Item 1. Financial Statements
Item 1: Financial Statements
THE WALT DISNEY COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(unaudited; in millions, except per share data)
Quarter Ended Six Months Ended
April 1,
2023 April 2,
2022 April 1,
2023 April 2,
2022
Revenues:
Services $ 19,586 $ 17,212 $ 40,583 $ 36,754
Products 2,229 2,037 4,744 4,314
Total revenues 21,815 19,249 45,327 41,068
Costs and expenses:
Cost of services (exclusive of depreciation and amortization)
( 13,160 ) ( 11,330 ) ( 27,941 ) ( 24,491 )
Cost of products (exclusive of depreciation and amortization)
( 1,456 ) ( 1,264 ) ( 3,061 ) ( 2,670 )
Selling, general, administrative and other ( 3,614 ) ( 3,768 ) ( 7,441 ) ( 7,555 )
Depreciation and amortization ( 1,310 ) ( 1,287 ) ( 2,616 ) ( 2,556 )
Total costs and expenses ( 19,540 ) ( 17,649 ) ( 41,059 ) ( 37,272 )
Restructuring and impairment charges ( 152 ) ( 195 ) ( 221 ) ( 195 )
Other income (expense), net 149 ( 158 ) 107 ( 594 )
Interest expense, net ( 322 ) ( 355 ) ( 622 ) ( 666 )
Equity in the income of investees 173 210 364 449
Income from continuing operations before income taxes 2,123 1,102 3,896 2,790
Income taxes on continuing operations ( 635 ) ( 505 ) ( 1,047 ) ( 993 )
Net income from continuing operations 1,488 597 2,849 1,797
Loss from discontinued operations, net of income tax benefit of $0, $0, $0 and $14, respectively — — — ( 48 )
Net income 1,488 597 2,849 1,749
Net income from continuing operations attributable to noncontrolling interests
( 217 ) ( 127 ) ( 299 ) ( 175 )
Net income attributable to Disney $ 1,271 $ 470 $ 2,550 $ 1,574
Earnings (loss) per share attributable to Disney (1) :
Diluted
Continuing operations $ 0.69 $ 0.26 $ 1.39 $ 0.89
Discontinued operations — — — ( 0.03 )
$ 0.69 $ 0.26 $ 1.39 $ 0.86
Basic
Continuing operations $ 0.70 $ 0.26 $ 1.40 $ 0.89
Discontinued operations — — — ( 0.03 )
$ 0.70 $ 0.26 $ 1.40 $ 0.86
Weighted average number of common and common equivalent shares outstanding:
Diluted 1,831 1,828 1,829 1,828
Basic 1,828 1,822 1,827 1,820
(1) Total may not equal the sum of the column due to rounding.
See Notes to Condensed Consolidated Financial Statements
3
THE WALT DISNEY COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(unaudited; in millions)
Quarter Ended Six Months Ended
April 1,
2023 April 2,
2022 April 1,
2023 April 2,
2022
Net income $ 1,488 $ 597 $ 2,849 $ 1,749
Other comprehensive income (loss), net of tax:
Market value adjustments for hedges ( 82 ) 28 ( 624 ) 78
Pension and postretirement medical plan adjustments
56 119 57 274
Foreign currency translation and other
115 ( 191 ) 342 ( 213 )
Other comprehensive income (loss) 89 ( 44 ) ( 225 ) 139
Comprehensive income 1,577 553 2,624 1,888
Net income from continuing operations attributable to noncontrolling interests
( 217 ) ( 127 ) ( 299 ) ( 175 )
Other comprehensive loss attributable to noncontrolling interests — 8 ( 45 ) ( 11 )
Comprehensive income attributable to Disney $ 1,360 $ 434 $ 2,280 $ 1,702
See Notes to Condensed Consolidated Financial Statements
4
THE WALT DISNEY COMPANY
CONDENSED CONSOLIDATED BALANCE SHEETS
(unaudited; in millions, except per share data)
April 1,
2023 October 1,
2022
ASSETS
Current assets
Cash and cash equivalents $ 10,399 $ 11,615
Receivables, net 12,770 12,652
Inventories 1,848 1,742
Content advances 1,872 1,890
Other current assets 1,374 1,199
Total current assets 28,263 29,098
Produced and licensed content costs 36,949 35,777
Investments 3,387 3,218
Parks, resorts and other property
Attractions, buildings and equipment 69,695 66,998
Accumulated depreciation ( 41,452 ) ( 39,356 )
28,243 27,642
Projects in progress 5,175 4,814
Land 1,161 1,140
34,579 33,596
Intangible assets, net 13,887 14,837
Goodwill 77,878 77,897
Other assets 9,915 9,208
Total assets $ 204,858 $ 203,631
LIABILITIES AND EQUITY
Current liabilities
Accounts payable and other accrued liabilities $ 18,591 $ 20,213
Current portion of borrowings 3,452 3,070
Deferred revenue and other 6,013 5,790
Total current liabilities 28,056 29,073
Borrowings 45,066 45,299
Deferred income taxes 8,134 8,363
Other long-term liabilities 13,232 12,518
Commitments and contingencies (Note 13)
Redeemable noncontrolling interests 8,814 9,499
Equity
Preferred stock
— —
Common stock, $0.01 par value, Authorized – 4.6 billion shares, Issued – 1.8 billion shares
56,919 56,398
Retained earnings 46,236 43,636
Accumulated other comprehensive loss ( 4,389 ) ( 4,119 )
Treasury stock, at cost, 19 million shares
( 907 ) ( 907 )
Total Disney Shareholders’ equity 97,859 95,008
Noncontrolling interests 3,697 3,871
Total equity 101,556 98,879
Total liabilities and equity $ 204,858 $ 203,631
See Notes to Condensed Consolidated Financial Statements
5
THE WALT DISNEY COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited; in millions)
Six Months Ended
April 1,
2023 April 2,
2022
OPERATING ACTIVITIES
Net income from continuing operations $ 2,849 $ 1,797
Depreciation and amortization 2,616 2,556
Net (gain)/loss on investments and disposition of businesses ( 88 ) 632
Deferred income taxes ( 46 ) 983
Equity in the income of investees ( 364 ) ( 449 )
Cash distributions received from equity investees 363 406
Net change in produced and licensed content costs and advances ( 824 ) ( 2,279 )
Equity-based compensation 570 450
Pension and postretirement medical benefit cost amortization 2 310
Other, net ( 234 ) 264
Changes in operating assets and liabilities:
Receivables ( 413 ) ( 342 )
Inventories ( 107 ) ( 97 )
Other assets ( 345 ) ( 676 )
Accounts payable and other liabilities ( 2,133 ) ( 1,349 )
Income taxes 416 ( 650 )
Cash provided by operations - continuing operations 2,262 1,556
INVESTING ACTIVITIES
Investments in parks, resorts and other property ( 2,430 ) ( 2,060 )
Other, net ( 111 ) 36
Cash used in investing activities - continuing operations ( 2,541 ) ( 2,024 )
FINANCING ACTIVITIES
Commercial paper borrowings (payments), net 714 ( 130 )
Borrowings 70 70
Reduction of borrowings ( 1,000 ) ( 1,400 )
Sale of noncontrolling interest 178 —
Acquisition of redeemable noncontrolling interest ( 900 ) —
Other, net ( 188 ) ( 637 )
Cash used in financing activities - continuing operations ( 1,126 ) ( 2,097 )
CASH FLOWS FROM DISCONTINUED OPERATIONS
Cash provided by operations - discontinued operations — 8
Cash used in financing activities - discontinued operations — ( 12 )
Cash used in discontinued operations — ( 4 )
Impact of exchange rates on cash, cash equivalents and restricted cash 197 ( 116 )
Change in cash, cash equivalents and restricted cash ( 1,208 ) ( 2,685 )
Cash, cash equivalents and restricted cash, beginning of period 11,661 16,003
Cash, cash equivalents and restricted cash, end of period $ 10,453 $ 13,318
See Notes to Condensed Consolidated Financial Statements
6
THE WALT DISNEY COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF EQUITY
(unaudited; in millions)
Quarter Ended
Equity Attributable to Disney
Shares Common Stock Retained Earnings
Accumulated
Other
Comprehensive
Income
(Loss) Treasury Stock Total Disney Equity
Non-controlling
Interests (1)
Total
Equity
Balance at December 31, 2022 1,826 $ 56,579 $ 44,955 $ ( 4,478 ) $ ( 907 ) $ 96,149 $ 3,986 $ 100,135
Comprehensive income (loss) — — 1,271 89 — 1,360 147 1,507
Equity compensation activity 1 345 — — — 345 — 345
Contributions — — — — — — 9 9
Distributions and other — ( 5 ) 10 — — 5 ( 445 ) ( 440 )
Balance at April 1, 2023 1,827 $ 56,919 $ 46,236 $ ( 4,389 ) $ ( 907 ) $ 97,859 $ 3,697 $ 101,556
Balance at January 1, 2022 1,821 $ 55,500 $ 41,547 $ ( 6,276 ) $ ( 907 ) $ 89,864 $ 4,446 $ 94,310
Comprehensive income (loss) — — 470 ( 36 ) — 434 49 483
Equity compensation activity 1 327 — — — 327 — 327
Distributions and other — ( 4 ) 15 — — 11 ( 472 ) ( 461 )
Balance at April 2, 2022 1,822 $ 55,823 $ 42,032 $ ( 6,312 ) $ ( 907 ) $ 90,636 $ 4,023 $ 94,659
(1) Excludes redeemable noncontrolling interests.
See Notes to Condensed Consolidated Financial Statements
7
THE WALT DISNEY COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF EQUITY
(unaudited; in millions)
Six Months Ended
Equity Attributable to Disney
Shares Common Stock Retained Earnings
Accumulated
Other
Comprehensive
Income
(Loss) Treasury Stock Total Disney Equity
Non-controlling Interests (1)
Total
Equity
Balance at October 1, 2022 1,824 $ 56,398 $ 43,636 $ ( 4,119 ) $ ( 907 ) $ 95,008 $ 3,871 $ 98,879
Comprehensive income (loss) — — 2,550 ( 270 ) — 2,280 131 2,411
Equity compensation activity 3 525 — — — 525 — 525
Contributions — — — — — — 187 187
Distributions and other — ( 4 ) 50 — — 46 ( 492 ) ( 446 )
Balance at April 1, 2023 1,827 $ 56,919 $ 46,236 $ ( 4,389 ) $ ( 907 ) $ 97,859 $ 3,697 $ 101,556
Balance at October 2, 2021 1,818 $ 55,471 $ 40,429 $ ( 6,440 ) $ ( 907 ) $ 88,553 $ 4,458 $ 93,011
Comprehensive income — — 1,574 128 — 1,702 45 1,747
Equity compensation activity 4 356 — — — 356 — 356
Contributions — — — — — — 29 29
Distributions and other — ( 4 ) 29 — — 25 ( 509 ) ( 484 )
Balance at April 2, 2022 1,822 $ 55,823 $ 42,032 $ ( 6,312 ) $ ( 907 ) $ 90,636 $ 4,023 $ 94,659
(1) Excludes redeemable noncontrolling interests.
See Notes to Condensed Consolidated Financial Statements
8
THE WALT DISNEY COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited; tabular dollars in millions, except for per share data)
1. Principles of Consolidation
These Condensed Consolidated Financial Statements have been prepared in accordance with accounting principles generally accepted in the United States of America (GAAP) for interim financial information and the instructions to Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. We believe that we have included all normal recurring adjustments necessary for a fair statement of the results for the interim period. Operating results for the six months ended April 1, 2023 are not necessarily indicative of the results that may be expected for the year ending September 30, 2023.
The terms “Company,” “Disney,” “we,” “us,” and “our” are used in this report to refer collectively to the parent company, The Walt Disney Company, as well as the subsidiaries through which its various businesses are actually conducted.
These financial statements should be read in conjunction with the Company’s 2022 Annual Report on Form 10-K.
Variable Interest Entities
The Company enters into relationships with or makes investments in other entities that may be variable interest entities (VIE). A VIE is consolidated in the financial statements if the Company has the power to direct activities that most significantly impact the economic performance of the VIE and has the obligation to absorb losses or the right to receive benefits from the VIE that could potentially be significant (as defined by ASC 810-10-25-38) to the VIE. Hong Kong Disneyland Resort and Shanghai Disney Resort (together the Asia Theme Parks) are VIEs in which the Company has less than 50% equity ownership. Company subsidiaries (the Management Companies) have management agreements with the Asia Theme Parks, which provide the Management Companies, subject to certain protective rights of joint venture partners, with the ability to direct the day-to-day operating activities and the development of business strategies that we believe most significantly impact the economic performance of the Asia Theme Parks. In addition, the Management Companies receive management fees under these arrangements that we believe could be significant to the Asia Theme Parks. Therefore, the Company has consolidated the Asia Theme Parks in its financial statements.
Redeemable Noncontrolling Interests
The Company consolidates the results of Hulu LLC (Hulu), a direct-to-consumer (DTC) streaming service provider, which is owned 67 % by the Company and 33 % by NBC Universal (NBCU). In May 2019, the Company entered into a put/call agreement with NBCU that provided the Company with full operational control of Hulu. Under the agreement, beginning in January 2024, NBCU has the option to require the Company to purchase NBCU’s interest in Hulu and the Company has the option to require NBCU to sell its interest in Hulu to the Company, in either case at a redemption value based on NBCU’s equity ownership percentage of the greater of Hulu’s then equity fair value or a guaranteed floor value of $ 27.5 billion.
NBCU’s interest will generally not be allocated its portion of Hulu’s losses, if any, as the redeemable noncontrolling interest is required to be carried at a minimum value. The minimum value is equal to the fair value as of the May 2019 agreement date accreted to the January 2024 estimated redemption value. At April 1, 2023, NBCU’s interest in Hulu is recorded in the Company’s financial statements at $ 8.8 billion, which is reported as “Redeemable noncontrolling interest” in the Condensed Consolidated Balance Sheets.
We are accreting NBCU’s interest in Hulu to its guaranteed floor value. In determining the redemption value, our estimate of Hulu’s equity fair value in January 2024 requires management to make significant judgments. If our estimate of the future fair value of Hulu’s equity increased above the guaranteed floor value, we would change our rate of accretion, which would generally increase the amount recorded in “Net income from continuing operations attributable to noncontrolling interests” and thus reduce “Net income attributable to Disney” in the Condensed Consolidated Statements of Income.
At October 1, 2022, Major League Baseball (MLB) held a 15 % redeemable noncontrolling interest in BAMTech LLC (BAMTech), which was recorded in the Company’s financial statements at $ 828 million. In November 2022, the Company purchased MLB’s redeemable noncontrolling interest for $ 900 million, resulting in $ 72 million recorded as an increase in “Net income from continuing operations attributable to noncontrolling interests” in the Condensed Consolidated Statements of Income.
9
THE WALT DISNEY COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited; tabular dollars in millions, except for per share data)
Use of Estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and footnotes thereto. Actual results may differ from those estimates.
Reclassifications
Certain reclassifications have been made in the fiscal 2022 financial statements and notes to conform to the fiscal 2023 presentation.
2. Segment Information
The Company’s operations are conducted in the Disney Media and Entertainment Distribution (DMED) and Disney Parks, Experiences and Products (DPEP) segments. Our operating segments report separate financial information, which is evaluated regularly by the Chief Executive Officer to allocate resources and assess performance.
Segment operating results reflect earnings before corporate and unallocated shared expenses, restructuring and impairment charges, net other income/expense, net interest expense, income taxes and noncontrolling interests. Segment operating income includes equity in the income of investees and excludes impairments of certain equity investments and acquisition accounting amortization of TFCF Corporation (TFCF) and Hulu assets (i.e. intangible assets and the fair value step-up for film and television costs) recognized in connection with the TFCF acquisition in fiscal 2019 (TFCF and Hulu acquisition amortization). Corporate and unallocated shared expenses principally consist of corporate functions, executive management and certain unallocated administrative support functions.
Segment operating results include allocations of certain costs, including information technology, pension, legal and other shared services costs, which are allocated based on metrics designed to correlate with consumption.
Segment revenues and segment operating income are as follows:
Quarter Ended Six Months Ended
April 1,
2023 April 2,
2022 April 1,
2023 April 2,
2022
Revenues:
Disney Media and Entertainment Distribution $ 14,039 $ 13,620 $ 28,815 $ 28,205
Disney Parks, Experiences and Products 7,776 6,652 16,512 13,886
Total segment revenues $ 21,815 $ 20,272 $ 45,327 $ 42,091
Segment operating income:
Disney Media and Entertainment Distribution $ 1,119 $ 1,944 $ 1,109 $ 2,752
Disney Parks, Experiences and Products 2,166 1,755 5,219 4,205
Total segment operating income (1)
$ 3,285 $ 3,699 $ 6,328 $ 6,957
(1) Equity in the income of investees is included in segment operating income as follows:
Quarter Ended Six Months Ended
April 1,
2023 April 2,
2022 April 1,
2023 April 2,
2022
Disney Media and Entertainment Distribution $ 176 $ 218 $ 372 $ 463
Disney Parks, Experiences and Products — ( 5 ) ( 2 ) ( 8 )
Equity in the income of investees included in segment operating income 176 213 370 455
Amortization of TFCF intangible assets related to equity investees ( 3 ) ( 3 ) ( 6 ) ( 6 )
Equity in the income of investees, net $ 173 $ 210 $ 364 $ 449
10
THE WALT DISNEY COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited; tabular dollars in millions, except for per share data)
A reconciliation of segment revenues to total revenues is as follows:
Quarter Ended Six Months Ended
April 1,
2023 April 2,
2022 April 1,
2023 April 2,
2022
Segment revenues $ 21,815 $ 20,272 $ 45,327 $ 42,091
Content License Early Termination (1)
— ( 1,023 ) — ( 1,023 )
Total revenues $ 21,815 $ 19,249 $ 45,327 $ 41,068
(1) In February 2022, the Company early terminated certain license agreements with a customer for film and television content, which was delivered in previous years, in order for the Company to use the content primarily on our DTC services (Content License Early Termination). Because the content is functional intellectual property (IP), we had recognized substantially all of the consideration to be paid by the customer under the licenses as revenue in prior years when the content was made available under the agreements. Consequently, we recorded the amounts to terminate the licenses agreements, net of remaining amounts of deferred revenue, as a reduction of revenue.
A reconciliation of segment operating income to income from continuing operations before income taxes is as follows:
Quarter Ended Six Months Ended
April 1,
2023 April 2,
2022 April 1,
2023 April 2,
2022
Segment operating income $ 3,285 $ 3,699 $ 6,328 $ 6,957
Content License Early Termination — ( 1,023 ) — ( 1,023 )
Corporate and unallocated shared expenses ( 279 ) ( 272 ) ( 559 ) ( 500 )
Restructuring and impairment charges ( 152 ) ( 195 ) ( 221 ) ( 195 )
Other income (expense), net (1)
149 ( 158 ) 107 ( 594 )
Interest expense, net ( 322 ) ( 355 ) ( 622 ) ( 666 )
TFCF and Hulu acquisition amortization (2)
( 558 ) ( 594 ) ( 1,137 ) ( 1,189 )
Income from continuing operations before income taxes $ 2,123 $ 1,102 $ 3,896 $ 2,790
(1) See Note 4 for a discussion of amounts in other income (expense), net.
(2) TFCF and Hulu acquisition amortization is as follows:
Quarter Ended Six Months Ended
April 1,
2023 April 2,
2022 April 1,
2023 April 2,
2022
Amortization of intangible assets $ 408 $ 435 $ 825 $ 870
Step-up of film and television costs 147 156 306 313
Intangibles related to TFCF equity investees 3 3 6 6
$ 558 $ 594 $ 1,137 $ 1,189
Goodwill
The changes in the carrying amount of goodwill are as follows:
DMED DPEP Total
Balance at October 1, 2022 $ 72,347 $ 5,550 $ 77,897
Currency translation adjustments and other, net ( 19 ) — ( 19 )
Balance at April 1, 2023 $ 72,328 $ 5,550 $ 77,878
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THE WALT DISNEY COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited; tabular dollars in millions, except for per share data)
3. Revenues
The following table presents our revenues by segment and major source:
Quarter Ended April 1, 2023 Quarter Ended April 2, 2022
DMED DPEP Total DMED DPEP Content License Early Termination Total
Affiliate fees $ 4,394 $ — $ 4,394 $ 4,602 $ — $ — $ 4,602
Subscription fees 4,605 — 4,605 3,887 — — 3,887
Advertising 2,563 1 2,564 3,023 1 — 3,024
Theme park admissions — 2,428 2,428 — 1,973 — 1,973
Resort and vacations — 1,949 1,949 — 1,451 — 1,451
Retail and wholesale sales of merchandise, food and beverage — 2,142 2,142 — 1,816 — 1,816
Merchandise licensing — 772 772 — 893 — 893
TV/SVOD distribution licensing 1,033 — 1,033 1,124 — ( 1,023 ) 101
Theatrical distribution licensing 767 — 767 224 — — 224
Home entertainment 148 — 148 230 — — 230
Other 529 484 1,013 530 518 — 1,048
$ 14,039 $ 7,776 $ 21,815 $ 13,620 $ 6,652 $ ( 1,023 ) $ 19,249
Six Months Ended April 1, 2023 Six Months Ended April 2, 2022
DMED DPEP Total DMED DPEP Content License Early Termination Total
Affiliate fees $ 8,636 $ — $ 8,636 $ 8,973 $ — $ — $ 8,973
Subscription fees 8,845 — 8,845 7,485 — — 7,485
Advertising 6,005 2 6,007 6,891 2 — 6,893
Theme park admissions — 5,069 5,069 — 4,125 — 4,125
Resort and vacations — 3,929 3,929 — 2,896 — 2,896
Retail and wholesale sales of merchandise, food and beverage — 4,524 4,524 — 3,905 — 3,905
Merchandise licensing — 1,915 1,915 — 2,012 — 2,012
TV/SVOD distribution licensing 2,012 — 2,012 2,520 — ( 1,023 ) 1,497
Theatrical distribution licensing 1,907 — 1,907 753 — — 753
Home entertainment 283 — 283 524 — — 524
Other 1,127 1,073 2,200 1,059 946 — 2,005
$ 28,815 $ 16,512 $ 45,327 $ 28,205 $ 13,886 $ ( 1,023 ) $ 41,068
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THE WALT DISNEY COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited; tabular dollars in millions, except for per share data)
The following table presents our revenues by segment and primary geographical markets:
Quarter Ended April 1, 2023 Quarter Ended April 2, 2022
DMED DPEP Total DMED DPEP Total
Americas $ 11,525 $ 6,105 $ 17,630 $ 11,191 $ 5,559 $ 16,750
Europe 1,447 744 2,191 1,343 627 1,970
Asia Pacific 1,067 927 1,994 1,086 466 1,552
Total revenues $ 14,039 $ 7,776 $ 21,815 $ 13,620 $ 6,652 $ 20,272
Content License Early Termination ( 1,023 )
$ 19,249
Six Months Ended April 1, 2023 Six Months Ended April 2, 2022
DMED DPEP Total DMED DPEP Total
Americas $ 23,543 $ 13,058 $ 36,601 $ 23,021 $ 11,270 $ 34,291
Europe 3,021 1,810 4,831 2,881 1,492 4,373
Asia Pacific 2,251 1,644 3,895 2,303 1,124 3,427
Total revenues $ 28,815 $ 16,512 $ 45,327 $ 28,205 $ 13,886 $ 42,091
Content License Early Termination ( 1,023 )
$ 41,068
Revenues recognized in the current and prior-year periods from performance obligations satisfied (or partially satisfied) in previous reporting periods primarily relate to revenues earned on TV/SVOD licenses for titles made available to the licensee in previous reporting periods. For the quarter ended April 1, 2023, $ 0.7 billion was recognized related to performance obligations satisfied as of December 31, 2022. For the six months ended April 1, 2023, $ 0.5 billion was recognized related to performance obligations satisfied as of October 1, 2022. For the quarter ended April 2, 2022, $ 0.4 billion was recognized related to performance obligations satisfied as of January 1, 2022. For the six months ended April 2, 2022, $ 0.7 billion was recognized related to performance obligations satisfied as of October 2, 2021.
As of April 1, 2023, revenue for unsatisfied performance obligations expected to be recognized in the future is $ 16 billion, primarily for content and other IP to be made available in the future under existing agreements with merchandise and co-branding licensees and sponsors, television station affiliates, DTC wholesalers, sports sublicensees, and advertisers. Of this amount, we expect to recognize approximately $ 3 billion in the remainder of fiscal 2023, $ 5 billion in fiscal 2024, $ 4 billion in fiscal 2025 and $ 4 billion thereafter. These amounts include only fixed consideration or minimum guarantees and do not include amounts related to (i) contracts with an original expected term of one year or less (such as most advertising contracts) or (ii) licenses of IP that are solely based on the sales of the licensee.
When the timing of the Company’s revenue recognition is different from the timing of customer payments, the Company recognizes either a contract asset (customer payment is subsequent to revenue recognition and subject to the Company satisfying additional performance obligations) or deferred revenue (customer payment precedes the Company satisfying the performance obligations). Consideration due under contracts with payment in arrears is recognized as accounts receivable. Deferred revenues are recognized as (or when) the Company performs under the contract. The Company’s contract assets and activity for the current and prior-year periods were not material.
Accounts receivable and deferred revenues from contracts with customers are as follows:
April 1,
2023 October 1,
2022
Accounts receivable
Current $ 11,189 $ 10,886
Non-current 1,153 1,226
Allowance for credit losses ( 164 ) ( 179 )
Deferred revenues
Current 5,750 5,531
Non-current 870 927
For the quarter and six months ended April 1, 2023, the Company recognized revenue of $ 0.9 billion and $ 4.3 billion, respectively, that was included in the October 1, 2022 deferred revenue balance. For the quarter and six months ended April 2, 2022, the Company recognized revenue of $ 0.9 billion and $ 2.8 billion, respectively, that was included in the October 2, 2021
13
THE WALT DISNEY COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited; tabular dollars in millions, except for per share data)
deferred revenue balance. Amounts deferred generally relate to theme park admissions and vacation packages, DTC subscriptions and advances related to merchandise and TV/SVOD licenses.
We evaluate our allowance for credit losses and estimate collectability of current and non-current accounts receivable based on historical bad debt experience, our assessment of the financial condition of individual companies with which we do business, current market conditions, and reasonable and supportable forecasts of future economic conditions. In times of economic turmoil, our estimates and judgments with respect to the collectability of our receivables are subject to greater uncertainty than in more stable periods.
The Company has accounts receivable with original maturities greater than one year related to the sale of film and television program rights (TV/SVOD licensing) and vacation club properties. These receivables are discounted to present value at contract inception and the related revenues are recognized at the discounted amount. The balance of TV/SVOD licensing receivables recorded in other non-current assets was $ 0.5 billion at April 1, 2023 and $ 0.6 billion at October 1, 2022. The balance of vacation club receivables recorded in other non-current assets was $ 0.6 billion at both April 1, 2023 and October 1, 2022. The allowance for credit losses and activity for the period ended April 1, 2023 was not material.
4. Other Income (Expense), net
Other income (expense), net is as follows:
Quarter Ended Six Months Ended
April 1,
2023 April 2,
2022 April 1,
2023 April 2,
2022
DraftKings gain (loss) $ 149 $ ( 158 ) $ 79 $ ( 590 )
Other, net — — 28 ( 4 )
Other income (expense), net $ 149 $ ( 158 ) $ 107 $ ( 594 )
For the quarter and six months ended April 1, 2023, the Company recognized a non-cash gain of $ 149 million and $ 79 million, respectively, to adjust its investment in DraftKings, Inc. (DraftKings) to fair value (DraftKings gain (loss)). For the prior-year quarter and six months ended April 2, 2022, the Company recognized a DraftKings loss of $ 158 million and $ 590 million, respectively.
5. Cash, Cash Equivalents, Restricted Cash and Borrowings
Cash, Cash Equivalents and Restricted Cash
The following table provides a reconciliation of cash, cash equivalents and restricted cash reported in the Condensed Consolidated Balance Sheets to the total of the amounts reported in the Condensed Consolidated Statements of Cash Flows.
April 1,
2023 October 1,
2022
Cash and cash equivalents $ 10,399 $ 11,615
Restricted cash included in:
Other current assets 3 3
Other assets 51 43
Total cash, cash equivalents and restricted cash in the statement of cash flows $ 10,453 $ 11,661
14
THE WALT DISNEY COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited; tabular dollars in millions, except for per share data)
Borrowings
During the six months ended April 1, 2023, the Company’s borrowing activity was as follows:
October 1,
2022 Borrowings Payments Other
Activity April 1,
2023
Commercial paper with original maturities less than three months $ 50 $ 958 $ — $ 2 $ 1,010
Commercial paper with original maturities greater than three months 1,612 2,022 ( 2,266 ) 9 1,377
U.S. dollar denominated notes 45,091 — ( 1,000 ) ( 69 ) 44,022
Asia Theme Parks borrowings 1,425 70 — 79 1,574
Foreign currency denominated debt and other (1)
191 — — 344 535
$ 48,369 $ 3,050 $ ( 3,266 ) $ 365 $ 48,518
(1) The other activity is primarily due to market value adjustments for debt with qualifying hedges.
At April 1, 2023, the Company’s bank facilities, which are with a syndicate of lenders and support our commercial paper borrowings, were as follows:
Committed
Capacity Capacity
Used Unused
Capacity
Facility expiring March 2024 $ 5,250 $ — $ 5,250
Facility expiring March 2025 3,000 — 3,000
Facility expiring March 2027 4,000 — 4,000
Total $ 12,250 $ — $ 12,250
The Company had a $ 5.25 billion bank facility that was scheduled to expire in March 2023. This facility was refinanced with a new $ 5.25 billion bank facility maturing in March 2024. All three of the bank facilities allow for borrowings at SOFR-based rates, and at other variable rates for non-U.S. dollar denominated borrowings, plus a fixed spread that varies with the Company’s debt ratings assigned by Moody’s Investors Service and Standard and Poor’s ranging from 0.655% to 1.225%. The 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 April 1, 2023, the Company met this covenant by a significant margin. The bank facilities specifically exclude certain entities, including the Asia Theme Parks, from any representations, covenants or events of default. The Company also has the ability to issue up to $ 500 million of letters of credit under the facility expiring in March 2027, which if utilized, reduces available borrowings under this facility. As of April 1, 2023, the Company has $ 1.9 billion of outstanding letters of credit, of which none were issued under this facility.
Cruise Ship Credit Facilities
The Company has credit facilities to finance a significant portion of the contract price of two new cruise ships, which are scheduled to be delivered in fiscal 2025 and fiscal 2026. Under the facilities, $ 1.1 billion is available beginning in August 2023 and $ 1.1 billion is available beginning in August 2024. Each tranche of financing may be utilized within a period of 18 months from the initial availability date. If utilized, the interest rates will be fixed at 3.80 % and 3.74 %, respectively, and the loan and interest will be payable semi-annually over a 12-year period from the borrowing date. Early repayment is permitted subject to cancellation fees .
15
THE WALT DISNEY COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited; tabular dollars in millions, except for per share data)
Interest expense, net
Interest expense (net of amounts capitalized), interest and investment income, and net periodic pension and postretirement benefit costs (other than service costs) (see Note 9) are reported net in the Condensed Consolidated Statements of Income and consist of the following:
Quarter Ended Six Months Ended
April 1,
2023 April 2,
2022 April 1,
2023 April 2,
2022
Interest expense $ ( 504 ) $ ( 374 ) $ ( 969 ) $ ( 735 )
Interest and investment income 98 3 177 37
Net periodic pension and postretirement benefit costs (other than service costs) 84 16 170 32
Interest expense, net $ ( 322 ) $ ( 355 ) $ ( 622 ) $ ( 666 )
Interest and investment income includes gains and losses on certain publicly traded and non-public investments, investment impairments and interest earned on cash and cash equivalents and certain receivables.
6. International Theme Parks
The Company has a 48 % ownership interest in the operations of Hong Kong Disneyland Resort and a 43 % ownership interest in the operations of Shanghai Disney Resort. The Asia Theme Parks together with Disneyland Paris are collectively referred to as the International Theme Parks.
The following table summarizes the carrying amounts of the Asia Theme Parks’ assets and liabilities included in the Company’s Condensed Consolidated Balance Sheets:
April 1,
2023 October 1, 2022
Cash and cash equivalents $ 387 $ 280
Other current assets 195 137
Total current assets 582 417
Parks, resorts and other property 6,419 6,356
Other assets 196 161
Total assets $ 7,197 $ 6,934
Current liabilities $ 450 $ 468
Long-term borrowings 1,574 1,426
Other long-term liabilities 459 395
Total liabilities $ 2,483 $ 2,289
The following table summarizes the International Theme Parks’ revenues and costs and expenses included in the Company’s Condensed Consolidated Statements of Income for the six months ended April 1, 2023:
Revenues $ 2,091
Costs and expenses ( 1,995 )
Equity in the loss of investees ( 2 )
Asia Theme Parks’ royalty and management fees of $ 83 million for the six months ended April 1, 2023 are eliminated in consolidation, but are considered in calculating earnings attributable to noncontrolling interests.
International Theme Parks’ cash flows included in the Company’s Condensed Consolidated Statements of Cash Flows for the six months ended April 1, 2023 were $ 509 million provided by operating activities, $ 483 million used in investing activities and $ 78 million provided by financing activities.
16
THE WALT DISNEY COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited; tabular dollars in millions, except for per share data)
Hong Kong Disneyland Resort
The Government of the Hong Kong Special Administrative Region (HKSAR) and the Company have a 52 % and a 48 % equity interest in Hong Kong Disneyland Resort, respectively.
The Company and HKSAR have provided loans to Hong Kong Disneyland Resort with outstanding balances of $ 157 million and $ 105 million, respectively. The interest rate on both loans is three month HIBOR plus 2 %, and the maturity date is September 2025. The Company’s loan is eliminated in consolidation.
The Company has provided Hong Kong Disneyland Resort with a revolving credit facility of HK $ 2.7 billion ($ 344 million), which bears interest at a rate of three month HIBOR plus 1.25 % and matures in December 2028. The outstanding balance under the line of credit at April 1, 2023 was $ 230 million. The Company’s line of credit is eliminated in consolidation.
Shanghai Disney Resort
Shanghai Shendi (Group) Co., Ltd (Shendi) and the Company have 57 % and 43 % equity interests in Shanghai Disney Resort, respectively. A management company, in which the Company has a 70 % interest and Shendi a 30 % interest, operates Shanghai Disney Resort.
The Company has provided Shanghai Disney Resort with loans totaling $ 945 million, bearing interest at rates up to 8 % and maturing in 2036, with early repayment permitted. The Company has also provided Shanghai Disney Resort with a 1.9 billion yuan (approximately $ 0.3 billion) line of credit bearing interest at 8 %. As of April 1, 2023, the total amount outstanding under the line of credit was 1.2 billion yuan (approximately $ 180 million). These balances are eliminated in consolidation.
Shendi has provided Shanghai Disney Resort with loans totaling 8.5 billion yuan (approximately $ 1.2 billion), bearing interest at rates up to 8 % and maturing in 2036, with early repayment permitted. Shendi has also provided Shanghai Disney Resort with a 2.6 billion yuan (approximately $ 0.4 billion) line of credit bearing interest at 8 %. As of April 1, 2023 the total amount outstanding under the line of credit was 1.6 billion yuan (approximately $ 238 million).
7. Produced and Acquired/Licensed Content Costs and Advances
The Company classifies its capitalized produced and acquired/licensed content costs as long-term assets and classifies advances for live programming rights made prior to the live event as short-term assets. For purposes of amortization and impairment, the capitalized content costs are classified based on their predominant monetization strategy as follows:
• Individual - lifetime value is predominantly derived from third-party revenues that are directly attributable to the specific film or television title (e.g. theatrical revenues or sales to third-party television programmers)
• Group - lifetime value is predominantly derived from third-party revenues that are attributable only to a bundle of titles (e.g. subscription revenue for a DTC service or affiliate fees for a cable television network)
Total capitalized produced and licensed content by predominant monetization strategy is as follows:
As of April 1, 2023 As of October 1, 2022
Predominantly Monetized Individually Predominantly Monetized
as a Group Total Predominantly Monetized Individually Predominantly Monetized
as a Group Total
Produced content
Released, less amortization $ 4,996 $ 14,005 $ 19,001 $ 4,639 $ 12,688 $ 17,327
Completed, not released 130 1,540 1,670 214 2,019 2,233
In-process 3,992 7,793 11,785 5,041 6,793 11,834
In development or pre-production 343 251 594 372 254 626
$ 9,461 $ 23,589 33,050 $ 10,266 $ 21,754 32,020
Licensed content - Television programming rights and advances 5,771 5,647
Total produced and licensed content $ 38,821 $ 37,667
Current portion $ 1,872 $ 1,890
Non-current portion $ 36,949 $ 35,777
17
THE WALT DISNEY COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited; tabular dollars in millions, except for per share data)
Amortization of produced and licensed content is as follows:
Quarter Ended Six Months Ended
April 1,
2023 April 2,
2022 April 1,
2023 April 2,
2022
Produced content
Predominantly monetized individually $ 1,006 $ 838 $ 2,163 $ 1,871
Predominantly monetized as a group 1,952 1,503 4,112 3,121
2,958 2,341 6,275 4,992
Licensed programming rights and advances 3,196 2,839 7,735 7,650
Total produced and licensed content costs (1)
$ 6,154 $ 5,180 $ 14,010 $ 12,642
(1) Primarily included in “Costs of services” in the Condensed Consolidated Statements of Income .
8. Income Taxes
Unrecognized Tax Benefits
During the six months ended April 1, 2023, the Company increased its gross unrecognized tax benefits (before interest and penalties) by $ 0.2 billion to $ 2.7 billion. In the next twelve months, it is reasonably possible that our unrecognized tax benefits could change due to resolutions of open tax matters, which would reduce our unrecognized tax benefits by $ 0.1 billion.
California Disaster Relief
Pursuant to relief provided to certain taxpayers by the Internal Revenue Service and California State Board of Equalization as a result of winter storms in California, the Company is permitted to defer payment of fiscal 2023 federal and California state tax payments until October 16, 2023.
9. Pension and Other Benefit Programs
The components of net periodic benefit cost (income) are as follows:
Pension Plans Postretirement Medical Plans
Quarter Ended Six Months Ended Quarter Ended Six Months Ended
April 1,
2023 April 2,
2022 April 1, 2023 April 2, 2022 April 1,
2023 April 2,
2022 April 1, 2023 April 2, 2022
Service costs $ 63 $ 102 $ 128 $ 202 $ 2 $ 3 $ 3 $ 5
Other costs (benefits):
Interest costs 195 126 391 250 21 13 41 26
Expected return on plan assets ( 287 ) ( 294 ) ( 575 ) ( 587 ) ( 15 ) ( 14 ) ( 30 ) ( 29 )
Amortization of previously deferred service costs 3 1 5 2 — — — —
Recognized net actuarial loss 4 145 9 292 ( 5 ) 7 ( 11 ) 14
Total other costs (benefits) ( 85 ) ( 22 ) ( 170 ) ( 43 ) 1 6 — 11
Net periodic benefit cost (income) $ ( 22 ) $ 80 $ ( 42 ) $ 159 $ 3 $ 9 $ 3 $ 16
During the six months ended April 1, 2023, the Company did not make any material contributions to its pension and postretirement medical plans and does not currently expect to make any material contributions for the remainder of fiscal 2023. Final minimum funding requirements for fiscal 2023 will be determined based on a January 1, 2023 funding actuarial valuation, which is expected to be received in the fourth quarter of fiscal 2023.
18
THE WALT DISNEY COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited; tabular dollars in millions, except for per share data)
10. Earnings Per Share
Diluted earnings per share amounts are based upon the weighted average number of common and common equivalent shares outstanding during the period and are calculated using the treasury stock method for equity-based compensation awards (Awards). A reconciliation of the weighted average number of common and common equivalent shares outstanding and the number of Awards excluded from the diluted earnings per share calculation, as they were anti-dilutive, are as follows:
Quarter Ended Six Months Ended
April 1,
2023 April 2,
2022 April 1,
2023 April 2,
2022
Shares (in millions):
Weighted average number of common and common equivalent shares outstanding (basic) 1,828 1,822 1,827 1,820
Weighted average dilutive impact of Awards 3 6 2 8
Weighted average number of common and common equivalent shares outstanding (diluted) 1,831 1,828 1,829 1,828
Awards excluded from diluted earnings per share 25 9 25 6
19
THE WALT DISNEY COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited; tabular dollars in millions, except for per share data)
11. Equity
The following tables summarize the changes in each component of accumulated other comprehensive income (loss) (AOCI) including our proportional share of equity method investee amounts:
Market Value Adjustments for Hedges Unrecognized
Pension and
Postretirement
Medical
Expense Foreign
Currency
Translation
and Other AOCI
AOCI, before tax
Second quarter of fiscal 2023
Balance at December 31, 2022 $ 111 $ ( 3,769 ) $ ( 1,826 ) $ ( 5,484 )
Quarter Ended April 1, 2023:
Unrealized gains (losses) arising during the period 7 71 125 203
Reclassifications of realized net (gains) losses to net income ( 116 ) 1 — ( 115 )
Balance at April 1, 2023 $ 2 $ ( 3,697 ) $ ( 1,701 ) $ ( 5,396 )
Second quarter of fiscal 2022
Balance at January 1, 2022 $ ( 83 ) $ ( 6,823 ) $ ( 1,084 ) $ ( 7,990 )
Quarter Ended April 2, 2022:
Unrealized gains (losses) arising during the period 53 — ( 196 ) ( 143 )
Reclassifications of realized net (gains) losses to net income ( 21 ) 155 — 134
Balance at April 2, 2022 $ ( 51 ) $ ( 6,668 ) $ ( 1,280 ) $ ( 7,999 )
Six months ended fiscal 2023
Balance at October 1, 2022 $ 804 $ ( 3,770 ) $ ( 2,014 ) $ ( 4,980 )
Six Months Ended April 1, 2023:
Unrealized gains (losses) arising during the period ( 468 ) 71 271 ( 126 )
Reclassifications of realized net (gains) losses to net income ( 334 ) 2 42 ( 290 )
Balance at April 1, 2023 $ 2 $ ( 3,697 ) $ ( 1,701 ) $ ( 5,396 )
Six months ended fiscal 2022
Balance at October 2, 2021 $ ( 152 ) $ ( 7,025 ) $ ( 1,047 ) $ ( 8,224 )
Six Months Ended April 2, 2022:
Unrealized gains (losses) arising during the period 140 47 ( 233 ) ( 46 )
Reclassifications of realized net (gains) losses to net income ( 39 ) 310 — 271
Balance at April 2, 2022 $ ( 51 ) $ ( 6,668 ) $ ( 1,280 ) $ ( 7,999 )
20
THE WALT DISNEY COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited; tabular dollars in millions, except for per share data)
Market Value Adjustments for Hedges Unrecognized
Pension and
Postretirement
Medical
Expense Foreign
Currency
Translation
and Other AOCI
Tax on AOCI
Second quarter of fiscal 2023
Balance at December 31, 2022 $ ( 28 ) $ 901 $ 133 $ 1,006
Quarter Ended April 1, 2023:
Unrealized gains (losses) arising during the period — ( 16 ) ( 10 ) ( 26 )
Reclassifications of realized net (gains) losses to net income 27 — — 27
Balance at April 1, 2023 $ ( 1 ) $ 885 $ 123 $ 1,007
Second quarter of fiscal 2022
Balance at January 1, 2022 $ 23 $ 1,606 $ 85 $ 1,714
Quarter Ended April 2, 2022:
Unrealized gains (losses) arising during the period ( 9 ) — 13 4
Reclassifications of realized net (gains) losses to net income 5 ( 36 ) — ( 31 )
Balance at April 2, 2022 $ 19 $ 1,570 $ 98 $ 1,687
Six months ended fiscal 2023
Balance at October 1, 2022 $ ( 179 ) $ 901 $ 139 $ 861
Six Months Ended April 1, 2023:
Unrealized gains (losses) arising during the period 100 ( 16 ) ( 2 ) 82
Reclassifications of realized net (gains) losses to net income 78 — ( 14 ) 64
Balance at April 1, 2023 $ ( 1 ) $ 885 $ 123 $ 1,007
Six months ended fiscal 2022
Balance at October 2, 2021 $ 42 $ 1,653 $ 89 $ 1,784
Six Months Ended April 2, 2022:
Unrealized gains (losses) arising during the period ( 32 ) ( 11 ) 9 ( 34 )
Reclassifications of realized net (gains) losses to net income 9 ( 72 ) — ( 63 )
Balance at April 2, 2022 $ 19 $ 1,570 $ 98 $ 1,687
21
THE WALT DISNEY COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited; tabular dollars in millions, except for per share data)
Market Value Adjustments for Hedges Unrecognized
Pension and
Postretirement
Medical
Expense Foreign
Currency
Translation
and Other AOCI
AOCI, after tax
Second quarter of fiscal 2023
Balance at December 31, 2022 $ 83 $ ( 2,868 ) $ ( 1,693 ) $ ( 4,478 )
Quarter Ended April 1, 2023:
Unrealized gains (losses) arising during the period 7 55 115 177
Reclassifications of realized net (gains) losses to net income ( 89 ) 1 — ( 88 )
Balance at April 1, 2023 $ 1 $ ( 2,812 ) $ ( 1,578 ) $ ( 4,389 )
Second quarter of fiscal 2022
Balance at January 1, 2022 $ ( 60 ) $ ( 5,217 ) $ ( 999 ) $ ( 6,276 )
Quarter Ended April 2, 2022:
Unrealized gains (losses) arising during the period 44 — ( 183 ) ( 139 )
Reclassifications of realized net (gains) losses to net income ( 16 ) 119 — 103
Balance at April 2, 2022 $ ( 32 ) $ ( 5,098 ) $ ( 1,182 ) $ ( 6,312 )
Six months ended fiscal 2023
Balance at October 1, 2022 $ 625 $ ( 2,869 ) $ ( 1,875 ) $ ( 4,119 )
Six Months Ended April 1, 2023:
Unrealized gains (losses) arising during the period ( 368 ) 55 269 ( 44 )
Reclassifications of realized net (gains) losses to net income ( 256 ) 2 28 ( 226 )
Balance at April 1, 2023 $ 1 $ ( 2,812 ) $ ( 1,578 ) $ ( 4,389 )
Six months ended fiscal 2022
Balance at October 2, 2021 $ ( 110 ) $ ( 5,372 ) $ ( 958 ) $ ( 6,440 )
Six Months Ended April 2, 2022:
Unrealized gains (losses) arising during the period 108 36 ( 224 ) ( 80 )
Reclassifications of realized net (gains) losses to net income ( 30 ) 238 — 208
Balance at April 2, 2022 $ ( 32 ) $ ( 5,098 ) $ ( 1,182 ) $ ( 6,312 )
22
THE WALT DISNEY COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited; tabular dollars in millions, except for per share data)
Details about AOCI components reclassified to net income are as follows:
Gain (loss) in net income: Affected line item in the Condensed Consolidated Statements of Operations: Quarter Ended Six Months Ended
April 1,
2023 April 2,
2022 April 1,
2023 April 2,
2022
Market value adjustments, primarily cash flow hedges Primarily revenue $ 116 $ 21 $ 334 $ 39
Estimated tax Income taxes ( 27 ) ( 5 ) ( 78 ) ( 9 )
89 16 256 30
Pension and postretirement medical expense Interest expense, net ( 1 ) ( 155 ) ( 2 ) ( 310 )
Estimated tax Income taxes — 36 — 72
( 1 ) ( 119 ) ( 2 ) ( 238 )
Foreign currency translation and other Restructuring and impairment charges — — ( 42 ) —
Estimated tax Income taxes — — 14 —
— — ( 28 ) —
Total reclassifications for the period $ 88 $ ( 103 ) $ 226 $ ( 208 )
12. Equity-Based Compensation
Compensation expense related to stock options and restricted stock units (RSUs) is as follows:
Quarter Ended Six Months Ended
April 1,
2023 April 2,
2022 April 1,
2023 April 2,
2022
Stock options $ 20 $ 21 $ 39 $ 45
RSUs 280 233 531 405
Total equity-based compensation expense (1)
$ 300 $ 254 $ 570 $ 450
Equity-based compensation expense capitalized during the period $ 37 $ 40 $ 73 $ 70
(1) Equity-based compensation expense is net of capitalized equity-based compensation and estimated forfeitures and excludes amortization of previously capitalized equity-based compensation costs.
Unrecognized compensation cost related to unvested stock options and RSUs was $ 96 million and $ 1.9 billion, respectively, as of April 1, 2023.
During the six months ended April 1, 2023 and April 2, 2022, the weighted average grant date fair values for options granted were $ 34.72 and $ 47.39 , respectively, and for RSUs were $ 92.07 and $ 148.75 , respectively.
During the six months ended April 1, 2023, the Company made equity compensation grants consisting of 1.6 million stock options and 9.7 million RSUs.
13. Commitments and Contingencies
Legal Matters
The Company, together with, in some instances, certain of its directors and officers, is a defendant in various legal actions involving copyright, breach of contract and various other claims incident to the conduct of its businesses. Management does not believe that the Company has incurred a probable material loss by reason of any of those actions.
23
THE WALT DISNEY COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited; tabular dollars in millions, except for per share data)
14. Fair Value Measurements
Fair value is defined as the amount that would be received for selling an asset or paid to transfer a liability in an orderly transaction between market participants and is generally classified in one of the following categories:
Level 1 - Quoted prices for identical instruments in active markets
Level 2 - Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations in which all significant inputs and significant value drivers are observable in active markets
Level 3 - Valuations derived from valuation techniques in which one or more significant inputs or significant value drivers are unobservable
The Company’s assets and liabilities measured at fair value are summarized in the following tables by fair value measurement Level:
Fair Value Measurement at April 1, 2023
Level 1 Level 2 Level 3 Total
Assets
Investments $ 393 $ — $ — $ 393
Derivatives
Foreign exchange — 1,074 — 1,074
Other — 22 — 22
Liabilities
Derivatives
Interest rate — ( 1,523 ) — ( 1,523 )
Foreign exchange — ( 807 ) — ( 807 )
Other — ( 6 ) — ( 6 )
Other — ( 448 ) — ( 448 )
Total recorded at fair value $ 393 $ ( 1,688 ) $ — $ ( 1,295 )
Fair value of borrowings $ — $ 44,506 $ 1,663 $ 46,169
Fair Value Measurement at October 1, 2022
Level 1 Level 2 Level 3 Total
Assets
Investments $ 308 $ — $ — $ 308
Derivatives
Interest rate — 1 — 1
Foreign exchange — 2,223 — 2,223
Other — 10 — 10
Liabilities
Derivatives
Interest rate — ( 1,783 ) — ( 1,783 )
Foreign exchange — ( 1,239 ) — ( 1,239 )
Other — ( 31 ) — ( 31 )
Other — ( 354 ) — ( 354 )
Total recorded at fair value $ 308 $ ( 1,173 ) $ — $ ( 865 )
Fair value of borrowings $ — $ 42,509 $ 1,510 $ 44,019
The fair values of Level 2 derivatives are primarily determined by internal discounted cash flow models that use observable inputs such as interest rates, yield curves and foreign currency exchange rates. Counterparty credit risk, which is
24
THE WALT DISNEY COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited; tabular dollars in millions, except for per share data)
mitigated by master netting agreements and collateral posting arrangements with certain counterparties, had an impact on derivative fair value estimates that was not material.
Level 2 other liabilities are primarily arrangements that are valued based on the fair value of underlying investments, which are generally measured using Level 1 and Level 2 fair value techniques.
Level 2 borrowings, which include commercial paper, U.S. dollar denominated notes and certain foreign currency denominated borrowings, are valued based on quoted prices for similar instruments in active markets or identical instruments in markets that are not active.
Level 3 borrowings include the Asia Theme Park borrowings, which are valued based on the current borrowing cost and credit risk of the Asia Theme Parks as well as prevailing market interest rates.
The Company’s financial instruments also include cash, cash equivalents, receivables and accounts payable. The carrying values of these financial instruments approximate the fair values.
15. Derivative Instruments
The Company manages its exposure to various risks relating to its ongoing business operations according to a risk management policy. The primary risks managed with derivative instruments are interest rate risk and foreign exchange risk.
The Company’s derivative positions measured at fair value are summarized in the following tables:
As of April 1, 2023
Current
Assets Other Assets Other Current Liabilities Other Long-
Term
Liabilities
Derivatives designated as hedges
Foreign exchange $ 518 $ 326 $ ( 229 ) $ ( 90 )
Interest rate — — ( 1,523 ) —
Other 3 1 ( 5 ) ( 1 )
Derivatives not designated as hedges
Foreign exchange 226 4 ( 424 ) ( 64 )
Other 18 — — —
Gross fair value of derivatives 765 331 ( 2,181 ) ( 155 )
Counterparty netting ( 630 ) ( 221 ) 760 91
Cash collateral (received) paid ( 55 ) ( 5 ) 1,382 51
Net derivative positions $ 80 $ 105 $ ( 39 ) $ ( 13 )
As of October 1, 2022
Current
Assets Other Assets Other Current Liabilities Other Long-
Term
Liabilities
Derivatives designated as hedges
Foreign exchange $ 864 $ 786 $ ( 228 ) $ ( 350 )
Interest rate — 1 ( 1,783 ) —
Other 10 — ( 4 ) —
Derivatives not designated as hedges
Foreign exchange 336 247 ( 374 ) ( 287 )
Other — — ( 27 ) —
Gross fair value of derivatives 1,210 1,034 ( 2,416 ) ( 637 )
Counterparty netting ( 831 ) ( 715 ) 1,070 476
Cash collateral (received) paid ( 341 ) ( 151 ) 1,282 96
Net derivative positions $ 38 $ 168 $ ( 64 ) $ ( 65 )
25
THE WALT DISNEY COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited; tabular dollars in millions, except for per share data)
Interest Rate Risk Management
The Company is exposed to the impact of interest rate changes primarily through its borrowing activities. The Company’s objective is to mitigate the impact of interest rate changes on earnings and cash flows and on the market value of its borrowings. In accordance with its policy, the Company targets its fixed-rate debt as a percentage of its net debt between a minimum and maximum percentage. The Company primarily uses pay-floating and pay-fixed interest rate swaps to facilitate its interest rate risk management activities.
The Company designates pay-floating interest rate swaps as fair value hedges of fixed-rate borrowings effectively converting fixed-rate borrowings to variable-rate borrowings. The total notional amount of the Company’s pay-floating interest rate swaps at April 1, 2023 and October 1, 2022, was $ 13.5 billion and $ 14.5 billion, respectively.
The following table summarizes fair value hedge adjustments to hedged borrowings:
Carrying Amount of Hedged Borrowings Fair Value Adjustments Included
in Hedged Borrowings
April 1,
2023 October 1, 2022 April 1,
2023 October 1, 2022
Borrowings:
Current $ — $ 997 $ — $ ( 3 )
Long-term 12,708 12,358 ( 1,431 ) ( 1,733 )
$ 12,708 $ 13,355 $ ( 1,431 ) $ ( 1,736 )
The following amounts are included in “Interest expense, net” in the Condensed Consolidated Statements of Income:
Quarter Ended Six Months Ended
April 1,
2023 April 2,
2022 April 1,
2023 April 2,
2022
Gain (loss) on:
Pay-floating swaps $ 235 $ ( 741 ) $ 306 $ ( 919 )
Borrowings hedged with pay-floating swaps ( 235 ) 741 ( 306 ) 919
Benefit (expense) associated with interest accruals on pay-floating swaps ( 125 ) 33 ( 220 ) 70
The Company may designate pay-fixed interest rate swaps as cash flow hedges of interest payments on floating-rate borrowings. Pay-fixed interest rate swaps effectively convert floating-rate borrowings to fixed-rate borrowings. The unrealized gains or losses from these cash flow hedges are deferred in AOCI and recognized in interest expense as the interest payments occur. The Company did not have pay-fixed interest rate swaps that were designated as cash flow hedges of interest payments at April 1, 2023 or at October 1, 2022, and gains and losses related to pay-fixed interest rate swaps recognized in earnings for the quarters and six-month periods ended April 1, 2023 and April 2, 2022 were not material.
Foreign Exchange Risk Management
The Company transacts business globally and is subject to risks associated with changing foreign currency exchange rates. The Company’s objective is to reduce earnings and cash flow fluctuations associated with foreign currency exchange rate changes, enabling management to focus on core business issues and challenges.
The Company enters into option and forward contracts that change in value as foreign currency exchange rates change to protect the value of its existing foreign currency assets, liabilities, firm commitments and forecasted but not firmly committed foreign currency transactions. In accordance with policy, the Company hedges its forecasted foreign currency transactions for periods generally not to exceed four years within an established minimum and maximum range of annual exposure. The gains and losses on these contracts offset changes in the U.S. dollar equivalent value of the related forecasted transaction, asset, liability or firm commitment. The principal currencies hedged are the euro, Japanese yen, British pound, Chinese yuan and Canadian dollar. Cross-currency swaps are used to effectively convert foreign currency denominated borrowings into U.S. dollar denominated borrowings.
26
THE WALT DISNEY COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited; tabular dollars in millions, except for per share data)
The Company designates foreign exchange forward and option contracts as cash flow hedges of firmly committed and forecasted foreign currency transactions. As of April 1, 2023 and October 1, 2022, the notional amounts of the Company’s net foreign exchange cash flow hedges were $ 8.4 billion and $ 7.4 billion, respectively. Mark-to-market gains and losses on these contracts are deferred in AOCI and are recognized in earnings when the hedged transactions occur, offsetting changes in the value of the foreign currency transactions. Net deferred gains recorded in AOCI for contracts that will mature in the next twelve months total $ 244 million. The following table summarizes the effect of foreign exchange cash flow hedges on AOCI:
Quarter Ended Six Months Ended
April 1,
2023 April 2,
2022 April 1,
2023 April 2,
2022
Gain (loss) recognized in Other Comprehensive Income $ 15 $ 42 $ ( 487 ) $ 121
Gain (loss) reclassified from AOCI into the Statements of Operations (1)
116 13 338 26
(1) Primarily recorded in revenue.
The Company designates cross currency swaps as fair value hedges of foreign currency denominated borrowings. The impact from the change in foreign currency on both the cross currency swap and borrowing is recorded to “Interest expense, net.” The impact from interest rate changes is recorded in AOCI and is amortized over the life of the cross currency swap. As of April 1, 2023 and October 1, 2022, the total notional amounts of the Company’s designated cross currency swaps were Canadian $ 1.3 billion ($ 1.0 billion) and Canadian $ 1.3 billion ($ 0.9 billion), respectively. The related gains or losses recognized in earnings were not material for the quarters and six-month periods ended April 1, 2023 and April 2, 2022.
Foreign exchange risk management contracts with respect to foreign currency denominated assets and liabilities are not designated as hedges and do not qualify for hedge accounting. The net notional amounts of these foreign exchange contracts at April 1, 2023 and October 1, 2022 were $ 4.3 billion and $ 3.8 billion, respectively. The following table summarizes the net foreign exchange gains or losses recognized on foreign currency denominated assets and liabilities and the net foreign exchange gains or losses on the foreign exchange contracts we entered into to mitigate our exposure with respect to foreign currency denominated assets and liabilities by the corresponding line item in which they are recorded in the Condensed Consolidated Statements of Income:
Costs and Expenses Interest expense, net Income Tax Expense
Quarter Ended: April 1,
2023 April 2,
2022 April 1,
2023 April 2,
2022 April 1,
2023 April 2,
2022
Net gains (losses) on foreign currency denominated assets and liabilities $ 15 $ ( 82 ) $ ( 2 ) $ ( 13 ) $ ( 21 ) $ 37
Net gains (losses) on foreign exchange risk management contracts not designated as hedges ( 47 ) 37 1 10 17 ( 35 )
Net gains (losses) $ ( 32 ) $ ( 45 ) $ ( 1 ) $ ( 3 ) $ ( 4 ) $ 2
Six Months Ended:
Net gains (losses) on foreign currency denominated assets and liabilities $ 160 $ ( 145 ) $ ( 20 ) $ ( 12 ) $ ( 109 ) $ 45
Net gains (losses) on foreign exchange risk management contracts not designated as hedges ( 260 ) 70 19 10 87 ( 43 )
Net gains (losses) $ ( 100 ) $ ( 75 ) $ ( 1 ) $ ( 2 ) $ ( 22 ) $ 2
Commodity Price Risk Management
The Company is subject to the volatility of commodities prices and the Company designates certain commodity forward contracts as cash flow hedges of forecasted commodity purchases. Mark-to-market gains and losses on these contracts are deferred in AOCI and are recognized in earnings when the hedged transactions occur, offsetting changes in the value of commodity purchases. The notional amount of these commodities contracts at April 1, 2023 and October 1, 2022 and related gains or losses recognized in earnings for the quarters and six-month periods ended April 1, 2023 and April 2, 2022 were not material.
27
THE WALT DISNEY COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited; tabular dollars in millions, except for per share data)
Risk Management – Other Derivatives Not Designated as Hedges
The Company enters into certain other risk management contracts that are not designated as hedges and do not qualify for hedge accounting. These contracts, which include certain total return swap contracts, are intended to offset economic exposures of the Company and are carried at market value with any changes in value recorded in earnings. The notional amounts of these contracts at both April 1, 2023 and October 1, 2022 were $ 0.4 billion. The related gains or losses recognized in earnings were not material for the quarters and six-month periods ended April 1, 2023 and April 2, 2022.
Contingent Features and Cash Collateral
The Company has master netting arrangements by counterparty with respect to certain derivative financial instrument contracts. The Company may be required to post collateral in the event that a net liability position with a counterparty exceeds limits defined by contract and that vary with the Company’s credit rating. In addition, these contracts may require a counterparty to post collateral to the Company in the event that a net receivable position with a counterparty exceeds limits defined by contract and that vary with the counterparty’s credit rating. If the Company’s or the counterparty’s credit ratings were to fall below investment grade, such counterparties or the Company would also have the right to terminate our derivative contracts, which could lead to a net payment to or from the Company for the aggregate net value by counterparty of our derivative contracts. The aggregate fair values of derivative instruments with credit-risk-related contingent features in a net liability position by counterparty were $ 1.5 billion at both April 1, 2023 and October 1, 2022.
16. Restructuring and Impairment Charges
The quarter ended April 1, 2023 included charges of $ 152 million primarily for severance costs. The six months ended April 1, 2023 included charges of $ 221 million primarily for severance costs and costs related to exiting our businesses in Russia. The quarter and six months ended April 2, 2022 included charges of $ 195 million due to the impairment of an intangible asset related to the Disney Channel in Russia. These charges are recorded in “Restructuring and impairment charges” in the Condensed Consolidated Statements of Income.
17. New Accounting Pronouncements
Accounting Pronouncements Not Yet Adopted
Disclosures by Business Entities about Government Assistance
In November 2021, the FASB issued guidance requiring annual disclosures about transactions with a government that are accounted for by analogizing to a grant or contribution accounting model, including: the nature of the transactions, the accounting for the transactions, and the effect of the transactions on the financial statements. The guidance is effective for annual periods beginning with the Company’s 2023 fiscal year. While the guidance will not have an effect on the Company’s Consolidated Statements of Operations or Consolidated Balance Sheets upon adoption in the fourth quarter of fiscal 2023, the Company may need to provide disclosures related to content production incentives, which are the most significant type of government assistance we receive.
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MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Text extracted from the filing as submitted to EDGAR. Formatting, tables and exhibits are simplified for reading; the original document is authoritative for anything you rely on.