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Walt Disney Co (The) (DIS)

Filed: 5 May 20, 4:20pm

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 March 28, 2020
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
dis-20200328_g1.jpg

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 classTrading Symbol(s)Name of each exchange on which registered
Common Stock, $0.01 par valueDISNew 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 filerAccelerated filer
Non-accelerated filerSmaller 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 1,806,266,743 shares of common stock outstanding as of April 29, 2020.



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 EndedSix Months Ended
 March 28,
2020
March 30,
2019
March 28,
2020
March 30,
2019
Revenues:
Services$16,174  $13,011  $34,249  $25,877  
Products1,835  1,911  4,618  4,348  
Total revenues18,009  14,922  38,867  30,225  
Costs and expenses:
Cost of services (exclusive of depreciation and amortization)(10,664) (7,167) (22,041) (14,731) 
Cost of products (exclusive of depreciation and amortization)(1,254) (1,209) (2,893) (2,646) 
Selling, general, administrative and other(3,388) (2,330) (7,091) (4,482) 
Depreciation and amortization(1,333) (828) (2,631) (1,560) 
Total costs and expenses(16,639) (11,534) (34,656) (23,419) 
Restructuring and impairment charges(145) (662) (295) (662) 
Other income  —  4,963  —  4,963  
Interest expense, net(300) (143) (583) (206) 
Equity in the income / (loss) of investees135  (309) 359 (233) 
Income from continuing operations before income taxes1,060  7,237  3,692  10,668 
Income taxes on continuing operations(525) (1,647) (984) (2,292) 
Net income from continuing operations535  5,590  2,708  8,376  
Income (loss) from discontinued operations, net of income tax benefit/(expense) of $5, ($5), $13 and ($5), respectively(15) 21 (41) 21  
Net income520  5,611  2,667  8,397  
Net income from continuing operations attributable to noncontrolling interests(60) (159) (100) (157) 
Net income attributable to The Walt Disney Company (Disney)$460 $5,452  $2,567  $8,240  
Earnings per share attributable to Disney(1):
Diluted
Continuing operations$0.26  $3.53  $1.44  $5.42  
Discontinued operations(0.01) 0.01  (0.02) 0.01  
$0.25  $3.55  $1.41  $5.43  
Basic
Continuing operations$0.26  $3.55  $1.44  $5.44  
Discontinued operations(0.01) 0.01  (0.02) 0.01  
$0.25  $3.56  $1.42  $5.46  
Weighted average number of common and common equivalent shares outstanding:
Diluted1,816  1,537  1,816  1,517  
Basic1,808  1,530  1,806  1,510  
(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
(unaudited; in millions)
 

 Quarter EndedSix Months Ended
 March 28,
2020
March 30,
2019
March 28,
2020
March 30,
2019
Net income$520  $5,611  $2,667  $8,397  
Other comprehensive income (loss), net of tax:
Market value adjustments for investments—  (4) —  (4) 
Market value adjustments for hedges129  (80) 22  (89) 
Pension and postretirement medical plan adjustments73  68 180  121  
Foreign currency translation and other(323) 46  (196) 25  
Other comprehensive income(121) 30   53  
Comprehensive income399  5,641  2,673  8,450  
Net income from continuing operations attributable to noncontrolling interests(60) (159) (100) (157) 
Other comprehensive income (loss) attributable to noncontrolling interests17  (34) (26) (36) 
Comprehensive income attributable to Disney$356 $5,448  $2,547 $8,257 
See Notes to Condensed Consolidated Financial Statements




3


THE WALT DISNEY COMPANY
CONDENSED CONSOLIDATED BALANCE SHEETS
(unaudited; in millions, except per share data)
March 28,
2020
September 28, 2019
ASSETS
Current assets
Cash and cash equivalents$14,339  $5,418  
Receivables14,532  15,481  
Inventories1,531  1,649  
Licensed content costs and advances1,869  4,597  
Other current assets1,003  979  
Total current assets33,274  28,124  
Produced and licensed content costs26,757  22,810  
Investments3,180  3,224  
Parks, resorts and other property
Attractions, buildings and equipment60,929 58,589 
Accumulated depreciation(33,713) (32,415) 
27,216  26,174  
Projects in progress3,916  4,264  
Land1,019  1,165  
32,151  31,603  
Intangible assets, net22,037  23,215  
Goodwill80,320  80,293  
Other assets8,575  4,715  
Total assets$206,294  $193,984  
LIABILITIES AND EQUITY
Current liabilities
Accounts payable and other accrued liabilities$17,906  $17,762  
Current portion of borrowings12,676  8,857  
Deferred revenue and other4,891  4,722  
Total current liabilities35,473  31,341  
Borrowings42,770  38,129  
Deferred income taxes7,965  7,902  
Other long-term liabilities16,113  13,760  
Commitments and contingencies (Note 14)
Redeemable noncontrolling interests9,096  8,963  
Equity
Preferred stock—  —  
Common stock, $0.01 par value, Authorized – 4.6 billion shares, Issued – 1.8 billion shares54,230  53,907  
Retained earnings43,721  42,494  
Accumulated other comprehensive loss(6,637) (6,617) 
Treasury stock, at cost, 19 million shares(907) (907) 
Total Disney Shareholders’ equity90,407  88,877  
Noncontrolling interests4,470  5,012  
Total equity94,877  93,889  
Total liabilities and equity$206,294  $193,984  
See Notes to Condensed Consolidated Financial Statements
4


THE WALT DISNEY COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited; in millions)
 Six Months Ended
March 28,
2020
March 30,
2019
OPERATING ACTIVITIES
Net income from continuing operations$2,708  $8,376  
Depreciation and amortization2,631 1,560  
Gain on acquisition—  (4,917) 
Deferred income taxes297 1,190  
Equity in the (income) / loss of investees(359) 233  
Cash distributions received from equity investees405  370 
Net change in produced and licensed content costs and advances(925) (281) 
Net change in operating lease right of use assets / liabilities(96) —  
Equity-based compensation246  456  
Other156  143  
Changes in operating assets and liabilities, net of business acquisitions:
Receivables828  (386) 
Inventories70  (19) 
Other assets(174) 46  
Accounts payable and other liabilities(888) (283) 
Income taxes(112) (474) 
Cash provided by operations - continuing operations4,787  6,014  
INVESTING ACTIVITIES
Investments in parks, resorts and other property(2,585) (2,390) 
Acquisitions—  (9,901) 
Other(21) (392) 
Cash used in investing activities - continuing operations(2,606) (12,683) 
FINANCING ACTIVITIES
Commercial paper borrowings, net3,138  376  
Borrowings6,071  31,145  
Reduction of borrowings(1,048) (17,398) 
Dividends(1,587) (1,310) 
Proceeds from exercise of stock options207  83  
Other(165) (200) 
Cash provided by financing activities - continuing operations6,616  12,696  
CASH FLOWS FROM DISCONTINUED OPERATIONS
Cash provided by (used in) operations - discontinued operations (35) 
Cash provided by investing activities - discontinued operations198  —  
Cash provided by (used in) discontinued operations202  (35) 
Impact of exchange rates on cash, cash equivalents and restricted cash(76) 75  
Change in cash, cash equivalents and restricted cash8,923  6,067  
Cash, cash equivalents and restricted cash, beginning of period5,455  4,155  
Cash, cash equivalents and restricted cash, end of period$14,378  $10,222  
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
   SharesCommon StockRetained EarningsAccumulated
Other
Comprehensive
Income
(Loss)
Treasury StockTotal Disney Equity
Non-controlling
   Interests (1)
Total
Equity
Balance at December 28, 20191,805  $53,995  $43,202  $(6,533) $(907) $89,757  $5,016  $94,773  
Comprehensive income—  —  460  (104) —  356  (23) 333  
Equity compensation activity 226  —  —  —  226  —  226  
Dividends—   (9) —  —  —  —  —  
Contributions—  —  —  —  —  —  33  33  
Distributions and other—  —  68  —  —  68  (556) (488) 
Balance at March 28, 20201,806  $54,230  $43,721  $(6,637) $(907) $90,407  $4,470  $94,877  
Balance at December 29, 20181,490  $36,799  $84,887  $(3,782) $(67,588) $50,316  $4,077  $54,393  
Comprehensive income—  —  5,452 (4) —  5,448  191  5,639  
Equity compensation activity 395  —  —  —  395  —  395  
Dividends—   (8) —  —  —  —  —  
Contributions—  —  —  —  —  —  27  27  
Acquisition of TFCF307 33,804 —  — —  33,804 10,638 44,442 
Retirement of treasury stock—  (17,563) (49,118) — 66,681 —  —  —  
Distributions and other—  (24) (1) —  —  (25) (532) (557) 
Balance at March 30, 20191,798  $53,419  $41,212  $(3,786) $(907) $89,938  $14,401  $104,339  
(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)
 
 Six Months Ended
Equity Attributable to Disney
   SharesCommon StockRetained EarningsAccumulated
Other
Comprehensive
Income
(Loss)
Treasury StockTotal Disney Equity
Non-controlling
   Interests (1)
Total
Equity
Balance at September 28, 20191,802  $53,907  $42,494  $(6,617) $(907) $88,877  $5,012  $93,889  
Comprehensive income—  —  2,567  (20) —  2,547  (6) 2,541  
Equity compensation activity 314  —  —  —  314  —  314  
Dividends—   (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, 20201,806  $54,230  $43,721  $(6,637) $(907) $90,407  $4,470  $94,877  
Balance at September 29, 20181,488  $36,779  $82,679  $(3,097) $(67,588) $48,773  $4,059  $52,832  
Comprehensive income—  —  8,240  17  —  8,257  190  8,447  
Equity compensation activity 415  —  —  —  415  —  415  
Dividends—   (1,318) —  —  (1,310) —  (1,310) 
Contributions—  —  —  —  —  —  47  47  
Acquisition of TFCF307 33,804 —  —  —  33,804  10,638  44,442  
Adoption of new accounting guidance:
Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income—  —  691  (691) —  —  —  —  
Intra-Entity Transfers of Assets Other Than Inventory—  —  129 — — 129 — 129 
Revenues from Contracts with Customers—  —  (116) —  —  (116) —  (116) 
Other—  —  22  (15) —   —   
Retirement of treasury stock—  (17,563) (49,118) —  66,681  —  —  —  
Distributions and other—  (24)  —  —  (21) (533) (554) 
Balance at March 30, 20191,798  $53,419  $41,212  $(3,786) $(907) $89,938  $14,401  $104,339  
(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 presentation of the results for the interim period. Operating results for the six months ended March 28, 2020 are not necessarily indicative of the results that may be expected for the year ending October 3, 2020.
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 2019 Annual Report on Form 10-K.
On March 20, 2019, the Company acquired Twenty-First Century Fox, Inc., which was subsequently renamed TFCF Corporation (TFCF). As a result of the acquisition, the Company’s ownership in Hulu LLC (Hulu) increased to 60% (67% as of March 28, 2020 and September 28, 2019). The acquired TFCF operations and Hulu have been consolidated since the acquisition. In order to obtain regulatory approval for the acquisition, the Company agreed to sell TFCF’s domestic regional sports networks (sold in August 2019) and sports media operations in Brazil and Mexico, which along with certain other businesses to be divested, are presented as discontinued operations in the Condensed Consolidated Statement of Income. At March 28, 2020 and September 28, 2019, the assets and liabilities of the businesses held for sale 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
On May 13, 2019, the Company entered into a put/call agreement with NBC Universal (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 approximately 33% interest in Hulu and the Company has the option to require NBCU to sell its interest in Hulu, 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 13, 2019 agreement date accreted to the January 2024 redemption value. At March 28, 2020, NBCU’s interest in Hulu is recorded in the Company’s financial statements at $8.0 billion.
BAMTech LLC (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 can generally sell its interest to the Company 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 fiscal 2020 for $300 million or in fiscal 2021 for $350 million. The Company has the right to
8

THE WALT DISNEY COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited; tabular dollars in millions, except for per share data)
purchase MLB’s interest in BAMTech starting five years from and ending ten years after the September 25, 2017 acquisition date at the greater of fair value or the guaranteed floor value. The Company has the right to acquire the NHL interest in fiscal 2020 or 2021 for $500 million.
The MLB and NHL interests will generally not be allocated their portion of BAMTech losses as these interests are required to be recorded at the greater of (i) their acquisition date fair value adjusted for their share (if any) of earnings, losses, or dividends or (ii) an accreted value from the date of the acquisition to the applicable redemption date. The accretion of the MLB interest to the earliest redemption value (i.e. in five years after the acquisition date) will be recorded using an interest method. The redeemable noncontrolling interest subject to accretion would have had a redemption amount of $683 million as of March 28, 2020.
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 Statement 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 2019 financial statements and notes to conform to the fiscal 2020 presentation.
2.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. The following are the Company’s operating segments:
Media Networks;
Parks, Experiences and Products;
Studio Entertainment; and
Direct-to-Consumer & International
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 purchase accounting amortization of 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. 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.
Intersegment content transactions are presented “gross” (i.e. the segment producing the content reports revenue and profit from intersegment transactions, and the required eliminations are reported on a separate “Eliminations” line when presenting a summary of our segment results). Other intersegment transactions are reported “Net” (i.e. revenue from another segment is recorded as a reduction of costs). Studio Entertainment revenues and operating income include an allocation of Parks, Experiences and Products revenues, which is meant to reflect royalties on revenue generated by Parks, Experiences and Products on merchandise based on intellectual property from Studio Entertainment films.
As it relates to film and television content that is produced by our Media Networks and Studio Entertainment segments that will be used on our direct-to-consumer (DTC) services, there are four broad categories of content:
Content produced for exclusive DTC use, “Originals”;
New Studio Entertainment theatrical releases following the theatrical and home entertainment windows, “Studio Pay 1”;
New Media Networks episodic television series following their initial airing on our linear networks, “Media Pay 1”; and
Content in all other windows, “Library”.
9

THE WALT DISNEY COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited; tabular dollars in millions, except for per share data)

The intersegment transfer price, for purposes of segment financial reporting pursuant to ASC 280 Segment Reporting, is generally cost plus a margin for Originals and Media Pay 1 content and generally based on comparable transactions for Studio Pay 1 and Library content. Imputed title by title intersegment license fees that may be necessary for other purposes are established as required by those purposes.
Intersegment revenue is recognized upon availability of the content to the DTC service except with respect to Library content for which revenue is recognized ratably over the license period.
Our DTC services generally amortize intersegment content costs for Originals and Studio Pay 1 content on an accelerated basis and for Media Pay 1 and Library content on a straight line basis.
When the DTC amortization timing is different than the timing of revenue recognition at Studio Entertainment or Media Networks, the difference results in an operating income impact in the elimination segment, which nets to zero over the DTC amortization period.
Impact of COVID-19
The impact of the novel coronavirus pandemic (“COVID-19”) and measures to prevent its spread are affecting our segments in a number of ways, most significantly at Parks, Experiences and Products where we have closed our theme parks and retail stores and suspended cruise ship sailings and guided tours and experienced supply chain disruptions. In addition, we have delayed, or in some cases, shortened or canceled theatrical releases and suspended stage play performances at Studio Entertainment and have seen advertising sales impacts at Media Networks and Direct-to-Consumer & International. We have experienced disruptions in the production and availability of content, including the cancellation or deferral of certain sports events and suspension of most film and television production. Many of our businesses have been closed or suspended consistent with government mandates or guidance.
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 of COVID-19 and among other things, the impact of governmental actions imposed in response to the pandemic and individuals’ and companies’ risk tolerance regarding health matters going forward.
Segment revenues and segment operating income are as follows:
 Quarter EndedSix Months Ended
 March 28,
2020
March 30, 2019March 28,
2020
March 30,
2019
Revenues:
Media Networks$7,257  $5,683  $14,618  $11,604  
Parks, Experiences and Products(1)
5,543  6,171  12,939  12,995  
Studio Entertainment(1)
2,539  2,157  6,303  3,981  
Direct-to-Consumer & International4,123 1,145 8,110 2,063  
Eliminations(2)
(1,453) (234) (3,103) (418) 
$18,009  $14,922  $38,867  $30,225  
Segment operating income (loss):
Media Networks$2,375  $2,230  $4,005  $3,560  
Parks, Experiences and Products(1)
639  1,506  2,977  3,658  
Studio Entertainment(1)
466  506  1,414  815 
Direct-to-Consumer & International(812) (385) (1,505) (521) 
Eliminations(2)
(252) (41) (473) (41) 
$2,416  $3,816  $6,418  $7,471  
(1)The allocation of Parks, Experiences and Products revenues to Studio Entertainment was $117 million and $126 million for the quarters ended March 28, 2020 and March 30, 2019, respectively, and $301 million and $280 million for the six months ended March 28, 2020 and March 30, 2019, respectively.
10

THE WALT DISNEY COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited; tabular dollars in millions, except for per share data)

(2)Intersegment eliminations are as follows:
Quarter EndedSix Months Ended
(in millions)March 28,
2020
March 30,
2019
March 28,
2020
March 30,
2019
Revenues:
Studio Entertainment:
Content transactions with Media
    Networks
$(58) $(13) $(111) $(34) 
Content transactions with Direct-to-Consumer & International(461) (82) (1,146) (100) 
Media Networks:
Content transactions with Direct-to-Consumer & International(934) (139) (1,846) (284) 
 $(1,453) $(234) $(3,103) $(418) 
Operating income:
Studio Entertainment:
Content transactions with Media
    Networks
$(10)$$(10)$
Content transactions with Direct-to-Consumer & International(157) (46) (273) (44) 
Media Networks:
Content transactions with Direct-to-Consumer & International(85) —  (190) (2) 
$(252) $(41) $(473) $(41) 
Equity in the income / (loss) of investees is included in segment operating income as follows: 
 Quarter EndedSix Months Ended
 March 28,
2020
March 30,
2019
March 28,
2020
March 30,
2019
Media Networks$179 $182  $372  $361 
Parks, Experiences and Products(6) —  (9) (12) 
Direct-to-Consumer & International(30) (138) 12 (229) 
Equity in the income of investees included in segment operating income143  44 375  120  
Vice impairment (1)
—  (353) —  (353) 
Amortization of TFCF intangible assets related to equity investees(8) —  (16) —  
Equity in the income / (loss) of investees, net$135  $(309) $359  $(233) 
(1) Reflects the impairment of Vice Group Holdings, Inc.
11

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 EndedSix Months Ended
 March 28,
2020
March 30,
2019
March 28,
2020
March 30,
2019
Segment operating income$2,416  $3,816 $6,418  $7,471  
Corporate and unallocated shared expenses(188)(279) (425) (440) 
Restructuring and impairment charges(145) (662) (295)(662)
Other income—  4,963  —  4,963  
Interest expense, net(300) (143) (583) (206) 
Amortization of TFCF and Hulu intangible assets and fair value step-up on film and television costs(1)
(723) (105) (1,423) (105) 
Vice impairment—  (353) —  (353) 
Income from continuing operations before income taxes$1,060  $7,237  $3,692  $10,668  
(1)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. For the quarter and six months ended March 30, 2019 amortization of intangible assets and step-up of film and television costs were $73 million and $32 million, respectively.
3.Revenues
The Company has revenue recognition policies for its various operating segments that are appropriate to the circumstances of each business.
The following table presents our revenues by segment and major source:
Quarter Ended March 28, 2020
Media
Networks
Parks, Experiences and Products
Studio
Entertainment
Direct-to-Consumer & InternationalEliminationsConsolidated
Affiliate fees$3,746  $—  $—  $957  $(186) $4,517  
Advertising1,703   —  1,081  —  2,785  
Theme park admissions—  1,554  —  —  —  1,554  
Resort and vacations—  1,377  —  —  —  1,377  
Retail and wholesale sales of merchandise, food and beverage—  1,584 — — — 1,584 
TV/SVOD distribution licensing1,700  —  1,112  163  (1,267) 1,708  
Theatrical distribution licensing—  —  603  —  —  603  
Merchandise licensing—  591  117   —  716  
Subscription fees—  —  —  1,796  —  1,796  
Home entertainment—  —  427  19  —  446  
Other108  436  280  99  —  923  
Total revenues$7,257  $5,543  $2,539  $4,123  $(1,453) $18,009  

12

THE WALT DISNEY COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited; tabular dollars in millions, except for per share data)

Quarter Ended March 30, 2019
Media
Networks
Parks, Experiences and Products
Studio
Entertainment
Direct-to-Consumer & InternationalEliminationsConsolidated
Affiliate fees$3,234  $—  $—  $412  $(12) $3,634  
Advertising1,624   —  454  —  2,079  
Theme park admissions—  1,768  —  —  —  1,768  
Resort and vacations—  1,503  —  —  —  1,503  
Retail and wholesale sales of merchandise, food and beverage— 1,768  —  —  — 1,768  
TV/SVOD distribution licensing745  — 718 23 (222) 1,264 
Theatrical distribution licensing—  —  752  —  —  752  
Merchandise licensing—  637  126  13  —  776  
Subscription fees—  —  —  153  —  153  
Home entertainment—  —  270  21  —  291  
Other80  494  291  69  —  934  
Total revenues$5,683  $6,171  $2,157  $1,145  $(234) $14,922  

Six Months Ended March 28, 2020
Media
Networks
Parks, Experiences and Products
Studio
Entertainment
Direct-to-Consumer & InternationalEliminationsConsolidated
Affiliate fees$7,394  $—  $—  $1,910  $(360) $8,944  
Advertising3,726   —  2,448  —  6,177  
Theme park admissions—  3,621  —  —  —  3,621  
Resort and vacations—  3,008  —  —  —  3,008  
Retail and wholesale sales of merchandise, food and beverage—  3,897  —  —  — 3,897 
TV/SVOD distribution licensing3,238 — 2,474 366 (2,743) 3,335  
Theatrical distribution licensing—  —  2,011  —  —  2,011  
Merchandise licensing—  1,455  301  16  —  1,772  
Subscription fees—  —  —  3,122  —  3,122  
Home entertainment—  —  938  46  —  984  
Other260  955  579  202  —  1,996  
Total revenues$14,618  $12,939  $6,303  $8,110  $(3,103) $38,867  


Six Months Ended March 30, 2019
Media
Networks
Parks, Experiences and Products
Studio
Entertainment
Direct-to-Consumer & InternationalEliminationsConsolidated
Affiliate fees$6,309  $—  $—  $735  $(12) $7,032  
Advertising3,647   —  871  —  4,521  
Theme park admissions—  3,701  —  —  —  3,701  
Resort and vacations— 3,034  —  —  —  3,034  
Retail and wholesale sales of merchandise, food and beverage—  3,890 — — — 3,890  
TV/SVOD distribution licensing1,467  —  1,323  57  (406) 2,441 
Theatrical distribution licensing—  —  1,125  —  —  1,125  
Merchandise licensing—  1,378  280  28  —  1,686  
Subscription fees—  —  —  186  —  186  
Home entertainment—  —  695  49  —  744  
Other181  989  558  137  —  1,865  
Total revenues$11,604  $12,995  $3,981  $2,063  $(418) $30,225  
13

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 primary geographical markets:
Quarter Ended March 28, 2020
Media
Networks
Parks, Experiences and Products
Studio
Entertainment
Direct-to-Consumer & InternationalEliminationsConsolidated
United States and Canada$6,805  $4,567  $1,264  $2,408  $(1,207) $13,837  
Europe383 523 714 436 (172) 1,884 
Asia Pacific49  405  399  657  (12) 1,498  
Latin America20  48  162  622  (62)790  
Total revenues$7,257  $5,543  $2,539  $4,123  $(1,453) $18,009  

Quarter Ended March 30, 2019
Media
Networks
Parks, Experiences and Products
Studio
Entertainment
Direct-to-Consumer & InternationalEliminationsConsolidated
United States and Canada$5,438  $4,689  $1,074  $320  $(205) $11,316  
Europe148 631 576 184 (23) 1,516 
Asia Pacific69  800  388  245  (6) 1,496  
Latin America28  51  119  396  — 594  
Total revenues$5,683  $6,171  $2,157  $1,145  $(234) $14,922  

Six Months Ended March 28, 2020
Media
Networks
Parks, Experiences and Products
Studio
Entertainment
Direct-to-Consumer & InternationalEliminationsConsolidated
United States and Canada$13,746 $10,275 $3,245 $4,568 $(2,671)$29,163 
Europe590  1,415  1,687  922  (234) 4,380  
Asia Pacific195  1,137  1,024  1,364  (136) 3,584  
Latin America87  112  347  1,256  (62) 1,740  
Total revenues$14,618  $12,939  $6,303  $8,110  $(3,103) $38,867  

Six Months Ended March 30, 2019
Media
Networks
Parks, Experiences and Products
Studio
Entertainment
Direct-to-Consumer & InternationalEliminationsConsolidated
United States and Canada$11,126 $9,831 $2,112 $545 $(369)$23,245 
Europe290  1,485  989  373  (38) 3,099  
Asia Pacific132  1,562  674  379  (11) 2,736  
Latin America56  117  206  766  —  1,145  
Total revenues$11,604  $12,995  $3,981  $2,063  $(418) $30,225  
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 March 28, 2020, $733 million was recognized related to performance obligations satisfied as of December 28, 2019. For the six months ended March 28, 2020, $771 million was recognized related to performance obligations satisfied as of September 28, 2019. For the quarter ended March 30, 2019, $363 million was recognized related to performance obligations satisfied as of December 29, 2018. For the six months ended March 30, 2019, $408 million was recognized related to performance obligations satisfied as of September 29, 2018.
As of March 28, 2020, revenue for unsatisfied performance obligations expected to be recognized in the future is $17 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 2020, $5 billion in fiscal 2021, $4 billion in fiscal 2022 and $4 billion thereafter. These amounts include only fixed
14

THE WALT DISNEY COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited; tabular dollars in millions, except for per share data)

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:
March 28,
2020
September 28,
2019
Contract assets$112  $150  
Accounts Receivable
Current12,322 12,755 
Non-current1,737  1,962  
Allowance for credit losses(535) (375) 
Deferred revenues
Current4,276  4,050  
Non-current636  619  
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 increased from $375 million at September 28, 2019 to $535 million at March 28, 2020 due to additional provisions in the period.
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. For the quarter and six months ended March 30, 2019, the Company recognized revenues of $0.7 billion and $2.3 billion, respectively, primarily related to theme park admissions and vacation packages included in the deferred revenue balance at September 30, 2018.
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.
The Company estimates the allowance for credit losses related to receivables from the sale of film and television programs based upon a number of factors, including historical experience and the financial condition of individual companies with which we do business. 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 March 28, 2020. The activity in the allowance for credit loss for the quarter and six-month period ended March 28, 2020 was not material.
The Company estimates the allowance for credit losses related to receivables from sales of its vacation club properties based primarily on historical collection experience. Estimates of uncollectible amounts also consider the economic environment and the age of receivables. The balance of mortgage receivables recorded in other non-current assets, net of an immaterial allowance for credit losses, was $0.8 billion as of March 28, 2020. The activity in the allowance for credit loss for the quarter and six-month period ended March 28, 2020 was not material.
The Company has $14.1 billion in trade accounts receivable outstanding at March 28, 2020, with an allowance for credit losses of $0.5 billion. We evaluate our allowance for credit losses and estimate collectability of accounts receivable based on our analysis of historical bad debt experience in conjunction with our assessment of the financial condition of individual companies with which we do business. In times of domestic or global 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.
4.Acquisitions
TFCF Corporation
On March 20, 2019, the Company acquired the outstanding capital stock of TFCF, a diversified global media and entertainment company. The acquisition purchase price totaled $69.5 billion, of which the Company paid $35.7 billion in cash and $33.8 billion in Disney shares (307 million shares at a price of $110.00 per share).
15

THE WALT DISNEY COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited; tabular dollars in millions, except for per share data)

As part of the TFCF acquisition, the Company acquired TFCF’s 30% interest in Hulu increasing our ownership in Hulu to 60%. As a result, the Company began consolidating Hulu and recorded a one-time gain of $4.9 billion (Hulu gain) in the prior-year quarter from remeasuring our initial 30% interest to its estimated fair value, which was determined based on a discounted cash flow analysis.
The Company is required to allocate the TFCF purchase price to tangible and identifiable intangible assets acquired and liabilities assumed based on their fair values. The excess of the purchase price over those fair values is recorded as goodwill.
The following table summarizes our final allocation of the purchase price:
Initial Allocation(1)
Valuation AdjustmentsFinal Allocation
Cash and cash equivalents$25,666  $35  $25,701  
Receivables4,746  350  5,096  
Film and television costs20,120  (2,380) 17,740  
Investments1,471  (509) 962  
Intangible assets20,385  (2,504) 17,881  
Net assets held for sale11,704 (348)11,356 
Accounts payable and other liabilities(10,753) (1,776) (12,529) 
Borrowings(21,723) —  (21,723) 
Deferred income taxes(6,497) 1,397  (5,100) 
Other net liabilities acquired(3,865) (114) (3,979) 
Noncontrolling interests(10,638) 230  (10,408) 
Goodwill43,751  5,496  49,247  
Fair value of net assets acquired74,367  (123) 74,244  
Less: Disney’s previously held 30% interest in Hulu(4,860) 123  (4,737) 
Total purchase price$69,507  $—  $69,507  
(1)As reported in our March 30, 2019 Form 10-Q.
These adjustments to the initial allocation are based on more detailed information obtained about the specific assets acquired and liabilities assumed. The adjustments made to the initial allocation during the current quarter did not result in any material net changes to amortization expense recorded in prior quarters.
The following table summarizes the revenues and net loss from continuing operations (including purchase accounting amortization and excluding restructuring and impairment charges and interest income and expense) of TFCF and Hulu included in the Company’s Condensed Consolidated Statement of Income for the quarter and six months ended March 28, 2020. In addition, the table provides the impact of intercompany eliminations of transactions between the Company, TFCF and Hulu:
QuarterSix Months
TFCF (before intercompany eliminations):
Revenues$3,483 $6,853 
Net loss from continuing operations(201) (236) 
Hulu (before intercompany eliminations):
Revenues$1,659  $3,284  
Net loss from continuing operations(287) (603) 
Intercompany eliminations:
Revenues$(793) $(1,392) 
Net loss from continuing operations(83) (131) 
The revenues and net loss from continuing operations (including purchase accounting amortization) of TFCF and Hulu included in the Company’s Condensed Consolidated Statement of Income for the quarter and six-months ended March 30, 2019 are $518 million and $115 million, respectively (from the date of acquisition through March 30, 2019).
16

THE WALT DISNEY COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited; tabular dollars in millions, except for per share data)

The following pro forma summary presents consolidated information of the Company for the six months ended March 30, 2019 as if the acquisition had occurred on October 1, 2017:
Revenues$38,598  
Net income4,171 
Net income attributable to Disney4,240  
Earnings per share attributable to Disney:
Diluted$2.35 
Basic$2.36 
The pro forma earnings exclude the Hulu gain, compensation expense of $0.2 billion related to TFCF equity awards that were accelerated to vest upon closing of the acquisition and $0.3 billion of acquisition-related expenses. These amounts were recognized by Disney and TFCF in the six months ended March 30, 2019.
The pro forma results exclude a $10.8 billion gain on sale recorded by TFCF for the six months ended March 30, 2019 related to its 39% interest in Sky plc, which was sold by TFCF in October 2018. The pro forma results include $0.3 billion of net income recorded by TFCF for the six months ended March 30, 2019 related to the TFCF businesses that we are required to divest as a condition of the acquisition.
These pro forma results do not represent financial results that would have been realized had the acquisition actually occurred on October 1, 2017, nor are they intended to be a projection of future results.
Goodwill
The changes in the carrying amount of goodwill for the six months ended March 28, 2020 are as follows:
Media
Networks
Parks, Experiences and ProductsStudio
Entertainment
Direct-to-Consumer & InternationalTotal
Balance at September 28, 2019$33,423  $5,535  $17,797  $23,538  $80,293  
Acquisitions (1)
133 15 10 160 
Currency translation adjustments and other, net—  —  —  (133) (133) 
Balance at March 28, 2020  $33,556  $5,537  $17,812  $23,415  $80,320  
(1) Reflects updates to allocation of purchase price for the acquisition of TFCF.
5.Other Income
Other income is as follows:
 Quarter EndedSix Months Ended
 March 28,
2020
March 30,
2019
March 28,
2020
March 30,
2019
Hulu gain$—  $4,917  $—  $4,917  
Insurance recovery related to a legal matter— 46 — 46 
Other income$—  $4,963  $—  $4,963  

17

THE WALT DISNEY COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited; tabular dollars in millions, except for per share data)

6.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.
March 28,
2020
September 28,
2019
Cash and cash equivalents$14,339  $5,418  
Restricted cash included in:
Other current assets26 
Other assets38  11  
Total cash, cash equivalents and restricted cash in the statement of cash flows$14,378  $5,455  
Borrowings
During the six months ended March 28, 2020, the Company’s borrowing activity was as follows: 
September 28,
2019
BorrowingsPaymentsOther
Activity
March 28,
2020
Commercial paper with original maturities less than three months(1)
$1,934  $1,598  $—  $(11) $3,521  
Commercial paper with original maturities greater than three months3,408  5,920  (4,380) 14  4,962  
U.S. dollar denominated notes39,424  5,981  (1,008) (108) 44,289  
Asia Theme Parks borrowings1,114 39 — 32 1,185 
Foreign currency denominated debt and other(2)
1,106  51  (40) 372  1,489  
$46,986  $13,589  $(5,428) $299  $55,446  
(1)Borrowings and reductions of borrowings are reported net.
(2)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.
The Company has bank facilities with a syndicate of lenders to support commercial paper borrowings. In March 2020, the Company refinanced two bank facilities with previously committed capacity of $6.0 billion and $2.25 billion, which were scheduled to expire in March 2020 and March 2021, respectively. The new bank facilities are for $5.25 billion and $3.0 billion and are scheduled to expire in March 2021 and 2025, respectively. At March 28, 2020, the Company’s bank facilities were as follows:
Committed
Capacity
Capacity
Used
Unused
Capacity
Facility expiring March 2021$5,250  $—  $5,250  
Facility expiring March 20234,000 — 4,000 
Facility expiring March 20253,000  —  3,000  
Total$12,250  $—  $12,250  
All of the above bank facilities allow for borrowings at LIBOR-based rates plus a spread depending on the credit default swap spread applicable to the Company’s debt, subject to a cap and floor that vary with the Company’s debt rating assigned by Moody’s Investors Service and Standard & 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, including both intangible amortization and amortization of our film and television production and programming costs. On March 28, 2020 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 March 28, 2020, the Company has $1.0 billion of outstanding letters of credit, of which none were issued under this facility.
18

THE WALT DISNEY COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited; tabular dollars in millions, except for per share data)

In April 2020, the Company entered into an additional $5.0 billion bank facility expiring in April 2021 with substantially similar terms as the Company’s other bank facilities. The facility allows for borrowings at LIBOR-based rates plus a spread that ranges between 1.025% and 1.800%.
Foreign Currency Denominated Debt
Subsequent to March 28, 2020, the Company issued Canadian $1.3 billion ($925 million) of fixed rate senior notes, which bear interest at 3.057% and mature in March 2027.
Cruise Ship Credit Facilities
The Company has credit facilities to finance three new cruise ships, which were to be delivered in 2021, 2022 and 2023 although delays are now expected as a result of the COVID-19 impact on the shipyard. The financings may be used for up to 80% of the contract price of the cruise ships. Under the agreements, $1.0 billion in financing is available beginning in April 2021, $1.1 billion is available beginning in May 2022 and $1.1 billion is available beginning in April 2023. Each tranche of financing may be utilized for a period of 18 months from the initial availability date. If utilized, the interest rates will be fixed at 3.48%, 3.72% and 3.74%, respectively, and the loans and interest will be payable semi-annually over a 12-year period from the borrowing date. Early repayment is permitted subject to cancellation fees.
Interest expense, net
Interest expense (net of amounts capitalized), interest and investment income, and net periodic pension and postretirement benefit costs (other than service costs) (see Note 10) are reported net in the Condensed Consolidated Statements of Income and consist of the following:
Quarter EndedSix Months Ended
March 28,
2020
March 30,
2019
March 28,
2020
March 30,
2019
Interest expense$(365) $(198) $(727) $(361) 
Interest and investment income63 30 139 105 
Net periodic pension and postretirement benefit costs (other than service costs) 25   50  
Interest expense, net$(300) $(143) $(583) $(206) 
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.
7.International Theme Parks
The Company has a 47% ownership interest in the operations of Hong Kong Disneyland Resort and a 43% ownership interest in the operations of Shanghai Disney Resort. The Asia Theme Parks together with Disneyland Paris are collectively referred to as the International Theme Parks.
The following table summarizes the carrying amounts of the Asia Theme Parks’ assets and liabilities included in the Company’s Condensed Consolidated Balance Sheets:
 March 28, 2020September 28, 2019
Cash and cash equivalents$423  $655  
Other current assets104  102  
Total current assets527  757  
Parks, resorts and other property6,593 6,608 
Other assets180   
Total assets$7,300  $7,374  
Current liabilities$373  $447  
Long-term borrowings1,146  1,114  
Other long-term liabilities366  189  
Total liabilities$1,885  $1,750  
19

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 Statement of Income for the six months ended March 28, 2020:
Revenues$1,274  
Costs and expenses(1,691)
Equity in the loss of investees(9) 
Asia Theme Parks’ royalty and management fees of $41 million for the six months ended March 28, 2020 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 Statement of Cash Flows for the six months ended March 28, 2020 were $148 million used in operating activities, $439 million used in investing activities and $92 million generated from financing activities. The majority of cash flows used in operating activities, approximately half of the cash flows used in investing activities, and all of the cash flows generated from financing activities were for the Asia Theme Parks.
Hong Kong Disneyland Resort
The Government of the Hong Kong Special Administrative Region (HKSAR) and the Company have a 53% and a 47% 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 $146 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 ($271 million), which bears interest at a rate of three month HIBOR plus 1.25% and matures in December 2023. There is no outstanding balance under the line of credit at March 28, 2020.
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 $848 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 March 28, 2020, the total amount outstanding under the line of credit was $29 million. These balances are eliminated in consolidation.
Shendi has provided Shanghai Disney Resort with loans totaling 7.4 billion yuan (approximately $1.0 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 March 28, 2020 the total amount outstanding under the line of credit was 0.3 billion yuan (approximately $39 million).
8.Produced and Acquired/Licensed Content Costs and Advances
At the beginning of fiscal 2020, the Company adopted, on a prospective basis, new Financial Accounting Standards Board (FASB) guidance that updates the accounting for film and television content costs. Therefore, reporting periods beginning after September 29, 2019 are presented under the new guidance, while prior periods continue to be reported in accordance with our historical accounting. The new guidance does the following:
Allows for the classification of acquired/licensed television content rights as long-term assets. Previously, we reported a portion of these rights in current assets. The Company has classified approximately $3 billion of these rights as long-term in the Q1 2020 balance sheet. Advances for live programming rights made prior to the live event continue to be reported in current assets.
Aligns the capitalization of production costs for episodic television content with the capitalization of production costs for theatrical content. Previously, theatrical content production costs could be fully capitalized while episodic television production costs were generally limited to the amount of contracted revenues. We do not expect this change to have a material impact on the Company’s financial statements for fiscal year 2020.
Introduces the concept of “predominant monetization strategy” to classify capitalized content costs for purposes of amortization and impairment as follows:
20

THE WALT DISNEY COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited; tabular dollars in millions, except for per share data)
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 determination of the predominant monetization strategy is made at commencement of production on a consolidated basis and is based on the means by which we derive third-party revenues from use of the content. Imputed title by title intersegment license fees that may be necessary for other purposes are established as required by those purposes.
For these accounting purposes, we generally classify content that is initially intended for use on our DTC services or on our linear television networks as group assets. Content initially intended for theatrical release or for sale to third-party licensees, we generally classify as individual assets. Because the new accounting guidance is applied prospectively, the predominant monetization strategy for content released prior to the beginning of fiscal 2020 is determined based on the expected means of monetization over the remaining life of the content. Thus for example, film titles that were released theatrically and in home entertainment prior to fiscal year 2020 and are now distributed on Disney+ are generally considered group content.
The classification of content as individual or group only changes if there is a significant change to the title’s monetization strategy relative to its initial assessment (e.g. content that was initially intended for license to a third-party is instead used on an owned DTC service).
Production costs for content predominantly individually monetized will continue to be amortized based upon the ratio of the current period’s revenues to the estimated remaining total revenues (Ultimate Revenues). For film productions, Ultimate Revenues include revenues from all sources, which may include intersegment license fees, that will be earned within ten years from the date of the initial release for theatrical films. For episodic television series, Ultimate Revenues include revenues that will be earned within ten years from delivery of the first episode, or if still in production, five years from delivery of the most recent episode, if later.
Production costs predominantly monetized as a group are amortized based on projected usage (which may be, for example, derived from historical viewership patterns), typically resulting in an accelerated or straight-line amortization pattern.
Licensed rights to film and television content and other programs for broadcast on our linear networks or distribution on our DTC services are expensed on an accelerated or straight-line basis over their useful life or over the number of times the program is expected to be aired, as appropriate. We amortize rights costs for multi-year sports programming arrangements during the applicable seasons based on the estimated relative value of each year in the arrangement. If annual contractual payments related to each season approximate each season’s estimated relative value, we expense the related contractual payments during the applicable season.
The costs of produced and licensed film and television content are subject to regular recoverability assessments. For content that is predominantly monetized individually, the unamortized costs are compared to the estimated fair value. The fair value is determined based on a discounted cash flow analysis of the cash flows directly attributable to the title. To the extent the unamortized costs exceed the fair value, an impairment charge is recorded for the excess. For content that is predominantly monetized as a group, the aggregate unamortized costs of the group are compared to the present value of the discounted cash flows using the lowest level for which identifiable cash flows are independent of other produced and licensed content. If the unamortized costs exceed the present value of discounted cash flows, an impairment charge is recorded for the excess and allocated to individual titles based on the relative carrying value of each title in the group. If there are no plans to continue to use an individual film or television program that is part of a group, the unamortized cost of the individual title is written-off immediately. Licensed content is included as part of the group within which it is monetized for purposes of assessing recoverability.
21

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 March 28, 2020
Predominantly Monetized IndividuallyPredominantly Monetized as a GroupTotal
Produced content
Theatrical film costs
Released, less amortization$3,515  $2,477  $5,992  
Completed, not released452  59  511  
In-process3,194 268 3,462 
In development or pre-production399   400  
$7,560  $2,805  10,365  
Television costs
Released, less amortization$2,920  $6,377  $9,297  
Completed, not released387  533  920  
In-process155  1,789  1,944  
In development or pre-production—  48  48  
$3,462  $8,747  12,209  
Licensed content - Television programming rights and advances6,052  
Total produced and licensed content$28,626  
Current portion$1,869  
Non-current portion$26,757  
Amortization of produced and licensed content is as follows:
Quarter Ended March 28, 2020
Predominantly
Monetized
Individually
Predominantly
Monetized
as a Group
Total
Theatrical film costs$562  $270  $832  
Television costs740 1,081 1,821 
Total produced content costs$1,302  $1,351  2,653  
Television programming rights and advances2,453  
Total produced and licensed content costs(1)
$5,106  
Six Months Ended March 28, 2020
Predominantly
Monetized
Individually
Predominantly
Monetized
as a Group
Total
Theatrical film costs$1,088  $581  $1,669  
Television costs1,494 2,008 3,502 
Total produced content costs$2,582  $2,589  5,171  
Television programming rights and advances6,184  
Total produced and licensed content costs(1)
$11,355  
(1)Primarily included in “Costs of services” in the Condensed Consolidated Statement of Income.
Amortization of produced and licensed content for the quarter and six months ended March 30, 2019 was $3.2 billion and $7.3 billion, respectively.
22

THE WALT DISNEY COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited; tabular dollars in millions, except for per share data)

9.Income Taxes
Interim Period Tax Expense
Because of COVID-19 implications on our projections of full-year pre-tax earnings and income tax expense, as well as the projected impact of permanent tax differences and other items that are generally not proportional to full-year earnings (“Permanent Differences”), our normal approach of using an estimated full-year effective income tax rate to determine interim period tax expense produces an income tax provision for the current year-to-date period that is not meaningful. Accordingly, we calculated year-to-date fiscal 2020 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. The second quarter tax expense is the fiscal year-to-date tax expense less tax expense recognized in the first quarter.
Intra-Entity Transfers of Assets Other Than Inventory
At the beginning of fiscal 2019, the Company adopted new FASB accounting guidance that requires recognition of the income tax consequences of an intra-entity transfer of an asset (other than inventory) when the transfer occurs instead of when the asset is ultimately sold to an outside party. In the first quarter of fiscal 2019, the Company recorded a $0.1 billion deferred tax asset with an offsetting increase to retained earnings.
Unrecognized Tax Benefits
At March 28, 2020, the Company’s unrecognized tax benefits were $2.9 billion (before interest and penalties). The change for the six months ended March 28, 2020 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. These resolutions would reduce our unrecognized tax benefits and income tax expense by $0.1 billion if recognized.
10.Pension and Other Benefit Programs
The components of net periodic benefit cost are as follows: 
 Pension PlansPostretirement Medical Plans
 Quarter EndedSix Months EndedQuarter EndedSix Months Ended
 Mar. 28, 2020Mar. 30, 2019Mar. 28, 2020Mar. 30, 2019Mar. 28, 2020Mar. 30, 2019Mar. 28, 2020Mar. 30, 2019
Service costs$102  $83  $205  $166  $ $ $ $ 
Other costs (benefits):
Interest costs133 144 266 289 14 17 28 33 
Expected return on plan assets(273) (240) (546) (479) (15) (14) (29) (28) 
Amortization of previously deferred service costs    —  —  —  —  
Recognized net actuarial loss131  67  262  131   —   —  
Total other costs (benefits)(5) (25) (11) (52)     
Net periodic benefit cost$97  $58  $194  $114  $ $ $11  $ 
During the six months ended March 28, 2020, the Company did not make any material contributions to its pension and postretirement medical plans. The Company originally intended to make fiscal 2020 total pension and postretirement medical plan contributions of approximately $600 million to $675 million. However, in light of the COVID-19 impacts, contributions will be determined based on the funded status of the plans. The Company will receive its January 1, 2020 actuarial valuation in the fourth quarter of fiscal 2020, which will determine minimum funding requirements for fiscal 2020.
23

THE WALT DISNEY COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited; tabular dollars in millions, except for per share data)

11.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 EndedSix Months Ended
 March 28,
2020
March 30,
2019
March 28,
2020
March 30,
2019
Shares (in millions):
Weighted average number of common and common equivalent shares outstanding (basic)1,808 1,530 1,806 1,510 
Weighted average dilutive impact of Awards  10   
Weighted average number of common and common equivalent shares outstanding (diluted)1,816  1,537  1,816  1,517  
Awards excluded from diluted earnings per share 14   13  

12.Equity
The Company paid the following dividends in fiscal 2020 and 2019:
Per ShareTotal PaidPayment TimingRelated to Fiscal Period
$0.88$1.6 billionSecond Quarter of Fiscal 2020Second Half 2019
$0.88$1.6 billionFourth Quarter of Fiscal 2019First Half 2019
$0.88$1.3 billionSecond Quarter of Fiscal 2019Second Half 2018
The Board of Directors elected not to declare a dividend payable in July 2020 with respect to the first half of fiscal year 2020.
24

THE WALT DISNEY COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited; tabular dollars in millions, except for per share data)

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:
 Unrecognized
Pension and 
Postretirement
Medical 
Expense
Foreign
Currency
Translation
and Other
AOCI
Market Value Adjustments
AOCI, before taxInvestmentsCash Flow Hedges
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  —  96  
Balance at March 28, 2020  $—  $158  $(7,268) $(1,368) $(8,478) 
Second quarter of fiscal 2019
Balance at December 29, 2018$—  $166  $(4,254) $(743) $(4,831) 
Quarter Ended March 30, 2019:
Unrealized gains (losses) arising during the period(5)(82)19 15 (53)
Reclassifications of realized net (gains) losses to net income—  (22) 72  —  50  
Balance at March 30, 2019  $(5) $62  $(4,163) $(728) $(4,834) 
Six months ended fiscal 2020
Balance at September 28, 2019$—  $129  $(7,502) $(1,086) $(8,459) 
Six Months Ended March 28, 2020:
Unrealized gains (losses) arising during the period—  131  (43) (282) (194) 
Reclassifications of realized net (gains) losses to net income—  (102) 277  —  175  
Balance at March 28, 2020$—  $158  $(7,268) $(1,368) $(8,478) 
Six months ended fiscal 2019
Balance at September 29, 2018$24  $177  $(4,323) $(727) $(4,849) 
Six Months Ended March 30, 2019:
Unrealized gains (losses) arising during the period(5) (55) 19  (1) (42) 
Reclassifications of realized net (gains) losses to net income—  (61) 141  —  80  
Reclassifications to retained earnings(24)  —  —  (23) 
Balance at March 30, 2019$(5) $62  $(4,163) $(728) $(4,834) 

25

THE WALT DISNEY COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited; tabular dollars in millions, except for per share data)

 Unrecognized
Pension and 
Postretirement
Medical 
Expense
Foreign
Currency
Translation
and Other
AOCI
Market Value Adjustments
Tax on AOCIInvestmentsCash Flow Hedges
Second quarter of fiscal 2020
Balance at December 28, 2019$—  $ $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) —  (22) 
Balance at March 28, 2020  $—  $(36) $1,702  $175  $1,841  
Second quarter of fiscal 2019
Balance at December 29, 2018$—  $(38) $1,007  $80  $1,049  
Quarter Ended March 30, 2019:
Unrealized gains (losses) arising during the period19 (6)(3)11 
Reclassifications of realized net (gains) losses to net income—   (17) —  (12) 
Balance at March 30, 2019  $ $(14) $984  $77  $1,048  
Six months ended fiscal 2020
Balance at September 28, 2019$—  $(29) $1,756�� $115  $1,842  
Six Months Ended March 28, 2020:
Unrealized gains (losses) arising during the period—  (31) 10  60  39  
Reclassifications of realized net (gains) losses to net income—  24  (64) —  (40) 
Balance at March 28, 2020$—  $(36) $1,702  $175  $1,841  
Six months ended fiscal 2019
Balance at September 29, 2018$(9) $(32) $1,690  $103  $1,752  
Six Months Ended March 30, 2019:
Unrealized gains (losses) arising during the period 13  (6) (10) (2) 
Reclassifications of realized net (gains) losses to net income—  14  (33) —  (19) 
Reclassifications to retained earnings(1)
 (9) (667) (16) (683) 
Balance at March 30, 2019$ $(14) $984  $77  $1,048  

26

THE WALT DISNEY COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited; tabular dollars in millions, except for per share data)

 Unrecognized
Pension and 
Postretirement
Medical 
Expense
Foreign
Currency
Translation
and Other
AOCI
Market Value Adjustments
AOCI, after taxInvestmentsCash Flow Hedges
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  —  74  
Balance at March 28, 2020  $—  $122  $(5,566) $(1,193) $(6,637) 
Second quarter of fiscal 2019
Balance at December 29, 2018$—  $128  $(3,247) $(663) $(3,782) 
Quarter Ended March 30, 2019:
Unrealized gains (losses) arising during the period(4) (63) 13  12  (42) 
Reclassifications of realized net (gains) losses to net income—  (17) 55  —  38  
Balance at March 30, 2019  $(4) $48  $(3,179) $(651) $(3,786) 
Six months ended fiscal 2020
Balance at September 28, 2019$—  $100  $(5,746) $(971) $(6,617) 
Six Months Ended March 28, 2020:
Unrealized gains (losses) arising during the period—  100  (33) (222) (155) 
Reclassifications of realized net (gains) losses to net income— (78)213 — 135 
Balance at March 28, 2020$—  $122  $(5,566) $(1,193) $(6,637) 
Six months ended fiscal 2019
Balance at September 29, 2018$15  $145  $(2,633) $(624) $(3,097) 
Six Months Ended March 30, 2019:
Unrealized gains (losses) arising during the period(4) (42) 13  (11) (44) 
Reclassifications of realized net (gains) losses to net income—  (47) 108  —  61  
Reclassifications to retained earnings(1)
(15) (8) (667) (16) (706) 
Balance at March 30, 2019$(4) $48  $(3,179) $(651) $(3,786) 
(1)At the beginning of fiscal 2019, the Company adopted new FASB accounting guidance, Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income, and reclassified $691 million from AOCI to retained earnings.
In addition, at the beginning of fiscal 2019, the Company adopted new FASB accounting guidance, Recognition and Measurement of Financial Assets and Liabilities, and reclassified $24 million ($15 million after tax) of market value adjustments on investments previously recorded in AOCI to retained earnings.
27

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 Income:
Quarter EndedSix Months Ended
March 28,
2020
March 30,
2019
March 28,
2020
March 30,
2019
Cash flow hedgesPrimarily revenue  $42  $22  $102  $61  
Estimated taxIncome taxes  (10) (5) (24) (14) 
32  17  78  47  
Pension and postretirement
  medical expense
Interest expense, net  (138) (72) (277) (141) 
Estimated taxIncome taxes  32 17 64 33 
(106) (55) (213) (108) 
Total reclassifications for the period$(74) $(38) $(135) $(61) 

13.Equity-Based Compensation
Compensation expense related to stock options and restricted stock units (RSUs) is as follows:
 Quarter EndedSix Months Ended
 March 28,
2020
March 30,
2019
March 28,
2020
March 30,
2019
Stock options$28  $24  $49  $43  
RSUs (1)
103 340 197 413 
Total equity-based compensation expense (2)
$131  $364  $246  $456  
Equity-based compensation expense capitalized during the period$21  $22  $45  $38  
(1)Includes TFCF Performance RSUs converted to Company RSUs in connection with the TFCF acquisition. For both the quarter and six months ended March 30, 2019, the Company recognized $259 million of equity based compensation in connection with the TFCF acquisition.
(2)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 $209 million and $969 million, respectively, as of March 28, 2020.
The weighted average grant date fair values of options granted during the six months ended March 28, 2020 and March 30, 2019 were $36.22 and $28.67, respectively.
During the six months ended March 28, 2020, the Company made equity compensation grants consisting of 4.3 million stock options and 5.0 million RSUs.
14.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 March 28, 2020, the remaining debt service obligation guaranteed by the Company was $237 million. To the extent that tax
28

THE WALT DISNEY COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited; tabular dollars in millions, except for per share data)

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.
15.Leases
At the beginning of fiscal 2020, the Company adopted new lease accounting guidance issued by the FASB. The most significant change requires lessees to record the present value of operating lease payments as right-of-use assets and lease liabilities on the balance sheet. The new guidance continues to require lessees to classify leases between operating and finance leases (formerly “capital leases”).
We adopted the new guidance using the modified retrospective method at the beginning of fiscal year 2020. Reporting periods beginning after September 29, 2019 are presented under the new guidance, while prior periods continue to be reported in accordance with our historical accounting. The Company adopted the new guidance by applying practical expedients that permit us not to reassess our prior conclusions concerning whether:
Any of our existing arrangements contain a lease;
Our existing lease arrangements are operating or finance leases;
To capitalize indirect costs; and
Existing land easements are leases.
The adoption of the new guidance resulted in the recognition on the Condensed Consolidated Balance Sheet of right-of-use assets and lease liabilities of approximately $3.7 billion, which were measured by the present value of the remaining minimum lease payments. In accordance with the guidance, the Company elected to exclude from the measurement of the right-of-use asset and lease liability leases with a remaining term of one year (“Short-term leases”).
The present value of the lease payments was calculated using the Company’s incremental borrowing rate applicable to the lease, which is determined by estimating what it would cost the Company to borrow a collateralized amount equal to the total lease payments over the lease term based on the contractual terms of the lease and the location of the leased asset.
At adoption, in the Condensed Consolidated Balance Sheet we also reclassified:
Deferred rent of approximately $0.3 billion for operating leases at the end of fiscal year 2019 from “Accounts payable and other accrued liabilities” (current portion) and “Other long-term liabilities” (non-current portion) to “Other assets” (right-of-use asset);
A deferred sale leaseback gain of approximately $0.3 billion from “Deferred revenue and other” (current portion) and “Other long-term liabilities” (non-current portion) to “Retained earnings”; and
Capitalized lease assets of approximately $0.2 billion from “Parks, resorts and other property” to “Other assets” related to finance leases.
Lessee Arrangements
The Company’s operating leases primarily consist of real estate and equipment, including office space for general and administrative purposes, production facilities, retail outlets and distribution centers for consumer products, land and content broadcast equipment. The Company also has finance leases, primarily for land and broadcast equipment.
We determine whether a new contract is a lease at contract inception or for a modified contract at the modification date. Our leases may require us to make fixed rental payments, variable lease payments based on usage or sales and fixed non-lease costs relating to the leased asset. Variable lease payments are generally not included in the measurement of the right-of-use asset and lease liability. Fixed non-lease costs, for example common-area maintenance costs, are included in the measurement of the right-of-use asset and lease liability as the Company does not separate lease and non-lease components.
Some of our leases include renewal and/or termination options. If it is reasonably certain that a renewal or termination option will be exercised, the exercise of the option is considered in calculating the term of the lease. As of March 28, 2020, our operating leases have a weighted-average remaining lease term of approximately 9 years, and our finance leases have a weighted-average remaining lease term of approximately 23 years. The weighted-average incremental borrowing rate is 2.5% and 6.4%, for our operating leases and finance leases, respectively. Additionally, as of March 28, 2020, the Company had signed non-cancelable lease agreements with total estimated future lease payments of approximately $270 million that had not yet commenced and therefore are not included in the measurement of the right-of-use asset and lease liability.
29

THE WALT DISNEY COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited; tabular dollars in millions, except for per share data)
The Company’s operating and finance right-of-use assets and lease liabilities as of March 28, 2020 are as follows:
Right-of-use assets(1)
Operating leases$4,211  
Finance leases353  
Total right-of-use assets$4,564  
Short-term lease liabilities(2)
Operating leases$822 
Finance leases36  
858  
Long-term lease liabilities(3)
Operating leases$2,969  
Finance leases282  
3,251  
Total lease liabilities$4,109  
(1)Included in “Other assets” in the Condensed Consolidated Balance Sheets. Includes approximately $0.6 billion of long-term prepaid rent that was presented as a right-of-use asset upon adoption.
(2)Included in “Accounts payable and other accrued liabilities” in the Condensed Consolidated Balance Sheets
(3)Included in “Other long-term liabilities” in the Condensed Consolidated Balance Sheet
The components of lease expense for the quarter and six months ended March 28, 2020 are as follows:
QuarterSix Months
Finance lease cost
Amortization of right-of-use assets$15  $17  
Interest on lease liabilities  
Operating lease cost229 452 
Variable fees and other (1)
127  273  
Total lease cost$375  $750  
(1)Includes variable lease payments related to our operating and finance leases and costs of Short-term leases, net of sublease income.

Cash paid during the quarter and six months ended March 28, 2020 for amounts included in the measurement of lease liabilities as of the beginning of the reporting period are as follows:
QuarterSix Months
Operating cash flows for operating leases$270  $495  
Operating cash flows for finance leases
Financing cash flows for finance leases16  23  
Total$290  $526  

30

THE WALT DISNEY COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited; tabular dollars in millions, except for per share data)
Future minimum lease payments, as of March 28, 2020, are as follows:
OperatingFinancing
Fiscal year:
2020$436  $30  
2021832  57  
2022645  56  
2023505  47  
2024381  38  
Thereafter1,817  514  
Total undiscounted future lease payments4,616 742 
Less: Imputed interest(825) (424) 
Total reported lease liability$3,791  $318  

Future minimum lease payments under non-cancelable operating leases and non-cancelable capital leases at September 28, 2019, presented based on our historical accounting prior to the adoption of the new lease guidance, are as follows:
Operating
Leases
Capital
Leases
Fiscal year:
2020$982  $19  
2021849  20  
2022670  19  
2023532  17  
2024407  16  
Thereafter2,491  458  
Total minimum obligations$5,931 549 
Less: amount representing interest(398) 
Present value of net minimum obligations$151  

16. 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
31

THE WALT DISNEY COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited; tabular dollars in millions, except for per share data)

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 March 28, 2020
 Level 1Level 2Level 3Total
Assets
 Investments$ $—  $—  $ 
Derivatives
Interest rate—  466  —  466  
Foreign exchange—  994  —  994  
Other— 13 — 13 
Liabilities
Derivatives
Interest rate—  (2) —  (2) 
Foreign exchange—  (734) —  (734) 
Other—  (29) —  (29) 
Total recorded at fair value$ $708  $—  $715  
Fair value of borrowings$—  $56,510  $1,328  $57,838  

 Fair Value Measurement at September 28, 2019
 Level 1Level 2Level 3Total
Assets
 Investments$13  $—  $—  $13  
Derivatives
Interest rate—  89  —  89  
Foreign exchange— 771 — 771 
Other—   —   
Liabilities
Derivatives
Interest rate—  (93) —  (93) 
Foreign exchange—  (544) —  (544) 
Other—  (4) —  (4) 
Total recorded at fair value$13  $220  $—  $233  
Fair value of borrowings$—  $48,709  $1,249  $49,958  
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 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.
32

THE WALT DISNEY COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited; tabular dollars in millions, except for per share data)

17.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 Company’s derivative positions measured at fair value are summarized in the following tables: 
 As of March 28, 2020
 Current
Assets
Other AssetsOther Current LiabilitiesOther Long-
Term
Liabilities
Derivatives designated as hedges
Foreign exchange$389  $302  $(95) $(287) 
Interest rate—  466  —  —  
Other— (21)(8)
Derivatives not designated as hedges
Foreign exchange105  198  (141) (211) 
Interest rate—  —  —  (2) 
Other12  —  —  —  
Gross fair value of derivatives507  966  (257) (508) 
Counterparty netting(211) (492) 225  478  
Cash collateral (received)/paid(214) (229) —   
Net derivative positions$82  $245  $(32) $(24) 

 As of September 28, 2019
 Current
Assets
Other AssetsOther Current LiabilitiesOther Long-
Term
Liabilities
Derivatives designated as hedges
Foreign exchange$302  $241  $(67) $(244) 
Interest rate—  89  (82) —  
Other— (3)(1)
Derivatives not designated as hedges
Foreign exchange65  163  (107) (126) 
Interest rate—  —  —  (11) 
Gross fair value of derivatives368  493  (259) (382) 
Counterparty netting(231) (345) 258  318  
Cash collateral (received)/paid(55) (6) —   
Net derivative positions$82  $142  $(1) $(57) 
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 March 28, 2020 and September 28, 2019, the total notional amount of the Company’s pay-floating interest rate swaps was $10.9 billion and $9.9 billion, respectively.
33

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 at March 28, 2020 and September 28, 2019:
Carrying Amount of Hedged Borrowings (1)
Fair Value Adjustments Included
in Hedged Borrowings (1)
March 28, 2020September 28, 2019March 28, 2020September 28, 2019
Borrowings:
Current$1,126 $1,121 $$(3)
Long-term10,936  9,562  464  34  
$12,062  $10,683  $466  $31  
(1)Includes $36 million and $37 million of gains on terminated interest rate swaps as of March 28, 2020 and September 28, 2019, respectively.
The following amounts are included in “Interest expense, net” in the Condensed Consolidated Statements of Income:
 Quarter EndedSix Months Ended
 March 28, 2020March 30,
2019
March 28,
2020
March 30, 2019
Gain (loss) on:
Pay-floating swaps$542  $117  $429  $234  
Borrowings hedged with pay-floating swaps(542)(117)(429)(234)
Benefit (expense) associated with interest accruals on pay-floating swaps(7) (18) (19) (32) 
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 March 28, 2020 or at September 28, 2019, and gains and losses related to pay-fixed swaps recognized in earnings for the quarter ended March 28, 2020 and March 30, 2019 were not material.
To facilitate its interest rate risk management activities, the Company sold options in November 2016, October 2017 and April 2018 to enter into future pay-floating interest rate swaps indexed to LIBOR for $2.0 billion in future borrowings. The fair values of these contracts as of March 28, 2020 and September 28, 2019 were $2 million and $11 million, respectively. The options are not designated as hedges and do not qualify for hedge accounting; accordingly, changes in their fair value are recorded in earnings. Gains and losses on the options for the quarter ended March 28, 2020 and March 30, 2019 were not material.
Foreign Exchange Risk Management
The Company transacts business globally and is subject to risks associated with changing foreign currency exchange rates. The Company’s objective is to reduce earnings and cash flow fluctuations associated with foreign currency exchange rate changes, enabling management to focus on core business issues and challenges.
The Company enters into option and forward contracts that change in value as foreign currency exchange rates change to protect the value of its existing foreign currency assets, liabilities, firm commitments and forecasted but not firmly committed foreign currency transactions. In accordance with policy, the Company hedges its forecasted foreign currency transactions for periods generally not to exceed four years within an established minimum and maximum range of annual exposure. The gains and losses on these contracts offset changes in the U.S. dollar equivalent value of the related forecasted transaction, asset, liability or firm commitment. The principal currencies hedged are the euro, Japanese yen, British pound, Chinese yuan and Canadian dollar. Cross-currency swaps are used to effectively convert foreign currency denominated borrowings into U.S. dollar denominated borrowings.
The Company designates foreign exchange forward and option contracts as cash flow hedges of firmly committed and forecasted foreign currency transactions. As of March 28, 2020 and September 28, 2019, the notional amounts of the Company’s net foreign exchange cash flow hedges were $5.6 billion and $6.3 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
34

THE WALT DISNEY COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited; tabular dollars in millions, except for per share data)

the next twelve months total $324 million. The following table summarizes the effect of foreign exchange cash flow hedges on AOCI for the quarter and six months ended March 28, 2020:
Quarter Ended
Gain (loss) recognized in Other Comprehensive Income$234  
Gain (loss) reclassified from AOCI into the Statement of Income (1)
43 
Six Months Ended:
Gain/(loss) recognized in Other Comprehensive Income$149  
Gain/(loss) reclassified from AOCI into the Statement of Income (1)
103  
(1)Primarily recorded in revenue.
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 March 28, 2020 and September 28, 2019 were $4.2 billion and $3.8 billion, respectively. The following table summarizes the net foreign exchange gains or losses recognized on foreign currency denominated assets and liabilities and the net foreign exchange gains or losses on the foreign exchange contracts we entered into to mitigate our exposure with respect to foreign currency denominated assets and liabilities for the six months ended March 28, 2020 and March 30, 2019 by the corresponding line item in which they are recorded in the Condensed Consolidated Statements of Income:
 Costs and ExpensesInterest expense, netIncome Tax Expense
Quarter Ended:March 28,
2020
March 30,
2019
March 28,
2020
March 30,
2019
March 28,
2020
March 30,
2019
Net gains (losses) on foreign currency denominated assets and liabilities$(241) $ $64  $(12) $ $—  
Net gains (losses) on foreign exchange risk management contracts not designated as hedges239 (4)(62)11 (20)(4)
Net gains (losses)$(2) $(3) $ $(1) $(12) $(4) 
Six Months Ended:
Net gains (losses) on foreign currency denominated assets and liabilities$(172) $(26) $52  $28  $(7) $15  
Net gains (losses) on foreign exchange risk management contracts not designated as hedges159  20  (52) (28) (3) (22) 
Net gains (losses)$(13) $(6) $—  $—  $(10) $(7) 
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 March 28, 2020 and September 28, 2019 and related gains or losses recognized in earnings for the quarter and six months ended March 28, 2020 and March 30, 2019 were not material.
Risk Management – Other Derivatives Not Designated as Hedges
The Company enters into certain other risk management contracts that are not designated as hedges and do not qualify for hedge accounting. These contracts, which include certain swap contracts, are intended to offset economic exposures of the Company and are carried at market value with any changes in value recorded in earnings. The notional amount and fair value of these contracts at March 28, 2020 and September 28, 2019 were not material. The related gains or losses recognized in earnings for the quarter and six months ended March 28, 2020 and March 30, 2019 were not material.
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
35

THE WALT DISNEY COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited; tabular dollars in millions, except for per share data)

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 $62 million and $65 million on March 28, 2020 and September 28, 2019, respectively.
18.Restructuring and Impairment Charges
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. We expect to substantially complete the restructuring plan by the end of fiscal 2021. In connection with this plan, during the quarter ended March 28, 2020, the Company recorded $145 million of restructuring and impairment charges, which included $133 million of severance. To date, we have recorded restructuring charges of $1.5 billion, including $1.2 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. Integration efforts are still underway and we anticipate that the total severance costs will be on the order of $1.5 billion. The Company currently expects other remaining restructuring costs will not be material.
The changes in restructuring reserves related to TFCF integration for fiscal 2019 and the six months ended March 28, 2020 are as follows:
Balance at September 29, 2018$—  
Additions in fiscal 2019:
Media Networks90  
Parks, Experiences and Products11  
Studio Entertainment197  
Direct-to-Consumer & International426 
Corporate182  
Total additions in fiscal 2019906  
Payments in fiscal 2019(230) 
Balance at September 28, 2019$676  
Additions in fiscal 2020:
Media Networks18  
Parks, Experiences and Products 
Studio Entertainment50  
Direct-to-Consumer & International163  
Corporate32  
Total additions in fiscal 2020271  
Payments in fiscal 2020(412) 
Balance at March 28, 2020$535  

19.New Accounting Pronouncements
Accounting Pronouncements Adopted in Fiscal 2020
Leases - See Note 15
Improvements to Accounting for Costs of Films and License Agreements for Program Materials - See Note 8
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
36

THE WALT DISNEY COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited; tabular dollars in millions, except for per share data)

effects of adopting this new guidance. The guidance can be adopted immediately and is applicable to contracts entered into on or before December 31, 2022.
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). The Company is currently assessing the impact of the new guidance on its financial statements.
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 impairments to be measured based on expected losses over the life of the asset rather than incurred losses. We currently do not expect the new guidance will have a material impact on our financial statements. The guidance is effective at the beginning of the Company’s 2021 fiscal year.
37



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
Restructuring in Connection with the Acquisition of TFCF
Financial Condition
Supplemental Guarantor Financial Information
Commitments and Contingencies
Other Matters
Market Risk
38

MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS — (continued)
CONSOLIDATED RESULTS
Our summary consolidated results are presented below: 
Quarter Ended% ChangeSix Months Ended% Change
(in millions, except per share data)March 28,
2020
March 30,
2019
Better/
(Worse)
March 28,
2020
March 30,
2019
Better/
(Worse)
Revenues:
Services$16,174  $13,011  24 %$34,249  $25,877  32 %
Products1,835  1,911  (4)%4,618  4,348  %
Total revenues18,009  14,922  21 %38,867  30,225  29 %
Costs and expenses:
Cost of services (exclusive of depreciation and amortization)(10,664) (7,167) (49)%(22,041) (14,731) (50)%
Cost of products (exclusive of depreciation and amortization)(1,254) (1,209) (4)%(2,893) (2,646) (9)%
Selling, general, administrative and other(3,388) (2,330) (45)%(7,091) (4,482) (58)%
Depreciation and amortization(1,333) (828) (61)%(2,631) (1,560) (69)%
Total costs and expenses(16,639) (11,534) (44)%(34,656) (23,419) (48)%
Restructuring and impairment charges(145) (662) 78 %(295) (662) 55 %
Other income  —  4,963  (100)%—  4,963  (100)%
Interest expense, net(300) (143) >(100)%(583) (206) >(100)%
Equity in the income / (loss) of investees135  (309) nm  359 (233)nm  
Income from continuing operations before income taxes1,060  7,237  (85)%3,692  10,668  (65)%
Income taxes on continuing operations(525) (1,647) 68 %(984) (2,292) 57 %
Net income from continuing operations535 5,590 (90)%2,708  8,376  (68)%
Income (loss) from discontinued operations, net of income tax benefit/(expense) of $5, ($5), $13 and ($5), respectively(15) 21  nm  (41) 21  nm  
Net income520  5,611  (91)%2,667  8,397  (68)%
Net income from continuing operations attributable to noncontrolling interests(60) (159) 62 %(100) (157) 36 %
Net income attributable to Disney$460  $5,452  (92)%$2,567  $8,240  (69)%
Diluted earnings per share from continuing operations attributable to Disney$0.26  $3.53  (93)%$1.44  $5.42  (73)%

SIGNIFICANT DEVELOPMENTS
COVID-19
The impact of COVID-19 and measures to prevent its spread are affecting our businesses in a number of ways. We have closed our theme parks and retail stores; suspended our cruise ship sailings, stage play performances and guided tours; delayed or, in some cases, shortened or cancelled theatrical distribution of films both domestically and internationally; and seen adverse advertising sales and supply chain impacts. Many of our businesses have been closed or suspended consistent with government mandates or guidance. We have experienced disruptions in the production and availability of content, including the cancellation or deferral of certain sports events and suspension of production of most film and television content. We have continued to pay for certain sports rights, even during these cancellations and deferrals. The impacts to our content have resulted in decreased viewership and advertising revenues, and demands for affiliate fee reductions related to certain of our television networks. These impacts are likely to be exacerbated the longer such content is not available. Other of our offerings could be exposed to additional financial impacts in the event of future significant unavailability of content. We have experienced increased returns and refunds and customer requests for payment deferrals, reduced usage of certain of our products and services and decreased merchandise licensing royalties.
We have taken a number of mitigation efforts in response. We have significantly increased cash balances through the issuance of commercial paper, as well as, the issuance of senior notes in March 2020. In addition, we entered into an additional $5.0 billion credit facility in April 2020. The Company (or our Board of Directors) has also elected to not declare a dividend payable in July 2020 with respect to the first half of fiscal year 2020; suspended certain capital projects; reduced certain discretionary expenditures (such as spending on marketing); temporarily reduced management compensation; temporarily
39

MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS — (continued)
eliminated Board of Director retainers and committee fees; and furloughed over 120,000 of our employees (who will continue to receive Company provided medical benefits). 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 of COVID-19 during the current quarter was at our Parks, Experiences and Products segment, which we estimate was an adverse impact on operating income of approximately $1.0 billion primarily due to revenue lost as a result of the closures. We estimate the COVID-19 impact on our current quarter income from continuing operations before income taxes across all of our businesses including the Parks, Experiences and Products segment, was as much as $1.4 billion. Impacts at our other segments include lower advertising revenue at Media Networks and Direct-to-Consumer & International driven by a decrease in viewership in the current quarter reflecting COVID-19’s impact on live sports events and higher bad debt expense and an impact on revenue at Studio Entertainment due to theater and stage play closures. The estimated impact in the current quarter is net of approximately $150 million in employee retention credits pursuant to the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”). We expect more extensive COVID-19 impacts in the third quarter.
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 of the impacts of COVID-19, and among other things the impact of governmental actions imposed in response to the pandemic and individuals’ and companies’ risk tolerance regarding health matters going forward. With the unknown duration of the pandemic and yet to be determined timing of the phased reopening of our businesses, it is not possible to precisely estimate the impact in future quarters.
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.
Disney+
In November 2019, the Company launched Disney+, a subscription based DTC streaming service with Disney, Pixar, Marvel, Star Wars and National Geographic branded programming in the U.S. and four other countries and has expanded to select Western European countries in March 2020 and in additional Western European countries and India in April 2020. Following these launches, Disney+ exceeded 50 million paid subscribers, including 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. The Hotstar service in India was converted to Disney+ Hotstar, resulting in approximately 8 million additional Disney+ paid subscribers. 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. In addition, the average monthly revenue per paid subscriber for Disney+ Hotstar is significantly lower than the average monthly revenue per paid subscriber in North America and Europe. Further launches are planned for Latin America in fall of 2020, and Europe and various Asia-Pacific territories throughout calendar 2020 and calendar 2021. As we will use our branded film and television content on the Disney+ service, we are forgoing certain licensing revenue from the sale of this content to third parties in TV/SVOD markets. In addition, we are increasing programming and production investments to create exclusive content for Disney+.
CURRENT QUARTER RESULTS COMPARED TO PRIOR-YEAR QUARTER
As discussed in Note 4 to the Condensed Consolidated Financial Statements, the Company acquired TFCF on March 20, 2019. Additionally, in connection with the acquisition of TFCF, we acquired a controlling interest in Hulu. The Company began consolidating the results of TFCF and Hulu effective March 20, 2019.
Revenues for the quarter increased 21%, or $3.1 billion, to $18.0 billion; net income attributable to Disney decreased 92%, or $5.0 billion, to $0.5 billion; and diluted earnings per share from continuing operations attributable to Disney (EPS) decreased 93% from $3.53 to $0.26. The EPS decrease for the quarter was due to the comparison to the Hulu gain recognized in the prior-year quarter, lower segment operating income and higher amortization of intangible assets and fair value step-up on film and television costs from the TFCF acquisition and the consolidation of Hulu. The decrease in segment operating income was due to lower results at our legacy operations, partially offset by a $0.2 billion net benefit from the consolidation of TFCF and Hulu. Legacy operations reflected a decrease at Parks, Experiences and Products, higher losses at Direct-to-Consumer & International, and to a lesser extent, lower results at Studio Entertainment, partially offset by higher results at Media Networks.
Revenues
Service revenues for the quarter increased 24%, or $3.2 billion, to $16.2 billion due to the consolidation of TFCF and Hulu’s operations, partially offset by a decrease at our legacy operations. The decrease at our legacy operations was due to lower sales of film and television programs to third parties, lower volume at our theme parks, resorts and cruise line and a decrease in theatrical distribution revenue. Volumes at theme parks, resorts and cruise line and theatrical distribution revenue
40

MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS — (continued)
were impacted by the suspension of these operations and closure of theaters, respectively, in response to COVID-19. These decreases were partially offset by higher subscription revenue from Disney+.
Product revenues for the quarter decreased 4%, or $0.1 billion, to $1.8 billion due to a decrease at our legacy operations, partially offset by the consolidation of TFCF’s operations. The decrease at our legacy operations was driven by lower guest spending at parks and resorts for merchandise, food and beverages, which was impacted by the shutdown of our operations.
Costs and expenses
Cost of services for the quarter increased 49%, or $3.5 billion, to $10.7 billion due to the consolidation of TFCF and Hulu’s operations, partially offset by lower costs at our legacy operations. The decrease at our legacy operations was due to lower film and television cost amortization for programs sold to third parties and declines in theatrical distribution revenue, partially offset by higher programming and production costs primarily related to Disney+ and an increase in technology costs to support Disney+.
Cost of products for the quarter increased 4%, or $45 million, to $1.3 billion due to an increase at our legacy operations and the consolidation of TFCF’s operations. The increase at our legacy operations was due to labor cost inflation at theme parks and resorts.
Selling, general, administrative and other costs increased 45%, or $1.1 billion, to $3.4 billion due to the consolidation of TFCF and Hulu’s operations and higher marketing costs at our legacy operations. The increase in marketing costs was primarily due to Disney+, ESPN+ and the ABC Television Network, partially offset by lower theatrical distribution marketing spend.
Depreciation and amortization increased 61%, or $0.5 billion, to $1.3 billion, due to amortization of intangible assets arising from the acquisition of TFCF and Hulu.
Restructuring and impairment charges
Restructuring and impairment charges of $145 million for the current quarter were primarily for severance in connection with the acquisition and integration of TFCF.
Restructuring and impairment charges of $662 million for the prior-year quarter were primarily for severance and equity based compensation costs in connection with the acquisition and integration of TFCF.
Other income
Other income of $5.0 billion in the prior-year quarter was due to the Hulu gain.
Interest expense, net
Interest expense, net is as follows: 
Quarter Ended
(in millions)March 28,
2020
March 30,
2019
% Change
Better/(Worse)
Interest expense$(365) $(198) >(100)%
Interest income, investment income and other65 55 18 %
Interest expense, net$(300) $(143) >(100)%
The increase in interest expense was due to higher average debt balances as a result of the TFCF acquisition.
The increase in interest income, investment income and other was driven by higher interest on long-term receivables for film and television program sales, partially offset by a lower benefit related to pension and postretirement benefit costs, other than service cost.
Equity in the income / (loss) of investees
Equity in the income / (loss) of investees reflected income of $135 million in the current quarter compared to a loss of $309 million in the prior-year quarter. The change reflected an impairment of our investment in Vice in the prior-year quarter and the impact of consolidating Hulu. In the current quarter, Hulu’s results are reported in revenues and expenses. For the majority of the prior-year quarter, the Company recognized its ownership share of Hulu’s loss in equity in the income of investees.
41

MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS — (continued)
Effective Income Tax Rate 
Quarter Ended
March 28,
2020
March 30,
2019
Change
Better/(Worse)
Effective income tax rate - continuing operations49.5 %22.8 %(26.7) ppt
The increase in the effective income tax rate was due to higher U.S. tax on foreign income and an increase in losses for which the Company does not recognize a tax benefit, primarily related to our Asia Theme Parks.
Noncontrolling Interests 
Quarter Ended
(in millions)March 28,
2020
March 30,
2019
% Change
Better/(Worse) 
Net income from continuing operations attributable to noncontrolling interests$(60) $(159) 62 %
The decrease in net income from continuing operations attributable to noncontrolling interests was primarily due to lower results at Hong Kong Disneyland Resort, Shanghai Disney Resort and ESPN. These decreases were partially offset by the accretion of the fair value of the redeemable noncontrolling interest in Hulu.
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 Comparability
Results for the quarter ended March 28, 2020 were impacted by the following:
Amortization expense of $723 million related to TFCF and Hulu intangible assets and fair value step-up on film and television costs
Restructuring charges of $145 million
Results for the quarter ended March 30, 2019 were impacted by the following:
The Hulu gain of $4,917 million
A benefit of $46 million from an insurance recovery related to a legal matter
Restructuring charges of $662 million
An impairment of our investment in Vice of $353 million
Amortization expense of $105 million related to TFCF and Hulu intangible assets and fair value step-up on film and television costs
42

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 March 28, 2020:
Amortization of TFCF and Hulu intangible assets and fair value step-up on film and television costs(3)
$(723) $167  $(556) $(0.28)
Restructuring and impairment charges(145)34 (111)(0.06) 
Total$(868) $201  $(667) $(0.34) 
Quarter Ended March 30, 2019:
Hulu gain$4,917  $(1,131) $3,786  $2.46 
Insurance recovery related to a legal matter46  (11) 35 0.02  
Restructuring and impairment charges(662) 152  (510)(0.33) 
Vice impairment(353) 81  (272)(0.18) 
Amortization of TFCF and Hulu intangible assets and fair value step-up on film and television costs(105) 24  (81)(0.05) 
Total$3,843  $(885) $2,958  $1.92  
(1)Tax benefit (expense) amounts are determined using the tax rate applicable to the individual item.
(2)EPS is net of noncontrolling interest share, where applicable. Total may not equal the sum of the column due to rounding.
(3)Includes amortization of intangibles related to TFCF equity investees.
CURRENT PERIOD RESULTS COMPARED TO PRIOR-YEAR PERIOD
Revenues for the six-month period increased 29%, or $8.6 billion, to $38.9 billion; net income attributable to Disney decreased 69%, or $5.7 billion, to $2.6 billion; and EPS decreased 73% from $5.42 to $1.44. The EPS decrease for the six-month period was due to the comparison to the Hulu gain recognized in the prior-year period, higher amortization of intangible assets and fair value step-up on film and television costs from the TFCF acquisition and the consolidation of Hulu, lower segment operating income, an increase in shares outstanding reflecting shares issued for the acquisition of TFCF and higher interest expense. The decrease in segment operating income was due to lower results at our legacy operations, partially offset by a $0.5 billion net benefit from the consolidation of TFCF and Hulu. Legacy operations reflected higher losses at Direct-to-Consumer & International and lower results at Parks, Experiences and Products segments, partially offset by growth at our Studio Entertainment and Media Networks segments.
Revenues
Service revenues for the six-month period increased 32%, or $8.4 billion, to $34.2 billion due to the consolidation of TFCF and Hulu’s operations partially offset by a decrease at our legacy operations. The decrease at our legacy operations was due to a decrease in sales of our television and film programs to third parties, lower volumes at our theme parks, resorts and cruise line and a decrease in advertising revenue. Theme park, resort and cruise line volumes were impacted by the suspension of these operations in response to COVID-19. These decreases were partially offset by an increase in subscription revenue driven by the launch of Disney+, growth in theatrical distribution revenue and higher per capita guest spending at our parks and resorts prior to being shutdown.
Product revenues for the six-month period increased 6%, or $0.3 billion, to $4.6 billion due to the consolidation of TFCF’s operations and to a lesser extent, growth at our legacy operations. The increase at our legacy operations was driven by higher per capita guest spending on merchandise, food and beverages at our parks and resorts, partially offset by lower theme park, resort and home entertainment volumes. Theme park and resort volumes were impacted by the shutdown of operations.
Costs and expenses
Cost of services for the six-month period increased 50%, or $7.3 billion, to $22.0 billion, due to the consolidation of TFCF and Hulu’s operations and to a lesser extent, higher costs at our legacy operations. The increase in costs at our legacy operations was due to an increase in programming, production and technology costs for Disney+ and cost inflation at our theme parks and resorts. These increases were partially offset by lower television and film cost amortization for programs sold to third parties.
43

MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS — (continued)
Cost of products for the six-month period increased 9%, or $0.2 billion, to $2.9 billion, due to higher costs at our legacy operations and the consolidation of TFCF’s operations. The increase in costs at our legacy operations was due to higher per capita guest spending on merchandise, food and beverages and labor cost inflation at our theme parks and resorts. These increases were partially offset by lower home entertainment and theme parks and resort volumes.
Selling, general, administrative and other costs for the six-month period increased 58%, or $2.6 billion, to $7.1 billion, due to the consolidation of TFCF and Hulu’s operations and higher marketing costs at our legacy operations. The increase in marketing costs was primarily due to spend for Disney+, ESPN+ and the ABC Television Network, partially offset by lower theatrical marketing spend.
Depreciation and amortization increased 69%, or $1.1 billion, to $2.6 billion, due to the amortization of intangible assets arising from the acquisition of TFCF and Hulu.
Restructuring and impairment charges
Restructuring and impairment charges of $295 million for the current period were primarily for severance costs in connection with the acquisition and integration of TFCF.
Restructuring and impairment charges of $662 million in the prior-year period were primarily for severance and equity based compensation costs in connection with the acquisition and integration of TFCF.
Other income/(expense), net
Other income of $5.0 billion for the prior-year period was due to the Hulu gain.
Interest expense, net
Interest expense, net is as follows: 
Six Months Ended
(in millions)March 28,
2020
March 30,
2019
% Change
Better/(Worse)
Interest expense$(727) $(361) >(100)%
Interest income, investment income and other144 155 (7)%
Interest expense, net$(583) $(206) >(100)%
The increase in interest expense for the six-month period was due to higher average debt balances.
The decrease in interest income, investment income and other was due to a lower benefit related to pension and postretirement benefit costs, other than service cost, partially offset by higher interest on long-term receivables for film and television program sales.
Equity in the income / (loss) of investees
Equity in the income / (loss) of investees reflected income of $359 million in the current period compared to a loss of $233 million in the prior-year period. The change reflected an impairment of our investment in Vice in the prior-year quarter and the impact of consolidating Hulu.
Effective Income Tax Rate 
Six Months Ended
March 28,
2020
March 30,
2019
Change
Better/(Worse)
Effective income tax rate - continuing operations26.7 %21.5 %(5.2) ppt
The increase in the effective income tax rate was driven by higher U.S. tax on foreign income and an increase in losses for which the Company does not recognize a tax benefit, primarily related to our Asia Theme Parks.
44

MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS — (continued)
Noncontrolling Interests 
Six Months Ended
(in millions)March 28,
2020
March 30,
2019
% Change
Better/(Worse) 
Net income from continuing operations attributable to noncontrolling interests$(100) $(157) 36 %
The decrease in net income from continuing operations attributable to noncontrolling interests for the six-month period was due to lower results at Hong Kong Disneyland Resort, Shanghai Disney Resort and ESPN, and a higher loss from our DTC sports business. These decreases were partially offset by the accretion of the fair value of the redeemable noncontrolling interest in Hulu.
Certain Items Impacting Comparability
Results for the six months ended March 28, 2020 were impacted by the following:
Amortization expense of $1.4 billion related to TFCF and Hulu intangible assets and fair value step-up on film and television costs
Restructuring charges of $295 million
Results for the six months ended March 30, 2019 were impacted by the following:
The Hulu gain of $4,917 million
A benefit of $46 million from an insurance recovery related to a legal matter
A benefit of $34 million from the Tax Act
Restructuring charges of $662 million
An impairment of our investment in Vice of $353 million
Amortization expense of $105 million related to TFCF and Hulu intangible assets and fair value step-up on film and television costs
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 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)
Six Months Ended March 30, 2019:
Hulu gain$4,917  $(1,131) $3,786 $2.50  
Insurance recoveries related to a legal matter46  (11) 35 0.02  
Net benefit from the Tax Act—  34  34 0.02  
Restructuring and impairment charges(662) 152  (510)(0.33) 
Vice impairment(353) 81  (272)(0.18) 
Amortization of TFCF and Hulu intangible assets and fair value step-up on film and television costs(105) 24  (81)(0.05) 
Total$3,843  $(851) $2,992  $1.98  
(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.
45

MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS — (continued)
SEASONALITY
The Company’s businesses are subject to the effects of seasonality. Consequently, the operating results for the six months ended March 28, 2020 for each business segment, and for the Company as a whole, are not necessarily indicative of results to be expected for the full year.
Media Networks revenues are subject to seasonal advertising patterns, changes in viewership levels and timing of program sales. In general, advertising revenues are somewhat higher during the fall and somewhat lower during the summer months. Affiliate fees are generally recognized ratably throughout the year.
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 and seasonal consumer purchasing behavior, which generally results in increased revenues during the Company’s first and fourth fiscal quarter. Peak attendance and resort occupancy generally occur during the summer months when school vacations occur and during early winter and spring holiday periods. In addition, licensing revenues fluctuate with the timing and performance of our theatrical releases and cable programming broadcasts.
Studio Entertainment revenues fluctuate due to the timing and performance of releases in the theatrical, home entertainment and television markets. Release dates are determined by several factors, including competition and the timing of vacation and holiday periods.
Direct-to-Consumer & International revenues fluctuate based on: changes in subscriber levels; the timing and performance of releases of our digital media content; viewership levels on our cable channels and digital platforms; and the demand for sports and our 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 and content production schedules.
BUSINESS SEGMENT RESULTS
The following table reconciles income from continuing operations before income taxes to total segment operating income:
 Quarter Ended% ChangeSix Months Ended% Change
(in millions)March 28,
2020
March 30,
2019
Better/
(Worse)
March 28,
2020
March 30,
2019
Better/
(Worse)
Income from continuing operations before income taxes$1,060  $7,237  (85)%$3,692  $10,668  (65)%
Add:
Corporate and unallocated shared expenses188  279  33 %425  440  %
Restructuring and impairment charges145  662  78 %295  662  55 %
Other income—  (4,963) (100)%—  (4,963) (100)%
Interest expense, net300  143  >(100)%583  206  >(100)%
Amortization of TFCF and Hulu intangible assets and fair value step-up on film and television costs(1)
723 105 >(100)%1,423 105 >(100)%
Vice impairment—  353  100 %—  353  100 %
Total segment operating income$2,416  $3,816  (37)%$6,418  $7,471  (14)%
(1)Includes amortization of intangibles related to TFCF equity investees.
46

MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS — (continued)
The following is a summary of segment revenue and operating income: 
 Quarter Ended% ChangeSix Months Ended% Change
(in millions)March 28,
2020
March 30,
2019
Better/
(Worse)
March 28,
2020
March 30,
2019
Better/
(Worse)
Revenues:
Media Networks$7,257  $5,683  28 %$14,618  $11,604  26 %
Parks, Experiences and Products5,543  6,171  (10)%12,939 12,995 — %
Studio Entertainment2,539 2,157 18 %6,303  3,981  58 %
Direct-to-Consumer & International4,123  1,145  >100 %8,110  2,063  >100 %
Eliminations(1,453) (234) >(100)%(3,103) (418) >(100)%
$18,009  $14,922  21 %$38,867  $30,225  29 %
Segment operating income (loss):
Media Networks$2,375  $2,230  %$4,005  $3,560  13 %
Parks, Experiences and Products639  1,506  (58)%2,977  3,658  (19)%
Studio Entertainment466  506  (8)%1,414  815  73 %
Direct-to-Consumer & International(812) (385) >(100)%(1,505) (521) >(100)%
Eliminations(252) (41) >(100)%(473) (41) >(100)%
$2,416  $3,816  (37)%$6,418  $7,471  (14)%
Depreciation expense is as follows: 
 Quarter Ended% ChangeSix Months Ended% Change
(in millions)March 28,
2020
March 30,
2019
Better/
(Worse)
March 28,
2020
March 30,
2019
Better/
(Worse)
Media Networks
Cable Networks$26  $26  — %$53  $50  (6)%
Broadcasting16  20  20 %38  40  %
Total Media Networks42  46  %91  90  (1)%
Parks, Experiences and Products
Domestic408 367 (11)%806  719  (12)%
International175  182  %344  368  %
Total Parks, Experiences and Products583  549  (6)%1,150  1,087  (6)%
Studio Entertainment22  17  (29)%44  31  (42)%
Direct-to-Consumer & International72  37  (95)%142  69  >(100)%
Corporate46  42  (10)%77  81  %
Total depreciation expense$765  $691  (11)%$1,504  $1,358  (11)%
47

MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS — (continued)
Amortization of intangible assets is as follows:
 Quarter Ended% ChangeSix Months Ended% Change
(in millions)March 28,
2020
March 30,
2019
Better/
(Worse)
March 28,
2020
March 30,
2019
Better/
(Worse)
Media Networks$ $—  nm  $ $—  nm  
Parks, Experiences and Products27  27  — %54  54  — %
Studio Entertainment15 15 — %30  31  %
Direct-to-Consumer & International27  23  (17)%57  45  (27)%
TFCF and Hulu498  72  >(100)%984  72  >(100)%
Total amortization of intangible assets$568  $137  >(100)%$1,127  $202  >(100)%

Media Networks
Operating results for the Media Networks segment are as follows: 
 Quarter Ended% Change
(in millions)March 28,
2020
March 30,
2019
Better/
(Worse)
Revenues
Affiliate fees$3,746  $3,234  16 %
Advertising1,703  1,624  %
TV/SVOD distribution and other1,808  825  >100 %
Total revenues7,257 5,683 28 %
Operating expenses(4,335) (3,099) (40)%
Selling, general, administrative and other(683) (490) (39)%
Depreciation and amortization(43) (46) %
Equity in the income of investees179  182  (2)%
Operating Income$2,375  $2,230  %
Revenues
The increase in affiliate fees was due to increases of 13% from the consolidation of TFCF’s operations and 7% from higher contractual rates, partially offset by a decrease of 3% from fewer subscribers. The subscriber decline was net of a benefit from the ACC Network launch in August 2019.
The increase in advertising revenues was due to increases of $51 million at Cable Networks, from $752 million to $803 million and $28 million at Broadcasting, from $872 million to $900 million. Cable Networks advertising revenue reflected increases of 15% from the consolidation of TFCF’s operations and 6% from higher rates. These increases were partially offset by a decrease of 15% from lower impressions reflecting lower average viewership, driven by the impact of COVID-19 on live sports events. Broadcasting advertising revenue reflected increases of 4% from higher network rates, 3% from the consolidation of TFCF’s operations and 2% from the owned television stations. These increases were partially offset by a decrease of 5% from lower network impressions due to lower average viewership.
The increase in TV/SVOD distribution and other revenue of $983 million was due to the consolidation of TFCF’s operations, which consisted primarily of program sales.
Costs and Expenses
Operating expenses include programming and production costs, which increased $1,176 million, from $2,946 million to $4,122 million. At Cable Networks, programming and production costs increased $462 million due to the consolidation of TFCF’s operations and, to a lesser extent, contractual increases for sports programming as well as costs for the ACC Network. At Broadcasting, programming and production costs increased $714 million due to the consolidation of TFCF’s operations and higher cost network programming, driven by more hours of higher cost specials and contractual rate increases for The Academy Awards in the current quarter. These increases were partially offset by a timing benefit from the adoption of new accounting guidance, which generally results in lower amortization of capitalized episodic television costs during the network airings for
48

MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS — (continued)
shows we also expect to utilize on our direct-to-consumer services (see Note 8 to the Condensed Consolidated Financial Statements). Compared to the previous accounting, programming and production expense will generally be lower in the first half of the fiscal year and higher in the second half of the fiscal year as the capitalized costs are amortized.
Selling, general, administrative and other costs increased $193 million, from $490 million to $683 million, due to the consolidation of TFCF’s operations and higher marketing costs at the ABC Television Network.
Segment Operating Income
Segment operating income increased 7%, or $145 million to $2,375 million due to the consolidation of TFCF’s operations, partially offset by lower results at ESPN and the Domestic Disney Channels.
The following table presents supplemental revenue and operating income detail for the Media Networks segment: 
 Quarter Ended% Change
(in millions)March 28,
2020
March 30,
2019
Better/
(Worse)
Supplemental revenue detail
Cable Networks$4,445  $3,793  17 %
Broadcasting2,812 1,890 49 %
$7,257  $5,683  28 %
Supplemental operating income detail
Cable Networks$1,799  $1,789  %
Broadcasting397  259  53 %
Equity in the income of investees179  182  (2)%
$2,375  $2,230  %
Items Excluded from Segment Operating Income Related to Media Networks
The following table presents supplemental information for items related to the Media Network segment that are excluded from segment operating income:
Quarter Ended% Change
(in millions)March 28,
2020
March 30,
2019
Better/
(Worse)
Amortization of TFCF intangible assets and fair value step-up on film and television costs(1)
$(311)$(50)>(100)%
Restructuring and impairment charges(18) (64) 72 %
(1)In the current quarter, amortization of step-up on film and television costs was $158 million and amortization of intangible assets was $153 million. In the prior-year quarter, amortization of step-up on film and television costs was $32 million and amortization of intangible assets was $18 million.
49

MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS — (continued)
Parks, Experiences and Products
Operating results for the Parks, Experiences and Products segment are as follows: 
 Quarter Ended% Change
(in millions)March 28,
2020
March 30,
2019
Better/
(Worse)
Revenues
Theme park admissions$1,554  $1,768  (12)%
Parks & Experiences merchandise, food and beverage1,276 1,411 (10)%
Resorts and vacations1,377  1,503  (8)%
Merchandise licensing and retail900  992  (9)%
Parks licensing and other436  497  (12)%
Total revenues5,543  6,171  (10)%
Operating expenses(3,555) (3,341) (6)%
Selling, general, administrative and other(733) (748) %
Depreciation and amortization(610) (576) (6)%
Equity in the loss of investees(6) —  nm  
Operating Income$639  $1,506  (58)%
Revenues
Revenues at the Parks, Experiences and Products segment were impacted by COVID-19, which led to the closure of our domestic and international theme parks and resorts, suspension of cruise ship sailings, disruptions in our merchandise licensing business and closure of our retail stores. We estimate that the impact of COVID-19 on current period segment operating income was approximately $1.0 billion.
The decrease in theme park admissions revenue was due to a decrease of 19% from lower attendance driven by the closure of the parks, partially offset by an increase of 7% from higher average ticket prices.
The decline in Parks & Experiences merchandise, food and beverage revenue was driven by a decrease of 17% from volumes due to the closure of our theme parks and resorts, partially offset by an increase of 9% from higher average guest spending.
The decrease in resorts and vacations revenue was due to decreases of 8% from lower occupied room nights and 5% from fewer passenger cruise days due to the closure of our theme parks and resorts and suspension of cruise ship sailings, respectively. These decreases were partially offset by increases of 2% from higher average daily hotel room rates and 2% from the consolidation of TFCF’s operations.
Merchandise licensing and retail revenue was lower due to decreases of 6% from games and 2% from merchandise licensing. Lower revenue at games was due to the prior-year sale of rights to a video game and lower royalties from the licensed title Kingdom Hearts III. The decrease in merchandise licensing revenues was due to lower minimum guarantee shortfall recognition and a decrease in sales of merchandise based on Mickey and Minnie and Avengers, partially offset by higher revenue from Frozen merchandise. Revenues from merchandise based on Mickey and Minnie in the prior-year quarter included the benefit of Mickey’s 90th birthday. Merchandise licensing revenues for the current quarter were adversely impacted by COVID-19.
The decrease in parks licensing and other revenue was due to lower sponsorship revenue and a decrease in Tokyo Disney Resort royalties due to the closure of the park.
50

MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS — (continued)
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 EndedQuarter EndedQuarter Ended
 Mar 28,
2020
Mar 30,
2019
Mar 28,
2020
Mar 30,
2019
Mar 28,
2020
Mar 30,
2019
Parks
Increase/(decrease)
Attendance (2)
(11)%%(50)%(3)%(22)%— %
Per Capita Guest Spending (3)
13 %%(5)%10 %14 %%
Hotels
Occupancy (4)
77 %93 %47 %79 %70 %89 %
Available Room Nights (in thousands) (5)
2,617 2,484 794 787 3,411 3,271 
Per Room Guest Spending (6)
$372  $351  $265  $273  $355  $334  
(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, meaning that 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 include operating labor, which increased $146 million from $1,515 million to $1,661 million, cost of goods sold and distribution costs, which decreased $10 million from $636 million to $626 million, and infrastructure costs, which increased $57 million from $597 million to $654 million. The increase in operating labor was due to the costs of pay to employees who were not performing services as a result of actions taken in response to COVID-19 (net of the CARES Act credits), new guest offerings and inflation. The decrease in cost of goods sold and distribution costs was due to lower volumes resulting from the closures of our theme parks and resorts. Higher infrastructure costs were primarily due to an increase in costs for new guest offerings, including expenses associated with Star Wars: Galaxy’s Edge, and higher technology spending. Other operating expenses, which include costs for such items as supplies, commissions/fees and entertainment offerings, increased $21 million, from $593 million to $614 million driven by higher charges for capital project abandonments, the consolidation of TFCF’s operations and costs for new guest offerings, partially offset by lower volumes.
Selling, general, administrative and other costs decreased $15 million from $748 million to $733 million driven by a favorable foreign exchange impact, partially offset by costs related to an employee educational program.
Depreciation and amortization increased $34 million from $576 million to $610 million due to new attractions at our domestic parks and resorts.
Equity in the Loss of Investees
Loss from equity investees was $6 million, reflecting a loss from Villages Nature, in which Disneyland Paris has a 50% interest.
51

MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS — (continued)
Segment Operating Income
Segment operating income decreased 58%, or $867 million to $639 million due to decreases at our domestic and international parks and experiences and to a lesser extent, our games and merchandise licensing businesses.
The following table presents supplemental revenue and operating income detail for the Parks, Experiences and Products segment:
Quarter Ended% Change
Better /
(Worse)
(in millions)March 28,
2020
March 30,
2019
Supplemental revenue detail
Parks & Experiences
Domestic$4,139  $4,207  (2)%
International480 930 (48)%
Consumer Products924  1,034  (11)%
$5,543  $6,171  (10)%
Supplemental operating income detail
Parks & Experiences
Domestic$661  $1,047  (37)%
International(343) 43  nm  
Consumer Products321  416  (23)%
$639  $1,506  (58)%

Studio Entertainment
Operating results for the Studio Entertainment segment are as follows: 
 Quarter Ended% Change
(in millions)March 28,
2020
March 30,
2019
Better/
(Worse)
Revenues
Theatrical distribution$603  $752  (20)%
Home entertainment427 270 58 %
TV/SVOD distribution and other1,509  1,135  33 %
Total revenues2,539  2,157  18 %
Operating expenses(1,265) (1,002) (26)%
Selling, general, administrative and other(771) (617) (25)%
Depreciation and amortization(37) (32) (16)%
Operating Income$466  $506  (8)%
Revenues
The decrease in theatrical distribution revenue was due to release of Captain Marvel in the prior-year quarter, partially offset by the consolidation of TFCF’s operations in the current quarter. Additionally, the current quarter included the ongoing performance from the first quarter release of Star Wars: The Rise of Skywalker and Frozen II and current quarter release of Onward, which was impacted by theater closures globally due to COVID-19. The prior-year quarter included the ongoing performance of Mary Poppins Returns and Ralph Breaks the Internet, which were both released in the prior-year first quarter, and the results of Dumbo, which was released in the prior-year quarter. Significant TFCF titles in release included Spies in Disguise and Call of The Wild.
Higher home entertainment revenue was primarily due to an increase of 42% from the consolidation of TFCF’s operations and an increase of 11% from higher domestic unit sales at our legacy operations. The increase in domestic unit sales at our legacy operations was driven by the performance of Frozen II and Maleficent: Mistress of Evil in the current quarter compared to Ralph Breaks the Internet and Mary Poppins Returns in the prior-year quarter.
52

MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS — (continued)
Growth in TV/SVOD distribution and other revenue was due to an increase of 30% from the consolidation of TFCFs operations. Revenues at our legacy operations were essentially flat as an increase of 4% from TV/SVOD distribution was largely offset by a decrease of 3% from stage plays reflecting the impact of theater closures in response to COVID-19. The increase in TV/SVOD distribution at our legacy operations was due to sales of content to Disney+, which included The Lion King, Aladdin, Toy Story 4 and Frozen II, partially offset by lower sales to third parties in the pay and free television windows.
Costs and Expenses
Operating expenses include film cost amortization, which increased $271 million, from $698 million to $969 million, due to the consolidation of TFCF’s operations, partially offset by lower film cost amortization at our legacy operations. Lower amortization at our legacy operations was due to the decrease in theatrical distribution revenue, partially offset by higher film impairments. Operating expenses also include cost of goods sold and distribution costs, which decreased $8 million, from $304 million to $296 million.
Selling, general, administrative and other costs increased $154 million from $617 million to $771 million, due to the consolidation of TFCF’s operations and higher bad debt expense at our theatrical distribution business. These decreases were partially offset by lower theatrical marketing expense at our legacy operations.
Segment Operating Income
Segment operating income decreased $40 million, to $466 million due to lower operating results at our legacy operations, due to higher film impairments, a decrease in theatrical distribution results and lower stage play results, partially offset by an increase in TV/SVOD distribution results. The decrease at our legacy operations was partially offset by the consolidation of TFCF businesses.
Items Excluded from Segment Operating Income Related to Studio Entertainment
The following table presents supplemental information for items related to the Studio Entertainment segment that are excluded from segment operating income:
Quarter Ended% Change
(in millions)March 28,
2020
March 30,
2019
Better/
(Worse)
Amortization of TFCF intangible assets and fair value step-up on film and television costs(1)
$(81)$— nm  
Restructuring and impairment charges(37) (111) 67 %
(1)Amortization of step-up on film and television costs was $54 million and amortization of intangible assets was $27 million.
Direct-to-Consumer & International
Operating results for the Direct-to-Consumer & International segment are as follows: 
 Quarter Ended% Change
(in millions)March 28,
2020
March 30,
2019
Better/
(Worse)
Revenues
Affiliate fees$957  $412  >100 %
Advertising1,081 454 >100 %
Subscription fees1,796  153  >100 %
TV/SVOD distribution and other289  126  >100 %
Total revenues4,123  1,145  >100 %
Operating expenses(3,747) (1,094) >(100)%
Selling, general, administrative and other(1,059) (238) >(100)%
Depreciation and amortization(99) (60) (65)%
Equity in the loss of investees(30) (138) 78 %
Operating Loss$(812) $(385) >(100)%
Revenues
The increase in affiliate fees was due to the consolidation of TFCF’s operations.
53

MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS — (continued)
Advertising revenue growth was due to increases of $451 million in addressable advertising sales driven by the consolidation of Hulu’s operations and $176 million at our International Channels driven by the consolidation of TFCF’s operations.
The increase in subscription fees was due to the consolidation of Hulus operations, the launch of Disney+ starting in November 2019 and, to a lesser extent, subscriber growth at ESPN+.
Growth in TV/SVOD distribution and other revenue was due to Ultimate Fighting Championship (UFC) pay-per-view fees and the consolidation of TFCFs operations, which primarily consisted of TV/SVOD distribution.
The following table presents the number of paid subscribers(1) (in millions) for Disney+, ESPN+ and Hulu as of:
 % Change
March 28,
2020
March 30,
2019
Better /
(Worse)
Disney+33.5  —  nm  
ESPN+7.9 2.2 >100 %
Hulu
SVOD Only28.8  23.2  24 %
Live TV + SVOD3.3  2.0  65 %
Total Hulu32.1  25.2  27 %
The following table presents the average monthly revenue per paid subscriber(2) for the quarter ended:
 % Change
March 28,
2020
March 30,
2019
Better /
(Worse)
Disney+$5.63  —  nm  
ESPN+ (3)
$4.24 $5.13 (17)%
Hulu (4)
SVOD Only$12.06  $12.73  (5)%
Live TV + SVOD$67.75  $52.58  29 %
(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.
(2) Revenue per paid subscriber is calculated based upon 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 for the quarter ended March 28, 2020 is calculated using a daily average of paid subscribers for the period beginning at launch and ending on the last day of the quarter. 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.
(3) Excludes Pay-Per-View revenue.
(4) Hulus average monthly revenue per paid subscriber for the period December 30, 2018 to March 19, 2019 is not reflected in the Companys prior-year quarter revenues, but is included in the average monthly revenue per paid subscriber reported in the table. Includes advertising revenue (including amounts generated during free trial subscription periods).
The average monthly revenue per paid subscriber for ESPN+ decreased from $5.13 to $4.24 due to the introduction of a bundled subscription package offering of Disney+, ESPN+ and Hulu beginning in November 2019. The bundled offering has a lower retail price than the aggregate standalone retail prices of the individual services.
The average monthly revenue per paid subscriber for the Hulu SVOD Only service decreased from $12.73 to $12.06 driven by lower retail pricing. The average monthly revenue per paid subscriber for the Hulu Live TV + SVOD service increased from $52.58 to $67.75 due to higher retail pricing.
Costs and Expenses
Operating expenses include a $2,208 million increase in programming and production costs, from $769 million to $2,977 million and a $445 million increase in other operating expenses, from $325 million to $770 million. The increase in programming and production costs, which includes the costs of content provided by other segments, was due to the consolidation of Hulu’s and TFCF’s operations, the launch of Disney+ and, to a lesser extent, higher programming costs at
54

MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS — (continued)
ESPN+, primarily for UFC programming rights. Other operating expenses, which include technical support and distribution costs, increased due to the consolidation of Hulus and TFCF’s operations and the launch of Disney+.
Selling, general, administrative and other costs increased $821 million from $238 million to $1,059 million due to the consolidation of Hulus and TFCF’s operations and the launch of Disney+.
Depreciation and amortization increased $39 million from $60 million to $99 million driven by the consolidation of Hulus and TFCF’s operations.
Equity in the Loss of Investees
Loss from equity investees in the prior-year quarter of $138 million improved by $108 million to a loss of $30 million in the current quarter, primarily due to the consolidation of Hulu’s operations. In the current quarter, Hulu’s results are reported in revenues and expenses. In the prior-year quarter, prior to March 20, 2019, the Company recognized its ownership share of Hulu’s results in equity in the loss of investees.
Segment Operating Loss
Segment operating loss increased to $812 million due to costs associated with the launch of Disney+ and the consolidation of Hulu’s operations. Results for the quarter also reflected a net a benefit from the inclusion of TFCF’s operations due to income at the international channels, including Star.
The following table presents supplemental revenue and operating income/(loss) detail for the Direct-to-Consumer & International segment:
 Quarter Ended% Change
(in millions)March 28,
2020
March 30,
2019
Better /
(Worse)
Supplemental revenue detail
International Channels$1,389  $615  >100 %
Direct-to-Consumer services2,456 220 >100 %
Other (1)
278  310  (10)%
$4,123  $1,145  >100 %
Supplemental operating income (loss) detail
International Channels$247  $113  >100 %
Direct-to-Consumer services(894) (277) >(100)%
Other (1)
(135) (83) (63)%
Equity in the loss of investees(30) (138) 78 %
$(812) $(385) >(100) % 
(1)Primarily addressable ad sales related to domestic Media Networks branded properties (addressable ad sales related to our Direct-to-Consumer services, principally Hulu, are reflected in “Direct-to-Consumer services”)
Items Excluded from Segment Operating Loss Related to Direct-to-Consumer & International
The following table presents supplemental information for items related to the Direct-to-Consumer & International segment that are excluded from segment operating loss:
Quarter Ended% Change
(in millions)March 28,
2020
March 30,
2019
Better /
(Worse)
Amortization of TFCF and Hulu intangible assets and fair value step-up on film and television costs(1)
$(329)$(55)>(100)%
Hulu gain—  4,917  (100)%
Restructuring and impairment charges(69) (138) 50 %
(1)In the current quarter, amortization of intangible assets was $316 million, amortization of intangible assets related to TFCF equity investees was $8 million and amortization of step-up on film and television costs was $5 million. In the prior-year quarter, amortization of intangible assets was $50 million and amortization of step-up on film and television costs was $5 million.

55

MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS — (continued)
Eliminations
Intersegment content transactions are as follows:
Quarter Ended% Change
(in millions)March 28,
2020
March 30,
2019
Better/
(Worse)
Revenues
Studio Entertainment:
Content transactions with Media Networks$(58)$(13)>(100)%
Content transactions with Direct-to-Consumer & International(461) (82) >(100)%
Media Networks:
Content transactions with Direct-to-Consumer & International(934) (139) >(100)%
Total$(1,453) $(234) >(100)%
Operating income
Studio Entertainment:
Content transactions with Media Networks$(10) $ nm  
Content transactions with Direct-to-Consumer & International(157) (46) >(100) % 
Media Networks:
Content transactions with Direct-to-Consumer & International(85) —  nm  
Total$(252) $(41) >(100) % 
Revenues
The increase in revenue eliminations was due to sales of Media Networks content to Hulu and Disney+ and sales of Studio Entertainment content to Disney+. Media Networks sales to Hulu included sales of original ABC Studio titles and Twentieth Century Fox Television library titles. Media Networks sales include the benefit of affiliate fees received from Hulu for networks included in the Hulu Live TV + SVOD service. Media Networks sales to Disney+ included sales of Twentieth Century Fox Television and Disney Channel library titles. Studio Entertainment titles sold to Disney+ included The Lion King, Aladdin, Toy Story 4 and Frozen II.
Operating Income
The increase in the impact from eliminations was driven by sales of Studio Entertainment titles to Disney+ and sales of ABC Studios and Twentieth Century Fox Television titles to Hulu.

56

MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS — (continued)
BUSINESS SEGMENT RESULTS - Six Month Results

Media Networks
Operating results for the Media Networks segment are as follows: 
 Six Months Ended% Change
(in millions)March 28,
2020
March 30,
2019
Better/
(Worse)
Revenues
Affiliate Fees$7,394  $6,309  17 %
Advertising3,726 3,647 %
TV/SVOD distribution and other3,498  1,648  >100 %
Total revenues14,618  11,604  26 %
Operating expenses(9,549) (7,347) (30)%
Selling, general, administrative and other(1,343) (968) (39)%
Depreciation and amortization(93) (90) (3)%
Equity in the income of investees372  361  %
Operating Income$4,005  $3,560  13 %
Revenues
The increase in affiliate fees was due to increases of 13% from the consolidation of TFCF’s operations and 7% from higher contractual rates, partially offset by a decrease of 2% from fewer subscribers. The subscriber decline was net of a benefit from the ACC Network launch in August 2019.
The increase in advertising revenues was due to an increase of $130 million at Cable Networks, from $1,759 million to $1,889 million offset by a decrease of $51 million at Broadcasting, from $1,888 million to $1,837 million. Cable Networks advertising revenue reflected increases of 15% from the consolidation of TFCF’s operations and 4% from higher rates. These increases were partially offset by a decrease of 10% from lower impressions reflecting lower average viewership, including the impact COVID-19 had on live sports events. Broadcasting advertising revenue reflected decreases of 5% from lower average network viewership and 3% from the owned television stations, partially offset by increases of 4% from higher network rates and 3% from the consolidation of TFCF’s operations.
The increase in TV/SVOD distribution and other revenue of $1,850 million was due to the consolidation of TFCF’s operations, which consisted primarily of program sales.
Costs and Expenses
Operating expenses include programming and production costs, which increased $2,053 million from $7,047 million to $9,100 million. At Cable Networks, programming and production costs increased $934 million due to the consolidation of TFCF’s operations and, to a lesser extent, contractual increases for sports programming as well as costs for the ACC Network. At Broadcasting, programming and production costs increased $1,119 million due to the consolidation of TFCF’s operations and higher network programming costs driven by higher average costs due to fewer repeats and more hours of higher cost specials. These increases were partially offset by a timing benefit from the adoption of new accounting guidance, which generally results in lower amortization of capitalized episodic television costs during the network airings for shows we also expect to utilize on our direct-to-consumer services. The new guidance also removed certain limitations on the capitalization of episodic television costs. See Note 8 to the Condensed Consolidated Financial Statements. Compared to the previous accounting, programming and production expense will generally be lower in the first half of the fiscal year and higher in the second half of the fiscal year as the capitalized costs are amortized.
Selling, general, administrative and other costs increased $375 million from $968 million to $1,343 million, due to the consolidation of TFCF’s operations.
Segment Operating Income
Segment operating income increased 13%, or $445 million to $4,005 million due to the consolidation of TFCF’s operations and an increase at the ABC Television Network, partially offset by a decrease at ESPN and lower operating income from ABC Studios program sales.
The following table provides supplemental revenue and segment operating income detail for the Media Networks segment: 
57

MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS — (continued)
 Six Months Ended% Change
(in millions)March 28,
2020
March 30,
2019
Better/
(Worse)
Revenues
Cable Networks$9,211 $7,779 18 %
Broadcasting5,407  3,825  41 %
$14,618  $11,604  26 %
Segment operating income
Cable Networks$2,661  $2,532  %
Broadcasting972  667  46 %
Equity in the income of investees372  361  %
$4,005  $3,560  13 %
Items Excluded from Segment Operating Income Related to Media Networks
The following table presents supplemental information for items related to the Media Network segment that are excluded from segment operating income:
Six Months Ended
(in millions)March 28,
2020
March 30,
2019
% Change
Better/(Worse)
Amortization of TFCF intangible assets and fair value step-up on film and television costs(1)
$(611) $(50) >(100)%
Restructuring and impairment charges(22) (64) 66 %
(1)In the current six-month period, amortization of step-up on film and television costs was $305 million and amortization of intangible assets was $306 million. In the prior-year six-month period, amortization of step-up on film and television costs was $32 million and amortization of intangible assets was $18 million.

Parks, Experiences and Products
Operating results for the Parks, Experiences and Products segment are as follows: 
 Six Months Ended% Change
(in millions)March 28,
2020
March 30,
2019
Better/
(Worse)
Revenues
Theme park admissions$3,621  $3,701  (2)%
Parks & Experiences merchandise, food and beverage2,967  2,976  — %
Resorts and vacations3,008 3,034 (1)%
Merchandise licensing and retail2,385  2,292  %
Parks licensing and other958  992  (3)%
Total revenues12,939  12,995  — %
Operating expenses(7,258) (6,747) (8)%
Selling, general, administrative and other(1,491) (1,437) (4)%
Depreciation and amortization(1,204) (1,141) (6)%
Equity in the loss of investees(9) (12) 25 %
Operating Income$2,977  $3,658  (19)%
Revenues
The decrease in theme park admissions revenue was due to a decrease of 9% from lower attendance driven by the closure of the parks, partially offset by an increase of 7% from higher average ticket prices.
58

MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS — (continued)
Parks & Experiences merchandise, food and beverage revenue was comparable to the prior-year six-month period, as a decrease of 9% from lower volumes driven by the closure of the parks and resorts was largely offset by an increase of 8% from higher average guest spending.
The decrease in resorts and vacations revenue was due to decreases of 5% from lower occupied room nights and 2% from a decrease in passenger cruise days driven by the closure of the resorts and suspension of cruise ship sailings, respectively. These decreases were largely offset by increases of 3% from higher average daily hotel room rates, 2% from the consolidation of TFCF’s operations and 1% from higher average ticket prices for cruise line sailings.
Merchandise licensing and retail revenue growth was due to increases of 3% from merchandise licensing, 3% from publishing and 2% from retail, partially offset by a decrease of 3% from games. The increase at merchandise licensing was due to higher revenue from Frozen and Star Wars merchandise, partially offset by a decrease in guaranteed shortfall recognition and lower revenues from merchandise based on Mickey and Minnie. Revenues from merchandise based on Mickey and Minnie in the prior-year period included the benefit of Mickey’s 90th birthday. The increase at publishing was primarily due to the consolidation of TFCF’s operations, while higher revenues at retail were due to an increase in online sales. The decrease at games was driven by the prior-year sale of rights to a video game.
The decrease in parks licensing and other revenue was due to a decrease of 4% from lower Tokyo Disney Resort royalties primarily due to the closure of the park.
The following table presents supplemental park and hotel statistics: 
 Domestic
International (1)
Total
 Six Months EndedSix Months EndedSix Months Ended
 March 28,
2020
March 30,
2019
March 28,
2020
March 30,
2019
March 28,
2020
March 30,
2019
Parks
Increase/(decrease)
Attendance (2)
(4)%%(29)%(4)%(11)%(1)%
Per Capita Guest Spending (3)
11 %%— %%12 %%
Hotels
Occupancy (4)
84 %93 %60 %83 %79 %91 %
Available Room Nights (in thousands)(5)
5,150  4,975  1,594  1,587  6,744  6,562  
Per Room Guest Spending(6)
$373  $355  $302  $293  $360  $342  
(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, meaning that 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 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 include operating labor, which increased $245 million from $3,008 million to $3,253 million, cost of sales and distribution costs, which increased $76 million from $1,453 million to $1,529 million, and infrastructure costs, which increased $112 million from $1,147 million to $1,259 million. The increase in operating labor was due to inflation, new guest offerings and costs of pay to employees who were not performing services as a result of actions taken in response to COVID-19 (net of the CARES Act credits). Higher cost of sales and distribution costs were primarily due to the consolidation of TFCF’s
59

MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS — (continued)
operations and inflation. The increase in infrastructure costs was driven by new guest offerings and higher technology spending. Other operating expenses, which include costs for such items as supplies, commissions/fees and entertainment offerings, increased $78 million, from $1,139 million to $1,217 million, due to higher charges for capital project abandonments, new guest offerings and the consolidation of TFCF’s operations, partially offset by lower volumes.
Selling, general, administrative and other costs increased $54 million from $1,437 million to $1,491 million due to costs related to an employee educational program, inflation and the consolidation of TFCF’s operations, partially offset by a favorable foreign exchange impact.
Depreciation and amortization increased $63 million from $1,141 million to $1,204 million due to new attractions at our domestic parks and resorts.
Segment Operating Income
Segment operating income decreased 19%, or $681 million, to $2,977 million due to decreases at our international and domestic parks and experiences, partially offset by an increase at merchandise licensing.
The following table presents supplemental revenue and operating income detail for the Parks, Experiences and Products segment:
Six Months Ended% Change
Better /
(Worse)
(in millions)March 28,
2020
March 30,
2019
Supplemental revenue detail
Parks & Experiences
Domestic$9,078  $8,680  %
International1,430 1,942 (26)%
Consumer Products2,431  2,373  %
$12,939  $12,995  — %
Supplemental operating income detail
Parks & Experiences
Domestic$2,233  $2,528  (12)%
International(292) 142  nm  
Consumer Products1,036  988  %
$2,977  $3,658  (19)%

Studio Entertainment
Operating results for the Studio Entertainment segment are as follows: 
 Six Months Ended% Change
(in millions)March 28,
2020
March 30,
2019
Better/
(Worse)
Revenues
Theatrical distribution$2,011 $1,125 79 %
Home entertainment938  695  35 %
TV/SVOD distribution and other3,354  2,161  55 %
Total revenues6,303  3,981  58 %
Operating expenses(3,058) (1,878) (63)%
Selling, general, administrative and other(1,757) (1,226) (43)%
Depreciation and amortization(74) (62) (19)%
Operating Income$1,414  $815  73 %
60

MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS — (continued)
Revenues
The increase in theatrical distribution revenue was due to the current period performance of Frozen II and Star Wars: The Rise of Skywalker and the consolidation of TFCF’s operations compared to Captain Marvel and Ralph Breaks the Internet in the prior-year period. Additionally, the current period included Maleficent: Mistress Of Evil and Onward and the prior-year period included Mary Poppins Returns, Nutcracker and the Four Realms and Dumbo. Significant TFCF titles included Ford V. Ferrari, Spies in Disguise and Terminator: Dark Fate.
Higher home entertainment revenue was due to an increase of 35% from the consolidation of TFCF’s operations.
Higher TV/SVOD distribution and other revenue was due to an increase of 53% from TV/SVOD distribution due to an increase of 30% from the consolidation of TFCF’s operations and an increase of 24% at our legacy operations. The increase at our legacy operations was due to sales of content to Disney+, partially offset by lower sales to third parties in the pay and free television windows.
Costs and Expenses
Operating expenses included film cost amortization, which increased $1,056 million, from $1,316 million to $2,372 million due to the consolidation of TFCF’s operations and an increase at our legacy operations. The increase at our legacy operations was due to higher TV/SVOD distribution revenue, and to a lesser extent, higher film cost impairments. Operating expenses also include cost of goods sold and distribution costs, which increased $124 million, from $562 million to $686 million, due to the consolidation of TFCF’s operations.
Selling, general, administrative and other costs increased $531 million from $1,226 million to $1,757 million due to the consolidation of TFCF’s operations.
Segment Operating Income
Segment operating income increased 73%, or $599 million, to $1,414 million due to increases in theatrical and TV/SVOD distribution results at our legacy operations.
Items Excluded from Segment Operating Income Related to Studio Entertainment
The following table presents supplemental information for items related to the Studio Entertainment segment that are excluded from segment operating income:
Six Months Ended
(in millions)March 28,
2020
March 30,
2019
% Change
Better/(Worse)
Amortization of TFCF intangible assets and fair value step-up on film and television costs(1)
$(162)$— nm  
Restructuring and impairment charges(57) (111) 49 %
(1)Amortization of step-up on film and television costs was $108 million and amortization of intangible assets was $54 million.

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS — (continued)
Direct-to-Consumer & International
Operating results for the Direct-to-Consumer & International segment are as follows: 
 Six Months Ended% Change
(in millions)March 28,
2020