What changed in this filing

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Item 2. Management’s Discussion and Analysis

2023-05-10 compared with 2023-02-08 · 672 added, 234 removed, 578 unchanged (61% of the section changed)

1 unchanged sentence

SIGNIFICANT DEVELOPMENTS

Leadership Change and Pending Restructuring

As previously announced, on November 20, 2022, Robert A.

Leadership Change and Restructuring

On November 20, 2022, Robert A.

Iger returned to the Company as Chief Executive Officer (“CEO”) and Director.

Iger previously spent more than four decades at the Company, including 15 years as CEO.

In announcing Mr.

Iger’s appointment, the Company noted he has agreed to serve as CEO for two years, with a mandate from the Company’s Board of Directors “to set the strategic direction for renewed growth and to work closely with the Board in developing a successor to lead the Company at the completion of his term.”

As contemplated by the leadership change announcement, Mr.

Iger agreed to serve as CEO through the end of calendar 2024, with a mandate from the Company’s Board of Directors “to set the strategic direction for renewed growth and to work closely with the Board in developing a successor to lead the Company at the completion of his term.”

Iger formed a committee to advise him on a new organizational structure and operational changes within the Company to address the Board’s goals.

Upon implementation of these changes and related changes to our financial processes, we expect to report our operating segments differently than we do in this report.

In addition, the new organizational structure and operational changes may result in material restructuring and impairment charges.

In February 2023, the Company announced that it will be reorganized into three business segments:

Disney Entertainment, ESPN and Disney Parks, Experiences and Products.

We anticipate reporting under the new structure by the end of the fiscal year, at which time we will have implemented changes to our financial processes to reflect the reorganization.

The new organizational structure and operational changes have resulted in restructuring and impairment charges and may result in additional charges.

The Company is also in the process of reviewing content, primarily on our DTC services, for alignment with a strategic change in our approach to content curation and, as a result, will remove certain content from our platforms.

We currently expect to take an impairment charge of approximately $1.5 billion to $1.8 billion, which will largely be recognized in the third quarter of fiscal 2023 as we complete the review and remove the content.

The Company does not expect any material cash expenditures in connection with this content impairment charge.

ORGANIZATION OF INFORMATION

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• Current Quarter Results Compared to Prior-Year Quarter

• Current Six-Month Period Results Compared to Prior-Year Six-Month Period

• Seasonality

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Quarter Ended % Change

(in millions, except per share data) December 31,

2022 January 1,

(Worse) Six Months Ended % Change

(in millions, except per share data) April 1,

2023 April 2,

2022 April 1,

2023 April 2,

Services $ 19,586 $ 17,212 14 % $ 40,583 $ 36,754 10 %

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Total costs and expenses (19,540) (17,649) (11) % (41,059) (37,272) (10) %

Restructuring and impairment charges ( 69 ) — nm

Other expense, net ( 42 ) ( 436 ) 90 %

Restructuring and impairment charges ( 152 ) ( 195 ) 22 % ( 221 ) ( 195 ) (13) %

Other income (expense), net 149 ( 158 ) nm 107 ( 594 ) nm

Interest expense, net ( 322 ) ( 355 ) 9 % ( 622 ) ( 666 ) 7 %

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Net income from continuing operations 1,488 597 >100 % 2,849 1,797 59 %

Loss from discontinued operations, net of income tax benefit of $0 and $14, respectively — ( 48 ) 100 %

Loss from discontinued operations, net of income tax benefit of $0, $0, $0 and $14, respectively — — nm — ( 48 ) — %

Net income 1,488 597 >100 % 2,849 1,749 63 %

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and diluted earnings per share from continuing operations attributable to Disney (EPS) increased to $0.69 from $0.26 in the prior-year quarter.

The EPS increase for the quarter was due to growth in operating income at DPEP, lower investment losses and a lower effective income tax rate, partially offset by a decrease in operating income at DMED.

Service revenues for the quarter increased 7%, or $1.5 billion, to $21.0 billion due to growth at our theme parks and resorts, higher DTC subscription revenue and an increase in theatrical distribution revenue.

The EPS increase resulted from the comparison to a revenue reduction for the Content License Early Termination in the prior-year quarter, growth in operating income at DPEP, and an investment gain in the current quarter compared to an investment loss in the prior-year quarter.

These increases were partially offset by a decrease in operating income at DMED.

Service revenues for the quarter increased 14%, or $2.4 billion, to $19.6 billion resulting from the comparison to the revenue reduction for the Content License Early Termination in the prior-year quarter, growth at our theme parks and resorts, higher DTC subscription revenue and an increase in theatrical distribution revenue.

The increase at theme parks and resorts was due to higher volumes and guest spending growth.

The increase in DTC subscription revenue was due to subscriber growth and higher rates.

These increases were partially offset by decreased TV/SVOD distribution revenue and lower advertising revenue.

Service revenues reflected an approximate 2 percentage point decrease due to the movement of the U.S.

These increases were partially offset by lower advertising revenue and, to a lesser extent, lower TV/SVOD distribution and affiliate revenue.

Service revenues reflected an approximate 2 percentage point decrease due to an unfavorable movement of the U.S.

dollar against major currencies including the impact of our hedging program (Foreign Exchange Impact).

Product revenues for the quarter increased 10%, or $0.2 billion, to $2.5 billion due to higher sales volumes of merchandise, food and beverage at our theme parks and resorts, partially offset by lower home entertainment volumes.

Product revenues for the quarter increased 9%, or $0.2 billion, to $2.2 billion due to higher sales volumes of merchandise, food and beverage at our theme parks and resorts, partially offset by lower home entertainment sales volumes.

Product revenues reflected an approximate 2 percentage point decrease due to an unfavorable Foreign Exchange Impact.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS — (continued)

Costs and expenses

Cost of services for the quarter increased 16%, or $1.8 billion, to $13.2 billion due to higher programming and production costs and, to a lesser extent, increased volumes at our theme parks and resorts and higher technical support costs at Direct-to-Consumer.

The increase in programming and production costs was due to higher costs at Direct-to-Consumer and increased production cost amortization resulting from higher theatrical revenue, partially offset by decreased sports programming costs and lower production cost amortization resulting from lower TV/SVOD distribution revenue.

The increase in programming and production costs was due to higher costs at Direct-to-Consumer, increased sports programming costs at Linear Networks and increased production cost amortization resulting from higher theatrical revenue.

Costs of services reflected an approximate 1 percentage point decrease due to a favorable Foreign Exchange Impact.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS — (continued)

Cost of products for the quarter increased 14%, or $0.2 billion, to $1.6 billion due to higher merchandise, food and beverage sales at our theme parks and resorts, partially offset by a decrease in home entertainment volumes.

Cost of products for the quarter increased 15%, or $0.2 billion, to $1.5 billion due to higher sales volumes of merchandise, food and beverage at our theme parks and resorts, partially offset by a decrease in home entertainment sales volumes.

Costs of products reflected an approximate 1 percentage point decrease due to a favorable Foreign Exchange Impact.

Selling, general, administrative and other costs increased 1% to $3.8 billion.

Selling, general, administrative and other costs decreased 4% to $3.6 billion reflecting an approximate 3 percentage point decrease due to a favorable Foreign Exchange Impact.

Depreciation and amortization increased 2% to $1.3 billion due to higher depreciation at our domestic theme parks and resorts.

Restructuring and impairment charges

In the current quarter, the Company recorded charges of $69 million related to exiting our businesses in Russia.

Other expense, net

The current quarter includes a DraftKings loss of $70 million, partially offset by a $28 million gain on the sale of a business.

The prior-year quarter included a DraftKings loss of $432 million.

In the current quarter, the Company recorded charges of $152 million primarily for severance.

In the prior-year quarter, the Company recorded charges of $195 million due to the impairment of an intangible asset related to the Disney Channel in Russia.

Other income (expense), net

In the current quarter, the Company recorded a DraftKings gain of $149 million.

In the prior-year quarter, the Company recorded a DraftKings loss of $158 million.

Interest expense, net

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Quarter Ended

(in millions) December 31,

2022 January 1,

(in millions) April 1,

2023 April 2,

2022 % Change

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The increase in interest expense was due to higher average rates, partially offset by lower average debt balances.

The increase in interest income, investment income and other resulted from a favorable comparison of pension and postretirement benefit costs, other than service cost, and higher interest income on cash balances.

The increase in interest income, investment income and other resulted from a favorable comparison of pension and postretirement benefit costs, other than service cost, higher interest income on cash balances, and investment gains in the current quarter compared to investment losses in the prior-year quarter.

Equity in the Income of Investees

Income from equity investees decreased $48 million, to $191 million from $239 million, due to lower income from A+E Television Networks.

Income from equity investees decreased $37 million, to $173 million from $210 million, primarily due to lower income from A+E Television Networks.

Effective Income Tax Rate

Quarter Ended

2022 January 1,

2023 April 2,

Income from continuing operations before income taxes $ 2,123 $ 1,102

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Effective income tax rate - continuing operations 29.9% 45.8%

The decrease in the effective income tax rate was due to the impact of adjustments related to prior years, which was favorable in the current quarter and unfavorable in the prior-year quarter.

This impact was partially offset by the tax effect of employee share-based awards, which had an unfavorable impact in the current quarter and favorable impact in the prior-year quarter.

The decrease in the effective income tax rate was driven by the comparison to an unfavorable impact in the prior-year quarter from new tax regulations that limit our ability to utilize certain foreign tax credits.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS — (continued)

Noncontrolling Interests

Quarter Ended

(in millions) December 31,

2022 January 1,

(in millions) April 1,

2023 April 2,

2022 % Change

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Net income from continuing operations attributable to noncontrolling interests $ (217) $ (127) (71) %

The increase in net income from continuing operations attributable to noncontrolling interests was primarily due to the purchase of MLB’s 15% interest in BAMTech and lower losses at our DTC sports business, partially offset by higher losses at Shanghai Disney Resort.

The increase in net income from continuing operations attributable to noncontrolling interests was due to improved results at Shanghai Disney Resort and lower losses at Hong Kong Disneyland Resort and at our DTC sports business, partially offset by lower results at ESPN.

Net income attributable to noncontrolling interests is determined on income after royalties and management fees, financing costs and income taxes, as applicable.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS — (continued)

Certain Items Impacting Results in the Quarter

Results for the quarter ended December 31, 2022 were impacted by the following:

Results for the quarter ended April 1, 2023 were impacted by the following:

• TFCF and Hulu acquisition amortization of $558 million

• Restructuring and impairment charges of $152 million

• Other expense, net of $42 million due to the DraftKings loss of $70 million, partially offset by a $28 million gain on the sale of a business

Results for the quarter ended January 1, 2022 were impacted by the following:

• Other income of $149 million due to the DraftKings gain

Results for the quarter ended April 2, 2022 were impacted by the following:

• A $1.0 billion reduction in revenue for the Content Licence Early Termination

• TFCF and Hulu acquisition amortization of $594 million

• Other expense, net of $436 million due to the DraftKings loss of $432 million

• Impairment charges of $195 million

• Other expense of $158 million due to the DraftKings loss

A summary of the impact of these items on EPS is as follows:

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After-Tax Income (Loss) EPS Favorable (Adverse) (2)

Quarter Ended December 31, 2022:

Quarter Ended April 1, 2023:

TFCF and Hulu acquisition amortization $ (558) $ 130 $ (428) $ (0.23)

Restructuring and impairment charges (152) 35 (117) (0.06)

Other expense, net (42) 16 (26) (0.01)

Other income (expense), net 149 (35) 114 0.06

Total $ (561) $ 130 $ (431) $ (0.23)

Quarter Ended January 1, 2022:

Quarter Ended April 2, 2022:

Content License Early Termination $ (1,023) $ 238 $ (785) $ (0.43)

TFCF and Hulu acquisition amortization (594) 138 (456) (0.24)

Other expense, net (436) 102 (334) (0.18)

Restructuring and impairment charges (195) 45 (150) (0.08)

Other income (expense), net (158) 37 (121) (0.07)

Total $ (1,970) $ 458 $ (1,512) $ (0.82)

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

CURRENT SIX-MONTH PERIOD RESULTS COMPARED TO PRIOR-YEAR SIX-MONTH PERIOD

Revenues for the current period increased $4.3 billion, to $45.3 billion;

net income attributable to Disney increased $1.0 billion, to $2.6 billion;

and EPS increased to $1.39 from $0.89 in the prior-year period.

The EPS increase resulted from the comparison to a revenue reduction for the Content License Early Termination in the prior-year period, growth in operating income at DPEP, and an investment gain in the current period compared to an investment loss in the prior-year period.

These increases were partially offset by a decrease in operating income at DMED.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS — (continued)

Service revenues for the current period increased 10%, or $3.8 billion, to $40.6 billion, due to increased revenues at our theme parks and resorts, higher DTC subscription revenue, theatrical distribution revenue growth and the comparison to the revenue reduction for the Content License Early Termination in the prior-year period.

These increases were partially offset by lower advertising revenue and TV/SVOD distribution and, to a lesser extent, affiliate revenue.

The increase at theme parks and resorts was due to higher volumes and guest spending growth.

The increase in DTC subscription revenue was due to subscriber growth and higher rates.

Service revenues reflected an approximate 2 percentage point decrease due to an unfavorable Foreign Exchange Impact.

Product revenues for the current period increased 10%, or $0.4 billion, to $4.7 billion, due to higher sales volumes of merchandise, food and beverage at our theme parks and resorts, partially offset by lower home entertainment sales volumes.

Product revenues reflected an approximate 2 percentage point decrease due to an unfavorable Foreign Exchange Impact.

Costs and expenses

Cost of services for the current period increased 14%, or $3.5 billion, to $27.9 billion, due to higher programming and production costs and, to a lesser extent, increased volumes at our theme parks and resorts and higher technical support costs at Direct-to-Consumer.

The increase in programming and production costs was due to higher costs at Direct-to-Consumer and increased production cost amortization resulting from higher theatrical revenue.

Costs of services reflected an approximate 1 percentage point decrease due to a favorable Foreign Exchange Impact.

Cost of products for the current period increased 15%, or $0.4 billion, to $3.1 billion, due to higher sales volumes of merchandise, food and beverage at our theme parks and resorts, partially offset by a decrease in home entertainment volumes.

Costs of products reflected an approximate 1 percentage point decrease due to a favorable Foreign Exchange Impact.

Selling, general, administrative and other costs for the current period decreased 2%, or $0.1 billion, to $7.4 billion reflecting an approximate 1 percentage point decrease due to a favorable Foreign Exchange Impact.

Depreciation and amortization increased 2% to 2.6 billion due to higher depreciation at our domestic theme parks and resorts.

Restructuring and impairment charges

In the current period, the Company recorded charges of $221 million primarily for severance and costs related to exiting our businesses in Russia.

In the prior-year period, the Company recorded charges of $195 million due to the impairment of an intangible asset related to the Disney Channel in Russia.

Other income (expense), net

Other income in the current period includes a DraftKings gain of $79 million and a $28 million gain on the sale of a business.

Other expense in the prior-year period included a DraftKings loss of $590 million.

Interest expense, net

Interest expense, net is as follows:

Six Months Ended

(in millions) April 1,

2023 April 2,

2022 % Change

Better (Worse)

Interest expense $ (969) $ (735) (32) %

Interest income, investment income and other 347 69 >100 %

Interest expense, net $ (622) $ (666) 7 %

The increase in interest expense was due to higher average rates, partially offset by lower average debt balances.

The increase in interest income, investment income and other resulted from a favorable comparison of pension and postretirement benefit costs, other than service cost and higher interest income on cash balances.

Equity in the Income of Investees

Income from equity investees decreased $85 million, to $364 million from $449 million, due to lower income from A+E Television Networks.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS — (continued)

Effective Income Tax Rate

Six Months Ended

2023 April 2,

Income from continuing operations before income taxes $ 3,896 $ 2,790

Income tax on continuing operations 1,047 993

Effective income tax rate - continuing operations 26.9% 35.6%

The decrease in the effective income tax rate was driven by the comparison to unfavorable items in the prior-year period for adjustments related to prior years and for new tax regulations that limit our ability to utilize certain foreign tax credits.

These impacts were partially offset by the tax effect of employee share-based awards, which had an unfavorable impact in the current period and a favorable impact in the prior-year period.

Noncontrolling Interests

Six Months Ended

(in millions) April 1,

2023 April 2,

2022 % Change

Better (Worse)

Net income from continuing operations attributable to noncontrolling interests $ (299) $ (175) (71) %

The increase in net income from continuing operations attributable to noncontrolling interests was due to the purchase of Major League Baseball’s 15% interest in BAMTech LLC, improved results at Shanghai Disney Resort and lower losses at Hong Kong Disneyland Resort and at our DTC sports business, partially offset by lower results at ESPN.

Certain Items Impacting Results in the Six-Month Period

Results for the six months ended April 1, 2023 were impacted by the following:

• TFCF and Hulu acquisition amortization of $1,137 million

• Restructuring and impairment charges of $221 million

• Other income of $107 million due to the DraftKings gain of $79 million and a gain on the sale of a business of $28 million

Results for the six months ended April 2, 2022 were impacted by the following:

• A $1.0 billion reduction in revenue for the Content License Early Termination

• TFCF and Hulu acquisition amortization of $1,189 million

• Impairment charges of $195 million

• Other expense of $594 million due to the DraftKings loss

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS — (continued)

A summary of the impact of these items on EPS is as follows:

(in millions, except per share data) Pre-Tax Income (Loss) Tax Benefit

(Expense) (1)

After-Tax Income (Loss) EPS Favorable

(Adverse) (2)

Six Months Ended April 1, 2023:

TFCF and Hulu acquisition amortization $ (1,137) $ 264 $ (873) $ (0.47)

Restructuring and impairment charges (221) 43 (178) (0.10)

Other income (expense), net 107 (18) 89 0.05

Total $ (1,251) $ 289 $ (962) $ (0.52)

Six Months Ended April 2, 2022:

TFCF and Hulu acquisition amortization $ (1,189) $ 277 $ (912) $ (0.49)

Content License Early Termination (1,023) 238 (785) (0.43)

Other income (expense), net (594) 138 (456) (0.25)

Restructuring and impairment charges (195) 45 (150) (0.08)

Total $ (3,001) $ 698 $ (2,303) $ (1.25)

(1) Tax benefit (expense) amounts are determined using the tax rate applicable to the individual item.

(2) EPS is net of noncontrolling interest share, where applicable.

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

The Company’s businesses are subject to the effects of seasonality.

Consequently, the operating results for the quarter ended December 31, 2022 for each business segment, and for the Company as a whole, are not necessarily indicative of results to be expected for the full year.

Consequently, the operating results for the six months ended April 1, 2023 for each business segment, and for the Company as a whole, are not necessarily indicative of results to be expected for the full year.

DMED revenues are subject to seasonal advertising patterns, changes in viewership and subscriber levels, timing and performance of film releases in the theatrical and home entertainment markets, timing of and demand for film and television programs, and the availability of and demand for sports programming.

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In addition, licensing revenues fluctuate with the timing and performance of our film and television content.

BUSINESS SEGMENT RESULTS

The Company evaluates the performance of its operating segments based on segment operating income, and management uses total segment operating income as a measure of the overall performance of the operating businesses separate from non-operating factors.

Total segment operating income is not a financial measure defined by GAAP, should be reviewed in conjunction with the relevant GAAP financial measure and may not be comparable to similarly titled measures reported by

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS — (continued)

other companies.

The Company believes that information about total segment operating income assists investors by allowing them to evaluate changes in the operating results of the Company’s portfolio of businesses separate from factors other than business operations that affect net income, thus providing separate insight into both operations and other factors that affect reported results.

The following table reconciles income from continuing operations before income taxes to total segment operating income:

BUSINESS SEGMENT RESULTS

The Company evaluates the performance of its operating businesses based on segment revenue and segment operating income.

The following table presents revenues from our operating segments and other components of revenues:

Quarter Ended % Change

(in millions) December 31,

2022 January 1,

Income from continuing operations before income taxes $ 1,773 $ 1,688 5 %

(Worse) Six Months Ended % Change

(in millions) April 1,

2023 April 2,

2022 April 1,

2023 April 2,

Disney Media and Entertainment Distribution $ 14,039 $ 13,620 3 % $ 28,815 $ 28,205 2 %

Disney Parks, Experiences and Products 7,776 6,652 17 % 16,512 13,886 19 %

Content License Early Termination — (1,023) 100 % — (1,023) 100 %

Revenues $ 21,815 $ 19,249 13 % $ 45,327 $ 41,068 10 %

The following table presents income from our operating segments and other components of income from continuing operations before income taxes:

Quarter Ended % Change

(Worse) Six Months Ended % Change

(in millions) April 1,

2023 April 2,

2022 April 1,

2023 April 2,

Disney Media and Entertainment Distribution operating income $ 1,119 $ 1,944 (42) % $ 1,109 $ 2,752 (60) %

Disney Parks, Experiences and Products operating income 2,166 1,755 23 % 5,219 4,205 24 %

Content License Early Termination — (1,023) 100 % — (1,023) 100 %

Corporate and unallocated shared expenses (279) (272) (3) % (559) (500) (12) %

Restructuring and impairment charges 69 — nm

Other expense, net 42 436 90 %

Restructuring and impairment charges (152) (195) 22 % (221) (195) (13) %

Other expense, net 149 (158) nm 107 (594) nm

Interest expense, net (322) (355) 9 % (622) (666) 7 %

TFCF and Hulu acquisition amortization (558) (594) 6 % (1,137) (1,189) 4 %

Total segment operating income $ 3,043 $ 3,258 (7) %

The following is a summary of segment revenue and operating income (loss):

Quarter Ended % Change

(in millions) December 31,

2022 January 1,

Segment Revenues:

Disney Media and Entertainment Distribution $ 14,776 $ 14,585 1 %

Disney Parks, Experiences and Products 8,736 7,234 21 %

$ 23,512 $ 21,819 8 %

Segment operating income (loss):

Disney Media and Entertainment Distribution $ (10) $ 808 nm

Disney Parks, Experiences and Products 3,053 2,450 25 %

$ 3,043 $ 3,258 (7) %

Income from continuing operations before income taxes $ 2,123 $ 1,102 93 % $ 3,896 $ 2,790 40 %

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS — (continued)

Depreciation expense is as follows:

Quarter Ended % Change

(in millions) December 31,

2022 January 1,

(Worse) Six Months Ended % Change

(in millions) April 1,

2023 April 2,

2022 April 1,

2023 April 2,

Disney Media and Entertainment Distribution $ 169 $ 169 — % $ 333 $ 322 (3) %

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Total depreciation expense $ 845 $ 786 (8) % $ 1,673 $ 1,553 (8) %

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS — (continued)

Amortization of intangible assets is as follows:

Quarter Ended % Change

(in millions) December 31,

2022 January 1,

(Worse) Six Months Ended % Change

(in millions) April 1,

2023 April 2,

2022 April 1,

2023 April 2,

Disney Media and Entertainment Distribution $ 30 $ 39 23 % $ 64 $ 79 19 %

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Quarter Ended % Change

(in millions) December 31,

2022 January 1,

(in millions) April 1,

2023 April 2,

Linear Networks $ 6,625 $ 7,116 (7) %

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Direct-to-Consumer (659) (887) 26 %

Content Sales/Licensing and Other (212) (98) >(100) %

$ (10) $ 808 nm

Content Sales/Licensing and Other (50) 16 nm

$ 1,119 $ 1,944 (42) %

(1) Reflects fees received by the Linear Networks from other DMED businesses for the right to air our Linear Networks and related services.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS — (continued)

Linear Networks

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Quarter Ended % Change

(in millions) December 31,

2022 January 1,

(in millions) April 1,

2023 April 2,

Affiliate fees $ 4,691 $ 4,867 (4) %

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Operating Income $ 1,828 $ 2,815 (35) %

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS — (continued)

Affiliate revenue is as follows:

Quarter Ended % Change

(in millions) December 31,

2022 January 1,

(in millions) April 1,

2023 April 2,

Domestic Channels $ 4,044 $ 4,123 (2) %

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$ 4,691 $ 4,867 (4) %

The increase in affiliate revenue at the Domestic Channels reflected an increase of 6% from higher contractual rates, partially offset by a decrease of 5% from fewer subscribers.

The decrease in affiliate revenue at the International Channels was due to decreases of 10% from an unfavorable Foreign Exchange Impact and 8% from fewer subscribers resulting from channel closures in Latin America and Europe.

The decrease in affiliate revenue at the Domestic Channels was due to a decrease of 6% from fewer subscribers, partially offset by an increase of 3% from higher contractual rates.

Contractual rate growth was negatively impacted by the timing of revenue recognition from non-owned TV stations in the prior-year quarter.

The decrease in affiliate revenue at the International Channels was due to decreases of 10% from an unfavorable Foreign Exchange Impact and 6% from fewer subscribers related to channel closures in Latin America and Europe.

These decreases were partially offset by an increase of 5% from higher contractual rates.

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Quarter Ended % Change

(in millions) December 31,

2022 January 1,

(in millions) April 1,

2023 April 2,

Cable $ 813 $ 833 (2) %

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$ 1,768 $ 2,083 (15) %

The decrease in Cable advertising revenue was due to decreases of 5% from rates and 2% from impressions, which reflected lower average viewership.

The decrease in Broadcasting advertising revenue was driven by a decrease of 10% from fewer impressions at ABC, partially offset by increases of 7% from the owned television stations and 2% from higher rates at ABC.

Lower advertising revenue at Cable resulted from a decrease of 6% from fewer impressions due to lower average viewership at our non-sports channels, partially offset by an increase of 3% from a benefit from the timing of College Football Playoff (CFP) games relative to our fiscal periods.

The current quarter included three CFP games compared to one game in the prior-year quarter.

Lower Broadcasting advertising revenue was due to decreases of 10% from fewer impressions at ABC, 4% from lower rates at the owned television stations and 2% from lower rates at ABC.

Fewer impressions at ABC reflected lower average viewership and, to a lesser extent, fewer units delivered.

The increase at the owned television stations was due to higher political advertising.

The decline in International Channels advertising revenue was due to decreases of 14% from fewer impressions, reflecting a decrease in average viewership, 13% from lower rates and 9% from an unfavorable Foreign Exchange Impact.

The decrease in average viewership reflected no Indian Premier League (IPL) cricket matches aired in the current quarter compared to thirteen matches aired in the prior-year quarter as matches shifted from fiscal 2021 into fiscal 2022 due to COVID-19.

IPL matches typically occur in the second and third quarters of our fiscal year.

Other revenue increased $17 million, to $269 million from $252 million, due to a favorable Foreign Exchange Impact and higher sub-licensing fees from International Cricket Council (ICC) T20 World Cup cricket matches in the current quarter compared to the prior-year quarter.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS — (continued)

The decline in International Channels advertising revenue was due to decreases of 18% from fewer impressions, 9% from lower rates and 7% from an unfavorable Foreign Exchange Impact.

Lower impressions were attributable to decreases in average viewership at our sports and non-sports channels.

The decrease at our sports channels was primarily due to cricket programming, which reflected airing fewer Indian Premier League (IPL) matches in the current quarter compared to the prior-year quarter as the 2023 IPL season started approximately one week later than the 2022 season.

This decrease was partially offset by airing more Board of Control for Cricket in India (BCCI) matches in the current quarter compared to the prior-year quarter.

Costs and Expenses

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Quarter Ended % Change

(in millions) December 31,

2022 January 1,

(in millions) April 1,

2023 April 2,

Cable $ (2,178) $ (1,774) (23) %

3 unchanged sentences

$ (3,583) $ (3,206) (12) %

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS — (continued)

Programming and production costs at Cable decreased primarily due to lower NFL and College Football Playoff (CFP) rights costs, partially offset by an increase in sports production costs.

The decline in NFL rights expense reflected the timing of costs under our new agreement compared to the prior NFL agreement.

The decrease in costs for CFP programming was due to the timing of the CFP games relative to our fiscal periods, partially offset by contractual rate increases.

The current quarter included two host games and two semi-final games compared to four host games and two semi-final games in the prior-year quarter.

Programming and production costs at the International Channels decreased due to lower sports programming costs, a favorable Foreign Exchange Impact and the impact of channel closures.

Lower sports programming costs were due to the comparison to thirteen IPL cricket matches in the prior-year quarter and lower costs for ICC cricket matches in the current quarter compared to the prior-year quarter, partially offset by an increase in sports production costs and costs for new soccer rights.

Selling, general administrative and other costs increased $48 million, to $803 million from $755 million, primarily due to higher overhead costs and an unfavorable Foreign Exchange Impact, partially offset by a gain on the sale of an interest in our X Games business and lower marketing costs at ABC.

Depreciation and amortization decreased $16 million, to $22 million from $38 million primarily due to lower depreciation at the International Channels and the transfer of technology assets and related depreciation between Linear Networks and Content Sales/Licensing and Other.

Programming and production costs at Cable increased due to higher CFP and NFL programming costs and, to a lesser extent, contractual rate increases for NBA programming and an increase in sports production costs.

The increase in costs for CFP programming was due to the timing of games.

Higher NFL rights costs were due to the timing of costs under our new agreement compared to the prior NFL agreement.

The increase in programming and production costs at Broadcasting was due to a higher average cost mix of programming aired in the current quarter and the timing of the Citrus Bowl college football game.

The current quarter included more hours of scripted series and fewer hours of reality programming.

The Citrus Bowl aired in the current quarter compared to the first quarter of the prior year.

Programming and production costs at the International Channels decreased due to a favorable Foreign Exchange Impact, partially offset by costs for new soccer rights.

Selling, general administrative and other costs increased $43 million, to $945 million from $902 million, driven by higher overhead costs and an increase in marketing spend, partially offset by a favorable Foreign Exchange Impact.

Depreciation and amortization decreased $8 million, to $28 million from $36 million, driven by technology assets that were fully depreciated.

Equity in the Income of Investees

Income from equity investees decreased $46 million, to $196 million from $242 million, due to lower income from A+E Television Networks attributable to lower advertising revenues and higher programming costs.

Income from equity investees decreased $46 million, to $175 million from $221 million, primarily due to lower income from A+E Television Networks attributable to a decrease in advertising revenue and higher programming costs.

Operating Income from Linear Networks

Operating income from Linear Networks decreased $244 million, to $1,255 million from $1,499 million, due to a decrease at the International Channels and lower income from our equity investees, partially offset by an increase at Cable.

Operating income from Linear Networks decreased $987 million, to $1,828 million from $2,815 million, due to decreases at Cable, Broadcasting, the International Channels and, to a lesser extent, lower income from our equity investees.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS — (continued)

The following table provides supplemental revenue and operating income detail for Linear Networks:

Quarter Ended % Change

(in millions) December 31,

2022 January 1,

(in millions) April 1,

2023 April 2,

Supplemental revenue detail

7 unchanged sentences

$ 1,828 $ 2,815 (35) %

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS — (continued)

Direct-to-Consumer

1 unchanged sentence

Quarter Ended % Change

(in millions) December 31,

2022 January 1,

(in millions) April 1,

2023 April 2,

Subscription fees $ 4,605 $ 3,887 18 %

8 unchanged sentences

The increase in subscribers was due to growth at Disney+ and, to a lesser extent, at Hulu and ESPN+.

Higher rates were attributable to increases in retail pricing at Hulu and, to a lesser extent, at ESPN+.

Lower advertising revenue reflected a decrease of 10% from fewer impressions due to decreases at Hulu and, to a lesser extent, Disney+, partially offset by an increase of 4% from higher rates due to an increase at Hulu.

The increase in TV/SVOD distribution and other revenue was due to a favorable Foreign Exchange Impact.

Higher rates were attributable to increases in retail pricing at Hulu, Disney+ and, to a lesser extent, at ESPN+.

Lower advertising revenue reflected a decrease of 16% from fewer impressions due to a decrease at Hulu.

The decrease was partially offset by an increase of 3% from higher rates at Hulu.

The increase in TV/SVOD distribution and other revenue was driven by an increase in Ultimate Fighting Championship (UFC) pay-per-view fees due to airing four events in the current quarter compared to three events in the prior-year quarter.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS — (continued)

The following tables present additional information about our Disney+, ESPN+ and Hulu DTC product offerings (1) .

Paid subscribers (2) as of:

(in millions) December 31,

2022 January 1,

2022 % Change

Paid subscribers (2) at:

% Change Better (Worse)

(in millions) April 1,

2023 December 31,

2022 April 2,

31, 2022 Apr.

Domestic (U.S.

12 unchanged sentences

48.2 48.0 45.6 — % 6 %

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS — (continued)

Average Monthly Revenue Per Paid Subscriber (5) for the quarter ended:

2022 January 1,

Average Monthly Revenue Per Paid Subscriber (5) :

Quarter Ended % Change Better (Worse)

2023 December 31,

2022 April 2,

31, 2022 Apr.

Domestic (U.S.

19 unchanged sentences

In Latin America, if a subscriber has either the standalone Disney+ or Star+ service or subscribes to Combo+, the subscriber is counted as one Disney+ paid subscriber.

Subscribers include those who receive a service through wholesale arrangements including those for which we receive a fee for the distribution of the service to each subscriber of an existing content distribution tier.

Subscribers include those who receive a service through wholesale arrangements including those for which we receive a fee for the distribution of the service to each subscriber

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS — (continued)

of an existing content distribution tier.

When we aggregate the total number of paid subscribers across our DTC streaming services, we refer to them as paid subscriptions.

Supplemental information about paid subscribers:

(in millions) April 1,

2023 December 31,

2022 April 2,

Domestic (U.S.

and Canada) standalone 57.0 58.5 61.6

Domestic (U.S.and Canada) multi-product (a)

21.4 20.8 17.0

78.4 79.3 78.6

International standalone 102.5 107.0 89.3

International multi-product (b)

111.5 115.2 93.3

189.9 194.4 171.9

(a) At April 1, 2023, there were 20.0 million and 1.4 million subscribers to three-service and two-service multi-product offerings, respectively.

At December 31, 2022, there were 19.6 million and 1.2 million subscribers to three-service and two-service multi-product offerings, respectively.

At April 2, 2022, there were 16.8 million and 0.2 million subscribers to three-service and two-service multi-product offerings, respectively.

(b) Consists of subscribers to Combo+.

(3) Includes the Disney+ service outside the U.S.

9 unchanged sentences

In general, wholesale arrangements have a lower average monthly revenue per paid subscriber than subscribers that we acquire directly or through third-party platforms.

The average monthly revenue per paid subscriber for domestic Disney+ decreased from $6.68 to $5.95 due to a higher mix of subscribers to multi-product offerings, partially offset by an increase in retail pricing.

The average monthly revenue per paid subscriber for international Disney+ (excluding Disney+ Hotstar) decreased from $5.96 to $5.62 primarily due to an unfavorable Foreign Exchange Impact and a higher mix of subscribers in lower-priced markets, partially offset by a lower mix of wholesale subscribers.

The average monthly revenue per paid subscriber for Disney+ Hotstar decreased from $1.03 to $0.74 due to lower per-subscriber advertising revenue.

Average Monthly Revenue Per Paid Subscriber - Second Quarter of Fiscal 2023 Comparison to First Quarter of Fiscal 2023

Domestic Disney+ average monthly revenue per paid subscriber increased from $5.95 to $7.14 due to an increase in average retail pricing.

International Disney+ (excluding Disney+ Hotstar) average monthly revenue per paid subscriber increased from $5.62 to $5.93 due to a favorable Foreign Exchange Impact, a lower mix of wholesale subscribers and an increase in wholesale pricing.

Disney+ Hotstar average monthly revenue per paid subscriber decreased from $0.74 to $0.59 due to lower per-subscriber advertising revenue.

ESPN+ average monthly revenue per paid subscriber increased from $5.53 to $5.64 driven by higher per-subscriber advertising revenue, partially offset by a higher mix of subscribers to multi-product offerings.

Hulu SVOD Only average monthly revenue per paid subscriber decreased from $12.46 to $11.73 due to lower per-subscriber advertising revenue and a higher mix of subscribers to multi-product offerings, partially offset by an increase in average retail pricing.

Hulu Live TV + SVOD average monthly revenue per paid subscriber increased from $87.90 to $92.32 primarily due to an increase in average retail pricing, partially offset by lower per-subscriber advertising revenue.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS — (continued)

The average monthly revenue per paid subscriber for ESPN+ increased from $5.16 to $5.53 due to an increase in retail pricing, partially offset by a higher mix of subscribers to multi-product offerings and lower per-subscriber advertising revenue.

The average monthly revenue per paid subscriber for the Hulu SVOD Only service decreased from $12.96 to $12.46 primarily due to lower per-subscriber advertising revenue and a higher mix of subscribers to multi-product offerings, partially offset by increases in retail pricing.

The average monthly revenue per paid subscriber for the Hulu Live TV + SVOD service increased from $87.01 to $87.90 due to increases in retail pricing, partially offset by a higher mix of subscribers to multi-product offerings.

Average Monthly Revenue Per Paid Subscriber - Second Quarter of Fiscal 2023 Comparison to Second Quarter of Fiscal 2022

Domestic Disney+ average monthly revenue per paid subscriber increased from $6.32 to $7.14 due to an increase in average retail pricing, partially offset by a higher mix of subscribers to multi-product offerings.

International Disney+ (excluding Disney+ Hotstar) average monthly revenue per paid subscriber decreased from $6.35 to $5.93 due to a higher mix of subscribers from lower-priced markets and an unfavorable Foreign Exchange Impact, partially offset by a lower mix of wholesale subscribers and an increase in average retail pricing.

Disney+ Hotstar average monthly revenue per paid subscriber decreased from $0.76 to $0.59 due to lower per-subscriber advertising revenue.

ESPN+ average monthly revenue per paid subscriber increased from $4.73 to $5.64 due to an increase in retail pricing, partially offset by a higher mix of subscribers to multi-product offerings.

Hulu SVOD Only average monthly revenue per paid subscriber decreased from $12.77 to $11.73 due to lower per-subscriber advertising revenue and a higher mix of subscribers to multi-product offerings, partially offset by an increase in average retail pricing.

Hulu Live TV + SVOD average monthly revenue per paid subscriber increased from $88.77 to $92.32 due to an increase in average retail pricing, partially offset by lower per-subscriber advertising revenue, a higher mix of subscribers to multi-product offerings and lower per-subscriber premium and feature add-on revenue.

Costs and Expenses

1 unchanged sentence

Quarter Ended % Change

(in millions) December 31,

2022 January 1,

(in millions) April 1,

2023 April 2,

Programming and production costs

5 unchanged sentences

$ (5,056) $ (4,402) (15) %

The increase in programming and production costs at Disney+ was due to more content provided on the service and higher average costs per hour, which included an increased mix of original content.

Higher programming and production costs at Hulu were attributable to increased subscriber-based fees for programming the Live TV service, more content provided on the service and higher average costs per hour.

Higher subscriber-based fees for programming the Live TV service resulted from rate increases and an increase in the number of subscribers.

The decrease in programming and production costs at ESPN+ and other was primarily due to fewer docuseries and lower costs for soccer and hockey programming, partially offset by higher costs for golf programming.

A greater percentage of soccer and hockey games were aired or simulcast at Linear Networks compared to the prior-year quarter.

Other operating expenses increased primarily due to higher technology and distribution costs at Disney+ reflecting growth in existing markets and, to a lesser extent, expansion to new markets.

Selling, general, administrative and other costs decreased $119 million, to $1,156 million from $1,275 million, due to lower marketing costs at Disney+.

The increase in programming and production costs at Disney+ was due to more content provided on the service.

Higher programming and production costs at Hulu were attributable to more content provided on the service and increased subscriber-based fees for programming the Live TV service, which resulted from rate increases and an increase in the number of subscribers.

These increases were partially offset by a lower average cost mix of SVOD content.

Programming and production costs at ESPN+ and other were comparable to the prior-year quarter as fewer docuseries and lower costs for soccer and NHL programming were offset by higher costs for UFC programming primarily due to an additional event in the current quarter compared to the prior-year quarter.

A greater percentage of soccer and NHL games were aired or simulcast at Linear Networks in the current quarter compared to the prior-year quarter.

Other operating expenses increased due to higher technology and distribution costs at Disney+.

Selling, general, administrative and other costs decreased $261 million, to $1,029 million from $1,290 million, resulting from lower marketing costs at Disney+ and, to a lesser extent, Hulu.

Operating Loss from Direct-to-Consumer

The operating loss from Direct-to-Consumer increased $460 million, to $1,053 million from $593 million, due to a higher loss at Disney+ and a decrease in results at Hulu, partially offset by improved results at ESPN+.

The operating loss from Direct-to-Consumer decreased $228 million, to $659 million from $887 million, due to improved results at Disney+ and ESPN+, partially offset by lower operating income at Hulu.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

3 unchanged sentences

Quarter Ended % Change

(in millions) December 31,

2022 January 1,

(in millions) April 1,

2023 April 2,

TV/SVOD distribution $ 845 $ 977 (14) %

6 unchanged sentences

Depreciation and amortization (83) (74) (12) %

Equity in the income of investees — 3 (100) %

Operating Loss $ (212) $ (98) >(100) %

The decrease in TV/SVOD distribution revenue was from lower sales of both film and episodic television content driven by lower volumes reflecting the shift from licensing content to third parties to distributing it on our DTC services.

Lower sales of episodic television content were also due to non-returning series sold in the prior-year quarter and a license of animated series in the prior-year quarter.

The increase in theatrical distribution revenue was due to the performance of Avatar:

The Way of Water and Black Panther:

Wakanda Forever in the current quarter compared to Eternals, Encanto and the co-produced title Spider-Man:

Equity in the income (loss) of investees 1 (3) nm

Operating Income (Loss) $ (50) $ 16 nm

The decrease in TV/SVOD distribution revenue was primarily due to lower sales of theatrical film content due to a decrease in sales volume including the impact of the shift from licensing content to third parties to distributing it on our DTC services.

The increase in theatrical distribution revenue was due to the continued performance of Avatar:

The Way of Water, which was released in the first quarter of the current year, and the release of Ant-Man and the Wasp:

Quantumania in the current quarter compared to Death on the Nile and the co-produced title Spider-Man:

No Way Home in the prior-year quarter.

Other titles released in the current quarter included The Menu and Strange World , while other titles released in the prior-year quarter included Ron’s Gone Wrong , West Side Story , The King’s Man and The French Dispatch.

The decrease in home entertainment revenue was primarily due to lower unit sales of new release titles, reflecting fewer releases, and, to a lesser extent, catalog titles.

The decrease in home entertainment revenue was primarily due to lower unit sales of new release titles and, to a lesser extent, catalog titles.

Lower unit sales of new release titles were driven by the performance of Strange World in the current quarter compared to Encanto in the prior-year quarter.

Costs and Expenses

1 unchanged sentence

Quarter Ended % Change

(in millions) December 31,

2022 January 1,

(in millions) April 1,

2023 April 2,

Programming and production costs $ (1,268) $ (909) (39) %

1 unchanged sentence

$ (1,605) $ (1,232) (30) %

The increase in programming and production costs was primarily due to higher production cost amortization driven by an increase in theatrical revenue, partially offset by a decrease due to lower TV/SVOD distribution revenue.

Selling, general, administrative and other costs decreased $103 million, to $737 million from $840 million, resulting from lower theatrical marketing costs reflecting fewer titles released, partially offset by higher overhead costs.

Depreciation and amortization increased $11 million, to $80 million from $69 million, primarily due to increased investment in technology assets and the transfer of technology assets and related depreciation from Linear Networks.

Operating Loss from Content Sales/Licensing and Other

Operating loss from Content Sales/Licensing and Other increased $114 million, to $212 million from $98 million, due to lower TV/SVOD distribution results, higher overhead costs and a decrease in home entertainment distribution results, partially offset by higher theatrical distribution results.

The increase in programming and production costs was due to higher production cost amortization driven by the increase in theatrical revenue, partially offset by decreases due to lower home entertainment and TV/SVOD distribution revenue.

The increase in cost of goods sold and distribution costs was primarily due to increased theatrical distribution costs, partially offset by lower home entertainment volumes.

Selling, general, administrative and other costs increased $19 million, to $560 million from $541 million, due to higher theatrical marketing costs attributable to spending on Ant-Man and the Wasp:

Quantumania in the current quarter compared to spending on Death on the Nile in the prior-year quarter.

Depreciation and amortization increased $9 million, to $83 million from $74 million, primarily due to increased investment in technology assets.

Operating Income (Loss) from Content Sales/Licensing and Other

Operating results from Content Sales/Licensing and Other decreased from income of $16 million to a loss of $50 million, due to lower TV/SVOD distribution results, partially offset by improved theatrical distribution results.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

3 unchanged sentences

Quarter Ended % Change

(in millions) December 31,

2022 January 1,

(in millions) April 1,

2023 April 2,

Content License Early Termination $ — $ (1,023) 100 %

TFCF and Hulu acquisition amortization (1)

1 unchanged sentence

Restructuring and impairment charges (2)

Gain on sale of a business 28 — nm

(1) In the current quarter, amortization of step-up on film and television costs was $159 million and amortization of intangible assets was $415 million.

In the prior-year quarter, amortization of step-up on film and television costs was $157 million and amortization of intangible assets was $433 million.

(2) Charges for the current quarter related to exiting our businesses in Russia.

(122) (195) 37 %

(1) In the current quarter, amortization of intangible assets was $406 million and amortization of step-up on film and television costs was $147 million.

In the prior-year quarter, amortization of intangible assets was $433 million and amortization of step-up on film and television costs was $156 million.

(2) Charges for the current period were primarily for severance.

Charges for the prior-year quarter were due to the impairment of an intangible asset related to the Disney Channel in Russia.

Disney Parks, Experiences and Products

1 unchanged sentence

Quarter Ended % Change

(in millions) December 31,

2022 January 1,

(in millions) April 1,

2023 April 2,

Theme park admissions $ 2,428 $ 1,973 23 %

9 unchanged sentences

Operating Income $ 2,166 $ 1,755 23 %

Shanghai Disney Resort was closed for 33 days and 2 days, in the current and prior-year quarters, respectively, as a result of COVID-19-related restrictions.

In the prior-year quarter, our cruise line business was impacted by COVID-19-related capacity restrictions, which were lifted in April 2022.

In general, our other businesses were not significantly impacted by COVID-19 in the current and prior-year quarters.

Higher theme park admissions revenue was due to increases of 12% from higher average per capita ticket revenue and 12% from attendance growth.

The increase in average per capita ticket revenue was driven by Genie+ and Lightning Lane, which were introduced at our domestic parks in the prior-year quarter.

Higher theme park admissions revenue was due to increases of 17% from attendance growth and 8% from higher average per capita ticket revenue.

Parks & Experiences merchandise, food and beverage revenue growth reflected increases of 17% from higher volumes and 6% from higher average guest spending.

Higher resorts and vacations revenue was primarily due to increases of 18% from additional passenger cruise days and 10% from higher occupied hotel room nights.

Merchandise licensing and retail revenue was comparable to the prior-year quarter as decreases of 2% from retail and 1% from an unfavorable Foreign Exchange Impact were largely offset by an increase of 2% from merchandise licensing.

The decrease in retail revenue was driven by lower online sales.

Growth at merchandise licensing was driven by an increase in sales

Higher resorts and vacations revenue was due to increases of 22% from additional passenger cruise days and 6% from higher occupied hotel room nights.

Merchandise licensing and retail revenue was lower due to decreases of 9% from merchandise licensing and 3% from retail.

The decrease in merchandise licensing was primarily attributable to a decrease in sales of merchandise based on Spider-Man, Star Wars, Frozen and Avengers.

Lower retail revenue was primarily due to a decrease at our publishing business.

The decrease in parks licensing and other revenue was due to lower real estate sales, partially offset by higher royalties from Tokyo Disney Resort and an increase in sponsorship revenue.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS — (continued)

of merchandise based on Black Panther, Spider-Man and Avengers, partially offset by a decrease in revenues from merchandise based on Frozen and Star Wars.

The increase in parks licensing and other revenue was driven by an increase in royalties from Tokyo Disney Resort and higher sponsorship revenues.

In addition to revenue, costs and operating income, management uses the following key metrics to analyze trends and evaluate the overall performance of our theme parks and resorts, and we believe these metrics are useful to investors in analyzing the business:

10 unchanged sentences

2,518 2,521 787 787 3,305 3,308

Per Room Guest Spending (6)

Change in Per Room Guest Spending (6)

— % 30 % 25 % (20) % 1 % 23 %

11 unchanged sentences

Quarter Ended % Change

(in millions) December 31,

2022 January 1,

(in millions) April 1,

2023 April 2,

Operating labor $ (1,826) $ (1,610) (13) %

3 unchanged sentences

$ (4,106) $ (3,485) (18) %

The increase in operating labor was attributable to higher volumes, inflation and increased costs for new guest offerings.

Higher cost of goods sold and distribution costs were due to higher volumes and inflation, partially offset by a favorable Foreign Exchange Impact.

The increase in infrastructure costs was primarily attributable to higher operations support costs and increased technology spending.

Other operating expense increased primarily due to higher volumes and operations support costs.

The increase in operating labor was attributable to inflation, increased costs for new guest offerings and higher volumes.

Higher cost of goods sold and distribution costs were due to volume growth.

The increase in infrastructure costs consisted of higher operations support costs and increased technology spending.

Other operating expense increased primarily due to higher volumes, inflation and increased costs for new guest offerings.

Selling, general, administrative and other costs increased $44 million, to $853 million from $809 million, driven by higher marketing spend.

Depreciation and amortization increased $53 million, to $651 million from $598 million, due to higher depreciation at our domestic parks and experiences.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS — (continued)

Selling, general, administrative and other costs increased $162 million, to $899 million from $737 million, driven by a loss on the disposal of our ownership interest in Villages Nature, inflation and higher marketing spend.

Depreciation and amortization increased $50 million, to $643 million from $593 million, due to higher depreciation at our domestic parks and experiences.

Segment Operating Income

Segment operating income increased from $2.5 billion to $3.1 billion due to growth at our domestic parks and experiences and, to a lesser extent, our international parks and resorts.

Segment operating income increased from $1.8 billion to $2.2 billion due to growth at our international parks and resorts and, to a lesser extent, our domestic parks and experiences, partially offset by a decrease at our consumer products business.

The following table presents supplemental revenue and operating income detail for the DPEP segment:

Quarter Ended % Change

(in millions) December 31,

2022 January 1,

(in millions) April 1,

2023 April 2,

Supplemental revenue detail

7 unchanged sentences

Domestic $ 1,519 $ 1,385 10 %

International 156 (268) nm

Consumer Products 491 638 (23) %

$ 2,166 $ 1,755 23 %

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS — (continued)

BUSINESS SEGMENT RESULTS - Current Period Six-Month Results Compared to the Prior-Year Six-Month Period

Disney Media and Entertainment Distribution

Revenue and operating results for the DMED segment are as follows:

Six Months Ended % Change

(in millions) April 1,

2023 April 2,

Linear Networks $ 13,918 $ 14,822 (6) %

Direct-to-Consumer 10,821 9,593 13 %

Content Sales/Licensing and Other 4,657 4,299 8 %

Elimination of Intrasegment Revenue (1)

(581) (509) (14) %

$ 28,815 $ 28,205 2 %

Segment operating income (loss):

Linear Networks $ 3,083 $ 4,314 (29) %

Direct-to-Consumer (1,712) (1,480) (16) %

Content Sales/Licensing and Other (262) (82) >(100) %

$ 1,109 $ 2,752 (60) %

(1) Reflects fees received by the Linear Networks from other DMED businesses for the right to air our Linear Networks and related services.

Linear Networks

Operating results for Linear Networks are as follows:

Six Months Ended % Change

(in millions) April 1,

2023 April 2,

Affiliate fees $ 9,217 $ 9,482 (3) %

Advertising 4,266 4,922 (13) %

Other 435 418 4 %

Total revenues 13,918 14,822 (6) %

Operating expenses (9,408) (9,240) (2) %

Selling, general, administrative and other (1,748) (1,657) (5) %

Depreciation and amortization (50) (74) 32 %

Equity in the income of investees 371 463 (20) %

Operating Income $ 3,083 $ 4,314 (29) %

Affiliate revenue is as follows:

Six Months Ended % Change

(in millions) April 1,

2023 April 2,

Domestic Channels $ 7,929 $ 7,985 (1) %

International Channels 1,288 1,497 (14) %

$ 9,217 $ 9,482 (3) %

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS — (continued)

Affiliate revenue at the Domestic Channels was comparable to the prior-year period as a decrease of 6% from fewer subscribers was largely offset by an increase of 5% from higher contractual rates.

The decrease in affiliate revenue at the International Channels was due to decreases of 9% from an unfavorable Foreign Exchange Impact and 7% from fewer subscribers, primarily due to channel closures.

These decreases were partially offset by an increase of 3% from higher contractual rates.

Advertising revenue is as follows:

Six Months Ended % Change

(in millions) April 1,

2023 April 2,

Cable $ 2,018 $ 2,126 (5) %

Broadcasting 1,539 1,696 (9) %

Domestic Channels 3,557 3,822 (7) %

International Channels 709 1,100 (36) %

$ 4,266 $ 4,922 (13) %

Lower advertising revenue at Cable reflected decreases of 3% from lower rates and 1% from fewer impressions.

The decrease in Broadcasting advertising revenue was due to decreases of 10% from fewer impressions at ABC and 1% from lower rates at ABC, partially offset by an increase of 2% from the owned television stations.

The decrease in ABC impressions was attributable to lower average viewership.

The increase at the owned television stations was due to higher rates resulting from an increase in political advertising.

The decrease in International Channels advertising revenue was due to decreases of 16% from fewer impressions attributable to lower average viewership, 11% from lower rates and 8% from an unfavorable Foreign Exchange Impact.

The decrease in average viewership reflected the timing of IPL matches.

Three IPL matches aired in the current period compared to 23 matches in the prior-year period as matches from the 2021 season shifted into fiscal 2022 due to COVID-19, and the 2023 IPL season started approximately one week later than the 2022 season.

Other revenue increased $17 million, to $435 million from $418 million, due to higher sub-licensing fees from International Cricket Council (ICC) T20 World Cup matches in the current period compared to the prior-year period.

Costs and Expenses

Operating expenses primarily consist of programming and production costs, which are as follows:

Six Months Ended % Change

(in millions) April 1,

2023 April 2,

Cable $ (5,587) $ (5,357) (4) %

Broadcasting (1,579) (1,538) (3) %

Domestic Channels (7,166) (6,895) (4) %

International Channels (1,420) (1,588) 11 %

$ (8,586) $ (8,483) (1) %

The increase in programming and production costs at Cable was due to contractual rate increases for CFP, NBA and NFL programming, an increase in sports production costs and higher costs for NHL and MLB programming.

These increases were partially offset by lower non-sports programming costs due to a lower cost mix of programming at FX Channels.

Higher sports production costs were primarily due to increased talent costs and programming additions in the current period.

The increase in NHL rights costs was due to more games aired in the current period.

Higher MLB programming costs in the current period were a result of fewer games aired in the prior-year period, as the start of the 2022 season was delayed.

The increase in programming and production costs at Broadcasting was due to higher development costs and an increase in costs for sports programming at ABC.

The decrease in programming and production costs at the International Channels was due to a favorable Foreign Exchange Impact and lower sports programming costs.

The decrease in sports programming costs was due to lower costs for IPL matches in the current period compared to the prior-year period, partially offset by an increase in sports production costs and costs for new soccer rights.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS — (continued)

Selling, general administrative and other costs increased $91 million, to $1,748 million from $1,657 million, driven by higher overhead costs, partially offset by a gain on the sale of an interest in our X Games business and a favorable Foreign Exchange Impact.

Depreciation and amortization decreased $24 million, to $50 million from $74 million, driven by technology assets that were fully depreciated.

Equity in the Income of Investees

Income from equity investees decreased $92 million, to $371 million from $463 million, due to lower income from A+E Television Networks attributable to a decrease in advertising revenue and higher programming costs.

Operating Income from Linear Networks

Operating income from Linear Networks decreased $1,231 million, to $3,083 million from $4,314 million, due to decreases at Cable, the International Channels, Broadcasting, and to a lesser extent, lower income from our equity investees.

The following table provides supplemental revenue and operating income detail for Linear Networks:

Six Months Ended % Change

(in millions) April 1,

2023 April 2,

Supplemental revenue detail

Domestic Channels $ 11,639 $ 11,978 (3) %

International Channels 2,279 2,844 (20) %

$ 13,918 $ 14,822 (6) %

Supplemental operating income detail

Domestic Channels $ 2,496 $ 3,237 (23) %

International Channels 216 614 (65) %

Equity in the income of investees 371 463 (20) %

$ 3,083 $ 4,314 (29) %

Direct-to-Consumer

Operating results for Direct-to-Consumer are as follows:

Six Months Ended % Change

(in millions) April 1,

2023 April 2,

Subscription fees $ 8,845 $ 7,485 18 %

Advertising 1,647 1,871 (12) %

TV/SVOD distribution and other 329 237 39 %

Total revenues 10,821 9,593 13 %

Operating expenses (10,164) (8,324) (22) %

Selling, general, administrative and other (2,185) (2,565) 15 %

Depreciation and amortization (184) (184) — %

Operating Loss $ (1,712) $ (1,480) (16) %

The increase in subscription fees reflected increases of 15% from higher subscribers due to growth at Disney+ and, to a lesser extent, Hulu and ESPN+, and 6% from higher rates due to increases in retail pricing at Hulu, ESPN+ and Disney+, partially offset by a decrease of 3% from an unfavorable Foreign Exchange Impact.

Lower advertising revenue reflected a decrease of 13% from fewer impressions due to a decrease at Hulu, partially offset by an increase of 4% from higher rates due to an increase at Hulu.

The increase in TV/SVOD distribution and other revenue was due to a favorable Foreign Exchange Impact and an increase in UFC pay-per-view fees.

The increase in UFC pay-per-view fees reflected the impact of airing seven events in the

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS — (continued)

current period compared to five events in the prior-year period and higher pricing, partially offset by lower average buys per event.

The following table presents Average Monthly Revenue Per Paid Subscriber:

Six Months Ended % Change

2023 April 2,

Domestic (U.S.

and Canada) $ 6.56 $ 6.49 1 %

International (excluding Disney+ Hotstar) 5.78 6.17 (6) %

Disney+ (excluding Disney+ Hotstar) 6.13 6.33 (3) %

Disney+ Hotstar 0.67 0.89 (25) %

Global Disney+ 4.19 4.38 (4) %

ESPN+ 5.58 4.92 13 %

SVOD Only 12.10 12.87 (6) %

Live TV + SVOD 90.11 87.89 3 %

Domestic Disney+ average monthly revenue per paid subscriber increased from $6.49 to $6.56 due to an increase in average retail pricing, partially offset by a higher mix of subscribers to multi-product offerings.

International Disney+ (excluding Disney+ Hotstar) average monthly revenue per paid subscriber decreased from $6.17 to $5.78 due to an unfavorable Foreign Exchange Impact and a higher mix of subscribers from lower-priced markets, partially offset by a lower mix of wholesale subscribers and an increase in average retail pricing.

Disney+ Hotstar average monthly revenue per paid subscriber decreased from $0.89 to $0.67 due to lower per-subscriber advertising revenue.

ESPN+ average monthly revenue per paid subscriber increased from $4.92 to $5.58 due to an increase in retail pricing, partially offset by a higher mix of subscribers to multi-product offerings.

Hulu SVOD Only average monthly revenue per paid subscriber decreased from $12.87 to $12.10 due to lower per-subscriber advertising revenue and a higher mix of subscribers to multi-product offerings, partially offset by an increase in average retail pricing.

Hulu Live TV + SVOD average monthly revenue per paid subscriber increased from $87.89 to $90.11 due to an increase in average retail pricing, partially offset by a higher mix of subscribers to multi-product offerings and, to a lesser extent, lower per-subscriber premium and feature add-on revenue and a decrease in per-subscriber advertising revenue.

Costs and Expenses

Operating expenses are as follows:

Six Months Ended % Change

(in millions) April 1,

2023 April 2,

Programming and production costs

Disney+ $ (3,248) $ (2,116) (53) %

Hulu (4,234) (3,745) (13) %

ESPN+ and other (845) (881) 4 %

Total programming and production costs (8,327) (6,742) (24) %

Other operating expense (1,837) (1,582) (16) %

$ (10,164) $ (8,324) (22) %

The increase in programming and production costs at Disney+ was primarily due to more content provided on the service.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS — (continued)

The decrease in programming and production costs at ESPN+ and other was due to fewer docuseries and lower costs for soccer and NHL programming, partially offset by higher rights costs for UFC programming.

The decreases in soccer and NHL programming reflected the impact from a greater percentage of games aired or simulcast at Linear Networks in the current period compared to the prior-year period.

Higher costs for UFC programming rights were attributable to two additional events and an increase in contractual rates.

Other operating expenses increased due to higher technology and distribution costs at Disney+.

Selling, general, administrative and other costs decreased $380 million, to $2,185 million from $2,565 million, due to lower marketing costs at Disney+.

Operating Loss from Direct-to-Consumer

The operating loss from Direct-to-Consumer increased $232 million, to $1,712 million from $1,480 million, due to lower operating income at Hulu and a higher loss at Disney+, partially offset by improved results at ESPN+.

Content Sales/Licensing and Other

Operating results for Content Sales/Licensing and Other are as follows:

Six Months Ended % Change

(in millions) April 1,

2023 April 2,

TV/SVOD distribution $ 1,607 $ 2,172 (26) %

Theatrical distribution 1,907 753 >100 %

Home entertainment 283 524 (46) %

Other 860 850 1 %

Total revenues 4,657 4,299 8 %

Operating expenses (3,460) (2,857) (21) %

Selling, general, administrative and other (1,297) (1,381) 6 %

Depreciation and amortization (163) (143) (14) %

Equity in the income loss of investees 1 — nm

Operating Loss $ (262) $ (82) >(100) %

The decrease in TV/SVOD distribution revenue was due to lower sales of both theatrical film and episodic television content.

The decrease in theatrical film content was due to lower sales volume including the impact of the shift from licensing content to third parties to distributing it on our DTC services.

The decrease in sales of episodic television content was due to non-returning series, which were sold in the prior-year period.

The increase in theatrical distribution revenue was due to the release of Avatar:

The Way of Water , Black Panther:

Wakanada Forever and Ant-Man and the Wasp:

Quantumania in the current period compared to Eternals , the co-produced title Spider-Man:

No Way Home and Encanto in the prior-year period.

Other titles released in the current period included The Menu and Strange World , while other titles released in the prior-year period included Death on the Nile , The King’s Man , West Side Story and Ron’s Gone Wrong.

The decrease in home entertainment revenue was primarily due to lower unit sales of new release and catalog titles.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS — (continued)

Costs and Expenses

Operating expenses are as follows:

Six Months Ended % Change

(in millions) April 1,

2023 April 2,

Programming and production costs $ (2,754) $ (2,169) (27) %

Cost of goods sold and distribution costs (706) (688) (3) %

$ (3,460) $ (2,857) (21) %

The increase in programming and production costs was due to higher production cost amortization attributable to the increase in theatrical revenue, partially offset by decreases due to lower TV/SVOD and home entertainment distribution revenues.

Higher cost of goods sold and distribution costs were attributable to increased theatrical distribution costs, partially offset by lower home entertainment volumes.

Selling, general, administrative and other costs decreased $84 million, to $1,297 million from $1,381 million, due to lower theatrical marketing costs as fewer titles were released in the current period compared to the prior-year period.

Depreciation and amortization increased $20 million, to $163 million from $143 million, driven by increased investment in technology assets.

Operating Loss from Content Sales/Licensing and Other

The operating loss from Content Sales/Licensing and Other increased $180 million, to $262 million from $82 million, primarily due to lower TV/SVOD and home entertainment distribution results, partially offset by improved theatrical distribution results.

Items Excluded from Segment Operating Income Related to Disney Media and Entertainment Distribution

The following table presents supplemental information for items related to the DMED segment that are excluded from segment operating income:

Six Months Ended % Change

(in millions) April 1,

2023 April 2,

TFCF and Hulu acquisition amortization (1)

$ (1,133) $ (1,185) 4 %

Content License Early Termination — (1,023) 100 %

Restructuring and impairment charges (2)

(191) (195) 2 %

Gain on sale of a business 28 — nm

(1) In the current period, amortization of intangible assets was $821 million and amortization of step-up on film and television costs was $306 million.

In the prior-year period, amortization of intangible assets was $866 million and amortization of step-up on film and television costs was $313 million.

(2) Charges for the current period were primarily for severance and exiting our businesses in Russia.

Charges for the prior-year period were due to the impairment of an intangible asset related to the Disney Channel in Russia.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS — (continued)

Disney Parks, Experiences and Products

Operating results for the DPEP segment are as follows:

Six Months Ended % Change

(in millions) April 1,

2023 April 2,

Theme park admissions $ 5,069 $ 4,125 23 %

Parks & Experiences merchandise, food and beverage 3,883 3,141 24 %

Resorts and vacations 3,929 2,896 36 %

Merchandise licensing and retail 2,557 2,727 (6) %

Parks licensing and other 1,074 997 8 %

Total revenues 16,512 13,886 19 %

Operating expenses (8,245) (6,936) (19) %

Selling, general, administrative and other (1,752) (1,546) (13) %

Depreciation and amortization (1,294) (1,191) (9) %

Equity in the loss of investees (2) (8) 75 %

Operating Income $ 5,219 $ 4,205 24 %

The increase in theme park admissions revenue was due to increases of 14% from attendance growth and 10% from higher average per capita ticket revenue.

Parks & Experiences merchandise, food and beverage revenue growth reflected increases of 16% from higher volumes and 5% from higher average guest spending.

Higher resorts and vacations revenue was attributable to increases of 20% from additional passenger cruise days and 8% from higher occupied hotel room nights.

The decrease in merchandise licensing and retail revenue was due to decreases of 2% from retail, 2% from merchandise licensing and 1% from an unfavorable Foreign Exchange Impact.

Lower retail revenue was due to a decrease in sales at our publishing business and lower online sales.

The decrease in merchandise licensing revenue was due to lower sales of merchandise based on Star Wars and Frozen.

The increase in parks licensing and other revenue was driven by increases in royalties from Tokyo Disney Resort and co-branding and sponsorship revenues, partially offset by lower real estate sales.

Domestic International Total

Six Months Ended Six Months Ended Six Months Ended

2023 April 2,

2022 April 1,

2023 April 2,

2022 April 1,

2023 April 2,

Increase (decrease)

Attendance 9 % >100 % 52 % >100 % 19 % >100 %

Per Capita Guest Spending 6 % 25 % 21 % 19 % 4 % 29 %

Occupancy 89 % 78 % 70 % 49 % 84 % 71 %

Available Hotel Room Nights (in thousands) 5,038 5,062 1,587 1,587 6,625 6,649

Change in Per Room Guest Spending 1 % 31 % 16 % (10) % 2 % 24 %

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS — (continued)

Costs and Expenses

Operating expenses are as follows:

Six Months Ended % Change

(in millions) April 1,

2023 April 2,

Operating labor $ (3,615) $ (3,125) (16) %

Cost of goods sold and distribution costs (1,679) (1,440) (17) %

Infrastructure costs (1,472) (1,227) (20) %

Other operating expense (1,479) (1,144) (29) %

$ (8,245) $ (6,936) (19) %

The increase in operating labor was attributable to higher volumes, inflation and increased costs for new guest offerings.

Cost of goods sold and distribution costs increased due to higher volumes, while the increase in infrastructure costs was primarily attributable to higher operations support costs and increased technology spending.

Other operating expense increased primarily due to volume growth, inflation, higher operations support costs and increased costs for new guest offerings, partially offset by a favorable Foreign Exchange Impact.

Selling, general, administrative and other costs increased $206 million, to $1,752 million from $1,546 million, driven by a loss on the disposal of our ownership interest in Villages Nature and higher marketing spend.

Depreciation and amortization increased $103 million, to $1,294 million from $1,191 million, due to higher depreciation at our domestic theme parks and resorts.

Segment Operating Income

Segment operating income increased from $4.2 billion to $5.2 billion due to growth at our domestic and international parks and experiences, partially offset by a decrease at our consumer products business.

The following table presents supplemental revenue and operating income (loss) detail for the DPEP segment:

Six Months Ended % Change

(in millions) April 1,

2023 April 2,

Supplemental revenue detail

Parks & Experiences

Domestic $ 11,644 $ 9,698 20 %

International 2,278 1,435 59 %

1 unchanged sentence

$ 16,512 $ 13,886 19 %

Supplemental operating income (loss) detail

Parks & Experiences

Domestic $ 3,632 $ 2,940 24 %

International 235 (247) nm

Consumer Products 1,352 1,512 (11) %

$ 5,219 $ 4,205 24 %

CORPORATE AND UNALLOCATED SHARED EXPENSES

Quarter Ended % Change

(in millions) December 31,

2022 January 1,

(Worse) Six Months Ended % Change

(in millions) April 1,

2023 April 2,

2022 April 1,

2023 April 2,

Corporate and unallocated shared expenses $ (279) $ (272) (3) % $ (559) $ (500) (12) %

Corporate and unallocated shared expenses increased $52 million, from $228 million to $280 million in the current quarter driven by higher compensation and human resource-related costs, marketing spend on the Disney100 celebration and timing of allocations to operating segments.

Corporate and unallocated shared expenses for the current period increased $59 million, from $500 million to $559 million, primarily due to marketing spend on the Disney100 celebration and increases in technology costs and rent expense.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS — (continued)

FINANCIAL CONDITION

The change in cash and cash equivalents is as follows:

Quarter Ended % Change

(in millions) December 31,

2022 January 1,

Cash used in operations - continuing operations $ (974) $ (209) >(100) %

Six Months Ended % Change

(in millions) April 1,

2023 April 2,

Cash provided by operations - continuing operations $ 2,262 $ 1,556 45 %

Cash used in investing activities - continuing operations (2,541) (2,024) (26) %

4 unchanged sentences

Operating Activities

Cash used in operations increased $765 million to $974 million for the current quarter compared to $209 million in the prior-year quarter.

The increase was due to collateral payments related to our hedging program, partially offset by higher

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS — (continued)

operating cash flow at DPEP.

The increase in operating cash flow at DPEP was due to higher operating cash receipts driven by higher revenue, partially offset by an increase in operating cash disbursements due to higher operating expenses.

Operating cash flows at DMED were comparable to the prior-year quarter as higher operating cash receipts and lower operating cash disbursements were largely offset by higher spending on film and television content.

Higher operating cash receipts at DMED were due to higher revenue, while lower operating cash disbursements were driven by the timing of operating cash disbursements, partially offset higher operating expenses.

Cash provided by operations increased $706 million to $2,262 million for the current period compared to $1,556 million in the prior-year period.

The increase was due to higher operating cash flow at DMED and DPEP resulting from higher operating cash receipts driven by higher revenue, partially offset by higher operating cash disbursements due to higher operating expenses.

Produced and licensed programming costs

3 unchanged sentences

Programming assets are generally recorded when the programming becomes available to us with a corresponding increase in programming liabilities.

The Company’s film and television production and programming activity for the quarters ended December 31, 2022 and January 1, 2022 are as follows:

Quarter Ended

(in millions) December 31,

2022 January 1,

The Company’s film and television production and programming activity for the six months ended April 1, 2023 and April 2, 2022 are as follows:

Six Months Ended

(in millions) April 1,

2023 April 2,

Beginning balances:

4 unchanged sentences

Produced film and television content 7,336 7,586

14,834 14,921

Amortization:

2 unchanged sentences

(14,010) (12,642)

Change in internally produced and licensed content costs (558) (507)

Change in produced and licensed content costs 824 2,279

Other non-cash activity 12 215

3 unchanged sentences

$ 34,563 $ 30,113

The Company currently expects its fiscal 2023 spend on produced and licensed content, including sports rights, to be in the low $30 billion range.

Fiscal 2022 spend was $30 billion.

The Company currently expects its fiscal 2023 spend on produced and licensed content, including sports rights, to be roughly comparable with fiscal 2022 spend of $30 billion.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

2 unchanged sentences

Investing activities consist principally of investments in parks, resorts and other property and acquisition and divestiture activity.

The Company’s investments in parks, resorts and other property for the quarter ended December 31, 2022 and January 1, 2022 are as follows:

(in millions) December 31,

2022 January 1,

The Company’s investments in parks, resorts and other property for the six months ended April 1, 2023 and April 2, 2022 are as follows:

(in millions) April 1,

2023 April 2,

Disney Media and Entertainment Distribution $ 548 $ 334

6 unchanged sentences

Capital expenditures at the DMED segment primarily reflect investments in technology and in facilities and equipment for expanding and upgrading broadcast centers, production facilities and television station facilities.

The increase in the current period compared to the prior-year period was due to higher technology spending to support our streaming services.

Capital expenditures for the DPEP segment are principally for theme park and resort expansion, new attractions, cruise ships, capital improvements and technology.

The increase in the current period compared to the prior-year period was primarily due to spending on cruise ship fleet expansion.

The increase in the current period compared to the prior-year period was driven by higher technology spending to support our streaming services.

Capital expenditures at the DPEP segment are principally for theme park and resort expansion, new attractions, cruise ships, capital improvements and technology.

Capital expenditures at Corporate primarily reflect investments in corporate facilities, technology and equipment.

The increase in the current period compared to the prior-year period was due to higher spending on facilities.

The Company currently expects its fiscal 2023 capital expenditures to be approximately $5.6 billion.

Fiscal 2022 spend was $5 billion.

The expected increase in capital expenditures is due to higher spending across the enterprise.

The expected increase in capital expenditures is due to higher spending at DMED and on Corporate facilities, partially offset by lower spending at DPEP.

Financing Activities

Cash used in financing activities was $1.0 billion in the current quarter compared to $0.3 billion in the prior-year quarter.

Cash used in financing activities in the current quarter was due to the purchase of a redeemable non-controlling interest, partially offset by the sale of a non-controlling interest.

See Note 5 to the Condensed Consolidated Financial Statements for a summary of the Company’s borrowing activities during the quarter ended December 31, 2022 and information regarding the Company’s bank facilities.

Cash used in financing activities was $1.1 billion in the current six months compared to $2.1 billion in the prior-year six months.

Cash used in financing activities in the current six months was due to the purchase of a redeemable non-controlling interest and a reduction in borrowings, partially offset by the sale of a non-controlling interest.

Cash used in financing activities in the prior-year six months was due to a reduction in net borrowings.

See Note 5 to the Condensed Consolidated Financial Statements for a summary of the Company’s borrowing activities during the six months ended April 1, 2023 and information regarding the Company’s bank facilities.

The Company may use operating cash flows, commercial paper borrowings up to the amount of its unused $12.25 billion bank facilities and incremental term debt issuances to retire or refinance other borrowings before or as they come due.

1 unchanged sentence

We believe that the Company’s financial condition is strong and that its cash balances, other liquid assets, operating cash flows, access to debt and equity capital markets and borrowing capacity under current bank facilities, taken together, provide adequate resources to fund ongoing operating requirements, contractual obligations, upcoming debt maturities as well as future capital expenditures related to the expansion of existing businesses and development of new projects.

In addition, the Company could undertake other measures to ensure sufficient liquidity, such as continuing to not declare dividends (the Company did not pay a dividend with respect to fiscal 2022 operations and has not declared or paid a dividend with respect to fiscal 2023 operations);

In addition, the Company could undertake other measures to ensure sufficient liquidity, such as continuing to not declare dividends;

raising financing;

3 unchanged sentences

The Company’s borrowing costs can also be impacted by short- and long-term debt ratings assigned by nationally recognized rating agencies, which are based, in significant part, on the Company’s performance as measured by certain credit metrics such as leverage and interest coverage ratios.

As of December 31, 2022, Moody’s Investors Service’s long- and short-term debt ratings for the Company were A2 and P-1 (Stable), respectively, Standard and Poor’s long- and short-term debt ratings for the Company were BBB+ and A-2 (Positive), respectively, and Fitch’s long- and short-term debt ratings for the Company were A- and F2 (Stable), respectively.

As of April 1, 2023, Moody’s Investors Service’s long- and short-term debt ratings for the Company were A2 and P-1 (Stable), respectively, Standard and Poor’s long- and short-term debt ratings for the Company were BBB+ and A-2 (Positive), respectively, and Fitch’s long- and short-term debt ratings for the Company were A- and F2 (Stable), respectively.

The Company’s bank facilities contain only one financial covenant relating to interest coverage of three times earnings before interest, taxes, depreciation and amortization, including both intangible amortization and amortization of our film and television production and programming costs.

On December 31, 2022, the Company met this covenant by a significant margin.

On April 1, 2023, the Company met this covenant by a significant margin.

The Company’s bank facilities also specifically exclude certain entities, including the Asia Theme Parks, from any representations, covenants or events of default.

9 unchanged sentences

Other subsidiaries of the Company do not guarantee the registered debt securities of either TWDC or Legacy Disney (such subsidiaries are referred to as the “non-Guarantors”).

The par value and carrying value of total outstanding and guaranteed registered debt securities of the Obligor Group at December 31, 2022 was as follows:

The par value and carrying value of total outstanding and guaranteed registered debt securities of the Obligor Group at April 1, 2023 was as follows:

TWDC Legacy Disney

11 unchanged sentences

This summarized financial information has been prepared and presented pursuant to the Securities and Exchange Commission Regulation S-X Rule 13-01, “Financial Disclosures about Guarantors and Issuers of Guaranteed Securities” and is not intended to present the financial position or results of operations of the Obligor Group in accordance with GAAP.

Results of operations (in millions) Quarter Ended December 31, 2022

Results of operations (in millions) Six Months Ended April 1, 2023

Costs and expenses —

2 unchanged sentences

Net income (loss) attributable to TWDC shareholders (841)

Balance Sheet (in millions) December 31, 2022 October 1, 2022

Balance Sheet (in millions) April 1, 2023 October 1, 2022

Current assets $ 3,610 $ 5,665

40 unchanged sentences

If the unamortized costs exceed the present value of discounted cash flows, an impairment charge is recorded for the excess and allocated to individual titles based on the relative carrying value of each title in the group.

If there are no plans to continue to use an individual film or television program that is part of a group, the unamortized cost of the individual title is written-off immediately.

If there are no plans to continue to use an individual film or television program that is part of a group, the unamortized cost of the individual title is written down to its estimated fair value.

Licensed content is included as part of the group within which it is monetized for purposes of impairment testing.

101 unchanged sentences

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis