| Description of the Business and Segment Information | Description of the Business and Segment Information The Walt Disney Company, together with the subsidiaries through which businesses are conducted (the Company), is a diversified worldwide entertainment company with operations in the Disney Media and Entertainment Distribution (DMED) and Disney Parks, Experiences and Products (DPEP) segments. The terms “Company”, “we”, “our” and “us” are used in this report to refer collectively to the parent company and the subsidiaries through which businesses are conducted. Impact of COVID-19 Since early 2020, the world has been, and continues to be, impacted by the novel coronavirus (COVID-19) and its variants. COVID-19 and measures to prevent its spread have impacted our segments in a number of ways, most significantly at DPEP where our theme parks and resorts were closed and cruise ship sailings and guided tours were suspended. In addition, at DMED we delayed, or in some cases, shortened or cancelled theatrical releases and experienced disruptions in the production and availability of content. Operations have resumed at various points since May 2020, with certain theme park and resort operations and film and television productions resuming by the end of fiscal 2020 and throughout fiscal 2021. Although operations resumed, many of our businesses continue to experience impacts from COVID-19, such as incremental health and safety measures and related increased expenses, capacity restrictions and closures (including at some of our international parks and in theaters in certain markets), and disruption of content production activities. The impact of COVID-19 related disruptions on our financial and operating results will be dictated by the currently unknowable duration and severity of COVID-19 and its variants, and among other things, governmental actions imposed in response to COVID-19 and individuals’ and companies’ risk tolerance regarding health matters going forward. We have incurred and will continue to incur additional costs to address government regulations and the safety of our employees, guests and talent. In fiscal 2020, the Company recorded goodwill and intangible asset impairments totaling $5.0 billion, in part due to the negative impact COVID-19 has had on the International Channels business (see Note 18). DESCRIPTION OF THE BUSINESS Disney Media and Entertainment Distribution DMED 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. Content is generally created/licensed by four groups: Studios, General Entertainment, Sports and International. The distribution organization has full accountability for the financial results of the entire media and entertainment business. The operations of DMED’s significant lines of business are as follows: • Linear Networks ◦ Domestic Channels: ABC Television Network and eight owned ABC television stations (Broadcasting), and Disney, ESPN (80% interest), Freeform, FX and National Geographic (73% interest) 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+ (68% effective interest), Hulu and Star+ direct-to-consumer (DTC) video streaming services • Content Sales/Licensing ◦ Sale/licensing of film and television content to third-party television and subscription/advertising video-on-demand (TV/SVOD) services ◦ Theatrical distribution ◦ Home entertainment distribution (DVD, Blu-ray discs 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 by Industrial Light & Magic and Skywalker Sound • National Geographic magazine and online business • A 30% ownership interest in Tata Play Limited (formerly 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 • Subscription fees - Fees charged to customers/subscribers for our DTC streaming services • Advertising - Sales of advertising time/space on our Linear Networks and Direct-to-Consumer • 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 fees for streaming access to films that are also playing in theaters (“Premier Access”). TV/SVOD distribution revenue is primarily reported in Content Sales/Licensing, except for pay-per-view and Premier Access revenues, which are 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 (“IP”) for use in stage plays • Other revenue - Fees from sub-licensing of sports programming rights (reported in Linear Networks) and sales of 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. Programming and production costs include amortization of licensed programming rights (including sports rights), amortization of capitalized production costs, subscriber-based fees for programming our Hulu services, production costs related to live programming such as news and sports and amortization of participations and residual obligations. Programming and production costs also include fees paid to Linear Networks from other DMED businesses for the right to air our linear networks and related services. These costs are largely incurred across four content creation/licensing groups, as follows: ◦ Studios - Primarily capitalized production costs related to films produced under the Walt Disney Pictures, Twentieth Century Studios, Marvel, Lucasfilm, Pixar and Searchlight Pictures banners ◦ General Entertainment - Primarily internal production of and acquisition of rights to 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 streaming services. ◦ Sports - Primarily acquisition of professional and college sports programming rights and related production costs ◦ International - Primarily internal production of and acquisition of rights to local content outside the U.S. and Canada. • Selling, general and administrative costs, including marketing costs • Depreciation and amortization Disney Parks, Experiences and Products The operations of DPEP’s significant lines of business are as follows: • Parks & Experiences: ◦ Theme parks and resorts, which include: Walt Disney World Resort in Florida; Disneyland Resort in California; Disneyland Paris; Hong Kong Disneyland Resort (48% ownership interest); and Shanghai Disney Resort (43% ownership interest), all of which are consolidated in our results. Additionally, the Company licenses our IP to a third party to operate Tokyo Disney Resort ◦ Disney Cruise Line, Disney Vacation Club, National Geographic Expeditions (73% ownership interest), Adventures by Disney and Aulani, a Disney Resort & Spa in Hawaii • Consumer Products: ◦ Licensing of our trade names, characters, visual, literary and other IP to various manufacturers, game developers, publishers and retailers throughout the world, for use on merchandise, published materials and games ◦ Sale of branded merchandise through online, retail and wholesale businesses, and development and publishing of books, comic books and magazines (except National Geographic, which is reported in DMED) The significant revenues of DPEP are as follows: • Theme park admissions - Sales of tickets for admission to our theme parks and for premium access to certain attractions (e.g. Genie+ and Lightning Lane) • 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 IP for use on consumer goods ◦ Retail - Sales of merchandise through internet shopping sites generally branded shopDisney and at The Disney Store, as well as to wholesalers (including books, comic books and magazines) • Parks licensing and other - Revenues from sponsorships and co-branding opportunities, real estate rent and sales and royalties earned on Tokyo Disney Resort revenues The significant expenses of DPEP are as follows: • Operating expenses consist primarily of operating labor, costs of goods sold, infrastructure costs, supplies, commissions and entertainment offerings. Infrastructure costs include technology support costs, repairs and maintenance, property taxes, utilities and fuel, retail occupancy costs, insurance and transportation • Selling, general and administrative costs, including marketing costs • Depreciation and amortization 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. 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). 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. Segment revenues and segment operating income are as follows: 2022 2021 2020 Revenues Disney Media and Entertainment Distribution $ 55,040 $ 50,866 $ 48,350 Disney Parks, Experiences and Products 28,705 16,552 17,038 Total segment revenues $ 83,745 $ 67,418 $ 65,388 Segment operating income Disney Media and Entertainment Distribution $ 4,216 $ 7,295 $ 7,653 Disney Parks, Experiences and Products 7,905 471 455 Total segment operating income (1) $ 12,121 $ 7,766 $ 8,108 (1) Equity in the income of investees is included in segment operating income as follows: 2022 2021 2020 Disney Media and Entertainment Distribution $ 838 $ 795 $ 696 Disney Parks, Experiences and Products (10) (19) (19) Equity in the income of investees included in segment operating income 828 776 677 Amortization of TFCF intangible assets related to equity investees (12) (15) (26) Equity in the income of investees $ 816 $ 761 $ 651 A reconciliation of segment revenues to total revenues is as follows: 2022 2021 2020 Segment revenues $ 83,745 $ 67,418 $ 65,388 Content License Early Termination (1) (1,023) — — Total revenues $ 82,722 $ 67,418 $ 65,388 (1) In fiscal 2022, the Company recognized a reduction in revenue for amounts to early terminate certain license agreements with a customer for film and television content, which was delivered in previous years, in order for the Company to use the content primarily on our direct-to-consumer services (Content License Early Termination). Because the content is functional IP, we recognized substantially all of the consideration to be paid by the customer under the licenses as revenue in prior years when the content was made available under the agreements. Consequently, we have recorded the amounts to terminate the license agreements, net of remaining amounts of deferred revenue, as a reduction of revenue in the current year. A reconciliation of segment operating income to income from continuing operations before income taxes is as follows: 2022 2021 2020 Segment operating income $ 12,121 $ 7,766 $ 8,108 Content License Early Termination (1,023) — — Corporate and unallocated shared expenses (1,159) (928) (817) Restructuring and impairment charges (237) (654) (5,735) Other income, net (667) 201 1,038 Interest expense, net (1,397) (1,406) (1,491) TFCF and Hulu acquisition amortization (1) (2,353) (2,418) (2,846) Income (loss) from continuing operations before income taxes $ 5,285 $ 2,561 $ (1,743) (1) For fiscal 2022, amortization of intangible assets, fair value step-up on film and television costs and intangibles related to TFCF equity investees were $1,707 million, $634 million and $12 million, respectively. For fiscal 2021, amortization of intangible assets, fair value step-up on film and television costs and intangibles related to TFCF equity investees were $1,757 million, $646 million and $15 million, respectively. For fiscal 2020, amortization of intangible assets, fair value step-up on film and television costs and intangibles related to TFCF equity investees were $1,921 million, $899 million and $26 million, respectively. Capital expenditures, depreciation expense and amortization expense are as follows: Capital expenditures 2022 2021 2020 Disney Media and Entertainment Distribution $ 810 $ 862 $ 783 Disney Parks, Experiences and Products Domestic 2,680 1,597 2,145 International 767 675 759 Corporate 686 444 335 Total capital expenditures $ 4,943 $ 3,578 $ 4,022 Depreciation expense Disney Media and Entertainment Distribution $ 650 $ 613 $ 638 Disney Parks, Experiences and Products Domestic 1,680 1,551 1,634 International 662 718 694 Amounts included in segment operating income 2,342 2,269 2,328 Corporate 191 186 174 Total depreciation expense $ 3,183 $ 3,068 $ 3,140 Amortization of intangible assets Disney Media and Entertainment Distribution $ 164 $ 178 $ 175 Disney Parks, Experiences and Products 109 108 109 Amounts included in segment operating income 273 286 284 TFCF and Hulu 1,707 1,757 1,921 Total amortization of intangible assets $ 1,980 $ 2,043 $ 2,205 Identifiable assets, including equity method investments and intangible assets, (1) are as follows: October 1, 2022 October 2, 2021 Disney Media and Entertainment Distribution $ 148,129 $ 144,675 Disney Parks, Experiences and Products 43,027 41,763 Corporate (primarily fixed asset and cash and cash equivalents) 12,475 17,171 Total consolidated assets $ 203,631 203,609 (1) Equity method investments included in identifiable assets by segment are as follows: October 1, 2022 October 2, 2021 Disney Media and Entertainment Distribution $ 2,633 $ 2,578 Disney Parks, Experiences and Products 2 2 Corporate 43 58 $ 2,678 $ 2,638 Intangible assets, which include character/franchise intangibles, copyrights, trademarks, MVPD agreements and FCC licenses (see Note 13), included in identifiable assets by segment are as follows: October 1, 2022 October 2, 2021 Disney Media and Entertainment Distribution $ 11,981 $ 14,143 Disney Parks, Experiences and Products 2,836 2,952 Corporate 20 20 $ 14,837 $ 17,115 The following table presents our revenues and segment operating income by geographical markets: 2022 2021 2020 Revenues Americas $ 68,218 $ 54,157 $ 51,992 Europe 8,680 6,690 7,333 Asia Pacific 6,847 6,571 6,063 83,745 $ 67,418 $ 65,388 Content License Early Termination (1,023) $ 82,722 Segment operating income (loss) Americas $ 11,099 $ 6,314 $ 5,819 Europe 586 800 1,273 Asia Pacific 436 652 1,016 $ 12,121 $ 7,766 $ 8,108 Long-lived assets (1) by geographical markets are as follows: October 1, 2022 October 2, 2021 Americas $ 150,786 $ 144,788 Europe 8,739 8,215 Asia Pacific 10,976 12,012 $ 170,501 $ 165,015 (1) Long-lived assets are total assets less: current assets, long-term receivables, deferred taxes, financial investments and the fair value of derivative instruments. The changes in the carrying amount of goodwill are as follows: DMED DPEP Total Balance at Oct. 3, 2020 $ 72,139 $ 5,550 $ 77,689 Currency translation adjustments and other, net 382 — 382 Balance at Oct. 2, 2021 $ 72,521 $ 5,550 $ 78,071 Currency translation adjustments and other, net (174) — (174) Balance at Oct. 1, 2022 $ 72,347 $ 5,550 $ 77,897 |
