Walt Disney Company — FY2021 Form 10-K
Reporting period: Fiscal year ended October 2, 2021 (52 weeks), not a standalone 2021 fourth-quarter report. The comparable FY2020 had 53 weeks; Disney estimates that extra week contributed about $200 million of prior-year pretax income. Disney operates through Disney Media and Entertainment Distribution (DMED) and Disney Parks, Experiences and Products (DPEP). COVID-19 continued to affect parks, cruises, content production and theatrical distribution.
Financial performance
| Metric | FY2021 | FY2020 | Change / context |
|---|---|---|---|
| Revenue | $67.4B | $65.4B | Up 3% |
| Net income (loss) attributable to Disney | $2.0B | ($2.9B) | Returned to profit |
| Diluted EPS | $1.09 | ($1.58) | Continuing-operations EPS: $1.11 vs. ($1.57) |
| Segment operating income | $7.8B | $8.1B | Down 4%; approximately 11.5% of revenue |
| Cash from continuing operations | $5.6B | $7.6B | Down 27% |
| Capital expenditures | $3.6B | $4.0B | Cash-flow proxy after capital expenditures: about $2.0B |
| Borrowings | $54.4B | $58.6B | Includes $5.9B current portion |
| Cash and cash equivalents | $16.0B | $17.9B | Cash less borrowings: about $38.4B net debt |
Current assets were $33.7B and current liabilities $31.1B (current ratio about 1.08). Disney reported $12.25B of unused bank facilities and said liquidity was adequate for operations, debt maturities and planned investment. The interest-coverage covenant was met by a significant margin. The effective continuing-operations tax rate was 1.0%; favorable prior-year adjustments and share-based tax benefits contributed.
Segments and material changes
- DMED: Revenue rose 5% to $50.9B; segment operating income fell 5% to $7.3B. Linear Networks revenue increased 2% to $28.1B, but operating income fell 11% to $8.4B, primarily on higher sports programming costs. Direct-to-Consumer revenue rose 55% to $16.3B; its operating loss narrowed to $1.7B from $2.9B. Content Sales/Licensing revenue fell 33% to $7.3B and operating income fell 51% to $0.6B, reflecting fewer releases, COVID-related disruption and the shift of content to Disney’s own streaming services.
- Streaming: Disney+ had 118.1M paid subscribers, up 60%; average monthly revenue per paid subscriber decreased to $4.08 from $4.80, largely because of growth in lower-priced Disney+ Hotstar markets. ESPN+ had 17.1M subscribers and Hulu 43.8M.
- DPEP: Revenue declined 3% to $16.6B; segment operating income increased slightly to $471M. Parks and Experiences remained affected by closures and capacity limits, with domestic Parks & Experiences recording a $1.1B operating loss. Consumer Products revenue increased 11% and operating income increased 25%.
- Disney recorded $654M of restructuring and impairment charges in FY2021, including costs related to an animation studio shutdown, store closures and workforce reductions. FY2020 included $5.7B of such charges, including $5.0B of International Channels goodwill and intangible-asset impairments.
Outlook, risks and contingencies
- Management expected COVID-19 to continue affecting FY2022 results, while estimating a modestly lower impact; duration and severity remained uncertain. COVID-related safety measures cost about $1B in FY2021.
- Disney expected FY2022 produced and licensed content spending, including sports rights, of up to approximately $33B, about $8B above FY2021. It expected capital expenditures of approximately $6.1B, versus $3.6B in FY2021.
- Management planned approximately 20 film releases in FY2022, subject to COVID-related timing and distribution changes. The filing also describes planned studio, episodic-content, parks and cruise-ship investments.
- Disney had not declared or paid a dividend for FY2021 and said it did not anticipate declaring one until operating conditions normalized. It identified leverage, possible rating pressure, competition and execution of the DTC strategy, declining traditional TV distribution, content and sports-rights costs, consumer demand, inflation, supply-chain disruption, cybersecurity, regulation and international-market exposure as risks.
- The filing lists substantial contractual programming and other commitments, including a table totaling $90.2B across sports programming, broadcast programming and other commitments. Disney also disclosed an Anaheim bond guarantee with $220M of remaining debt-service obligation. Management did not expect material liability from the described legal actions.
- NBCUniversal’s 33% Hulu interest is subject to a put/call arrangement beginning in January 2024; the agreement includes a $27.5B guaranteed floor value for Hulu. Disney’s estimate of the eventual purchase cost is uncertain.
Important facts for investors to verify
- How quickly park attendance, resort occupancy, cruise activity and theatrical distribution recover, and whether COVID-related restrictions or costs recur.
- Whether streaming subscriber growth translates into improved economics, given Disney+’s lower average revenue per subscriber and continuing DTC operating losses.
- Whether FY2022 content spending and capital expenditures remain near management’s stated plans, and the resulting effect on cash flow and debt.
- Debt maturities, refinancing costs, ratings and liquidity needs; also monitor the potential Hulu transaction and the large programming commitments.
- Comparability of FY2021 and FY2020 results, including FY2020’s extra week and major impairment charges. Segment operating income is a non-GAAP measure; the filing does not provide a directly comparable consolidated operating-margin figure in the cited discussion.