New Accounting Pronouncements

Targeted Improvements to Accounting for Hedging Activities

In August 2017, the Financial Accounting Standards Board (FASB) issued guidance to improve certain aspects of the hedge accounting model including making more risk management strategies eligible for hedge accounting and simplifying the assessment of hedge effectiveness. The Company is assessing the potential impact this guidance will have on its financial statements. The new guidance is effective beginning with the Company’s 2020 fiscal year (with early adoption permitted in any interim period) and requires prospective adoption with a cumulative-effect adjustment to retained earnings as of the beginning of the fiscal year of adoption for existing hedging relationships.

Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost

In March 2017, the FASB issued guidance that requires presentation of all components of net periodic pension and postretirement benefit costs, other than service costs, in an income statement line item outside of a subtotal of income from operations. The service cost component will continue to be presented in the same line items as other employee compensation costs. In addition, the guidance allows only service costs to be eligible for capitalization, for example, as part of a self-constructed fixed asset or a film production. The new guidance is effective beginning with the first quarter of the Company’s 2019 fiscal year (with early adoption permitted as of the beginning of an annual period). The guidance is required to be adopted retrospectively with respect to the income statement presentation requirement and prospectively for the capitalization requirement. We do not expect the change in capitalization requirement to have a material impact on our financial statements. See Note 10 for the amount of each component of net periodic pension and postretirement benefit costs we have reported historically. These amounts of net periodic pension and postretirement benefit costs are not necessarily indicative of future amounts that may arise in years following implementation of the new accounting pronouncement.

Restricted Cash

In November 2016, the FASB issued guidance that requires restricted cash to be presented with cash and cash equivalents in the statement of cash flows. Restricted cash is recorded in other assets in the consolidated balance sheets. However, the increases or decreases in restricted cash are no longer reported as a change in operating assets. The Company adopted the new guidance in fiscal 2017, which required retrospective adoption. Upon adoption, operating activities in the Consolidated Statements of Cash Flows for fiscal 2016 were reduced by $0.3 billion and for fiscal 2015 were increased by $0.2 billion. A reconciliation of cash and cash equivalents presented in the Consolidated Balance Sheets to cash, cash equivalents and restricted cash presented in the Consolidated Statements of Cash Flows has been provided in Note 2.

Intra-Entity Transfers of Assets Other Than Inventory

In October 2016, the FASB issued guidance that requires the income tax consequences of an intra-entity transfer of an asset other than inventory to be recognized when the transfer occurs instead of when the asset is sold to an outside party. The new guidance is effective beginning with the first quarter of the Company’s 2019 fiscal year (with early adoption permitted as of the beginning of an annual period). The guidance requires prospective adoption with a cumulative-effect adjustment to retained earnings as of the beginning of the period of adoption. The Company is assessing the potential impact this guidance will have on its financial statements.

Improvements to Employee Share-based Payment Accounting

In March 2016, the FASB issued guidance to amend certain aspects of accounting for employee share-based awards, including accounting for income taxes related to those transactions. This guidance requires that excess tax benefits and deficiencies (that result from an increase or decrease in the fair value of an award from grant date to the vesting date or exercise date) on share-based compensation arrangements are recorded in the tax provision, instead of in equity as under the prior guidance. These amounts will also be classified as an operating activity in the statement of cash flows, instead of as a financing activity. In addition, cash paid for shares withheld to satisfy employee taxes is to be classified as a financing activity, instead of as an operating activity.

The Company adopted the new guidance in fiscal 2017, and the impact was as follows:

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During fiscal 2017, excess tax benefits of $0.1 billion, were recognized as a benefit in “Income taxes” in the Consolidated Statement of Income and classified as a source in operating activities in the Consolidated Statement of Cash Flows. The guidance required prospective adoption for the statement of income and allowed for either prospective or retrospective adoption for the statement of cash flows. The Company elected to prospectively adopt the effect to the statement of cash flows and accordingly, did not restate the Consolidated Statements of Cash Flows for fiscal 2016 or 2015, which had excess tax benefits of approximately $0.2 billion and $0.3 billion, respectively.

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During fiscal 2017, cash paid for shares withheld to satisfy employee taxes of $0.2 billion was classified as a use in financing activities in the Consolidated Statement of Cash Flows. The guidance required retrospective adoption; accordingly, for fiscal 2016 and 2015, uses of $0.2 billion and $0.3 billion, respectively, were reclassified from operating activities to financing activities in the Consolidated Statements of Cash Flows.

Leases

In February 2016, the FASB issued a new lease accounting standard, which requires the present value of future operating lease payments to be recorded as right-of-use lease assets and lease liabilities on the balance sheet. As of September 30, 2017 and October 1, 2016, the Company had an estimated $3.3 billion and $3.1 billion, respectively, in undiscounted future minimum lease commitments. The Company is currently assessing the impact of the new guidance on its financial statements. The guidance is required to be adopted retrospectively, and is effective beginning in the first quarter of the Company’s 2020 fiscal year (with early adoption permitted).

Revenue from Contracts with Customers

In May 2014, the FASB issued guidance that replaces the existing accounting standards for revenue recognition with a single comprehensive five-step model, eliminating industry-specific accounting rules. The core principle is to recognize revenue upon the transfer of control of goods or services to customers at an amount that reflects the consideration expected to be received. Since its issuance, the FASB has amended several aspects of the new guidance, including provisions that address revenue recognition associated with the licensing of intellectual property (IP). The new guidance, including the amendments, is effective at the beginning of the Company’s 2019 fiscal year.

We have reviewed our significant revenue streams and identified the required changes to our revenue recognition policies. Based on our existing customer contracts and relationships, we do not expect the implementation of the new guidance will have a material impact on our consolidated financial statements upon adoption. The Company’s evaluation of the impact could change if we enter into new revenue arrangements in the future or interpretations of the new guidance further evolve.

While not expected to be material, the more significant changes to the Company’s revenue recognition policies are in the following areas:


•	For television and film content licensing agreements with multiple availability windows with the same licensee, the Company will defer more revenues to future windows than is currently deferred.

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For licenses of character images, brands and trademarks subject to minimum guaranteed license fees, we currently recognize the difference between the minimum guaranteed amount and actual royalties earned from licensee merchandise sales (“shortfalls”) at the end of the contract period. Under the new guidance, projected guarantee shortfalls will be recognized straight-line over the license period remaining once an expected shortfall is identified.


•	For licenses that include multiple television and film titles subject to minimum guaranteed license fees, the Company will recognize an allocation of the minimum guaranteed license fee as each title is made available to the customer. Under current guidance, guarantee shortfalls for licenses of multiple titles are deferred to the end of the contract period.


•	For renewals or extensions of license agreements for television and film content, we will recognize revenue when the licensed content becomes available under the renewal or extension, instead of when the agreement is renewed or extended.

We are continuing our assessment of potential changes to our disclosures under the new guidance.

The guidance may be adopted either by restating all years presented in the Company’s financial statements for fiscal 2019, 2018 and 2017 (full retrospective method) or by recording the impact of adoption as an adjustment to retained earnings at the beginning of fiscal 2019 (modified retrospective method). The Company currently expects to adopt the standard using the modified retrospective method.

The Company’s equity method investees are considered private companies for purposes of applying the new guidance and are not required to adopt the new standard until fiscal years beginning after December 15, 2018. We have not yet assessed the impact of the new rules on our equity investees.