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Microsoft Excel LibreOffice Calc


Analysis of Goodwill and Intangible Assets

Difficulty: Advanced


Goodwill and Intangible Assets Accounting Policy

Disney 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. Goodwill is allocated to various reporting units, which are an operating segment or one level below the operating segment. Disney compares the fair value of each 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.

To determine the fair value of the reporting units, Disney generally uses a present value technique (discounted cash flows) corroborated by market multiples when available and as appropriate. Disney applies what Disney believes to be the most appropriate valuation methodology for each of the reporting units. Disney includes in the projected cash flows an estimate of the revenue Disney believes the reporting unit would receive if the intellectual property developed by the reporting unit that is being used by other reporting units was licensed to an unrelated third party at its fair market value.

In times of adverse economic conditions in the global economy, Disney's long-term cash flow projections are subject to a greater degree of uncertainty than usual. If Disney had established different reporting units or utilized different valuation methodologies or assumptions, the impairment test results could differ, and Disney could be required to record impairment charges.

Disney is required to compare the fair values of other indefinite-lived intangible assets to their carrying amounts. 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 other indefinite-lived intangible assets are determined based on discounted cash flows or appraised values, as appropriate. Disney has determined that there are currently no legal, competitive, economic or other factors that materially limit the useful life of the FCC licenses and trademarks.

Amortizable intangible assets are generally amortized on a straight-line basis over periods up to 40 years. The costs to periodically renew Disney's intangible assets are expensed as incurred.

Disney 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 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 cash flows expected to be generated over the useful life of an asset group to the carrying value of the asset group. An asset group is 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 or segments. If the carrying value 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 group's long-lived assets and the carrying value of the group's long-lived assets. The impairment is allocated to the long-lived assets of the group on a pro rata basis using the relative carrying amounts, but only to the extent the carrying value of each asset is above its fair value. For assets held for sale, to the extent the carrying value is greater than the asset's fair value less costs to sell, an impairment loss is recognized for the difference.

Disney tested its goodwill and other indefinite-lived intangible assets, long-lived assets and investments for impairment and recorded non-cash impairment charges of $210 million, $22 million and $7 million in fiscal years 2018, 2017 and 2016, respectively. The fiscal 2018 impairment charges related to equity investments and were recorded in "Equity in the income (loss) of investees, net" in the Consolidated Statements of Income. The fiscal 2017 and 2016 impairment charges were recorded in "Restructuring and impairment charges" in the Consolidated Statements of Income.

Source: 10-K (filing date: 2018-11-21).


Goodwill and Intangible Assets Disclosure

Walt Disney Co., Statement of Financial Position, Goodwill and Intangible Assets

USD $ in millions

Microsoft Excel LibreOffice Calc
Sep 29, 2018 Sep 30, 2017 Oct 1, 2016 Oct 3, 2015 Sep 27, 2014 Sep 28, 2013
Character/franchise intangibles and copyrights hidden hidden hidden hidden hidden hidden
Other amortizable intangible assets hidden hidden hidden hidden hidden hidden
Gross amortizable intangible assets hidden hidden hidden hidden hidden hidden
Accumulated amortization hidden hidden hidden hidden hidden hidden
Net amortizable intangible assets hidden hidden hidden hidden hidden hidden
FCC licenses hidden hidden hidden hidden hidden hidden
Trademarks hidden hidden hidden hidden hidden hidden
Other indefinite lived intangible assets hidden hidden hidden hidden hidden hidden
Indefinite lived intangible assets hidden hidden hidden hidden hidden hidden
Intangible assets hidden hidden hidden hidden hidden hidden
Goodwill hidden hidden hidden hidden hidden hidden
Goodwill and other intangible assets hidden hidden hidden hidden hidden hidden

Based on: 10-K (filing date: 2018-11-21), 10-K (filing date: 2017-11-22), 10-K (filing date: 2016-11-23), 10-K (filing date: 2015-11-25), 10-K (filing date: 2014-11-19), 10-K (filing date: 2013-11-20).

Item Description The company
Intangible assets Sum of the carrying amounts of all intangible assets, excluding goodwill, as of the balance sheet date, net of accumulated amortization and impairment charges. Walt Disney Co.'s intangible assets increased from 2016 to 2017 but then declined significantly from 2017 to 2018.
Goodwill Amount after accumulated impairment loss of an asset representing future economic benefits arising from other assets acquired in a business combination that are not individually identified and separately recognized. Walt Disney Co.'s goodwill increased from 2016 to 2017 but then slightly declined from 2017 to 2018.
Goodwill and other intangible assets Sum of the carrying amounts of all intangible assets, including goodwill, as of the balance sheet date, net of accumulated amortization and impairment charges. Walt Disney Co.'s goodwill and other intangible assets increased from 2016 to 2017 but then slightly declined from 2017 to 2018.

Analyst Adjustments: Removal of Goodwill

Walt Disney Co., adjustments to financial data

USD $ in millions

Microsoft Excel LibreOffice Calc
Sep 29, 2018 Sep 30, 2017 Oct 1, 2016 Oct 3, 2015 Sep 27, 2014 Sep 28, 2013
Adjustment to Total Assets
Total assets (as reported) hidden hidden hidden hidden hidden hidden
Less: Goodwill hidden hidden hidden hidden hidden hidden
Total assets (adjusted) hidden hidden hidden hidden hidden hidden
Adjustment to Total Disney Shareholder's Equity
Total Disney Shareholder's equity (as reported) hidden hidden hidden hidden hidden hidden
Less: Goodwill hidden hidden hidden hidden hidden hidden
Total Disney Shareholder's equity (adjusted) hidden hidden hidden hidden hidden hidden

Based on: 10-K (filing date: 2018-11-21), 10-K (filing date: 2017-11-22), 10-K (filing date: 2016-11-23), 10-K (filing date: 2015-11-25), 10-K (filing date: 2014-11-19), 10-K (filing date: 2013-11-20).


Walt Disney Co., Financial Data: Reported vs. Adjusted


Adjusted Ratios: Removal of Goodwill (Summary)

Walt Disney Co., adjusted ratios

Microsoft Excel LibreOffice Calc
Sep 29, 2018 Sep 30, 2017 Oct 1, 2016 Oct 3, 2015 Sep 27, 2014 Sep 28, 2013
Total Asset Turnover
Reported total asset turnover hidden hidden hidden hidden hidden hidden
Adjusted total asset turnover hidden hidden hidden hidden hidden hidden
Financial Leverage
Reported financial leverage hidden hidden hidden hidden hidden hidden
Adjusted financial leverage hidden hidden hidden hidden hidden hidden
Return on Equity (ROE)
Reported ROE hidden hidden hidden hidden hidden hidden
Adjusted ROE hidden hidden hidden hidden hidden hidden
Return on Assets (ROA)
Reported ROA hidden hidden hidden hidden hidden hidden
Adjusted ROA hidden hidden hidden hidden hidden hidden

Based on: 10-K (filing date: 2018-11-21), 10-K (filing date: 2017-11-22), 10-K (filing date: 2016-11-23), 10-K (filing date: 2015-11-25), 10-K (filing date: 2014-11-19), 10-K (filing date: 2013-11-20).

Ratio Description The company
Adjusted total asset turnover An activity ratio calculated as total revenue divided by adjusted total assets. Walt Disney Co.'s adjusted total asset turnover deteriorated from 2016 to 2017 but then improved from 2017 to 2018 exceeding 2016 level.
Adjusted financial leverage A measure of financial leverage calculated as adjusted total assets divided by adjusted total equity.
Financial leverage is the extent to which a company can effect, through the use of debt, a proportional change in the return on common equity that is greater than a given proportional change in operating income.
Walt Disney Co.'s adjusted financial leverage increased from 2016 to 2017 but then declined significantly from 2017 to 2018.
Adjusted ROE A profitability ratio calculated as net income divided by adjusted shareholders' equity. Walt Disney Co.'s adjusted ROE improved from 2016 to 2017 but then slightly deteriorated from 2017 to 2018 not reaching 2016 level.
Adjusted ROA A profitability ratio calculated as net income divided by adjusted total assets. Walt Disney Co.'s adjusted ROA deteriorated from 2016 to 2017 but then improved from 2017 to 2018 exceeding 2016 level.

Walt Disney Co., Ratios: Reported vs. Adjusted


Adjusted Total Asset Turnover

Microsoft Excel LibreOffice Calc
Sep 29, 2018 Sep 30, 2017 Oct 1, 2016 Oct 3, 2015 Sep 27, 2014 Sep 28, 2013
As Reported
Selected Financial Data (USD $ in millions)
Revenues hidden hidden hidden hidden hidden hidden
Total assets hidden hidden hidden hidden hidden hidden
Ratio
Total asset turnover1 hidden hidden hidden hidden hidden hidden
Adjusted for Goodwill
Selected Financial Data (USD $ in millions)
Revenues hidden hidden hidden hidden hidden hidden
Adjusted total assets hidden hidden hidden hidden hidden hidden
Ratio
Adjusted total asset turnover2 hidden hidden hidden hidden hidden hidden

Based on: 10-K (filing date: 2018-11-21), 10-K (filing date: 2017-11-22), 10-K (filing date: 2016-11-23), 10-K (filing date: 2015-11-25), 10-K (filing date: 2014-11-19), 10-K (filing date: 2013-11-20).

2018 Calculations

1 Total asset turnover = Revenues ÷ Total assets
= hidden ÷ hidden = hidden

2 Adjusted total asset turnover = Revenues ÷ Adjusted total assets
= hidden ÷ hidden = hidden

Ratio Description The company
Adjusted total asset turnover An activity ratio calculated as total revenue divided by adjusted total assets. Walt Disney Co.'s adjusted total asset turnover deteriorated from 2016 to 2017 but then improved from 2017 to 2018 exceeding 2016 level.

Adjusted Financial Leverage

Microsoft Excel LibreOffice Calc
Sep 29, 2018 Sep 30, 2017 Oct 1, 2016 Oct 3, 2015 Sep 27, 2014 Sep 28, 2013
As Reported
Selected Financial Data (USD $ in millions)
Total assets hidden hidden hidden hidden hidden hidden
Total Disney Shareholder's equity hidden hidden hidden hidden hidden hidden
Ratio
Financial leverage1 hidden hidden hidden hidden hidden hidden
Adjusted for Goodwill
Selected Financial Data (USD $ in millions)
Adjusted total assets hidden hidden hidden hidden hidden hidden
Adjusted total Disney Shareholder's equity hidden hidden hidden hidden hidden hidden
Ratio
Adjusted financial leverage2 hidden hidden hidden hidden hidden hidden

Based on: 10-K (filing date: 2018-11-21), 10-K (filing date: 2017-11-22), 10-K (filing date: 2016-11-23), 10-K (filing date: 2015-11-25), 10-K (filing date: 2014-11-19), 10-K (filing date: 2013-11-20).

2018 Calculations

1 Financial leverage = Total assets ÷ Total Disney Shareholder's equity
= hidden ÷ hidden = hidden

2 Adjusted financial leverage = Adjusted total assets ÷ Adjusted total Disney Shareholder's equity
= hidden ÷ hidden = hidden

Ratio Description The company
Adjusted financial leverage A measure of financial leverage calculated as adjusted total assets divided by adjusted total equity.
Financial leverage is the extent to which a company can effect, through the use of debt, a proportional change in the return on common equity that is greater than a given proportional change in operating income.
Walt Disney Co.'s adjusted financial leverage increased from 2016 to 2017 but then declined significantly from 2017 to 2018.

Adjusted Return on Equity (ROE)

Microsoft Excel LibreOffice Calc
Sep 29, 2018 Sep 30, 2017 Oct 1, 2016 Oct 3, 2015 Sep 27, 2014 Sep 28, 2013
As Reported
Selected Financial Data (USD $ in millions)
Net income attributable to The Walt Disney Company (Disney) hidden hidden hidden hidden hidden hidden
Total Disney Shareholder's equity hidden hidden hidden hidden hidden hidden
Ratio
ROE1 hidden hidden hidden hidden hidden hidden
Adjusted for Goodwill
Selected Financial Data (USD $ in millions)
Net income attributable to The Walt Disney Company (Disney) hidden hidden hidden hidden hidden hidden
Adjusted total Disney Shareholder's equity hidden hidden hidden hidden hidden hidden
Ratio
Adjusted ROE2 hidden hidden hidden hidden hidden hidden

Based on: 10-K (filing date: 2018-11-21), 10-K (filing date: 2017-11-22), 10-K (filing date: 2016-11-23), 10-K (filing date: 2015-11-25), 10-K (filing date: 2014-11-19), 10-K (filing date: 2013-11-20).

2018 Calculations

1 ROE = 100 × Net income attributable to The Walt Disney Company (Disney) ÷ Total Disney Shareholder's equity
= 100 × hidden ÷ hidden = hidden

2 Adjusted ROE = 100 × Net income attributable to The Walt Disney Company (Disney) ÷ Adjusted total Disney Shareholder's equity
= 100 × hidden ÷ hidden = hidden

Ratio Description The company
Adjusted ROE A profitability ratio calculated as net income divided by adjusted shareholders' equity. Walt Disney Co.'s adjusted ROE improved from 2016 to 2017 but then slightly deteriorated from 2017 to 2018 not reaching 2016 level.

Adjusted Return on Assets (ROA)

Microsoft Excel LibreOffice Calc
Sep 29, 2018 Sep 30, 2017 Oct 1, 2016 Oct 3, 2015 Sep 27, 2014 Sep 28, 2013
As Reported
Selected Financial Data (USD $ in millions)
Net income attributable to The Walt Disney Company (Disney) hidden hidden hidden hidden hidden hidden
Total assets hidden hidden hidden hidden hidden hidden
Ratio
ROA1 hidden hidden hidden hidden hidden hidden
Adjusted for Goodwill
Selected Financial Data (USD $ in millions)
Net income attributable to The Walt Disney Company (Disney) hidden hidden hidden hidden hidden hidden
Adjusted total assets hidden hidden hidden hidden hidden hidden
Ratio
Adjusted ROA2 hidden hidden hidden hidden hidden hidden

Based on: 10-K (filing date: 2018-11-21), 10-K (filing date: 2017-11-22), 10-K (filing date: 2016-11-23), 10-K (filing date: 2015-11-25), 10-K (filing date: 2014-11-19), 10-K (filing date: 2013-11-20).

2018 Calculations

1 ROA = 100 × Net income attributable to The Walt Disney Company (Disney) ÷ Total assets
= 100 × hidden ÷ hidden = hidden

2 Adjusted ROA = 100 × Net income attributable to The Walt Disney Company (Disney) ÷ Adjusted total assets
= 100 × hidden ÷ hidden = hidden

Ratio Description The company
Adjusted ROA A profitability ratio calculated as net income divided by adjusted total assets. Walt Disney Co.'s adjusted ROA deteriorated from 2016 to 2017 but then improved from 2017 to 2018 exceeding 2016 level.