Item 1. Financial Statements
Item 1: Financial Statements
THE WALT DISNEY COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(unaudited; in millions, except per share data)
Quarter Ended
December 30,
2023 December 31,
2022
Revenues:
Services $ 20,975 $ 20,997
Products 2,574 2,515
Total revenues 23,549 23,512
Costs and expenses:
Cost of services (exclusive of depreciation and amortization)
( 13,922 ) ( 14,781 )
Cost of products (exclusive of depreciation and amortization)
( 1,665 ) ( 1,605 )
Selling, general, administrative and other ( 3,783 ) ( 3,827 )
Depreciation and amortization ( 1,243 ) ( 1,306 )
Total costs and expenses ( 20,613 ) ( 21,519 )
Restructuring and impairment charges — ( 69 )
Other expense, net
— ( 42 )
Interest expense, net ( 246 ) ( 300 )
Equity in the income of investees 181 191
Income before income taxes
2,871 1,773
Income taxes
( 720 ) ( 412 )
Net income 2,151 1,361
Net income attributable to noncontrolling interests
( 240 ) ( 82 )
Net income attributable to Disney $ 1,911 $ 1,279
Earnings per share attributable to Disney:
Diluted $ 1.04 $ 0.70
Basic $ 1.04 $ 0.70
Weighted average number of common and common equivalent shares outstanding:
Diluted 1,835 1,827
Basic 1,832 1,825
See Notes to Condensed Consolidated Financial Statements
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THE WALT DISNEY COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(unaudited; in millions)
Quarter Ended
December 30,
2023 December 31,
2022
Net income $ 2,151 $ 1,361
Other comprehensive income (loss), net of tax:
Market value adjustments for hedges ( 319 ) ( 542 )
Pension and postretirement medical plan adjustments
( 21 ) 1
Foreign currency translation and other
174 227
Other comprehensive loss
( 166 ) ( 314 )
Comprehensive income
1,985 1,047
Net income attributable to noncontrolling interests
( 240 ) ( 82 )
Other comprehensive income attributable to noncontrolling interests ( 44 ) ( 45 )
Comprehensive income attributable to Disney $ 1,701 $ 920
See Notes to Condensed Consolidated Financial Statements
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THE WALT DISNEY COMPANY
CONDENSED CONSOLIDATED BALANCE SHEETS
(unaudited; in millions, except per share data)
December 30,
2023 September 30,
2023
ASSETS
Current assets
Cash and cash equivalents $ 7,192 $ 14,182
Receivables, net 14,115 12,330
Inventories 1,954 1,963
Content advances 1,409 3,002
Other current assets 1,301 1,286
Total current assets 25,971 32,763
Produced and licensed content costs 32,725 33,591
Investments 3,084 3,080
Parks, resorts and other property
Attractions, buildings and equipment 72,096 70,090
Accumulated depreciation ( 43,575 ) ( 42,610 )
28,521 27,480
Projects in progress 5,618 6,285
Land 1,182 1,176
35,321 34,941
Intangible assets, net 12,639 13,061
Goodwill 77,066 77,067
Other assets 10,968 11,076
Total assets $ 197,774 $ 205,579
LIABILITIES AND EQUITY
Current liabilities
Accounts payable and other accrued liabilities $ 18,676 $ 20,671
Current portion of borrowings 6,087 4,330
Deferred revenue and other 6,270 6,138
Total current liabilities 31,033 31,139
Borrowings 41,603 42,101
Deferred income taxes 7,041 7,258
Other long-term liabilities 12,596 12,069
Commitments and contingencies (Note 13)
Redeemable noncontrolling interests — 9,055
Equity
Preferred stock
— —
Common stock, $0.01 par value, Authorized – 4.6 billion shares, Issued – 1.9 billion shares at December 30, 2023 and 1.8 billion shares at September 30, 2023
57,640 57,383
Retained earnings 47,490 46,093
Accumulated other comprehensive loss ( 3,502 ) ( 3,292 )
Treasury stock, at cost, 19 million shares
( 907 ) ( 907 )
Total Disney Shareholders’ equity 100,721 99,277
Noncontrolling interests 4,780 4,680
Total equity 105,501 103,957
Total liabilities and equity $ 197,774 $ 205,579
See Notes to Condensed Consolidated Financial Statements
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THE WALT DISNEY COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited; in millions)
Quarter Ended
December 30,
2023 December 31,
2022
OPERATING ACTIVITIES
Net income
$ 2,151 $ 1,361
Depreciation and amortization 1,243 1,306
Deferred income taxes ( 51 ) ( 15 )
Equity in the income of investees ( 181 ) ( 191 )
Cash distributions received from equity investees 153 176
Net change in produced and licensed content costs and advances 2,642 558
Equity-based compensation 308 270
Other, net ( 64 ) ( 163 )
Changes in operating assets and liabilities:
Receivables ( 1,554 ) ( 1,423 )
Inventories 8 ( 88 )
Other assets 30 ( 443 )
Accounts payable and other liabilities ( 1,396 ) ( 2,378 )
Income taxes ( 1,104 ) 56
Cash provided by (used in) operations
2,185 ( 974 )
INVESTING ACTIVITIES
Investments in parks, resorts and other property ( 1,299 ) ( 1,181 )
Other, net 53 ( 111 )
Cash used in investing activities
( 1,246 ) ( 1,292 )
FINANCING ACTIVITIES
Commercial paper borrowings, net
1,046 799
Borrowings — 67
Reduction of borrowings ( 309 ) ( 1,000 )
Contributions from / sale of noncontrolling interest — 178
Acquisition of redeemable noncontrolling interest ( 8,610 ) ( 900 )
Other, net ( 133 ) ( 187 )
Cash used in financing activities
( 8,006 ) ( 1,043 )
Impact of exchange rates on cash, cash equivalents and restricted cash 79 164
Change in cash, cash equivalents and restricted cash ( 6,988 ) ( 3,145 )
Cash, cash equivalents and restricted cash, beginning of period 14,235 11,661
Cash, cash equivalents and restricted cash, end of period $ 7,247 $ 8,516
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 (1)
Common Stock Retained Earnings
Accumulated
Other
Comprehensive
Income
(Loss) Treasury Stock Total Disney Equity
Non-controlling
Interests (2)
Total
Equity
Balance at September 30, 2023 1,830 $ 57,383 $ 46,093 $ ( 3,292 ) $ ( 907 ) $ 99,277 $ 4,680 $ 103,957
Comprehensive income (loss) — — 1,911 ( 210 ) — 1,701 129 1,830
Equity compensation activity 4 250 — — — 250 — 250
Dividends — — ( 549 ) — — ( 549 ) — ( 549 )
Distributions and other — 7 35 — — 42 ( 29 ) 13
Balance at December 30, 2023 1,834 $ 57,640 $ 47,490 $ ( 3,502 ) $ ( 907 ) $ 100,721 $ 4,780 $ 105,501
Balance at October 1, 2022 1,824 $ 56,398 $ 43,636 $ ( 4,119 ) $ ( 907 ) $ 95,008 $ 3,871 $ 98,879
Comprehensive income (loss) — — 1,279 ( 359 ) — 920 ( 16 ) 904
Equity compensation activity 2 180 — — — 180 — 180
Contributions — — — — — — 178 178
Distributions and other — 1 40 — — 41 ( 47 ) ( 6 )
Balance at December 31, 2022 1,826 $ 56,579 $ 44,955 $ ( 4,478 ) $ ( 907 ) $ 96,149 $ 3,986 $ 100,135
(1) Shares are net of treasury shares.
(2) Excludes redeemable noncontrolling interests.
See Notes to Condensed Consolidated Financial Statements
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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 quarter ended December 30, 2023 are not necessarily indicative of the results that may be expected for the year ending September 28, 2024.
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 2023 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 Interest
Hulu LLC
In November 2023, NBC Universal (NBCU) exercised its right to require the Company to purchase NBCU’s 33 % interest in Hulu LLC (Hulu), a direct-to-consumer (DTC) streaming service provider, at a redemption value based on NBCU’s equity ownership percentage of the greater of Hulu’s equity fair value or a guaranteed floor value of $ 27.5 billion. In connection with the redemption, the Company will pay NBCU 50 % of the future tax benefits from the amortization of the purchase of NBCU’s interest in Hulu that will generally arise over a 15 -year period. In December 2023, the Company paid NBCU $ 8.6 billion, which reflected the guaranteed floor value less NBCU’s unpaid capital call contributions.
Based on valuation procedures agreed upon by NBCU and the Company, Hulu’s equity fair value for purposes of determining the redemption payment is not expected to be finalized until later in calendar 2024. If Hulu’s equity fair value is determined to be higher than the guaranteed floor value, the Company is required to pay NBCU its share of the difference between the equity fair value and the guaranteed floor value.
The Company is required to accrete NBCU’s interest to the estimated redemption value and has accreted to the guaranteed floor value. If the redemption value is higher than the guaranteed floor value, we would record the increment as “Net income attributable to noncontrolling interests” and thus reduce “Net income attributable to Disney” in the Condensed Consolidated Statements of Income. Estimating the redemption value prior to its final determination requires management to make significant judgments related to assessing the fair value of Hulu.
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 attributable to noncontrolling interests” in the Condensed Consolidated Statements of Income.
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THE WALT DISNEY COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited; tabular dollars in millions, except for per share data)
During the three months ended December 31, 2022, Hearst Corporation (Hearst) contributed $ 178 million to the domestic DTC sports business to fund its 20 % share of the MLB buy-out.
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 2023 financial statements and notes to conform to the fiscal 2024 presentation.
2. Segment Information
The Company’s operations are reported in three segments: Entertainment, Sports and Experiences, 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 amortization of intangible assets and the fair value step-up for film and television costs recognized in connection with the acquisition of TFCF Corporation (TFCF) and Hulu 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.
9
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
December 30,
2023 December 31,
2022
Revenues:
Entertainment
Third parties $ 9,881 $ 10,584
Intersegment 100 91
9,981 10,675
Sports
Third parties 4,536 4,383
Intersegment 299 257
4,835 4,640
Experiences 9,132 8,545
Eliminations ( 399 ) ( 348 )
Total segment revenues $ 23,549 $ 23,512
Segment operating income:
Entertainment $ 874 $ 345
Sports ( 103 ) ( 164 )
Experiences 3,105 2,862
Total segment operating income (1)
$ 3,876 $ 3,043
(1) Equity in the income of investees is included in segment operating income as follows:
Quarter Ended
December 30,
2023 December 31,
2022
Entertainment $ 171 $ 193
Sports 13 3
Experiences — ( 2 )
Equity in the income of investees included in segment operating income 184 194
Amortization of TFCF intangible assets related to equity investees ( 3 ) ( 3 )
Equity in the income of investees, net $ 181 $ 191
10
THE WALT DISNEY COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited; tabular dollars in millions, except for per share data)
A reconciliation of segment operating income to income before income taxes is as follows:
Quarter Ended
December 30,
2023 December 31,
2022
Segment operating income $ 3,876 $ 3,043
Corporate and unallocated shared expenses ( 308 ) ( 280 )
Restructuring and impairment charges (1)
— ( 69 )
Other expense, net (2)
— ( 42 )
Interest expense, net ( 246 ) ( 300 )
TFCF and Hulu acquisition amortization (3)
( 451 ) ( 579 )
Income before income taxes
$ 2,871 $ 1,773
(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 expense, net.
(3) TFCF and Hulu acquisition amortization is as follows:
Quarter Ended
December 30,
2023 December 31,
2022
Amortization of intangible assets $ 380 $ 417
Step-up of film and television costs 68 159
Intangibles related to TFCF equity investees 3 3
$ 451 $ 579
Goodwill
The changes in the carrying amount of goodwill are as follows:
Entertainment Sports Experiences Total
Balance at September 30, 2023 $ 55,031 $ 16,486 $ 5,550 $ 77,067
Currency translation adjustments and other, net ( 1 ) — — ( 1 )
Balance at December 30, 2023 $ 55,030 $ 16,486 $ 5,550 $ 77,066
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THE WALT DISNEY COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited; tabular dollars in millions, except for per share data)
3. Revenues
The following table presents our revenues by segment and major source:
Quarter Ended December 30, 2023
Entertainment Sports Experiences Eliminations Total
Affiliate fees $ 1,766 $ 2,669 $ — $ ( 293 ) $ 4,142
Subscription fees 4,507 415 — — 4,922
Advertising 1,997 1,351 — — 3,348
Theme park admissions — — 2,982 — 2,982
Resort and vacations — — 2,118 — 2,118
Retail and wholesale sales of merchandise, food and beverage — — 2,477 — 2,477
Merchandise licensing 192 — 967 — 1,159
TV/VOD distribution licensing
536 57 — — 593
Theatrical distribution licensing 251 — — — 251
Home entertainment 209 — — — 209
Other 523 343 588 ( 106 ) 1,348
$ 9,981 $ 4,835 $ 9,132 $ ( 399 ) $ 23,549
Quarter Ended December 31, 2022
Entertainment Sports Experiences Eliminations Total
Affiliate fees $ 1,873 $ 2,653 $ — $ ( 266 ) $ 4,260
Subscription fees 3,861 379 — — 4,240
Advertising 2,180 1,262 1 — 3,443
Theme park admissions — — 2,641 — 2,641
Resort and vacations — — 1,980 — 1,980
Retail and wholesale sales of merchandise, food and beverage — — 2,382 — 2,382
Merchandise licensing 191 — 952 — 1,143
TV/VOD distribution licensing
724 76 — — 800
Theatrical distribution licensing 1,140 — — — 1,140
Home entertainment 185 — — — 185
Other 521 270 589 ( 82 ) 1,298
$ 10,675 $ 4,640 $ 8,545 $ ( 348 ) $ 23,512
The following table presents our revenues by segment and primary geographical markets:
Quarter Ended December 30, 2023
Entertainment Sports Experiences Eliminations Total
Americas $ 7,588 $ 4,358 $ 7,037 $ ( 399 ) $ 18,584
Europe 1,409 179 1,022 — 2,610
Asia Pacific 984 298 1,073 — 2,355
Total revenues $ 9,981 $ 4,835 $ 9,132 $ ( 399 ) $ 23,549
Quarter Ended December 31, 2022
Entertainment Sports Experiences Eliminations Total
Americas $ 8,150 $ 4,315 $ 6,854 $ ( 348 ) $ 18,971
Europe 1,499 126 1,015 — 2,640
Asia Pacific 1,026 199 676 — 1,901
Total revenues $ 10,675 $ 4,640 $ 8,545 $ ( 348 ) $ 23,512
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/VOD licenses for titles made available to the licensee in previous reporting periods. For the quarter ended December 30, 2023, $ 0.3 billion was recognized related to performance obligations satisfied as of September 30, 2023. For the quarter ended December 31, 2022, $ 0.3 billion was recognized related to performance obligations satisfied as of October 1, 2022.
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THE WALT DISNEY COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited; tabular dollars in millions, except for per share data)
As of December 30, 2023, revenue for unsatisfied performance obligations expected to be recognized in the future is $ 14 billion, primarily for IP or advertising time to be made available in the future under existing agreements with merchandise and co-branding licensees and sponsors, television station affiliates, DTC wholesalers, advertisers and sports sublicensees. Of this amount, we expect to recognize approximately $ 5 billion in the remainder of fiscal 2024, $ 5 billion in fiscal 2025, $ 2 billion in fiscal 2026 and $ 2 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:
December 30,
2023 September 30,
2023
Accounts receivable
Current $ 11,810 $ 10,279
Non-current 1,191 1,212
Allowance for credit losses ( 156 ) ( 154 )
Deferred revenues
Current 5,641 5,568
Non-current 952 977
For the quarter ended December 30, 2023, the Company recognized revenue of $ 3.4 billion that was included in the September 30, 2023 deferred revenue balance. For the quarter ended December 31, 2022, the Company recognized revenue of $ 3.4 billion that was included in the October 1, 2022 deferred revenue balance. Amounts deferred generally relate to theme park admissions and vacation packages, DTC subscriptions and advances related to merchandise and TV/VOD 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/VOD 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/VOD licensing receivables recorded in other non-current assets was $ 0.5 billion at December 30, 2023 and $ 0.6 billion at September 30, 2023. The balance of vacation club receivables recorded in other non-current assets was $ 0.7 billion at both December 30, 2023 and September 30, 2023. The allowance for credit losses for TV/VOD licensing and vacation club receivables and related activity for the periods ended December 30, 2023 and September 30, 2023 were not material.
13
THE WALT DISNEY COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited; tabular dollars in millions, except for per share data)
4. Other Expense, net
Other expense, net is as follows:
Quarter Ended
December 30,
2023 December 31,
2022
DraftKings loss $ — $ ( 70 )
Other
— 28
Other expense, net
$ — $ ( 42 )
In the prior-year quarter, the Company recognized a $ 70 million non-cash loss to adjust its investment in DraftKings, Inc. (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.
December 30,
2023 September 30,
2023
Cash and cash equivalents $ 7,192 $ 14,182
Restricted cash included in other assets
55 53
Total cash, cash equivalents and restricted cash in the statement of cash flows $ 7,247 $ 14,235
Borrowings
During the quarter ended December 30, 2023, the Company’s borrowing activity was as follows:
September 30,
2023 Borrowings Payments Other
Activity December 30,
2023
Commercial paper with original maturities less than three months $ 289 $ 542 $ — $ 5 $ 836
Commercial paper with original maturities greater than three months 1,187 754 ( 250 ) 16 1,707
U.S. dollar denominated notes
43,504 — ( 295 ) ( 39 ) 43,170
Asia Theme Parks borrowings
1,308 — ( 14 ) 50 1,344
Foreign currency denominated debt and other (1)
143 — — 490 633
$ 46,431 $ 1,296 $ ( 559 ) $ 522 $ 47,690
(1) The other activity is attributable to market value adjustments for debt with qualifying hedges.
At December 30, 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
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THE WALT DISNEY COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited; tabular dollars in millions, except for per share data)
only one financial covenant relating to interest coverage of three times earnings before interest, taxes, depreciation and amortization, including both intangible amortization and amortization of our film and television production and programming costs. On December 30, 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 December 30, 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 became 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 .
Interest expense, net
Interest expense (net of amounts capitalized), interest and investment income, and net periodic pension and postretirement benefit costs (other than service costs) (see Note 9) are reported net in the Condensed Consolidated Statements of Income and consist of the following:
Quarter Ended
December 30,
2023 December 31,
2022
Interest expense $ ( 528 ) $ ( 465 )
Interest and investment income 182 79
Net periodic pension and postretirement benefit costs (other than service costs) 100 86
Interest expense, net $ ( 246 ) $ ( 300 )
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:
December 30,
2023 September 30,
2023
Cash and cash equivalents $ 426 $ 504
Other current assets 184 159
Total current assets 610 663
Parks, resorts and other property 6,212 6,150
Other assets 223 234
Total assets $ 7,045 $ 7,047
Current liabilities $ 710 $ 720
Long-term borrowings 1,344 1,308
Other long-term liabilities 398 392
Total liabilities $ 2,452 $ 2,420
15
THE WALT DISNEY COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited; tabular dollars in millions, except for per share data)
The following table summarizes the International Theme Parks’ revenues and costs and expenses included in the Company’s Condensed Consolidated Statements of Income for the quarter ended December 30, 2023:
Revenues $ 1,362
Costs and expenses ( 1,123 )
Asia Theme Parks’ royalty and management fees of $ 67 million for the quarter ended December 30, 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 quarter ended December 30, 2023 were $ 352 million provided by operating activities, $ 239 million used in investing activities and $ 12 million used in financing activities.
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 $ 166 million and $ 111 million, respectively. The interest rate on both loans is three month HIBOR plus 2 %, and the scheduled 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 ($ 346 million), which bears interest at a rate of three month HIBOR plus 1.25 % and matures in December 2028. The line of credit was fully repaid during the quarter ended December 30, 2023. 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 $ 978 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 %. The line of credit was fully repaid during the quarter ended December 30, 2023. These balances are eliminated in consolidation.
Shendi has provided Shanghai Disney Resort with loans totaling 8.8 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 %. The line of credit was fully repaid during the quarter ended December 30, 2023.
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)
16
THE WALT DISNEY COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited; tabular dollars in millions, except for per share data)
Total capitalized produced and licensed content by predominant monetization strategy is as follows:
As of December 30, 2023 As of September 30, 2023
Predominantly Monetized Individually Predominantly Monetized
as a Group Total Predominantly Monetized Individually Predominantly Monetized
as a Group Total
Produced content
Released, less amortization $ 4,911 $ 13,725 $ 18,636 $ 4,968 $ 13,555 $ 18,523
Completed, not released — 1,713 1,713 70 1,786 1,856
In-process 3,157 5,394 8,551 3,331 6,120 9,451
In development or pre-production 262 132 394 279 133 412
$ 8,330 $ 20,964 29,294 $ 8,648 $ 21,594 30,242
Licensed content - Television programming rights and advances 4,840 6,351
Total produced and licensed content $ 34,134 $ 36,593
Current portion $ 1,409 $ 3,002
Non-current portion $ 32,725 $ 33,591
Amortization of produced and licensed content is as follows:
Quarter Ended
December 30,
2023 December 31,
2022
Produced content
Predominantly monetized individually $ 768 $ 1,157
Predominantly monetized as a group 1,794 2,160
2,562 3,317
Licensed programming rights and advances 4,590 4,539
Total produced and licensed content costs (1)
$ 7,152 $ 7,856
(1) Primarily included in “Costs of services” in the Condensed Consolidated Statements of Income.
8. Income Taxes
Unrecognized Tax Benefits
The Company’s gross unrecognized tax benefits (before interest and penalties) at both December 30, 2023 and September 30, 2023, were $ 2.5 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 $ 0.3 billion.
17
THE WALT DISNEY COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited; tabular dollars in millions, except for per share data)
9. Pension and Other Benefit Programs
The components of net periodic benefit cost (income) are as follows:
Pension Plans Postretirement Medical Plans
Quarter Ended Quarter Ended
December 30,
2023 December 31,
2022 December 30,
2023 December 31,
2022
Service costs $ 62 $ 65 $ — $ 1
Other costs (benefits):
Interest costs 208 196 14 20
Expected return on plan assets ( 284 ) ( 288 ) ( 14 ) ( 15 )
Amortization of previously deferred service costs 2 2 ( 22 ) —
Recognized net actuarial loss 5 5 ( 9 ) ( 6 )
Total other costs (benefits) ( 69 ) ( 85 ) ( 31 ) ( 1 )
Net periodic benefit cost (income) $ ( 7 ) $ ( 20 ) $ ( 31 ) $ —
During the quarter ended December 30, 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 2024. Final minimum funding requirements for fiscal 2024 will be determined based on a January 1, 2024 funding actuarial valuation, which is expected to be received in the fourth quarter of fiscal 2024.
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
December 30,
2023 December 31,
2022
Shares (in millions):
Weighted average number of common and common equivalent shares outstanding (basic) 1,832 1,825
Weighted average dilutive impact of Awards 3 2
Weighted average number of common and common equivalent shares outstanding (diluted) 1,835 1,827
Awards excluded from diluted earnings per share 39 26
11. Equity
On November 30, 2023 , the Board of Directors declared a cash dividend of $ 0.30 per share ($ 549 million) with respect to the second half of fiscal 2023, which was paid in January 2024 to shareholders of record as of December 11, 2023 .
On February 7, 2024 , the Board of Directors declared a cash dividend of $ 0.45 per share with respect to the first half of fiscal 2024, which will be paid on July 25, 2024 to shareholders of record as of July 8, 2024 .
Effective February 7, 2024, the Board of Directors authorized a new share repurchase program for the Company to repurchase a total of 400 million shares of its common stock. The Company plans to target repurchases of $ 3 billion in fiscal 2024. The repurchase program does not have an expiration date.
18
THE WALT DISNEY COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited; tabular dollars in millions, except for per share data)
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
First quarter of fiscal 2024
Balance at September 30, 2023 $ 259 $ ( 2,172 ) $ ( 1,974 ) $ ( 3,887 )
Quarter Ended December 30, 2023:
Unrealized gains (losses) arising during the period ( 277 ) ( 3 ) 137 ( 143 )
Reclassifications of realized net (gains) losses to net income ( 140 ) ( 24 ) — ( 164 )
Balance at December 30, 2023 $ ( 158 ) $ ( 2,199 ) $ ( 1,837 ) $ ( 4,194 )
First quarter of fiscal 2023
Balance at October 1, 2022 $ 804 $ ( 3,770 ) $ ( 2,014 ) $ ( 4,980 )
Quarter Ended December 31, 2022:
Unrealized gains (losses) arising during the period ( 475 ) — 146 ( 329 )
Reclassifications of realized net (gains) losses to net income ( 218 ) 1 42 ( 175 )
Balance at December 31, 2022 $ 111 $ ( 3,769 ) $ ( 1,826 ) $ ( 5,484 )
Market Value Adjustments for Hedges Unrecognized
Pension and
Postretirement
Medical
Expense Foreign
Currency
Translation
and Other AOCI
Tax on AOCI
First quarter of fiscal 2024
Balance at September 30, 2023 $ ( 64 ) $ 517 $ 142 $ 595
Quarter Ended December 30, 2023:
Unrealized gains (losses) arising during the period 66 — ( 7 ) 59
Reclassifications of realized net (gains) losses to net income 32 6 — 38
Balance at December 30, 2023 $ 34 $ 523 $ 135 $ 692
First quarter of fiscal 2023
Balance at October 1, 2022 $ ( 179 ) $ 901 $ 139 $ 861
Quarter Ended December 31, 2022:
Unrealized gains (losses) arising during the period 100 — 8 108
Reclassifications of realized net (gains) losses to net income 51 — ( 14 ) 37
Balance at December 31, 2022 $ ( 28 ) $ 901 $ 133 $ 1,006
19
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
First quarter of fiscal 2024
Balance at September 30, 2023 $ 195 $ ( 1,655 ) $ ( 1,832 ) $ ( 3,292 )
Quarter Ended December 30, 2023:
Unrealized gains (losses) arising during the period ( 211 ) ( 3 ) 130 ( 84 )
Reclassifications of realized net (gains) losses to net income ( 108 ) ( 18 ) — ( 126 )
Balance at December 30, 2023 $ ( 124 ) $ ( 1,676 ) $ ( 1,702 ) $ ( 3,502 )
First quarter of fiscal 2023
Balance at October 1, 2022 $ 625 $ ( 2,869 ) $ ( 1,875 ) $ ( 4,119 )
Quarter Ended December 31, 2022:
Unrealized gains (losses) arising during the period ( 375 ) — 154 ( 221 )
Reclassifications of realized net (gains) losses to net income ( 167 ) 1 28 ( 138 )
Balance at December 31, 2022 $ 83 $ ( 2,868 ) $ ( 1,693 ) $ ( 4,478 )
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
December 30,
2023 December 31,
2022
Market value adjustments, primarily cash flow hedges Primarily revenue $ 140 $ 218
Estimated tax Income taxes ( 32 ) ( 51 )
108 167
Pension and postretirement medical expense Interest expense, net 24 ( 1 )
Estimated tax Income taxes ( 6 ) —
18 ( 1 )
Foreign currency translation and other Restructuring and impairment charges — ( 42 )
Estimated tax Income taxes — 14
— ( 28 )
Total reclassifications for the period $ 126 $ 138
20
THE WALT DISNEY COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited; tabular dollars in millions, except for per share data)
12. Equity-Based Compensation
Compensation expense related to stock options and restricted stock units (RSUs) is as follows:
Quarter Ended
December 30,
2023 December 31,
2022
Stock options $ 17 $ 19
RSUs 291 251
Total equity-based compensation expense (1)
$ 308 $ 270
Equity-based compensation expense capitalized during the period $ 44 $ 36
(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 $ 137 million and $ 2.8 billion, respectively, as of December 30, 2023.
During the quarters ended December 30, 2023 and December 31, 2022, the weighted average grant date fair values for options granted were $ 32.06 and $ 34.71 , respectively, and for RSUs were $ 93.87 and $ 91.89 , respectively.
During the quarter ended December 30, 2023, the Company made equity compensation grants consisting of 2.7 million stock options and 15.7 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”). On November 6, 2023, a consolidated complaint was filed in the same action, adding Robert Iger, the Company’s Chief Executive Officer, as a defendant. 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, (ii) violations of Section 20A of the Exchange Act against Iger and McCarthy, and (iii) violations of Section 20(a) of the Exchange Act against all defendants. Plaintiffs in the 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 and filed a motion to dismiss the complaint for failure to state a claim on December 21, 2023. Plaintiffs filed their opposition on February 5, 2024, and the Company may file a reply brief by March 5, 2024. The lawsuit is in the early stages and at this time we cannot reasonably estimate the amount of any potential loss.
Three shareholder derivative complaints have been filed. The first, in which Hugues Gervat is the plaintiff, was filed on August 4, 2023, in the U.S. District Court for the Central District of California. The second, in which Stourbridge Investments LLC is the plaintiff, was filed on August 23, 2023 in the U.S. District Court for the District of Delaware. And the third, in which Audrey McAdams is the Plaintiff, was filed on December 15, 2023, in the U.S. District Court for the Central District of California. Each named The Walt Disney Company as a nominal defendant and alleged claims on its behalf against the Company’s 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, plaintiffs in both actions sought to recover for alleged breach of fiduciary duty, unjust enrichment, abuse of control, gross mismanagement and waste. On October 24, 2023, the Stourbridge action was voluntarily dismissed and, on November 16, 2023, was refiled in Delaware state court alleging analogous theories of liability based on state law. On October 30, 2023, the Gervat action was stayed pending a ruling on the motion to dismiss filed in the Securities Class Action. The Stourbridge action was likewise stayed under an order entered December 12, 2023. The Company intends to defend against these lawsuits vigorously. The lawsuits are in the early stages, and at this time we cannot reasonably estimate the amount of any potential loss.
21
THE WALT DISNEY COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited; tabular dollars in millions, except for per share data)
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 December 30, 2023
Level 1 Level 2 Level 3 Total
Assets
Investments $ — $ 145 $ — $ 145
Derivatives
Foreign exchange — 668 — 668
Other — 18 — 18
Liabilities
Derivatives
Interest rate — ( 1,459 ) — ( 1,459 )
Foreign exchange — ( 565 ) — ( 565 )
Other — ( 4 ) — ( 4 )
Other — ( 539 ) — ( 539 )
Total recorded at fair value $ — $ ( 1,736 ) $ — $ ( 1,736 )
Fair value of borrowings $ — $ 44,075 $ 1,370 $ 45,445
Fair Value Measurement at September 30, 2023
Level 1 Level 2 Level 3 Total
Assets
Investments $ 46 $ 128 $ — $ 174
Derivatives
Foreign exchange — 1,336 — 1,336
Other — 18 — 18
Liabilities
Derivatives
Interest rate — ( 1,791 ) — ( 1,791 )
Foreign exchange — ( 815 ) — ( 815 )
Other — ( 13 ) — ( 13 )
Other — ( 465 ) — ( 465 )
Total recorded at fair value $ 46 $ ( 1,602 ) $ — $ ( 1,556 )
Fair value of borrowings $ — $ 40,123 $ 1,333 $ 41,456
22
THE WALT DISNEY COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited; tabular dollars in millions, except for per share data)
The fair value of Level 2 investments are primarily determined based on an internal valuation model that uses observable inputs such as stock trading price, volatility and risk free rate.
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.
The Company’s derivative positions measured at fair value are summarized in the following tables:
As of December 30, 2023
Current
Assets Investments/Other Assets
Other Current Liabilities Other Long-
Term
Liabilities
Derivatives designated as hedges
Foreign exchange $ 399 $ 206 $ ( 155 ) $ ( 100 )
Interest rate — — ( 1,459 ) —
Other 1 1 ( 3 ) ( 1 )
Derivatives not designated as hedges
Foreign exchange 59 4 ( 245 ) ( 65 )
Other 16 145 — —
Gross fair value of derivatives 475 356 ( 1,862 ) ( 166 )
Counterparty netting ( 372 ) ( 195 ) 463 104
Cash collateral (received) paid ( 13 ) — 1,106 —
Net derivative positions $ 90 $ 161 $ ( 293 ) $ ( 62 )
23
THE WALT DISNEY COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited; tabular dollars in millions, except for per share data)
As of September 30, 2023
Current
Assets Investments/Other Assets
Other Current Liabilities Other Long-
Term
Liabilities
Derivatives designated as hedges
Foreign exchange $ 595 $ 338 $ ( 123 ) $ ( 93 )
Interest rate — — ( 1,791 ) —
Other 12 6 — —
Derivatives not designated as hedges
Foreign exchange 384 19 ( 520 ) ( 79 )
Other — 128 ( 13 ) —
Gross fair value of derivatives 991 491 ( 2,447 ) ( 172 )
Counterparty netting ( 770 ) ( 262 ) 900 132
Cash collateral (received) paid ( 123 ) ( 7 ) 1,257 —
Net derivative positions $ 98 $ 222 $ ( 290 ) $ ( 40 )
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 both December 30, 2023 and September 30, 2023 was $ 13.5 billion.
The following table summarizes fair value hedge adjustments to hedged borrowings:
Carrying Amount of Hedged Borrowings Fair Value Adjustments Included
in Hedged Borrowings
December 30,
2023 September 30,
2023 December 30,
2023 September 30,
2023
Borrowings:
Current $ 2,381 $ 1,439 $ ( 60 ) $ ( 59 )
Long-term 10,296 10,748 ( 1,253 ) ( 1,694 )
$ 12,677 $ 12,187 $ ( 1,313 ) $ ( 1,753 )
The following amounts are included in “Interest expense, net” in the Condensed Consolidated Statements of Income:
Quarter Ended
December 30,
2023 December 31,
2022
Gain (loss) on:
Pay-floating swaps $ 432 $ 71
Borrowings hedged with pay-floating swaps ( 432 ) ( 71 )
Benefit (expense) associated with interest accruals on pay-floating swaps ( 154 ) ( 95 )
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 December 30, 2023 or at September 30, 2023, and gains and losses related to pay-fixed interest rate swaps recognized in earnings for the quarters ended December 30, 2023 and December 31, 2022 were not material.
24
THE WALT DISNEY COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited; tabular dollars in millions, except for per share data)
Foreign Exchange Risk Management
The Company transacts business globally and is subject to risks associated with foreign currency exchange rates. The Company’s objective is to reduce earnings and cash flow fluctuations associated with changes in foreign currency exchange rates, enabling management to focus on core business operations.
The Company enters into option and forward contracts 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, Canadian dollar, Japanese yen, British pound and Chinese yuan. 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 December 30, 2023 and September 30, 2023, the notional amounts of the Company’s net foreign exchange cash flow hedges were $ 9.5 billion and $ 8.3 billion, respectively. Mark-to-market gains and losses on these contracts are deferred in AOCI and are recognized in earnings when the hedged transactions occur, offsetting changes in the value of the foreign currency transactions. Net deferred gains recorded in AOCI for contracts that will mature in the next twelve months total $ 230 million. The following table summarizes the effect of foreign exchange cash flow hedges on AOCI:
Quarter Ended
December 30,
2023 December 31,
2022
Gain (loss) recognized in Other Comprehensive Income $ ( 264 ) $ ( 502 )
Gain (loss) reclassified from AOCI into the Statements of Operations (1)
141 222
(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 both December 30, 2023 and September 30, 2023, the total notional amount of the Company’s designated cross currency swaps was Canadian $ 1.3 billion ($ 1.0 billion). The related gains or losses recognized in earnings were not material for the quarters ended December 30, 2023 and December 31, 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 December 30, 2023 and September 30, 2023 were $ 2.9 billion and $ 3.1 billion, respectively. The following table summarizes the net foreign exchange gains or losses recognized on foreign currency denominated assets and liabilities and the net foreign exchange gains or losses on the foreign exchange contracts we entered into to mitigate our exposure with respect to foreign currency denominated assets and liabilities by the corresponding line item in which they are recorded in the Condensed Consolidated Statements of Income:
Costs and Expenses Interest expense, net Income Tax Expense
Quarter Ended: December 30,
2023 December 31,
2022 December 30,
2023 December 31,
2022 December 30,
2023 December 31,
2022
Net gains (losses) on foreign currency denominated assets and liabilities $ 35 $ 145 $ ( 23 ) $ ( 18 ) $ ( 46 ) $ ( 88 )
Net gains (losses) on foreign exchange risk management contracts not designated as hedges ( 126 ) ( 213 ) 21 18 42 70
Net gains (losses) $ ( 91 ) $ ( 68 ) $ ( 2 ) $ — $ ( 4 ) $ ( 18 )
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 December 30, 2023 and September 30, 2023 and
25
THE WALT DISNEY COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited; tabular dollars in millions, except for per share data)
related gains or losses recognized in earnings for the quarters ended December 30, 2023 and December 31, 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 contracts at December 30, 2023 and September 30, 2023 were $ 0.5 billion and $ 0.4 billion, respectively. The related gains or losses recognized in earnings were not material for the quarters ended December 30, 2023 and December 31, 2022.
Contingent Features and Cash Collateral
The Company has master netting arrangements by counterparty with respect to certain derivative financial instrument contracts. The Company may be required to post collateral in the event that a net liability position with a counterparty exceeds limits defined by contract and that vary with the Company’s credit rating. In addition, these contracts may require a counterparty to post collateral to the Company in the event that a net receivable position with a counterparty exceeds limits defined by contract and that vary with the counterparty’s credit rating. If the Company’s or the counterparty’s credit ratings were to fall below investment grade, such counterparties or the Company would also have the right to terminate our derivative contracts, which could lead to a net payment to or from the Company for the aggregate net value by counterparty of our derivative contracts. The aggregate fair values of derivative instruments with credit-risk-related contingent features in a net liability position by counterparty were $ 1.5 billion and $ 1.6 billion at December 30, 2023 and September 30, 2023, respectively.
16. Restructuring and Impairment Charges
In the prior-year quarter ended December 31, 2022, the Company recognized restructuring charges of $ 69 million related to exiting our businesses in Russia. These charges are recorded in “Restructuring and impairment charges” in the Condensed Consolidated Statements of Income.
17. New Accounting Pronouncements
Improvements to Reportable Segments Disclosures
In November 2023, the FASB issued guidance that enhances reportable segment disclosures by requiring the disclosure of significant expenses that are regularly provided to the chief operating decision maker (CODM) and included in the segment’s measure of profit or loss. It also requires an explanation of how the CODM uses the segment’s measure of profit or loss to assess segment performance and allocate resources. The guidance is effective for the Company beginning in fiscal year 2025 for annual periods and beginning in fiscal year 2026 for interim periods and requires retrospective adoption (with early adoption permitted). The Company is currently assessing the impacts of the new guidance on its financial statement disclosures.
Improvements to Income Tax Disclosures
In December 2023, the FASB issued guidance that enhances income tax disclosures. The new guidance requires an expanded rate reconciliation and the disaggregation of cash taxes paid by U.S. federal, U.S. state and foreign jurisdictions and eliminates certain disclosures related to uncertain tax benefits. The guidance is effective for annual periods beginning with the Company’s 2026 fiscal year (with early adoption permitted). The Company is currently assessing the impacts of the new guidance on its financial statement disclosures.
26
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS