dis-20230401

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended April 1, 2023

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from __________ to __________.

Commission File Number 001-38842


Delaware						83-0940635
State or Other Jurisdiction of						I.R.S. Employer Identification
Incorporation or Organization

500 South Buena Vista Street

Burbank, California 91521

Address of Principal Executive Offices and Zip Code

(818) 560-1000

Registrant’s Telephone Number, Including Area Code

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock, $0.01 par value

DIS

New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ¨

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer

☒

Accelerated filer

☐

Non-accelerated filer

☐

Smaller reporting company

☐

Emerging growth company

☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No ☒

There were 1,827,304,988 shares of common stock outstanding as of May 3, 2023.

Cautionary Note on Forward-Looking Statements

This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Forward-looking statements generally relate to future events or our future financial or operating performance and may include statements concerning, among other things, financial results, business plans (including statements regarding new services and products and future expenditures, costs and investments), future liabilities, impairments and amortization, competition, and the impact of COVID-19 on our businesses and results of operations. In some cases, you can identify forward-looking statements because they contain words such as “may,” “will,” “would,” “should,” “expects,” “plans,” “could,” “intends,” “target,” “projects,” “believes,” “estimates,” “anticipates,” “potential,” “continue” or “assumption” or the negative of these words or other similar terms or expressions that concern our expectations, strategy, plans or intentions. These statements reflect our current views with respect to future events and are based on assumptions as of the date of this report. These statements are subject to known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from expectations or results projected or implied by forward-looking statements.

Such differences may result from actions taken by the Company, including restructuring or strategic initiatives (including capital investments, asset acquisitions or dispositions, new or expanded business lines or cessation of certain operations), our execution of our business plans (including the content we create and IP we invest in, our pricing decisions, our cost structure and our management and other personnel decisions) or other business decisions, as well as from developments beyond the Company’s control, including:

•further deterioration in domestic and global economic conditions;

•deterioration in or pressures from competitive conditions, including competition to create or acquire content and competition for talent;

•consumer preferences and acceptance of our content, offerings, pricing model and price increases and the market for advertising sales on our direct-to-consumer services and linear networks;

•health concerns and their impact on our businesses and productions;

•international, political or military developments;

•regulatory and legal developments;

•technological developments;

•labor markets and activities, including work stoppages;

•adverse weather conditions or natural disasters; and

•availability of content.

Such developments may further affect entertainment, travel and leisure businesses generally and may, among other things, affect (or further affect, as applicable):

•our operations, business plans or profitability;

•demand for our products and services;

•the performance of the Company’s content;

•our ability to create or obtain desirable content at or under the value we assign the content;

•the advertising market for programming;

•income tax expense; and

•performance of some or all Company businesses either directly or through their impact on those who distribute our products.

Additional factors include those described in our 2022 Annual Report on Form 10-K, including under the captions “Risk Factors,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and “Business,” in our subsequent quarterly reports on Form 10-Q, including under the captions “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and in our subsequent filings with the Securities and Exchange Commission.

A forward-looking statement is neither a prediction nor a guarantee of future events or circumstances. You should not place undue reliance on the forward-looking statements. Unless required by federal securities laws, we assume no obligation to update any of these forward-looking statements, or to update the reasons actual results could differ materially from those anticipated, to reflect circumstances or events that occur after the statements are made.

PART I. FINANCIAL INFORMATION

Item 1: Financial Statements

THE WALT DISNEY COMPANY

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(unaudited; in millions, except per share data)


	Quarter Ended				Six Months Ended
	April 1, 2023		April 2, 2022		April 1, 2023		April 2, 2022
Revenues:
Services	$	19,586	$	17,212	$	40,583	$	36,754
Products	2,229		2,037		4,744		4,314
Total revenues	21,815		19,249		45,327		41,068
Costs and expenses:
Cost of services (exclusive of depreciation and amortization)	(13,160)		(11,330)		(27,941)		(24,491)
Cost of products (exclusive of depreciation and amortization)	(1,456)		(1,264)		(3,061)		(2,670)
Selling, general, administrative and other	(3,614)		(3,768)		(7,441)		(7,555)
Depreciation and amortization	(1,310)		(1,287)		(2,616)		(2,556)
Total costs and expenses	(19,540)		(17,649)		(41,059)		(37,272)
Restructuring and impairment charges	(152)		(195)		(221)		(195)
Other income (expense), net	149		(158)		107		(594)
Interest expense, net	(322)		(355)		(622)		(666)
Equity in the income of investees	173		210		364		449
Income from continuing operations before income taxes	2,123		1,102		3,896		2,790
Income taxes on continuing operations	(635)		(505)		(1,047)		(993)
Net income from continuing operations	1,488		597		2,849		1,797
Loss from discontinued operations, net of income tax benefit of $0, $0, $0 and $14, respectively	—		—		—		(48)
Net income	1,488		597		2,849		1,749
Net income from continuing operations attributable to noncontrolling interests	(217)		(127)		(299)		(175)

Net income attributable to Disney	$	1,271	$	470	$	2,550	$	1,574

Earnings (loss) per share attributable to Disney(1):
Diluted
Continuing operations	$	0.69	$	0.26	$	1.39	$	0.89
Discontinued operations	—		—		—		(0.03)
	$	0.69	$	0.26	$	1.39	$	0.86
Basic
Continuing operations	$	0.70	$	0.26	$	1.40	$	0.89
Discontinued operations	—		—		—		(0.03)
	$	0.70	$	0.26	$	1.40	$	0.86

Weighted average number of common and common equivalent shares outstanding:
Diluted	1,831		1,828		1,829		1,828
Basic	1,828		1,822		1,827		1,820

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

See Notes to Condensed Consolidated Financial Statements

THE WALT DISNEY COMPANY

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(unaudited; in millions)


	Quarter Ended				Six Months Ended
	April 1, 2023		April 2, 2022		April 1, 2023		April 2, 2022
Net income	$	1,488	$	597	$	2,849	$	1,749
Other comprehensive income (loss), net of tax:
Market value adjustments for hedges	(82)		28		(624)		78
Pension and postretirement medical plan adjustments	56		119		57		274
Foreign currency translation and other	115		(191)		342		(213)
Other comprehensive income (loss)	89		(44)		(225)		139
Comprehensive income	1,577		553		2,624		1,888
Net income from continuing operations attributable to noncontrolling interests	(217)		(127)		(299)		(175)
Other comprehensive loss attributable to noncontrolling interests	—		8		(45)		(11)
Comprehensive income attributable to Disney	$	1,360	$	434	$	2,280	$	1,702

See Notes to Condensed Consolidated Financial Statements

THE WALT DISNEY COMPANY

CONDENSED CONSOLIDATED BALANCE SHEETS

(unaudited; in millions, except per share data)


	April 1, 2023		October 1, 2022
ASSETS
Current assets
Cash and cash equivalents	$	10,399	$	11,615
Receivables, net	12,770		12,652
Inventories	1,848		1,742
Content advances	1,872		1,890

Other current assets	1,374		1,199

Total current assets	28,263		29,098
Produced and licensed content costs	36,949		35,777
Investments	3,387		3,218
Parks, resorts and other property
Attractions, buildings and equipment	69,695		66,998
Accumulated depreciation	(41,452)		(39,356)
	28,243		27,642
Projects in progress	5,175		4,814
Land	1,161		1,140
	34,579		33,596
Intangible assets, net	13,887		14,837
Goodwill	77,878		77,897

Other assets	9,915		9,208
Total assets	$	204,858	$	203,631

LIABILITIES AND EQUITY
Current liabilities
Accounts payable and other accrued liabilities	$	18,591	$	20,213
Current portion of borrowings	3,452		3,070
Deferred revenue and other	6,013		5,790

Total current liabilities	28,056		29,073
Borrowings	45,066		45,299
Deferred income taxes	8,134		8,363

Other long-term liabilities	13,232		12,518
Commitments and contingencies (Note 13)
Redeemable noncontrolling interests	8,814		9,499
Equity
Preferred stock	—		—
Common stock, $0.01 par value, Authorized – 4.6 billion shares, Issued – 1.8 billion shares	56,919		56,398
Retained earnings	46,236		43,636
Accumulated other comprehensive loss	(4,389)		(4,119)

Treasury stock, at cost, 19 million shares	(907)		(907)
Total Disney Shareholders’ equity	97,859		95,008
Noncontrolling interests	3,697		3,871
Total equity	101,556		98,879
Total liabilities and equity	$	204,858	$	203,631

See Notes to Condensed Consolidated Financial Statements

THE WALT DISNEY COMPANY

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited; in millions)


	Six Months Ended
	April 1, 2023		April 2, 2022
OPERATING ACTIVITIES
Net income from continuing operations	$	2,849	$	1,797
Depreciation and amortization	2,616		2,556

Net (gain)/loss on investments and disposition of businesses	(88)		632
Deferred income taxes	(46)		983
Equity in the income of investees	(364)		(449)
Cash distributions received from equity investees	363		406
Net change in produced and licensed content costs and advances	(824)		(2,279)

Equity-based compensation	570		450
Pension and postretirement medical benefit cost amortization	2		310
Other, net	(234)		264
Changes in operating assets and liabilities:
Receivables	(413)		(342)
Inventories	(107)		(97)
Other assets	(345)		(676)
Accounts payable and other liabilities	(2,133)		(1,349)
Income taxes	416		(650)
Cash provided by operations - continuing operations	2,262		1,556

INVESTING ACTIVITIES
Investments in parks, resorts and other property	(2,430)		(2,060)


Other, net	(111)		36
Cash used in investing activities - continuing operations	(2,541)		(2,024)

FINANCING ACTIVITIES
Commercial paper borrowings (payments), net	714		(130)
Borrowings	70		70
Reduction of borrowings	(1,000)		(1,400)



Sale of noncontrolling interest	178		—
Acquisition of redeemable noncontrolling interest	(900)		—
Other, net	(188)		(637)
Cash used in financing activities - continuing operations	(1,126)		(2,097)

CASH FLOWS FROM DISCONTINUED OPERATIONS
Cash provided by operations - discontinued operations	—		8

Cash used in financing activities - discontinued operations	—		(12)
Cash used in discontinued operations	—		(4)

Impact of exchange rates on cash, cash equivalents and restricted cash	197		(116)

Change in cash, cash equivalents and restricted cash	(1,208)		(2,685)
Cash, cash equivalents and restricted cash, beginning of period	11,661		16,003
Cash, cash equivalents and restricted cash, end of period	$	10,453	$	13,318

See Notes to Condensed Consolidated Financial Statements

THE WALT DISNEY COMPANY

CONDENSED CONSOLIDATED STATEMENTS OF EQUITY

(unaudited; in millions)


	Quarter Ended
	Equity Attributable to Disney
	Shares	Common Stock		Retained Earnings		Accumulated Other Comprehensive Income (Loss)			Treasury Stock		Total Disney Equity		Non-controlling Interests(1)		Total Equity
Balance at December 31, 2022	1,826	$	56,579	$	44,955		$	(4,478)	$	(907)	$	96,149	$	3,986	$	100,135
Comprehensive income (loss)	—	—		1,271			89		—		1,360		147		1,507
Equity compensation activity	1	345		—			—		—		345		—		345


Contributions	—	—		—			—		—		—		9		9





Distributions and other	—	(5)		10			—		—		5		(445)		(440)
Balance at April 1, 2023	1,827	$	56,919	$	46,236		$	(4,389)	$	(907)	$	97,859	$	3,697	$	101,556

Balance at January 1, 2022	1,821	$	55,500	$	41,547		$	(6,276)	$	(907)	$	89,864	$	4,446	$	94,310
Comprehensive income (loss)	—	—		470			(36)		—		434		49		483
Equity compensation activity	1	327		—			—		—		327		—		327








Distributions and other	—	(4)		15			—		—		11		(472)		(461)
Balance at April 2, 2022	1,822	$	55,823	$	42,032		$	(6,312)	$	(907)	$	90,636	$	4,023	$	94,659

(1)Excludes redeemable noncontrolling interests.

See Notes to Condensed Consolidated Financial Statements

THE WALT DISNEY COMPANY

CONDENSED CONSOLIDATED STATEMENTS OF EQUITY

(unaudited; in millions)


	Six Months Ended
	Equity Attributable to Disney
	Shares	Common Stock		Retained Earnings		Accumulated Other Comprehensive Income (Loss)			Treasury Stock		Total Disney Equity		Non-controlling Interests(1)		Total Equity
Balance at October 1, 2022	1,824	$	56,398	$	43,636		$	(4,119)	$	(907)	$	95,008	$	3,871	$	98,879
Comprehensive income (loss)	—	—		2,550			(270)		—		2,280		131		2,411
Equity compensation activity	3	525		—			—		—		525		—		525


Contributions	—	—		—			—		—		—		187		187









Distributions and other	—	(4)		50			—		—		46		(492)		(446)
Balance at April 1, 2023	1,827	$	56,919	$	46,236		$	(4,389)	$	(907)	$	97,859	$	3,697	$	101,556

Balance at October 2, 2021	1,818	$	55,471	$	40,429		$	(6,440)	$	(907)	$	88,553	$	4,458	$	93,011
Comprehensive income	—	—		1,574			128		—		1,702		45		1,747
Equity compensation activity	4	356		—			—		—		356		—		356


Contributions	—	—		—			—		—		—		29		29









Distributions and other	—	(4)		29			—		—		25		(509)		(484)
Balance at April 2, 2022	1,822	$	55,823	$	42,032		$	(6,312)	$	(907)	$	90,636	$	4,023	$	94,659

(1)Excludes redeemable noncontrolling interests.

See Notes to Condensed Consolidated Financial Statements

THE WALT DISNEY COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited; tabular dollars in millions, except for per share data)

1.Principles of Consolidation

These Condensed Consolidated Financial Statements have been prepared in accordance with accounting principles generally accepted in the United States of America (GAAP) for interim financial information and the instructions to Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. We believe that we have included all normal recurring adjustments necessary for a fair statement of the results for the interim period. Operating results for the six months ended April 1, 2023 are not necessarily indicative of the results that may be expected for the year ending September 30, 2023.

The terms “Company,” “Disney,” “we,” “us,” and “our” are used in this report to refer collectively to the parent company, The Walt Disney Company, as well as the subsidiaries through which its various businesses are actually conducted.

These financial statements should be read in conjunction with the Company’s 2022 Annual Report on Form 10-K.

Variable Interest Entities

The Company enters into relationships with or makes investments in other entities that may be variable interest entities (VIE). A VIE is consolidated in the financial statements if the Company has the power to direct activities that most significantly impact the economic performance of the VIE and has the obligation to absorb losses or the right to receive benefits from the VIE that could potentially be significant (as defined by ASC 810-10-25-38) to the VIE. Hong Kong Disneyland Resort and Shanghai Disney Resort (together the Asia Theme Parks) are VIEs in which the Company has less than 50% equity ownership. Company subsidiaries (the Management Companies) have management agreements with the Asia Theme Parks, which provide the Management Companies, subject to certain protective rights of joint venture partners, with the ability to direct the day-to-day operating activities and the development of business strategies that we believe most significantly impact the economic performance of the Asia Theme Parks. In addition, the Management Companies receive management fees under these arrangements that we believe could be significant to the Asia Theme Parks. Therefore, the Company has consolidated the Asia Theme Parks in its financial statements.

Redeemable Noncontrolling Interests

The Company consolidates the results of Hulu LLC (Hulu), a direct-to-consumer (DTC) streaming service provider, which is owned 67% by the Company and 33% by NBC Universal (NBCU). In May 2019, the Company entered into a put/call agreement with NBCU that provided the Company with full operational control of Hulu. Under the agreement, beginning in January 2024, NBCU has the option to require the Company to purchase NBCU’s interest in Hulu and the Company has the option to require NBCU to sell its interest in Hulu to the Company, in either case at a redemption value based on NBCU’s equity ownership percentage of the greater of Hulu’s then equity fair value or a guaranteed floor value of $27.5 billion.

NBCU’s interest will generally not be allocated its portion of Hulu’s losses, if any, as the redeemable noncontrolling interest is required to be carried at a minimum value. The minimum value is equal to the fair value as of the May 2019 agreement date accreted to the January 2024 estimated redemption value. At April 1, 2023, NBCU’s interest in Hulu is recorded in the Company’s financial statements at $8.8 billion, which is reported as “Redeemable noncontrolling interest” in the Condensed Consolidated Balance Sheets.

We are accreting NBCU’s interest in Hulu to its guaranteed floor value. In determining the redemption value, our estimate of Hulu’s equity fair value in January 2024 requires management to make significant judgments. If our estimate of the future fair value of Hulu’s equity increased above the guaranteed floor value, we would change our rate of accretion, which would generally increase the amount recorded in “Net income from continuing operations attributable to noncontrolling interests” and thus reduce “Net income attributable to Disney” in the Condensed Consolidated Statements of Income.

At October 1, 2022, Major League Baseball (MLB) held a 15% redeemable noncontrolling interest in BAMTech LLC (BAMTech), which was recorded in the Company’s financial statements at $828 million. In November 2022, the Company purchased MLB’s redeemable noncontrolling interest for $900 million, resulting in $72 million recorded as an increase in “Net income from continuing operations attributable to noncontrolling interests” in the Condensed Consolidated Statements of Income.

THE WALT DISNEY COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited; tabular dollars in millions, except for per share data)

Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and footnotes thereto. Actual results may differ from those estimates.

Reclassifications

Certain reclassifications have been made in the fiscal 2022 financial statements and notes to conform to the fiscal 2023 presentation.

2.Segment Information

The Company’s operations are conducted in the Disney Media and Entertainment Distribution (DMED) and Disney Parks, Experiences and Products (DPEP) segments. Our operating segments report separate financial information, which is evaluated regularly by the Chief Executive Officer to allocate resources and assess performance.

Segment operating results reflect earnings before corporate and unallocated shared expenses, restructuring and impairment charges, net other income/expense, net interest expense, income taxes and noncontrolling interests. Segment operating income includes equity in the income of investees and excludes impairments of certain equity investments and acquisition accounting amortization of TFCF Corporation (TFCF) and Hulu assets (i.e. intangible assets and the fair value step-up for film and television costs) recognized in connection with the TFCF acquisition in fiscal 2019 (TFCF and Hulu acquisition amortization). Corporate and unallocated shared expenses principally consist of corporate functions, executive management and certain unallocated administrative support functions.

Segment operating results include allocations of certain costs, including information technology, pension, legal and other shared services costs, which are allocated based on metrics designed to correlate with consumption.

Segment revenues and segment operating income are as follows:


	Quarter Ended				Six Months Ended
	April 1, 2023		April 2, 2022		April 1, 2023		April 2, 2022
Revenues:
Disney Media and Entertainment Distribution	$	14,039	$	13,620	$	28,815	$	28,205
Disney Parks, Experiences and Products	7,776		6,652		16,512		13,886




Total segment revenues	$	21,815	$	20,272	$	45,327	$	42,091
Segment operating income:
Disney Media and Entertainment Distribution	$	1,119	$	1,944	$	1,109	$	2,752
Disney Parks, Experiences and Products	2,166		1,755		5,219		4,205




Total segment operating income(1)	$	3,285	$	3,699	$	6,328	$	6,957

(1) Equity in the income of investees is included in segment operating income as follows:


	Quarter Ended				Six Months Ended
	April 1, 2023		April 2, 2022		April 1, 2023		April 2, 2022
Disney Media and Entertainment Distribution	$	176	$	218	$	372	$	463
Disney Parks, Experiences and Products	—		(5)		(2)		(8)


Equity in the income of investees included in segment operating income	176		213		370		455

Amortization of TFCF intangible assets related to equity investees	(3)		(3)		(6)		(6)
Equity in the income of investees, net	$	173	$	210	$	364	$	449

THE WALT DISNEY COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited; tabular dollars in millions, except for per share data)

A reconciliation of segment revenues to total revenues is as follows:


	Quarter Ended				Six Months Ended
	April 1, 2023		April 2, 2022		April 1, 2023		April 2, 2022
Segment revenues	$	21,815	$	20,272	$	45,327	$	42,091
Content License Early Termination(1)	—		(1,023)		—		(1,023)
Total revenues	$	21,815	$	19,249	$	45,327	$	41,068

(1)In February 2022, the Company early terminated 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). Because the content is functional intellectual property (IP), we had recognized substantially all of the consideration to be paid by the customer under the licenses as revenue in prior years when the content was made available under the agreements. Consequently, we recorded the amounts to terminate the licenses agreements, net of remaining amounts of deferred revenue, as a reduction of revenue.

A reconciliation of segment operating income to income from continuing operations before income taxes is as follows:


	Quarter Ended				Six Months Ended
	April 1, 2023		April 2, 2022		April 1, 2023		April 2, 2022
Segment operating income	$	3,285	$	3,699	$	6,328	$	6,957
Content License Early Termination	—		(1,023)		—		(1,023)
Corporate and unallocated shared expenses	(279)		(272)		(559)		(500)
Restructuring and impairment charges	(152)		(195)		(221)		(195)
Other income (expense), net(1)	149		(158)		107		(