# Walt Disney Co (DIS) FY 2022 MD&A

Verbatim Item 7 Management's Discussion and Analysis from Walt Disney Co's 10-K for fiscal year 2022.

SEC filing source: https://www.sec.gov/Archives/edgar/data/1744489/000174448922000213/dis-20221001.htm
Accession: 0001744489-22-000213
Filing date: 2022-11-29
Report date: 2022-10-01
Extracted structurally from real Item 7 body heading to real Item 7A/8 boundary. Published MD&A gate trimmed front/tail over-capture.
Confidence: high

Company profile: /company/DIS/
All MD&A years: /company/DIS/mda/
Previous year: /company/DIS/mda/fy2021/ (FY 2021)
Next year: /company/DIS/mda/fy2023/ (FY 2023)

ITEM 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

CONSOLIDATED RESULTS

(in millions, except per share data)

[[GREPCENT_TABLE]]
[["","2022","","2021","","","","% Change Better (Worse)"],["Revenues:"],["Services","$","74,200","","","$","61,768","","","","","20 %"],["Products","8,522","","","5,650","","","","","51 %"],["Total revenues","82,722","","","67,418","","","","","23 %"],["Costs and expenses:"],["Cost of services (exclusive of depreciation and amortization)","(48,962)","","","(41,129)","","","","","(19) %"],["Cost of products (exclusive of depreciation and amortization)","(5,439)","","","(4,002)","","","","","(36) %"],["Selling, general, administrative and other","(16,388)","","","(13,517)","","","","","(21) %"],["Depreciation and amortization","(5,163)","","","(5,111)","","","","","(1) %"],["Total costs and expenses","(75,952)","","","(63,759)","","","","","(19) %"],["Restructuring and impairment charges","(237)","","","(654)","","","","","64 %"],["Other income (expense), net","(667)","","","201","","","","","nm"],["Interest expense, net","(1,397)","","","(1,406)","","","","","1 %"],["Equity in the income of investees, net","816","","","761","","","","","7 %"],["Income from continuing operations before income taxes","5,285","","","2,561","","","","","100 %"],["Income taxes from continuing operations","(1,732)","","","(25)","","","","","(100) %"],["Net income from continuing operations","3,553","","","2,536","","","","","40 %"],["Loss from discontinued operations, net of income tax benefit of $14 and $9, respectively","(48)","","","(29)","","","","","(66) %"],["Net income","3,505","","","2,507","","","","","40 %"],["Net income from continuing operations attributable to noncontrolling and redeemable noncontrolling interests","(360)","","","(512)","","","","","30 %"],["Net income attributable to Disney","$","3,145","","","$","1,995","","","","","58 %"],["Earnings (loss) per share attributable to Disney:"],["Diluted(1)"],["Continuing operations","$","1.75","","","$","1.11","","","","","58 %"],["Discontinued operations","(0.03)","","","(0.02)","","","","","(50) %"],["","$","1.72","","","$","1.09","","","","","58 %"],["Basic(1)"],["Continuing operations","$","1.75","","","$","1.11","","","","","58 %"],["Discontinued operations","(0.03)","","","(0.02)","","","","","(50) %"],["","$","1.73","","","$","1.10","","","","","57 %"],["Weighted average number of common and common equivalent shares outstanding:"],["Diluted","1,827","","1,828"],["Basic","1,822","","1,816"]]
[[/GREPCENT_TABLE]]

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

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Organization of Information

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

•Significant Developments

•Consolidated Results and Non-Segment Items

•Business Segment Results

•Corporate and Unallocated Shared Expenses

•Restructuring Activities

•Liquidity and Capital Resources

•Supplemental Guarantor Financial Information

•Critical Accounting Policies and Estimates

In Item 7, we discuss fiscal 2022 and 2021 results and comparisons of fiscal 2022 results to fiscal 2021 results. Discussions of fiscal 2020 results and comparisons of fiscal 2021 results to fiscal 2020 results can be found in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part II, Item 7 of the Company’s Annual Report on Form 10-K for the fiscal year ended October 2, 2021.

SIGNIFICANT DEVELOPMENTS

Leadership Change and Pending Restructuring

As previously announced, on November 20, 2022, Robert A. Iger returned to the Company as Chief Executive Officer (“CEO”) and a director. Mr. Iger previously spent more than four decades at the Company, including 15 years as CEO. In announcing Mr. Iger’s appointment, the Company noted he has agreed to serve as CEO for two years, with a mandate from the Company’s Board of Directors “to set the strategic direction for renewed growth and to work closely with the Board in developing a successor to lead the Company at the completion of his term.” Mr. Iger succeeded Robert A. Chapek, who had served as CEO since 2020.

As contemplated by the leadership change announcement, we anticipate that within the coming months Mr. Iger will initiate organizational and operating changes within the Company to address the Board’s goals. While the plans are in early stages, changes in our structure and operations, including within DMED (and including possibly our distribution approach and the businesses/distribution platforms selected for the initial distribution of content), can be expected. The restructuring and change in business strategy, once determined, could result in impairment charges.

COVID-19 Pandemic

Since early 2020, the world has been, and continues to be, impacted by COVID-19 and its variants. COVID-19 and measures to prevent its spread have impacted our segments in a number of ways, most significantly at DPEP where our theme parks and resorts were closed and cruise ship sailings and guided tours were suspended. In addition, at DMED we delayed, or in some cases, shortened or cancelled theatrical releases and experienced disruptions in the production and availability of content. Operations have resumed at various points since May 2020, with certain theme park and resort operations and film and television productions resuming by the end of fiscal 2020 and throughout fiscal 2021. Although operations resumed, many of our businesses continue to experience impacts from COVID-19, such as incremental health and safety measures and related increased expenses, capacity restrictions and closures (including at some of our international parks and in theaters in certain markets), and disruption of content production activities.

The impact of COVID-19 related disruptions on our financial and operational results will be dictated by the currently unknowable duration and severity of COVID-19 and its variants, and among other things, governmental actions imposed in response to COVID-19 and individuals’ and companies’ risk tolerance regarding health matters going forward. We have incurred and will continue to incur additional costs to address government regulations and the safety of our employees, guests and talent.

Additionally, see Part I., Item 1A. Risk Factors - The adverse impact of COVID-19 on our businesses will continue for an unknown length of time and may continue to impact certain of our key sources of revenue.

CONSOLIDATED RESULTS AND NON-SEGMENT ITEMS

Revenues for fiscal 2022 increased 23%, or $15.3 billion, to $82.7 billion; net income attributable to Disney increased $1.2 billion, to income of $3.1 billion; and diluted earnings per share from continuing operations attributable to Disney increased to income of $1.75 compared to income of $1.11 in the prior year. The EPS increase was due to higher segment

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operating results, partially offset by higher income tax expense in the current year compared to the prior year. Higher segment operating results reflecting growth at DPEP, partially offset by lower operating results at DMED.

Revenues

Service revenues for fiscal 2022 increased 20%, or $12.4 billion, to $74.2 billion, due to increased revenues at our theme parks and resorts, higher DTC subscription revenue and, to a lesser extent, higher theatrical distribution and advertising revenue. These increases were partially offset by a reduction in revenue for amounts to early terminate certain license agreements with a customer for film and television content, which was delivered in previous years, in order for the Company to use the content primarily on our DTC services (Content License Early Termination). The increase at theme parks and resorts was due to higher volumes, which generally reflected the impact of operating with capacity restrictions in the prior year as a result of COVID-19, and higher average per capita ticket revenue. The increase in DTC subscription revenue was due to subscriber growth and higher average rates.

Product revenues for fiscal 2022 increased 51%, or $2.9 billion, to $8.5 billion, due to higher sales volumes of merchandise, food and beverage at our theme parks and resorts.

Costs and expenses

Cost of services for fiscal 2022 increased 19%, or $7.8 billion, to $49.0 billion, due to higher programming and production costs, increased volumes at our theme parks and resorts and higher technical support costs at Direct-to-Consumer. The increase in programming and production costs was due to higher costs at Direct-to-Consumer, increased sports programming costs and an increase in production cost amortization due to theatrical revenue growth. These increases were partially offset by lower programming and production costs as a result of international channel closures.

Cost of products for fiscal 2022 increased 36%, or $1.4 billion, to $5.4 billion, due to higher merchandise, food and beverage sales at our theme parks and resorts.

Selling, general, administrative and other costs for fiscal 2022 increased 21%, or $2.9 billion, to $16.4 billion, primarily due to higher marketing costs at our DTC and, to a lesser extent, theatrical distribution and parks and experiences businesses.

Restructuring and Impairment Charges

Restructuring and impairment charges in fiscal 2022 were $0.2 billion primarily due to the impairment of an intangible and other assets related to our businesses in Russia. We may incur additional charges to exit these businesses, which are not anticipated to be material.

Restructuring and impairment charges in fiscal 2021 were $0.7 billion due to $0.4 billion of asset impairments and severance costs related to the shut-down of an animation studio and the closure of a substantial number of Disney-branded retail stores in North America and Europe and $0.3 billion of severance and other costs in connection with the integration of TFCF and workforce reductions at DPEP.

Other Income (expense), net

[[GREPCENT_TABLE]]
[["(in millions)","","2022","","2021","","% Change Better (Worse)"],["fuboTV gain","","$","\u2014","","","$","186","","","(100) %"],["German FTA gain","","\u2014","","","126","","","(100) %"],["DraftKings loss","","(663)","","","(111)","","","(100) %"],["Other, net","","(4)","","","\u2014","","","nm"],["Other income (expense), net","","$","(667)","","","$","201","","","nm"]]
[[/GREPCENT_TABLE]]

In fiscal 2022, the Company recognized a non-cash loss of $663 million from the adjustment of its investment in DraftKings Inc. (DraftKings) to fair value (DraftKings loss).

In fiscal 2021, the Company recognized a $186 million gain from the sale of our investment in fuboTV Inc. (fuboTV gain), a $126 million gain on the sale of our 50% interest in a German free-to-air (FTA) television network (German FTA gain) and a $111 million DraftKings loss.

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Interest Expense, net

[[GREPCENT_TABLE]]
[["(in millions)","","2022","","2021","","% Change Better (Worse)"],["Interest expense","","$","(1,549)","","","$","(1,546)","","","\u2014 %"],["Interest income, investment income and other","","152","","","140","","","9 %"],["Interest expense, net","","$","(1,397)","","","$","(1,406)","","","1 %"]]
[[/GREPCENT_TABLE]]

Interest expense was comparable to the prior year as higher average interest rates were offset by lower average debt balances.

The increase in interest income, investment income and other was due to a favorable comparison of pension and postretirement benefit costs, other than service cost, which was a net benefit in the current year and an expense in the prior year. This increase was partially offset by investment losses in the current year compared to investment gains in the prior year.

Equity in the Income of Investees

Equity in the income of investees increased $55 million to $816 million in the current year due to higher income from A+E Television Networks (A+E) and the comparison to investment impairments in the prior year.

Effective Income Tax Rate

[[GREPCENT_TABLE]]
[["","2022","","2021"],["Income from continuing operations before income taxes","$","5,285","","","$","2,561"],["Income tax expense on continuing operations","1,732","","","25"],["Effective income tax rate - continuing operations","32.8%","","1.0%"]]
[[/GREPCENT_TABLE]]

The effective income tax rate in the current year was higher than the U.S. statutory rate primarily due to higher effective tax rates on foreign earnings. The effective income tax rate in the prior year was lower than the U.S. statutory rate due to favorable adjustments related to prior years and excess tax benefits on employee share-based awards, partially offset by higher effective tax rates on foreign earnings. Higher effective tax rates on foreign earnings in both the current and prior year reflected the impact of foreign losses and, to a lesser extent, foreign tax credits for which we are unable to recognize a tax benefit.

Noncontrolling Interests

[[GREPCENT_TABLE]]
[["(in millions)","","2022","","2021","","% Change Better (Worse)"],["Net income from continuing operations attributable to noncontrolling interests","","$","(360)","","$","(512)","","30%"]]
[[/GREPCENT_TABLE]]

The decrease in net income from continuing operations attributable to noncontrolling interests was primarily due to higher losses at Shanghai Disney Resort and higher losses at our DTC sports business, partially offset by higher results for ESPN.

Net income attributable to noncontrolling interests is determined on income after royalties and management fees, financing costs and income taxes, as applicable.

Certain Items Impacting Results in the Year

Results for fiscal 2022 were impacted by the following:

•TFCF and Hulu acquisition amortization of $2,353 million

•A $1.0 billion reduction in revenue for the Content License Early Termination

•Other expense of $667 million due to the DraftKings loss of $663 million

•Restructuring and impairment charges of $237 million

Results for fiscal 2021 were impacted by the following:

•TFCF and Hulu acquisition amortization of $2,418 million

•Restructuring and impairment charges of $654 million

•Other income of $201 million due to the fuboTV gain of $186 million and the German FTA gain of $126 million, partially offset by the DraftKings loss of $111 million

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

[[GREPCENT_TABLE]]
[["(in millions, except per share data)","Pre-Tax Income (Loss)","","Tax Benefit (Expense)(1)","","After-Tax Income (Loss)","","EPS Favorable (Adverse)(2)"],["Year Ended October 1, 2022:"],["TFCF and Hulu acquisition amortization(3)","$","(2,353)","","","$","549","","","$","(1,804)","","","$","(0.97)"],["Contract License Early Termination","(1,023)","","","238","","(785)","","","(0.43)"],["Other income (expense), net","(667)","","","156","","(511)","","","(0.28)"],["Restructuring and impairment charges","(237)","","","55","","(182)","","","(0.10)"],["Total","$","(4,280)","","","$","998","","","$","(3,282)","","","$","(1.78)"],["Year Ended October 2, 2021:"],["TFCF and Hulu acquisition amortization(3)","$","(2,418)","","","$","562","","","$","(1,856)","","","$","(1.00)"],["Restructuring and impairment charges","(654)","","","152","","","(502)","","","(0.27)"],["Other income (expense), net","201","","","(46)","","","155","","","0.08"],["Total","$","(2,871)","","","$","668","","","$","(2,203)","","","$","(1.18)"]]
[[/GREPCENT_TABLE]]

(1)Tax benefit (expense) is determined using the tax rate applicable to the individual item.

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

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

BUSINESS SEGMENT RESULTS

Below is a discussion of the major revenue and expense categories for our business segments. Costs and expenses for each segment consist of operating expenses, selling, general, administrative and other costs, and depreciation and amortization. Selling, general, administrative and other costs include third-party and internal marketing expenses.

DMED primarily generates revenue across three significant lines of business/distribution platforms: Linear Networks, Direct-to-Consumer and Content Sales/Licensing. Programming and production costs to support these businesses/distribution platforms are largely incurred across four content creation groups: Studios, General Entertainment, Sports and International. Programming and production costs include amortization of licensed programming rights (including sports rights), amortization of capitalized production costs, subscriber-based fees for programming our Hulu services, production costs related to live programming such as news and sports and amortization of participations and residual obligations. These costs are generally allocated across the DMED businesses based on the estimated relative value of the distribution windows. The initial costs of marketing campaigns are generally recognized in the DMED business/distribution platform of initial exploitation. We have taken an intentionally flexible approach to distribution. As we refine and adjust our plans, our decisions may impact the results of operations of the businesses within DMED, including cost allocation, revenue timing, viewership timing and patterns, the total mix of content on a business/distribution platform or other aspects relevant to the performance of each business/distribution platform. For example, a shift in the timing or planned business/platform of distribution impacts the timing and allocation of programming, production and marketing costs.

The Linear Networks business generates revenue from affiliate fees and advertising sales and from fees from sub-licensing of sports programming to third parties. Operating expenses include programming and production costs, technology support costs, operating labor and distribution costs.

The Direct-to-Consumer business generates revenue from subscription fees, advertising sales and pay-per-view and Premier Access fees. Operating expenses include programming and production costs, technology support costs, operating labor and distribution costs. Operating expenses also include fees paid to Linear Networks for the right to air the linear network feeds and other services.

The Content Sales/Licensing business generates revenue from the sale of film and episodic television content in the TV/SVOD and home entertainment markets, distribution of films in the theatrical market, licensing of our music rights, sales of tickets to stage play performances and licensing of our IP for use in stage plays. Operating expenses include programming and production costs, distribution expenses and costs of sales.

DPEP primarily generates revenue from the sale of admissions to theme parks, the sale of food, beverage and merchandise at our theme parks and resorts, charges for room nights at hotels, sales of cruise vacations, sales and rentals of vacation club properties, royalties from licensing our IP for use on consumer goods and the sale of branded merchandise. Revenues are also generated from sponsorships and co-branding opportunities, real estate rent and sales, and royalties from Tokyo Disney Resort.

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Significant expenses include operating labor, costs of goods sold, infrastructure costs, depreciation and other operating expenses. Infrastructure costs include technology support costs, repairs and maintenance, utilities and fuel, property taxes, retail occupancy costs, insurance and transportation. Other operating expenses include costs for such items as supplies, commissions and entertainment offerings.

The Company evaluates the performance of its operating segments based on segment operating income, and management uses total segment operating income as a measure of the overall performance of the operating businesses separate from non-operating factors. Total segment operating income is not a financial measure defined by GAAP, should be reviewed in conjunction with the relevant GAAP financial measure and may not be comparable to similarly titled measures reported by other companies. The Company believes that information about total segment operating income assists investors by allowing them to evaluate changes in the operating results of the Company’s portfolio of businesses separate from non-operational factors that affect net income, thus providing separate insight into both operations and other factors that affect reported results.

The following table reconciles revenues to segment revenues:

[[GREPCENT_TABLE]]
[["(in millions)","2022","","2021","","% Change Better (Worse)"],["Revenues","$","82,722","","","$","67,418","","","23 %"],["Content License Early Termination","1,023","","","\u2014","","","nm"],["Total segment revenues","$","83,745","","","$","67,418","","","24 %"]]
[[/GREPCENT_TABLE]]

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

[[GREPCENT_TABLE]]
[["(in millions)","2022","","2021","","","","% Change Better (Worse)"],["Income from continuing operations before income taxes","$","5,285","","","$","2,561","","","","","100 %"],["Add (subtract):"],["Content License Early Termination","1,023","","","\u2014","","","","","nm"],["Corporate and unallocated shared expenses","1,159","","","928","","","","","(25) %"],["Restructuring and impairment charges","237","","","654","","","","","64 %"],["Other income (expense), net","667","","","(201)","","","","","nm"],["Interest expense, net","1,397","","","1,406","","","","","1 %"],["TFCF and Hulu acquisition amortization","2,353","","","2,418","","","","","3 %"],["Total segment operating income","$","12,121","","","$","7,766","","","","","56 %"]]
[[/GREPCENT_TABLE]]

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

[[GREPCENT_TABLE]]
[["(in millions)","2022","","2021","","","","% Change Better (Worse)"],["Segment Revenues:"],["Disney Media and Entertainment Distribution","$","55,040","","","$","50,866","","","","","8 %"],["Disney Parks, Experiences and Products","28,705","","","16,552","","","","","73 %"],["Total segment revenues","$","83,745","","","$","67,418","","","","","24 %"],["Segment operating income:"],["Disney Media and Entertainment Distribution","$","4,216","","","$","7,295","","","","","(42) %"],["Disney Parks, Experiences and Products","7,905","","","471","","","","","100 %"],["Total segment operating income","$","12,121","","","$","7,766","","","","","56 %"]]
[[/GREPCENT_TABLE]]

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Disney Media and Entertainment Distribution

Revenue and operating results for DMED are as follows:

[[GREPCENT_TABLE]]
[["(in millions)","2022","","2021","","% Change Better (Worse)"],["Revenues:"],["Linear Networks","$","28,346","","","$","28,093","","","1 %"],["Direct-to-Consumer","19,558","","","16,319","","","20 %"],["Content Sales/Licensing and Other","8,146","","","7,346","","","11 %"],["Elimination of Intrasegment Revenue(1)","(1,010)","","","(892)","","","(13) %"],["","$","55,040","","","$","50,866","","","8 %"],["Segment operating income (loss):"],["Linear Networks","$","8,518","","","$","8,407","","","1 %"],["Direct-to-Consumer","(4,015)","","","(1,679)","","","(100) %"],["Content Sales/Licensing and Other","(287)","","","567","","","nm"],["","$","4,216","","","$","7,295","","","(42) %"]]
[[/GREPCENT_TABLE]]

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

Linear Networks

Operating results for Linear Networks are as follows:

[[GREPCENT_TABLE]]
[["(in millions)","2022","","2021","","% Change Better (Worse)"],["Revenues"],["Affiliate fees","$","18,535","","","$","18,652","","","(1) %"],["Advertising","9,128","","","8,853","","","3 %"],["Other","683","","","588","","","16 %"],["Total revenues","28,346","","","28,093","","","1 %"],["Operating expenses","(16,902)","","","(16,808)","","","(1) %"],["Selling, general, administrative and other","(3,619)","","","(3,491)","","","(4) %"],["Depreciation and amortization","(145)","","","(168)","","","14 %"],["Equity in the income of investees","838","","","781","","","7 %"],["Operating Income","$","8,518","","","$","8,407","","","1 %"]]
[[/GREPCENT_TABLE]]

Revenues

Affiliate revenue is as follows:

[[GREPCENT_TABLE]]
[["(in millions)","2022","","2021","","% Change Better (Worse)"],["Domestic Channels","$","15,694","","","$","15,244","","","3 %"],["International Channels","2,841","","","3,408","","","(17) %"],["","$","18,535","","$","18,652","","","(1) %"]]
[[/GREPCENT_TABLE]]

The increase in affiliate revenue at the Domestic Channels was due to an increase of 6% from higher contractual rates, partially offset by a decrease of 4% from fewer subscribers.

The decrease in affiliate revenue at the International Channels was due to decreases of 13% from fewer subscribers driven by channel closures, and 6% from an unfavorable foreign exchange impact. These decreases were partially offset by an increase of 2% from higher contractual rates.

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Advertising revenue is as follows:

[[GREPCENT_TABLE]]
[["(in millions)","2022","","2021","","% Change Better (Worse)"],["Cable","$","3,880","","","$","3,681","","","5 %"],["Broadcasting","3,141","","","3,239","","","(3) %"],["Domestic Channels","7,021","","6,920","","1 %"],["International Channels","2,107","","","1,933","","","9 %"],["","$","9,128","","$","8,853","","3 %"]]
[[/GREPCENT_TABLE]]

The increase in Cable advertising revenue was due to increases of 3% from higher impressions and 2% from higher rates. The increase in impressions reflected higher average viewership, partially offset by fewer units delivered.

The decrease in Broadcasting advertising revenue was due to a decrease of 12% from fewer impressions at ABC, reflecting lower average viewership, partially offset by an increase of 10% from higher rates at ABC.

The increase in International Channels advertising revenue was due to increases of 8% from higher impressions and 7% from higher rates, partially offset by 7% from an unfavorable foreign exchange impact. The increase in impressions reflected higher average viewership, partially offset by the impact of channel closures. The increase in average viewership benefited from airing more cricket matches in the current year. The current year included the International Cricket Council (ICC) T20 World Cup, more Board of Control for Cricket in India (BCCI) matches and the Asia Cricket Council (ACC) Asia Cup, partially offset by fewer Indian Premier League (IPL) matches in the current year compared to the prior year. The ICC T20 World Cup generally occurs every two years and was not held in the prior year due to COVID-19. The ACC Asia Cup was rescheduled from 2020 to the current year as a result of COVID-19. The increase in BCCI cricket matches aired in the current year was driven by COVID-19-related cancellations of certain BCCI matches in the prior year.

Other revenue increased $95 million, to $683 million from $588 million, due to sub-licensing fees from ICC T20 World Cup matches and higher sub-licensing fees from BCCI cricket matches in the current year compared to the prior year.

Costs and Expenses

Operating expenses are as follows:

[[GREPCENT_TABLE]]
[["(in millions)","2022","","2021","","% Change Better (Worse)"],["Programming and production costs"],["Cable","$","(9,415)","","","$","(9,353)","","","(1) %"],["Broadcasting","(2,773)","","","(2,767)","","","\u2014 %"],["Domestic Channels","(12,188)","","","(12,120)","","","(1) %"],["International Channels","(3,148)","","","(3,139)","","","\u2014 %"],["","(15,336)","","","(15,259)","","","(1) %"],["Other operating expenses","(1,566)","","","(1,549)","","","(1) %"],["","$","(16,902)","","","$","(16,808)","","","(1) %"]]
[[/GREPCENT_TABLE]]

The increase in programming and production costs at Cable was due to higher sports programming costs, largely offset by lower non-sports programming costs. The increase in sports programming costs was due to higher rights costs for NFL and College Football Playoffs (CFP) and an increase in sports production costs reflecting the return of ESPN-hosted events, which were canceled in the prior year due to COVID-19, partially offset by lower rights costs for MLB and NBA programming. Higher NFL programming costs were due to airing four additional regular season games in the current year compared to the prior year and contractual rate increases. The increase in CFP rights costs was due to higher contractual rates. Lower MLB programming costs were due to airing 29 games of the 2022 regular season under our new contract and one 2021 season playoff game in the current year compared to 92 games of the 2021 regular season in the prior year. The decrease in NBA programming costs was due to the comparison to airing four games of the 2020 NBA Finals in the first quarter of fiscal 2021 due to COVID-19, partially offset by contractual rate increases. Fiscal 2021 also included the 2021 NBA Finals and fiscal 2022 included the 2022 NBA finals. Lower non-sports programming costs were due to a lower cost mix of programming at FX Channels.

Programming and production costs at Broadcasting were comparable to the prior year as higher costs for non-primetime programming were largely offset by lower costs for primetime programming. Increased costs for non-primetime programming were primarily due to higher costs for news programming and higher average costs and more hours of sports programming, while decreased costs for primetime programming were due to lower average costs for reality and scripted programming.

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Programming and production costs at the International Channels were comparable to the prior year as an increase in sports programming costs, reflecting more cricket matches in the current year and higher average costs per match for BCCI and IPL cricket matches, was largely offset by the impact of channel closures and a favorable foreign exchange impact.

Selling, general administrative and other costs increased $128 million, to $3,619 million from $3,491 million, driven by higher labor-related costs.

Depreciation and amortization decreased $23 million, to $145 million from $168 million, driven by fully depreciated assets.

Equity in the Income of Investees

Income from equity investees increased $57 million, to $838 million from $781 million, due to higher income from A+E and the comparison to impairments in the prior year. The increase at A+E resulted from lower programming costs and higher program sales, partially offset by decreases in affiliate and advertising revenue and higher marketing costs.

Operating Income from Linear Networks

Operating income increased 1%, to $8,518 million from $8,407 million due to increases at Broadcasting and Cable and higher income from our equity investees, partially offset by a decrease at the International Channels.

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

[[GREPCENT_TABLE]]
[["(in millions)","2022","","2021","","% Change Better (Worse)"],["Supplemental revenue detail"],["Domestic Channels","$","22,957","","","$","22,463","","","2 %"],["International Channels","5,389","","","5,630","","","(4) %"],["","$","28,346","","","$","28,093","","","1 %"],["Supplemental operating income detail"],["Domestic Channels","$","6,785","","","$","6,594","","","3 %"],["International Channels","895","","","1,032","","","(13) %"],["Equity in the income of investees","838","","","781","","","7 %"],["","$","8,518","","","$","8,407","","","1 %"]]
[[/GREPCENT_TABLE]]

Direct-to-Consumer

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

[[GREPCENT_TABLE]]
[["(in millions)","2022","","2021","","% Change Better (Worse)"],["Revenues"],["Subscription fees","$","15,291","","","$","12,020","","","27 %"],["Advertising","3,733","","","3,366","","","11 %"],["TV/SVOD distribution and other","534","","","933","","","(43) %"],["Total revenues","19,558","","","16,319","","","20 %"],["Operating expenses","(17,440)","","","(13,234)","","","(32) %"],["Selling, general, administrative and other","(5,760)","","","(4,435)","","","(30) %"],["Depreciation and amortization","(373)","","","(329)","","","(13) %"],["Operating Loss","$","(4,015)","","","$","(1,679)","","","(100) %"]]
[[/GREPCENT_TABLE]]

Revenues

The increase in subscription fees reflected increases of 20% from higher subscribers, due to growth at Disney+, Hulu and ESPN+, and 9% from higher average rates due to increases in retail pricing at Disney+ and Hulu, partially offset by a decrease of 2% from an unfavorable foreign exchange impact.

Advertising revenue growth reflected increases of 7% from higher rates due to an increase at Hulu, and to a lesser extent, at Disney+, and 4% from higher impressions due to increases at Disney+, ESPN+ and Hulu. The increase in impressions at Disney+ was primarily due to airing the ICC T20 World Cup and ACC Asia Cup in the current year, neither of which were aired in the prior year.

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The decrease in TV/SVOD distribution and other revenue was due to the absence of Disney+ Premier Access revenues in the current year compared to revenues for Black Widow, Raya and the Last Dragon, Jungle Cruise and Cruella in the prior year. To a lesser extent, the decrease also reflected lower UFC pay-per-view fees due to lower average buys per event.

The following table presents additional information about our Disney+, ESPN+ and Hulu product offerings(1).

Paid subscribers(2) as of:

[[GREPCENT_TABLE]]
[["(in millions)","October 1, 2022","","October 2, 2021","","% Change Better (Worse)"],["Disney+"],["Domestic (U.S. and Canada)","46.4","","","38.8","","","20 %"],["International (excluding Disney+ Hotstar)(3)","56.5","","","36.0","","","57 %"],["Disney+ Core(4)","102.9","","","74.8","","","38 %"],["Disney+ Hotstar","61.3","","","43.3","","","42 %"],["Total Disney+(4)","164.2","","","118.1","","","39 %"],["ESPN+","24.3","","","17.1","","","42 %"],["Hulu"],["SVOD Only","42.8","","","39.7","","","8 %"],["Live TV + SVOD","4.4","","","4.0","","","10 %"],["Total Hulu(4)","47.2","","","43.8","","","8 %"]]
[[/GREPCENT_TABLE]]

Average Monthly Revenue Per Paid Subscriber(5) for the fiscal year ended:

[[GREPCENT_TABLE]]
[["","2022","","2021","","% Change Better (Worse)"],["Disney+"],["Domestic (U.S. and Canada)","$","6.34","","$","6.33","","\u2014 %"],["International (excluding Disney+ Hotstar)(3)","6.10","","5.31","","15 %"],["Disney+ Core","6.22","","5.87","","6 %"],["Disney+ Hotstar","0.88","","0.68","","29 %"],["Global Disney+","4.24","","4.08","","4 %"],["ESPN+","4.80","","4.57","","5 %"],["Hulu"],["SVOD Only","12.72","","12.86","","(1) %"],["Live TV + SVOD","87.62","","81.35","","8 %"]]
[[/GREPCENT_TABLE]]

(1)In the U.S., Disney+, ESPN+ and Hulu SVOD Only are each offered as a standalone service or as a package that includes all three services (the SVOD Bundle). Effective December 21, 2021, Hulu Live TV + SVOD includes Disney+ and ESPN+ (the new Hulu Live TV + SVOD offering), whereas previously, Hulu Live TV + SVOD was offered as a standalone service or with Disney+ and ESPN+ as optional additions (the old Hulu Live TV + SVOD offering). Effective March 15, 2022, Hulu SVOD Only is also offered with Disney+ as an optional add-on. Disney+ is available in more than 150 countries and territories outside the U.S. and Canada. In India and certain other Southeast Asian countries, the service is branded Disney+ Hotstar. In certain Latin American countries, we offer Disney+ as well as Star+, a general entertainment SVOD service, which is available on a standalone basis or together with Disney+ (Combo+). Depending on the market, our services can be purchased on our websites, through third-party platforms/apps or via wholesale arrangements.

(2)Reflects subscribers for which we recognized subscription revenue. Subscribers cease to be a paid subscriber as of their effective cancellation date or as a result of a failed payment method. Subscribers to the SVOD Bundle are counted as a paid subscriber for each service included in the SVOD Bundle and subscribers to the Hulu Live TV + SVOD offerings are counted as one paid subscriber for each of the Hulu Live TV + SVOD, Disney+ and ESPN+ offerings. A Hulu SVOD Only subscriber that adds Disney+ is counted as one paid subscriber for each of the Hulu SVOD Only and Disney+ offerings. In Latin America, if a subscriber has either the standalone Disney+ or Star+ service or subscribes to Combo+, the subscriber is counted as one Disney+ paid subscriber. Subscribers include those

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who receive a service through wholesale arrangements including those for which we receive a fee for the distribution of the service to each subscriber of an existing content distribution tier. When we aggregate the total number of paid subscribers across our DTC streaming services, we refer to them as paid subscriptions.

(3)Includes the Disney+ service outside the U.S. and Canada and the Star+ service in Latin America.

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

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

The average monthly revenue per paid subscriber for domestic Disney+ was comparable to the prior year, as an increase in retail pricing and a lower mix of wholesale subscribers was essentially offset by a higher mix of subscribers to multi-product offerings.

The average monthly revenue per paid subscriber for international Disney+ (excluding Disney+ Hotstar) increased from $5.31 to $6.10 due to increases in retail pricing, partially offset by an unfavorable foreign exchange impact.

The average monthly revenue per paid subscriber for Disney+ Hotstar increased from $0.68 to $0.88 driven by higher per-subscriber advertising revenue and increases in retail pricing, partially offset by a higher mix of wholesale subscribers.

The average monthly revenue per paid subscriber for ESPN+ increased from $4.57 to $4.80 primarily due to an increase in retail pricing, a lower mix of annual subscribers and higher per-subscriber advertising revenue, partially offset by a higher mix of subscribers to multi-product offerings.

The average monthly revenue per paid subscriber for the Hulu SVOD Only service decreased from $12.86 to $12.72 driven by lower per-subscriber advertising revenue, a higher mix of subscribers to multi-product offerings and, to a lesser extent, to promotional offerings, partially offset by an increase in retail pricing.

The average monthly revenue per paid subscriber for the Hulu Live TV + SVOD service increased from $81.35 to $87.62 driven by an increase in retail pricing and higher per-subscriber advertising revenue, partially offset by a higher mix of subscribers to multi-product offerings.

Costs and Expenses

Operating expenses are as follows:

[[GREPCENT_TABLE]]
[["(in millions)","2022","","2021","","% Change Better (Worse)"],["Programming and production costs"],["Disney+","$","(5,027)","","$","(2,915)","","(72) %"],["Hulu","(7,564)","","(6,680)","","(13) %"],["ESPN+ and other","(1,564)","","(1,121)","","(40) %"],["Total programming and production costs","(14,155)","","(10,716)","","(32) %"],["Other operating expense","(3,285)","","(2,518)","","(30) %"],["","$","(17,440)","","$","(13,234)","","(32) %"]]
[[/GREPCENT_TABLE]]

The increase in programming and production costs at Disney+ was due to more content provided on the service and, to a lesser extent, higher average cost programming, which reflected an increased mix of original content.

The increase in programming and production costs at Hulu was due to more content provided on the service and higher subscriber-based fees for programming the Live TV service, which reflected rate increases and an increase in the number of subscribers.

The increase in programming and production costs at ESPN+ and other was due to new NHL programming and higher rights costs for soccer and golf programming.

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Other operating expenses increased due to higher technology and distribution costs at Disney+ reflecting growth in existing markets and, to a lesser extent, expansion to new markets.

Selling, general, administrative and other costs increased $1,325 million, to $5,760 million from $4,435 million, due to higher marketing costs at Disney+ and Hulu.

Depreciation and amortization increased $44 million, to $373 million from $329 million, primarily due to increased investment in technology assets at Disney+.

Operating Loss from Direct-to-Consumer

Operating loss from Direct-to-Consumer increased $2,336 million, to $4,015 million from $1,679 million due to a higher loss at Disney+ and, to a lesser extent, lower operating income at Hulu and a higher loss at ESPN+.

Content Sales/Licensing and Other

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

[[GREPCENT_TABLE]]
[["(in millions)","2022","","2021","","% Change Better (Worse)"],["Revenues"],["TV/SVOD distribution","$","3,781","","","$","4,206","","","(10) %"],["Theatrical distribution","1,875","","","920","","","100 %"],["Home entertainment","820","","","1,014","","","(19) %"],["Other","1,670","","","1,206","","","38 %"],["Total revenues","8,146","","","7,346","","","11 %"],["Operating expenses","(5,499)","","","(4,536)","","","(21) %"],["Selling, general, administrative and other","(2,638)","","","(1,963)","","","(34) %"],["Depreciation and amortization","(296)","","","(294)","","","(1) %"],["Equity in the income of investees","\u2014","","","14","","","\u2014 %"],["Operating Income (Loss)","$","(287)","","","$","567","","","nm"]]
[[/GREPCENT_TABLE]]

Revenues

The decrease in TV/SVOD distribution revenue reflected lower sales volumes, which included the impact from the shift from licensing our content to third parties to distributing it on our DTC streaming services.

The increase in theatrical distribution revenue was due to more titles released in the current year compared to the prior year and revenue in the current year from the co-production of Marvel’s Spider-Man: No Way Home. Although COVID-19 continues to impact our theatrical distribution business in certain markets, the impact in fiscal 2021 was more significant due to theater closures and capacity restrictions in many territories in which we operate. Titles released in the current year included Doctor Strange In The Multiverse of Madness, Thor: Love and Thunder, Eternals, Encanto and Lightyear. Titles released in the prior year included Shang-Chi & The Legend of The Ten Rings, Black Widow and Free Guy.

The decrease in home entertainment revenue was due to lower unit sales despite the benefit of more new release titles in the current year. Net effective pricing was comparable to the prior year as lower unit pricing was offset by a higher mix of new release titles, which have a higher sales price than catalog titles.

The increase in other revenue was due to more stage play performances in the current year as productions were generally shut down in the prior year due to COVID-19.

Operating expenses are as follows:

[[GREPCENT_TABLE]]
[["(in millions)","2022","","2021","","% Change Better (Worse)"],["Programming and production costs","$","(4,215)","","$","(3,611)","","(17) %"],["Distribution costs and cost of goods sold","(1,284)","","(925)","","(39) %"],["","$","(5,499)","","$","(4,536)","","(21) %"]]
[[/GREPCENT_TABLE]]

The increase in programming and production costs was due to higher production cost amortization, driven by more theatrical releases, and, to a lesser extent, higher film cost impairments.

Higher cost of goods sold and distribution costs were due to the increased number of stage play performances in the current year.

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Selling, general, administrative and other costs increased $675 million, to $2,638 million from $1,963 million, due to higher theatrical marketing costs as more titles were released in the current year compared to the prior year.

Operating Income from Content Sales/Licensing and Other

Operating income from Content Sales/Licensing and Other decreased $854 million, to a loss of $287 million from income of $567 million, primarily due to lower TV/SVOD distribution results, higher film cost impairments and decreases in home entertainment and theatrical distribution results, partially offset by higher stage play results.

Items Excluded from Segment Operating Income Related to Disney Media and Entertainment Distribution

The following table presents supplemental information for items related to DMED that are excluded from segment operating income:

[[GREPCENT_TABLE]]
[["(in millions)","2022","","2021","","% Change Better (Worse)"],["TFCF and Hulu acquisition amortization(1)","$","(2,345)","","","$","(2,410)","","3 %"],["Content License Early Termination","(1,023)","","","\u2014","","","nm"],["Restructuring and impairment charges(2)","(229)","","","(315)","","","27 %"],["German FTA gain","\u2014","","","126","","","(100) %"]]
[[/GREPCENT_TABLE]]

(1)In the current year, amortization of step-up on film and television costs was $634 million and amortization of intangible assets was $1,699 million. In the prior year, amortization of step-up on film and television costs was $646 million and amortization of intangible assets was $1,749 million.

(2)The current year includes impairments of assets related to our Russian businesses. The prior year includes impairments and severance costs related to the closure of an animation studio and severance costs and contract termination charges in connection with the integration of TFCF.

Disney Parks, Experiences and Products

Operating results for DPEP are as follows:

[[GREPCENT_TABLE]]
[["(in millions)","2022","","2021","","% Change Better (Worse)"],["Revenues"],["Theme park admissions","$","8,602","","","$","3,848","","","100 %"],["Parks & Experiences merchandise, food and beverage","6,579","","","3,299","","","99 %"],["Resorts and vacations","6,410","","","2,701","","","100 %"],["Merchandise licensing and retail","5,229","","","5,241","","","\u2014 %"],["Parks licensing and other","1,885","","","1,463","","","29 %"],["Total revenues","28,705","","","16,552","","","73 %"],["Operating expenses","(14,936)","","","(10,799)","","","(38) %"],["Selling, general, administrative and other","(3,403)","","","(2,886)","","","(18) %"],["Depreciation and amortization","(2,451)","","","(2,377)","","","(3) %"],["Equity in the loss of investees","(10)","","","(19)","","","47 %"],["Operating Income","$","7,905","","","$","471","","","100 %"]]
[[/GREPCENT_TABLE]]

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COVID-19

Revenues at DPEP benefited from fewer closures and operating capacity restrictions in fiscal 2022 compared to fiscal 2021 as a result of COVID-19. The following table summarizes the approximate number of weeks of operations in the current and prior year:

[[GREPCENT_TABLE]]
[["","Weeks of Operation"],["","2022","","2021"],["Walt Disney World Resort","52","","","52"],["Disneyland Resort","52","","","22"],["Disneyland Paris","52","","","19"],["Hong Kong Disneyland Resort","37","","","40"],["Shanghai Disney Resort","37","","","52"]]
[[/GREPCENT_TABLE]]

Revenues

The increase in theme park admissions revenue was due to attendance growth and higher average per capita ticket revenue. Higher attendance reflected increases at Disneyland Resort, Walt Disney World Resort and, to a lesser extent, Disneyland Paris, partially offset by a decrease at Shanghai Disney Resort. Growth in average per capita ticket revenue was due to the introduction of Genie+ and Lightning Lane at our domestic parks in the first quarter of the current fiscal year and higher average ticket prices at Walt Disney World Resort and Disneyland Paris, partially offset by lower average ticket prices at Disneyland Resort and Shanghai Disney Resort.

Parks & Experiences merchandise, food and beverage revenue growth was due to increases of 82% from higher volumes and 9% from higher average guest spending.

Growth in resorts and vacations revenue was primarily due to increases of 51% from higher occupied hotel room nights, 32% from an increase in passenger cruise days and 17% from higher average daily hotel room rates.

Merchandise licensing and retail revenue was comparable to the prior year, as a decrease of 7% from retail was offset by an increase of 7% from merchandise licensing. The decrease in retail revenues was due to the closure of a substantial number of Disney-branded retail stores in North America and Europe in the second half of fiscal 2021. The revenue growth at merchandise licensing was primarily due to higher sales of merchandise based on Mickey and Friends, Star Wars, Encanto, Spider-Man and Disney Princesses, partially offset by a decrease in revenues from merchandise based on Frozen.

The increase in parks licensing and other revenue was primarily due to higher sponsorship revenues and an increase in royalties from Tokyo Disney Resort.

The following table presents supplemental park and hotel statistics:

[[GREPCENT_TABLE]]
[["","Domestic","","International(1)","","Total"],["","2022","","2021","","2022","","2021","","2022","","2021"],["Parks"],["Increase (decrease)"],["Attendance(2)","nm","","(17)%","","54 %","","(4)%","","87 %","","(14)%"],["Per Capita Guest Spending(3)","13 %","","17 %","","21 %","","(3)%","","18 %","","11 %"],["Hotels"],["Occupancy(4)","82 %","","42 %","","56 %","","21 %","","76 %","","37 %"],["Available Room Nights (in thousands)(5)","10,073","","10,451","","3,179","","3,179","","13,252","","13,630"],["Increase (decrease)"],["Per Room Guest Spending(6)","19 %","","1 %","","\u2014 %","","22 %","","16 %","","4 %"]]
[[/GREPCENT_TABLE]]

(1)Per capita guest spending growth rate and per room guest spending growth rate exclude the impact of changes in foreign currency exchange rates.

(2)Attendance is used to analyze volume trends at our theme parks and is based on the number of unique daily entries, i.e. a person visiting multiple theme parks in a single day is counted only once. Our attendance count includes complimentary entries but excludes entries by children under the age of three.

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(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 are as follows:

[[GREPCENT_TABLE]]
[["(in millions)","2022","","2021","","% Change Better (Worse)"],["Operating labor","$","(6,577)","","","$","(4,711)","","","(40) %"],["Infrastructure costs","(2,766)","","","(2,308)","","","(20) %"],["Cost of goods sold and distribution costs","(2,938)","","","(2,086)","","","(41) %"],["Other operating expenses","(2,655)","","","(1,694)","","","(57) %"],["","$","(14,936)","","","$","(10,799)","","","(38) %"]]
[[/GREPCENT_TABLE]]

The increases in operating labor, cost of goods sold and distribution costs and other operating expenses were due to higher volumes, while the increase in infrastructure costs was due to higher volumes and increased technology spending.

Selling, general, administrative and other costs increased $517 million from $2,886 million to $3,403 million due to higher marketing spend and inflation.

Depreciation and amortization increased $74 million from $2,377 million to $2,451 million, primarily due to new attractions at our domestic parks and resorts.

Segment Operating Income

Segment operating income increased $7,434 million, to $7,905 million due to growth at our domestic parks and experiences and, to a lesser extent, at our international parks and resorts and consumer products business.

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

[[GREPCENT_TABLE]]
[["(in millions)","2022","","2021","","% Change Better (Worse)"],["Supplemental revenue detail"],["Parks & Experiences"],["Domestic","$","20,131","","","$","9,353","","","100 %"],["International","3,297","","","1,859","","","77 %"],["Consumer Products","5,277","","","5,340","","","(1) %"],["","$","28,705","","","$","16,552","","","73 %"],["Supplemental operating income detail"],["Parks & Experiences"],["Domestic","$","5,332","","","$","(1,139)","","","nm"],["International","(237)","","","(1,074)","","","78 %"],["Consumer Products","2,810","","","2,684","","","5 %"],["","$","7,905","","","$","471","","","100 %"]]
[[/GREPCENT_TABLE]]

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Items Excluded from Segment Operating Income Related to Parks, Experiences and Products

The following table presents supplemental information for items related to DPEP that are excluded from segment operating income:

[[GREPCENT_TABLE]]
[["(in millions)","2022","","2021","","% Change Better (Worse)"],["Restructuring and impairment charges(1)","$","\u2014","","","$","(327)","","","100 %"],["Amortization of TFCF intangible assets","(8)","","","(8)","","","\u2014 %"]]
[[/GREPCENT_TABLE]]

(1)The prior year includes asset impairments and severance costs related to the closure of a substantial number of our Disney-branded retail stores in North America and Europe and severance costs related to other workforce reductions.

CORPORATE AND UNALLOCATED SHARED EXPENSES

Corporate and unallocated shared expenses are as follows:

[[GREPCENT_TABLE]]
[["(in millions)","","2022","","2021","","","","% Change Better (Worse)"],["Corporate and unallocated shared expenses","","$","(1,159)","","$","(928)","","","","(25) %"]]
[[/GREPCENT_TABLE]]

The increase in corporate and unallocated shared expenses was driven by higher compensation and human resource-related costs.

RESTRUCTURING ACTIVITIES

See Note 18 to the Consolidated Financial Statements for information regarding the Company’s restructuring activities.

LIQUIDITY AND CAPITAL RESOURCES

The change in cash, cash equivalents and restricted cash is as follows:

[[GREPCENT_TABLE]]
[["(in millions)","","2022","","2021"],["Cash provided by operations - continuing operations","","$","6,002","","","$","5,566"],["Cash used in investing activities - continuing operations","","(5,008)","","","(3,171)"],["Cash used in financing activities - continuing operations","","(4,729)","","","(4,385)"],["Cash (used in) provided by discontinued operations","","(4)","","","9"],["Impact of exchange rates on cash, cash equivalents and restricted cash","","(603)","","","30"],["Change in cash, cash equivalents and restricted cash","","$","(4,342)","","","$","(1,951)"]]
[[/GREPCENT_TABLE]]

Operating Activities

Continuing operations

Cash provided by operating activities of $6.0 billion for fiscal 2022 increased 8% or $436 million compared to $5.6 billion in fiscal 2021 due to higher operating cash flow at DPEP and, to a lesser extent, lower income tax payments and pension contributions, partially offset by lower operating cash flow at DMED and, to a lesser extent, a partial payment for the Content License Early Termination. The increase in operating cash flow at DPEP was due to higher operating cash receipts driven by higher revenue, partially offset by an increase in operating cash disbursements due to higher operating expenses. The decrease in operating cash flow at DMED was due to higher operating cash disbursements and higher spending on film and television productions, partially offset by higher operating cash receipts. Higher operating cash disbursements were driven by increased operating expenses while higher operating cash receipts were due to revenue growth.

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Depreciation expense is as follows:

[[GREPCENT_TABLE]]
[["(in millions)","","2022","","2021"],["Disney Media and Entertainment Distribution","","$","650","","$","613"],["Disney Parks, Experiences and Products"],["Domestic","","1,680","","1,551"],["International","","662","","718"],["Total Disney Parks, Experiences and Products","","2,342","","2,269"],["Corporate","","191","","186"],["Total depreciation expense","","$","3,183","","$","3,068"]]
[[/GREPCENT_TABLE]]

Amortization of intangible assets is as follows:

[[GREPCENT_TABLE]]
[["(in millions)","","2022","","2021"],["Disney Media and Entertainment Distribution","","$","164","","$","178"],["Disney Parks, Experiences and Products","","109","","108"],["TFCF and Hulu","","1,707","","1,757"],["Total amortization of intangible assets","","$","1,980","","$","2,043"]]
[[/GREPCENT_TABLE]]

Produced and licensed content costs

DMED incurs costs to produce and license film, episodic television and other content. Production costs include spend on content internally produced at our studios such as live-action and animated films, episodic series, specials, shorts and theatrical stage plays. Production costs also include original content commissioned from third-party studios. Programming costs include content rights licensed from third parties for use on the Company’s Linear Networks and DTC streaming services. Programming assets are generally recorded when the programming becomes available to us with a corresponding increase in programming liabilities.

The Company’s production and programming activity for fiscal 2022 and 2021 are as follows:

[[GREPCENT_TABLE]]
[["(in millions)","","2022","","2021"],["Beginning balances:"],["Production and programming assets","","$","31,732","","","$","27,193"],["Programming liabilities","","(4,113)","","","(4,099)"],["","","27,619","","","23,094"],["Spending:"],["Licensed programming and rights","","13,316","","","12,412"],["Produced content","","16,611","","","12,848"],["","","29,927","","","25,260"],["Amortization:"],["Licensed programming and rights","","(13,432)","","","(12,784)"],["Produced content","","(10,224)","","","(8,175)"],["","","(23,656)","","","(20,959)"],["Change in production and programming costs","","6,271","","","4,301"],["Other non-cash activity","","(163)","","","224"],["Ending balances:"],["Production and programming assets","","37,667","","","31,732"],["Programming liabilities","","(3,940)","","","(4,113)"],["","","$","33,727","","","$","27,619"]]
[[/GREPCENT_TABLE]]

The Company currently expects its fiscal 2023 spend on produced and licensed content, including sports rights, to be in the low $30 billion range. See Note 14 to the Consolidated Financial Statements for information regarding the Company’s contractual commitments to acquire sports and broadcast programming.

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Commitments and guarantees

The Company has various commitments and guarantees, such as long-term leases, purchase commitments and other executory contracts, that are disclosed in the footnotes to the financial statements. See Notes 14 and 15 to the Consolidated Financial Statements for further information regarding these commitments.

Legal and Tax Matters

As disclosed in Notes 9 and 14 to the Consolidated Financial Statements, the Company has exposure for certain tax and legal matters.

Investing Activities

Continuing operations

Investing activities consist principally of investments in parks, resorts and other property and acquisition and divestiture activity. The Company’s investments in parks, resorts and other property for fiscal 2022 and 2021 are as follows:

[[GREPCENT_TABLE]]
[["(in millions)","","2022","","2021"],["Disney Media and Entertainment Distribution","","$","810","","","$","862"],["Disney Parks, Experiences and Products"],["Domestic","","2,680","","","1,597"],["International","","767","","","675"],["Total Disney Parks, Experiences and Products","","3,447","","","2,272"],["Corporate","","686","","","444"],["","","$","4,943","","","$","3,578"]]
[[/GREPCENT_TABLE]]

Capital expenditures at DMED primarily reflect investments in technology and in facilities and equipment for expanding and upgrading broadcast centers, production facilities and television station facilities.

Capital expenditures at DPEP are principally for theme park and resort expansion, new attractions, cruise ships, capital improvements and systems infrastructure. The increase in capital expenditures at our domestic parks and resorts in fiscal 2022 compared to fiscal 2021 was due to cruise ship fleet expansion.

Capital expenditures at Corporate primarily reflect investments in facilities, information technology infrastructure and equipment. The increase in fiscal 2022 compared to fiscal 2021 was due to higher spending on facilities.

The Company currently expects its fiscal 2023 capital expenditures will be up to approximately $6.7 billion compared to fiscal 2022 capital expenditures of $4.9 billion. The increase in capital expenditures is due to higher spending across the enterprise.

Other Investing Activities

Cash provided by other investing activities of $407 million in fiscal 2021 reflects proceeds from the sales of investments.

Financing Activities

Continuing operations

Cash used in financing activities was $4.7 billion in fiscal 2022 compared to $4.4 billion in fiscal 2021. Cash used in financing activities in fiscal 2022 was due to a reduction in borrowings. The increase in cash used in financing activities in fiscal 2022 compared to fiscal 2021 reflected a higher reduction in net borrowings ($4.0 billion in fiscal 2022 compared to $3.7 billion in fiscal 2021) and lower proceeds from the exercise of stock options ($0.1 billion in fiscal 2022 compared to $0.4 billion in fiscal 2021). In addition, cash used in financing activities in fiscal 2021 included a $0.4 billion purchase of a redeemable noncontrolling interest.

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Borrowings activities and other

During the year ended October 1, 2022, the Company’s borrowing activity was as follows:

[[GREPCENT_TABLE]]
[["(in millions)","","October 2, 2021","","Borrowings","","Payments","","","","Other Activity","","October 1, 2022"],["Commercial paper with original maturities less than three months(1)","","$","\u2014","","","$","50","","","$","\u2014","","","","","$","\u2014","","","$","50"],["Commercial paper with original maturities greater than three months","","1,992","","","2,417","","","(2,801)","","","","","4","","","1,612"],["U.S. dollar denominated notes(2)","","49,090","","","\u2014","","","(3,857)","","","","","(142)","","","45,091"],["Asia Theme Parks borrowings(3)","","1,331","","","333","","","(159)","","","","","(80)","","","1,425"],["Foreign currency denominated debt and other(4)","","1,993","","","\u2014","","","\u2014","","","","","(1,802)","","","191"],["","","$","54,406","","","$","2,800","","","$","(6,817)","","","","","$","(2,020)","","","$","48,369"]]
[[/GREPCENT_TABLE]]

(1)Borrowings and reductions of borrowings are reported net.

(2)The other activity is primarily due to the amortization of purchase accounting adjustments and debt issuance fees.

(3)See Note 6 to the Consolidated Financial Statements for information regarding commitments to fund the Asia Theme Parks.

(4)The other activity is due to market value adjustments for debt with qualifying hedges.

See Note 8 to the Consolidated Financial Statements for information regarding the Company’s bank facilities and debt maturities. The Company may use operating cash flows, commercial paper borrowings up to the amount of its unused $12.25 billion bank facilities and incremental term debt issuances to retire or refinance other borrowings before or as they come due.

See Note 2 to the Consolidated Financial Statements for a summary of the Company’s put/call agreement with NBCU.

The Company did not declare or pay a dividend or repurchase any of its shares in fiscal 2022 or 2021.

The Company’s operating cash flow and access to the capital markets can be impacted by factors outside of its control, including COVID-19, which had an adverse impact on the Company’s operating cash flows in fiscal 2021 and, to a lesser extent, fiscal 2022. We believe that the Company’s financial condition is strong and that its cash balances, other liquid assets, operating cash flows, access to debt and equity capital markets and borrowing capacity under current bank facilities, taken together, provide adequate resources to fund ongoing operating requirements and upcoming debt maturities as well as future capital expenditures related to the expansion of existing businesses and development of new projects. In addition, the Company could undertake other measures to ensure sufficient liquidity, such as continuing to not declare dividends (the Company did not pay a dividend with respect to fiscal 2021 operations and has not declared or paid a dividend with respect to fiscal 2022 operations); raising financing; suspending or reducing capital spending; reducing film and television content investments; or implementing furloughs or reductions in force.

The Company’s borrowing costs can also be impacted by short- and long-term debt ratings assigned by nationally recognized rating agencies, which are based, in significant part, on the Company’s performance as measured by certain credit metrics such as leverage and interest coverage ratios. As of October 1, 2022, Moody’s Investors Service’s long- and short-term debt ratings for the Company were A2 and P-1 (Stable), respectively, Standard and Poor’s long- and short-term debt ratings for the Company were BBB+ and A-2 (Positive), respectively, and Fitch’s long- and short-term debt ratings for the Company were A- and F2 (Stable), respectively. The Company’s bank facilities contain only one financial covenant, relating to 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 October 1, 2022, the Company met this covenant by a significant margin. The Company’s bank facilities also specifically exclude certain entities, including the Asia Theme Parks, from any representations, covenants or events of default.

SUPPLEMENTAL GUARANTOR FINANCIAL INFORMATION

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

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the closing of the March 20, 2019 exchange offer, TWDC entered into a guarantee of the registered debt securities issued by Legacy Disney under the Indenture dated as of September 24, 2001 between Legacy Disney and Wells Fargo Bank, National Association, as trustee (the “2001 Trustee”) (as amended by the first supplemental indenture among Legacy Disney, as issuer, TWDC, as guarantor, and the 2001 Trustee, as trustee).

Other subsidiaries of the Company do not guarantee the registered debt securities of either TWDC or Legacy Disney (such subsidiaries are referred to as the “non-Guarantors”). The par value and carrying value of total outstanding and guaranteed registered debt securities of the Obligor Group at October 1, 2022 was as follows:

[[GREPCENT_TABLE]]
[["","TWDC","","Legacy Disney"],["(in millions)","Par Value","","Carrying Value","","Par Value","","Carrying Value"],["Registered debt with unconditional guarantee","$","35,343","","","$","35,736","","","$","9,105","","","$","8,851"]]
[[/GREPCENT_TABLE]]

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

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

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

[[GREPCENT_TABLE]]
[["Results of operations (in millions)","2022"],["Revenues","$","\u2014"],["Costs and expenses","\u2014"],["Net income (loss) from continuing operations","(742)"],["Net income (loss)","(742)"],["Net income (loss) attributable to TWDC shareholders","(742)"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["Balance Sheet (in millions)","October 1, 2022","","October 2, 2021"],["Current assets","$","5,665","","$","9,506"],["Noncurrent assets","1,948","","1,689"],["Current liabilities","3,741","","6,878"],["Noncurrent liabilities (excluding intercompany to non-Guarantors)","46,218","","51,439"],["Intercompany payables to non-Guarantors","148,958","","147,629"]]
[[/GREPCENT_TABLE]]

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

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

Produced and Acquired/Licensed Content Costs

We amortize and test for impairment capitalized film and television production costs based on whether the content is predominantly monetized individually or as a group. See Note 2 to the Consolidated Financial Statements for further discussion.

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Production costs that are classified as individual are amortized based upon the ratio of the current period’s revenues to the estimated remaining total revenues (Ultimate Revenues).

With respect to produced films intended for theatrical release, the most sensitive factor affecting our estimate of Ultimate Revenues is theatrical performance. Revenues derived from other markets subsequent to the theatrical release are generally highly correlated with theatrical performance. Theatrical performance varies primarily based upon the public interest and demand for a particular film, the popularity of competing films at the time of release and the level of marketing effort. Upon a film’s release and determination of the theatrical performance, the Company’s estimates of revenues from succeeding windows and markets, which may include imputed license fees for content that is used on our DTC streaming services, are revised based on historical relationships and an analysis of current market trends.

With respect to capitalized television production costs that are classified as individual, the most sensitive factors affecting estimates of Ultimate Revenues are program ratings of the content on our licensees’ platforms. Program ratings, which are an indication of market acceptance, directly affect the program’s ability to generate advertising and subscriber revenues and are correlated with the license fees we can charge for the content in subsequent windows and for subsequent seasons.

Ultimate Revenues are reassessed each reporting period and the impact of any changes on amortization of production cost is accounted for as if the change occurred at the beginning of the current fiscal year. If our estimate of Ultimate Revenues decreases, amortization of costs may be accelerated or result in an impairment. Conversely, if our estimate of Ultimate Revenues increases, cost amortization may be slowed.

Produced content costs that are part of a group and acquired/licensed content costs are amortized based on projected usage typically resulting in an accelerated or straight-line amortization pattern. The determination of projected usage requires judgment and is reviewed on a regular basis for changes. Adjustments to projected usage are applied prospectively in the period of the change. For example, beginning in the fourth quarter of fiscal 2022, for certain content, we are accelerating the rate of amortization in early periods, slowing the rate in later periods and have adjusted the useful life based on historical and projected usage patterns. The most sensitive factors affecting projected usage are historical and estimated viewing patterns. If projected usage changes we may need to accelerate or slow the recognition of amortization expense.

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.

The amortization of multi-year sports rights is based on projections of revenues for each season relative to projections of total revenues over the contract period (estimated relative value). Projected revenues include advertising revenue and an allocation of affiliate revenue. If the annual contractual payments related to each season approximate each season’s estimated relative value, we expense the related contractual payments during the applicable season. If estimated relative values by year were to change significantly, amortization of our sports rights costs may be accelerated or slowed.

Revenue Recognition

The Company has revenue recognition policies for its various operating segments that are appropriate to the circumstances of each business. Refer to Note 2 to the Consolidated Financial Statements for our revenue recognition policies.

Pension and Postretirement Medical Plan Actuarial Assumptions

The Company’s pension and postretirement medical benefit obligations and related costs are calculated using a number of actuarial assumptions. Two critical assumptions, the discount rate and the expected return on plan assets, are important elements of expense and/or liability measurement, which we evaluate annually. Other assumptions include the healthcare cost trend rate and employee demographic factors such as retirement patterns, mortality, turnover and rate of compensation increase.

The discount rate enables us to state expected future cash payments for benefits as a present value on the measurement date. A lower discount rate increases the present value of benefit obligations and increases pension and postretirement medical expense. The guideline for setting this rate is a high-quality long-term corporate bond rate. We increased our discount rate to 5.44% at the end of fiscal 2022 from 2.88% at the end of fiscal 2021 to reflect market interest rate conditions at our fiscal 2022 year-end measurement date. The Company’s discount rate was determined by considering yield curves constructed of a large population of high-quality corporate bonds and reflects the matching of the plans’ liability cash flows to the yield curves. A one percentage point decrease in the assumed discount rate would increase total benefit expense for fiscal 2023 by approximately $242 million and would increase the projected benefit obligation at October 1, 2022 by approximately $2.3 billion. A one percentage point increase in the assumed discount rate would decrease total benefit expense and the projected benefit obligation by approximately $59 million and $2.0 billion, respectively.

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To determine the expected long-term rate of return on the plan assets, we consider the current and expected asset allocation, as well as historical and expected returns on each plan asset class. Our expected return on plan assets is 7.00%. A lower expected rate of return on plan assets will increase pension and postretirement medical expense. A one percentage point change in the long-term asset return assumption would impact fiscal 2023 annual expense by approximately $172 million.

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

The Company is required to test goodwill and other indefinite-lived intangible assets for impairment on an annual basis and if current events or circumstances require, on an interim basis. The Company performs its annual test of goodwill and indefinite-lived intangible assets for impairment in its fiscal fourth quarter.

Goodwill is allocated to various reporting units, which are an operating segment or one level below the operating segment. To test goodwill for impairment, the Company first performs a qualitative assessment to determine if it is more likely than not that the carrying amount of a reporting unit exceeds its fair value. If it is, a quantitative assessment is required. Alternatively, the Company may bypass the qualitative assessment and perform a quantitative impairment test.

The qualitative assessment requires the consideration of factors such as recent market transactions, macroeconomic conditions, and changes in projected future cash flows of the reporting unit.

The quantitative assessment compares the fair value of each goodwill reporting unit to its carrying amount, and to the extent the carrying amount exceeds the fair value, an impairment of goodwill is recognized for the excess up to the amount of goodwill allocated to the reporting unit.

In fiscal 2022, the Company bypassed the qualitative test and performed a quantitative assessment of goodwill for impairment.

The impairment test for goodwill requires judgment related to the identification of reporting units, the assignment of assets and liabilities to reporting units including goodwill, and the determination of fair value of the reporting units. To determine the fair value of our reporting units, we apply what we believe to be the most appropriate valuation methodology for each of our reporting units. We generally use a present value technique (discounted cash flows) corroborated by market multiples when available and as appropriate. The discounted cash flow analyses are sensitive to our estimates of future revenue growth and margins for these businesses as well as the discount rates used to calculate the present value of future cash flows. In times of adverse economic conditions in the global economy, the Company’s long-term cash flow projections are subject to a greater degree of uncertainty than usual. We believe our estimates are consistent with how a marketplace participant would value our reporting units. If we had established different reporting units or utilized different valuation methodologies or assumptions, the impairment test results could differ, and we could be required to record impairment charges.

To test its other indefinite-lived intangible assets for impairment, the Company first performs a qualitative assessment to determine if it is more likely than not that the carrying amount of each of its indefinite-lived intangible assets exceeds its fair value. If it is, a quantitative assessment is required. Alternatively, the Company may bypass the qualitative assessment and perform a quantitative impairment test.

The qualitative assessment requires the consideration of factors such as recent market transactions, macroeconomic conditions, and changes in projected future cash flows.

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

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

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

The Company recorded non-cash impairment charges of $0.2 billion and $0.3 billion in fiscal 2022 and 2021, respectively. The fiscal 2022 charges primarily related to our businesses in Russia. The fiscal 2021 charges primarily related to the closure of an animation studio and a substantial number of our Disney-branded retail stores in North America and Europe.

Allowance for Credit Losses

We evaluate our allowance for credit losses and estimate collectability of accounts receivable based on historical bad debt experience, our assessment of the financial condition of individual companies with which we do business, current market conditions, and reasonable and supportable forecasts of future economic conditions. In times of economic turmoil, including COVID-19, our estimates and judgments with respect to the collectability of our receivables are subject to greater uncertainty than in more stable periods. If our estimate of uncollectible accounts is too low, costs and expenses may increase in future periods, and if it is too high, costs and expenses may decrease in future periods. See Note 2 to the Consolidated Financial Statements for additional discussion.

Contingencies and Litigation

We are currently involved in certain legal proceedings and, as required, have accrued estimates of the probable and estimable losses for the resolution of these proceedings. These estimates are based upon an analysis of potential results, assuming a combination of litigation and settlement strategies and have been developed in consultation with outside counsel as appropriate. From time to time, we are also involved in other contingent matters for which we accrue estimates for a probable and estimable loss. It is possible, however, that future results of operations for any particular quarterly or annual period could be materially affected by changes in our assumptions or the effectiveness of our strategies related to legal proceedings or our assumptions regarding other contingent matters. See Note 14 to the Consolidated Financial Statements for more detailed information on litigation exposure.

Income Tax

As a matter of course, the Company is regularly audited by federal, state and foreign tax authorities. From time to time, these audits result in proposed assessments. Our determinations regarding the recognition of income tax benefits are made in consultation with outside tax and legal counsel, where appropriate, and are based upon the technical merits of our tax positions in consideration of applicable tax statutes and related interpretations and precedents and upon the expected outcome of proceedings (or negotiations) with taxing and legal authorities. The tax benefits ultimately realized by the Company may differ from those recognized in our future financial statements based on a number of factors, including the Company’s decision to settle rather than litigate a matter, relevant legal precedent related to similar matters and the Company’s success in supporting its filing positions with taxing authorities.

New Accounting Pronouncements

See Note 19 to the Consolidated Financial Statements for information regarding new accounting pronouncements.