The Walt Disney Company 10Q 2021 Q2 Quarterly report

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 April 3, 2021

☐ 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 1,816,932,058 shares of common stock outstanding as of May 5, 2021.

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				Six Months Ended
	April 3, 2021		March 28, 2020		April 3, 2021		March 28, 2020
Revenues:
Services	$	14,522	$	16,190	$	29,393	$	34,284
Products	1,091		1,835		2,469		4,618
Total revenues	15,613		18,025		31,862		38,902
Costs and expenses:
Cost of services (exclusive of depreciation and amortization)	(8,932)		(10,683)		(19,670)		(22,078)
Cost of products (exclusive of depreciation and amortization)	(850)		(1,254)		(1,887)		(2,893)
Selling, general, administrative and other	(3,113)		(3,393)		(6,030)		(7,102)
Depreciation and amortization	(1,272)		(1,334)		(2,570)		(2,633)
Total costs and expenses	(14,167)		(16,664)		(30,157)		(34,706)
Restructuring and impairment charges	(414)		(145)		(527)		(295)
Other income, net	305		0		305		0
Interest expense, net	(320)		(300)		(644)		(583)
Equity in the income of investees	213		135		437		359
Income from continuing operations before income taxes	1,230		1,051		1,276		3,677
Income taxes on continuing operations	(108)		(523)		(124)		(981)
Net income from continuing operations	1,122		528		1,152		2,696
Loss from discontinued operations, net of income tax benefit of $3, $3, $7 and $10, respectively)	(11)		(8)		(23)		(29)
Net income	1,111		520		1,129		2,667
Net income from continuing operations attributable to noncontrolling interests	(210)		(60)		(211)		(100)

Net income attributable to The Walt Disney Company (Disney)	$	901	$	460	$	918	$	2,567

Earnings (loss) per share attributable to Disney(1):
Diluted
Continuing operations	$	0.50	$	0.26	$	0.52	$	1.43
Discontinued operations	(0.01)		0		(0.01)		(0.02)
	$	0.49	$	0.25	$	0.50	$	1.41
Basic
Continuing operations	$	0.50	$	0.26	$	0.52	$	1.44
Discontinued operations	(0.01)		0		(0.01)		(0.02)
	$	0.50	$	0.25	$	0.51	$	1.42

Weighted average number of common and common equivalent shares outstanding:
Diluted	1,829		1,816		1,826		1,816
Basic	1,817		1,808		1,814		1,806

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

See Notes to Condensed Consolidated Financial Statements

THE WALT DISNEY COMPANY

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(unaudited; in millions)


	Quarter Ended				Six Months Ended
	April 3, 2021		March 28, 2020		April 3, 2021		March 28, 2020
Net income	$	1,111	$	520	$	1,129	$	2,667
Other comprehensive income (loss), net of tax:
Market value adjustments, primarily for hedges	110		129		(63)		22
Pension and postretirement medical plan adjustments	191		73		341		180
Foreign currency translation and other	(93)		(323)		184		(196)
Other comprehensive income	208		(121)		462		6
Comprehensive income	1,319		399		1,591		2,673
Net income from continuing operations attributable to noncontrolling interests	(210)		(60)		(211)		(100)
Other comprehensive income (loss) attributable to noncontrolling interests	15		17		(58)		(26)
Comprehensive income attributable to Disney	$	1,124	$	356	$	1,322	$	2,547

See Notes to Condensed Consolidated Financial Statements

THE WALT DISNEY COMPANY

CONDENSED CONSOLIDATED BALANCE SHEETS

(unaudited; in millions, except per share data)


	April 3, 2021		October 3, 2020
ASSETS
Current assets
Cash and cash equivalents	$	15,890	$	17,914
Receivables, net	12,533		12,708
Inventories	1,406		1,583
Content advances	2,204		2,171

Other current assets	844		875

Total current assets	32,877		35,251
Produced and licensed content costs	26,858		25,022
Investments	4,309		3,903
Parks, resorts and other property
Attractions, buildings and equipment	63,037		62,111
Accumulated depreciation	(36,866)		(35,517)
	26,171		26,594
Projects in progress	4,891		4,449
Land	1,075		1,035
	32,137		32,078
Intangible assets, net	18,123		19,173
Goodwill	77,861		77,689

Other assets	8,085		8,433
Total assets	$	200,250	$	201,549

LIABILITIES AND EQUITY
Current liabilities
Accounts payable and other accrued liabilities	$	17,062	$	16,801
Current portion of borrowings	5,243		5,711
Deferred revenue and other	4,337		4,116

Total current liabilities	26,642		26,628
Borrowings	50,903		52,917
Deferred income taxes	6,894		7,288

Other long-term liabilities	16,615		17,204
Commitments and contingencies (Note 12)	0		0
Redeemable noncontrolling interests	9,410		9,249
Equity
Preferred stock	0		0
Common stock, $0.01 par value, Authorized – 4.6 billion shares, Issued – 1.8 billion shares	55,000		54,497
Retained earnings	39,365		38,315
Accumulated other comprehensive loss	(7,918)		(8,322)

Treasury stock, at cost, 19 million shares	(907)		(907)
Total Disney Shareholders’ equity	85,540		83,583
Noncontrolling interests	4,246		4,680
Total equity	89,786		88,263
Total liabilities and equity	$	200,250	$	201,549

See Notes to Condensed Consolidated Financial Statements

THE WALT DISNEY COMPANY

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited; in millions)


	Six Months Ended
	April 3, 2021		March 28, 2020
OPERATING ACTIVITIES
Net income from continuing operations	$	1,152	$	2,696
Depreciation and amortization	2,570		2,633

Net (gain)/loss on investments	(481)		5
Deferred income taxes	(556)		297
Equity in the income of investees	(437)		(359)
Cash distributions received from equity investees	372		405
Net change in produced and licensed content costs and advances	(1,685)		(925)
Net change in operating lease right of use assets / liabilities	146		(96)
Equity-based compensation	270		246
Other, net	490		161
Changes in operating assets and liabilities, net of business acquisitions:
Receivables	(37)		828
Inventories	175		70
Other assets	(131)		(174)
Accounts payable and other liabilities	(780)		(888)
Income taxes	400		(112)
Cash provided by operations - continuing operations	1,468		4,787

INVESTING ACTIVITIES
Investments in parks, resorts and other property	(1,530)		(2,585)


Other	203		(21)
Cash used in investing activities - continuing operations	(1,327)		(2,606)

FINANCING ACTIVITIES
Commercial paper borrowings (payments), net	(87)		3,138
Borrowings	37		6,071
Reduction of borrowings	(1,816)		(1,048)
Dividends	0		(1,587)

Proceeds from exercise of stock options	394		207


Other	(769)		(165)
Cash provided by (used in) financing activities - continuing operations	(2,241)		6,616

CASH FLOWS FROM DISCONTINUED OPERATIONS
Cash provided by operations - discontinued operations	4		4
Cash provided by investing activities - discontinued operations	4		198

Cash provided by discontinued operations	8		202

Impact of exchange rates on cash, cash equivalents and restricted cash	70		(76)

Change in cash, cash equivalents and restricted cash	(2,022)		8,923
Cash, cash equivalents and restricted cash, beginning of period	17,954		5,455
Cash, cash equivalents and restricted cash, end of period	$	15,932	$	14,378

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 January 2, 2021	1,814	$	54,663	$	38,456		$	(8,141)	$	(907)	$	84,071	$	4,657	$	88,728
Comprehensive income	—	—		901			223		—		1,124		115		1,239
Equity compensation activity	3	337		—			—		—		337		—		337





Cumulative effect of accounting change	—	—		(5)			—		—		(5)		—		(5)


Distributions and other	—	—		13			—		—		13		(526)		(513)
Balance at April 3, 2021	1,817	$	55,000	$	39,365		$	(7,918)	$	(907)	$	85,540	$	4,246	$	89,786

Balance at December 28, 2019	1,805	$	53,995	$	43,202		$	(6,533)	$	(907)	$	89,757	$	5,016	$	94,773
Comprehensive income (loss)	—	—		460			(104)		—		356		(23)		333
Equity compensation activity	1	226		—			—		—		226		—		226

Dividends	—	9		(9)			—		—		—		—		—
Contributions	—	—		—			—		—		—		33		33





Distributions and other	—	—		68			—		—		68		(556)		(488)
Balance at March 28, 2020	1,806	$	54,230	$	43,721		$	(6,637)	$	(907)	$	90,407	$	4,470	$	94,877

(1)Excludes redeemable noncontrolling interests.

See Notes to Condensed Consolidated Financial Statements

THE WALT DISNEY COMPANY

CONDENSED CONSOLIDATED STATEMENTS OF EQUITY

(unaudited; in millions)


	Six Months Ended
	Equity Attributable to Disney
	Shares	Common Stock		Retained Earnings		Accumulated Other Comprehensive Income (Loss)			Treasury Stock		Total Disney Equity		Non-controlling Interests (1)		Total Equity
Balance at October 3, 2020	1,810	$	54,497	$	38,315		$	(8,322)	$	(907)	$	83,583	$	4,680	$	88,263
Comprehensive income	—	—		918			404		—		1,322		109		1,431
Equity compensation activity	7	502		—			—		—		502		—		502


Contributions	—	—		—			—		—		—		5		5

Cumulative effect of accounting change	—	—		105			—		—		105		—		105







Distributions and other	—	1		27			—		—		28		(548)		(520)
Balance at April 3, 2021	1,817	$	55,000	$	39,365		$	(7,918)	$	(907)	$	85,540	$	4,246	$	89,786

Balance at September 28, 2019	1,802	$	53,907	$	42,494		$	(6,617)	$	(907)	$	88,877	$	5,012	$	93,889
Comprehensive income (loss)	—	—		2,567			(20)		—		2,547		(6)		2,541
Equity compensation activity	4	314		—			—		—		314		—		314

Dividends	—	9		(1,596)			—		—		(1,587)		—		(1,587)
Contributions	—	—		—			—		—		—		53		53





Adoption of new lease accounting guidance	—	—		197			—		—		197		—		197



Distributions and other	—	—		59			—		—		59		(589)		(530)
Balance at March 28, 2020	1,806	$	54,230	$	43,721		$	(6,637)	$	(907)	$	90,407	$	4,470	$	94,877

(1)Excludes redeemable noncontrolling interests.

See Notes to Condensed Consolidated Financial Statements

THE WALT DISNEY COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

1.Principles of Consolidation

These Condensed Consolidated Financial Statements have been prepared in accordance with accounting principles generally accepted in the United States of America (GAAP) for interim financial information and the instructions to Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. We believe that we have included all normal recurring adjustments necessary for a fair presentation of the results for the interim period. Operating results for the six months ended April 3, 2021 are not necessarily indicative of the results that may be expected for the year ending October 2, 2021.

The terms “Company,” “we,” “us,” and “our” are used in this report to refer collectively to the parent company and the subsidiaries through which our various businesses are actually conducted. The term “TWDC” is used to refer to the parent company.

These financial statements should be read in conjunction with the Company’s 2020 Annual Report on Form 10-K.

The Fox sports media business in Mexico, along with another Fox business divested in fiscal 2020, are presented as discontinued operations in the Condensed Consolidated Statements of Income. At April 3, 2021 and October 3, 2020, the assets and liabilities of the sports media operation in Mexico are not material and are included in other assets and other liabilities in the Condensed Consolidated Balance Sheet.

Variable Interest Entities

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

Redeemable Noncontrolling Interests

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, based on NBCU’s equity ownership percentage of the greater of Hulu’s then fair value or $27.5 billion.

NBCU’s interest will generally not be allocated its portion of Hulu’s losses as the redeemable noncontrolling interest is required to be carried at a minimum value. The minimum value is equal to the fair value as of the May 2019 agreement date accreted to the January 2024 estimated redemption value. At April 3, 2021, NBCU’s interest in Hulu is recorded in the Company’s financial statements at $8.3 billion.

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

MLB has the right to sell its interest to the Company and the Company has the right to buy MLB’s interest starting five years from and ending ten years after the Company’s September 25, 2017 acquisition date of BAMTech at the greater of fair value or a guaranteed floor value ($563 million accreting at 8% annually for eight years from the date of acquisition). The NHL

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 required to be recorded at a minimum value equal to the greater of (i) their acquisition date fair value adjusted for their share (if any) of earnings, losses, or dividends (“adjusted value”) or (ii) an accreted value from the date of the acquisition to the applicable redemption date (“accreted value”). As the accreted value is typically always higher than the adjusted value, the MLB and NHL interests are not allocated their portion of BAMTech losses. Therefore, the MLB and NHL interests are accreted to the estimated redemption value as of the earliest redemption date. As of April 3, 2021, the guaranteed floor value for the MLB interest, accreted from the date of acquisition, was $738 million. As of April 3, 2021, the accreted value of the NHL interest was $338 million.

Adjustments to the carrying amount of redeemable noncontrolling interests increase or decrease income available to Company shareholders and are recorded in “Net income from continuing operations attributable to noncontrolling interests” on the Condensed Consolidated Statements of Income.

Use of Estimates

The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and footnotes thereto. Actual results may differ from those estimates.

Reclassifications

Certain reclassifications have been made in the fiscal 2020 financial statements and notes to conform to the fiscal 2021 presentation.

2.Description of Business and Segment Information

Our operating segments report separate financial information, which is evaluated regularly by the Chief Executive Officer in order to decide how to allocate resources and to assess performance.

As 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. With 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 generally 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, we are reporting the financial results of the media and entertainment businesses as one segment, Disney Media and Entertainment Distribution (DMED) across three significant lines of business/distribution platforms: Linear Networks, Direct-to-Consumer 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 is 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 does 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

The DMED segment encompasses the Company’s global film and episodic television content production and distribution activities. Content is distributed by a single organization across three significant lines of business: Linear Networks, Direct-to-Consumer and Content Sales/Licensing and is generally created by three production/content licensing groups: Studios, General Entertainment and Sports. The distribution organization has full accountability for the financial results of the entire media and entertainment business.

The operations in our significant lines of business are as follows:

•Linear Networks

◦Domestic Channels: ABC Television Network (ABC) 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

◦Sales/licensing 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

The significant revenues of DMED are as follows:

•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. YouTube TV) service providers) (MVPDs) and 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 Linear Networks and Direct-to-Consumer

•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)

The significant expenses of DMED are as follows:

•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

THE WALT DISNEY COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

costs (including participations and residuals) and production costs related to live 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 television costs) recognized in connection with the TFCF acquisition in fiscal 2019 (TFCF and Hulu acquisition amortization).

THE WALT DISNEY COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

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. 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 with a limited number of performances returning in the first quarter of fiscal 2021. 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 of fiscal 2020 and into the first quarter of 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 resumed beginning in the fourth quarter of fiscal 2020, we continue to see disruption in production activities depending on local circumstances.

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

Segment revenues and segment operating income are as follows:


	Quarter Ended				Six Months Ended
	April 3, 2021		March 28, 2020		April 3, 2021		March 28, 2020
Revenues:
Disney Media and Entertainment Distribution	$	12,440	$	12,365	$	25,101	$	25,662
Disney Parks, Experiences and Products	3,173		5,660		6,761		13,240




	$	15,613	$	18,025	$	31,862	$	38,902
Segment operating income (loss):
Disney Media and Entertainment Distribution	$	2,871	$	1,651	$	4,322	$	3,125
Disney Parks, Experiences and Products	(406)		756		(525)		3,278




	$	2,465	$	2,407	$	3,797	$	6,403

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


	Quarter Ended				Six Months Ended
	April 3, 2021		March 28, 2020		April 3, 2021		March 28, 2020
Disney Media and Entertainment Distribution	$	226	$	149	$	461	$	384
Disney Parks, Experiences and Products	(9)		(6)		(17)		(9)


Equity in the income of investees included in segment operating income	217		143		444		375

Amortization of TFCF intangible assets related to equity investees	(4)		(8)		(7)		(16)
Equity in the income of investees, net	$	213	$	135	$	437	$	359

THE WALT DISNEY COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

A reconciliation of segment operating income to income from continuing operations before income taxes is as follows:


	Quarter Ended				Six Months Ended
	April 3, 2021		March 28, 2020		April 3, 2021		March 28, 2020
Segment operating income	$	2,465	$	2,407	$	3,797	$	6,403
Corporate and unallocated shared expenses	(201)		(188)		(433)		(425)
Restructuring and impairment charges (see Note 15)	(414)		(145)		(527)		(295)
Other income, net(1)	305		0		305		0
Interest expense, net	(320)		(300)		(644)		(583)
TFCF and Hulu acquisition amortization(2)	(605)		(723)		(1,222)		(1,423)


Income from continuing operations before income taxes	$	1,230	$	1,051	$	1,276	$	3,677

(1)For the quarter ended April 3, 2021, other income reflected a $305 million gain from an adjustment of our investment in DraftKings, Inc. to fair value (DraftKings Gain). For the six months ended April 3, 2021, other income reflected a $186 million gain from an adjustment of our investment in fuboTV Inc. to fair value, which was sold in January 2021 (fuboTV Gain), and a $119 million DraftKings Gain.

(2)For the quarter ended April 3, 2021 amortization of intangible assets, step-up of film and television costs and intangibles related to TFCF equity investees were $447 million, $154 million and $4 million, respectively. For the six months ended April 3, 2021 amortization of intangible assets, step-up of film and television costs and intangibles related to TFCF equity investees were $894 million, $321 million and $7 million, respectively. For the quarter ended March 28, 2020 amortization of intangible assets, step-up of film and television costs and intangibles related to TFCF equity investees were $498 million, $217 million, and $8 million, respectively. For the six months ended March 28, 2020 amortization of intangible assets, step-up of film and television costs and intangibles related to TFCF equity investees were $984 million, $423 million and $16 million, respectively.

Goodwill

The changes in the carrying amount of goodwill for the six months ended April 3, 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		172		172
Balance at April 3, 2021	$	0	$	5,550		$	0	$	0	$	72,311	$	77,861

(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 WALT DISNEY COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

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


	Quarter Ended April 3, 2021						Quarter Ended March 28, 2020
	Disney Media and Entertainment Distribution		Disney Parks, Experiences and Products		Consolidated		Disney Media and Entertainment Distribution		Disney Parks, Experiences and Products		Consolidated
Affiliate fees	$	4,594	$	—	$	4,594	$	4,529	$	—	$	4,529
Advertising	2,582		1		2,583		2,788		1		2,789
Subscription fees	3,000		—		3,000		1,796		—		1,796
Theme park admissions	—		597		597		—		1,554		1,554
Resort and vacations	—		514		514		—		1,377		1,377
Retail and wholesale sales of merchandise, food and beverage	—		911		911		—		1,584		1,584
TV/SVOD distribution licensing	1,624		—		1,624		1,665		—		1,665
Theatrical distribution licensing	109		—		109		603		—		603
Merchandise licensing	5		791		796		8		708		716
Home entertainment	219		—		219		489		—		489
Other	307		359		666		487		436		923
	$	12,440	$	3,173	$	15,613	$	12,365	$	5,660	$	18,025


	Six Months Ended April 3, 2021						Six Months Ended March 28, 2020
	Disney Media and Entertainment Distribution		Disney Parks, Experiences and Products		Consolidated		Disney Media and Entertainment Distribution		Disney Parks, Experiences and Products		Consolidated
Affiliate fees	$	8,996	$	—	$	8,996	$	8,969	$	—	$	8,969
Advertising	6,345		2		6,347		6,184		3		6,187
Subscription fees	5,546		—		5,546		3,122		—		3,122
Theme park admissions	—		1,146		1,146		—		3,621		3,621
Resort and vacations	—		946		946		—		3,008		3,008
Retail and wholesale sales of merchandise, food and beverage	—		2,074		2,074		—		3,897		3,897
TV/SVOD distribution licensing	2,793		—		2,793		3,234		—		3,234
Theatrical distribution licensing	140		—		140		2,011		—		2,011
Merchandise licensing	10		1,881		1,891		16		1,756		1,772
Home entertainment	519		—		519		1,085		—		1,085
Other	752		712		1,464		1,041		955		1,996
	$	25,101	$	6,761	$	31,862	$	25,662	$	13,240	$	38,902

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


	Quarter Ended April 3, 2021						Quarter Ended March 28, 2020
	Disney Media and Entertainment Distribution		Disney Parks, Experiences and Products		Consolidated		Disney Media and Entertainment Distribution		Disney Parks, Experiences and Products		Consolidated
Americas	$	10,293	$	2,414	$	12,707	$	9,962	$	4,681	$	14,643
Europe	1,219		267		1,486		1,338		546		1,884
Asia Pacific	928		492		1,420		1,065		433		1,498

Total revenues	$	12,440	$	3,173	$	15,613	$	12,365	$	5,660	$	18,025


	Six Months Ended April 3, 2021						Six Months Ended March 28, 2020
	Disney Media and Entertainment Distribution		Disney Parks, Experiences and Products		Consolidated		Disney Media and Entertainment Distribution		Disney Parks, Experiences and Products		Consolidated
Americas	$	20,584	$	4,870	$	25,454	$	20,379	$	10,559	$	30,938
Europe	2,512		754		3,266		2,901		1,479		4,380
Asia Pacific	2,005		1,137		3,142		2,382		1,202		3,584

Total revenues	$	25,101	$	6,761	$	31,862	$	25,662	$	13,240	$	38,902

THE WALT DISNEY COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

Revenues recognized in the current and prior-year periods from performance obligations satisfied (or partially satisfied) in previous reporting periods primarily relate to revenues earned on TV/SVOD and theatrical distribution licensee sales on titles made available to the licensee in previous reporting periods. For the quarter ended April 3, 2021, $0.4 billion was recognized related to performance obligations satisfied as of January 2, 2021. For the six months ended April 3, 2021, $0.7 billion was recognized related to performance obligations satisfied as of October 3, 2020. For the quarter ended March 28, 2020, $0.7 billion was recognized related to performance obligations satisfied as of December 28, 2019. For the six months ended March 28, 2020, $0.8 billion was recognized related to performance obligations satisfied as of September 28, 2019.

As of April 3, 2021, revenue for unsatisfied performance obligations expected to be recognized in the future is $15 billion, which primarily relates to content to be delivered in the future under existing agreements with television station affiliates and TV/SVOD licensees. Of this amount, we expect to recognize approximately $4 billion in the remainder of fiscal 2021, $5 billion in fiscal 2022, $3 billion in fiscal 2023 and $3 billion thereafter. These amounts include only fixed consideration or minimum guarantees and do not include amounts related to (i) contracts with an original expected term of one year or less (such as most advertising contracts) or (ii) licenses of IP that are solely based on the sales of the licensee.

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


	April 3, 2021		October 3, 2020
Contract assets	$	134	$	70


Accounts receivable
Current	11,087		11,340
Non-current	1,643		1,789
Allowance for credit losses	(271)		(460)
Deferred revenues
Current	3,995		3,688
Non-current	582		513

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 $271 million at April 3, 2021 primarily due to the adoption of new accounting guidance on the measurement of credit losses (see Note 16).

For the quarter and six months ended April 3, 2021, the Company recognized revenues of $0.6 billion and $2.1 billion, respectively, primarily related to licensing and publishing advances and content sales included in the deferred revenue balance at October 3, 2020. For the quarter and six months ended March 28, 2020, the Company recognized revenues of $0.8 billion and $2.9 billion, respectively, primarily related to theme park admissions, vacation packages and licensing advances included in the deferred revenue balance at September 28, 2019.

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 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, was $1.1 billion as of April 3, 2021. The activity in the allowance for credit losses for the quarter and six-month period ended April 3, 2021 was not material.

THE WALT DISNEY COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

The balance of mortgage receivables recorded in other non-current assets, net of an immaterial allowance for credit losses, was $0.7 billion as of April 3, 2021. The activity in the allowance for credit losses for the quarter and six-month period ended April 3, 2021 was not material.

4.Cash, Cash Equivalents, Restricted Cash and Borrowings

Cash, Cash Equivalents and Restricted Cash

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


	April 3, 2021		October 3, 2020
Cash and cash equivalents	$	15,890	$	17,914
Restricted cash included in:
Other current assets	1		3
Other assets	41		37

Total cash, cash equivalents and restricted cash in the statement of cash flows	$	15,932	$	17,954

Borrowings

During the six months ended April 3, 2021, the Company’s borrowing activity was as follows:


	October 3, 2020		Borrowings		Payments		Other Activity		April 3, 2021

Commercial paper with original maturities greater than three months	$	2,023	$	670	$	(757)	$	1	$	1,937
U.S. dollar denominated notes(1)	52,736		0		(1,663)		(68)		51,005


Asia Theme Parks borrowings(2)	1,303		34		(84)		66		1,319
Foreign currency denominated debt and other(3)	2,566		3		(69)		(615)		1,885
	$	58,628	$	707	$	(2,573)	$	(616)	$	56,146

(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 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.

At April 3, 2021, 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	$	0	$	5,250
Facility expiring March 2023	4,000		0		4,000
Facility expiring March 2025	3,000		0		3,000
Total	$	12,250	$	0	$	12,250

The Company had a $5.25 billion bank facility that was scheduled to expire in March 2021 and a $5.0 billion facility that was scheduled to expire in April 2021. The facility expiring in March 2021 was refinanced with a new $5.25 billion bank facility maturing in March 2022. The facility expiring in April 2021 was terminated in the second quarter of fiscal 2021. The facilities expiring in March 2023 and March 2025 allow for borrowings at LIBOR-based rates plus a spread depending on the credit default swap spread applicable to the Company’s debt, or a fixed spread in the case of the facility expiring in March 2022, subject to a cap and floor that vary with the Company’s debt rating assigned by Moody’s Investors Service and Standard and Poor’s. The spread above LIBOR can range from 0.18% to 1.63%. The bank facilities specifically exclude certain entities, including the Asia Theme Parks, from any representations, covenants or events of default. The bank facilities contain only one financial covenant, which is interest coverage of three times earnings before interest, taxes, depreciation and amortization,

THE WALT DISNEY COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

including both intangible amortization and amortization of our film and television production and programming costs. On April 3, 2021 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 April 3, 2021, the Company has $1.3 billion of outstanding letters of credit, of which none were issued under this facility.

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


	Quarter Ended				Six Months Ended
	April 3, 2021		March 28, 2020		April 3, 2021		March 28, 2020
Interest expense	$	(415)	$	(365)	$	(819)	$	(727)
Interest and investment income	131		63		243		139
Net periodic pension and postretirement benefit costs (other than service costs)	(36)		2		(68)		5
Interest expense, net	$	(320)	$	(300)	$	(644)	$	(583)

Interest and investment income includes gains and losses on publicly traded and non-public investments, investment impairments and interest earned on cash and cash equivalents and certain receivables.

5.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 Sheet:


	April 3, 2021		October 3, 2020
Cash and cash equivalents	$	249	$	372
Other current assets	111		91
Total current assets	360		463
Parks, resorts and other property	6,754		6,720
Other assets	183		191
Total assets	$	7,297	$	7,374

Current liabilities	$	428	$	486
Long-term borrowings	1,276		1,213
Other long-term liabilities	411		403
Total liabilities	$	2,115	$	2,102

THE WALT DISNEY COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

The following table summarizes the International Theme Parks’ revenues and costs and expenses included in the Company’s Condensed Consolidated Statements of Income for the six months ended April 3, 2021:



Revenues	$	555
Costs and expenses	(1,237)
Equity in the loss of investees	(17)

Asia Theme Parks’ royalty and management fees of $42 million for the six months ended April 3, 2021 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 six months ended April 3, 2021 were $459 million used in operating activities, $355 million used in investing activities and $45 million used in 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 $148 million and $97 million, respectively. The interest rate is three month HIBOR plus 2%, and the maturity date is September 2025. The Company’s loan is eliminated in consolidation.

The Company has provided Hong Kong Disneyland Resort with a revolving credit facility of HK $2.1 billion ($270 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 April 3, 2021 was $89 million.

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 $876 million, bearing interest at rates up to 8% and maturing in 2036, with early repayment permitted. The Company has also provided Shanghai Disney Resort with a $157 million line of credit bearing interest at 8%. As of April 3, 2021, the total amount outstanding under the line of credit was $33 million. These balances are eliminated in consolidation.

Shendi has provided Shanghai Disney Resort with loans totaling 7.7 billion yuan (approximately $1.2 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 April 3, 2021 the total amount outstanding under the line of credit was 0.3 billion yuan (approximately $44 million).

6.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)

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 April 3, 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	$	2,811	$	2,657	$	5,468	$	3,000	$	2,601	$	5,601
Completed, not released	1,224		10		1,234		522		210		732
In-process	3,144		679		3,823		3,322		259		3,581
In development or pre-production	229		11		240		262		16		278
	$	7,408	$	3,357	10,765		$	7,106	$	3,086	10,192
Television costs
Released, less amortization	$	1,874	$	6,060	$	7,934	$	2,090	$	5,584	$	7,674
Completed, not released	214		733		947		33		510		543
In-process	207		2,843		3,050		263		1,831		2,094
In development or pre-production	2		207		209		6		87		93
	$	2,297	$	9,843	12,140		$	2,392	$	8,012	10,404
Licensed content - Television programming rights and advances					6,157						6,597
Total produced and licensed content					$	29,062					$	27,193

Current portion					$	2,204					$	2,171
Non-current portion					$	26,858					$	25,022

Amortization of produced and licensed content is as follows:


	Quarter Ended April 3, 2021						Quarter Ended March 28, 2020
	Predominantly Monetized Individually		Predominantly Monetized as a Group		Total		Predominantly Monetized Individually		Predominantly Monetized as a Group		Total
Theatrical film costs	$	352	$	270	$	622	$	499	$	232	$	731
Television costs	406		971		1,377		726		940		1,666
Total produced content costs	$	758	$	1,241	1,999		$	1,225	$	1,172	2,397
Television programming rights and advances					2,223						2,709
Total produced and licensed content costs(1)					$	4,222					$	5,106

	Six Months Ended April 3, 2021						Six Months Ended March 28, 2020
	Predominantly Monetized Individually		Predominantly Monetized as a Group		Total		Predominantly Monetized Individually		Predominantly Monetized as a Group		Total
Theatrical film costs	$	649	$	510	$	1,159	$	1,025	$	543	$	1,568
Television costs	721		1,929		2,650		1,480		1,867		3,347
Total produced content costs	$	1,370	$	2,439	3,809		$	2,505	$	2,410	4,915
Television programming rights and advances					6,762						6,440
Total produced and licensed content costs(1)					$	10,571					$	11,355

(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

THE WALT DISNEY COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

income tax rate to determine interim period tax expense produces an income tax provision for the current year-to-date period that is not meaningful. Accordingly, we calculated year-to-date fiscal 2021 tax expense based on year-to-date earnings before tax and using a blended U.S. Federal and state statutory tax rate of approximately 23%, and adjusted for the estimated impact of Permanent Differences.

Unrecognized Tax Benefits

The change in the Company’s gross unrecognized tax benefits for the six months ended April 3, 2021 was not material. In the next twelve months, it is reasonably possible that our unrecognized tax benefits could change due to resolutions of open tax matters, which would reduce our unrecognized tax benefits by $0.5 billion.

8.Pension and Other Benefit Programs

The components of net periodic benefit cost are as follows:


	Pension Plans								Postretirement Medical Plans
	Quarter Ended				Six Months Ended				Quarter Ended				Six Months Ended
	April 3, 2021		March 28, 2020		April 3, 2021		March 28, 2020		April 3, 2021		March 28, 2020		April 3, 2021		March 28, 2020
Service costs	$	109	$	102	$	217	$	205	$	2	$	2	$	5	$	5
Other costs (benefits):
Interest costs	115		133		229		266		11		14		23		28
Expected return on plan assets	(274)		(273)		(549)		(546)		(13)		(15)		(27)		(29)
Amortization of previously deferred service costs	4		4		6		7		0		0		0		0
Recognized net actuarial loss	185		131		371		262		8		4		15		7
Total other costs (benefits)	30		(5)		57		(11)		6		3		11		6
Net periodic benefit cost	$	139	$	97	$	274	$	194	$	8	$	5	$	16	$	11

During the six months ended April 3, 2021, 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 to $0.6 billion in pension and postretirement medical plan contributions in fiscal 2021. Final minimum funding requirements for fiscal 2021 will be determined based on a January 1, 2021 funding actuarial valuation, which is expected to be received during the fourth quarter of fiscal 2021.

9.Earnings Per Share

Diluted earnings per share amounts are based upon the weighted average number of common and common equivalent shares outstanding during the period and are calculated using the treasury stock method for equity-based compensation awards (Awards). A reconciliation of the weighted average number of common and common equivalent shares outstanding and the number of Awards excluded from the diluted earnings per share calculation, as they were anti-dilutive, are as follows:


	Quarter Ended		Six Months Ended
	April 3, 2021	March 28, 2020	April 3, 2021	March 28, 2020
Shares (in millions):
Weighted average number of common and common equivalent shares outstanding (basic)	1,817	1,808	1,814	1,806
Weighted average dilutive impact of Awards	12	8	12	10
Weighted average number of common and common equivalent shares outstanding (diluted)	1,829	1,816	1,826	1,816
Awards excluded from diluted earnings per share	3	9	5	9

THE WALT DISNEY COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

10.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. There have been no dividends declared or paid with respect to fiscal 2021 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(1)		Unrecognized Pension and Postretirement Medical Expense		Foreign Currency Translation and Other		AOCI

AOCI, before tax
Second quarter of fiscal 2021
Balance at January 2, 2021	$	(419)	$	(9,227)	$	(877)	$	(10,523)
Quarter Ended April 3, 2021:
Unrealized gains (losses) arising during the period	131		55		(84)		102
Reclassifications of realized net (gains) losses to net income	5		194		0		199
Balance at April 3, 2021	$	(283)	$	(8,978)	$	(961)	$	(10,222)

Second quarter of fiscal 2020
Balance at December 28, 2019	$	(12)	$	(7,363)	$	(1,004)	$	(8,379)
Quarter Ended March 28, 2020:
Unrealized gains (losses) arising during the period	212		(43)		(364)		(195)
Reclassifications of realized net (gains) losses to net income	(42)		138		0		96

Balance at March 28, 2020	$	158	$	(7,268)	$	(1,368)	$	(8,478)

Six months ended fiscal 2021
Balance at October 3, 2020	$	(191)	$	(9,423)	$	(1,088)	$	(10,702)
Six Months Ended April 3, 2021:
Unrealized gains (losses) arising during the period	(54)		57		127		130
Reclassifications of realized net (gains) losses to net income	(38)		388		0		350

Balance at April 3, 2021	$	(283)	$	(8,978)	$	(961)	$	(10,222)

Six months ended fiscal 2020
Balance at September 28, 2019	$	129	$	(7,502)	$	(1,086)	$	(8,459)
Six Months Ended March 28, 2020:
Unrealized gains (losses) arising during the period	131		(43)		(282)		(194)
Reclassifications of realized net (gains) losses to net income	(102)		277		0		175

Balance at March 28, 2020	$	158	$	(7,268)	$	(1,368)	$	(8,478)

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

Tax on AOCI
Second quarter of fiscal 2021
Balance at January 2, 2021	$	95	$	2,155	$	132	$	2,382
Quarter Ended April 3, 2021:
Unrealized gains (losses) arising during the period	(24)		(13)		6		(31)
Reclassifications of realized net (gains) losses to net income	(2)		(45)		0		(47)
Balance at April 3, 2021	$	69	$	2,097	$	138	$	2,304

Second quarter of fiscal 2020
Balance at December 28, 2019	$	5	$	1,724	$	117	$	1,846
Quarter Ended March 28, 2020:
Unrealized gains (losses) arising during the period	(51)		10		58		17
Reclassifications of realized net (gains) losses to net income	10		(32)		0		(22)

Balance at March 28, 2020	$	(36)	$	1,702	$	175	$	1,841

Six months ended fiscal 2021
Balance at October 3, 2020	$	40	$	2,201	$	139	$	2,380
Six Months Ended April 3, 2021:
Unrealized gains (losses) arising during the period	22		(14)		(1)		7
Reclassifications of realized net (gains) losses to net income	7		(90)		0		(83)

Balance at April 3, 2021	$	69	$	2,097	$	138	$	2,304

Six months ended fiscal 2020
Balance at September 28, 2019	$	(29)	$	1,756	$	115	$	1,842
Six Months Ended March 28, 2020:
Unrealized gains (losses) arising during the period	(31)		10		60		39
Reclassifications of realized net (gains) losses to net income	24		(64)		0		(40)

Balance at March 28, 2020	$	(36)	$	1,702	$	175	$	1,841

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
Second quarter of fiscal 2021
Balance at January 2, 2021	$	(324)	$	(7,072)	$	(745)	$	(8,141)
Quarter Ended April 3, 2021:
Unrealized gains (losses) arising during the period	107		42		(78)		71
Reclassifications of realized net (gains) losses to net income	3		149		0		152
Balance at April 3, 2021	$	(214)	$	(6,881)	$	(823)	$	(7,918)

Second quarter of fiscal 2020
Balance at December 28, 2019	$	(7)	$	(5,639)	$	(887)	$	(6,533)
Quarter Ended March 28, 2020:
Unrealized gains (losses) arising during the period	161		(33)		(306)		(178)
Reclassifications of realized net (gains) losses to net income	(32)		106		0		74

Balance at March 28, 2020	$	122	$	(5,566)	$	(1,193)	$	(6,637)

Six months ended fiscal 2021
Balance at October 3, 2020	$	(151)	$	(7,222)	$	(949)	$	(8,322)
Six Months Ended April 3, 2021:
Unrealized gains (losses) arising during the period	(32)		43		126		137
Reclassifications of realized net (gains) losses to net income	(31)		298		0		267

Balance at April 3, 2021	$	(214)	$	(6,881)	$	(823)	$	(7,918)

Six months ended fiscal 2020
Balance at September 28, 2019	$	100	$	(5,746)	$	(971)	$	(6,617)
Six Months Ended March 28, 2020:
Unrealized gains (losses) arising during the period	100		(33)		(222)		(155)
Reclassifications of realized net (gains) losses to net income	(78)		213		0		135

Balance at March 28, 2020	$	122	$	(5,566)	$	(1,193)	$	(6,637)

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

THE WALT DISNEY COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

Details about AOCI components reclassified to net income are as follows:


Gain (loss) in net income:	Affected line item in the Condensed Consolidated Statements of Operations:	Quarter Ended				Six Months Ended
		April 3, 2021		March 28, 2020		April 3, 2021		March 28, 2020
Market value adjustments, primarily cash flow hedges	Primarily revenue	$	(5)	$	42	$	38	$	102
Estimated tax	Income taxes	2		(10)		(7)		(24)
		(3)		32		31		78


Pension and postretirement medical expense	Interest expense, net	(194)		(138)		(388)		(277)
Estimated tax	Income taxes	45		32		90		64
		(149)		(106)		(298)		(213)





Total reclassifications for the period		$	(152)	$	(74)	$	(267)	$	(135)

11.Equity-Based Compensation

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


	Quarter Ended				Six Months Ended
	April 3, 2021		March 28, 2020		April 3, 2021		March 28, 2020
Stock options	$	23	$	28	$	48	$	49
RSUs	113		103		222		197
Total equity-based compensation expense(1)	$	136	$	131	$	270	$	246
Equity-based compensation expense capitalized during the period	$	22	$	21	$	56	$	45

(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 $155 million and $1,261 million, respectively, as of April 3, 2021.

The weighted average grant date fair values of options granted during the six months ended April 3, 2021 and March 28, 2020 were $58.41 and $36.22, respectively.

During the six months ended April 3, 2021, the Company made equity compensation grants consisting of 1.4 million stock options and 4.4 million RSUs.

12.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 April 3, 2021, the remaining debt service obligation guaranteed by the Company was $226 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.

THE WALT DISNEY COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

Multi-year Sports Rights Commitments

In fiscal year 2021, we entered into new multi-year sports rights commitments for approximately $36 billion, which primarily reflects a new agreement with the National Football League and to a lesser extent, the National Hockey League, Major League Baseball and various other rights. Payments for these commitments are not material in fiscal 2021. Payments in fiscal 2022, fiscal 2023, fiscal 2024 and fiscal 2025 are approximately $2.5 billion, $4.1 billion, $3.7 billion and $3.7 billion, respectively.

13.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 April 3, 2021
	Level 1		Level 2		Level 3		Total
Assets
Investments	$	1,184	$	0	$	0	$	1,184
Derivatives
Interest rate	0		202		0		202
Foreign exchange	0		651		0		651
Other	0		10		0		10
Liabilities
Derivatives
Interest rate	0		(421)		0		(421)
Foreign exchange	0		(620)		0		(620)
Other	0		(1)		0		(1)

Other	0		(351)		0		(351)
Total recorded at fair value	$	1,184	$	(530)	$	0	$	654
Fair value of borrowings	$	0	$	59,729	$	1,398	$	61,127

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)

Other	0		(294)		0		(294)
Total recorded at fair value	$	0	$	1,209	$	0	$	1,209
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.

The fair values of Level 2 derivatives are primarily determined by internal discounted cash flow models that use observable inputs such as interest rates, yield curves and foreign currency exchange rates. Counterparty credit risk, which is mitigated by master netting agreements and collateral posting arrangements with certain counterparties, did not have a material impact on derivative fair value estimates.

Level 2 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.Derivative Instruments

The Company manages its exposure to various risks relating to its ongoing business operations according to a risk management policy. The primary risks managed with derivative instruments are interest rate risk and foreign exchange risk.

THE 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 April 3, 2021
	Current Assets		Other Assets		Other Current Liabilities		Other Long- Term Liabilities
Derivatives designated as hedges
Foreign exchange	$	186	$	219	$	(168)	$	(118)
Interest rate	0		202		(421)		0
Other	6		2		(1)		0
Derivatives not designated as hedges
Foreign exchange	155		91		(151)		(183)
Interest rate	0		0		0		0
Other	2		0		0		0
Gross fair value of derivatives	349		514		(741)		(301)
Counterparty netting	(295)		(381)		467		209
Cash collateral (received) paid	(1)		(61)		237		78
Net derivative positions	$	53	$	72	$	(37)	$	(14)


	As of October 3, 2020
	Current Assets		Other Assets		Other Current Liabilities		Other Long- Term Liabilities
Derivatives designated as hedges
Foreign exchange	$	184	$	132	$	(77)	$	(273)
Interest rate	0		515		(4)		0
Other	1		0		(15)		(4)
Derivatives not designated as hedges
Foreign exchange	53		136		(98)		(101)
Interest rate	0		0		0		0
Other	0		0		(3)		0
Gross fair value of derivatives	238		783		(197)		(378)
Counterparty netting	(143)		(378)		184		338
Cash collateral (received) paid	(26)		(142)		0		9
Net derivative positions	$	69	$	263	$	(13)	$	(31)

Interest Rate Risk Management

The Company is exposed to the impact of interest rate changes primarily through its borrowing activities. The Company’s objective is to mitigate the impact of interest rate changes on earnings and cash flows and on the market value of its borrowings. In accordance with its policy, the Company targets its fixed-rate debt as a percentage of its net debt between a minimum and maximum percentage. The Company primarily uses pay-floating and pay-fixed interest rate swaps to facilitate its interest rate risk management activities.

The Company designates pay-floating interest rate swaps as fair value hedges of fixed-rate borrowings effectively converting fixed-rate borrowings to variable rate borrowings indexed to LIBOR. As of April 3, 2021 and October 3, 2020, the total notional amount of the Company’s pay-floating interest rate swaps was $15.2 billion and $15.8 billion, respectively.

THE WALT DISNEY COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

The following table summarizes fair value hedge adjustments to hedged borrowings:


	Carrying Amount of Hedged Borrowings				Fair Value Adjustments Included in Hedged Borrowings
	April 3, 2021		October 3, 2020		April 3, 2021		October 3, 2020
Borrowings:
Current	$	0	$	753	$	0	$	4
Long-term	15,628		16,229		(217)		505
	$	15,628	$	16,982	$	(217)	$	509

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


	Quarter Ended				Six Months Ended
	April 3, 2021		March 28, 2020		April 3, 2021		March 28, 2020
Gain (loss) on:
Pay-floating swaps	$	(577)	$	542	$	(724)	$	429
Borrowings hedged with pay-floating swaps	577		(542)		724		(429)
Benefit (expense) associated with interest accruals on pay-floating swaps	36		(7)		71		(19)

The Company may designate pay-fixed interest rate swaps as cash flow hedges of interest payments on floating-rate borrowings. Pay-fixed swaps effectively convert floating-rate borrowings to fixed-rate borrowings. The unrealized gains or losses from these cash flow hedges are deferred in AOCI and recognized in interest expense as the interest payments occur. The Company did not have pay-fixed interest rate swaps that were designated as cash flow hedges of interest payments at April 3, 2021 or at October 3, 2020, and gains and losses related to pay-fixed swaps recognized in earnings for the quarter ended April 3, 2021 and March 28, 2020 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 April 3, 2021 and October 3, 2020, the notional amounts of the Company’s net foreign exchange cash flow hedges were $4.7 billion and $4.6 billion, respectively. Mark-to-market gains and losses on these contracts are deferred in AOCI and are recognized in earnings when the hedged transactions occur, offsetting changes in the value of the foreign currency transactions. Net deferred gains recorded in AOCI for contracts that will mature in the next twelve months total $9 million. The following table summarizes the effect of foreign exchange cash flow hedges on AOCI:


	Quarter Ended				Six Months Ended
	April 3, 2021		March 28, 2020		April 3, 2021		March 28, 2020
Gain (loss) recognized in Other Comprehensive Income	$	92	$	234	$	(59)	$	149
Gain (loss) reclassified from AOCI into the Statements of Income(1)	(4)		43		40		103

(1)Primarily recorded in revenue.

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 April 3, 2021 and October 3, 2020, 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				Six Months Ended
	April 3, 2021		March 28, 2020		April 3, 2021		March 28, 2020
Gain (loss) on:
Cross currency swaps	$	14	$	0	$	56	$	0
Borrowings hedged with cross currency swaps	(14)		0		(56)		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 April 3, 2021 and October 3, 2020 were $4.2 billion and $3.5 billion, respectively. The following table summarizes the net foreign exchange gains or losses recognized on foreign currency denominated assets and liabilities and the net foreign exchange gains or losses on the foreign exchange contracts we entered into to mitigate our exposure with respect to foreign currency denominated assets and liabilities 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:	April 3, 2021		March 28, 2020		April 3, 2021		March 28, 2020		April 3, 2021		March 28, 2020
Net gains (losses) on foreign currency denominated assets and liabilities	$	(97)	$	(241)	$	(14)	$	64	$	25	$	8
Net gains (losses) on foreign exchange risk management contracts not designated as hedges	91		239		12		(62)		(20)		(20)
Net gains (losses)	$	(6)	$	(2)	$	(2)	$	2	$	5	$	(12)

Six Months Ended:
Net gains (losses) on foreign currency denominated assets and liabilities	$	61	$	(172)	$	(55)	$	52	$	(34)	$	(7)
Net gains (losses) on foreign exchange risk management contracts not designated as hedges	(96)		159		55		(52)		30		(3)
Net gains (losses)	$	(35)	$	(13)	$	0	$	0	$	(4)	$	(10)

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 April 3, 2021 and October 3, 2020 and related gains or losses recognized in earnings for the quarter and six months ended April 3, 2021 and March 28, 2020 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 amounts of these contracts at April 3, 2021 and October 3, 2020 were $0.3 billion. The related gains or losses recognized in earnings for the quarter and six months ended April 3, 2021 and March 28, 2020 were not material.

THE WALT DISNEY COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

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 $366 million and $53 million on April 3, 2021 and October 3, 2020, respectively.

15.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.

Other

The Company recorded approximately $0.4 billion of restructuring and impairment charges during the quarter ended April 3, 2021, primarily related to the planned closure of an animation studio and a substantial number of our Disney-branded retail stores as well as severance at our parks and resorts businesses. These charges are recorded in “Restructuring and impairment charges” in the Condensed Consolidated Statements of Income.

16.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 before January 1, 2023.

Simplifying the Accounting for Income Taxes

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

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Item 2: Management’s Discussion and Analysis of Financial Condition and Results of Operations

ORGANIZATION OF INFORMATION

Management’s Discussion and Analysis provides a narrative of the Company’s financial performance and condition that should be read in conjunction with the accompanying financial statements. It includes the following sections:

•Consolidated Results

•Significant Developments

•Current Quarter Results Compared to Prior-Year Quarter

•Current Period Results Compared to Prior-Year Period

•Seasonality

•Business Segment Results

•Corporate and Unallocated Shared Expenses

•Financial Condition

•Supplemental Guarantor Financial Information

•Commitments and Contingencies

•Other Matters

•Market Risk

CONSOLIDATED RESULTS


	Quarter Ended				% Change Better (Worse)	Six Months Ended				% Change Better (Worse)
(in millions, except per share data)	April 3, 2021		March 28, 2020			April 3, 2021		March 28, 2020
Revenues:
Services	$	14,522	$	16,190	(10) %	$	29,393	$	34,284	(14) %
Products	1,091		1,835		(41) %	2,469		4,618		(47) %
Total revenues	15,613		18,025		(13) %	31,862		38,902		(18) %
Costs and expenses:
Cost of services (exclusive of depreciation and amortization)	(8,932)		(10,683)		16 %	(19,670)		(22,078)		11 %
Cost of products (exclusive of depreciation and amortization)	(850)		(1,254)		32 %	(1,887)		(2,893)		35 %
Selling, general, administrative and other	(3,113)		(3,393)		8 %	(6,030)		(7,102)		15 %
Depreciation and amortization	(1,272)		(1,334)		5 %	(2,570)		(2,633)		2 %
Total costs and expenses	(14,167)		(16,664)		15 %	(30,157)		(34,706)		13 %
Restructuring and impairment charges	(414)		(145)		>(100) %	(527)		(295)		(79) %
Other income, net	305		0		nm	305		0		nm
Interest expense, net	(320)		(300)		(7) %	(644)		(583)		(10) %
Equity in the income of investees	213		135		58 %	437		359		22 %
Income from continuing operations before income taxes	1,230		1,051		17 %	1,276		3,677		(65) %
Income taxes on continuing operations	(108)		(523)		79 %	(124)		(981)		87 %
Net income from continuing operations	1,122		528		>100 %	1,152		2,696		(57) %
Loss from discontinued operations, net of income tax benefit of $3, $3, $7 and $10, respectively)	(11)		(8)		(38) %	(23)		(29)		21 %
Net income	1,111		520		>100 %	1,129		2,667		(58) %
Net income from continuing operations attributable to noncontrolling interests	(210)		(60)		>(100) %	(211)		(100)		>(100) %

Net income attributable to Disney	$	901	$	460	96 %	$	918	$	2,567	(64) %
Diluted earnings per share from continuing operations attributable to Disney	$	0.50	$	0.26	92 %	$	0.52	$	1.43	(64) %

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS — (continued)

SIGNIFICANT DEVELOPMENTS

COVID-19 Pandemic

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 Disney Parks, Experiences and Products where our theme parks and resorts 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 with a limited number of performances returning in the first quarter of fiscal 2021. 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 of fiscal 2020 and into the first quarter of 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 resumed beginning in the fourth quarter of fiscal 2020, we continue to see disruption of production activities, as well as live sporting events, 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. 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 reopened. At the end of fiscal 2020, the Company announced a workforce reduction plan, which was essentially completed in the first half of fiscal 2021. As of May 7, 2021, approximately 18,000 employees 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 and six-month period from COVID-19 was at the Disney Parks, Experiences and Products segment due to revenue lost as a result of the closures and reduced operating capacities. We estimate a $1.2 billion and $3.8 billion impact on current quarter and six-month period, respectively, on Disney Parks, Experiences and Products segment operating income compared to the prior-year quarter and six-month period. The impacts at our Disney Media and Entertainment Distribution segment, compared to the prior-year period, were less significant as lower revenues across film and television distribution windows due to the deferral or cancellation of significant film releases as a result of theater closures were largely offset by lower costs due to a reduction in film cost amortization, marketing and distribution costs. The impact of COVID-19 in the current quarter and six-month period 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, 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.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS — (continued)

Fox Sports Media Business in Mexico

In connection with the acquisition of TFCF in fiscal 2019, the Company agreed with the Instituto Federal de Telecomunicaciones (IFT) to sell TFCF’s sports operations in Mexico (the “Mexican Divestiture”). The deadline set by the IFT for the Company to complete the Mexican Divestiture was May 7, 2021. The IFT has given the Company until May 21, 2021 to effectuate the Mexican Divestiture, and the Company continues to pursue the Mexican Divestiture. If the Company is unable to complete the Mexican Divestiture, the IFT resolution provides that a trust would be appointed to complete the Mexican Divestiture, or to liquidate TFCF’s sports operations in Mexico if the trust is unable to complete a sale.

CURRENT QUARTER RESULTS COMPARED TO PRIOR-YEAR QUARTER

Revenues for the quarter decreased 13%, or $2.4 billion, to $15.6 billion; net income attributable to Disney increased $0.4 billion, to $0.9 billion; and diluted earnings per share from continuing operations attributable to Disney (EPS) was $0.50 compared to $0.26 in the prior-year quarter. The EPS increase for the quarter was due to an increase in operating results at DMED and a lower effective income tax rate, partially offset by lower operating results at DPEP.

Revenues

Service revenues for the quarter decreased 10%, or $1.7 billion, to $14.5 billion due to the closure/reduced operating capacity of our theme parks and resorts and lower theatrical revenues, both of which were driven by the impact of COVID-19, lower electronic home entertainment sales volume, a decrease in advertising revenue and a decrease in TV/SVOD distribution revenue. These decreases were partially offset by higher DTC subscription revenue. The decrease in TV/SVOD distribution revenue and home entertainment volumes was driven by the impact of COVID-19, which limited our ability to release films theatrically and produce content in previous quarters. The decrease in advertising revenue was due to lower advertising at our Linear Networks, partially offset by higher advertising at Hulu.

Product revenues for the quarter decreased 41%, or $0.7 billion, to $1.1 billion due to lower merchandise, food and beverage sales at our theme parks and resorts and to a lesser extent, a decrease in home entertainment volumes.

Costs and expenses

Cost of services for the quarter decreased 16%, or $1.8 billion, to $8.9 billion due to the closure/reduced operating capacity of our theme parks and resorts, lower production cost amortization and distribution costs at Content Sales/Licensing and Other and to a lesser extent, lower programming and production costs at Linear Networks. The decrease in production cost amortization and distribution costs at Content Sales/Licensing and Other was due to lower TV/SVOD revenues and the benefit of a lower average amortization rate, a decrease in theatrical revenue and lower home entertainment volumes. These decreases were partially offset by increased programming, production and technology costs at Direct-to-Consumer.

Cost of products for the quarter decreased 32%, or $0.4 billion, to $0.9 billion due to lower merchandise, food and beverage sales at our theme parks and resorts and to a lesser extent, a decrease in home entertainment volumes.

Selling, general, administrative and other costs decreased 8%, or $0.3 billion, to $3.1 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 Direct-to-Consumer.

Depreciation and amortization decreased 5%, or $0.1 billion, to $1.3 billion, due to lower amortization of intangible assets arising from the acquisition of TFCF and Hulu reflecting an impairment recorded in the third quarter of the prior year related to the International Channels intangible assets arising from the acquisition.

Restructuring and impairment charges

Restructuring and impairment charges of $414 million for the current quarter were due to asset impairments and severance costs related to the planned closure of an animation studio and a substantial number of our Disney-branded retail stores as well as severance at our parks and resorts businesses.

Restructuring and impairment charges of $145 million for the prior-year quarter were primarily for severance costs in connection with the acquisition and integration of TFCF.

Other Income, net

In the current quarter, the Company recognized the DraftKings Gain for $305 million.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS — (continued)

Interest expense, net

Interest expense, net is as follows:


	Quarter Ended
(in millions)	April 3, 2021		March 28, 2020		% Change Better (Worse)
Interest expense	$	(415)	$	(365)	(14) %
Interest income, investment income and other	95		65		46 %

Interest expense, net	$	(320)	$	(300)	(7) %

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

The increase in interest income, investment income and other was due to higher investment gains, partially offset by higher pension and postretirement benefit costs, other than service cost.

Equity in the income of investees

Equity in the income of investees increased $78 million to $213 million in the current quarter driven by higher income from A+E Television Networks due to lower programming costs and higher program sales, partially offset by lower advertising revenue.

Effective Income Tax Rate

Quarter Ended

April 3,
2021

March 28,
2020

Change
Better (Worse)

Effective income tax rate - continuing operations

8.8%

49.8%

41.0

ppt

The decrease in the effective income tax rate was due to lower U.S. tax on foreign income, a benefit from the resolution of various tax matters in the current quarter and higher excess tax benefits on employee share-based awards in the current quarter.

Noncontrolling Interests

Quarter Ended

(in millions)

April 3,
2021

March 28,
2020

% Change
Better (Worse)

Net income from continuing operations attributable to noncontrolling interests

(210)

(60)

>(100) %

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

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 April 3, 2021 were impacted by the following:

•TFCF and Hulu acquisition amortization of $605 million

•Restructuring and impairment charges of $414 million

•DraftKings Gain of $305 million

Results for the quarter ended March 28, 2020 were impacted by the following:

•TFCF and Hulu acquisition amortization of $723 million

•Restructuring charges of $145 million

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS — (continued)

A summary of the impact of these items on EPS is as follows:


(in millions, except per share data)	Pre-Tax Income (Loss)		Tax Benefit (Expense)(1)		After-Tax Income (Loss)		EPS Favorable (Adverse)(2)
Quarter Ended April 3, 2021:
TFCF and Hulu acquisition amortization	$	(605)	$	141	$	(464)	$	(0.24)
Restructuring and impairment charges	(414)		97		(317)		(0.17)
DraftKings Gain	305		(71)		234		0.13


Total	$	(714)	$	167	$	(547)	$	(0.28)

Quarter Ended March 28, 2020:
TFCF and Hulu acquisition amortization	$	(723)	$	167	$	(556)	$	(0.28)
Restructuring and impairment charges	(145)		34		(111)		(0.06)



Total	$	(868)	$	201	$	(667)	$	(0.34)

(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.

CURRENT SIX-MONTH PERIOD RESULTS COMPARED TO PRIOR-YEAR SIX-MONTH PERIOD

Revenues for the current period decreased $7.0 billion, to $31.9 billion; net income attributable to Disney decreased $1.6 billion, to $0.9 billion; and EPS decreased to $0.52 compared $1.43 in the prior-year period. The EPS decrease was due lower segment operating results driven by lower operating results at DPEP, partially offset by higher operating results at DMED.

Revenues

Service revenues for the current period decreased 14%, or $4.9 billion, to $29.4 billion, due to the closure/reduced operating capacity of our theme parks and resorts, lower theatrical revenues, a decrease in TV/SVOD distribution revenue and to a lesser extent, lower electronic home entertainment sales volumes. All of these revenue decreases reflected the impact of COVID-19. These decreases were partially offset by higher DTC subscription revenue and to a lesser extent, advertising revenue growth. The decrease in TV/SVOD distribution revenue also reflected the shift from licensing our content to third parties to distribution on our DTC services. Advertising revenue growth was due to higher advertising at Hulu, partially offset by lower advertising at our Linear Networks.

Product revenues for the current period decreased 47%, or $2.1 billion, to $2.5 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 current period decreased 11%, or $2.4 billion, to $19.7 billion, due to lower production cost amortization and distribution costs at DMED, and a decrease in costs as a result of the closure/reduced operating capacity of our theme parks and resorts. Lower production cost amortization and distribution costs were driven by a decrease in theatrical and TV/SVOD revenues, the benefit of a lower average amortization rate on TV/SVOD sales, and a decrease in home entertainment volumes. These decreases were partially offset by increased programming, production and technology costs at Direct-to-Consumer.

Cost of products for the current period decreased 35%, or $1.0 billion, to $1.9 billion, due to lower merchandise, food and beverage sales at our theme parks and resorts and a decrease in home entertainment volumes.

Selling, general, administrative and other costs for the current period decreased 15%, or $1.1 billion, to $6.0 billion, due to lower marketing costs driven by limited worldwide theatrical releases and a decrease in spending at the theme parks and resorts businesses, partially offset by an increase at Direct-to-Consumer.

Depreciation and amortization for the current period decreased 2%, or $0.1 billion, to $2.6 billion, due to lower amortization of intangible assets from the acquisition of TFCF and Hulu reflecting an impairment recorded in the third quarter of the prior year related to the International Channels intangible assets arising from the acquisition.

Restructuring and impairment charges

Restructuring and impairment charges of $527 million for the current period were due to asset impairments and severance costs primarily related to the planned closure of an animation studio and a substantial number of our Disney-branded retail stores as well as severance at our other businesses.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS — (continued)

Restructuring and impairment charges of $295 million for the prior-year period were primarily due to severance costs related to the acquisition and integration of TFCF.

Other Income, net

Other income in the current period includes the fuboTV Gain of $186 million and the DraftKings Gain of $119 million.

Interest expense, net

Interest expense, net is as follows:


	Six Months Ended
(in millions)	April 3, 2021		March 28, 2020		% Change Better (Worse)
Interest expense	$	(819)	$	(727)	(13) %
Interest income, investment income and other	175		144		22 %
Interest expense, net	$	(644)	$	(583)	(10) %

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

The increase in interest income, investment income and other was due to higher investment gains, partially offset by higher pension and postretirement benefits costs, other than service cost.

Equity in the income of investees

Equity in the income of investees increased $78 million to $437 million in the current period primarily due to higher income from A+E Television Networks due to lower programming costs and higher program sales, partially offset by lower advertising revenue.

Effective Income Tax Rate

Six Months Ended

April 3,
2021

March 28,
2020

Change
Better (Worse)

Effective income tax rate - continuing operations

9.7%

26.7%

17.0

ppt

The decrease in the effective income tax rate was due to a benefit from the resolution of various tax matters in the current period and higher excess tax benefits on employee share-based awards, partially offset by the impact of higher foreign losses for which the Company is unable to recognize a tax benefit.

Noncontrolling Interests

Six Months Ended

(in millions)

April 3,
2021

March 28,
2020

% Change
Better (Worse)

Net income from continuing operations attributable to noncontrolling interests

(211)

(100)

>(100) %

The increase in net income from continuing operations attributable to noncontrolling interests for the current period includes the impact of higher results at National Geographic and lower losses at our DTC sports business and Shanghai Disney Resort, partially offset by lower results at ESPN.

Certain Items Impacting Results in the Year

Results for the six months ended April 3, 2021 were impacted by the following:

•TFCF and Hulu acquisition amortization of $1,222 million

•Restructuring and impairment charges of $527 million

•The fuboTV Gain of $186 million and DraftKings Gain of $119 million

Results for the six months ended March 28, 2020 were impacted by the following:

•TFCF and Hulu acquisition amortization of $1,423 million

•Restructuring charges of $295 million

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS — (continued)

A summary of the impact of these items on EPS is as follows:


(in millions, except per share data)	Pre-Tax Income (Loss)		Tax Benefit (Expense)(1)		After-Tax Income (Loss)		EPS Favorable (Adverse)(2)
Six Months Ended April 3, 2021:

Amortization of TFCF and Hulu intangible assets and fair value step-up on film and television costs(3)	$	(1,222)	$	285	$	(937)	$	(0.50)
Restructuring and impairment charges	(527)		124		(403)		(0.22)
Other income	305		(71)		234		0.13


Total	$	(1,444)	$	338	$	(1,106)	$	(0.59)

Six Months Ended March 28, 2020:
Amortization of TFCF and Hulu intangible assets and fair value step-up on film and television costs(3)	$	(1,423)	$	330	$	(1,093)	$	(0.57)



Restructuring and impairment charges	(295)		68		(227)		(0.13)

Total	$	(1,718)	$	398	$	(1,320)	$	(0.70)

(1)Tax benefit/expense adjustments are determined using the tax rate applicable to the individual item affecting comparability.

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

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

SEASONALITY

The Company’s businesses are subject to the effects of seasonality. Consequently, the operating results for the six months ended April 3, 2021 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 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 demand for sports programming. In general, domestic advertising revenues are typically somewhat higher during the fall and somewhat lower during the summer months. In addition, advertising revenues generated from sports programming 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. Theatrical release dates are determined by several factors, including competition and the timing of vacation and holiday periods.

Disney Parks, Experiences and Products revenues fluctuate with changes in theme park attendance and resort occupancy resulting from the seasonal nature of vacation travel and leisure activities, 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 generally results in higher revenues during the Company’s first fiscal quarter due to the winter holiday season and in the fourth quarter due to back-to-school. In addition, licensing revenues fluctuate with the timing and performance of our film and television content.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS — (continued)

BUSINESS SEGMENT RESULTS

The following table reconciles income from continuing operations before income taxes to total segment operating income:


	Quarter Ended				% Change Better (Worse)	Six Months Ended				% Change Better (Worse)
(in millions)	April 3, 2021		March 28, 2020			April 3, 2021		March 28, 2020
Income from continuing operations before income taxes	$	1,230	$	1,051	17 %	$	1,276	$	3,677	(65) %
Add:
Corporate and unallocated shared expenses	201		188		(7) %	433		425		(2) %
Restructuring and impairment charges	414		145		>(100) %	527		295		(79) %
Other income, net	(305)		—		nm	(305)		—		nm
Interest expense, net	320		300		(7) %	644		583		(10) %
TFCF and Hulu acquisition amortization	605		723		16 %	1,222		1,423		14 %


Total segment operating income	$	2,465	$	2,407	2 %	$	3,797	$	6,403	(41) %

The following is a summary of segment revenue and operating income:


	Quarter Ended				% Change Better (Worse)	Six Months Ended				% Change Better (Worse)
(in millions)	April 3, 2021		March 28, 2020			April 3, 2021		March 28, 2020
Revenues:
Disney Media and Entertainment Distribution	$	12,440	$	12,365	1 %	$	25,101	$	25,662	(2) %
Disney Parks, Experiences and Products	3,173		5,660		(44) %	6,761		13,240		(49) %




	$	15,613	$	18,025	(13) %	$	31,862	$	38,902	(18) %
Segment operating income:
Disney Media and Entertainment Distribution	$	2,871	$	1,651	74 %	$	4,322	$	3,125	38 %
Disney Parks, Experiences and Products	(406)		756		nm	(525)		3,278		nm




	$	2,465	$	2,407	2 %	$	3,797	$	6,403	(41) %

Depreciation expense is as follows:


	Quarter Ended				% Change Better (Worse)	Six Months Ended				% Change Better (Worse)
(in millions)	April 3, 2021		March 28, 2020			April 3, 2021		March 28, 2020




Disney Media and Entertainment Distribution	$	133	$	137	3 %	$	300	$	279	(8) %
Disney Parks, Experiences and Products

Domestic	391		408		4 %	779		806		3 %
International	184		175		(5) %	360		344		(5) %

Total Disney Parks, Experiences and Products	575		583		1 %	1,139		1,150		1 %



Corporate	46		46		— %	92		77		(19) %
Total depreciation expense	$	754	$	766	2 %	$	1,531	$	1,506	(2) %

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)	Six Months Ended				% Change Better (Worse)
(in millions)	April 3, 2021		March 28, 2020			April 3, 2021		March 28, 2020




Disney Media and Entertainment Distribution	$	44	$	43	(2) %	$	91	$	89	(2) %
Disney Parks, Experiences and Products	27		27		— %	54		54		— %
TFCF and Hulu	447		498		10 %	894		984		9 %

Total amortization of intangible assets	$	518	$	568	9 %	$	1,039	$	1,127	8 %

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 segment are as follows:


	Quarter Ended				% Change Better (Worse)
(in millions)	April 3, 2021		March 28, 2020
Revenues:
Linear Networks	$	6,746	$	7,025	(4) %
Direct-to-Consumer	3,999		2,515		59 %
Content Sales/Licensing and Other	1,916		3,011		(36) %
Elimination of Intrasegment Revenue(1)	(221)		(186)		(19) %
	$	12,440	$	12,365	1 %
Segment operating income (loss):
Linear Networks	$	2,849	$	2,481	15 %
Direct-to-Consumer	(290)		(805)		64 %
Content Sales/Licensing and Other	312		(25)		nm

	$	2,871	$	1,651	74 %

(1) Reflects fees received by the Linear Networks from other DMED businesses for the right to air our linear networks and related services.

Linear Networks

Operating results for Linear Networks are as follows:


	Quarter Ended				% Change Better (Worse)
(in millions)	April 3, 2021		March 28, 2020
Revenues
Affiliate fees	$	4,815	$	4,715	2 %
Advertising	1,815		2,171		(16) %
Other	116		139		(17) %
Total revenues	6,746		7,025		(4) %
Operating expenses	(3,191)		(3,776)		15 %
Selling, general, administrative and other	(890)		(888)		— %
Depreciation and amortization	(36)		(57)		37 %
Equity in the income of investees	220		177		24 %
Operating Income	$	2,849	$	2,481	15 %

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS — (continued)

Revenues

Affiliate revenue is as follows:


	Quarter Ended				% Change Better (Worse)
(in millions)	April 3, 2021		March 28, 2020

Domestic Channels	$	3,927	$	3,745	5 %
International Channels	888		970		(8) %
	$	4,815	$	4,715	2 %

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

The decrease in affiliate revenue at the International Channels was due to decreases of 5% from fewer subscribers, driven by channel closures primarily in Europe, and 3% from an unfavorable foreign exchange impact.

Advertising revenue is as follows:


	Quarter Ended				% Change Better (Worse)
(in millions)	April 3, 2021		March 28, 2020

Cable	$	711	$	918	(23) %
Broadcasting	722		911		(21) %
Domestic Channels	1,433		1,829		(22) %
International Channels	382		342		12 %
	$	1,815	$	2,171	(16) %

The decrease in Cable advertising revenue was due to decreases of 20% from lower impressions reflecting lower average viewership and 2% from lower rates.

The decrease in Broadcasting advertising revenue was due to decreases of 14% from lower network impressions, reflecting lower average viewership, 12% from a shift in the timing of The Academy Awards at ABC and 7% from the owned television stations driven by lower political advertising and the timing of The Academy Awards. The Academy Awards aired in the third quarter in the current year compared to the second quarter in the prior year. These decreases were partially offset by an increase of 9% from higher network rates.

The increase in the International Channels advertising revenue was due to increases of 8% from higher impressions, reflecting higher average viewership and 2% from higher rates. The increase in viewership reflected the benefit from Board of Control for Cricket in India (BCCI) matches that shifted into the current quarter as a result of COVID-19. BCCI cricket matches generally occur in our first fiscal quarter.

Costs and Expenses

Operating expenses primarily consist of programming and production costs, which are as follows:


	Quarter Ended				% Change Better (Worse)
(in millions)	April 3, 2021		March 28, 2020

Cable	$	(1,515)	$	(1,871)	19 %
Broadcasting	(658)		(803)		18 %
Domestic Channels	(2,173)		(2,674)		19 %
International Channels	(607)		(686)		12 %
	$	(2,780)	$	(3,360)	17 %

The decrease in programming and production costs at Cable was due to the timing of the College Football Playoffs (CFP) relative to our fiscal periods, lower production costs for live sporting events and fewer hours of original episodic programming in the current quarter. The current quarter included one CFP bowl game compared to four in the prior-year quarter. Lower production costs for live sporting events were driven by cost savings initiatives.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS — (continued)

The decrease in programming and production costs at Broadcasting was primarily due to the shift of The Academy Awards.

The decrease in programming and production costs at the International Channels was driven by a higher percentage of content costs being allocated to Disney+ as we continue to launch the service in additional markets, and lower costs as a result of channel closures. These decreases were partially offset by higher sports programming costs due to costs for BCCI matches that shifted into the current quarter as a result of COVID-19.

Depreciation and amortization decreased $21 million, to $36 million from $57 million, driven by a shift in the allocation of technology assets and related depreciation primarily between Linear Networks and Content Sales/Licensing and Other.

Equity in the Income of Investees

Income from equity investees increased $43 million, to $220 million from $177 million, primarily due to higher income from A+E Television Networks due to lower programming costs and higher program sales, partially offset by lower advertising revenue.

Operating Income from Linear Networks

Operating income from Linear Networks increased $368 million, to $2,849 million from $2,481 million, due to increases at Cable, the International Channels and Broadcasting and higher income from our equity investees.

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


	Quarter Ended				% Change Better (Worse)
(in millions)	April 3, 2021		March 28, 2020
Supplemental revenue detail
Domestic Channels	$	5,418	$	5,638	(4) %
International Channels	1,328		1,387		(4) %
	$	6,746	$	7,025	(4) %
Supplemental operating income detail
Domestic Channels	$	2,281	$	2,031	12 %
International Channels	348		273		27 %
Equity in the income of investees	220		177		24 %
	$	2,849	$	2,481	15 %

Direct-to-Consumer

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


	Quarter Ended				% Change Better (Worse)
(in millions)	April 3, 2021		March 28, 2020
Revenues
Subscription fees	$	3,000	$	1,796	67 %
Advertising	717		558		28 %
TV/SVOD distribution and other	282		161		75 %
Total revenues	3,999		2,515		59 %
Operating expenses	(3,214)		(2,465)		(30) %
Selling, general, administrative and other	(1,010)		(794)		(27) %
Depreciation and amortization	(65)		(60)		(8) %
Equity in the loss of investees	—		(1)		100 %
Operating Loss	$	(290)	$	(805)	64 %

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS — (continued)

Revenues

The increase in subscription fees was due to higher subscribers driven by growth at Disney+, Hulu, and to a lesser extent, ESPN+, and higher rates due to an increase in retail pricing at Hulu. The growth at Disney+ included the benefit of launches in additional markets, certain of which have a lower average monthly revenue per paid subscriber compared to the average in the prior-year quarter.

Higher advertising revenue reflected an increase of 29% from higher impressions due to growth at Hulu.

The increase in TV/SVOD distribution and other revenue was due to Disney+ Premier Access revenues from Raya and the Last Dragon and higher Ultimate Fighting Championship (UFC) pay-per-view fees. The increase in UFC fees reflected the benefit of four events in the current quarter compared to three in the prior-year quarter, an increase in average buys per event and higher pricing.

The following table presents the number of paid subscribers(1) (in millions) for Disney+, ESPN+ and Hulu as of:


	April 3, 2021	March 28, 2020	% Change Better (Worse)
Disney+(2)	103.6	33.5	>100 %
ESPN+	13.8	7.9	75 %
Hulu
SVOD Only	37.8	28.8	31 %
Live TV + SVOD	3.8	3.3	15 %
Total Hulu	41.6	32.1	30 %

The following table presents the average monthly revenue per paid subscriber(3) for the quarter ended:


					% Change Better (Worse)
	April 3, 2021		March 28, 2020
Disney+(2)	$	3.99	$	5.63	(29) %
ESPN+	$	4.55	$	4.24	7 %
Hulu
SVOD Only	$	12.08	$	12.06	— %
Live TV + SVOD	$	81.83	$	67.75	21 %

(1)A subscriber for which we recognized subscription revenue. A subscriber ceases to be a paid subscriber as of their effective cancellation date or as a result of a failed payment method. A subscription bundle is considered a paid subscriber for each service included in the bundle. Subscribers include those who receive the service through wholesale arrangements in which we receive a fee for the distribution of Disney+ to each subscriber to an existing content distribution tier. When we aggregate the total number of paid subscribers across our DTC services, whether acquired individually, through a wholesale arrangement or via the bundle, we refer to them as paid subscriptions.

(2)Includes Disney+ Hotstar. Disney+ Hotstar launched on April 3, 2020 in India (as a conversion of the preexisting Hotstar service) and on September 5, 2020 in Indonesia. Disney+ Hotstar average monthly revenue per paid subscriber is significantly lower than the average monthly revenue per paid subscriber for Disney+ in other markets.

(3)Revenue per paid subscriber is calculated based on the average of the monthly average paid subscribers for each month in the period. The monthly average paid subscribers is calculated as the sum of the beginning of the month and end of the month paid subscriber count, divided by two. Disney+ average monthly revenue per paid subscriber is calculated using a daily average of paid subscribers for the period. Revenue includes subscription fees, advertising (excluding revenue earned from selling advertising spots to other Company businesses) and premium and feature add-on revenue but excludes Premier Access and Pay-Per-View revenue. The average revenue per subscriber is net of discounts offered on bundled services. The discount is allocated to each service based on the relative retail price of each service on a standalone basis. In general, wholesale arrangements have a lower average monthly revenue per paid subscriber than subscribers that we acquire directly or through third party platforms like Apple.

The average monthly revenue per paid subscriber for Disney+ decreased from $5.63 to $3.99 due to the launch of Disney+ Hotstar.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS — (continued)

The average monthly revenue per paid subscriber for ESPN+ increased from $4.24 to $4.55 due to an increase in retail pricing.

The average monthly revenue per paid subscriber for the Hulu SVOD Only service increased from $12.06 to $12.08 due to a lower mix of wholesale subscribers and an increase in per-subscriber premium add-on revenue, partially offset by a decrease in per-subscriber advertising revenue and a higher mix of subscribers to the bundled offering. The average monthly revenue per paid subscriber for the Hulu Live TV + SVOD service increased from $67.75 to $81.83 due to increases in retail pricing, per-subscriber advertising revenue and to a lesser extent, per-subscriber premium and feature add-on revenue, partially offset by a higher mix of subscribers to the bundled offering.

Costs and Expenses

Operating expenses are as follows:


	Quarter Ended				% Change Better (Worse)
(in millions)	April 3, 2021		March 28, 2020
Programming and production costs	$	(2,586)	$	(1,964)	(32) %
Other operating expense	(628)		(501)		(25) %
	$	(3,214)	$	(2,465)	(30) %

The increase in programming and production costs was due to higher costs at Disney+, Hulu and to a lesser extent, ESPN+. The increase at Disney+ was driven by the ongoing expansion including launches in additional markets. Higher costs at Hulu were primarily due to an increase in subscriber-based fees for programming the live television service. The increase at ESPN+ was driven by higher costs for UFC programming rights due to an additional event in the current quarter compared to the prior-year quarter and a new contract for soccer programming rights. Other operating expenses, which include technical support and distribution costs, increased due to higher distribution costs at Disney+ driven by subscriber growth.

Selling, general, administrative and other costs increased $216 million, to $1,010 million from $794 million, due to higher marketing costs at Disney+ driven by launches in additional markets.

Operating Loss from Direct-to-Consumer

The operating loss from Direct-to-Consumer decreased $515 million, to $290 million from $805 million, due to improved results at Hulu, and to a lesser extent, ESPN+.

Content Sales/Licensing and Other

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


	Quarter Ended				% Change Better (Worse)
(in millions)	April 3, 2021		March 28, 2020
Revenues
TV/SVOD distribution	$	1,344	$	1,524	(12) %
Theatrical distribution	109		603		(82) %
Home entertainment	219		489		(55) %
Other	244		395		(38) %
Total revenues	1,916		3,011		(36) %
Operating expenses	(1,136)		(2,110)		46 %
Selling, general, administrative and other	(398)		(836)		52 %
Depreciation and amortization	(76)		(63)		(21) %
Equity in the income of investees	6		(27)		nm
Operating Income	$	312	$	(25)	nm

COVID-19

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS — (continued)

beginning in the fourth quarter of fiscal 2020, we continue to see disruption of production activities depending on local circumstances. Reduced theatrical releases and production delays have impacted the availability of film content to be sold in the subsequent home entertainment and TV/SVOD distribution windows.

Revenues

The decrease in TV/SVOD distribution revenue was primarily due to lower film content sales, which primarily reflected the impact of COVID-19, and a decrease in sales of episodic content.

The decrease in theatrical distribution revenue was due to the ongoing impact of COVID-19. The current quarter included Soul and Raya and the Last Dragon, whereas the prior-year quarter included Star Wars: The Rise of Skywalker, Frozen II and Spies in Disguise. Other titles in the prior-year quarter included Onward and Call of the Wild.

The decrease in home entertainment revenue reflected decreases of 46% due to lower unit sales of new release titles and 11% from lower average net effective pricing. New release titles in the current quarter included Soul and Mulan, whereas the prior-year quarter included Frozen II, Maleficent: Mistress of Evil, Ford V Ferrari, Star Wars: The Rise of Skywalker and Onward. The decrease in average net effective pricing was due to a lower mix of new release titles, which have a higher sales price than catalog titles.

The decrease in other revenue was due to lower revenue from stage plays reflecting the impact of COVID-19. As a result of COVID-19, stage play performances were suspended in March 2020 with a limited number of performances returning in the first quarter of fiscal 2021.

Costs and Expenses

Operating expenses are as follows:


	Quarter Ended				% Change Better (Worse)
(in millions)	April 3, 2021		March 28, 2020
Programming and production costs	$	(915)	$	(1,744)	48 %
Cost of goods sold and distribution costs	(221)		(366)		40 %
	$	(1,136)	$	(2,110)	46 %

The decrease in programming and production costs was due to lower production cost amortization related to TV/SVOD sales reflecting a lower average amortization rate and a decrease in revenue, a decrease in theatrical revenues, lower film and television cost impairments, and a decrease in home entertainment volumes.

The decrease in cost of goods sold and distribution costs was due to lower costs for stage plays as result of a limited number of performances in the current quarter and a decrease in theatrical distribution costs as a result of fewer releases.

Selling, general administrative and other costs decreased $438 million, to $398 million from $836 million, primarily due to lower theatrical and home entertainment marketing costs.

Depreciation and amortization increased $13 million, to $76 million from $63 million, driven by a shift in the allocation of technology assets and related depreciation primarily between Linear Networks and Content Sales/Licensing and Other.

Equity in the Income of Investees

Income from equity investments increased $33 million, to income of $6 million from a loss of $27 million, driven by 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 increased $337 million, to income of $312 million in the current quarter from a loss of $25 million in the prior-year quarter, due to higher TV/SVOD distribution results and lower film and television cost impairments, partially offset by a decrease in home entertainment distribution results.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS — (continued)

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 segment that are excluded from segment operating income:


	Quarter Ended				% Change Better (Worse)
(in millions)	April 3, 2021		March 28, 2020
TFCF and Hulu acquisition amortization(1)	$	(603)	$	(721)	16 %
Restructuring and impairment charges(2)	(223)		(124)		(80) %

(1)In the current quarter, amortization of step-up on film and television costs was $154 million and amortization of intangible assets was $445 million. In the prior-year quarter, amortization of step-up on film and television costs was $217 million and amortization of intangible assets was $496 million.

(2)The current quarter includes asset impairments and severance costs related to the planned closure of an animation studio and severance costs related to workforce reductions. The prior-year quarter includes severance costs in connection with the acquisition and integration of TFCF.

Disney Parks, Experiences and Products

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


	Quarter Ended				% Change Better (Worse)
(in millions)	April 3, 2021		March 28, 2020
Revenues
Theme park admissions	$	597	$	1,554	(62) %
Parks & Experiences merchandise, food and beverage	558		1,276		(56) %
Resorts and vacations	513		1,377		(63) %
Merchandise licensing and retail	1,145		1,017		13 %
Parks licensing and other	360		436		(17) %
Total revenues	3,173		5,660		(44) %
Operating expenses	(2,308)		(3,555)		35 %
Selling, general, administrative and other	(660)		(733)		10 %
Depreciation and amortization	(602)		(610)		1 %
Equity in the loss of investees	(9)		(6)		(50) %
Operating Income (Loss)	$	(406)	$	756	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 and Disneyland Paris were closed and our cruise business was suspended for the entire current quarter, whereas these businesses closed in mid-March of the prior-year quarter. Hong Kong Disneyland Resort was open for approximately 30 days during the current quarter, compared to approximately 25 days in the prior-year quarter. Walt Disney World Resort, Shanghai Disney Resort and Tokyo Disney Resort were open during the entire current quarter, although operating at significantly reduced capacities. In the prior-year quarter, Walt Disney World Resort closed in mid-March, Shanghai Disney Resort closed in late January and Tokyo Disney Resort closed in late February. We estimate that the adverse impact of COVID-19 compared to the prior-year quarter was a decrease in segment operating income of approximately $1.2 billion, which is net of cost reductions from initiatives to mitigate the impacts of COVID-19.

Revenues

The decrease in revenues from theme park admissions, merchandise, food and beverage sales, and resorts and vacations was due to the closure and reduced operating capacity of the parks and resorts and suspension of cruise ship sailings.

Merchandise licensing and retail revenue growth was due to an increase of 9% from merchandise licensing and 4% from retail. The revenue growth at merchandise licensing was driven by higher revenues from merchandise based on Star Wars, including The Mandalorian, Disney Princesses, Mickey and Minnie and an increase in royalties from licensed games, partially

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS — (continued)

offset by a decrease in revenues from merchandise based on Frozen. The increase in royalties from licensed games was due to the current year release of Marvel’s Spider-Man: Miles Morales and higher royalties from Twisted Wonderland, partially offset by lower royalties from Star Wars Jedi: Fallen Order. The increase in retail revenues was primarily due to higher online sales, partially offset by a decrease in sales at our retail stores.

The decrease in parks licensing and other revenue was primarily due to lower sponsorship revenue as a result of park closures and a decrease in royalties from Tokyo Disney Resort as a result of the park operating at reduced capacity in the current quarter.

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


	Domestic		International(1)		Total
	Quarter Ended		Quarter Ended		Quarter Ended
	Apr 3, 2021	Mar 28, 2020	Apr 3, 2021	Mar 28, 2020	Apr 3, 2021	Mar 28, 2020
Parks
Increase (decrease)
Attendance(2)	(66) %	(11) %	(41) %	(50) %	(61) %	(22) %
Per Capita Guest Spending(3)	8 %	13 %	(9) %	(5) %	— %	14 %
Hotels
Occupancy(4)	35 %	77 %	9 %	47 %	29 %	70 %
Available Room Nights (in thousands)(5)	2,649	2,617	787	794	3,436	3,411
Per Room Guest Spending(6)	$336	$372	$356	$258	$338	$354

(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)	April 3, 2021		March 28, 2020
Operating labor	$	(1,012)	$	(1,661)	39 %
Infrastructure costs	(543)		(654)		17 %
Cost of goods sold and distribution costs	(421)		(626)		33 %
Other operating expense	(332)		(614)		46 %
	$	(2,308)	$	(3,555)	35 %

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS — (continued)

The decreases in operating labor, infrastructure costs and cost of goods sold and distribution costs were due to lower volumes. The decrease in other operating expenses was due to lower volumes and a decline in charges for capital project abandonments.

Selling, general, administrative and other costs decreased $73 million, to $660 million from $733 million, due to marketing cost reductions.

Segment Operating Income (Loss)

Segment operating income decreased from a profit of $0.8 billion to a loss of $0.4 billion due to a decrease at our domestic parks and experiences businesses, partially offset by an increase at our consumer products business.

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


	Quarter Ended				% Change Better (Worse)
(in millions)	April 3, 2021		March 28, 2020
Supplemental revenue detail
Parks & Experiences
Domestic	$	1,735	$	4,139	(58) %
International	262		480		(45) %
Consumer Products	1,176		1,041		13 %
	$	3,173	$	5,660	(44) %
Supplemental operating income (loss) detail
Parks & Experiences
Domestic	$	(587)	$	661	nm
International	(380)		(343)		(11) %
Consumer Products	561		438		28 %
	$	(406)	$	756	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 segment that are excluded from segment operating income:


	Quarter Ended				% Change Better (Worse)
(in millions)	April 3, 2021		March 28, 2020
Restructuring and impairment charges(1)	$	(189)	$	(2)	>(100) %
TFCF and Hulu acquisition amortization	(2)		(2)		— %

(1)The current quarter includes asset impairments and severance costs related to the planned closure of a substantial number of our Disney-branded retail stores and severance costs related to workforce reductions.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS — (continued)

BUSINESS SEGMENT RESULTS - Current Six-Month Period Results Compared to the Prior-Year Six-Month Period

Disney Media and Entertainment Distribution

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


	Six Months Ended				% Change Better (Worse)
(in millions)	April 3, 2021		March 28, 2020
Revenues:
Linear Networks	$	14,439	$	14,561	(1) %
Direct-to-Consumer	7,503		4,540		65 %
Content Sales/Licensing and Other	3,618		6,921		(48) %
Elimination of Intrasegment Revenue(1)	(459)		(360)		(28) %
	$	25,101	$	25,662	(2) %
Segment operating income (loss):
Linear Networks	$	4,578	$	4,289	7 %
Direct-to-Consumer	(756)		(1,915)		61 %
Content Sales/Licensing and Other	500		751		(33) %
	$	4,322	$	3,125	38 %

(1) Reflects fees received by the Linear Networks from other DMED businesses for the right to air our linear networks and related services.

Linear Networks

Operating results for Linear Networks are as follows:


	Six Months Ended				% Change Better (Worse)
(in millions)	April 3, 2021		March 28, 2020
Revenues
Affiliate fees	$	9,455	$	9,329	1 %
Advertising	4,650		4,902		(5) %
Other	334		330		1 %
Total revenues	14,439		14,561		(1) %
Operating expenses	(8,612)		(8,734)		1 %
Selling, general, administrative and other	(1,614)		(1,806)		11 %
Depreciation and amortization	(89)		(123)		28 %
Equity in the income of investees	454		391		16 %
Operating Income	$	4,578	$	4,289	7 %

Revenues

Affiliate revenue is as follows:


	Six Months Ended				% Change Better (Worse)
(in millions)	April 3, 2021		March 28, 2020

Domestic Channels	$	7,700	$	7,395	4 %
International Channels	1,755		1,934		(9) %
	$	9,455	$	9,329	1 %

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS — (continued)

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

The decrease in affiliate revenue at the International Channels was due to decreases of 6% from fewer subscribers, driven by channel closures primarily in Europe, and 2% from an unfavorable foreign exchange impact.

Advertising revenue is as follows:


	Six Months Ended				% Change Better (Worse)
(in millions)	April 3, 2021		March 28, 2020

Cable	$	1,928	$	2,227	(13) %
Broadcasting	1,706		1,852		(8) %
Domestic Channels	3,634		4,079		(11) %
International Channels	1,016		823		23 %
	$	4,650	$	4,902	(5) %

The decrease in Cable advertising revenue was due to a decrease of 19% from lower impressions reflecting lower average viewership, partially offset by an increase of 6% from higher rates.

The decrease in Broadcasting advertising revenue was due to decreases of 10% from lower network impressions, reflecting lower average viewership and 6% from a shift in the timing of The Academy Awards at ABC. These decreases were partially offset by increases of 4% from higher network rates and 1% from the owned television stations. The increase at the owned television stations was due to higher political advertising, partially offset by the timing of The Academy Awards.

The increase in the International Channels advertising revenue was due to an increase of 23% from higher impressions. The increase in impressions reflected higher average viewership, partially offset by lower units delivered. The increase in viewership reflected a shift of Indian Premier League (IPL) cricket matches for the 2020 season from the third quarter of the prior fiscal year to the first quarter of the current fiscal year as a result of COVID-19. IPL cricket matches generally occur during our third fiscal quarter.

Costs and Expenses

Operating expenses primarily consist of programming and production costs, which are as follows:


	Six Months Ended				% Change Better (Worse)
(in millions)	April 3, 2021		March 28, 2020

Cable	$	(4,919)	$	(4,992)	1 %
Broadcasting	(1,405)		(1,558)		10 %
Domestic Channels	(6,324)		(6,550)		3 %
International Channels	(1,521)		(1,372)		(11) %
	$	(7,845)	(7,922)		1 %

The decrease in programming and production costs at Cable was driven by lower production costs for live sporting events, fewer hours of original programming, a decrease in development costs and lower television cost impairments. These decreases were partially offset by higher sports programming and production costs. The increase in sports programming and production costs reflected higher NBA programming costs, the shift of the 2020 Masters tournament into the current fiscal year and contractual increases for sports programming, partially offset by fewer events and savings initiatives. As a result of delays due to COVID-19, four NBA Finals games were played in the current period, whereas these games would normally have occurred in the third quarter of the prior year.

The decrease in programming and production costs at Broadcasting was primarily due to the shift of The Academy Awards.

The increase in programming and production costs at the International Channels was due to higher sports programming costs driven by the shift of 2020 IPL cricket matches into the current period, partially offset by fewer BCCI matches in the current period. The increase in sports programming costs was partially offset by a higher percentage of content costs being allocated to Disney+ as we continue to launch the service in additional markets, and lower costs as a result of channel closures.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS — (continued)

Selling, general, administrative and other costs decreased $192 million, to $1,614 million from $1,806 million, due to lower marketing costs and a decrease in bad debt expense.

Depreciation and amortization decreased $34 million, to $89 million from $123 million, driven by a shift in the allocation of technology assets and related depreciation primarily between Linear Networks and Content Sales/Licensing and Other.

Equity in the Income of Investees

Income from equity investees increased $63 million, to $454 million from $391 million, due to higher income from A+E Television Networks driven by higher program sales and lower programming costs, partially offset by lower advertising revenue.

Operating Income from Linear Networks

Operating income from Linear Networks increased $289 million, to $4,578 million from $4,289 million, due to an increase at Broadcasting, higher income from our equity investees and an increase at the International Channels.

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


	Six Months Ended				% Change Better (Worse)
(in millions)	April 3, 2021		March 28, 2020
Supplemental revenue detail
Domestic Channels	$	11,488	$	11,631	(1) %
International Channels	2,951		2,930		1 %
	$	14,439	$	14,561	(1) %
Supplemental operating income detail
Domestic Channels	$	3,401	$	3,237	5 %
International Channels	723		661		9 %
Equity in the income of investees	454		391		16 %
	$	4,578	$	4,289	7 %

Direct-to-Consumer

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


	Six Months Ended				% Change Better (Worse)
(in millions)	April 3, 2021		March 28, 2020
Revenues
Subscription fees	$	5,546	$	3,122	78 %
Advertising	1,599		1,157		38 %
TV/SVOD distribution and other	358		261		37 %
Total revenues	7,503		4,540		65 %
Operating expenses	(6,135)		(4,808)		(28) %
Selling, general, administrative and other	(1,980)		(1,526)		(30) %
Depreciation and amortization	(144)		(120)		(20) %
Equity in the loss of investees	—		(1)		100 %
Operating Loss	$	(756)	$	(1,915)	61 %

Revenues

The increase in subscription fees was due to higher subscribers driven by growth at Disney+, Hulu and to a lesser extent, ESPN+, and higher rates due to an increase in retail pricing at Hulu. The growth at Disney+ included the benefit of launches in additional markets, certain of which have a lower average monthly revenue per paid subscriber compared to the average in the prior-year period.

Higher advertising revenue reflected an increase of 39% from higher impressions due to growth at Hulu.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS — (continued)

The increase in TV/SVOD distribution and other revenue was due to Disney+ Premier Access revenues from Raya and the Last Dragon and higher UFC pay-per-view fees. The increase in UFC fees reflected the benefit of seven events in the current period compared to six in the prior-year period, higher pricing and an increase in average buys per event.

The following table presents the average monthly revenue per paid subscriber for the six-month period ended (see additional discussion of metrics under the quarterly analysis of Business Segment Results):


					% Change Better (Worse)
	April 3, 2021		March 28, 2020
Disney+	$	4.01	$	5.60	(28) %
ESPN+	$	4.52	$	4.32	5 %
Hulu
SVOD Only	$	12.77	$	12.66	1 %
Live TV + SVOD	$	78.31	$	63.66	23 %

The average monthly revenue per paid subscriber for Disney+ decreased from $5.60 to $4.01 due to the launch of Disney+ Hotstar.

The average monthly revenue per paid subscriber for ESPN+ increased from $4.32 to $4.52 due to an increase in retail pricing and higher per-subscriber advertising revenue, partially offset by a higher mix of subscribers to the bundled offering.

The average monthly revenue per paid subscriber for the Hulu SVOD Only service increased from $12.66 to $12.77 due to a lower mix of wholesale subscribers and an increase in per-subscriber premium add-on revenue, partially offset by a higher mix of subscribers to the bundled offering. The average monthly revenue per paid subscriber for the Hulu Live TV + SVOD service increased from $63.66 to $78.31 due to increases in retail pricing, per-subscriber advertising revenue and to a lesser extent, per-subscriber premium and feature add-on revenue, partially offset by a higher mix of subscribers to the bundled offering.

Costs and Expenses

Operating expenses are as follows:


	Six Months Ended				% Change Better (Worse)
(in millions)	April 3, 2021		March 28, 2020
Programming and production costs	$	(4,965)	$	(3,884)	(28) %
Other operating expense	(1,170)		(924)		(27) %
	$	(6,135)	$	(4,808)	(28) %

The increase in programming and production costs was due to higher costs at Disney+, Hulu and to a lesser extent, ESPN+. The increase at Disney+ was driven by the ongoing expansion including launches in additional 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 costs for UFC programming rights due to one additional event in the current period compared to the prior-year period and a new contract for soccer programming rights. Other operating expenses, which include technical support and distribution costs, increased due to higher distribution costs at Disney+ driven by subscriber growth.

Selling, general, administrative and other costs increased $454 million, to $1,980 million from $1,526 million, due to higher marketing costs at Disney+ driven by launches in additional markets.

Depreciation and amortization increased $24 million, to $144 million from $120 million, due to the ongoing expansion of Disney+.

Operating Loss from Direct-to-Consumer

The operating loss from Direct-to-Consumer decreased $1,159 million, to $756 million from $1,915 million, due to improved results at Hulu, and to a lesser extent, ESPN+ and Disney+.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS — (continued)

Content Sales/Licensing and Other

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


	Six Months Ended				% Change Better (Worse)
(in millions)	April 3, 2021		March 28, 2020
Revenues
TV/SVOD distribution	$	2,366	$	2,963	(20) %
Theatrical distribution	140		2,011		(93) %
Home entertainment	519		1,085		(52) %
Other	593		862		(31) %
Total revenues	3,618		6,921		(48) %
Operating expenses	(2,210)		(4,108)		46 %
Selling, general, administrative and other	(757)		(1,931)		61 %
Depreciation and amortization	(158)		(125)		(26) %
Equity in the income of investees	7		(6)		nm
Operating Income	$	500	$	751	(33) %

COVID-19

Our Content Sales/Licensing business has been impacted by COVID-19 in a number of ways. As a result of theater closures or theaters operating at reduced capacity, we have delayed or, in some cases, shortened or canceled, theatrical releases. Film and television content production was suspended in March 2020, and although most production activities resumed beginning in the fourth quarter of fiscal 2020, we continue to see disruption of production activities depending on local circumstances. Reduced theatrical releases and production delays has impacted the availability of film content to be sold in the subsequent home entertainment and TV/SVOD distribution windows.

Revenues

The decrease in TV/SVOD distribution revenue was driven by the shift from licensing our content to third parties to distribution on our DTC services and the ongoing impact of COVID-19.

The decrease in theatrical distribution revenue was due to the ongoing impact of COVID-19. The current period included Soul and Raya and the Last Dragon, whereas the prior-year period included Frozen II, Star Wars: The Rise of Skywalker and Maleficent: Mistress of Evil. Other titles in the prior-year period included Ford V Ferrari, Spies in Disguise, Terminator: Dark Fate and Call of the Wild.

The decrease in home entertainment revenue reflected decreases of 44% primarily due to lower unit sales of new release titles and 9% from a lower average net effective pricing. New release titles in the current period included Mulan, whereas the prior-year period included Frozen II, The Lion King, Toy Story 4, Maleficent: Mistress of Evil and Aladdin. The decrease in average net effective pricing was due to a lower mix of new release titles, which have a higher sales price than catalog titles.

The decrease in other revenue was due to lower revenue from stage plays reflecting the impact of COVID-19, partially offset by an increase in revenue from Lucasfilm’s special effect business due to more productions. As a result of COVID-19, stage play performances were suspended in March 2020 with a limited number of performances returning in the first quarter of fiscal 2021.

Costs and Expenses

Operating expenses are as follows:


	Six Months Ended				% Change Better (Worse)
(in millions)	April 3, 2021		March 28, 2020
Programming and production costs	$	(1,792)	$	(3,306)	46 %
Cost of goods sold and distribution costs	(418)		(802)		48 %
	$	(2,210)	$	(4,108)	46 %

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS — (continued)

The decrease in programming and production costs was due to lower theatrical revenue, a decrease in production cost amortization related to TV/SVOD sales reflecting a lower average amortization rate and a decrease in revenue, lower film and television cost impairments and a decrease in home entertainment revenue.

The decrease in cost of goods sold and distribution costs was due to lower costs for stage plays as result of a limited number of performances in the current period, a decrease in theatrical distribution costs due to fewer theatrical releases, and lower home entertainment volumes.

Selling, general, administrative and other costs decreased $1,174 million, to $757 million from $1,931 million, primarily due to lower theatrical, home entertainment and stage play marketing costs.

Depreciation and amortization increased $33 million, to $158 million from $125 million, driven by a shift in the allocation of technology assets and related depreciation primarily between Linear Networks and Content Sales/Licensing and Other.

Operating Income from Content Sales/Licensing and Other

Operating income from Content Sales/Licensing and Other decreased $251 million, to $500 million from $751 million, due to lower theatrical distribution and home entertainment results, partially offset by lower film and television cost impairments.

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 segment that are excluded from segment operating income:


	Six Months Ended				% Change Better (Worse)
(in millions)	April 3, 2021		March 28, 2020
TFCF and Hulu acquisition amortization(1)	$	(1,218)	$	(1,419)	14 %
Restructuring and impairment charges(2)	(304)		(251)		(21) %

(1)In the current period, amortization of step-up on film and television costs was $321 million and amortization of intangible assets was $890 million. In the prior-year period, amortization of step-up on film and television costs was $423 million and amortization of intangible assets was $980 million.

(2)The current period includes asset impairments and severance costs related to the closure of an animation studio. The prior-year period includes severance costs in connection with the acquisition and integration of TFCF.

Disney Parks, Experiences and Products

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


	Six Months Ended				% Change Better (Worse)
(in millions)	April 3, 2021		March 28, 2020
Revenues
Theme park admissions	$	1,146	$	3,621	(68) %
Parks & Experiences merchandise, food and beverage	1,111		2,967		(63) %
Resorts and vacations	946		3,008		(69) %
Merchandise licensing and retail	2,843		2,686		6 %
Parks licensing and other	715		958		(25) %
Total revenues	6,761		13,240		(49) %
Operating expenses	(4,738)		(7,258)		35 %
Selling, general, administrative and other	(1,338)		(1,491)		10 %
Depreciation and amortization	(1,193)		(1,204)		1 %
Equity in the loss of investees	(17)		(9)		(89) %
Operating Income (Loss)	$	(525)	$	3,278	nm

COVID-19

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS — (continued)

was suspended for the entire current period, whereas these businesses closed in mid-March of the prior-year period. In the current period, Disneyland Paris was open for approximately 30 days and Hong Kong Disneyland Resort was open for approximately 75 days compared to approximately 165 days and 115 days, respectively in the prior-year period. Walt Disney World Resort, Shanghai Disney Resort and Tokyo Disney Resort were open during the entire current period, although operating at significantly reduced capacities. In the prior-year period, Walt Disney World Resort closed in mid-March, Shanghai Disney Resort closed in late January and Tokyo Disney Resort closed in late February. We estimate that the adverse impact of COVID-19 compared to the prior-year period was a decrease in segment operating income of approximately $3.8 billion, which is net of cost reductions from initiatives to mitigate the impacts of COVID-19.

Revenues

Merchandise licensing and retail revenue growth was due to an increase of 5% from merchandise licensing driven by higher revenues from merchandise based on Star Wars, including The Mandalorian, Spider-Man, Mickey and Minnie and Disney Princesses, partially offset by a decrease in revenues from merchandise based on Frozen. Higher licensing revenues from Spider-Man were driven by the fiscal 2021 release of Marvel’s Spider-Man: Miles Morales game.

The decrease in parks licensing and other revenue was primarily due to lower sponsorship revenue as a result of park closures and a decrease in royalties from Tokyo Disney Resort.


	Domestic		International		Total
	Six Months Ended		Six Months Ended		Six Months Ended
	April 3, 2021	March 28, 2020	April 3, 2021	March 28, 2020	April 3, 2021	March 28, 2020
Parks
Increase (decrease)
Attendance	(70) %	(4) %	(54) %	(29) %	(67) %	(11) %
Per Capita Guest Spending	4 %	11 %	(10) %	— %	(2) %	12 %
Hotels
Occupancy	31 %	84 %	11 %	60 %	27 %	79 %
Available Room Nights (in thousands)	5,293	5,150	1,587	1,594	6,880	6,744
Per Room Guest Spending(6)	$349	$373	$354	$293	$350	$359

Costs and Expenses

Operating expenses are as follows:


	Six Months Ended				% Change Better (Worse)
(in millions)	April 3, 2021		March 28, 2020
Operating labor	$	(2,042)	$	(3,253)	37 %
Infrastructure costs	(1,065)		(1,259)		15 %
Cost of goods sold and distribution costs	(1,008)		(1,529)		34 %
Other operating expense	(623)		(1,217)		49 %
	$	(4,738)	$	(7,258)	35 %

The decreases in operating labor, infrastructure costs, cost of goods sold and distribution costs and other operating expenses were all due to lower volumes.

Selling, general, administrative and other costs decreased $153 million, to $1,338 million from $1,491 million, due to marketing cost reductions.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS — (continued)

Segment Operating Income (Loss)

Segment operating income decreased from a profit of $3.3 billion to a loss of $0.5 billion due to a decrease at our parks and experiences businesses, partially offset by an increase at our consumer products business.

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


	Six Months Ended				% Change Better (Worse)
(in millions)	April 3, 2021		March 28, 2020
Supplemental revenue detail
Parks & Experiences
Domestic	$	3,224	$	9,078	(64) %
International	640		1,430		(55) %
Consumer Products	2,897		2,732		6 %
	$	6,761	$	13,240	(49) %
Supplemental operating income (loss) detail
Parks & Experiences
Domestic	$	(1,385)	$	2,233	nm
International	(642)		(292)		>(100) %
Consumer Products	1,502		1,337		12 %
	$	(525)	$	3,278	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 segment that are excluded from segment operating income:


	Six Months Ended				% Change Better (Worse)
(in millions)	April 3, 2021		March 28, 2020
Restructuring and impairment charges(1)	$	(217)	$	(8)	>(100) %
TFCF and Hulu acquisition amortization	(4)		(4)		— %

(1)The current period includes asset impairments and severance costs related to the planned closure of a substantial number of our Disney-branded retail stores and severance costs related to workforce reductions.

CORPORATE AND UNALLOCATED SHARED EXPENSES


	Quarter Ended				% Change Better (Worse)	Six Months Ended				% Change Better (Worse)
(in millions)	April 3, 2021		March 28, 2020			April 3, 2021		March 28, 2020
Corporate and unallocated shared expenses	$	(201)	$	(188)	(7) %	$	(433)	$	(425)	(2) %

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS — (continued)

FINANCIAL CONDITION

The change in cash and cash equivalents is as follows:


	Six Months Ended				% Change Better (Worse)
(in millions)	April 3, 2021		March 28, 2020
Cash provided by operations - continuing operations	$	1,468	$	4,787	(69) %
Cash used in investing activities - continuing operations	(1,327)		(2,606)		49 %
Cash provided by (used in) financing activities - continuing operations	(2,241)		6,616		nm
Cash provided by operations - discontinued operations	4		4		— %
Cash provided by investing activities - discontinued operations	4		198		(98) %

Impact of exchange rates on cash, cash equivalents and restricted cash	70		(76)		nm
Change in cash, cash equivalents and restricted cash	$	(2,022)	$	8,923	nm

Operating Activities

Cash provided by continuing operating activities decreased 69% to $1.5 billion for the current six-month period compared to $4.8 billion in the prior-year six-month period. The decrease in cash provided by operations was due to lower operating cash flow at DPEP, which was driven by lower cash receipts due to decreased revenues, partially offset by lower cash disbursements due to lower operating expenses.

Produced and licensed programming costs

The Disney Media and Entertainment Distribution 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.

The Company’s film and television production and programming activity for the six months ended April 3, 2021 and March 28, 2020 are as follows:


	Six Months Ended
(in millions)	April 3, 2021		March 28, 2020
Beginning balances:
Produced and licensed programming assets	$	27,193	$	27,407
Programming liabilities	(4,099)		(4,061)
	23,094		23,346
Spending:
Programming licenses and rights	6,649		6,880
Produced film and television content	5,607		5,400
	12,256		12,280
Amortization:
Programming licenses and rights	(6,762)		(6,440)
Produced film and television content	(3,809)		(4,915)
	(10,571)		(11,355)
Change in internally produced and licensed content costs	1,685		925

Other non-cash activity	139		(37)
Ending balances:
Produced and licensed programming assets	29,062		28,626
Programming liabilities	(4,144)		(4,392)
	$	24,918	$	24,234

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS — (continued)

Investing Activities

Investing activities consist principally of investments in parks, resorts and other property and acquisition and divestiture activity. The Company’s investments in parks, resorts and other property for the six months ended April 3, 2021 and March 28, 2020 are as follows:


(in millions)	April 3, 2021		March 28, 2020




Disney Media and Entertainment Distribution	$	369	$	426
Disney Parks, Experiences and Products
Domestic	656		1,549
International	355		441

Total Disney Parks, Experiences and Products	1,011		1,990


Corporate	150		169
	$	1,530	$	2,585

Capital expenditures at Disney Media and Entertainment Distribution 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 Disney Parks, Experiences and Products segment are principally for theme park and resort expansion, new attractions, cruise ships, capital improvements and technology. The decrease in the current period compared to the prior-year period was primarily due to the suspension of certain capital projects as a result of COVID-19.

Capital expenditures at Corporate primarily reflect investments in corporate facilities, technology and equipment.

The Company currently expects its fiscal 2021 capital expenditures will be comparable to fiscal 2020 capital expenditures of $4.0 billion, as increased spending on facilities at Corporate and on technology for our DTC services 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.

Financing Activities

Cash used in financing activities was $2.2 billion in the current six-month period compared to cash provided by financing activities of $6.6 billion in the prior-year six-month period. In the current six-month period, the Company had a decrease in net borrowings of $1.9 billion compared to an increase in net borrowings of $8.2 billion in the prior-year six-month period. Additionally, the prior-year six-month period included a dividend payment of $1.6 billion compared to no dividend payments in the current six-month period (see Note 10 to the Condensed Consolidated Financial Statements for a summary of the Company’s dividend payments).

See Note 4 to the Condensed Consolidated Financial Statements for a summary of the Company’s borrowing activities during the six months ended April 3, 2021 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 2022, March 2023 and March 2025, and incremental term debt issuances to retire or refinance other borrowings before or as they come due.

The Company’s operating cash flow and access to the capital markets can be impacted by factors outside of its control, including COVID-19, which has had an adverse impact on the Company’s operating cash flows. We have taken a number of measures to mitigate the impact on the Company’s financial position. We have significantly increased the Company’s cash balances through the issuance of senior notes in March and May 2020. See Significant Developments for the impact COVID-19 has had on our operations and mitigating measures we have taken.

We believe that the Company’s financial condition remains strong and that its cash balances, other liquid assets, operating cash flows, access to debt and equity capital markets and borrowing capacity under current bank facilities, taken together, provide adequate resources to fund ongoing operating requirements and upcoming debt maturities as well as future capital expenditures related to the expansion of existing businesses and development of new projects, although certain of these activities have been scaled back or suspended in light of COVID-19. In addition to measures the Company has already taken in response to COVID-19, the Company may take additional mitigating actions in the future such as continuing to not declare dividends (which the Company did not declare with respect to fiscal 2020 operations); reducing, or not making certain payments, such as some contributions to our pension and postretirement medical plans; raising additional financing; further suspending capital spending; reducing film and television content investments; or implementing additional furloughs or reductions in force.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS — (continued)

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 April 3, 2021, Moody’s Investors Service’s long- and short-term debt ratings for the Company were A2 and P-1, respectively, Standard and Poor’s long- and short-term debt ratings for the Company were BBB+ and A-2, respectively, and Fitch’s long- and short-term debt ratings for the Company were A- and F2, respectively. In addition, Fitch had the Company’s long-term ratings on Negative Outlook. On March 25, 2021, Standard & Poor’s placed the Company’s long-term ratings on Stable Outlook (previously Negative Outlook). Subsequently, on April 28, 2021, Fitch revised the Company’s long-term ratings outlook to Stable (previously Negative). The Company’s bank facilities contain only one financial covenant, relating to interest coverage, which the Company met on April 3, 2021, by a significant margin. The Company’s bank facilities also specifically exclude certain entities, including the Asia Theme Parks, from any representations, covenants or events of default.

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 may require us to rely more heavily on external funding sources, such as debt and other types of financing.

SUPPLEMENTAL GUARANTOR FINANCIAL INFORMATION

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

Other subsidiaries of the Company do not guarantee the registered debt securities of either TWDC or Legacy Disney (such subsidiaries are referred to as the “non-Guarantors”). The par value and carrying value of total outstanding and guaranteed registered debt securities of the Obligor Group at April 3, 2021 was as follows:


	TWDC				Legacy Disney
(in millions)	Par Value		Carrying Value		Par Value		Carrying Value
Registered debt with unconditional guarantee	$	37,847	$	39,608	$	11,846	$	11,937

The guarantees by TWDC and Legacy Disney are full and unconditional and cover all payment obligations arising under the guaranteed registered debt securities. The guarantees may be released and discharged upon (i) as a general matter, the indebtedness for borrowed money of the consolidated subsidiaries of TWDC in aggregate constituting no more than 10% of all consolidated indebtedness for borrowed money of TWDC and its subsidiaries (subject to certain exclusions), (ii) upon the sale, transfer or disposition of all or substantially all of the equity interests or all or substantially all, or substantially as an entirety, the assets of Legacy Disney to a third party, and (iii) other customary events constituting a discharge of a guarantor’s obligations. In addition, in the case of Legacy Disney’s guarantee of registered debt securities issued by TWDC, Legacy Disney may be released and discharged from its guarantee at any time Legacy Disney is not a borrower, issuer or guarantor under certain material bank facilities or any debt securities.

Operations are conducted almost entirely through the Company’s subsidiaries. Accordingly, the Obligor Group’s cash flow and ability to service its debt, including the public debt, are dependent upon the earnings of the Company’s subsidiaries and the distribution of those earnings to the Obligor Group, whether by dividends, loans or otherwise. Holders of the guaranteed registered debt securities have a direct claim only against the Obligor Group.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS — (continued)

Set forth below are summarized financial information for the Obligor Group on a combined basis after elimination of (i) intercompany transactions and balances between TWDC and Legacy Disney and (ii) equity in the earnings from and investments in any subsidiary that is a non-Guarantor. This summarized financial information has been prepared and presented pursuant to the Securities and Exchange Commission Regulation S-X Rule 13-01, “Financial Disclosures about Guarantors and Issuers of Guaranteed Securities” and is not intended to present the financial position or results of operations of the Obligor Group in accordance with U.S. GAAP.


Results of operations (in millions)	Quarter Ended April 3, 2021
Revenues	$	—
Costs and expenses	—
Net income (loss) from continuing operations	(922)
Net income (loss)	(922)
Net income (loss) attributable to TWDC shareholders	(922)


Balance Sheet (in millions)	April 3, 2021		October 3, 2020
Current assets	$	10,056	$	12,899
Noncurrent assets	1,895		2,076
Current liabilities	6,210		6,155
Noncurrent liabilities (excluding intercompany to non-Guarantors)	55,735		57,809
Intercompany payables to non-Guarantors	145,867		146,748

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 Annual Report on Form 10-K and Note 12 to the Condensed Consolidated Financial Statements in this Form 10Q for information regarding the Company’s contractual commitments.

OTHER MATTERS

Accounting Policies and Estimates

We believe that the application of the following accounting policies, which are important to our financial position and results of operations, require significant judgments and estimates on the part of management. For a summary of our significant accounting policies, including the accounting policies discussed below, see Note 2 to the Consolidated Financial Statements in the 2020 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 6 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).

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS — (continued)

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 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.

Revenue Recognition

The Company has revenue recognition policies for its operating segments that are appropriate to the circumstances of each business. Refer to Note 2 to the Consolidated Financial Statements in the 2020 Annual Report on Form 10-K for our revenue recognition policies.

Pension and Postretirement Medical Plan Actuarial Assumptions

The Company’s pension and postretirement medical benefit obligations and related costs are calculated using a number of actuarial assumptions. Two critical assumptions, the discount rate and the expected return on plan assets, are important elements of expense and/or liability measurement, which we evaluate annually. Refer to the 2020 Annual Report on Form 10-K for estimated impacts of changes in these assumptions. Other assumptions include the healthcare cost trend rate and employee demographic factors such as retirement patterns, mortality, turnover and rate of compensation increase.

The discount rate enables us to state expected future cash payments for benefits as a present value on the measurement date. A lower discount rate increases the present value of benefit obligations and increases pension and postretirement medical expense. The guideline for setting this rate is a high-quality long-term corporate bond rate. The Company’s discount rate was determined by considering yield curves constructed of a large population of high-quality corporate bonds and reflects the matching of the plans’ liability cash flows to the yield curves.

To determine the expected long-term rate of return on the plan assets, we consider the current and expected asset allocation, as well as historical and expected returns on each plan asset class. A lower expected rate of return on plan assets will increase pension and postretirement medical expense.

Goodwill, Other Intangible Assets, Long-Lived Assets and Investments

The Company is required to test goodwill and other indefinite-lived intangible assets for impairment on an annual basis and if current events or circumstances require, on an interim basis. Goodwill is allocated to various reporting units, which are an operating segment or one level below the operating segment. The Company compares the fair value of each reporting unit to its carrying amount, and to the extent the carrying amount exceeds the fair value, an impairment of goodwill is recognized for the excess up to the amount of goodwill allocated to the reporting unit.

The impairment test for goodwill requires judgment related to the identification of reporting units, the assignment of assets and liabilities to reporting units including goodwill, and the determination of fair value of the reporting units. To determine the fair value of our reporting units, we 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

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS — (continued)

growth and margins for these businesses. In times of adverse economic conditions in the global economy, the Company’s long-term cash flow projections are subject to a greater degree of uncertainty than usual.

The Company is required to compare the fair values of other indefinite-lived intangible assets to their carrying amounts. If the carrying amount of an indefinite-lived intangible asset exceeds its fair value, an impairment loss is recognized for the excess. Fair values of other indefinite-lived intangible assets are determined based on discounted cash flows or appraised values, as appropriate.

The Company tests long-lived assets, including amortizable intangible assets, for impairment whenever events or changes in circumstances (triggering events) indicate that the carrying amount may not be recoverable. Once a triggering event has occurred, the impairment test employed is based on whether the Company’s intent is to hold the asset for continued use or to hold the asset for sale. The impairment test for assets held for use requires a comparison of the estimated undiscounted future cash flows expected to be generated over the useful life of an asset group to the carrying value of the asset group. An asset group is generally established by identifying the lowest level of cash flows generated by a group of assets that are largely independent of the cash flows of other assets. If the carrying value of an asset group exceeds the estimated undiscounted future cash flows, an impairment is measured as the difference between the fair value of the asset group and the carrying value 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 triggering event has occurred, the identification of asset groups, estimates of future cash flows and the discount rate used to determine fair values.

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

Allowance for Credit Losses

We evaluate our allowance for credit losses and estimate collectability of accounts receivable based on historical bad debt experience, our assessment of the financial condition of individual companies with which we do business, current market conditions, and reasonable and supportable forecasts of future economic conditions. In times of economic turmoil, including COVID-19, our estimates and judgments with respect to the collectability of our receivables are subject to greater uncertainty than in more stable periods. If our estimate of uncollectible accounts is too low, costs and expenses may increase in future periods, and if it is too high, costs and expenses may decrease in future periods. See Note 3 to the 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 12 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 of COVID-19, we face a greater degree of uncertainty than normal in making the judgments and estimates needed to apply our significant accounting policies and may make changes to these estimates and judgments over time. This could result in meaningful impacts to our financial statements in future periods. A more detailed discussion of the impact of COVID-19 on the Accounting Policies and Estimates follows.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS — (continued)

Produced and Acquired/Licensed Content Costs

Certain of our completed or in progress film and television productions have had their initial release dates delayed. The duration of the delay, market conditions when we release the content, or a change in our release strategy (e.g. bypassing certain distribution windows) could have an impact on Ultimate Revenues, which may accelerate amortization or result in an impairment of capitalized film and television production costs.

Given the ongoing uncertainty around live sporting events continuing uninterrupted, the amount and timing of revenues derived from the broadcast of these events may differ from the projections of revenues that support our amortization pattern of the rights costs we pay for these events. Such changes in revenues could result in an acceleration or slowing of the amortization of our sports rights costs.

Revenue Recognition

Certain of our affiliate contracts contain commitments with respect to the content to be aired on our television networks (e.g. live sports or original content). If there are delays or cancellations of live sporting events or disruptions to film and television content production activities, we may need to assess the impact on our contractual obligations and adjust the revenue that we recognize related to these contracts.

Goodwill, Other Intangible Assets, Long-Lived Assets and Investments

Given the ongoing impacts of COVID-19 across our businesses, the projected cash flows that we use to assess the fair value of our businesses and assets for purposes of impairment testing are subject to greater uncertainty than normal. If in the future we reduce our cash flow projections, we may need to impair some of these assets.

Income Tax (See Note 7 to the Condensed Consolidated Financial Statements)

The determination of interim period tax provisions generally requires the use of a forecasted full year effective tax rate, which in turn requires a full year forecast of earnings before tax and tax expense. Given the uncertainties created by COVID-19, these forecasts are subject to greater than normal variability, which could lead to volatility in our reported quarterly effective tax rates.

Risk Management Contracts

The Company employs a variety of financial instruments (derivatives) including interest rate and cross-currency swap agreements and forward and option contracts to manage its exposure to fluctuations in interest rates, foreign currency exchange rates and commodity prices.

As a result of the impact of COVID-19 on our businesses, our projected cash flows or projected usage of commodities are subject to a greater degree of uncertainty, which may cause us to recognize gains or losses on hedging instruments in different periods than the hedged transaction.

New Accounting Pronouncements

See Note 16 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-

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS — (continued)

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.

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 14 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 April 3, 2021, the principal executive officer and principal financial officer of the Company have concluded that the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934) are effective.

Changes in Internal Controls – There have been no changes in our internal control over financial reporting during the second quarter of fiscal 2021 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II. OTHER INFORMATION

ITEM 1. Legal Proceedings

As disclosed in Note 12 to the Condensed Consolidated Financial Statements, the Company is engaged in certain legal matters, and the disclosure set forth in Note 12 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 report and other filings with the Securities and Exchange Commission and in reports to our shareholders. Such statements may, for example, express expectations, projections, estimates or future impacts; actions that we may take (or not take); or other statements that are not historical in nature. All forward-looking statements are made on the basis of management’s views and assumptions regarding future events and business performance as of the time the statements are made and the Company does not undertake any obligation to update its disclosure relating to forward-looking matters. Actual results may differ materially from those expressed or implied. 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 pandemics 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 further affect, 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 the additional risk factors discussed in our 2020 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 in March 2020 with a limited number of performances returning in the first quarter of fiscal 2021. Since March 2020, we have experienced significant disruptions in the production and availability of content. Although most film and television production activities 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. Following our second quarter, the 2021 IPL cricket season was postponed. Continued or increased unavailability of sports content are likely to exacerbate the impacts to our content. 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 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 from COVID-19 developments or other pandemics. 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 projects and operations. 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) issued senior notes in March and May 2020, entered into an additional $5.0 billion credit facility in April 2020 (which has now been terminated), 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 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 a number of factors, including the timing of customer deposit refunds and liquidity issues among our key customers, particularly advertisers, television affiliates, theatrical exhibitors and distributors, and licensees. These factors have impacted timely payments by such customers to the Company. Additionally, loss of or delay in the collection of receivables as a result of contractual performance short falls, meeting our contractual payment obligations, and investments we need to make in our business may result in increased financial risk. The Company has $12.7 billion in trade accounts receivable outstanding at April 3, 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 DTC strategies, and in March 2021 we announced the closure of a substantial number of our Disney-branded retail stores. 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 purchasing 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 impaired 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 DTC offerings. Some of these

investments may have returns that are negative or low, the ultimate business prospects of the businesses related to these investments may be uncertain, these investments may impact the profitability of our other 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 DTC 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 DTC businesses compete for customers with competitors’ DTC 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.

•DTC 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 170,000 employees at April 3, 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 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 beyond June 30, 2023. On March 5, 2021, IBA confirmed it would cease publication of Overnight, 1, 3, 6 and 12 Month USD LIBOR settings immediately following the LIBOR publication on June 30, 2023. IBA also intends to cease publishing 1 Week and 2 Month USD LIBOR settings immediately following the LIBOR publication on December 31, 2021. 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 April 3, 2021, our consolidated indebtedness and cash and cash equivalents were approximately $56.1 billion and $15.9 billion, respectively. The increased indebtedness could have the effect of, among other things, reducing our financial flexibility and reducing our flexibility to respond to changing business and economic conditions, such as those presented by COVID-19, among others. Increased levels of indebtedness could also reduce funds available for capital expenditures, share repurchases and dividends, and other activities and may create competitive disadvantages for us relative to other companies with lower debt levels. Since

April 2020, Standard and Poor’s has downgraded our long-term debt ratings by two notches to BBB+ and downgraded our short-term debt ratings by one notch to A-2. On March 25, 2021, Standard and Poor’s placed the Company’s long-term ratings on Stable Outlook (previously 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. Subsequently, on April 28, 2021, Fitch revised the Company’s long-term ratings outlook to Stable (previously Negative).

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 April 3, 2021:


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)
January 3, 2021 - January 31, 2021	18,215	$	173.31	—	na
February 1, 2021 - February 28, 2021	18,230	183.36		—	na
March 1, 2021 - April 3, 2021	18,820	193.32		—	na
Total	55,265	183.44		—	na

(1)55,265 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.

ITEM 5. Other Items

None.

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

364-Day Credit Agreement dated as of March 5, 2021

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

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 April 3, 2021 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.

SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.



						THE WALT DISNEY COMPANY
						(Registrant)

By:						/s/ CHRISTINE M. MCCARTHY
						Christine M. McCarthy, Senior Executive Vice President and Chief Financial Officer

May 13, 2021

Burbank, California

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The Walt Disney Company (DIS) 10-Q2021 Q2 Quarterly report

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