Walt Disney Co 10-Q

Item 1: Financial Statements THE WALT DISNEY COMPANY CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited; in millions, except per share data) Quarter Ended Nine Months Ended July 1, 2023 July 2, 2022 July 1, 2023 July 2, 2022 Revenues: Services $ 20,008 $ 19,461 $ 60,591 $ 56,215 Products 2,322 2,043 7,066 6,357 Total revenues 22,330 21,504 67,657 62,572 Costs and expenses: Cost of services (exclusive of depreciation and amortization) ( 12,974 ) ( 12,404 ) ( 40,915 ) ( 36,895 ) Cost of products (exclusive of depreciation and amortization) ( 1,497 ) ( 1,278 ) ( 4,558 ) ( 3,948 ) Selling, general, administrative and other ( 3,874 ) ( 4,100 ) ( 11,315 ) ( 11,655 ) Depreciation and amortization ( 1,344 ) ( 1,290 ) ( 3,960 ) ( 3,846 ) Total costs and expenses ( 19,689 ) ( 19,072 ) ( 60,748 ) ( 56,344 ) Restructuring and impairment charges ( 2,650 ) ( 42 ) ( 2,871 ) ( 237 ) Other income (expense), net ( 11 ) ( 136 ) 96 ( 730 ) Interest expense, net ( 305 ) ( 360 ) ( 927 ) ( 1,026 ) Equity in the income of investees 191 225 555 674 Income (loss) from continuing operations before income taxes ( 134 ) 2,119 3,762 4,909 Income taxes on continuing operations ( 19 ) ( 617 ) ( 1,066 ) ( 1,610 ) Net income (loss) from continuing operations ( 153 ) 1,502 2,696 3,299 Loss from discontinued operations, net of income tax benefit of $0, $0, $0 and $14, respectively — — — ( 48 ) Net income (loss) ( 153 ) 1,502 2,696 3,251 Net income from continuing operations attributable to noncontrolling interests ( 307 ) ( 93 ) ( 606 ) ( 268 ) Net income (loss) attributable to Disney $ ( 460 ) $ 1,409 $ 2,090 $ 2,983 Earnings (loss) per share attributable to Disney (1) : Diluted Continuing operations $ ( 0.25 ) $ 0.77 $ 1.14 $ 1.66 Discontinued operations — — — ( 0.03 ) $ ( 0.25 ) $ 0.77 $ 1.14 $ 1.63 Basic Continuing operations $ ( 0.25 ) $ 0.77 $ 1.14 $ 1.66 Discontinued operations — — — ( 0.03 ) $ ( 0.25 ) $ 0.77 $ 1.14 $ 1.64 Weighted average number of common and common equivalent shares outstanding: Diluted 1,829 1,825 1,829 1,827 Basic 1,829 1,823 1,827 1,821 (1) Total may not equal the sum of the column due to rounding. See Notes to Condensed Consolidated Financial Statements 3 THE WALT DISNEY COMPANY CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (unaudited; in millions) Quarter Ended Nine Months Ended July 1, 2023 July 2, 2022 July 1, 2023 July 2, 2022 Net income (loss) $ ( 153 ) $ 1,502 $ 2,696 $ 3,251 Other comprehensive income (loss), net of tax: Market value adjustments for hedges 10 428 ( 614 ) 506 Pension and postretirement medical plan adjustments 1 119 58 393 Foreign currency translation and other ( 101 ) ( 446 ) 241 ( 659 ) Other comprehensive income (loss) ( 90 ) 101 ( 315 ) 240 Comprehensive income (loss) ( 243 ) 1,603 2,381 3,491 Net income from continuing operations attributable to noncontrolling interests ( 307 ) ( 93 ) ( 606 ) ( 268 ) Other comprehensive income attributable to noncontrolling interests 66 69 21 58 Comprehensive income (loss) attributable to Disney $ ( 484 ) $ 1,579 $ 1,796 $ 3,281 See Notes to Condensed Consolidated Financial Statements 4 THE WALT DISNEY COMPANY CONDENSED CONSOLIDATED BALANCE SHEETS (unaudited; in millions, except per share data) July 1, 2023 October 1, 2022 ASSETS Current assets Cash and cash equivalents $ 11,458 $ 11,615 Receivables, net 13,112 12,652 Inventories 1,900 1,742 Content advances 2,369 1,890 Other current assets 1,335 1,199 Total current assets 30,174 29,098 Produced and licensed content costs 34,607 35,777 Investments 3,062 3,218 Parks, resorts and other property Attractions, buildings and equipment 69,819 66,998 Accumulated depreciation ( 42,112 ) ( 39,356 ) 27,707 27,642 Projects in progress 5,689 4,814 Land 1,181 1,140 34,577 33,596 Intangible assets, net 13,478 14,837 Goodwill 77,881 77,897 Other assets 10,004 9,208 Total assets $ 203,783 $ 203,631 LIABILITIES AND EQUITY Current liabilities Accounts payable and other accrued liabilities $ 19,115 $ 20,213 Current portion of borrowings 2,645 3,070 Deferred revenue and other 6,474 5,790 Total current liabilities 28,234 29,073 Borrowings 44,544 45,299 Deferred income taxes 7,304 8,363 Other long-term liabilities 12,759 12,518 Commitments and contingencies (Note 13) Redeemable noncontrolling interests 8,886 9,499 Equity Preferred stock — — Common stock, $0.01 par value, Authorized – 4.6 billion shares, Issued – 1.8 billion shares 57,136 56,398 Retained earnings 45,794 43,636 Accumulated other comprehensive loss ( 4,413 ) ( 4,119 ) Treasury stock, at cost, 19 million shares ( 907 ) ( 907 ) Total Disney Shareholders’ equity 97,610 95,008 Noncontrolling interests 4,446 3,871 Total equity 102,056 98,879 Total liabilities and equity $ 203,783 $ 203,631 See Notes to Condensed Consolidated Financial Statements 5 THE WALT DISNEY COMPANY CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited; in millions) Nine Months Ended July 1, 2023 July 2, 2022 OPERATING ACTIVITIES Net income from continuing operations $ 2,696 $ 3,299 Depreciation and amortization 3,960 3,846 Impairment of produced and licensed content costs 2,266 — Net (gain)/loss on investments and disposition of businesses ( 184 ) 779 Deferred income taxes ( 899 ) 605 Equity in the income of investees ( 555 ) ( 674 ) Cash distributions received from equity investees 531 575 Net change in produced and licensed content costs and advances ( 1,861 ) ( 4,306 ) Equity-based compensation 861 723 Pension and postretirement medical benefit cost amortization 3 465 Other, net ( 166 ) 492 Changes in operating assets and liabilities: Receivables ( 744 ) ( 506 ) Inventories ( 120 ) ( 259 ) Other assets ( 64 ) ( 684 ) Accounts payable and other liabilities ( 1,609 ) ( 892 ) Income taxes 949 15 Cash provided by operations - continuing operations 5,064 3,478 INVESTING ACTIVITIES Investments in parks, resorts and other property ( 3,595 ) ( 3,795 ) Proceeds from sale of investments 458 39 Other, net ( 122 ) ( 116 ) Cash used in investing activities - continuing operations ( 3,259 ) ( 3,872 ) FINANCING ACTIVITIES Commercial paper borrowings (payments), net 40 ( 275 ) Borrowings 70 152 Reduction of borrowings ( 1,319 ) ( 1,400 ) Contributions from / sale of noncontrolling interest 719 48 Acquisition of redeemable noncontrolling interest ( 900 ) — Other, net ( 737 ) ( 772 ) Cash used in financing activities - continuing operations ( 2,127 ) ( 2,247 ) CASH FLOWS FROM DISCONTINUED OPERATIONS Cash provided by operations - discontinued operations — 8 Cash used in financing activities - discontinued operations — ( 12 ) Cash used in discontinued operations — ( 4 ) Impact of exchange rates on cash, cash equivalents and restricted cash 174 ( 354 ) Change in cash, cash equivalents and restricted cash ( 148 ) ( 2,999 ) Cash, cash equivalents and restricted cash, beginning of period 11,661 16,003 Cash, cash equivalents and restricted cash, end of period $ 11,513 $ 13,004 See Notes to Condensed Consolidated Financial Statements 6 THE WALT DISNEY COMPANY CONDENSED CONSOLIDATED STATEMENTS OF EQUITY (unaudited; in millions) Quarter Ended Equity Attributable to Disney Shares Common Stock Retained Earnings Accumulated Other Comprehensive Income (Loss) Treasury Stock Total Disney Equity Non-controlling Interests (1) Total Equity Balance at April 1, 2023 1,827 $ 56,919 $ 46,236 $ ( 4,389 ) $ ( 907 ) $ 97,859 $ 3,697 $ 101,556 Comprehensive income (loss) — — ( 460 ) ( 24 ) — ( 484 ) 168 ( 316 ) Equity compensation activity 3 210 — — — 210 — 210 Contributions — — — — — — 602 602 Distributions and other — 7 18 — — 25 ( 21 ) 4 Balance at July 1, 2023 1,830 $ 57,136 $ 45,794 $ ( 4,413 ) $ ( 907 ) $ 97,610 $ 4,446 $ 102,056 Balance at April 2, 2022 1,822 $ 55,823 $ 42,032 $ ( 6,312 ) $ ( 907 ) $ 90,636 $ 4,023 $ 94,659 Comprehensive income (loss) — — 1,409 170 — 1,579 ( 67 ) 1,512 Equity compensation activity 1 259 — — — 259 — 259 Dividends — — — — — — — — Contributions — — — — — — 19 19 Distributions and other — 5 21 — — 26 ( 42 ) ( 16 ) Balance at July 2, 2022 1,823 $ 56,087 $ 43,462 $ ( 6,142 ) $ ( 907 ) $ 92,500 $ 3,933 $ 96,433 (1) Excludes redeemable noncontrolling interests. See Notes to Condensed Consolidated Financial Statements 7 THE WALT DISNEY COMPANY CONDENSED CONSOLIDATED STATEMENTS OF EQUITY (unaudited; in millions) Nine Months Ended Equity Attributable to Disney Shares Common Stock Retained Earnings Accumulated Other Comprehensive Income (Loss) Treasury Stock Total Disney Equity Non-controlling Interests (1) Total Equity Balance at October 1, 2022 1,824 $ 56,398 $ 43,636 $ ( 4,119 ) $ ( 907 ) $ 95,008 $ 3,871 $ 98,879 Comprehensive income (loss) — — 2,090 ( 294 ) — 1,796 299 2,095 Equity compensation activity 6 735 — — — 735 — 735 Contributions — — — — — — 789 789 Distributions and other — 3 68 — — 71 ( 513 ) ( 442 ) Balance at July 1, 2023 1,830 $ 57,136 $ 45,794 $ ( 4,413 ) $ ( 907 ) $ 97,610 $ 4,446 $ 102,056 Balance at October 2, 2021 1,818 $ 55,471 $ 40,429 $ ( 6,440 ) $ ( 907 ) $ 88,553 $ 4,458 $ 93,011 Comprehensive income — — 2,983 298 — 3,281 ( 22 ) 3,259 Equity compensation activity 5 615 — — — 615 — 615 Contributions — — — — — — 48 48 Distributions and other — 1 50 — — 51 ( 551 ) ( 500 ) Balance at July 2, 2022 1,823 $ 56,087 $ 43,462 $ ( 6,142 ) $ ( 907 ) $ 92,500 $ 3,933 $ 96,433 (1) Excludes redeemable noncontrolling interests. See Notes to Condensed Consolidated Financial Statements 8 THE WALT DISNEY COMPANY NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited; tabular dollars in millions, except for per share data) 1. Principles of Consolidation These Condensed Consolidated Financial Statements have been prepared in accordance with accounting principles generally accepted in the United States of America (GAAP) for interim financial information and the instructions to Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. We believe that we have included all normal recurring adjustments necessary for a fair statement of the results for the interim period. Operating results for the nine months ended July 1, 2023 are not necessarily indicative of the results that may be expected for the year ending September 30, 2023. The terms “Company,” “Disney,” “we,” “us,” and “our” are used in this report to refer collectively to the parent company, The Walt Disney Company, as well as the subsidiaries through which its various businesses are actually conducted. These financial statements should be read in conjunction with the Company’s 2022 Annual Report on Form 10-K. Variable Interest Entities The Company enters into relationships with or makes investments in other entities that may be variable interest entities (VIE). A VIE is consolidated in the financial statements if the Company has the power to direct activities that most significantly impact the economic performance of the VIE and has the obligation to absorb losses or the right to receive benefits from the VIE that could potentially be significant (as defined by ASC 810-10-25-38) to the VIE. Hong Kong Disneyland Resort and Shanghai Disney Resort (together the Asia Theme Parks) are VIEs in which the Company has less than 50% equity ownership. Company subsidiaries (the Management Companies) have management agreements with the Asia Theme Parks, which provide the Management Companies, subject to certain protective rights of joint venture partners, with the ability to direct the day-to-day operating activities and the development of business strategies that we believe most significantly impact the economic performance of the Asia Theme Parks. In addition, the Management Companies receive management fees under these arrangements that we believe could be significant to the Asia Theme Parks. Therefore, the Company has consolidated the Asia Theme Parks in its financial statements. Redeemable Noncontrolling Interests and Contributions from Noncontrolling Interest Holders Hulu LLC The Company consolidates the results of Hulu LLC (Hulu), a direct-to-consumer (DTC) streaming service provider, which is owned 67 % by the Company and 33 % by NBC Universal (NBCU). In May 2019, the Company entered into a put/call agreement with NBCU that provided the Company with full operational control of Hulu. Under the agreement, beginning in January 2024, NBCU has the option to require the Company to purchase NBCU’s interest in Hulu and the Company has the option to require NBCU to sell its interest in Hulu to the Company, in either case at a redemption value based on NBCU’s equity ownership percentage of the greater of Hulu’s then equity fair value or a guaranteed floor value of $ 27.5 billion. NBCU’s interest will generally not be allocated its portion of Hulu’s losses, if any, as the redeemable noncontrolling interest is required to be carried at a minimum value. The minimum value is equal to the fair value as of the May 2019 agreement date accreted to the January 2024 estimated redemption value. At July 1, 2023, NBCU’s interest in Hulu is recorded in the Company’s financial statements at $ 8.9 billion, which is reported as “Redeemable noncontrolling interest” in the Condensed Consolidated Balance Sheets. The Company and NBCU have been conducting a confidential arbitration concerning the parties’ rights and responsibilities under the Hulu limited liability company agreement. The Company expects a decision in that arbitration within the next quarter. The outcome of the arbitration is uncertain and we cannot reasonably estimate the amount of any potential loss or the impact on the determination of the value of Hulu’s equity pursuant to the Hulu limited liability company agreement and thus the amount we may be required to pay to acquire NBCU’s interest in Hulu. We are accreting NBCU’s interest in Hulu to its guaranteed floor value. In determining the redemption value, our estimate of Hulu’s equity fair value in January 2024 requires management to make significant judgments. If our estimate of the future fair value of Hulu’s equity increased above the guaranteed floor value, we would change our rate of accretion, which would generally increase the amount recorded in “Net income from continuing operations attributable to noncontrolling interests” and thus reduce “Net income attributable to Disney” in the Condensed Consolidated Statements of Operations. 9 THE WALT DISNEY COMPANY NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited; tabular dollars in millions, except for per share data) BAMTech LLC In November 2022, the Company purchased Major League Baseball’s (MLB) 15 % redeemable noncontrolling interest in BAMTech LLC (BAMTech), which holds the Company’s domestic DTC sports business, for $ 900 million (MLB buy-out). MLB’s interest was recorded in the Company’s financial statements at $ 828 million prior to the MLB buy-out. The $ 72 million difference was recorded as an increase in “Net income from continuing operations attributable to noncontrolling interests” in the Condensed Consolidated Statements of Operations. During the nine months ended July 1, 2023, Hearst Corporation (Hearst) contributed $ 710 million to the domestic DTC sports business, in part to fund its 20 % share of the MLB buy-out and in part to fund its share of the domestic DTC sports business’s operating cash requirements, which had been funded by the Company through intercompany loans. Use of Estimates The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and footnotes thereto. Actual results may differ from those estimates. Reclassifications Certain reclassifications have been made in the fiscal 2022 financial statements and notes to conform to the fiscal 2023 presentation. 2. Segment Information 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 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 Company’s operations are currently reported in the following two segments: Disney Media and Entertainment Distribution (DMED) and Disney Parks, Experiences and Products (DPEP), for which separate financial information is evaluated regularly by the Chief Executive Officer to allocate resources and assess performance. Segment operating results reflect earnings before corporate and unallocated shared expenses, restructuring and impairment charges, net other income/expense, net interest expense, income taxes and noncontrolling interests. Segment operating income includes equity in the income of investees and excludes impairments of certain equity investments and acquisition accounting amortization of TFCF Corporation (TFCF) and Hulu assets (i.e. intangible assets and the fair value step-up for film and television costs) recognized in connection with the TFCF acquisition in fiscal 2019 (TFCF and Hulu acquisition amortization). Corporate and unallocated shared expenses principally consist of corporate functions, executive management and certain unallocated administrative support functions. Segment operating results include allocations of certain costs, including information technology, pension, legal and other shared services costs, which are allocated based on metrics designed to correlate with consumption. 10 THE WALT DISNEY COMPANY NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited; tabular dollars in millions, except for per share data) Segment revenues and segment operating income are as follows: Quarter Ended Nine Months Ended July 1, 2023 July 2, 2022 July 1, 2023 July 2, 2022 Revenues: Disney Media and Entertainment Distribution $ 14,004 $ 14,110 $ 42,819 $ 42,315 Disney Parks, Experiences and Products 8,326 7,394 24,838 21,280 Total segment revenues $ 22,330 $ 21,504 $ 67,657 $ 63,595 Segment operating income: Disney Media and Entertainment Distribution $ 1,134 $ 1,381 $ 2,243 $ 4,133 Disney Parks, Experiences and Products 2,425 2,186 7,644 6,391 Total segment operating income (1) $ 3,559 $ 3,567 $ 9,887 $ 10,524 (1) Equity in the income of investees is included in segment operating income as follows: Quarter Ended Nine Months Ended July 1, 2023 July 2, 2022 July 1, 2023 July 2, 2022 Disney Media and Entertainment Distribution $ 194 $ 230 $ 566 $ 693 Disney Parks, Experiences and Products — ( 2 ) ( 2 ) ( 10 ) Equity in the income of investees included in segment operating income 194 228 564 683 Amortization of TFCF intangible assets related to equity investees ( 3 ) ( 3 ) ( 9 ) ( 9 ) Equity in the income of investees, net $ 191 $ 225 $ 555 $ 674 A reconciliation of segment revenues to total revenues is as follows: Quarter Ended Nine Months Ended July 1, 2023 July 2, 2022 July 1, 2023 July 2, 2022 Segment revenues $ 22,330 $ 21,504 $ 67,657 $ 63,595 Content License Early Termination (1) — — — ( 1,023 ) Total revenues $ 22,330 $ 21,504 $ 67,657 $ 62,572 (1) In February 2022, the Company early terminated certain license agreements with a customer for film and television content, which was delivered in previous years, in order for the Company to use the content primarily on our DTC services (Content License Early Termination). Because the content is functional intellectual property (IP), we had recognized substantially all of the consideration to be paid by the customer under the licenses as revenue in prior years when the content was delivered. Consequently, we recorded the amounts to terminate the licenses agreements, net of remaining amounts of deferred revenue, as a reduction of revenue. 11 THE WALT DISNEY COMPANY NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited; tabular dollars in millions, except for per share data) A reconciliation of segment operating income to income from continuing operations before income taxes is as follows: Quarter Ended Nine Months Ended July 1, 2023 July 2, 2022 July 1, 2023 July 2, 2022 Segment operating income $ 3,559 $ 3,567 $ 9,887 $ 10,524 Content License Early Termination — — — ( 1,023 ) Corporate and unallocated shared expenses ( 295 ) ( 325 ) ( 854 ) ( 825 ) Restructuring and impairment charges (1) ( 2,650 ) ( 42 ) ( 2,871 ) ( 237 ) Other income (expense), net (2) ( 11 ) ( 136 ) 96 ( 730 ) Interest expense, net ( 305 ) ( 360 ) ( 927 ) ( 1,026 ) TFCF and Hulu acquisition amortization (3) ( 432 ) ( 585 ) ( 1,569 ) ( 1,774 ) Income from continuing operations before income taxes $ ( 134 ) $ 2,119 $ 3,762 $ 4,909 (1) See Note 16 for a discussion of amounts in restructuring and impairment charges. (2) See Note 4 for a discussion of amounts in other income (expense), net. (3) TFCF and Hulu acquisition amortization is as follows: Quarter Ended Nine Months Ended July 1, 2023 July 2, 2022 July 1, 2023 July 2, 2022 Amortization of intangible assets $ 361 $ 422 $ 1,186 $ 1,292 Step-up of film and television costs 68 160 374 473 Intangibles related to TFCF equity investees 3 3 9 9 $ 432 $ 585 $ 1,569 $ 1,774 Goodwill The changes in the carrying amount of goodwill are as follows: DMED DPEP Total Balance at October 1, 2022 $ 72,347 $ 5,550 $ 77,897 Currency translation adjustments and other, net ( 16 ) — ( 16 ) Balance at July 1, 2023 $ 72,331 $ 5,550 $ 77,881 12 THE WALT DISNEY COMPANY NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited; tabular dollars in millions, except for per share data) 3. Revenues The following table presents our revenues by segment and major source: Quarter Ended July 1, 2023 Quarter Ended July 2, 2022 DMED DPEP Total DMED DPEP Content License Early Termination Total Affiliate fees $ 4,234 $ — $ 4,234 $ 4,337 $ — $ — $ 4,337 Subscription fees 4,537 — 4,537 3,889 — — 3,889 Advertising 3,042 1 3,043 3,534 1 — 3,535 Theme park admissions — 2,731 2,731 — 2,312 — 2,312 Resort and vacations — 1,990 1,990 — 1,805 — 1,805 Retail and wholesale sales of merchandise, food and beverage — 2,226 2,226 — 1,896 — 1,896 Merchandise licensing — 876 876 — 916 — 916 TV/SVOD distribution licensing 646 — 646 1,119 — — 1,119 Theatrical distribution licensing 838 — 838 620 — — 620 Home entertainment 209 — 209 149 — — 149 Other 498 502 1,000 462 464 — 926 $ 14,004 $ 8,326 $ 22,330 $ 14,110 $ 7,394 $ — $ 21,504 Nine Months Ended July 1, 2023 Nine Months Ended July 2, 2022 DMED DPEP Total DMED DPEP Content License Early Termination Total Affiliate fees $ 12,870 $ — $ 12,870 $ 13,310 $ — $ — $ 13,310 Subscription fees 13,382 — 13,382 11,374 — — 11,374 Advertising 9,047 3 9,050 10,425 3 — 10,428 Theme park admissions — 7,800 7,800 — 6,437 — 6,437 Resort and vacations — 5,919 5,919 — 4,701 — 4,701 Retail and wholesale sales of merchandise, food and beverage — 6,750 6,750 — 5,801 — 5,801 Merchandise licensing — 2,791 2,791 — 2,928 — 2,928 TV/SVOD distribution licensing 2,658 — 2,658 3,639 — ( 1,023 ) 2,616 Theatrical distribution licensing 2,745 — 2,745 1,373 — — 1,373 Home entertainment 492 — 492 673 — — 673 Other 1,625 1,575 3,200 1,521 1,410 — 2,931 $ 42,819 $ 24,838 $ 67,657 $ 42,315 $ 21,280 $ ( 1,023 ) $ 62,572 13 THE WALT DISNEY COMPANY NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited; tabular dollars in millions, except for per share data) The following table presents our revenues by segment and primary geographical markets: Quarter Ended July 1, 2023 Quarter Ended July 2, 2022 DMED DPEP Total DMED DPEP Total Americas $ 11,466 $ 6,299 $ 17,765 $ 11,444 $ 6,130 $ 17,574 Europe 1,352 984 2,336 1,230 897 2,127 Asia Pacific 1,186 1,043 2,229 1,436 367 1,803 Total revenues $ 14,004 $ 8,326 $ 22,330 $ 14,110 $ 7,394 $ 21,504 Content License Early Termination — $ 21,504 Nine Months Ended July 1, 2023 Nine Months Ended July 2, 2022 DMED DPEP Total DMED DPEP Total Americas $ 35,009 $ 19,357 $ 54,366 $ 34,465 $ 17,400 $ 51,865 Europe 4,373 2,794 7,167 4,111 2,389 6,500 Asia Pacific 3,437 2,687 6,124 3,739 1,491 5,230 Total revenues $ 42,819 $ 24,838 $ 67,657 $ 42,315 $ 21,280 $ 63,595 Content License Early Termination ( 1,023 ) $ 62,572 Revenues recognized in the current and prior-year periods from performance obligations satisfied (or partially satisfied) in previous reporting periods primarily relate to revenues earned on TV/SVOD licenses for titles made available to the licensee in previous reporting periods. For the quarter ended July 1, 2023, $ 0.3 billion was recognized related to performance obligations satisfied as of April 1, 2023. For the nine months ended July 1, 2023, $ 0.7 billion was recognized related to performance obligations satisfied as of October 1, 2022. For the quarter ended July 2, 2022, $ 0.3 billion was recognized related to performance obligations satisfied as of April 2, 2022. For the nine months ended July 2, 2022, $ 0.9 billion was recognized related to performance obligations satisfied as of October 2, 2021. As of July 1, 2023, revenue for unsatisfied performance obligations expected to be recognized in the future is $ 16 billion, primarily for content and other IP to be made available in the future under existing agreements with merchandise and co-branding licensees and sponsors, television station affiliates, DTC wholesalers, sports sublicensees, and advertisers. Of this amount, we expect to recognize approximately $ 2 billion in the remainder of fiscal 2023, $ 6 billion in fiscal 2024, $ 4 billion in fiscal 2025 and $ 4 billion thereafter. These amounts include only fixed consideration or minimum guarantees and do not include amounts related to (i) contracts with an original expected term of one year or less (such as most advertising contracts) or (ii) licenses of IP that are solely based on the sales of the licensee. When the timing of the Company’s revenue recognition is different from the timing of customer payments, the Company recognizes either a contract asset (customer payment is subsequent to revenue recognition and subject to the Company satisfying additional performance obligations) or deferred revenue (customer payment precedes the Company satisfying the performance obligations). Consideration due under contracts with payment in arrears is recognized as accounts receivable. Deferred revenues are recognized as (or when) the Company performs under the contract. The Company’s contract assets and activity for the current and prior-year periods were not material. Accounts receivable and deferred revenues from contracts with customers are as follows: July 1, 2023 October 1, 2022 Accounts receivable Current $ 11,445 $ 10,886 Non-current 1,126 1,226 Allowance for credit losses ( 165 ) ( 179 ) Deferred revenues Current 5,871 5,531 Non-current 834 927 For the quarter and nine months ended July 1, 2023, the Company recognized revenue of $ 0.5 billion and $ 4.7 billion, respectively, that was included in the October 1, 2022 deferred revenue balance. For the quarter and nine months ended July 2, 2022, the Company recognized revenue of $ 0.4 billion and $ 3.2 billion, respectively, that was included in the October 2, 2021 14 THE WALT DISNEY COMPANY NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited; tabular dollars in millions, except for per share data) deferred revenue balance. Amounts deferred generally relate to theme park admissions and vacation packages, DTC subscriptions and advances related to merchandise and TV/SVOD licenses. We evaluate our allowance for credit losses and estimate collectability of current and non-current accounts receivable based on historical bad debt experience, our assessment of the financial condition of individual companies with which we do business, current market conditions, and reasonable and supportable forecasts of future economic conditions. In times of economic turmoil, our estimates and judgments with respect to the collectability of our receivables are subject to greater uncertainty than in more stable periods. The Company has accounts receivable with original maturities greater than one year related to the sale of film and television program rights (TV/SVOD licensing) and vacation club properties. These receivables are discounted to present value at contract inception and the related revenues are recognized at the discounted amount. The balance of TV/SVOD licensing receivables recorded in other non-current assets was $ 0.5 billion at July 1, 2023 and $ 0.6 billion at October 1, 2022. The balance of vacation club receivables recorded in other non-current assets was $ 0.6 billion at both July 1, 2023 and October 1, 2022. The allowance for credit losses and activity for the period ended July 1, 2023 was not material. 4. Other Income (Expense), net Other income (expense), net is as follows: Quarter Ended Nine Months Ended July 1, 2023 July 2, 2022 July 1, 2023 July 2, 2022 DraftKings gain (loss) $ 90 $ ( 136 ) $ 169 $ ( 726 ) Other, net ( 101 ) — ( 73 ) ( 4 ) Other income (expense), net $ ( 11 ) $ ( 136 ) $ 96 $ ( 730 ) For the quarter and nine months ended July 1, 2023, the Company recognized a gain of $ 90 million and $ 169 million, respectively, on its investment in DraftKings, Inc. (DraftKings), which was sold in the current quarter. “Other, net” for the quarter and nine months ended July 1, 2023 includes a charge of $ 101 million related to a legal ruling. For the prior-year quarter and nine months ended July 2, 2022, the Company recognized a non-cash loss of $ 136 million and $ 726 million, respectively, to adjust its investment in DraftKings to fair value. 5. Cash, Cash Equivalents, Restricted Cash and Borrowings Cash, Cash Equivalents and Restricted Cash The following table provides a reconciliation of cash, cash equivalents and restricted cash reported in the Condensed Consolidated Balance Sheets to the total of the amounts reported in the Condensed Consolidated Statements of Cash Flows. July 1, 2023 October 1, 2022 Cash and cash equivalents $ 11,458 $ 11,615 Restricted cash included in: Other current assets 3 3 Other assets 52 43 Total cash, cash equivalents and restricted cash in the statement of cash flows $ 11,513 $ 11,661 15 THE WALT DISNEY COMPANY NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited; tabular dollars in millions, except for per share data) Borrowings During the nine months ended July 1, 2023, the Company’s borrowing activity was as follows: October 1, 2022 Borrowings Payments Other Activity July 1, 2023 Commercial paper with original maturities less than three months $ 50 $ 1,020 $ — $ 3 $ 1,073 Commercial paper with original maturities greater than three months 1,612 2,519 ( 3,499 ) — 632 U.S. dollar denominated notes (1) 45,091 — ( 1,242 ) ( 104 ) 43,745 Asia Theme Parks borrowings 1,425 70 ( 77 ) 18 1,436 Foreign currency denominated debt and other (2) 191 — — 112 303 $ 48,369 $ 3,609 $ ( 4,818 ) $ 29 $ 47,189 (1) The other activity is primarily due to the amortization of purchase accounting adjustments and debt issuance fees. (2) The other activity is primarily due to market value adjustments for debt with qualifying hedges. At July 1, 2023, the Company’s bank facilities, which are with a syndicate of lenders and support our commercial paper borrowings, were as follows: Committed Capacity Capacity Used Unused Capacity Facility expiring March 2024 $ 5,250 $ — $ 5,250 Facility expiring March 2025 3,000 — 3,000 Facility expiring March 2027 4,000 — 4,000 Total $ 12,250 $ — $ 12,250 These facilities allow for borrowings at rates based on the Secured Overnight Financing Rate (SOFR), and at other variable rates for non-U.S. dollar denominated borrowings, plus a fixed spread that varies with the Company’s debt ratings assigned by Moody’s Investors Service and Standard and Poor’s ranging from 0.655% to 1.225%. The bank facilities contain only one financial covenant relating to interest coverage of three times earnings before interest, taxes, depreciation and amortization, including both intangible amortization and amortization of our film and television production and programming costs. On July 1, 2023, the Company met this covenant by a significant margin. The bank facilities specifically exclude certain entities, including the Asia Theme Parks, from any representations, covenants or events of default. The Company also has the ability to issue up to $ 500 million of letters of credit under the facility expiring in March 2027, which if utilized, reduces available borrowings under this facility. As of July 1, 2023, the Company has $ 1.7 billion of outstanding letters of credit, of which none were issued under this facility. Cruise Ship Credit Facilities The Company has credit facilities to finance a significant portion of the contract price of two new cruise ships, which are scheduled to be delivered in fiscal 2025 and fiscal 2026. Under the facilities, $ 1.1 billion is available beginning in August 2023 and $ 1.1 billion is available beginning in August 2024. Each tranche of financing may be utilized within a period of 18 months from the initial availability date. If utilized, the interest rates will be fixed at 3.80 % and 3.74 %, respectively, and the loan and interest will be payable semi-annually over a 12-year period from the borrowing date. Early repayment is permitted subject to cancellation fees . 16 THE WALT DISNEY COMPANY NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited; tabular dollars in millions, except for per share data) Interest expense, net Interest expense (net of amounts capitalized), interest and investment income, and net periodic pension and postretirement benefit costs (other than service costs) (see Note 9) are reported net in the Condensed Consolidated Statements of Operations and consist of the following: Quarter Ended Nine Months Ended July 1, 2023 July 2, 2022 July 1, 2023 July 2, 2022 Interest expense $ ( 503 ) $ ( 380 ) $ ( 1,472 ) $ ( 1,115 ) Interest and investment income 111 7 288 44 Net periodic pension and postretirement benefit costs (other than service costs) 87 13 257 45 Interest expense, net $ ( 305 ) $ ( 360 ) $ ( 927 ) $ ( 1,026 ) Interest and investment income includes gains and losses on certain publicly traded and non-public investments, investment impairments and interest earned on cash and cash equivalents and certain receivables. 6. International Theme Parks The Company has a 48 % ownership interest in the operations of Hong Kong Disneyland Resort and a 43 % ownership interest in the operations of Shanghai Disney Resort. The Asia Theme Parks together with Disneyland Paris are collectively referred to as the International Theme Parks. The following table summarizes the carrying amounts of the Asia Theme Parks’ assets and liabilities included in the Company’s Condensed Consolidated Balance Sheets: July 1, 2023 October 1, 2022 Cash and cash equivalents $ 480 $ 280 Other current assets 190 137 Total current assets 670 417 Parks, resorts and other property 6,175 6,356 Other assets 195 161 Total assets $ 7,040 $ 6,934 Current liabilities $ 540 $ 468 Long-term borrowings 1,436 1,426 Other long-term liabilities 445 395 Total liabilities $ 2,421 $ 2,289 The following table summarizes the International Theme Parks’ revenues and costs and expenses included in the Company’s Condensed Consolidated Statements of Operations for the nine months ended July 1, 2023: Revenues $ 3,530 Costs and expenses ( 3,067 ) Equity in the loss of investees ( 2 ) Asia Theme Parks’ royalty and management fees of $ 155 million for the nine months ended July 1, 2023 are eliminated in consolidation, but are considered in calculating earnings attributable to noncontrolling interests. International Theme Parks’ cash flows included in the Company’s Condensed Consolidated Statements of Cash Flows for the nine months ended July 1, 2023 were $ 1,123 million provided by operating activities, $ 683 million used in investing activities and $ 5 million provided by financing activities. 17 THE WALT DISNEY COMPANY NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited; tabular dollars in millions, except for per share data) Hong Kong Disneyland Resort The Government of the Hong Kong Special Administrative Region (HKSAR) and the Company have a 52 % and a 48 % equity interest in Hong Kong Disneyland Resort, respectively. The Company and HKSAR have provided loans to Hong Kong Disneyland Resort with outstanding balances of $ 160 million and $ 107 million, respectively. The interest rate on both loans is three month HIBOR plus 2 %, and the maturity date is September 2025. The Company’s loan is eliminated in consolidation. The Company has provided Hong Kong Disneyland Resort with a revolving credit facility of HK $ 2.7 billion ($ 345 million), which bears interest at a rate of three month HIBOR plus 1.25 % and matures in December 2028. The outstanding balance under the line of credit at July 1, 2023 was $ 189 million. The Company’s line of credit is eliminated in consolidation. Shanghai Disney Resort Shanghai Shendi (Group) Co., Ltd (Shendi) and the Company have 57 % and 43 % equity interests in Shanghai Disney Resort, respectively. A management company, in which the Company has a 70 % interest and Shendi a 30 % interest, operates Shanghai Disney Resort. The Company has provided Shanghai Disney Resort with loans totaling $ 956 million, bearing interest at rates up to 8 % and maturing in 2036, with early repayment permitted. The Company has also provided Shanghai Disney Resort with a 1.9 billion yuan (approximately $ 0.3 billion) line of credit bearing interest at 8 %. As of July 1, 2023, the total amount outstanding under the line of credit was 0.8 billion yuan (approximately $ 112 million). These balances are eliminated in consolidation. Shendi has provided Shanghai Disney Resort with loans totaling 8.6 billion yuan (approximately $ 1.2 billion), bearing interest at rates up to 8 % and maturing in 2036, with early repayment permitted. Shendi has also provided Shanghai Disney Resort with a 2.6 billion yuan (approximately $ 0.4 billion) line of credit bearing interest at 8 %. As of July 1, 2023 the total amount outstanding under the line of credit was 1.1 billion yuan (approximately $ 149 million). 7. Produced and Acquired/Licensed Content Costs and Advances The Company classifies its capitalized produced and acquired/licensed content costs as long-term assets and classifies advances for live programming rights made prior to the live event as short-term assets. For purposes of amortization and impairment, the capitalized content costs are classified based on their predominant monetization strategy as follows: • Individual - lifetime value is predominantly derived from third-party revenues that are directly attributable to the specific film or television title (e.g. theatrical revenues or sales to third-party television programmers) • Group - lifetime value is predominantly derived from third-party revenues that are attributable only to a bundle of titles (e.g. subscription revenue for a DTC service or affiliate fees for a cable television network) Total capitalized produced and licensed content by predominant monetization strategy is as follows: As of July 1, 2023 As of October 1, 2022 Predominantly Monetized Individually Predominantly Monetized as a Group Total Predominantly Monetized Individually Predominantly Monetized as a Group Total Produced content Released, less amortization $ 5,437 $ 13,282 $ 18,719 $ 4,639 $ 12,688 $ 17,327 Completed, not released 36 963 999 214 2,019 2,233 In-process 3,201 7,560 10,761 5,041 6,793 11,834 In development or pre-production 409 199 608 372 254 626 $ 9,083 $ 22,004 31,087 $ 10,266 $ 21,754 32,020 Licensed content - Television programming rights and advances 5,889 5,647 Total produced and licensed content $ 36,976 $ 37,667 Current portion $ 2,369 $ 1,890 Non-current portion $ 34,607 $ 35,777 18 THE WALT DISNEY COMPANY NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited; tabular dollars in millions, except for per share data) Amortization of produced and licensed content is as follows: Quarter Ended Nine Months Ended July 1, 2023 July 2, 2022 July 1, 2023 July 2, 2022 Produced content Predominantly monetized individually $ 954 $ 878 $ 3,117 $ 2,749 Predominantly monetized as a group 1,998 1,674 6,110 4,795 2,952 2,552 9,227 7,544 Licensed programming rights and advances 3,136 3,258 10,871 10,908 Total produced and licensed content costs (1) $ 6,088 $ 5,810 $ 20,098 $ 18,452 (1) Primarily included in “Costs of services” in the Condensed Consolidated Statements of Operations. Amounts exclude impairment charges of $ 2.0 billion for produced content and $ 257 million for licensed programming rights recorded in “Restructuring and impairment charges” in the Condensed Consolidated Statements of Operations in the quarter and nine months ended July 1, 2023 (see Note 16). 8. Income Taxes Unrecognized Tax Benefits During the nine months ended July 1, 2023, the Company increased its gross unrecognized tax benefits (before interest and penalties) by $ 0.2 billion to $ 2.7 billion. In the next twelve months, it is reasonably possible that our unrecognized tax benefits could change due to resolutions of open tax matters, which would reduce our unrecognized tax benefits by $ 0.1 billion. California Disaster Relief Pursuant to relief provided to certain taxpayers by the Internal Revenue Service and California State Board of Equalization as a result of winter storms in California, the Company is permitted to defer payment of federal and California state tax payments due in 2023 until October 16, 2023. 9. Pension and Other Benefit Programs The components of net periodic benefit cost (income) are as follows: Pension Plans Postretirement Medical Plans Quarter Ended Nine Months Ended Quarter Ended Nine Months Ended July 1, 2023 July 2, 2022 July 1, 2023 July 2, 2022 July 1, 2023 July 2, 2022 July 1, 2023 July 2, 2022 Service costs $ 65 $ 100 $ 193 $ 302 $ 1 $ 2 $ 4 $ 7 Other costs (benefits): Interest costs 195 124 586 374 20 13 61 39 Expected return on plan assets ( 288 ) ( 293 ) ( 863 ) ( 880 ) ( 15 ) ( 15 ) ( 45 ) ( 44 ) Amortization of previously deferred service costs 2 3 7 5 — — — — Recognized net actuarial loss 5 149 14 441 ( 6 ) 6 ( 17 ) 20 Total other costs (benefits) ( 86 ) ( 17 ) ( 256 ) ( 60 ) ( 1 ) 4 ( 1 ) 15 Net periodic benefit cost (income) $ ( 21 ) $ 83 $ ( 63 ) $ 242 $ — $ 6 $ 3 $ 22 During the nine months ended July 1, 2023, the Company did not make any material contributions to its pension and postretirement medical plans and does not currently expect to make any material contributions for the remainder of fiscal 2023. Final minimum funding requirements for fiscal 2023 will be determined based on a January 1, 2023 funding actuarial valuation, which is expected to be received in the fourth quarter of fiscal 2023. 19 THE WALT DISNEY COMPANY NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited; tabular dollars in millions, except for per share data) 10. Earnings Per Share Diluted earnings per share amounts are based upon the weighted average number of common and common equivalent shares outstanding during the period and are calculated using the treasury stock method for equity-based compensation awards (Awards). A reconciliation of the weighted average number of common and common equivalent shares outstanding and the number of Awards excluded from the diluted earnings per share calculation, as they were anti-dilutive, are as follows: Quarter Ended Nine Months Ended July 1, 2023 July 2, 2022 July 1, 2023 July 2, 2022 Shares (in millions): Weighted average number of common and common equivalent shares outstanding (basic) 1,829 1,823 1,827 1,821 Weighted average dilutive impact of Awards (1) — 2 2 6 Weighted average number of common and common equivalent shares outstanding (diluted) 1,829 1,825 1,829 1,827 Awards excluded from diluted earnings per share 23 26 24 13 (1) Amounts exclude all potential common and common equivalent shares for periods when there is a net loss from continuing operations. 20 THE WALT DISNEY COMPANY NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited; tabular dollars in millions, except for per share data) 11. Equity The following tables summarize the changes in each component of accumulated other comprehensive income (loss) (AOCI) including our proportional share of equity method investee amounts: Market Value Adjustments for Hedges Unrecognized Pension and Postretirement Medical Expense Foreign Currency Translation and Other AOCI AOCI, before tax Third quarter of fiscal 2023 Balance at April 1, 2023 $ 2 $ ( 3,697 ) $ ( 1,701 ) $ ( 5,396 ) Quarter Ended July 1, 2023: Unrealized gains (losses) arising during the period 85 — ( 44 ) 41 Reclassifications of realized net (gains) losses to net income ( 73 ) 1 — ( 72 ) Balance at July 1, 2023 $ 14 $ ( 3,696 ) $ ( 1,745 ) $ ( 5,427 ) Third quarter of fiscal 2022 Balance at April 2, 2022 $ ( 51 ) $ ( 6,668 ) $ ( 1,280 ) $ ( 7,999 ) Quarter Ended July 2, 2022: Unrealized gains (losses) arising during the period 601 — ( 404 ) 197 Reclassifications of realized net (gains) losses to net income ( 27 ) 155 — 128 Balance at July 2, 2022 $ 523 $ ( 6,513 ) $ ( 1,684 ) $ ( 7,674 ) Nine months ended fiscal 2023 Balance at October 1, 2022 $ 804 $ ( 3,770 ) $ ( 2,014 ) $ ( 4,980 ) Nine Months Ended July 1, 2023: Unrealized gains (losses) arising during the period ( 383 ) 71 227 ( 85 ) Reclassifications of realized net (gains) losses to net income ( 407 ) 3 42 ( 362 ) Balance at July 1, 2023 $ 14 $ ( 3,696 ) $ ( 1,745 ) $ ( 5,427 ) Nine months ended fiscal 2022 Balance at October 2, 2021 $ ( 152 ) $ ( 7,025 ) $ ( 1,047 ) $ ( 8,224 ) Nine Months Ended July 2, 2022: Unrealized gains (losses) arising during the period 741 47 ( 637 ) 151 Reclassifications of realized net (gains) losses to net income ( 66 ) 465 — 399 Balance at July 2, 2022 $ 523 $ ( 6,513 ) $ ( 1,684 ) $ ( 7,674 ) 21 THE WALT DISNEY COMPANY NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited; tabular dollars in millions, except for per share data) Market Value Adjustments for Hedges Unrecognized Pension and Postretirement Medical Expense Foreign Currency Translation and Other AOCI Tax on AOCI Third quarter of fiscal 2023 Balance at April 1, 2023 $ ( 1 ) $ 885 $ 123 $ 1,007 Quarter Ended July 1, 2023: Unrealized gains (losses) arising during the period ( 19 ) — 9 ( 10 ) Reclassifications of realized net (gains) losses to net income 17 — — 17 Balance at July 1, 2023 $ ( 3 ) $ 885 $ 132 $ 1,014 Third quarter of fiscal 2022 Balance at April 2, 2022 $ 19 $ 1,570 $ 98 $ 1,687 Quarter Ended July 2, 2022: Unrealized gains (losses) arising during the period ( 152 ) — 27 ( 125 ) Reclassifications of realized net (gains) losses to net income 6 ( 36 ) — ( 30 ) Balance at July 2, 2022 $ ( 127 ) $ 1,534 $ 125 $ 1,532 Nine months ended fiscal 2023 Balance at October 1, 2022 $ ( 179 ) $ 901 $ 139 $ 861 Nine Months Ended July 1, 2023: Unrealized gains (losses) arising during the period 81 ( 16 ) 7 72 Reclassifications of realized net (gains) losses to net income 95 — ( 14 ) 81 Balance at July 1, 2023 $ ( 3 ) $ 885 $ 132 $ 1,014 Nine months ended fiscal 2022 Balance at October 2, 2021 $ 42 $ 1,653 $ 89 $ 1,784 Nine Months Ended July 2, 2022: Unrealized gains (losses) arising during the period ( 184 ) ( 11 ) 36 ( 159 ) Reclassifications of realized net (gains) losses to net income 15 ( 108 ) — ( 93 ) Balance at July 2, 2022 $ ( 127 ) $ 1,534 $ 125 $ 1,532 22 THE WALT DISNEY COMPANY NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited; tabular dollars in millions, except for per share data) Market Value Adjustments for Hedges Unrecognized Pension and Postretirement Medical Expense Foreign Currency Translation and Other AOCI AOCI, after tax Third quarter of fiscal 2023 Balance at April 1, 2023 $ 1 $ ( 2,812 ) $ ( 1,578 ) $ ( 4,389 ) Quarter Ended July 1, 2023: Unrealized gains (losses) arising during the period 66 — ( 35 ) 31 Reclassifications of realized net (gains) losses to net income ( 56 ) 1 — ( 55 ) Balance at July 1, 2023 $ 11 $ ( 2,811 ) $ ( 1,613 ) $ ( 4,413 ) Third quarter of fiscal 2022 Balance at April 2, 2022 $ ( 32 ) $ ( 5,098 ) $ ( 1,182 ) $ ( 6,312 ) Quarter Ended July 2, 2022: Unrealized gains (losses) arising during the period 449 — ( 377 ) 72 Reclassifications of realized net (gains) losses to net income ( 21 ) 119 — 98 Balance at July 2, 2022 $ 396 $ ( 4,979 ) $ ( 1,559 ) $ ( 6,142 ) Nine months ended fiscal 2023 Balance at October 1, 2022 $ 625 $ ( 2,869 ) $ ( 1,875 ) $ ( 4,119 ) Nine Months Ended July 1, 2023: Unrealized gains (losses) arising during the period ( 302 ) 55 234 ( 13 ) Reclassifications of realized net (gains) losses to net income ( 312 ) 3 28 ( 281 ) Balance at July 1, 2023 $ 11 $ ( 2,811 ) $ ( 1,613 ) $ ( 4,413 ) Nine months ended fiscal 2022 Balance at October 2, 2021 $ ( 110 ) $ ( 5,372 ) $ ( 958 ) $ ( 6,440 ) Nine Months Ended July 2, 2022: Unrealized gains (losses) arising during the period 557 36 ( 601 ) ( 8 ) Reclassifications of realized net (gains) losses to net income ( 51 ) 357 — 306 Balance at July 2, 2022 $ 396 $ ( 4,979 ) $ ( 1,559 ) $ ( 6,142 ) 23 THE WALT DISNEY COMPANY NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited; tabular dollars in millions, except for per share data) Details about AOCI components reclassified to net income are as follows: Gain (loss) in net income: Affected line item in the Condensed Consolidated Statements of Operations: Quarter Ended Nine Months Ended July 1, 2023 July 2, 2022 July 1, 2023 July 2, 2022 Market value adjustments, primarily cash flow hedges Primarily revenue $ 73 $ 27 $ 407 $ 66 Estimated tax Income taxes ( 17 ) ( 6 ) ( 95 ) ( 15 ) 56 21 312 51 Pension and postretirement medical expense Interest expense, net ( 1 ) ( 155 ) ( 3 ) ( 465 ) Estimated tax Income taxes — 36 — 108 ( 1 ) ( 119 ) ( 3 ) ( 357 ) Foreign currency translation and other Restructuring and impairment charges — — ( 42 ) — Estimated tax Income taxes — — 14 — — — ( 28 ) — Total reclassifications for the period $ 55 $ ( 98 ) $ 281 $ ( 306 ) 12. Equity-Based Compensation Compensation expense related to stock options and restricted stock units (RSUs) is as follows: Quarter Ended Nine Months Ended July 1, 2023 July 2, 2022 July 1, 2023 July 2, 2022 Stock options $ 19 $ 23 $ 58 $ 68 RSUs 272 250 803 655 Total equity-based compensation expense (1) $ 291 $ 273 $ 861 $ 723 Equity-based compensation expense capitalized during the period $ 35 $ 39 $ 108 $ 109 (1) Equity-based compensation expense is net of capitalized equity-based compensation and estimated forfeitures and excludes amortization of previously capitalized equity-based compensation costs. Unrecognized compensation cost related to unvested stock options and RSUs was $ 73 million and $ 1.6 billion, respectively, as of July 1, 2023. During the nine months ended July 1, 2023 and July 2, 2022, the weighted average grant date fair values for options granted were $ 34.70 and $ 46.86 , respectively, and for RSUs were $ 91.98 and $ 139.55 , respectively. During the nine months ended July 1, 2023, the Company made equity compensation grants consisting of 1.6 million stock options and 9.9 million RSUs. 13. Commitments and Contingencies Legal Matters On May 12, 2023, a private securities class action lawsuit was filed in the U.S. District Court for the Central District of California against the Company, its former Chief Executive Officer, Robert Chapek, its former Chief Financial Officer, Christine M. McCarthy, and the former Chairman of the Disney Media and Entertainment Distribution segment, Kareem Daniel on behalf of certain purchasers of securities of the Company (the “Securities Class Action”). Claims in the Securities Class Action include (i) violations of Section 10(b) of the Exchange Act and Rule 10b-5 promulgated thereunder against all defendants, and (ii) violations of Section 20(a) of the Exchange Act against the individual defendants. Plaintiffs in the 24 THE WALT DISNEY COMPANY NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited; tabular dollars in millions, except for per share data) Securities Class Action allege purported misstatements and omissions concerning, and a scheme to conceal, accurate costs and subscriber growth of the Disney+ platform. The Company intends to defend against the lawsuit vigorously. The lawsuit is in the early stages and at this time we cannot reasonably estimate the amount of any potential loss. On August 4, 2023, a derivative complaint was filed in the U.S. District Court for the Central District of California against nominal Defendant Disney; its Chief Executive Officer Robert Iger; its former Chief Executive Officer, Robert Chapek; its former Chief Financial Officer, Christine M. McCarthy; the former Chairman of the Disney Media and Entertainment Distribution segment, Kareem Daniel, and ten current and former members of the Disney Board (Susan E. Arnold; Mary T. Barra; Safra A. Catz; Amy L. Chang; Francis A. deSouza; Michael B.G. Froman; Maria Elena Lagomasino; Calvin R. McDonald; Mark G. Parker; and Derica W. Rice). Along with alleged violations of Sections 10(b), 14(a), 20(a), and Rule 10b-5 of the Securities Exchange Act premised on the same allegations as the Securities Class Action, plaintiff seeks to recover for alleged breach of fiduciary duty, unjust enrichment, abuse of control, gross mismanagement and waste. The Company intends to defend against the lawsuit vigorously. The lawsuit is in the early stages, and at this time we cannot reasonably estimate the amount of any potential loss. The Company, together with, in some instances, certain of its directors and officers, is a defendant in various other legal actions involving copyright, breach of contract and various other claims incident to the conduct of its businesses. Management does not believe that the Company has incurred a probable material loss by reason of any of those actions. 14. Fair Value Measurements Fair value is defined as the amount that would be received for selling an asset or paid to transfer a liability in an orderly transaction between market participants and is generally classified in one of the following categories: Level 1 - Quoted prices for identical instruments in active markets Level 2 - Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations in which all significant inputs and significant value drivers are observable in active markets Level 3 - Valuations derived from valuation techniques in which one or more significant inputs or significant value drivers are unobservable The Company’s assets and liabilities measured at fair value are summarized in the following tables by fair value measurement Level: Fair Value Measurement at July 1, 2023 Level 1 Level 2 Level 3 Total Assets Investments $ 40 $ — $ — $ 40 Derivatives Foreign exchange — 1,128 — 1,128 Other — 7 — 7 Liabilities Derivatives Interest rate — ( 1,745 ) — ( 1,745 ) Foreign exchange — ( 767 ) — ( 767 ) Other — ( 8 ) — ( 8 ) Other — ( 474 ) — ( 474 ) Total recorded at fair value $ 40 $ ( 1,859 ) $ — $ ( 1,819 ) Fair value of borrowings $ — $ 42,915 $ 1,462 $ 44,377 25 THE WALT DISNEY COMPANY NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited; tabular dollars in millions, except for per share data) Fair Value Measurement at October 1, 2022 Level 1 Level 2 Level 3 Total Assets Investments $ 308 $ — $ — $ 308 Derivatives Interest rate — 1 — 1 Foreign exchange — 2,223 — 2,223 Other — 10 — 10 Liabilities Derivatives Interest rate — ( 1,783 ) — ( 1,783 ) Foreign exchange — ( 1,239 ) — ( 1,239 ) Other — ( 31 ) — ( 31 ) Other — ( 354 ) — ( 354 ) Total recorded at fair value $ 308 $ ( 1,173 ) $ — $ ( 865 ) Fair value of borrowings $ — $ 42,509 $ 1,510 $ 44,019 The fair values of Level 2 derivatives are primarily determined by internal discounted cash flow models that use observable inputs such as interest rates, yield curves and foreign currency exchange rates. Counterparty credit risk, which is mitigated by master netting agreements and collateral posting arrangements with certain counterparties, had an impact on derivative fair value estimates that was not material. Level 2 other liabilities are primarily arrangements that are valued based on the fair value of underlying investments, which are generally measured using Level 1 and Level 2 fair value techniques. Level 2 borrowings, which include commercial paper, U.S. dollar denominated notes and certain foreign currency denominated borrowings, are valued based on quoted prices for similar instruments in active markets or identical instruments in markets that are not active. Level 3 borrowings include the Asia Theme Park borrowings, which are valued based on the current borrowing cost and credit risk of the Asia Theme Parks as well as prevailing market interest rates. The Company’s financial instruments also include cash, cash equivalents, receivables and accounts payable. The carrying values of these financial instruments approximate the fair values. 15. Derivative Instruments The Company manages its exposure to various risks relating to its ongoing business operations according to a risk management policy. The primary risks managed with derivative instruments are interest rate risk and foreign exchange risk. 26 THE WALT DISNEY COMPANY NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited; tabular dollars in millions, except for per share data) The Company’s derivative positions measured at fair value are summarized in the following tables: As of July 1, 2023 Current Assets Other Assets Other Current Liabilities Other Long- Term Liabilities Derivatives designated as hedges Foreign exchange $ 523 $ 336 $ ( 213 ) $ ( 99 ) Interest rate — — ( 1,745 ) — Other 1 1 ( 6 ) ( 2 ) Derivatives not designated as hedges Foreign exchange 266 3 ( 393 ) ( 62 ) Other 5 — — — Gross fair value of derivatives 795 340 ( 2,357 ) ( 163 ) Counterparty netting ( 634 ) ( 262 ) 772 124 Cash collateral (received) paid ( 98 ) ( 4 ) 1,233 — Net derivative positions $ 63 $ 74 $ ( 352 ) $ ( 39 ) As of October 1, 2022 Current Assets Other Assets Other Current Liabilities Other Long- Term Liabilities Derivatives designated as hedges Foreign exchange $ 864 $ 786 $ ( 228 ) $ ( 350 ) Interest rate — 1 ( 1,783 ) — Other 10 — ( 4 ) — Derivatives not designated as hedges Foreign exchange 336 247 ( 374 ) ( 287 ) Other — — ( 27 ) — Gross fair value of derivatives 1,210 1,034 ( 2,416 ) ( 637 ) Counterparty netting ( 831 ) ( 715 ) 1,070 476 Cash collateral (received) paid ( 341 ) ( 151 ) 1,282 96 Net derivative positions $ 38 $ 168 $ ( 64 ) $ ( 65 ) Reference Rate Reform In June 2023, the Company’s interest rate and cross-currency swap agreements were amended to implement modifications related to changing the reference rates from LIBOR to SOFR and from the Canadian Dollar Offered Rate to the Canadian Overnight Repo Rate Average. In connection with these amendments, the Company applied the hedge accounting relief provided by the Financial Accounting Standards Board (FASB) in ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting to preserve the fair value hedge designation of the interest rate and cross-currency swaps. Interest Rate Risk Management The Company is exposed to the impact of interest rate changes primarily through its borrowing activities. The Company’s objective is to mitigate the impact of interest rate changes on earnings and cash flows and on the market value of its borrowings. In accordance with its policy, the Company targets its fixed-rate debt as a percentage of its net debt between a minimum and maximum percentage. The Company primarily uses pay-floating and pay-fixed interest rate swaps to facilitate its interest rate risk management activities. The Company designates pay-floating interest rate swaps as fair value hedges of fixed-rate borrowings effectively converting fixed-rate borrowings to variable-rate borrowings. The total notional amount of the Company’s pay-floating interest rate swaps at July 1, 2023 and October 1, 2022, was $ 13.5 billion and $ 14.5 billion, respectively. 27 THE WALT DISNEY COMPANY NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited; tabular dollars in millions, except for per share data) The following table summarizes fair value hedge adjustments to hedged borrowings: Carrying Amount of Hedged Borrowings Fair Value Adjustments Included in Hedged Borrowings July 1, 2023 October 1, 2022 July 1, 2023 October 1, 2022 Borrowings: Current $ — $ 997 $ — $ ( 3 ) Long-term 12,542 12,358 ( 1,640 ) ( 1,733 ) $ 12,542 $ 13,355 $ ( 1,640 ) $ ( 1,736 ) The following amounts are included in “Interest expense, net” in the Condensed Consolidated Statements of Operations: Quarter Ended Nine Months Ended July 1, 2023 July 2, 2022 July 1, 2023 July 2, 2022 Gain (loss) on: Pay-floating swaps $ ( 208 ) $ ( 210 ) $ 98 $ ( 1,129 ) Borrowings hedged with pay-floating swaps 208 210 ( 98 ) 1,129 Benefit (expense) associated with interest accruals on pay-floating swaps ( 140 ) 6 ( 360 ) 76 The Company may designate pay-fixed interest rate swaps as cash flow hedges of interest payments on floating-rate borrowings. Pay-fixed interest rate swaps effectively convert floating-rate borrowings to fixed-rate borrowings. The unrealized gains or losses from these cash flow hedges are deferred in AOCI and recognized in interest expense as the interest payments occur. The Company did not have pay-fixed interest rate swaps that were designated as cash flow hedges of interest payments at July 1, 2023 or at October 1, 2022, and gains and losses related to pay-fixed interest rate swaps recognized in earnings for the quarters and nine-month periods ended July 1, 2023 and July 2, 2022 were not material. Foreign Exchange Risk Management The Company transacts business globally and is subject to risks associated with changing foreign currency exchange rates. The Company’s objective is to reduce earnings and cash flow fluctuations associated with foreign currency exchange rate changes, enabling management to focus on core business issues and challenges. The Company enters into option and forward contracts that change in value as foreign currency exchange rates change to protect the value of its existing foreign currency assets, liabilities, firm commitments and forecasted but not firmly committed foreign currency transactions. In accordance with policy, the Company hedges its forecasted foreign currency transactions for periods generally not to exceed four years within an established minimum and maximum range of annual exposure. The gains and losses on these contracts offset changes in the U.S. dollar equivalent value of the related forecasted transaction, asset, liability or firm commitment. The principal currencies hedged are the euro, Japanese yen, British pound, Chinese yuan and Canadian dollar. Cross-currency swaps are used to effectively convert foreign currency denominated borrowings into U.S. dollar denominated borrowings. The Company designates foreign exchange forward and option contracts as cash flow hedges of firmly committed and forecasted foreign currency transactions. As of July 1, 2023 and October 1, 2022, the notional amounts of the Company’s net foreign exchange cash flow hedges were $ 9.1 billion and $ 7.4 billion, respectively. Mark-to-market gains and losses on these contracts are deferred in AOCI and are recognized in earnings when the hedged transactions occur, offsetting changes in the 28 THE WALT DISNEY COMPANY NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited; tabular dollars in millions, except for per share data) value of the foreign currency transactions. Net deferred gains recorded in AOCI for contracts that will mature in the next twelve months total $ 274 million. The following table summarizes the effect of foreign exchange cash flow hedges on AOCI: Quarter Ended Nine Months Ended July 1, 2023 July 2, 2022 July 1, 2023 July 2, 2022 Gain (loss) recognized in Other Comprehensive Income $ 89 $ 583 $ ( 398 ) $ 704 Gain (loss) reclassified from AOCI into the Statements of Operations (1) 76 16 414 42 (1) Primarily recorded in revenue. The Company designates cross currency swaps as fair value hedges of foreign currency denominated borrowings. The impact from the change in foreign currency on both the cross currency swap and borrowing is recorded to “Interest expense, net.” The impact from interest rate changes is recorded in AOCI and is amortized over the life of the cross currency swap. As of July 1, 2023 and October 1, 2022, the total notional amounts of the Company’s designated cross currency swaps were Canadian $ 1.3 billion ($ 1.0 billion) and Canadian $ 1.3 billion ($ 0.9 billion), respectively. The related gains or losses recognized in earnings were not material for the quarters and nine-month periods ended July 1, 2023 and July 2, 2022. Foreign exchange risk management contracts with respect to foreign currency denominated assets and liabilities are not designated as hedges and do not qualify for hedge accounting. The net notional amounts of these foreign exchange contracts at July 1, 2023 and October 1, 2022 were $ 4.6 billion and $ 3.8 billion, respectively. The following table summarizes the net foreign exchange gains or losses recognized on foreign currency denominated assets and liabilities and the net foreign exchange gains or losses on the foreign exchange contracts we entered into to mitigate our exposure with respect to foreign currency denominated assets and liabilities by the corresponding line item in which they are recorded in the Condensed Consolidated Statements of Operations: Costs and Expenses Interest expense, net Income Tax Expense Quarter Ended: July 1, 2023 July 2, 2022 July 1, 2023 July 2, 2022 July 1, 2023 July 2, 2022 Net gains (losses) on foreign currency denominated assets and liabilities $ ( 61 ) $ ( 275 ) $ ( 19 ) $ 29 $ ( 15 ) $ 96 Net gains (losses) on foreign exchange risk management contracts not designated as hedges — 257 17 ( 28 ) 19 ( 89 ) Net gains (losses) $ ( 61 ) $ ( 18 ) $ ( 2 ) $ 1 $ 4 $ 7 Nine Months Ended: Net gains (losses) on foreign currency denominated assets and liabilities $ 99 $ ( 420 ) $ ( 39 ) $ 17 $ ( 124 ) $ 141 Net gains (losses) on foreign exchange risk management contracts not designated as hedges ( 260 ) 327 36 ( 18 ) 106 ( 132 ) Net gains (losses) $ ( 161 ) $ ( 93 ) $ ( 3 ) $ ( 1 ) $ ( 18 ) $ 9 Commodity Price Risk Management The Company is subject to the volatility of commodities prices and the Company designates certain commodity forward contracts as cash flow hedges of forecasted commodity purchases. Mark-to-market gains and losses on these contracts are deferred in AOCI and are recognized in earnings when the hedged transactions occur, offsetting changes in the value of commodity purchases. The notional amount of these commodities contracts at July 1, 2023 and October 1, 2022 and related gains or losses recognized in earnings for the quarters and nine-month periods ended July 1, 2023 and July 2, 2022 were not material. Risk Management – Other Derivatives Not Designated as Hedges The Company enters into certain other risk management contracts that are not designated as hedges and do not qualify for hedge accounting. These contracts, which include certain total return swap contracts, are intended to offset economic exposures of the Company and are carried at market value with any changes in value recorded in earnings. The notional amounts of these 29 THE WALT DISNEY COMPANY NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited; tabular dollars in millions, except for per share data) contracts at both July 1, 2023 and October 1, 2022 were $ 0.4 billion. The related gains or losses recognized in earnings were not material for the quarters and nine-month periods ended July 1, 2023 and July 2, 2022. Contingent Features and Cash Collateral The Company has master netting arrangements by counterparty with respect to certain derivative financial instrument contracts. The Company may be required to post collateral in the event that a net liability position with a counterparty exceeds limits defined by contract and that vary with the Company’s credit rating. In addition, these contracts may require a counterparty to post collateral to the Company in the event that a net receivable position with a counterparty exceeds limits defined by contract and that vary with the counterparty’s credit rating. If the Company’s or the counterparty’s credit ratings were to fall below investment grade, such counterparties or the Company would also have the right to terminate our derivative contracts, which could lead to a net payment to or from the Company for the aggregate net value by counterparty of our derivative contracts. The aggregate fair values of derivative instruments with credit-risk-related contingent features in a net liability position by counterparty were $ 1.6 billion and $ 1.5 billion at July 1, 2023 and October 1, 2022, respectively. 16. Restructuring and Impairment Charges Content Impairment As part of the Company’s reorganization announced in February 2023, we reviewed our content for alignment with a strategic change in our approach to content curation, and, during the third quarter of fiscal 2023, we removed content from our DTC services and terminated certain third-party license agreements for the right to use content primarily on our DTC platforms. Accordingly, we recorded charges of $ 2.4 billion in the quarter ended July 1, 2023 (Content Impairment Charge), of which $ 2.0 billion was related to the write-off of produced content and $ 0.4 billion was related to the termination of the license agreements. We paid approximately $ 0.3 billion of cash to terminate these third-party license agreements. The charges are recorded in “Restructuring and impairment charges” in the Condensed Consolidated Statements of Operations. Restructuring The quarter ended July 1, 2023 included charges of $ 210 million for severance costs. The nine months ended July 1, 2023 included charges of $ 431 million primarily for severance costs and costs related to exiting our businesses in Russia. The quarter and nine months ended July 2, 2022 included charges of $ 42 million and $ 237 million, respectively, primarily due to asset impairments related to exiting our businesses in Russia. These charges are recorded in “Restructuring and impairment charges” in the Condensed Consolidated Statements of Operations. 17. New Accounting Pronouncements Accounting Pronouncements Not Yet Adopted Disclosures by Business Entities about Government Assistance In November 2021, the FASB issued guidance requiring annual disclosures about transactions with a government that are accounted for by analogizing to a grant or contribution accounting model, including: the nature of the transactions, the accounting for the transactions, and the effect of the transactions on the financial statements. The guidance is effective for annual periods beginning with the Company’s 2023 fiscal year. While the guidance will not have an effect on the Company’s Consolidated Statements of Operations or Consolidated Balance Sheets upon adoption in the fourth quarter of fiscal 2023, the Company may need to provide disclosures related to content production incentives, which are the most significant type of government assistance we receive. 30 MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS