2,522	nm		$	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 ~~Disney Parks, Experiences and Products~~DPEP segment that are excluded from segment operating income:


		Quarter Ended				% Change		Quarter Ended				% Change Better (Worse)
(in millions)	(in millions)	January 2, 2021		December 28, 2019		Better (Worse)	(in millions)	January 1, 2022		January 2, 2021
Restructuring and impairment charges	Restructuring and impairment charges	$	(28)	$	(6)	>(100) %	Restructuring and impairment charges	$	—	$	(28)	100 %
TFCF and Hulu acquisition amortization	TFCF and Hulu acquisition amortization	(2)		(2)		— %	TFCF and Hulu acquisition amortization	(2)		(2)		— %

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS — (continued)

CORPORATE AND UNALLOCATED SHARED EXPENSES

Quarter Ended % Change
(in millions) January 2,
2021 December 28,
2019 Better
(Worse)
Corporate and unallocated shared expenses $ (232) $ (237) 2 %


	Quarter Ended				% Change Better (Worse)
(in millions)	January 1, 2022		January 2, 2021
Corporate and unallocated shared expenses	$	(228)	$	(232)	2 %

FINANCIAL CONDITION

The change in cash and cash equivalents is as follows:


		Quarter Ended				% Change Better (Worse)		Quarter Ended				% Change Better (Worse)
(in millions)	(in millions)	January 2, 2021		December 28, 2019			(in millions)	January 1, 2022		January 2, 2021
Cash provided by operations - continuing operations		$	75	$	1,630	(95) %
Cash (used in) provided by operations - continuing operations							Cash (used in) provided by operations - continuing operations	$	(209)	$	75	nm
Cash used in investing activities - continuing operations	Cash used in investing activities - continuing operations	(732)		(1,350)		46 %	Cash used in investing activities - continuing operations	(987)		(732)		(35) %
Cash provided by (used in) financing activities - continuing operations		(333)		1,117		nm
Cash provided by (used in) operations - discontinued operations		9		(19)		nm
Cash used in financing activities - continuing operations							Cash used in financing activities - continuing operations	(280)		(333)		16 %
Cash provided by operations - discontinued operations							Cash provided by operations - discontinued operations	8		9		>100 %

Cash used in financing activities - discontinued operations							Cash used in financing activities - discontinued operations	(12)		—		nm
Impact of exchange rates on cash, cash equivalents and restricted cash	Impact of exchange rates on cash, cash equivalents and restricted cash	139		41		>100 %	Impact of exchange rates on cash, cash equivalents and restricted cash	(35)		139		nm
Change in cash, cash equivalents and restricted cash	Change in cash, cash equivalents and restricted cash	$	(842)	$	1,419	nm	Change in cash, cash equivalents and restricted cash	$	(1,515)	$	(842)	nm

Operating Activities

Cash ~~provided by~~used in continuing operating activities ~~decreased 95% to $0.1~~was $0.2 billion for the current quarter compared to ~~$1.6~~cash provided by continuing operating activities of $0.1 billion in the prior-year quarter. The decrease in cash provided by operations was due to lower operating cash flow at ~~Disney Parks, Experiences and Products,~~DMED, partially offset by higher operating cash flow at ~~Disney Media and Entertainment~~

~~MANAGEMENT’S DISCUSSION AND ANALYSIS OF~~

~~FINANCIAL CONDITION AND RESULTS OF OPERATIONS — (continued)~~

~~Distribution. Lower~~DPEP. The decrease in operating cash ~~flows~~flow at ~~Disney Parks, Experiences and Products~~DMED was due to ~~lower~~higher operating cash disbursements and higher spending on film and 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 ~~decreased revenues,~~higher revenue, partially offset by ~~lower~~an increase in operating cash disbursements due to ~~lower~~higher operating expenses. ~~The increase at Disney Media and Entertainment Distribution was due to lower spending on licensed and produced film and television content reflecting the impact of COVID-19.~~

Produced and licensed programming costs

The ~~Disney Media and Entertainment Distribution~~DMED segment incurs costs to produce and license feature film and television content. Film and television production costs include all internally produced content such as live-action and animated feature films, television series, television specials and theatrical stage plays. Programming costs include film or television content rights licensed from third parties for use on the Company’s Linear Networks and DTC services. Programming assets are generally recorded when the programming becomes available to us with a corresponding increase in programming liabilities.

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 quarter ended January 1, 2022 and January 2, 2021 ~~and December 28, 2019~~ are as follows:


		Quarter Ended					Quarter Ended
(in millions)	(in millions)	January 2, 2021		December 28, 2019		(in millions)	January 1, 2022		January 2, 2021
Beginning balances:	Beginning balances:					Beginning balances:
Produced and licensed programming assets	Produced and licensed programming assets	$	27,193	$	27,407	Produced and licensed programming assets	$	31,732	$	27,193
Programming liabilities	Programming liabilities	(4,099)		(4,061)		Programming liabilities	(4,113)		(4,099)
		23,094		23,346			27,619		23,094
Spending:	Spending:					Spending:
Programming licenses and rights	Programming licenses and rights	2,709		3,198		Programming licenses and rights	3,357		2,709
Produced film and television content	Produced film and television content	2,869		3,128		Produced film and television content	3,598		2,869
		5,578		6,326			6,955		5,578
Amortization:	Amortization:					Amortization:
Programming licenses and rights	Programming licenses and rights	(4,539)		(3,731)		Programming licenses and rights	(4,811)		(4,539)
Produced film and television content	Produced film and television content	(1,810)		(2,518)		Produced film and television content	(2,651)		(1,810)
		(6,349)		(6,249)			(7,462)		(6,349)
Change in internally produced and licensed content costs	Change in internally produced and licensed content costs	(771)		77		Change in internally produced and licensed content costs	(507)		(771)

Other non-cash activity	Other non-cash activity	185		28		Other non-cash activity	205		185
Ending balances:	Ending balances:					Ending balances:
Produced and licensed programming assets	Produced and licensed programming assets	27,352		27,873		Produced and licensed programming assets	31,794		27,352
Programming liabilities	Programming liabilities	(4,844)		(4,422)		Programming liabilities	(4,477)		(4,844)
		$	22,508	$	23,451		$	27,317	$	22,508

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 quarter ended January 1, 2022 and January 2, 2021 ~~and December 28, 2019~~ are as follows:


(in millions)	(in millions)	January 2, 2021		December 28, 2019		(in millions)	January 1, 2022		January 2, 2021

Disney Media and Entertainment Distribution	Disney Media and Entertainment Distribution	$	177	$	188	Disney Media and Entertainment Distribution	$	169	$	177
Disney Parks, Experiences and Products	Disney Parks, Experiences and Products					Disney Parks, Experiences and Products
Domestic	Domestic	336		820		Domestic	457		336
International	International	183		229		International	202		183

Total Disney Parks, Experiences and Products	Total Disney Parks, Experiences and Products	519		1,049		Total Disney Parks, Experiences and Products	659		519

Corporate	Corporate	64		101		Corporate	153		64
		$	760	$	1,338		$	981	$	760

Capital expenditures at ~~Disney Media and Entertainment Distribution~~the DMED segment primarily reflect investments in technology and in facilities and equipment for expanding and upgrading broadcast centers, production facilities and television station facilities.

Capital expenditures for 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 due to the temporary suspension of certain capital projects in the prior-year period as a result of COVID-19.

Capital expenditures at Corporate primarily reflect investments in corporate facilities, technology and equipment. The increase in the current period compared to the prior-year period was driven by higher spend on corporate facilities.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS — (continued)

Capital expenditures for the Disney Parks, Experiences and Products segment are principally for theme park and resort expansion, new attractions, cruise ships, capital improvements and systems infrastructure. The decrease in the period compared to the prior-year period was primarily due to the temporary suspension of certain capital projects 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 ~~2021~~2022 capital expenditures will be ~~comparable~~approximately $6.1 billion compared to fiscal ~~2020~~2021 capital expenditures of ~~$4.0 billion, as increased~~$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 ~~for our DTC services and on facilities~~ at ~~Corporate are anticipated to be offset by lower investments at our domestic parks and resorts, in part reflecting a reduction in spending in response to COVID-19.~~the DMED segment.

Financing Activities

Cash used in financing activities was $0.3 billion in the both the current quarter ~~compared to cash provided by financing activities of $1.1 billion in~~and the prior-year quarter. In the current quarter, the Company had a decrease in net borrowings of ~~$0.3~~$0.1 billion compared to ~~an increase~~a decrease in net borrowings of ~~$1.2~~$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 quarter compared to $209 million in the prior-year quarter.)

See Note 45 to the Condensed Consolidated Financial Statements for a summary of the Company’s borrowing activities during the quarter ended January ~~2, 2021~~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 March ~~2021,~~2022, March 2023 and March 2025, and incremental term debt issuances, ~~and unused availability under the $5.0 billion bank facility maturing in April 2021~~ to retire or refinance other borrowings before or as they come due.

~~See Note 10 to the Condensed Consolidated Financial Statements for a summary of the Company’s dividend payments.~~

The Company’s operating cash flow and access to the capital markets can be impacted by factors outside of its control, including COVID-19, which ~~has~~ had an adverse impact on the Company’s operating cash ~~flows.~~flows in fiscal 2020 and 2021. We have taken a number of measures to mitigate the impact on the Company’s financial position. We have significantly increased the Company’s cash balances through the issuance of senior notes in March and May 2020. In addition, we entered into an additional $5.0 billion credit facility in April 2020, bringing the total capacity of our bank facilities to $17.25 billion. See Significant Developments for the impact COVID-19 has had on our operations and mitigating measures we have taken.

~~Despite the impact of COVID-19, we~~ believe that the Company’s financial condition remains strong and that its cash balances, other liquid assets, operating cash flows, access to debt and equity capital markets and borrowing capacity under current bank facilities, taken together, provide adequate resources to fund ongoing operating requirements and upcoming debt maturities as well as future capital expenditures related to the expansion of existing businesses and development of new ~~projects, although these activities have been scaled back or suspended in light~~projects. Depending on the unknowable duration and severity of ~~COVID-19. In addition to measures~~ the ~~Company has already taken in response to~~future impacts of COVID-19 ~~there are a number of additional mitigating actions~~and its variants, the Company may take mitigating actions in the future such as continuing to not ~~declaring~~declare dividends ~~(which the~~(the Company did not ~~declare~~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 ~~additional~~ financing; ~~further~~ suspending capital spending; reducing film and television content investments; or implementing ~~additional~~ furloughs or reductions in force. The impacts on our operating cash flows are subject to uncertainty and may require us to rely more heavily on external funding sources, such as debt and other types of financing.

The Company’s borrowing costs can also be impacted by short- and long-term debt ratings assigned by nationally recognized rating agencies, which are based, in significant part, on the Company’s performance as measured by certain credit metrics such as leverage and interest coverage ratios. As of January ~~2, 2021,~~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 BBB+ and A-2 (Stable), respectively, and Fitch’s long- and short-term debt ratings for the Company were A- and F2 (Stable), respectively. ~~In addition, Standard and Poor’s and Fitch have placed the Company’s long-term ratings on Negative Outlook.~~ The Company’s bank facilities contain only one financial covenant, relating to interest coverage, which the Company met on January ~~2, 2021,~~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.

The duration of business closures and other impacts related to COVID-19, and the corresponding duration of the impacts on our operating cash flows, are subject to substantial uncertainty and require us to rely more heavily on external funding sources, such as debt and other types of financing.

SUPPLEMENTAL GUARANTOR FINANCIAL INFORMATION

On March 20, 2019 as part of the acquisition of TFCF, The Walt Disney Company (“TWDC”) became the ultimate parent of TWDC Enterprises 18 Corp. (formerly known as The Walt Disney Company) (“Legacy Disney”). Legacy Disney and TWDC are collectively referred to as “Obligor Group”, and individually, as a “Guarantor”. Concurrent with the close of the TFCF acquisition, $16.8 billion of TFCF’s assumed public debt (which then constituted 96% of such debt) was exchanged for

~~MANAGEMENT’S DISCUSSION AND ANALYSIS OF~~

~~FINANCIAL CONDITION AND RESULTS OF OPERATIONS — (continued)~~

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).

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 ~~2, 2021~~1, 2022 was as follows:


		TWDC				Legacy Disney					TWDC				Legacy Disney
(in millions)	(in millions)	Par Value		Carrying Value		Par Value		Carrying Value		(in millions)	Par Value		Carrying Value		Par Value		Carrying Value
Registered debt with unconditional guarantee	Registered debt with unconditional guarantee	$	38,689	$	40,964	$	12,582	$	12,768	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 ~~are~~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 ~~U.S.~~ GAAP.


Results of operations (in millions)	Quarter Ended January ~~2, 2021~~1, 2022:
Revenues	$	—
Costs and expenses	—
Net income (loss) from continuing operations	~~(513)~~(291)
Net income (loss)	~~(513)~~(291)
Net income (loss) attributable to TWDC shareholders	~~(513)~~(291)


Balance Sheet (in millions)	January 1, 2022		October 2, 2021
Current assets	$	8,451	$	9,506
Noncurrent assets	1,727		1,689
Current liabilities	7,662		6,878
Noncurrent liabilities (excluding intercompany to non-Guarantors)	50,154		51,439
Intercompany payables to non-Guarantors	147,209		147,629

Balance Sheet (in millions) January 2, 2021 October 3, 2020
Current assets $ 11,428 $ 12,899
Noncurrent assets 1,972 2,076
Current liabilities 6,103 6,155
Noncurrent liabilities (excluding intercompany to non-Guarantors) 57,752 57,809
Intercompany payables to non-Guarantors 145,660 146,748

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 15 to the Consolidated Financial Statements in the 2021 Annual Report on Form 10-K.

Tax Matters

As disclosed in Note 10 to the Consolidated Financial Statements in the 2021 Annual Report on Form 10-K, the Company has exposure for certain tax matters.

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS — (continued)

~~COMMITMENTS AND CONTINGENCIES~~

~~Legal Matters~~

~~As disclosed in Note 12 to the Condensed Consolidated Financial Statements, the Company has exposure for certain legal matters.~~

~~Guarantees~~

~~As disclosed in Note 12 to the Condensed Consolidated Financial Statements, the Company has exposure to certain guarantees.~~

~~Tax Matters~~

~~As disclosed in Note 10 to the Consolidated Financial Statements in the 2020 Annual Report on Form 10-K, the Company has exposure for certain tax matters.~~

Contractual Commitments

See Note 15 to the Consolidated Financial Statements in the ~~2020~~2021 Annual Report on Form ~~10-K for information regarding the Company’s contractual commitments.~~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 ~~2020~~2021 Annual Report on Form 10-K.

Produced and Acquired/Licensed Content Costs

We amortize and test for impairment capitalized film and television production costs based on whether the content is predominantly monetized individually or as a group. See Note 67 to the Condensed Consolidated Financial Statements for further discussion.

Production costs that are classified as individual are amortized based upon the ratio of the current period’s revenues to the estimated remaining total revenues (Ultimate Revenues).

With respect to produced films intended for theatrical release, the most sensitive factor affecting our estimate of Ultimate Revenues is theatrical performance. Revenues derived from other markets subsequent to the theatrical release are generally highly correlated with theatrical performance. Theatrical performance varies primarily based upon the public interest and demand for a particular film, the popularity of competing films at the time of release and the level of marketing effort. Upon a film’s release and determination of the theatrical performance, the Company’s estimates of revenues from succeeding windows and markets, which may include imputed license fees for content that is used on our DTC streaming services, are revised based on historical relationships and an analysis of current market trends.

With respect to capitalized television production costs that are classified as individual, the most sensitive factors affecting estimates of Ultimate Revenues are program ratings of the content on our licensees’ platforms. Program ratings, which are an indication of market acceptance, directly affect the program’s ability to generate advertising and subscriber revenues and are correlated with the license fees we can charge for the content in subsequent windows and for subsequent seasons.

Ultimate Revenues are reassessed each reporting period and the impact of any changes on amortization of production cost is accounted for as if the change occurred at the beginning of the current fiscal year. If our estimate of Ultimate Revenues decreases, amortization of costs may be accelerated or result in an impairment. Conversely, if our estimate of Ultimate Revenues increases, cost amortization may be slowed.

Produced content costs that are part of a group and acquired/licensed content costs are amortized based on projected usage typically resulting in an accelerated or straight-line amortization pattern. The determination of projected usage requires judgment and is reviewed periodically for changes. If projected usage changes we may need to accelerate or slow the recognition of amortization expense.

The amortization of multi-year sports rights is based on our projections of revenues over the contract period, which include advertising revenue and an allocation of affiliate revenue (relative value). If the annual contractual payments related to each season approximate each season’s estimated relative value, we expense the related contractual payments during the applicable season. If estimated relative values by year were to change significantly, amortization of our sports rights costs may be accelerated or slowed.

~~MANAGEMENT’S DISCUSSION AND ANALYSIS OF~~

~~FINANCIAL CONDITION AND RESULTS OF OPERATIONS — (continued)~~

Revenue Recognition

The Company has revenue recognition policies for its various operating segments that are appropriate to the circumstances of each business. Refer to Note 32 to the Consolidated Financial Statements in the ~~2020~~2021 Annual Report on Form 10-K for our revenue recognition policies.

Pension and Postretirement Medical Plan Actuarial Assumptions

The Company’s pension and postretirement medical benefit obligations and related costs are calculated using a number of actuarial assumptions. Two critical assumptions, the discount rate and the expected return on plan assets, are important elements of expense and/or liability measurement, which we evaluate annually. ~~Refer~~See Note 11 to the ~~2020~~Consolidated 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.

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 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 ~~Company~~qualitative assessment requires the consideration of factors such as recent market transactions, macroeconomic conditions, and changes in projected future cash flows of the reporting unit.

The quantitative assessment compares the fair value of each goodwill reporting unit to its carrying amount, and to the extent the carrying amount exceeds the fair value, an impairment of goodwill is recognized for the excess up to the amount of goodwill allocated to the reporting unit.

The impairment test for goodwill requires judgment related to the identification of reporting units, the assignment of assets and liabilities to reporting units including goodwill, and the determination of fair value of the reporting units. To determine the fair value of our reporting units, we apply what we believe to be the most appropriate valuation methodology for each of our reporting units. We generally use a present value technique (discounted cash flows) corroborated by market multiples when available and as appropriate. The discounted cash flow analyses are sensitive to our estimates of future revenue growth and margins for these ~~businesses.~~businesses as well as the discount rates used to calculate the present value of future cash flows. In times of adverse economic conditions in the global economy, the Company’s long-term cash flow projections are subject to a greater degree of uncertainty than usual.

~~The Company is~~ 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 ~~compare the fair values of~~record impairment charges.

To test its other indefinite-lived intangible assets for impairment, the Company first performs a qualitative assessment to ~~their~~determine 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 ~~value~~amount of the asset group. An asset group is generally established by identifying the lowest level of cash flows generated by a group of assets that are largely independent of the cash flows of other ~~assets.~~assets and could include assets used across multiple businesses. If the carrying ~~value~~amount of an asset group exceeds the estimated undiscounted future cash flows, an impairment iswould be measured as the difference between the fair value of the asset group and the carrying ~~value~~amount of the asset 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

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS — (continued)

triggering event has occurred, the identification of asset groups, estimates of future cash flows and the discount rate used to determine fair values.

The Company has investments in equity securities. For equity securities that do not have a readily determinable fair value, we consider forecasted financial performance of the investee companies, as well as volatility ~~inherit~~inherent in the external markets for these investments. If these forecasts are not met, impairment charges may be recorded.

~~MANAGEMENT’S DISCUSSION AND ANALYSIS OF~~

~~FINANCIAL CONDITION AND RESULTS OF OPERATIONS — (continued)~~

Allowance for Credit Losses

We evaluate our allowance for credit losses and estimate collectability of accounts receivable based on historical bad debt experience, our assessment of the financial condition of individual companies with which we do business, current market conditions, and reasonable and supportable forecasts of future economic conditions. In times of economic turmoil, including COVID-19, our estimates and judgments with respect to the collectability of our receivables are subject to greater uncertainty than in more stable periods. If our estimate of uncollectible accounts is too low, costs and expenses may increase in future periods, and if it is too high, costs and expenses may decrease in future periods. ~~In addition, see~~See Note 3.3 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 are also involved in other contingent matters for which we accrue estimates for a probable and estimable loss. It is possible, however, that future results of operations for any particular quarterly or annual period could be materially affected by changes in our assumptions or the effectiveness of our strategies related to legal proceedings or our assumptions regarding other contingent matters. See Note 1213 to the Condensed Consolidated Financial Statements for more detailed information on litigation exposure.

Income Tax

As a matter of course, the Company is regularly audited by federal, state and foreign tax authorities. From time to time, these audits result in proposed assessments. Our determinations regarding the recognition of income tax benefits are made in consultation with outside tax and legal counsel, where appropriate, and are based upon the technical merits of our tax positions in consideration of applicable tax statutes and related interpretations and precedents and upon the expected outcome of proceedings (or negotiations) with taxing and legal authorities. The tax benefits ultimately realized by the Company may differ from those recognized in our future financial statements based on a number of factors, including the Company’s decision to settle rather than litigate a matter, relevant legal precedent related to similar matters and the Company’s success in supporting its filing positions with taxing authorities.

Impacts of COVID-19 on Accounting Policies and Estimates

In light of the currently unknown ultimate duration and severity of COVID-19, we face a greater degree of uncertainty than normal in making the judgments and estimates needed to apply our significant accounting ~~policies. As COVID-19 continues to develop, we~~policies and may make changes to these estimates and judgments over ~~time, which~~time. This could result in meaningful impacts to our financial statements in future ~~periods. A more detailed discussion of the impact of COVID-19 on the Accounting Policies and Estimates follows.~~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 or canceled.~~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 ~~the resumption and continuation of~~ 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.

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 78 to the Condensed Consolidated Financial Statements)

The determination of interim period tax provisions generally requires the use of a forecasted ~~full year~~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,

~~MANAGEMENT’S DISCUSSION AND ANALYSIS OF~~

~~FINANCIAL CONDITION AND RESULTS OF OPERATIONS — (continued)~~

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 1617 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.

4750

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 1415 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 January ~~2, 2021,~~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 control over financial reporting during the first quarter of fiscal ~~2021~~2022 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

4851

PART II. OTHER INFORMATION

ITEM 1. Legal Proceedings

As disclosed in Note 1213 to the Condensed Consolidated Financial Statements, the Company is engaged in certain legal matters, and the disclosure set forth in Note 1213 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. Such statements may, for example, express expectations, projections, estimates or future impacts; actions that we may take (or not take); or other statements that are not historical in nature. All forward-looking statements are made on the basis of management’s views and assumptions regarding future events and business 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 differ~~a wide range of factors could materially ~~from~~affect 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, asset acquisitions or dispositions or changes to businesses), as well as from developments beyond the Company’s control, including: global pandemicsdescribed in “Risk Factors” in our 2021 Annual Report on Form 10-K and health concerns; changes in domestic and global economic conditions; competitive conditions and consumer preferences; adverse weather conditions or natural disasters; international, political or military developments; and technological developments. Such developments may affect (or further affect, as applicable) entertainment, travel and leisure businesses generally and may, among other things, affect (or have affected, as applicable) the performance of the Company’s performance of some or all Company businesses either directly or through their impact on those who distribute our products, the industries in which the Company operates and the Company’s expenses.

~~In addition to~~ the factors affecting specific business operations identified in connection with the description of these operations and the financial results of these operations elsewhere in our filings with the ~~SEC, the most significant factors affecting our business include the following, as well as factors discussed~~SEC. There have been no material changes in our ~~2020~~risk factors from those disclosed in our 2021 Annual Report on Form ~~10-K under Item 1A, “Risk Factors”:~~

~~BUSINESS, ECONOMIC, MARKET and OPERATING CONDITION RISKS~~

~~The adverse impact of COVID-19 on our businesses will continue for an unknown length of time and may continue to impact certain of our key sources of revenue.~~

Since early 2020, the world has been, and continues to be, impacted by COVID-19. COVID-19 and measures to prevent its spread are impacting our segments in a number of ways, most significantly at DPEP where our theme parks have been closed or operating at significantly reduced capacity and cruise ship sailings and guided tours have been suspended. We have delayed, or in some cases, shortened or canceled, theatrical releases, and stage play performances have been suspended. Since March 2020, we have experienced significant disruptions in the production and availability of content, including the shift of key live sports programming from the third quarter of fiscal 2020 to the fourth quarter and into fiscal 2021 as well as the suspension of most film and television content late in the second quarter of fiscal 2020. Although most film and television production activities have resumed beginning in the fourth quarter of fiscal 2020, we continue to see disruption in production activities depending on local circumstances. Many of our businesses have been closed or suspended consistent with government mandates or guidance. We have continued to pay for certain sports rights, including for certain events that have been deferred or canceled. The impacts to our content have resulted in decreased viewership and advertising revenues, and demands for affiliate fee reductions related to certain of our television networks. These impacts are likely to be exacerbated the longer such content is not available, including if sports content should become unavailable again in the future. Other of our offerings will be exposed to additional financial impacts in the event of future significant unavailability of content. COVID-19 impacts could also hasten the erosion of our historical sources of revenue at our Linear Networks businesses. We have experienced significantly reduced numbers of reservations at our hotels and cruises. We granted rent waivers to some of our tenants, and they have not paid rent while certain of our facilities have been closed. We have experienced increased returns and refunds and customer requests for payment deferrals. Collectively, our impacted businesses have historically been the source of the majority of our revenue. Some of our businesses remain closed and those that are open are operating subject to restrictions and increased expenses. These and other impacts of COVID-19 on our businesses will continue for an unknown length of time. COVID-19 impacts that have subsided may again impact our businesses in the future and new impacts may emerge, particularly given the rise of COVID-19 cases following the end of fiscal 2020. For example, some of our parks closed due to government mandates or guidance following their initial reopening.

Consumers may change their behavior and consumption patterns in response to the prolonged suspension of certain of our businesses, such as subscription to pay television packages (which experienced accelerated decline during some periods after the onset of COVID-19) or theater-going to watch movies. Certain of our customers, including individuals as well as businesses

such as theatrical distributors, affiliates, licensees of rights to use our programming and intellectual property, advertisers and others, have been negatively impacted by the economic downturn caused by COVID-19, which may result in decreased purchases of our goods and services even after certain operations resume. Some industries in which our customers operate, such as theatrical distribution, retail and travel, could experience contraction, which could impact the profitability of our businesses going forward. Additionally, we have incurred and will continue to incur incremental costs to implement health and safety measures, reopen our parks and restart our halted construction projects. As we have resumed production of content, including live sporting events, we have incurred costs to implement health and safety measures and productions will generally take longer to complete.

Our mitigation efforts in response to the impacts of COVID-19 on our businesses have had, or may have, negative impacts. The Company (or our Board of Directors, as applicable) significantly increased cash balances through the issuance of senior notes in March and May 2020, and we entered into an additional $5.0 billion credit facility in April 2020, did not declare a dividend with respect to fiscal year 2020 operations; suspended certain capital projects; reduced certain discretionary expenditures (such as spending on marketing); temporarily reduced management compensation; temporarily eliminated Board of Director retainers and committee fees; furloughed over half of our employees (some of whom remain furloughed and continue to receive Company provided medical benefits); and reduced our employee population. Such mitigation measures have resulted in the delay or suspension of certain projects in which we have invested, particularly at our parks and resorts and studio operations. We may take additional mitigation actions in the future such as raising additional financing; not declaring future dividends; reducing, or not making, certain payments, such as some contributions to our pension and postretirement medical plans; further suspending capital spending; reducing film and television content investments; implementing additional furloughs or reductions in force or modifying our operating strategy. These and other of our mitigating actions may have an adverse impact on our businesses. Additionally, there are certain limitations on our ability to mitigate the adverse financial impact of COVID-19, including the fixed costs of our theme park business and the impact COVID-19 may have on capital markets and our cost of borrowing. Further, the benefit of certain mitigation efforts will not continue to be available going forward. For example, as our employees return from furlough, the cost reductions of the related furloughs will no longer be available.

Even our operations that were not suspended or that have resumed continue to be adversely impacted by government mandated restrictions (such as density limitations and travel restrictions and requirements); measures we voluntarily implement; measures we are contractually obligated to implement; the distancing practices and health concerns of consumers, talent and production workers; and logistical limitations. Upon reopening our parks and resorts business we have seen lower demand. Geographic variation in government requirements and ongoing changes to restrictions have disrupted and could further disrupt our businesses, including our production operations. Our operations could be suspended or re-suspended by government action or otherwise in the future. For example, both Hong Kong Disneyland Resort and Disneyland Paris have reopened and closed multiple times since the onset of COVID-19. Some of our businesses have not yet been permitted to open, such as Disneyland Resort and our cruise business. Some of our employees who returned to work have been refurloughed. Our operations or reputation could be further negatively impacted by a significant COVID-19 outbreak impacting our employees, customers or others interacting with our businesses, including our supply chain.

In fiscal year 2020, we operated at a net loss. We have impaired goodwill and intangible assets at our International Channels businesses and written down the value of certain of our retail store assets. Certain of our other assets could also become impaired, including further impairments of goodwill and intangible assets; we have increased, and may further increase, allowances for credit losses; and there may be changes in judgments in determining the fair-value of assets; and estimates related to variable consideration may change due to increased returns, reduced usage of our products or services and decreased royalties. Our leverage ratios have increased and are expected to remain elevated in the near-term as a result of COVID-19’s impact on our financial performance, causing certain of the credit rating agencies to downgrade our ratings. Our debt ratings may be further downgraded as a result of the COVID-19 impact, which may negatively impact our cost of borrowing. Due to reduced operating cash flow, we may utilize cash balances and/or future financings to fund a portion of our operations and investments in our businesses. Financial risks may be exacerbated by the timing of customer deposit refunds; liquidity issues among our key customers, particularly advertisers, television affiliates, theatrical exhibitors and distributors and licensees, which have impacted timely payments by such customers to the Company; loss or delay of receivables as a result of contractual performance short falls; our contractual payment obligations; and our investments in our business. The Company has $14.2 billion in trade accounts receivable outstanding at January 2, 2021, with an allowance for credit losses of $0.3 billion. Our estimates and judgments with respect to the collectability of our receivables are subject to greater uncertainty due to the impacts of COVID-19. Economic or political conditions in a country outside the U.S. as a result of COVID-19 could also reduce our ability to hedge exposure to currency fluctuations in the country or our ability to repatriate revenue from the country.

The impacts of COVID-19 to our business have generally amplified, or reduced our ability to mitigate, the other risks discussed in our filings with the SEC and our remediation efforts may not be successful.

COVID-19 also makes it more challenging for management to estimate future performance of our businesses. COVID-19 has already adversely impacted our businesses and net cash flow, and we expect the ultimate magnitude of these disruptions on our financial and operational results will be dictated by the length of time that such disruptions continue which will, in turn, depend on the currently unknowable duration and severity of the impacts of COVID-19, and among other things, the impact and duration of governmental actions imposed in response to COVID-19 and individuals’ and companies’ risk tolerance regarding health matters going forward. If actual performance in our international markets significantly underperforms management’s forecasts, the Company could have foreign currency hedge gains/losses which are not offset by the realization of exposures, resulting in excess hedge gains or losses. While we cannot be certain as to the duration of the impacts of COVID-19, we expect impacts of COVID-19 to affect our financial results at least through fiscal 2021.

Misalignment with public and consumer tastes and preferences for entertainment and consumer products could negatively impact demand for our entertainment offerings and products and adversely affect the profitability of any of our businesses.

Our businesses create entertainment, travel and consumer products whose success depends substantially on consumer tastes and preferences that change in often unpredictable ways. The success of our businesses depends on our ability to consistently create content, which may be distributed among other ways through broadcast, cable, internet or cellular technology, theme park attractions, hotels and other resort facilities and travel experiences and consumer products that meet the changing preferences of the broad consumer market and respond to competition from an expanding array of choices facilitated by technological developments in the delivery of content. The success of our theme parks, resorts, cruise ships and experiences, as well as our theatrical releases, depends on demand for public or out-of-home entertainment experiences. COVID-19 may impact consumer tastes and preferences. Many of our businesses increasingly depend on acceptance of our offerings and products by consumers outside the U.S., and their success therefore depends on our ability to successfully predict and adapt to changing consumer tastes and preferences outside as well as inside the U.S. Moreover, we must often invest substantial amounts in content production and acquisition, acquisition of sports rights, theme park attractions, cruise ships or hotels and other facilities or customer facing platforms before we know the extent to which these products will earn consumer acceptance. The impacts of COVID-19 are inhibiting and delaying our ability to earn returns on some of these and other investments. If our entertainment offerings and products, including our content offerings, modified as a result of COVID-19, as well as our methods to make our offerings and products available to consumers, do not achieve sufficient consumer acceptance, our revenue from advertising sales (which are based in part on ratings for the programs in which advertisements air), affiliate fees, subscription fees, theatrical film receipts, the license of rights to other distributors, theme park admissions, hotel room charges and merchandise, food and beverage sales, sales of licensed consumer products or from sales of our other consumer products and services, may decline, decline further or fail to grow to the extent we anticipate when making investment decisions and thereby further adversely affect the profitability of one or more of our businesses.

~~The success of our businesses is highly dependent on the existence and maintenance of intellectual property rights in the entertainment products and services we create.~~

The value to us of our intellectual property rights is dependent on the scope and duration of our rights as defined by applicable laws in the U.S. and abroad and the manner in which those laws are construed. If those laws are drafted or interpreted in ways that limit the extent or duration of our rights, or if existing laws are changed, our ability to generate revenue from our intellectual property may decrease, or the cost of obtaining and maintaining rights may increase.

The unauthorized use of our intellectual property may increase the cost of protecting rights in our intellectual property or reduce our revenues. The convergence of computing, communication and entertainment devices, increased broadband internet speed and penetration, increased availability and speed of mobile data transmission and increasingly sophisticated attempts to obtain unauthorized access to data systems have made the unauthorized digital copying and distribution of our films, television productions and other creative works easier and faster and protection and enforcement of intellectual property rights more challenging. The unauthorized distribution and access to entertainment content generally continues to be a significant challenge for intellectual property rights holders. Inadequate laws or weak enforcement mechanisms to protect entertainment industry intellectual property in one country can adversely affect the results of the Company’s operations worldwide, despite the Company’s efforts to protect its intellectual property rights. COVID-19 may increase incentives and opportunities to access content in unauthorized ways, as negative economic conditions coupled with a shift in government priorities could lead to less enforcement. These developments require us to devote substantial resources to protecting our intellectual property against unlicensed use and present the risk of increased losses of revenue as a result of unlicensed distribution of our content.

With respect to intellectual property developed by the Company and rights acquired by the Company from others, the Company is subject to the risk of challenges to our copyright, trademark and patent rights by third parties. Successful challenges to our rights in intellectual property may result in increased costs for obtaining rights or the loss of the opportunity to earn revenue from or utilize the intellectual property that is the subject of challenged rights. From time to time, the Company has been notified that it may be infringing certain intellectual property rights of third parties. Technological changes in

~~industries in which the Company operates and extensive patent coverage in those areas may increase the risk of such claims being brought and prevailing.~~

A variety of uncontrollable events may reduce demand for or consumption of our products and services, impair our ability to provide our products and services or increase the cost or reduce the profitability of providing our products and services.

Demand for and consumption of our products and services, particularly our theme parks and resorts, is highly dependent on the general environment for travel and tourism. The environment for travel and tourism, as well as demand for and consumption of other entertainment products, can be significantly adversely affected in the U.S., globally or in specific regions as a result of a variety of factors beyond our control, including: health concerns (including as it has been by COVID-19); adverse weather conditions arising from short-term weather patterns or long-term change, catastrophic events or natural disasters (such as excessive heat or rain, hurricanes, typhoons, floods, tsunamis and earthquakes); international, political or military developments; and terrorist attacks. These events and others, such as fluctuations in travel and energy costs and computer virus attacks, intrusions or other widespread computing or telecommunications failures, may also damage our ability to provide our products and services or to obtain insurance coverage with respect to some of these events. An incident that affected our property directly would have a direct impact on our ability to provide goods and services and could have an extended effect of discouraging consumers from attending our facilities. Moreover, the costs of protecting against such incidents, including the costs of protecting against the spread of COVID-19, reduces the profitability of our operations.

For example, COVID-19 and measures to prevent the spread of COVID-19 are currently impairing our ability to provide our products and services and reducing consumption of those products and services. Further, prior to COVID-19, events in Hong Kong impacted profitability of our Hong Kong operations and may continue to do so, and past hurricanes have impacted the profitability of Walt Disney World Resort in Florida and future hurricanes may also do so.

The negative economic consequences of COVID-19 may be particularly challenging in markets where individuals and local businesses have limited access to government supported “safety nets”, which could lead to political instability and unrest, and further depress demand for our products and services over a longer timeframe.

In addition, we derive affiliate fees and royalties from the distribution of our programming, sales of our licensed goods and services by third parties, and the management of businesses operated under brands licensed from the Company, and we are therefore dependent on the successes of those third parties for that portion of our revenue. A wide variety of factors could influence the success of those third parties and if negative factors significantly impacted a sufficient number of those third parties, the profitability of one or more of our businesses could be adversely affected. Impacts of COVID-19 on third parties’ liquidity have impacted timely payments by such third parties to the Company.

We obtain insurance against the risk of losses relating to some of these events, generally including physical damage to our property and resulting business interruption, certain injuries occurring on our property and some liabilities for alleged breach of legal responsibilities. When insurance is obtained it is subject to deductibles, exclusions, terms, conditions and limits of liability. The types and levels of coverage we obtain vary from time to time depending on our view of the likelihood of specific types and levels of loss in relation to the cost of obtaining coverage for such types and levels of loss and we may experience material losses not covered by our insurance. For example, some losses related to impacts of COVID-19 will not be covered by insurance available to us and some insurers may contest coverage.

~~Changes in our business strategy or restructuring of our businesses may increase our costs or otherwise affect the profitability of our businesses or the value of our assets.~~

As changes in our business environment occur we have adjusted, and may further adjust our business strategies to meet these changes and we may otherwise decide to further restructure our operations or particular businesses or assets. For example, in October 2020 we announced a reorganization of our media and entertainment businesses to accelerate our direct-to-consumer strategies. Our new organization and strategies may not produce the anticipated benefits, such as supporting our growth strategies and enhancing shareholder value. Our new organization and strategies could be less successful than our previous organizational structure and strategies. In addition, external events including changing technology, changing consumer patterns, acceptance of our theatrical and other content offerings and changes in macroeconomic conditions may impair the value of our assets. When these changes or events occur, we may incur costs to change our business strategy and may need to write-down the value of assets. For example, current conditions, including COVID-19 and our business decisions, have reduced the value of some of our assets. We have impaired goodwill and intangible assets at our International Channels businesses and written down the value of certain of our retail store assets. We may write-down other assets as our strategy evolves to account for the current business environment. We also make investments in existing or new businesses, including investments in international expansion of our business and in new business lines. In recent years, such investments have included expansion and renovation of certain of our theme parks, expansion of our fleet of cruise ships, the acquisition of TFCF and investments related to direct-to-consumer offerings. Some of these investments may have returns that are negative or low, the ultimate business prospects of10-K.

the businesses related to these investments may be uncertain, these investments may impact the profitability of our other businesses, and these risks are exacerbated by COVID-19. In any of these events, our costs may increase, we may have significant charges associated with the write-down of assets or returns on new investments may be lower than prior to the change in strategy or restructuring.

~~Increased competitive pressures may reduce our revenues or increase our costs.~~

We face substantial competition in each of our businesses from alternative providers of the products and services we offer and from other forms of entertainment, lodging, tourism and recreational activities. This includes, among other types, competition for human resources, content and other resources we require in operating our business. For example:

•Our programming and production operations compete to obtain creative, performing and business talent, sports and other programming, story properties, advertiser support and market share with other studio operators, television networks, SVOD providers and other new sources of broadband delivered content.

•Our television networks and stations and direct-to-consumer offerings compete for the sale of advertising time with other television and SVOD services, as well as with newspapers, magazines, billboards and radio stations. In addition, we increasingly face competition for advertising sales from internet and mobile delivered content, which offer advertising delivery technologies that are more targeted than can be achieved through traditional means.

•~~Our television networks compete for carriage of their programming with other programming providers.~~

•~~Our theme parks and resorts compete for guests with all other forms of entertainment, lodging, tourism and recreation activities.~~

•~~Our content sales/licensing operations compete for customers with all other forms of entertainment.~~

•~~Our consumer products business competes with other licensors and creators of intellectual property.~~

•Our direct-to-consumer businesses compete for customers with competitors’ direct-to-consumer offerings, all other forms of media and all other forms of entertainment, as well as for technology, creative, performing and business talent and for content. Competition in each of these areas may increase as a result of technological developments and changes in market structure, including consolidation of suppliers of resources and distribution channels. Increased competition may divert consumers from our creative or other products, or to other products or other forms of entertainment, which could reduce our revenue or increase our marketing costs.

Competition for the acquisition of resources can increase the cost of producing our products and services or deprive us of talent necessary to produce high quality creative material. Such competition may also reduce, or limit growth in, prices for our products and services, including advertising rates and subscription fees at our media networks, parks and resorts admissions and room rates, and prices for consumer products from which we derive license revenues.

~~Damage to our reputation or brands may negatively impact our Company across businesses and regions.~~

Our reputation and globally recognizable brands are integral to the success of our businesses. Because our brands engage consumers across our businesses, damage to our reputation or brands in one business may have an impact on our other businesses. Because some of our brands are globally recognized, brand damage may not be locally contained. Maintenance of the reputation of our Company and brands depends on many factors including the quality of our offerings, maintenance of trust with our customers and our ability to successfully innovate. Significant negative claims or publicity regarding the Company or its operations, products, management, employees, practices, business partners, business decisions, social responsibility and culture may damage our brands or reputation, even if such claims are untrue. Damage to our reputation or brands could impact our sales, business opportunities, profitability, recruiting and valuation of our securities.

~~The seasonality of certain of our businesses and timing of certain of our product offerings could exacerbate negative impacts on our operations.~~

~~Each of our businesses is normally subject to seasonal variations and variations in connection with the timing of our product offerings, including as follows:~~

•Revenues in our Disney Parks, Experiences and Products segment fluctuate with changes in theme park attendance and resort occupancy resulting from the seasonal nature of vacation travel and leisure activities and seasonal consumer purchasing behavior, which generally results in increased revenues during the Company’s first and fourth fiscal quarters. Peak attendance and resort occupancy generally occur during the summer months when school vacations occur and during early winter and spring holiday periods. Our parks, resorts and experiences are or may be operating at diminished capacity or are or may be closed during these periods as a result of COVID-19. In addition, licensing revenues fluctuate with the timing and performance of our theatrical releases and cable programming broadcasts, many of which have been delayed, canceled or modified.

•Revenues from television networks and stations are subject to seasonal advertising patterns and changes in viewership levels. In general, advertising revenues are somewhat higher during the fall and somewhat lower during the summer months.

•Revenues from content sales/licensing fluctuate due to the timing of content releases across various distribution markets. Release dates are determined by a number of factors, including, among others, competition, the timing of vacation and holiday periods and impacts of COVID-19 to various distribution markets.

•Direct-to-consumer revenues fluctuate based on: changes in subscriber levels; viewership levels on our digital platforms; and the demand for sports and film and television content. Each of these may depend on the availability of content, which varies from time to time throughout the year based on, among other things, sports seasons, content production schedules and league shut downs.

Accordingly, negative impacts on our business occurring during a time of typical high seasonal demand could have a disproportionate effect on the results of that business for the year. Examples include the ongoing impact of COVID-19 on various high seasons or hurricane damage to our parks during the summer travel season.

~~Sustained increases in costs of pension and postretirement medical and other employee health and welfare benefits may reduce our profitability.~~

With approximately 175,000 employees at January 2, 2021, our profitability is substantially affected by costs of pension and current and postretirement medical benefits. We may experience significant increases in these costs as a result of macroeconomic factors, which are beyond our control, including increases in the cost of health care. Impacts of COVID-19 may lead to an increase in the cost of medical insurance and expenses. In addition, changes in investment returns and discount rates used to calculate pension and postretirement medical expense and related assets and liabilities can be volatile and may have an unfavorable impact on our costs in some years. Our pension and postretirement medical plans were remeasured at the end of fiscal 2020, and as a result, the underfunded status and fiscal 2021 costs increased. These macroeconomic factors as well as a decline in the fair value of pension and postretirement medical plan assets may put upward pressure on the cost of providing pension and postretirement medical benefits and may increase future funding requirements. There can be no assurance that we will succeed in limiting cost increases, and continued upward pressure could reduce the profitability of our businesses.

~~The alteration or discontinuation of LIBOR may adversely affect our borrowing costs.~~

Certain of our interest rate derivatives and a portion of our indebtedness bear interest at variable interest rates, primarily based on LIBOR, which may be subject to regulatory guidance and/or reform that could cause interest rates under our current or future debt agreements to perform differently than in the past or cause other unanticipated consequences. In July 2017, the Chief Executive of the U.K. Financial Conduct Authority (the “FCA”), which regulates LIBOR, announced that the FCA will no longer persuade or compel banks to submit rates for the calculation of LIBOR after 2021. However, on November 30, 2020, ICE Benchmark Administration (“IBA”), indicated that it would consult on its intention to cease publication of most USD LIBOR tenors until June 30, 2023. Such announcement indicates that the continuation of LIBOR on the current basis cannot and will not be guaranteed after mid-2023. The Alternative Reference Rates Committee (ARCC), which was convened by the Federal Reserve Board and the New York Fed, has identified the Secured Oversight Financing Rate (SOFR) as the recommended risk-free alternative rate for USD LIBOR. The extended cessation date for most USD LIBOR tenors will allow for more time for existing legacy USD LIBOR contracts to mature and provide additional time to continue to prepare for the transition from LIBOR. At this time, it is not possible to predict the effect any discontinuance, modification or other reforms to LIBOR, or the establishment of alternative reference rates such as SOFR, or any other reference rate, will have on the Company. However, if LIBOR ceases to exist or if the methods of calculating LIBOR change from their current form, the Company’s borrowing costs may be adversely affected.

~~TFCF ACQUISITION RISKS~~

Our consolidated indebtedness increased substantially following completion of the TFCF acquisition and may increase in connection with impacts of COVID-19. This increased level of indebtedness could adversely affect us, including by decreasing our business flexibility.

Our consolidated indebtedness and cash and cash equivalents as of September 29, 2018 were approximately $20.9 billion and $4.2 billion, respectively. With the completion of the TFCF acquisition, our consolidated indebtedness and cash and cash equivalents as of September 28, 2019 were approximately $47.0 billion and $5.4 billion, respectively. As of January 2, 2021, our consolidated indebtedness and cash and cash equivalents were approximately $58.3 billion and $17.1 billion, respectively. The increased indebtedness could have the effect of, among other things, reducing our financial flexibility and reducing our flexibility to respond to changing business and economic conditions, such as those presented by COVID-19, among others. Increased levels of indebtedness could also reduce funds available for capital expenditures, share repurchases and dividends, and other activities and may create competitive disadvantages for us relative to other companies with lower debt levels. Since

April 2020, Standard and Poor’s has downgraded our long-term debt ratings by two notches to BBB+, downgraded our short-term debt ratings by one notch to A-2 and placed our long-term debt ratings on Negative Outlook. In May 2020, Fitch downgraded our long- and short-term credit ratings by one notch to A- and F2, respectively, and placed our long-term ratings on Negative Outlook.

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 ~~2, 2021:~~ 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 4, 2020 - October 31, 2020 19,950 $ 126.82 — na
November 1, 2020 - November 30, 2020 19,847 142.60 — na
December 1, 2020 - January 2, 2021 18,664 170.44 — na
Total 58,461 146.10 — na


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, 2021	16,599	$	171.24	—	na
November 1, 2021 - November 30, 2021	23,036	157.38		—	na
December 1, 2021 - January 1, 2022	28,624	147.64		—	na
Total	68,259	156.67		—	na

(1)~~58,461~~68,259 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.

5653

ITEM 5. Other Items

None.

5754

ITEM 6. Exhibits

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

~~10.1~~

~~Amendment~~ ~~dated~~ ~~December~~2,~~2020~~to ~~AmendedEmploymentAgreementdated~~as of ~~July~~1,~~2015betweentheCompany~~ ~~and~~ ~~Christine~~M.~~McCarthy~~ †

~~Exhibit 10.1 to the Current Report on Form 8-K of the Company filed December 3, 2020~~

~~10.2~~10.1

~~Form~~Description of ~~Non-Qualified Stock Option Award Agreement~~Directors Compensation †

Filed herewith

10.2

Amendment dated December 21, 2021 to Amended Employment Agreement dated as of July 1, 2015 between the Company and Christine M. McCarthy †

Exhibit 10.1 to the Current Report
on Form 8-K of the Company
filed December 21, 2021

10.3

~~Form~~Assignment of ~~Restricted Stock Unit Award~~Employment Agreement ~~(Time-Based Vesting)~~dated January 19, 2022 between the Company and Christine M. McCarthy †

Filed herewith

10.4

~~Form~~Employment Agreement, dated as of ~~Performance-Based Stock Unit Award Agreement (Section 162(m) Vesting Requirement)~~December 21, 2021 between the Company and Horacio E. Gutierrez †

Filed herewith

10.5

Assignment of Employment Agreement dated January 31, 2022 between the Company and Horacio E. Gutierrez †

Filed herewith

10.6

Employment Agreement, dated as of January 24, 2022 between the Company and Geoffrey S. Morrell †

Filed herewith

10.7

Temporary Consulting Services Agreement, dated as of January 7, 2022 between the Company and Alan N. Braverman †

Filed herewith

10.8

Group Personal Excess Liability Insurance Plan †

Filed herewith

10.9

Third Amendment to the Disney Key Employees Retirement Savings Plan †

Filed herewith

10.10

Form of Performance-Based Restricted Stock Unit Award Agreement (Three-Year Vesting subject to Total Shareholder Return/ROIC Tests) †

Filed herewith

~~10.6~~10.11

~~Form of~~ Performance-Based Restricted Stock Unit Award Agreement (Three-Year Vesting subject to Total Shareholder Return/ROIC ~~Tests/Section 162(m) Vesting Requirements)~~Tests) for Robert A. Iger dated as of December 14, 2021 †

Filed herewith

10.12

Non-Qualified Stock Option Award Agreement for Robert A. Iger dated as of December 14, 2021 †

Filed herewith

List of Guarantor Subsidiaries

Filed herewith

31(a)

Rule 13a-14(a) Certification of Chief Executive Officer of the Company in accordance with Section 302 of the Sarbanes-Oxley Act of 2002

Filed herewith

31(b)

Rule 13a-14(a) Certification of Chief Financial Officer of the Company in accordance with Section 302 of the Sarbanes-Oxley Act of 2002

Filed herewith

32(a)

Section 1350 Certification of Chief Executive Officer of the Company in accordance with Section 906 of the Sarbanes-Oxley Act of 2002*

Furnished

32(b)

Section 1350 Certification of Chief Financial Officer of the Company in accordance with Section 906 of the Sarbanes-Oxley Act of 2002*

Furnished

101

The following materials from the Company’s Quarterly Report on Form 10-Q for the quarter ended January ~~2, 2021~~1, 2022 formatted in Inline Extensible Business Reporting Language (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 notes

Filed herewith

104

Cover 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.

5855

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 ~~11, 2021~~9, 2022

Burbank, California

5956


	Media Networks		Disney Parks, Experiences and Products		Studio Entertainment			Direct-to-Consumer & International		Disney Media and Entertainment Distribution		Total




Balance at October 3, 2020	$	33,991	$	5,550		$	17,795	$	20,353	$	0	$	77,689
Segment recast (1)	(33,991)		0			(17,795)		(20,353)		72,139		0



Currency translation adjustments and other, net	0		0			0		0		111		111
Balance at January 2, 2021	$	0	$	5,550		$	0	$	0	$	72,250	$	77,800


	January 2, 2021		October 3, 2020
Cash and cash equivalents	$	277	$	372
Other current assets	97		91
Total current assets	374		463
Parks, resorts and other property	6,838		6,720
Other assets	189		191
Total assets	$	7,401	$	7,374

Current liabilities	$	428	$	486
Long-term borrowings	1,268		1,213
Other long-term liabilities	407		403
Total liabilities	$	2,103	$	2,102


	Quarter Ended January 2, 2021						Quarter Ended December 28, 2019
	Predominantly Monetized Individually		Predominantly Monetized as a Group		Total		Predominantly Monetized Individually		Predominantly Monetized as a Group		Total
Theatrical film costs	$	297	$	240	$	537	$	526	$	311	$	837
Television costs	315		958		1,273		754		927		1,681
Total produced content costs	$	612	$	1,198	$	1,810	$	1,280	$	1,238	2,518
Television programming rights and advances					4,539						3,731
Total produced and licensed content costs(1)					$	6,349					$	6,249


	Market Value Adjustments(1)		Unrecognized Pension and Postretirement Medical Expense		Foreign Currency Translation and Other		AOCI

AOCI, before tax
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		0		151
Balance at January 2, 2021	$	(419)	$	(9,227)	$	(877)	$	(10,523)

First quarter of fiscal 2020
Balance at September 28, 2019	$	129	$	(7,502)	$	(1,086)	$	(8,459)
Quarter Ended December 28, 2019:
Unrealized gains (losses) arising during the period	(81)		0		82		1
Reclassifications of realized net (gains) losses to net income	(60)		139		0		79

Balance at December 28, 2019	$	(12)	$	(7,363)	$	(1,004)	$	(8,379)


	Carrying Amount of Hedged Borrowings(1)				Fair Value Adjustments Included in Hedged Borrowings(1)
	January 2, 2021		October 3, 2020		January 2, 2021		October 3, 2020
Borrowings:
Current	$	751	$	753	$	1	$	4
Long-term	16,173		16,229		360		505
	$	16,924	$	16,982	$	361	$	509


Balance Sheet (in millions)	January 2, 2021		October 3, 2020
Current assets	$	11,428	$	12,899
Noncurrent assets	1,972		2,076
Current liabilities	6,103		6,155
Noncurrent liabilities (excluding intercompany to non-Guarantors)	57,752		57,809
Intercompany payables to non-Guarantors	145,660		146,748