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 July 3, 2021

or

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

For the transition period from __________ to __________.

Commission File Number 001-38842

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 1,817,126,595 shares of common stock outstanding as of August 4, 2021.

PART I. FINANCIAL INFORMATION

Item 1: Financial Statements

THE WALT DISNEY COMPANY

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(unaudited; in millions, except per share data)

	Quarter Ended				Nine Months Ended
	July 3, 2021		June 27, 2020		July 3, 2021		June 27, 2020
Revenues:
Services	$	15,585	$	11,235	$	44,978	$	45,519
Products	1,437		544		3,906		5,162
Total revenues	17,022		11,779		48,884		50,681
Costs and expenses:
Cost of services (exclusive of depreciation and amortization)	(10,251)		(7,209)		(29,921)		(29,287)
Cost of products (exclusive of depreciation and amortization)	(982)		(687)		(2,869)		(3,580)
Selling, general, administrative and other	(3,168)		(2,455)		(9,198)		(9,557)
Depreciation and amortization	(1,266)		(1,377)		(3,836)		(4,010)
Total costs and expenses	(15,667)		(11,728)		(45,824)		(46,434)
Restructuring and impairment charges	(35)		(5,047)		(562)		(5,342)
Other income (expense), net	(91)		382		214		382
Interest expense, net	(445)		(412)		(1,089)		(995)
Equity in the income of investees	211		186		648		545
Income (loss) from continuing operations before income taxes	995		(4,840)		2,271		(1,163)
Income taxes on continuing operations	133		331		9		(650)
Net income (loss) from continuing operations	1,128		(4,509)		2,280		(1,813)
Loss from discontinued operations, net of income tax benefit of $2, $1, $9 and $11, respectively)	(5)		(3)		(28)		(32)
Net income (loss)	1,123		(4,512)		2,252		(1,845)
Net income from continuing operations attributable to noncontrolling interests	(205)		(209)		(416)		(309)
Net income (loss) attributable to The Walt Disney Company (Disney)	$	918	$	(4,721)	$	1,836	$	(2,154)
Earnings (loss) per share attributable to Disney(1):
Diluted
Continuing operations	$	0.50	$	(2.61)	$	1.02	$	(1.17)
Discontinued operations	—		—		(0.02)		(0.02)
	$	0.50	$	(2.61)	$	1.00	$	(1.19)
Basic
Continuing operations	$	0.51	$	(2.61)	$	1.03	$	(1.17)
Discontinued operations	—		—		(0.02)		(0.02)
	$	0.50	$	(2.61)	$	1.01	$	(1.19)
Weighted average number of common and common equivalent shares outstanding:
Diluted	1,830		1,809		1,827		1,807
Basic	1,818		1,809		1,816		1,807

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

See Notes to Condensed Consolidated Financial Statements

2

THE WALT DISNEY COMPANY

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(unaudited; in millions)

	Quarter Ended				Nine Months Ended
	July 3, 2021		June 27, 2020		July 3, 2021		June 27, 2020
Net income (loss)	$	1,123	$	(4,512)	$	2,252	$	(1,845)
Other comprehensive income (loss), net of tax:
Market value adjustments for hedges	1		(128)		(62)		(106)
Pension and postretirement medical plan adjustments	169		97		510		277
Foreign currency translation and other	(65)		51		119		(145)
Other comprehensive income	105		20		567		26
Comprehensive income (loss)	1,228		(4,492)		2,819		(1,819)
Net income from continuing operations attributable to noncontrolling interests	(205)		(209)		(416)		(309)
Other comprehensive income (loss) attributable to noncontrolling interests	(24)		—		(82)		(26)
Comprehensive income (loss) attributable to Disney	$	999	$	(4,701)	$	2,321	$	(2,154)

See Notes to Condensed Consolidated Financial Statements

3

THE WALT DISNEY COMPANY

CONDENSED CONSOLIDATED BALANCE SHEETS

(unaudited; in millions, except per share data)

	July 3, 2021		October 3, 2020
ASSETS
Current assets
Cash and cash equivalents	$	16,070	$	17,914
Receivables, net	13,355		12,708
Inventories	1,344		1,583
Content advances	2,367		2,171
Other current assets	830		875
Total current assets	33,966		35,251
Produced and licensed content costs	27,889		25,022
Investments	4,045		3,903
Parks, resorts and other property
Attractions, buildings and equipment	64,023		62,111
Accumulated depreciation	(37,579)		(35,517)
	26,444		26,594
Projects in progress	4,856		4,449
Land	1,077		1,035
	32,377		32,078
Intangible assets, net	17,601		19,173
Goodwill	77,835		77,689
Other assets	8,508		8,433
Total assets	$	202,221	$	201,549
LIABILITIES AND EQUITY
Current liabilities
Accounts payable and other accrued liabilities	$	18,317	$	16,801
Current portion of borrowings	4,728		5,711
Deferred revenue and other	4,368		4,116
Total current liabilities	27,413		26,628
Borrowings	51,110		52,917
Deferred income taxes	6,835		7,288
Other long-term liabilities	16,249		17,204
Commitments and contingencies (Note 13)
Redeemable noncontrolling interests	9,492		9,249
Equity
Preferred stock	—		—
Common stock, $0.01 par value, Authorized – 4.6 billion shares, Issued – 1.8 billion shares	55,174		54,497
Retained earnings	40,311		38,315
Accumulated other comprehensive loss	(7,837)		(8,322)
Treasury stock, at cost, 19 million shares	(907)		(907)
Total Disney Shareholders’ equity	86,741		83,583
Noncontrolling interests	4,381		4,680
Total equity	91,122		88,263
Total liabilities and equity	$	202,221	$	201,549

See Notes to Condensed Consolidated Financial Statements

4

THE WALT DISNEY COMPANY

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited; in millions)

	Nine Months Ended
	July 3, 2021		June 27, 2020
OPERATING ACTIVITIES
Net income (loss) from continuing operations	$	2,280	$	(1,813)
Depreciation and amortization	3,836		4,010
Goodwill and intangible asset impairments	—		4,953
Net gain on investments	(325)		(370)
Deferred income taxes	(749)		(548)
Equity in the income of investees	(648)		(545)
Cash distributions received from equity investees	546		567
Net change in produced and licensed content costs and advances	(3,192)		(1,483)
Net change in operating lease right of use assets / liabilities	127		16
Equity-based compensation	428		388
Other, net	728		471
Changes in operating assets and liabilities:
Receivables	(301)		2,100
Inventories	236		86
Other assets	(113)		8
Accounts payable and other liabilities	341		(1,986)
Income taxes	(260)		95
Cash provided by operations - continuing operations	2,934		5,949
INVESTING ACTIVITIES
Investments in parks, resorts and other property	(2,468)		(3,293)
Other	383		(27)
Cash used in investing activities - continuing operations	(2,085)		(3,320)
FINANCING ACTIVITIES
Commercial paper borrowings (payments), net	(99)		1,373
Borrowings	43		18,030
Reduction of borrowings	(2,319)		(2,297)
Dividends	—		(1,587)
Proceeds from exercise of stock options	405		238
Other	(801)		(838)
Cash provided by (used in) financing activities - continuing operations	(2,771)		14,919
CASH FLOWS FROM DISCONTINUED OPERATIONS
Cash provided by (used in) operations - discontinued operations	(2)		2
Cash provided by investing activities - discontinued operations	8		198
Cash provided by discontinued operations	6		200
Impact of exchange rates on cash, cash equivalents and restricted cash	77		(49)
Change in cash, cash equivalents and restricted cash	(1,839)		17,699
Cash, cash equivalents and restricted cash, beginning of period	17,954		5,455
Cash, cash equivalents and restricted cash, end of period	$	16,115	$	23,154

See Notes to Condensed Consolidated Financial Statements

5

THE WALT DISNEY COMPANY

CONDENSED CONSOLIDATED STATEMENTS OF EQUITY

(unaudited; in millions)

	Quarter Ended
	Equity Attributable to Disney
	Shares	Common Stock		Retained Earnings		Accumulated Other Comprehensive Income (Loss)			Treasury Stock		Total Disney Equity		Non-controlling  Interests(1)		Total Equity
Balance at April 3, 2021	1,817	$	55,000	$	39,365		$	(7,918)	$	(907)	$	85,540	$	4,246	$	89,786
Comprehensive income	—	—		918			81		—		999		147		1,146
Equity compensation activity	—	185		—			—		—		185		—		185
Contributions	—	—		—			—		—		—		7		7
Cumulative effect of accounting change	—	—		3			—		—		3		—		3
Distributions and other	—	(11)		25			—		—		14		(19)		(5)
Balance at July 3, 2021	1,817	$	55,174	$	40,311		$	(7,837)	$	(907)	$	86,741	$	4,381	$	91,122
Balance at March 28, 2020	1,806	$	54,230	$	43,721		$	(6,637)	$	(907)	$	90,407	$	4,470	$	94,877
Comprehensive income (loss)	—	—		(4,721)			20		—		(4,701)		141		(4,560)
Equity compensation activity	1	156		—			—		—		156		—		156
Distributions and other	—	—		4			—		—		4		(14)		(10)
Balance at June 27, 2020	1,807	$	54,386	$	39,004		$	(6,617)	$	(907)	$	85,866	$	4,597	$	90,463

(1)Excludes redeemable noncontrolling interests.

See Notes to Condensed Consolidated Financial Statements

6

THE WALT DISNEY COMPANY

CONDENSED CONSOLIDATED STATEMENTS OF EQUITY

(unaudited; in millions)

 

	Nine 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	—	—		1,836			485		—		2,321		256		2,577
Equity compensation activity	7	687		—			—		—		687		—		687
Contributions	—	—		—			—		—		—		12		12
Cumulative effect of accounting change	—	—		108			—		—		108		—		108
Distributions and other	—	(10)		52			—		—		42		(567)		(525)
Balance at July 3, 2021	1,817	$	55,174	$	40,311		$	(7,837)	$	(907)	$	86,741	$	4,381	$	91,122
Balance at September 28, 2019	1,802	$	53,907	$	42,494		$	(6,617)	$	(907)	$	88,877	$	5,012	$	93,889
Comprehensive income (loss)	—	—		(2,154)			—		—		(2,154)		135		(2,019)
Equity compensation activity	5	470		—			—		—		470		—		470
Dividends	—	9		(1,596)			—		—		(1,587)		—		(1,587)
Contributions	—	—		—			—		—		—		53		53
Adoption of new lease accounting guidance	—	—		197			—		—		197		—		197
Distributions and other	—	—		63			—		—		63		(603)		(540)
Balance at June 27, 2020	1,807	$	54,386	$	39,004		$	(6,617)	$	(907)	$	85,866	$	4,597	$	90,463

(1)Excludes redeemable noncontrolling interests.

See Notes to Condensed Consolidated Financial Statements

7

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 statement of the results for the interim period. Operating results for the nine months ended July 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 Operations. In May 2021, the Company entered into an agreement to sell the Fox sports media business in Mexico for an amount that is not material. The transaction has received regulatory approval from the Instituto Federal de Telecomunicaciones (IFT) and completion of the transaction is subject to customary closing conditions with the buyer. We expect the sale to close by the first quarter of fiscal 2022. At July 3, 2021 and October 3, 2020, the assets and liabilities of the Fox sports media business 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 July 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.

8

THE WALT DISNEY COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

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 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 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 July 3, 2021, the guaranteed floor value for the MLB interest, accreted from the date of acquisition, was $752 million. As of July 3, 2021, the accreted value of the NHL interest was $350 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 Operations.

On August 3, 2021, the NHL exercised its right to sell its interest to the Company for $350 million. The transaction is expected to close prior to the end of fiscal 2021.

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 had 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 has full accountability for the financial results of the media and entertainment businesses, and content is generally 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 began 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.

9

THE WALT DISNEY COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

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.

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)

10

THE WALT DISNEY COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

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 businesses for the right to air the Linear Networks feed and other services. Programming and production costs include amortization of acquired licensed programming rights (including sports rights), amortization of capitalized production costs (including participations and residuals) and production costs related to live 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

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THE WALT DISNEY COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

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). 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 and resorts have been closed and cruise ship sailings and guided tours have been suspended. Theme parks and resorts resumed operations, generally at reduced capacity, at various points since May 2020 through June 2021 and we have commenced an ongoing return of cruise ship sailings and guided tours. We have delayed, or in some cases, shortened or canceled, theatrical releases, and stage play performances were suspended beginning in March 2020 with limited stage play operations resuming in the first quarter of fiscal 2021. Theaters have been subject to capacity limitations and shifting government mandates or guidance regarding COVID-19 restrictions. We have experienced significant disruptions in the production and availability of content, including the delay of key live sports programming during fiscal 2020 and fiscal 2021, as well as the suspension of most film and television production in March 2020. Although most film and television production resumed beginning in the fourth quarter of fiscal 2020, we continue to see disruption in production activities depending on local circumstances. Fewer theatrical releases and production delays have limited the availability of film content to be sold in the subsequent home entertainment and TV/ SVOD distribution windows.

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 its variants, and among other things, the impact of governmental actions imposed in response to COVID-19 and individuals’ and companies’ risk tolerance regarding health matters going forward. Most of our businesses have reopened and we have incurred and will continue to incur 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				Nine Months Ended
	July 3, 2021		June 27, 2020		July 3, 2021		June 27, 2020
Revenues:
Disney Media and Entertainment Distribution	$	12,681	$	10,714	$	37,782	$	36,376
Disney Parks, Experiences and Products	4,341		1,065		11,102		14,305
	$	17,022	$	11,779	$	48,884	$	50,681
Segment operating income (loss):
Disney Media and Entertainment Distribution	$	2,026	$	2,977	$	6,348	$	6,102
Disney Parks, Experiences and Products	356		(1,878)		(169)		1,400
	$	2,382	$	1,099	$	6,179	$	7,502

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THE WALT DISNEY COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

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

	Quarter Ended				Nine Months Ended
	July 3, 2021		June 27, 2020		July 3, 2021		June 27, 2020
Disney Media and Entertainment Distribution	$	220	$	199	$	681