Walt Disney Company — Fiscal 2020 Form 10-K
Reporting period: Fiscal year ended October 3, 2020, a 53-week year. The filing is an annual report; quarterly data below identifies the fiscal fourth quarter where relevant. Fiscal 2019 had 52 weeks and included TFCF and Hulu only from March 20, 2019, limiting comparability.
Financial performance
| Metric | Fiscal 2020 | Fiscal 2019 |
|---|---|---|
| Revenue | $65.4 billion | $69.6 billion |
| Net income (loss) attributable to Disney | $(2.9) billion | $11.1 billion |
| Diluted EPS from continuing operations | $(1.57) | $6.26 |
| Segment operating income | $8.1 billion | $14.8 billion |
| Cash from continuing operations | $7.6 billion | $6.0 billion |
| Capital expenditures | $4.0 billion | $4.9 billion |
| Cash and cash equivalents at year-end | $17.9 billion | $5.4 billion |
| Total borrowings at year-end | $58.6 billion | $47.0 billion |
Revenue fell 6%. Segment operating income, a company-defined non-GAAP measure, declined 45%. The GAAP net loss included $5.7 billion of restructuring and impairment charges, including $5.0 billion of International Channels goodwill and intangible impairments, and $2.8 billion of TFCF/Hulu purchase-accounting amortization. A $973 million non-cash DraftKings fair-value gain partly offset these items. Net interest expense increased to $1.5 billion from $978 million.
Fiscal Q4 2020: Revenue was $14.7 billion, segment operating income was $606 million, and net loss attributable to Disney was $710 million. Diluted loss per share from continuing operations was $0.39.
Segment results
| Segment | Revenue, 2020 (change) | Operating income (loss), 2020 | Operating income (loss), 2019 |
|---|---|---|---|
| Media Networks | $28.4 billion (+14%) | $9.0 billion | $7.5 billion |
| Parks, Experiences and Products | $16.5 billion (−37%) | $(81) million | $6.8 billion |
| Studio Entertainment | $9.6 billion (−13%) | $2.5 billion | $2.7 billion |
| Direct-to-Consumer & International | $17.0 billion (+81%) | $(2.8) billion | $(1.8) billion |
Media Networks’ operating income benefited from TFCF consolidation and higher affiliate fees, despite lower advertising. Parks’ severe decline reflected closures and capacity limits. Studio results were pressured by delayed or canceled releases and suspended stage plays. DTC growth reflected Disney+ launch and Hulu consolidation, but increased investment and operating costs widened segment losses.
Liquidity, debt and capital allocation
- Continuing-operations operating cash flow increased to $7.6 billion, largely because fiscal 2019 included about $7.6 billion of tax payments related to the TFCF acquisition and RSN sale. Lower cash generation at Parks and DTC partly offset the increase.
- Cash rose to $17.9 billion after senior-note issuances and other financing. Financing activities provided $8.5 billion; net borrowings were $11.2 billion.
- Borrowings totaled $58.6 billion, including $5.7 billion current and $52.9 billion long-term. Contractual obligations totaled $151.0 billion undiscounted, including $46.4 billion of sports and broadcast programming commitments.
- The company reported $12.7 billion of current receivables; its broader disclosure cited $13.1 billion of trade receivables and a $0.5 billion credit-loss allowance. Collection estimates were subject to greater uncertainty due to COVID-19.
- Disney paid $1.6 billion in dividends during fiscal 2020, but the Board did not declare a dividend with respect to fiscal 2020 operations. The company made no share repurchases.
- Management said available cash, operating cash flow, capital-market access and unused bank facilities provided adequate resources for operating needs and debt maturities. The $17.25 billion of bank facilities was unused at year-end; the interest-coverage covenant was met by a significant margin.
Material changes, outlook and risks
- COVID-19: Management estimated a net $7.4 billion adverse impact on full-year segment operating income, including approximately $6.9 billion at Parks, net of about $500 million of government credits. Management expected impacts to continue at least through fiscal 2021; duration and severity remained uncertain.
- Operations and staffing: Disneyland Resort and cruise sailings remained closed at the filing date; other parks operated with restrictions or faced renewed closures. Disney planned to terminate approximately 32,000 employees, primarily in Parks, in the first half of fiscal 2021. Approximately 37,000 employees were on furlough at year-end.
- Cost and investment outlook: Disney estimated approximately $1 billion of fiscal 2021 health and safety costs. Fiscal 2021 capital expenditures were expected to be about $0.6 billion above fiscal 2020’s $4.0 billion, with lower domestic park investment partly offset by corporate facilities and streaming technology spending.
- Content and streaming: Disney expected 15–20 internally produced feature releases in fiscal 2021, subject to COVID-19 disruptions. Disney+ / Disney+Hotstar had 73.7 million paid subscribers, ESPN+ 10.3 million, and Hulu 36.6 million at October 3, 2020. Disney planned a Star general-entertainment service outside the U.S. in calendar 2021. DTC expansion may displace third-party licensing and linear-channel revenue, and its eventual profitability was uncertain.
- Strategic reorganization: In October 2020, Disney reorganized its media and entertainment operations into three content groups and a distribution group to accelerate its DTC strategy. The filing cautions that expected benefits are not assured.
- Credit and pension: S&P lowered Disney’s long-term rating to BBB+ on November 18, 2020 and assigned a Negative Outlook; Fitch’s long-term rating was A− with a Negative Outlook. The pension and postretirement medical plans were underfunded by a combined $6.5 billion, and management expected fiscal 2021 benefit costs to rise.
- Other key risks: Uncertain park demand and reopening rules; advertising and affiliate pressure; sports-rights and content commitments; competition and changing consumer habits; international and foreign-exchange exposure; possible further impairment or credit losses; and legal, tax, data-security and intellectual-property risks. Management did not expect material liability from the legal actions described, but outcomes remain uncertain.
Important facts for investors to verify
- Whether park capacity, attendance, cruise operations and theatrical releases recover, and how much of the estimated $7.4 billion COVID-19 impact persists.
- Whether DTC subscriber growth translates into improved economics, given the $2.8 billion DTCI operating loss and revenue displaced from traditional licensing and channels.
- Debt refinancing needs, borrowing costs, credit-rating changes and the sustainability of liquidity under continued disruption; review the $46.4 billion programming commitments and other contractual obligations.
- Assumptions supporting the $5.0 billion International Channels impairment and the potential for additional impairments or receivable provisions.
- Fiscal 2021 capital spending and safety-cost estimates, workforce reductions, and the timing or resumption of projects and content production.
- Dividend policy: fiscal 2020 cash dividends were paid, but no dividend was declared for fiscal 2020 operations.