Question

The Walt Disney Company is listed as Ticker Symbol “DIS” on the New York Stock Exchange. The Industry is listed under Consumer Services.

Determine what the company's policy is related to long-lived assets, goodwill, and other intangible assets.

Identify what the company says about its annual goodwill impairment testing.

Identify whether the company has any deferred tax assets and liabilities, and summarize what the company says about these items in the 10-K.

Identify the disclosures related to long-term debt, leases, and other long-term liabilities.

Based on your additional analysis of the company, how has your evaluation of the company's financial health changed since your analysis during Week 1?

Answer 1

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. These amounts are not necessarily the same as those included in segment operating results.

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 $22 million, $7 million and $10 million in fiscal years 2017, 2016 and 2015, respectively. These impairment charges were recorded in "Restructuring and impairment charges" in the Consolidated Statements of Income.