What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2023-08-09 compared with 2023-05-10 · 415 added, 428 removed, 822 unchanged (51% of the section changed)

5 unchanged sentences

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

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.

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

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.

We will report under the new structure commencing with our annual fiscal 2023 reporting, 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 (including the Content Impairment Charge discussed in Note 16 to the Condensed Consolidated Financial Statements) and may result in additional charges.

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

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

• Seasonality

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Quarter Ended % Change

(Worse) Six Months Ended % Change

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

2023 April 2,

2022 April 1,

2023 April 2,

(Worse) Nine Months Ended % Change

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

Services $ 20,008 $ 19,461 3 % $ 60,591 $ 56,215 8 %

8 unchanged sentences

Restructuring and impairment charges ( 2,650 ) ( 42 ) >(100) % ( 2,871 ) ( 237 ) >(100) %

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

Other income (expense), net ( 11 ) ( 136 ) 92 % 96 ( 730 ) nm

Interest expense, net ( 305 ) ( 360 ) 15 % ( 927 ) ( 1,026 ) 10 %

Equity in the income of investees 191 225 (15) % 555 674 (18) %

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

Income (loss) from continuing operations before income taxes (134) 2,119 nm 3,762 4,909 (23) %

Income taxes on continuing operations ( 19 ) ( 617 ) 97 % ( 1,066 ) ( 1,610 ) 34 %

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

Net income (loss) from continuing operations (153) 1,502 nm 2,696 3,299 (18) %

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

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

Net income (loss) (153) 1,502 nm 2,696 3,251 (17) %

Net income from continuing operations attributable to noncontrolling interests ( 307 ) ( 93 ) >(100) % ( 606 ) ( 268 ) >(100) %

Net income attributable to Disney $ 1,271 $ 470 >100 % $ 2,550 $ 1,574 62 %

Diluted earnings per share from continuing operations attributable to Disney $ 0.69 $ 0.26 >100 % $ 1.39 $ 0.89 56 %

Net income (loss) attributable to Disney $ (460) $ 1,409 nm $ 2,090 $ 2,983 (30) %

Diluted earnings per share from continuing operations attributable to Disney $ ( 0.25 ) $ 0.77 nm $ 1.14 $ 1.66 (31) %

CURRENT QUARTER RESULTS COMPARED TO PRIOR-YEAR QUARTER

Revenues for the quarter increased 4%, or $0.8 billion, to $22.3 billion;

net income attributable to Disney increased to $1.3 billion from $0.5 billion;

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 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.

net income (loss) attributable to Disney was a loss of $0.5 billion in the current quarter compared to income of $1.4 billion in the prior-year quarter;

and diluted earnings per share from continuing operations attributable to Disney (EPS) was a loss of $0.25 in the current quarter compared to income of $0.77 in the prior-year quarter.

The EPS decrease was due to the Content Impairment Charge in the current quarter.

Service revenues for the quarter increased 3%, or $0.5 billion, to $20.0 billion due to higher DTC subscription revenue, increased revenues at our theme parks and resorts, and, to a lesser extent, an increase in theatrical distribution revenue.

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

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

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

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

Service revenues reflected an approximate 1 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 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 for the quarter increased 14%, or $0.3 billion, to $2.3 billion due to higher sales volumes of merchandise, food and beverage at our theme parks and resorts.

Product revenues reflected an approximate 1 percentage point decrease due to an unfavorable Foreign Exchange Impact.

Costs and expenses

Cost of services for the quarter increased 5%, or $0.6 billion, to $13.0 billion due to cost inflation and increased volumes at our theme parks and higher programming and production costs.

The increase in programming and production costs was due

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, increased sports programming costs at Linear Networks and increased production cost amortization resulting from higher theatrical revenue.

to higher costs at Direct-to-Consumer and increased production cost amortization resulting from higher theatrical revenue.

These increases were partially offset by a decrease in production cost amortization due to lower TV/SVOD distribution sales.

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

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 decreased 4% to $3.6 billion reflecting an approximate 3 percentage point decrease due to a favorable Foreign Exchange Impact.

Cost of products for the quarter increased 17%, or $0.2 billion, to $1.5 billion due to higher sales volumes of merchandise, food and beverage and cost inflation at our theme parks and resorts.

Selling, general, administrative and other costs decreased 6% to $3.9 billion driven by lower compensation-related costs.

Depreciation and amortization increased 4% 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 $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.

In the current quarter, the Company recorded charges of $2,650 million due to the Content Impairment Charge and severance.

In the prior-year quarter, the Company recorded charges of $42 million primarily due to asset impairments related to exiting our businesses 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.

Other expense, net in the current quarter includes a charge of $101 million related to a legal ruling, largely offset by a DraftKings gain of $90 million.

Other expense in the prior-year quarter includes a DraftKings loss of $136 million.

Interest expense, net

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Quarter Ended

(in millions) April 1,

2023 April 2,

(in millions) July 1,

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, higher interest income on cash balances, and investment gains in the current quarter compared to investment losses in the prior-year quarter.

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

Equity in the Income of Investees

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Quarter Ended

2023 April 2,

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

Income (loss) from continuing operations before income taxes $ (134) $ 2,119

Income tax on continuing operations 19 617

Effective income tax rate - continuing operations (14.2)% 29.1%

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.

The current quarter loss from continuing operations before income taxes included the $2,440 million Content Impairment Charge.

Income tax on continuing operations included a benefit of $568 million from this charge using the Company’s marginal income tax rate of approximately 23%.

Due to the significance of this charge on pre-tax income, our reported effective tax rate for the current quarter is negative 14.2%.

Excluding the impact of this charge, the effective income tax rate on continuing operations would have been approximately 25.5% compared to 29.1% in the prior-year quarter.

The decrease was due to the following:

• Lower effective tax rates on foreign earnings in the current quarter compared to the prior-year quarter;

• A benefit from the comparison of adjustments related to prior years, which was favorable in the current quarter and unfavorable in the prior-year quarter.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

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Quarter Ended

(in millions) April 1,

2023 April 2,

(in millions) July 1,

2022 % Change

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Net income from continuing operations attributable to noncontrolling interests $ (307) $ (93) >(100) %

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.

The increase in net income from continuing operations attributable to noncontrolling interests was due to improved results at Shanghai Disney Resort and, to a lesser extent, at Hong Kong Disneyland Resort.

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

Certain Items Impacting Results in the Quarter

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

• TFCF and Hulu acquisition amortization of $558 million

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

• Restructuring and impairment charges of $2,650 million

• 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 $432 million

• Other expense, net of $11 million reflects a charge of $101 million related to a legal ruling, partially offset by a DraftKings gain of $90 million

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

• TFCF and Hulu acquisition amortization of $585 million

• Other expense of $136 million reflecting a DraftKings loss

• Impairment charges of $42 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 April 1, 2023:

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

Quarter Ended July 1, 2023:

Restructuring and impairment charges $ (2,650) $ 617 $ (2,033) $ (1.10)

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

TFCF and Hulu acquisition amortization (432) 101 (331) (0.18)

Other expense, net (11) 5 (6) —

Total $ (3,093) $ 723 $ (2,370) $ (1.28)

Quarter Ended April 2, 2022:

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

Quarter Ended July 2, 2022:

TFCF and Hulu acquisition amortization $ (585) $ 136 $ (449) $ (0.24)

Other expense (136) 32 (104) (0.06)

Restructuring and impairment charges (42) 10 (32) (0.02)

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

Total $ (763) $ 178 $ (585) $ (0.32)

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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

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

Revenues for the current period increased $5.1 billion, to $67.7 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.

net income attributable to Disney decreased $0.9 billion, to $2.1 billion;

and EPS decreased to $1.14 from $1.66 in the prior-year period.

The EPS decrease was due to the Content Impairment Charge and lower operating income at DMED.

These decreases were partially offset by higher operating income at DPEP, the comparison to a revenue reduction for the Content License Early Termination in the prior-year period and investment gains in the current period compared to investment losses in the prior-year period.

Service revenues for the current period increased 8%, or $4.4 billion, to $60.6 billion, due to growth at our theme parks and resorts, higher DTC subscription revenue, an increase in theatrical distribution revenue and the comparison to the revenue reduction for the Content License Early Termination in the prior-year period.

These increases were partially offset by decreases

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.

in advertising revenue, TV/SVOD distribution sales and, to a lesser extent, affiliate revenue.

Growth at theme parks and resorts was due to higher volumes and guest spending.

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

Service revenues reflected an approximate 1 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 for the current period increased 11%, or $0.7 billion, to $7.1 billion, due to higher volumes of merchandise, food and beverage at our theme parks and resorts, partially offset by lower home entertainment 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.

Cost of services for the current period increased 11%, or $4.0 billion, to $40.9 billion, due to higher programming and production costs, cost inflation and increased volumes at our theme parks and resorts and, to a lesser extent, higher technology and distribution costs at Direct-to-Consumer.

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

These increases were partially offset by a decrease in production cost amortization due to lower TV/SVOD distribution sales.

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.

Cost of products for the current period increased 15%, or $0.6 billion, to $4.6 billion, due to higher volumes of merchandise, food and beverage and cost inflation 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.

Selling, general, administrative and other costs for the current period decreased 3%, or $0.3 billion, to $11.3 billion due to lower marketing costs at Direct-to-Consumer, partially offset by higher marketing costs at theatrical distribution, Parks and Experiences and Linear Networks.

Selling, general, administrative and other costs reflected an approximate 1 percentage point decrease due to a favorable Foreign Exchange Impact.

Depreciation and amortization increased 3% to $4.0 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.

In the current period, the Company recorded charges of $2,871 million due to the Content Impairment Charge, severance and costs related to exiting our businesses in Russia.

In the prior-year period, the Company recorded charges of $237 million primarily due to the impairment of an intangible and other assets related to exiting our businesses 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.

Other income, net in the current period includes a DraftKings gain of $169 million and a $28 million gain on the sale of a business, partially offset by a charge of $101 million related to a legal ruling.

Other expense, net in the prior-year period includes a DraftKings loss of $726 million.

Interest expense, net

Interest expense, net is as follows:

Six Months Ended

(in millions) April 1,

2023 April 2,

Nine Months Ended

(in millions) July 1,

2022 % Change

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Effective Income Tax Rate

Six Months Ended

2023 April 2,

Nine Months Ended

Income from continuing operations before income taxes $ 3,762 $ 4,909

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Effective income tax rate - continuing operations 28.3% 32.8%

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.

The decrease in the effective income tax rate was due to the following:

• The benefit from the comparison of adjustments related to prior years, which was favorable in the current period and unfavorable in the prior-year period;

• Lower effective tax rates on foreign earnings in the current period compared to the prior-year period;

• A favorable comparison to new tax regulations issued in the prior year that limited our ability to use certain accumulated foreign tax credits;

• An unfavorable impact in the current period compared to a favorable impact in the prior-year period for the tax effect of employee share-based awards.

Noncontrolling Interests

Six Months Ended

(in millions) April 1,

2023 April 2,

Nine Months Ended

(in millions) July 1,

2022 % Change

1 unchanged sentence

Net income from continuing operations attributable to noncontrolling interests $ (606) $ (268) >(100) %

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

The increase in net income from continuing operations attributable to noncontrolling interests was due to improved results at Shanghai Disney Resort, higher accretion of income related to BAMTech due to the MLB buy-out and lower losses at Hong Kong Disneyland Resort and at our domestic DTC sports business.

These increases were partially offset by lower results at ESPN.

Certain Items Impacting Results in the Nine-Month Period

Results for the nine months ended July 1, 2023 were impacted by the following:

• Restructuring and impairment charges of $2,871 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 $1,569 million

• Other income, net of $96 million reflecting a DraftKings gain of $169 million and a gain on the sale of a business of $28 million, partially offset by a charge of $101 million related to a legal ruling

Results for the nine months ended July 2, 2022 were impacted by the following:

• TFCF and Hulu acquisition amortization of $1,774 million

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

• Other expense, net of $730 million reflecting a DraftKings loss

• Impairment charges of $237 million

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

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

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(Adverse) (2)

Six Months Ended April 1, 2023:

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

Nine Months Ended July 1, 2023:

Restructuring and impairment charges $ (2,871) $ 660 $ (2,211) $ (1.20)

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

TFCF and Hulu acquisition amortization (1,569) 365 (1,204) (0.65)

Other income, net 96 (13) 83 0.05

Total $ (4,344) $ 1,012 $ (3,332) $ (1.80)

Six Months Ended April 2, 2022:

Nine Months Ended July 2, 2022:

TFCF and Hulu acquisition amortization $ (1,774) $ 413 $ (1,361) $ (0.73)

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

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

Other expense, net (730) 170 (560) (0.31)

Restructuring and impairment charges (237) 55 (182) (0.10)

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

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.

Consequently, the operating results for the nine months ended July 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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Quarter Ended % Change

(Worse) Six Months Ended % Change

(in millions) April 1,

2023 April 2,

2022 April 1,

2023 April 2,

(Worse) Nine Months Ended % Change

(in millions) July 1,

Disney Media and Entertainment Distribution $ 14,004 $ 14,110 (1) % $ 42,819 $ 42,315 1 %

Disney Parks, Experiences and Products 8,326 7,394 13 % 24,838 21,280 17 %

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

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

Revenues $ 22,330 $ 21,504 4 % $ 67,657 $ 62,572 8 %

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

The following table presents income from our operating segments and other components of income (loss) 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,

(Worse) Nine Months Ended % Change

(in millions) July 1,

Disney Media and Entertainment Distribution operating income $ 1,134 $ 1,381 (18) % $ 2,243 $ 4,133 (46) %

Disney Parks, Experiences and Products operating income 2,425 2,186 11 % 7,644 6,391 20 %

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

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

Corporate and unallocated shared expenses (295) (325) 9 % (854) (825) (4) %

Restructuring and impairment charges (2,650) (42) >(100) % (2,871) (237) >(100) %

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

Other income (expense), net (11) (136) 92 % 96 (730) nm

Interest expense, net (305) (360) 15 % (927) (1,026) 10 %

TFCF and Hulu acquisition amortization (432) (585) 26 % (1,569) (1,774) 12 %

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

Income (loss) from continuing operations before income taxes $ (134) $ 2,119 nm $ 3,762 $ 4,909 (23) %

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

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Quarter Ended % Change

(Worse) Six Months Ended % Change

(in millions) April 1,

2023 April 2,

2022 April 1,

2023 April 2,

(Worse) Nine Months Ended % Change

(in millions) July 1,

Disney Media and Entertainment Distribution $ 199 $ 163 (22) % $ 532 $ 485 (10) %

7 unchanged sentences

Quarter Ended % Change

(Worse) Six Months Ended % Change

(in millions) April 1,

2023 April 2,

2022 April 1,

2023 April 2,

(Worse) Nine Months Ended % Change

(in millions) July 1,

Disney Media and Entertainment Distribution $ 9 $ 36 75 % $ 73 $ 115 37 %

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Quarter Ended % Change

(in millions) April 1,

2023 April 2,

(in millions) July 1,

Linear Networks $ 6,690 $ 7,189 (7) %

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Direct-to-Consumer (512) (1,061) 52 %

Content Sales/Licensing and Other (50) 16 nm

Content Sales/Licensing and Other (243) (27) >(100) %

$ 1,134 $ 1,381 (18) %

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Quarter Ended % Change

(in millions) April 1,

2023 April 2,

(in millions) July 1,

Affiliate fees $ 4,466 $ 4,585 (3) %

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Quarter Ended % Change

(in millions) April 1,

2023 April 2,

(in millions) July 1,

Domestic Channels $ 3,817 $ 3,884 (2) %

2 unchanged sentences

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 4% 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.

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, including the impact of channel closures, partially offset by an increase of 9% from higher contractual rates.

Advertising revenue is as follows:

Quarter Ended % Change

(in millions) April 1,

2023 April 2,

(in millions) July 1,

Cable $ 1,034 $ 1,027 1 %

3 unchanged sentences

$ 2,124 $ 2,470 (14) %

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.

Cable advertising revenue reflected a modest increase as higher impressions and rates at ESPN were largely offset by lower impressions at our non-sports channels.

Lower Broadcasting advertising revenue was due to decreases of 9% from fewer impressions at ABC, resulting from lower average viewership, and 7% from lower rates at the owned television stations.

The decline in International Channels advertising revenue was due to decreases of 29% from lower rates attributable to Indian Premier League (IPL) cricket programming and 6% from an unfavorable Foreign Exchange Impact, partially offset by an increase of 4% from higher impressions.

Other revenue decreased $34 million, to $100 million from $134 million, driven by the comparison to sub-licensing fees from IPL cricket matches in 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

1 unchanged sentence

Quarter Ended % Change

(in millions) April 1,

2023 April 2,

(in millions) July 1,

Cable $ (2,146) $ (2,066) (4) %

3 unchanged sentences

$ (3,684) $ (3,680) — %

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.

Programming and production costs at Cable increased due to higher sports programming and production costs attributable to contractual rate increases for NBA programming and new motor sports programming.

Programming and production costs at the International Channels decreased due to a favorable Foreign Exchange Impact.

Selling, general administrative and other costs increased $93 million, to $916 million from $823 million, driven by higher marketing costs.

Equity in the Income of Investees

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.

Income from equity investees decreased $32 million, to $196 million from $228 million, primarily due to lower income from A+E Television Networks driven by a decrease in advertising revenue.

Operating Income from Linear Networks

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)

Operating income from Linear Networks decreased $580 million, to $1,889 million from $2,469 million, due to decreases at the International Channels, Broadcasting and Cable.

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

Quarter Ended % Change

(in millions) April 1,

2023 April 2,

(in millions) July 1,

Supplemental revenue detail

4 unchanged sentences

Domestic Channels $ 1,780 $ 2,075 (14) %

International Channels 85 245 (65) %

International Channels (87) 166 nm

Equity in the income of investees 196 228 (14) %

$ 1,889 $ 2,469 (23) %

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS — (continued)

Direct-to-Consumer

1 unchanged sentence

Quarter Ended % Change

(in millions) April 1,

2023 April 2,

(in millions) July 1,

Subscription fees $ 4,537 $ 3,889 17 %

6 unchanged sentences

Operating Loss $ (512) $ (1,061) 52 %

Growth in subscription fees reflected increases of 13% from higher subscribers and 8% from higher rates, partially offset by a decrease of 2% from an unfavorable Foreign Exchange Impact.

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, 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)

Growth in subscription fees reflected an increase of 10% from more subscribers due to growth at Disney+ Core and, to a lesser extent, Hulu and ESPN+.

Higher subscription fees also reflected growth of 9% from higher rates, attributable to increases in retail pricing at Disney+ Core, Hulu and, to a lesser extent, at ESPN+.

These increases were partially offset by a decrease of 2% from an unfavorable Foreign Exchange Impact.

Lower advertising revenue reflected a decrease of 13% from fewer impressions due to declines at Disney+ and Hulu.

The decrease at Disney+ was attributable to the comparison to IPL cricket programming in the prior-year quarter, as we did not renew the digital rights beginning with the 2023 season.

This decrease was partially offset by the U.S.

launch of ad-supported Disney+ in the first quarter of the current fiscal year.

The decrease in TV/SVOD distribution and other revenue was attributable to lower Ultimate Fighting Championship (UFC) pay-per-view fees due to a decrease in average buys per event and the impact of airing one less event in the current quarter compared to the prior-year quarter.

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

1 unchanged sentence

% Change Better (Worse)

(in millions) April 1,

2023 December 31,

(in millions) July 1,

2023 April 1,

31, 2022 Apr.

2022 July 1, 2023 vs.

April 1, 2023 July 1, 2023 vs.

Domestic (U.S.

5 unchanged sentences

Disney+ Hotstar 40.4 52.9 58.4 (24) % (31) %

Total Disney+ (4)

157.8 161.8 137.7 (2) % 15 %

ESPN+ 25.2 25.3 22.8 — % 11 %

3 unchanged sentences

48.3 48.2 46.2 — % 5 %

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS — (continued)

Average Monthly Revenue Per Paid Subscriber (5) :

Quarter Ended % Change Better (Worse)

2023 December 31,

2023 April 1,

31, 2022 Apr.

2022 July 1, 2023 vs.

April 1, 2023 July 1, 2023 vs.

Domestic (U.S.

4 unchanged sentences

Disney+ Hotstar 0.59 0.59 1.20 — % (51) %

Global Disney+ 4.44 3.93 4.35 13 % 2 %

ESPN+ 5.45 5.64 4.55 (3) % 20 %

12 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

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS — (continued)

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 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,

(in millions) July 1,

2023 April 1,

1 unchanged sentence

and Canada) standalone 55.6 57.0 60.6

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

Domestic (U.S.

and Canada) multi-product (a)

21.9 21.4 17.8

77.5 78.4 78.4

International standalone 102.5 107.0 89.3

International multi-product (b)

International standalone (excluding Disney+ Hotstar) (b)

49.8 49.6 43.6

International multi-product (c)

59.7 58.6 49.2

(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.

137.2 137.0 127.6

(a) At July 1, 2023, there were 20.1 million and 1.8 million subscribers to three-service and two-service multi-product offerings, respectively.

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

(b) Consists of subscribers to Combo+.

At July 2, 2022, there were 17.3 million and 0.5 million subscribers to three-service and two-service multi-product offerings, respectively.

(b) Disney+ Hotstar is not included in any of the Company’s multi-product offerings.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS — (continued)

(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.

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.

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

Domestic Disney+ average monthly revenue per paid subscriber increased from $7.14 to $7.31 due to higher per-subscriber advertising revenue.

International Disney+ (excluding Disney+ Hotstar) average monthly revenue per paid subscriber increased from $5.93 to $6.01 due to an increase in average retail pricing and a favorable Foreign Exchange Impact, partially offset by a higher mix of wholesale subscribers.

ESPN+ average monthly revenue per paid subscriber decreased from $5.64 to $5.45 due to lower per-subscriber advertising revenue and a higher mix of subscribers to multi-product offerings.

Hulu SVOD Only average monthly revenue per paid subscriber increased from $11.73 to $12.39 due to higher per-subscriber advertising revenue.

Hulu Live TV + SVOD average monthly revenue per paid subscriber decreased from $92.32 to $91.80.

The decrease included lower per-subscriber subscription revenue due to a mix shift of subscribers between bundled services.

The decrease was partially offset by higher per-subscriber advertising revenue.

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

Domestic Disney+ average monthly revenue per paid subscriber increased from $6.27 to $7.31 due to an increase in average retail pricing and advertising revenue from the launch of ad-supported Disney+, 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 $6.31 to $6.01 due to an unfavorable Foreign Exchange Impact and a decrease in average retail pricing, partially offset by a lower mix of wholesale subscribers.

The decrease in average retail pricing reflected the impact of a higher mix of subscribers from lower-priced markets.

Disney+ Hotstar average monthly revenue per paid subscriber decreased from $1.20 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.

ESPN+ average monthly revenue per paid subscriber increased from $4.55 to $5.45 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 $12.92 to $12.39 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.

Hulu Live TV + SVOD average monthly revenue per paid subscriber increased from $87.92 to $91.80 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)

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) April 1,

2023 April 2,

(in millions) July 1,

Programming and production costs

5 unchanged sentences

$ (4,898) $ (4,536) (8) %

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.

The increase in programming and production costs at Disney+ was due to higher costs for non-sports content, partially offset by a decrease in sports programming costs reflecting the comparison to IPL cricket programming in the prior-year quarter.

Higher costs for non-sports content were 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, partially offset by a lower average cost mix of SVOD content.

Higher subscriber-based fees for programming the Live TV service resulted from more subscribers and rate increases.

The decrease in programming and production costs at ESPN+ and other was driven by lower costs for UFC programming due to one less event in the current quarter compared to the prior-year quarter.

Selling, general, administrative and other costs decreased $435 million, to $1,059 million from $1,494 million, primarily due to a decrease in marketing and compensation-related costs at Disney+ and Hulu.

Operating Loss from Direct-to-Consumer

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

FINANCIAL CONDITION AND RESULTS OF OPERATIONS — (continued)

The operating loss from Direct-to-Consumer decreased $549 million, to $512 million from $1,061 million, due to a lower loss at Disney+, higher operating income at Hulu and a lower loss at ESPN+.

Content Sales/Licensing and Other

1 unchanged sentence

Quarter Ended % Change

(in millions) April 1,

2023 April 2,

(in millions) July 1,

TV/SVOD distribution $ 605 $ 937 (35) %

7 unchanged sentences

Equity in the income (loss) of investees (2) 2 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.

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.

Operating Loss $ (243) $ (27) >(100) %

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

The increase in theatrical distribution revenue was due to the release of more significant titles in the current quarter compared to the prior-year quarter.

The current quarter included Guardians of the Galaxy Vol.

3 , The Little Mermaid, Elemental

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS — (continued)

and Indiana Jones and the Dial of Destiny , which was released in most territories in the last few days of June.

The prior-year quarter included Doctor Strange In the Multiverse of Madness and Lightyear .

The increase in home entertainment revenue was due to higher unit sales of new release titles driven by the performance of Avatar:

The Way of Water .

Other new releases in the current quarter included Ant-Man and the Wasp:

Quantumania , whereas the prior-year quarter included Turning Red , Encanto and Death on the Nile .

Costs and Expenses

1 unchanged sentence

Quarter Ended % Change

(in millions) April 1,

2023 April 2,

(in millions) July 1,

Programming and production costs $ (1,135) $ (1,123) (1) %

1 unchanged sentence

$ (1,467) $ (1,414) (4) %

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

FINANCIAL CONDITION AND RESULTS OF OPERATIONS — (continued)

Programming and production costs were comparable to the prior-year quarter as higher production cost amortization from more theatrical releases and higher home entertainment distribution revenue was largely offset by a decrease due to lower TV/SVOD distribution sales.

The increase in cost of goods sold and distribution costs was driven by increased theatrical distribution costs and higher home entertainment volumes.

Selling, general, administrative and other costs increased $107 million, to $757 million from $650 million, due to higher theatrical marketing costs driven by more titles released in the current quarter compared to the prior-year quarter.

Depreciation and amortization increased $23 million, to $99 million from $76 million, primarily due to asset write-offs in the current quarter and increased investment in technology assets.

Operating Loss from Content Sales/Licensing and Other

Operating loss from Content Sales/Licensing and Other increased $216 million to $243 million from $27 million due to lower TV/SVOD and theatrical distribution results.

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

1 unchanged sentence

Quarter Ended % Change

(in millions) April 1,

2023 April 2,

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

TFCF and Hulu acquisition amortization (1)

(556) (592) 6 %

(in millions) July 1,

Restructuring and impairment charges (1)

$ (2,619) $ (34) >(100) %

TFCF and Hulu acquisition amortization (2)

(430) (583) 26 %

(1) Charges for the current period were due to the Content Impairment Charge and, to a lesser extent, severance.

Charges for the prior-year quarter were primarily due to asset impairments related to exiting our businesses in Russia.

(2) In the current quarter, amortization of intangible assets was $359 million and amortization of step-up on film and television costs was $68 million.

In the prior-year quarter, amortization of intangible assets was $420 million and amortization of step-up on film and television costs was $160 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.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS — (continued)

Disney Parks, Experiences and Products

1 unchanged sentence

Quarter Ended % Change

(in millions) April 1,

2023 April 2,

(in millions) July 1,

Theme park admissions $ 2,731 $ 2,312 18 %

10 unchanged sentences

Higher theme park admissions revenue was due to increases of 13% from attendance growth and 5% from higher average per capita ticket revenue.

Attendance growth reflected increases at Shanghai Disney Resort and, to a lesser extent, Disneyland Resort, partially offset by a decrease at Walt Disney World Resort.

Parks & Experiences merchandise, food and beverage revenue growth reflected increases of 11% from higher volumes and 3% from higher average guest spending.

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.

Volume growth reflected increases at Shanghai Disney Resort and, to a lesser extent, Disneyland Resort and Hong Kong Disneyland Resort, partially offset by a decrease at Walt Disney World Resort.

Higher resorts and vacations revenue was due to an increase of 13% from additional passenger cruise days, partially offset by a decrease of 3% from lower unit sales at Disney Vacation Club.

Occupied room nights were comparable to the prior-year quarter as increases at Shanghai Disney Resort and Hong Kong Disneyland Resort, were largely offset by a decrease at Walt Disney World Resort.

Merchandise licensing and retail revenue was lower primarily due to a decrease of 2% from merchandise licensing primarily attributable to a decrease in sales of merchandise based on Star Wars, Toy Story and Avengers, partially offset by higher minimum guarantee shortfall recognition and an increase in sales of merchandise based on Disney Princess and Spider-Man.

The increase in parks licensing and other revenue was primarily due to increases in sponsorship revenue and royalties from Tokyo Disney Resort.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

23 unchanged sentences

(6) Per room guest spending is used to analyze guest spending at our hotels and is defined as total revenue from room rentals and sales of food, beverage and merchandise at our hotels, divided by total occupied hotel room nights.

In the current quarter, the Company revised its method of allocating revenue on the sales of Disneyland Paris vacation packages between hotel room revenue and admissions revenue.

The new method resulted in a decrease in the percentage of revenue allocated to hotel rooms.

If we had applied the new method in the prior-year quarter, the impact would have been a decrease of approximately $20 million in the prior-year quarter.

Costs and Expenses

1 unchanged sentence

Quarter Ended % Change

(in millions) April 1,

2023 April 2,

(in millions) July 1,

Operating labor $ (1,938) $ (1,693) (14) %

3 unchanged sentences

$ (4,279) $ (3,729) (15) %

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.

Higher operating labor was primarily attributable to inflation and higher volumes.

The increases in cost of goods sold and distribution costs and infrastructure costs reflected volume growth.

Other operating expense increased due to higher volumes and inflation.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS — (continued)

Selling, general, administrative and other costs increased $45 million, to $900 million from $855 million, primarily due to higher marketing expense.

Depreciation and amortization increased $100 million, to $722 million from $622 million, due to accelerated depreciation related to the planned closure of Star Wars:

Galactic Starcruiser.

Segment Operating Income

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:

Segment operating income increased from $2.2 billion to $2.4 billion due to growth at our international parks and resorts, partially offset by decreases at our domestic parks and experiences and, to a lesser extent, our consumer products business.

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

Quarter Ended % Change

(in millions) April 1,

2023 April 2,

(in millions) July 1,

Supplemental revenue detail

4 unchanged sentences

$ 8,326 $ 7,394 13 %

Supplemental operating income detail

Supplemental operating income (loss) detail

Parks & Experiences

3 unchanged sentences

$ 2,425 $ 2,186 11 %

Items Excluded from Segment Operating Income Related to Disney Parks, Experiences and Products

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

Quarter Ended % Change

(in millions) July 1,

Charge related to a legal ruling $ (101) $ — nm

Restructuring and impairment charges (1)

TFCF and Hulu acquisition amortization (2) (2) — %

(1) Charges for the current period were due to severance at our consumer products and parks and resorts businesses.

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

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

Nine Months Ended % Change

(in millions) July 1,

Linear Networks $ 20,608 $ 22,011 (6) %

12 unchanged sentences

Operating results for Linear Networks are as follows:

Six Months Ended % Change

(in millions) April 1,

2023 April 2,

Nine Months Ended % Change

(in millions) July 1,

Affiliate fees $ 13,683 $ 14,067 (3) %

8 unchanged sentences

Affiliate revenue is as follows:

Six Months Ended % Change

(in millions) April 1,

2023 April 2,

Nine Months Ended % Change

(in millions) July 1,

Domestic Channels $ 11,746 $ 11,869 (1) %

4 unchanged sentences

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.

The decrease in affiliate revenue at the International Channels was due to decreases of 10% from an unfavorable Foreign Exchange Impact and 7% from fewer subscribers, driven by channel closures.

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

Advertising revenue is as follows:

Six Months Ended % Change

(in millions) April 1,

2023 April 2,

Nine Months Ended % Change

(in millions) July 1,

Cable $ 3,052 $ 3,153 (3) %

3 unchanged sentences

$ 6,390 $ 7,392 (14) %

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.

Lower advertising revenue at Cable was driven by a decrease of 1% from fewer impressions as lower viewership at our non-sports channels was partially offset by higher viewership at ESPN.

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

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

The decrease in International Channels advertising revenue was due to decreases of 18% from lower rates, 8% from fewer impressions attributable to lower average viewership, and 7% 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.

Fewer IPL matches aired in the current period compared to the prior-year period as matches from the 2021 season shifted into fiscal 2022 due to COVID-19.

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,

Nine Months Ended % Change

(in millions) July 1,

Cable $ (7,733) $ (7,423) (4) %

3 unchanged sentences

$ (12,270) $ (12,163) (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.

The increase in programming and production costs at Cable was due to higher sports programming costs attributable to contractual rate increases for NBA, College Football Playoffs and NFL programming, higher sports production costs, new motor sports programming 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.

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

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.

The increase in programming and production costs at Broadcasting was due to a higher cost mix of programming at ABC.

The decrease in programming and production costs at the International Channels was due to a favorable Foreign Exchange Impact, and to a lesser extent, lower sports programming costs and the impact of channel closures.

The decrease in sports programming costs was due to lower costs for cricket programming driven by fewer IPL matches in the current period compared to the prior-year period, partially offset by higher soccer rights costs and increased production spending.

Selling, general administrative and other costs increased $184 million, to $2,664 million from $2,480 million, primarily due to higher overhead and marketing costs, partially offset by a favorable Foreign Exchange Impact and a gain on the sale of an interest in our X Games business.

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 $29 million, to $79 million from $108 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.

Income from equity investees decreased $124 million, to $567 million from $691 million, due to lower income from A+E Television Networks primarily due to a decrease in advertising revenue.

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.

Operating income from Linear Networks decreased $1,811 million, to $4,972 million from $6,783 million, due to decreases at the International Channels, Cable and 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,

Nine Months Ended % Change

(in millions) July 1,

Supplemental revenue detail

9 unchanged sentences

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

Six Months Ended % Change

(in millions) April 1,

2023 April 2,

Nine Months Ended % Change

(in millions) July 1,

Subscription fees $ 13,382 $ 11,374 18 %

6 unchanged sentences

Operating Loss $ (2,224) $ (2,541) 12 %

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

Growth in subscription fees reflected an increase of 13% from more subscribers due to growth at Disney+ Core and, to a lesser extent, Hulu and ESPN+.

Higher subscription fees also reflected growth of 7% from higher rates, attributable to increases in retail pricing at Hulu, Disney+ Core and ESPN+.

These increases were partially offset by a decrease of 2% from an unfavorable Foreign Exchange Impact.

Lower advertising revenue reflected a decrease of 13% from fewer impressions due to declines at Hulu and Disney+, partially offset by growth of 3% from higher rates due to an increase at Hulu.

The decrease in impressions at Disney+ was due to the comparison to IPL cricket programming in the prior-year period, as we did not renew the digital rights beginning with the 2023 season.

This decrease was partially offset by the U.S.

launch of ad-supported Disney+ in the first quarter of the current fiscal year.

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 increase in TV/SVOD distribution and other revenue was due to a favorable Foreign Exchange Impact and higher recognition of minimum guarantee shortfalls from wholesale distributors, partially offset by lower UFC pay-per-view fees.

The decrease in UFC pay-per-view fees was attributable to a decrease in average buys per event, partially offset by the impact of airing one more event in the current period compared to the prior-year period and higher pricing.

The following table presents Average Monthly Revenue Per Paid Subscriber:

Six Months Ended % Change

2023 April 2,

Nine Months Ended % Change

Domestic (U.S.

1 unchanged sentence

International (excluding Disney+ Hotstar) 5.82 6.22 (6) %

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

Disney+ Core 6.26 6.32 (1) %

Disney+ Hotstar 0.65 1.01 (36) %

Global Disney+ 4.19 4.38 (4) %

ESPN+ 5.54 4.79 16 %

1 unchanged sentence

Live TV + SVOD 90.66 87.90 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.

Domestic Disney+ average monthly revenue per paid subscriber increased from $6.42 to $6.80 due to increases in average retail pricing and per-subscriber advertising revenue, 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 $6.22 to $5.82 due to an unfavorable Foreign Exchange Impact and a decrease in average retail pricing, partially offset by a lower mix of wholesale subscribers.

The decrease in average retail pricing reflected the impact of a higher mix of subscribers from lower-priced markets.

Disney+ Hotstar average monthly revenue per paid subscriber decreased from $1.01 to $0.65 due to lower per-subscriber advertising revenue, partially offset by a lower mix of wholesale subscribers.

ESPN+ average monthly revenue per paid subscriber increased from $4.79 to $5.54 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 $12.88 to $12.19 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.

Hulu Live TV + SVOD average monthly revenue per paid subscriber increased from $87.90 to $90.66 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, a decrease in per-subscriber advertising revenue and lower per-subscriber premium and feature add-on revenue.

Costs and Expenses

Operating expenses are as follows:

Six Months Ended % Change

(in millions) April 1,

2023 April 2,

Nine Months Ended % Change

(in millions) July 1,

Programming and production costs

5 unchanged sentences

$ (15,062) $ (12,860) (17) %

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

Higher programming and production costs at Hulu were due to more content provided on the service and increased subscriber-based fees for programming the Live TV service attributable to rate increases and more subscribers.

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

The increase in costs for UFC programming was attributable to an increase in contractual rates.

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

Selling, general, administrative and other costs decreased $815 million, to $3,244 million from $4,059 million, primarily attributable to lower marketing costs at Disney+ and, to a lesser extent, at Hulu.

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+.

The operating loss from Direct-to-Consumer decreased $317 million, to $2,224 million from $2,541 million, due to improved results at ESPN+ and Disney+, partially offset by lower operating income at Hulu.

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,

Nine Months Ended % Change

(in millions) July 1,

TV/SVOD distribution $ 2,212 $ 3,109 (29) %

8 unchanged sentences

Operating Loss $ (505) $ (109) >(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 decrease in TV/SVOD distribution revenue was due to lower sales of both episodic television and film content.

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

The decrease in sales of 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 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.

The Way of Water , three Marvel titles and The Little Mermaid in the current period compared to the release of three Marvel titles , Death on the Nile and The King’s Man in the prior-year period.

The Marvel titles released in the current period were Black Panther:

Wakanda Forever , Guardians of the Galaxy Vol.

3 and Ant-Man and the Wasp:

Quantumania , whereas the prior-year period included Doctor Strange In the Multiverse of Madness, Eternals and the co-produced title Spider-Man:

No Way Home .

The decrease in home entertainment revenue was primarily due to lower unit sales.

The increase in other revenue was due to higher revenue from stage plays, resulting from improved performance, partially offset by lower music revenues.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

2 unchanged sentences

Operating expenses are as follows:

Six Months Ended % Change

(in millions) April 1,

2023 April 2,

Nine Months Ended % Change

(in millions) July 1,

Programming and production costs $ (3,889) $ (3,292) (18) %

1 unchanged sentence

$ (4,927) $ (4,271) (15) %

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.

Higher cost of goods sold and distribution costs were attributable to the realignment of certain costs previously reported in general and administrative costs and increased theatrical distribution costs.

Selling, general, administrative and other costs increased $23 million, to $2,054 million from $2,031 million, due to higher theatrical marketing costs, partially offset by the realignment of certain costs to cost of goods sold and distribution costs.

Depreciation and amortization increased $43 million, to $262 million from $219 million, due to increased investment in technology assets and asset write-offs in the current period.

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.

The operating loss from Content Sales/Licensing and Other increased $396 million, to $505 million from $109 million, due to lower TV/SVOD distribution results, partially offset by higher 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,

Nine Months Ended % Change

(in millions) July 1,

Restructuring and impairment charges (1)

$ (2,810) $ (229) >(100) %

TFCF and Hulu acquisition amortization (2)

1 unchanged sentence

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

Restructuring and impairment charges (2)

(191) (195) 2 %

Gain on sale of a business 28 — nm

(1) Charges for the current period were due to the Content Impairment Charge and, to a lesser extent, severance and exiting our businesses in Russia.

Charges for the prior-year period were due to the impairment of an intangible and other assets related to exiting our businesses in Russia.

(2) In the current period, amortization of intangible assets was $1,180 million and amortization of step-up on film and television costs was $374 million.

In the prior-year period, amortization of intangible assets was $1,286 million and amortization of step-up on film and television costs was $473 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

2 unchanged sentences

Operating results for the DPEP segment are as follows:

Six Months Ended % Change

(in millions) April 1,

2023 April 2,

Nine Months Ended % Change

(in millions) July 1,

Theme park admissions $ 7,800 $ 6,437 21 %

12 unchanged sentences

Higher resorts and vacations revenue was attributable to increases of 18% from additional passenger cruise days and 5% 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.

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

The decrease in merchandise licensing revenue was primarily due to lower sales of merchandise based on Star Wars, Frozen and Mickey and Friends, partially offset by higher minimum guarantee shortfall recognition.

Lower retail revenue was primarily due to a decrease in online sales.

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

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS — (continued)

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:

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,

Nine Months Ended Nine Months Ended Nine Months Ended

Increase (decrease)

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

Attendance 6 % nm 64 % 64 % 19 % nm

Per Capita Guest Spending 4 % 17 % 20 % 21 % 2 % 23 %

2 unchanged sentences

Change in Per Room Guest Spending (1)

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS — (continued)

1 % 26 % 14 % (3) % 1 % 21 %

(1) In the current quarter, the Company revised its method of allocating revenue on the sales of Disneyland Paris vacation packages between hotel room revenue and admissions revenue.

The new method resulted in a decrease in the percentage of revenue allocated to hotel rooms.

If we had applied the new method in the prior-year period and the first six months of the current year, the impact would have been a decrease of approximately $30 million in both periods.

Costs and Expenses

Operating expenses are as follows:

Six Months Ended % Change

(in millions) April 1,

2023 April 2,

Nine Months Ended % Change

(in millions) July 1,

Operating labor $ (5,553) $ (4,818) (15) %

3 unchanged sentences

$ (12,524) $ (10,665) (17) %

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.

The increase in operating labor was attributable to inflation, higher volumes 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 attributable to higher volumes and increased technology spending.

Other operating expense increased due to volume growth, inflation and higher operations support costs.

Selling, general, administrative and other costs increased $251 million, to $2,652 million from $2,401 million, driven by higher marketing spend and a loss on the disposal of our ownership interest in Villages Nature.

Depreciation and amortization increased $203 million, to $2,016 million from $1,813 million, primarily due to accelerated depreciation related to the planned closure of Star Wars:

Galactic Starcruiser and depreciation for the Disney Wish , which launched in the fourth quarter of the prior year.

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.

Segment operating income increased from $6.4 billion to $7.6 billion due to growth at our international and domestic parks and experiences, partially offset by a decrease at our consumer products business.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS — (continued)

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,

Nine Months Ended % Change

(in millions) July 1,

Supplemental revenue detail

10 unchanged sentences

$ 7,644 $ 6,391 20 %

Items Excluded from Segment Operating Income Related to Disney Parks, Experiences and Products

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

Nine Months Ended % Change

(in millions) July 1,

Charge related to a legal ruling $ (101) $ — nm

Restructuring and impairment charges (1)

TFCF and Hulu acquisition amortization (6) (6) — %

(1) Charges for the current period were due to severance at our consumer products and parks and resorts businesses.

CORPORATE AND UNALLOCATED SHARED EXPENSES

Quarter Ended % Change

(Worse) Six Months Ended % Change

(in millions) April 1,

2023 April 2,

2022 April 1,

2023 April 2,

(Worse) Nine Months Ended % Change

(in millions) July 1,

Corporate and unallocated shared expenses $ (295) $ (325) 9 % $ (854) $ (825) (4) %

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.

Corporate and unallocated shared expenses decreased $30 million for the quarter, from $325 million to $295 million, primarily due to lower compensation and human resource-related costs, partially offset by an expense associated with an abandoned project and higher rent expense.

Corporate and unallocated shared expenses for the current nine-month period increased $29 million, from $825 million to $854 million, primarily due to increases in rent expense and technology costs, an expense associated with an abandoned project and higher marketing spend on the Disney100 celebration.

These increases were partially offset by lower compensation and human resource-related costs.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

2 unchanged sentences

The change in cash and cash equivalents is as follows:

Six Months Ended % Change

(in millions) April 1,

2023 April 2,

Nine Months Ended % Change

(in millions) July 1,

Cash provided by operations - continuing operations $ 5,064 $ 3,478 46 %

6 unchanged sentences

Cash provided by operations increased $1,586 million to $5,064 million for the current period compared to $3,478 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.

The increase was due to higher operating cash receipts at DPEP and, to a lesser extent, lower spending on film and television content and higher operating cash receipts at DMED.

These increases were partially offset by higher operating cash disbursements at DPEP.

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 six months ended April 1, 2023 and April 2, 2022 are as follows:

Six Months Ended

(in millions) April 1,

2023 April 2,

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

Nine Months Ended

(in millions) July 1,

Beginning balances:

10 unchanged sentences

Change in produced and licensed content costs 1,861 4,306

Content impairment (2,266) —

Other non-cash activity (191) 209

3 unchanged sentences

$ 33,131 $ 32,134

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

FINANCIAL CONDITION AND RESULTS OF OPERATIONS — (continued)

The Company currently expects its fiscal 2023 spend on produced and licensed content, including sports rights, to be approximately $27 billion compared to fiscal 2022 spend of $30 billion.

The expected decrease is due to lower spending on produced content, including the estimated impact of the recent WGA and SAG-AFTRA work stoppages, partially offset by higher spending for sports content.

Investing Activities

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 six months ended April 1, 2023 and April 2, 2022 are as follows:

(in millions) April 1,

2023 April 2,

Investing activities for the nine months ended July 1, 2023 and July 2, 2022 are as follows:

Nine Months Ended

(in millions) July 1,

Investments in parks, resorts and other property:

Disney Media and Entertainment Distribution $ 755 $ 543

4 unchanged sentences

Corporate 687 442

$ 2,430 $ 2,060

Total investments in parks, resorts and other property 3,595 3,795

Cash used in (provided by) other investing activities, net (1)

Cash used in investing activities - continuing operations $ 3,259 $ 3,872

(1) The current period reflects proceeds from sales of investments.

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.

1 unchanged sentence

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

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

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 at DMED and on Corporate facilities, partially offset by lower spending at DPEP.

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

The Company currently expects its fiscal 2023 capital expenditures to be comparable to fiscal 2022 at approximately $5.0 billion as increases at DMED and on Corporate facilities are offset by lower spending at DPEP.

Financing Activities

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.

Financing activities for the nine months ended July 1, 2023 and July 2, 2022 are as follows:

Nine Months Ended

(in millions) July 1,

Change in borrowings

$ (1,209) $ (1,523)

Activities related to noncontrolling and redeemable noncontrolling interest (1)

Cash used in other financing activities, net (2)

Cash used in financing activities - continuing operations

$ (2,127) $ (2,247)

(1) Activities related to noncontrolling and redeemable noncontrolling interests in the current period were due to the purchase of a redeemable noncontrolling interest, partially offset by contributions from noncontrolling interest holders.

(2) Primarily consists of dividends to noncontrolling interest holders and equity award activity.

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

The Company may use cash balances, 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.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS — (continued)

The Company’s operating cash flow and access to the capital markets can be impacted by factors outside of its control.

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raising financing;

suspending or reducing capital spending;

reducing capital spending;

reducing film and television content investments;

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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 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.

As of July 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 A- 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 April 1, 2023, the Company met this covenant by a significant margin.

On July 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.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS — (continued)

SUPPLEMENTAL GUARANTOR FINANCIAL INFORMATION

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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 April 1, 2023 was as follows:

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

TWDC Legacy Disney

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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) Six Months Ended April 1, 2023

Results of operations (in millions) Nine Months Ended July 1, 2023

Costs and expenses —

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Net income (loss) attributable to TWDC shareholders (1,168)

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

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

Current assets $ 3,924 $ 5,665

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Adjustments to projected usage are applied prospectively in the period of the change.

The most sensitive factors affecting projected usage are historical and estimated viewing patterns.

Historical viewing patterns are the most significant input into determining the projected usage, and significant judgment is required in using historical viewing patterns to derive projected usage.

If projected usage changes we may need to accelerate or slow the recognition of amortization expense.

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The discounted cash flow analyses are sensitive to our estimates of future revenue growth and margins for these businesses as well as the discount rates used to calculate the present value of future cash flows.

In times of adverse economic conditions in the global economy, the Company’s long-term cash flow projections are subject to a greater degree of uncertainty than usual.

We believe our estimates are consistent with how a marketplace participant would value our reporting units.

If we had established different reporting units or utilized different valuation methodologies or assumptions, the impairment test results could differ, and we could be required to record impairment charges.

In February 2023, the Company initiated a reorganization of its businesses that will result in a new segment reporting structure in the fourth quarter of fiscal 2023.

The Company will perform its annual goodwill impairment assessment in the fourth quarter under both the current reporting structure and the new reporting structure.

The change in reporting structure will require us to identify new reporting units, allocate goodwill to these reporting units (generally based on relative fair values) and assign other recorded assets and liabilities to these reporting units.

Since our prior annual impairment assessment performed in the fourth quarter of fiscal 2022, discount rates have generally increased and certain projected revenue streams at our media and entertainment businesses have declined, which declines we expect will continue.

Both of these impacts, all else being equal, have the effect of reducing the fair value of these businesses and consequently reducing the excess of fair value over book value of our reporting units.

As we finalize our impairment assessment in the fourth quarter, the assumptions we make about future cash flows and discount rates as well as the identification of new reporting units and the results of reallocating goodwill and other net assets to the new reporting units, could result in an impairment of goodwill and intangible assets.

To test its other indefinite-lived intangible assets for impairment, the Company first performs a qualitative assessment to determine if it is more likely than not that the carrying amount of each of its indefinite-lived intangible assets exceeds its fair value.

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For assets held for sale, to the extent the carrying amount is greater than the asset’s fair value less costs to sell, an impairment loss is recognized for the difference.

Determining whether a long-lived asset is impaired requires various estimates and assumptions, including whether a triggering event has occurred, the identification of asset groups, estimates of future cash flows and the discount rate used to determine fair values.

Determining whether a long-lived asset is impaired requires various estimates and assumptions, including whether a

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS — (continued)

triggering event has occurred, the identification of asset groups, estimates of future cash flows and the discount rate used to determine fair values.

The Company has investments in equity securities.

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We evaluate our allowance for credit losses and estimate collectability of 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, including

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS — (continued)

COVID-19, our estimates and judgments with respect to the collectability of our receivables are subject to greater uncertainty than in more stable periods.

In times of economic turmoil, including COVID-19, our estimates and judgments with respect to the collectability of our receivables are subject to greater uncertainty than in more stable periods.

If our estimate of uncollectible accounts is too low, costs and expenses may increase in future periods, and if it is too high, costs and expenses may decrease in future periods.

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The principal foreign 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 to U.S.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS — (continued)

currency swaps are used to effectively convert foreign currency denominated borrowings to U.S.

dollar denominated borrowings.

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The amounts hedged using commodity swap contracts are based on forecasted levels of consumption of certain commodities, such as fuel oil and gasoline.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS — (continued)

Our objectives in managing exposures to market-based fluctuations in certain retirement liabilities are to use total return swap contracts to reduce the volatility of earnings arising from changes in these retirement liabilities.

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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