Walt Disney Co 10-K

ITEM 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations CONSOLIDATED RESULTS ($ in millions, except per share data) 2024 2023 % Change Better (Worse) Revenues: Services $ 81,841 $ 79,562 3 % Products 9,520 9,336 2 % Total revenues 91,361 88,898 3 % Costs and expenses: Cost of services (exclusive of depreciation and amortization) ( 52,509 ) ( 53,139 ) 1 % Cost of products (exclusive of depreciation and amortization) ( 6,189 ) ( 6,062 ) (2) % Selling, general, administrative and other ( 15,759 ) ( 15,336 ) (3) % Depreciation and amortization ( 4,990 ) ( 5,369 ) 7 % Total costs and expenses (79,447) (79,906) 1 % Restructuring and impairment charges ( 3,595 ) ( 3,892 ) 8 % Other income (expense), net ( 65 ) 96 nm Interest expense, net ( 1,260 ) ( 1,209 ) (4) % Equity in the income of investees, net 575 782 (26) % Income before income taxes 7,569 4,769 59 % Income taxes ( 1,796 ) ( 1,379 ) (30) % Net income 5,773 3,390 70 % Net income attributable to noncontrolling interests ( 801 ) ( 1,036 ) 23 % Net income attributable to Disney $ 4,972 $ 2,354 >100 % Diluted earnings per share attributable to Disney $ 2.72 $ 1.29 >100 % Organization of Information Management’s Discussion and Analysis provides a narrative on the Company’s financial performance and condition that should be read in conjunction with the accompanying financial statements. It includes the following sections: • Consolidated Results and Non-Segment Items • Business Segment Results • Corporate and Unallocated Shared Expenses • Liquidity and Capital Resources • Developments and Trends • Critical Accounting Policies and Estimates • DTC Product Descriptions, Key Definitions and Supplemental Information • Supplemental Guarantor Financial Information In Item 7, we discuss fiscal 2024 and 2023 results and comparisons of fiscal 2024 results to fiscal 2023 results. Discussions of fiscal 2022 results and comparisons of fiscal 2023 results to fiscal 2022 results can be found in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part II, Item 7 of the Company’s Annual Report on Form 10-K for the fiscal year ended September 30, 2023. CONSOLIDATED RESULTS AND NON-SEGMENT ITEMS Revenues for fiscal 2024 increased 3%, or $2.5 billion, to $91.4 billion; net income attributable to Disney increased $2.6 billion to income of $5.0 billion compared to $2.4 billion in the prior year; and diluted earnings per share (EPS) from continuing operations attributable to Disney increased to $2.72 compared to $1.29 in the prior year. The EPS increase was due to higher operating income at Entertainment. Revenues Service revenues for fiscal 2024 increased 3%, or $2.3 billion, to $81.8 billion, due to higher subscription revenue, growth at our parks and experiences businesses, and, to a lesser extent, higher advertising revenue. These increases were partially offset 32 TABLE OF CONTENTS by lower theatrical distribution revenue, a decrease in TV/VOD distribution sales and lower affiliate revenue. Service revenues reflected an approximate 1 percentage point decrease due to an unfavorable movement of the U.S. dollar against major currencies including the impact of our hedging program (Foreign Exchange Impact). Costs and expenses Cost of services for fiscal 2024 decreased 1%, or $0.6 billion, to $52.5 billion, primarily due to lower non-sports programming and production costs, partially offset by higher sports programming and production costs and the impact of inflation and increased volumes at our parks and experiences businesses. Costs of services reflected an approximate 1 percentage point decrease due to a favorable Foreign Exchange Impact. Depreciation and amortization decreased 7%, or $0.4 billion, to $5.0 billion due to lower depreciation at our domestic parks and resorts and lower TFCF and Hulu acquisition amortization. Restructuring and Impairment Charges ($ in millions) 2024 2023 Impairments: Star India $ 1,545 $ — Goodwill (1) 1,287 721 Retail assets 328 — Content (2) 187 2,577 Equity investments 165 141 Severance 83 357 Costs to exit our Russia businesses and other — 96 $ 3,595 $ 3,892 (1) In the current year, goodwill impairments related to our general entertainment linear networks. In the prior year, goodwill impairments related to our general entertainment and international sports linear networks. (2) In the current and prior years, content impairments related to strategic changes in our approach to content curation. Other Income (expense), net ($ in millions) 2024 2023 % Change Better (Worse) DraftKings gain $ — $ 169 (100) % Other, net (65) (73) 11 % Other income (expense), net $ (65) $ 96 nm In fiscal 2023, the Company recognized a gain of $ 169 million on its investment in DraftKings, Inc. (DraftKings), which was sold in fiscal 2023. Interest Expense, net ($ in millions) 2024 2023 % Change Better (Worse) Interest expense $ ( 2,070 ) $ ( 1,973 ) (5) % Interest income, investment income and other 810 764 6 % Interest expense, net $ (1,260) $ (1,209) (4) % The increase in interest expense was due to higher average rates, partially offset by lower average debt balances. The increase in interest income, investment income and other was driven by a larger benefit from pension and postretirement benefit costs, other than service cost, and investments gains in the current year compared to losses in the prior year, partially offset by the impact of lower cash and cash equivalent balances. Equity in the Income of Investees Equity in the income of investees decreased $207 million to $ 575 million in the current year due to lower income from A+E. 33 TABLE OF CONTENTS Effective Income Tax Rate ($ in millions) 2024 2023 Income before income taxes $ 7,569 $ 4,769 Income tax expense 1,796 1,379 Effective income tax rate 23.7% 28.9% The decrease in the effective income tax rate in the current year compared to the prior year was due to the recognition of a $418 million benefit in the current year related to prior years’ tax matters (Income Tax Reserve Adjustments) and a lower foreign effective tax rate. These decreases were partially offset by higher non-tax deductible impairments in the current year compared to the prior year. We recognized $2.9 billion of impairments in the current year and $0.7 billion of impairments in the prior year that are not tax deductible. Noncontrolling Interests ($ in millions) 2024 2023 % Change Better (Worse) Net income attributable to noncontrolling interests $ ( 801 ) $ ( 1,036 ) 23 % The decrease in net income attributable to noncontrolling interests reflected the comparison to the accretion of NBCU’s interest in Hulu and Major League Baseball’s interest in BAMTech LLC as well as lower results at our National Geographic business. These decreases were partially offset by improved results at Hong Kong Disneyland Resort. We had accreted to the redemption value for BAMTech LLC by November 2022 and to the guaranteed floor payment for Hulu by December 2023. Net income attributable to noncontrolling interests is determined on income after royalties and management fees, financing costs and income taxes, as applicable. Certain Items Impacting Results in the Year Results for fiscal 2024 were impacted by the following: • Restructuring and impairment charges of $3,595 million • TFCF and Hulu acquisition amortization of $1,677 million • Other expense of $65 million related to a legal ruling • Income Tax Reserve Adjustments of $418 million Results for fiscal 2023 were impacted by the following: • Restructuring and impairment charges of $3,892 million • TFCF and Hulu acquisition amortization of $1,998 million • Other income, net of $96 million, primarily due to the DraftKings gain ($169 million), partially offset by a charge related to a legal ruling ($101 million) 34 TABLE OF CONTENTS A summary of the impact of these items on EPS is as follows: ($ in millions, except per share data) Pre-Tax Income (Loss) Tax Benefit (Expense) (1) After-Tax Income (Loss) EPS Favorable (Adverse) (2) Year Ended September 28, 2024: Restructuring and impairment charges $ (3,595) $ 293 $ (3,302) $ (1.78) TFCF and Hulu acquisition amortization (3) (1,677) 391 (1,286) (0.68) Other expense (65) 11 (54) (0.03) Income Tax Reserve Adjustments — 418 418 0.23 Total $ (5,337) $ 1,113 $ (4,224) $ (2.26) Year Ended September 30, 2023: Restructuring and impairment charges (4) $ (3,836) $ 717 $ (3,119) $ (1.69) TFCF and Hulu acquisition amortization (3) (1,998) 465 (1,533) (0.82) Other income, net 96 (13) 83 0.05 Total $ (5,738) $ 1,169 $ (4,569) $ (2.46) (1) Tax benefit (expense) is determined using the tax rate applicable to the individual item. (2) EPS is net of noncontrolling interest, where applicable. Total may not equal the sum of the column due to rounding. (3) Includes amortization of intangibles related to TFCF equity investees. (4) Restructuring and impairment charges in the prior year include the impact of a content license agreement termination with A+E, which generated a gain at A+E. The Company’s 50% interest in this gain was $56 million (A+E gain) and is included in Restructuring and impairment charges in this table. BUSINESS SEGMENT RESULTS The Company evaluates the performance of its operating segments based on segment revenue and segment operating income. Below is a discussion of the major revenue and expense categories for our business segments. Costs and expenses for each segment consist of operating expenses, selling, general, administrative and other costs, and depreciation and amortization. Selling, general, administrative and other costs include third-party and internal marketing expenses. Entertainment The Entertainment segment generates revenue from film, episodic and other content that is produced and distributed across three significant lines of business: • Linear Networks, which primarily generates revenue from affiliate fees and advertising • Direct-to-Consumer, which primarily generates revenue from subscription fees and advertising • Content Sales/Licensing, which primarily generates revenue from the sale of film and episodic content in the TV/VOD and home entertainment markets, distribution of films in the theatrical market, licensing of our music rights, sales of tickets to stage play performances and licensing of our IP for use in stage plays. Revenues also include an intersegment allocation of revenues from the Experiences segment, which is meant to reflect royalties on consumer products merchandise licensing revenues generated on IP created by the Entertainment segment. Operating expenses at the Entertainment segment primarily consist of programming and production costs, technology support costs, operating labor and distribution costs. Programming and production costs include the following: • Amortization of capitalized production costs and licensed programming rights • Subscriber-based fees for programming the Hulu Live service, including fees paid by Hulu to the Sports segment and other Entertainment segment businesses for the right to air their linear networks on Hulu Live • Production costs related to live programming (primarily news) • Participations and residual expenses • Fees paid to the Sports segment to program ESPN on ABC and certain sports content on Disney+ Amortization of capitalized production costs and licensed programming rights is generally allocated across Entertainment’s businesses based on the estimated relative value of the distribution windows. The initial costs of marketing 35 TABLE OF CONTENTS campaigns are generally recognized in the business of initial exploitation. Certain other costs, such as technology, shared services and certain labor related costs, are allocated based on metrics designed to correlate with consumption. Sports The Sports segment primarily generates revenue from affiliate fees, advertising, subscription fees, pay-per-view fees and sub-licensing of sports rights. Operating expenses consist primarily of programming and production costs, technology support costs, operating labor and distribution costs. Programming and production costs include amortization of licensed sports rights and production costs related to live sports and other sports-related programming. Experiences The Experiences segment primarily generates revenue from the sale of admissions to theme parks, the sale of food, beverage and merchandise at our theme parks and resorts, charges for room nights at hotels, sales of cruise vacations, sales and rentals of vacation club properties, royalties from licensing our IP for use on consumer goods and the sale of branded merchandise. Revenues are also generated from sponsorships and co-branding opportunities, real estate rent and sales, and royalties from Tokyo Disney Resort. Significant expenses include operating labor, infrastructure costs, costs of goods sold and distribution costs, depreciation and other operating expenses. Infrastructure costs include technology support costs, repairs and maintenance, utilities and fuel, property taxes, retail occupancy costs, insurance and transportation. Other operating expenses include costs for such items as supplies, commissions and entertainment offerings. Eliminations The following transactions are recognized in segment revenues and eliminated in total Company revenue: • Fees paid by Hulu to ESPN and the Entertainment linear networks business for the right to air their networks on Hulu Live • Fees paid by ABC Network and Disney+ to ESPN to program ESPN on ABC and certain sports content on Disney+, respectively BUSINESS SEGMENT RESULTS - 2024 vs. 2023 The following table presents revenues from our operating segments: ($ in millions) 2024 2023 % Change Better (Worse) Entertainment $ 41,186 $ 40,635 1 % Sports 17,619 17,111 3 % Experiences 34,151 32,549 5 % Eliminations (1,595) (1,397) (14) % Revenues $ 91,361 $ 88,898 3 % The following table presents income from our operating segments and other components of income from continuing operations before income taxes: ($ in millions) 2024 2023 % Change Better (Worse) Entertainment operating income $ 3,923 $ 1,444 >100 % Sports operating income 2,406 2,465 (2) % Experiences operating income 9,272 8,954 4 % Corporate and unallocated shared expenses ( 1,435 ) ( 1,147 ) (25) % Restructuring and impairment charges (1) ( 3,595 ) ( 3,836 ) 6 % Other income (expense), net ( 65 ) 96 nm Interest expense, net ( 1,260 ) ( 1,209 ) (4) % TFCF and Hulu acquisition amortization ( 1,677 ) ( 1,998 ) 16 % Income from continuing operations before income taxes $ 7,569 $ 4,769 59 % (1) Restructuring and impairment charges in the prior year i nclude the A+E gain. 36 TABLE OF CONTENTS Entertainment Revenue and operating results for the Entertainment segment are as follows: ($ in millions) 2024 2023 % Change Better (Worse) Revenues: Linear Networks $ 10,692 $ 11,701 (9) % Direct-to-Consumer 22,776 19,886 15 % Content Sales/Licensing and Other 7,718 9,048 (15) % $ 41,186 $ 40,635 1 % Segment operating income (loss): Linear Networks $ 3,452 $ 4,119 (16) % Direct-to-Consumer 143 (2,496) nm Content Sales/Licensing and Other 328 (179) nm $ 3,923 $ 1,444 >100 % Revenues The increase in Entertainment revenues was due to subscription revenue growth, partially offset by decreases in theatrical distribution, affiliate and TV/VOD distribution revenues. Operating income The increase in Entertainment operating income was due to improved results at Direct-to-Consumer and, to a lesser extent, Content Sales/Licensing and Other, partially offset by a decrease at Linear Networks. Linear Networks Operating results for Linear Networks are as follows: ($ in millions) 2024 2023 % Change Better (Worse) Revenues Affiliate fees $ 6,872 $ 7,369 (7) % Advertising 3,676 4,159 (12) % Other 144 173 (17) % Total revenues 10,692 11,701 (9) % Operating expenses (5,083) (5,577) 9 % Selling, general, administrative and other (2,644) (2,641) — % Depreciation and amortization (52) (54) 4 % Equity in the income of investees 539 690 (22) % Operating Income $ 3,452 $ 4,119 (16) % Revenues - Affiliate fees ($ in millions) 2024 2023 % Change Better (Worse) Domestic $ 5,826 $ 6,136 (5) % International 1,046 1,233 (15) % $ 6,872 $ 7,369 (7) % The decrease in domestic affiliate revenue was due to a decline of 11% from fewer subscribers, including the impact of the non-renewal of carriage of certain networks by an affiliate, partially offset by an increase of 6% from higher effective rates. Lower international affiliate revenue was attributable to decreases of 8% from fewer subscribers driven by channel closures, 3% from lower effective rates and 3% from an unfavorable Foreign Exchange Impact. 37 TABLE OF CONTENTS Revenues - Advertising ($ in millions) 2024 2023 % Change Better (Worse) Domestic $ 2,705 $ 3,178 (15) % International 971 981 (1) % $ 3,676 $ 4,159 (12) % The decrease in domestic advertising revenue was due to a decrease of 14% from fewer impressions and 2% from lower rates. The decrease in impressions was due to lower average viewership. Lower rates were driven by a decrease in political advertising at the owned television stations. International advertising revenue decreased modestly compared to the prior year as decreases of 3% from an unfavorable Foreign Exchange Impact and 3% from fewer impressions were partially offset by an increase of 4% from higher rates. Operating Expenses ($ in millions) 2024 2023 % Change Better (Worse) Programming and production costs Domestic $ (3,463) $ (3,858) 10 % International (706) (712) 1 % Total programming and production costs (4,169) (4,570) 9 % Other operating expenses (914) (1,007) 9 % $ (5,083) $ (5,577) 9 % The decrease in domestic programming and production costs was due to a lower average cost mix of programming, including fewer hours of scripted programming, which reflected the impact of production delays as a result of guild strikes in the prior year. International programming and production costs were comparable to the prior year as the impact of channel closures and a favorable Foreign Exchange Impact were largely offset by inflation. The decrease in other operating expenses was due to lower technology and distribution costs including the impact of international channel closures. Equity in the Income of Investees Income from equity investees decreased $151 million, to $539 million from $690 million, due to lower income from A+E attributable to decreases in advertising and affiliate revenue. Operating Income from Linear Networks Operating income decreased 16%, to $3,452 million from $4,119 million due to decreases at our domestic and international businesses and lower income from equity investees. Supplemental revenue and operating income The following table provides supplemental revenue and operating income detail for Linear Networks: ($ in millions) 2024 2023 % Change Better (Worse) Supplemental revenue detail Domestic $ 8,621 $ 9,406 (8) % International 2,071 2,295 (10) % $ 10,692 $ 11,701 (9) % Supplemental operating income detail Domestic $ 2,387 $ 2,735 (13) % International 526 694 (24) % Equity in the income of investees 539 690 (22) % $ 3,452 $ 4,119 (16) % 38 TABLE OF CONTENTS Direct-to-Consumer Operating results for Direct-to-Consumer are as follows: ($ in millions) 2024 2023 % Change Better (Worse) Revenues Subscription fees $ 18,796 $ 16,420 14 % Advertising 3,707 3,260 14 % Other 273 206 33 % Total revenues 22,776 19,886 15 % Operating expenses (17,748) (17,859) 1 % Selling, general, administrative and other (4,574) (4,168) (10) % Depreciation and amortization (311) (355) 12 % Operating Income (Loss) $ 143 $ (2,496) nm Revenues - Subscription fees Growth in subscription fees reflected increases of 10% attributable to higher effective rates due to increases in retail pricing and 6% from subscriber growth, partially offset by a decrease of 2% from an unfavorable Foreign Exchange Impact. Revenues - Advertising Higher advertising revenue reflected an increase of 26% from higher impressions, partially offset by a decrease of 12% from lower rates. The increase in impressions was due to Disney+ and Disney+ Hotstar growth, in part reflecting the launches of the ad-supported Disney+ service domestically in December 2022 and internationally starting in November 2023 and airing more cricket programming on Disney+ Hotstar. There were two significant International Cricket Council (ICC) tournaments in the current year compared to one in the prior year. Revenues - Other The increase in other revenue was due to a favorable Foreign Exchange Impact. Key Metrics In addition to revenue, costs and operating income, management uses the following key metrics (1) to analyze trends and evaluate the overall performance of Disney+, Disney+ Hotstar and Hulu, and we believe these metrics are useful to investors in analyzing the business: Paid subscribers at: (in millions) September 28, 2024 September 30, 2023 % Change Better (Worse) Disney+ Domestic (U.S. and Canada) 56.0 46.5 20 % International (excluding Disney+ Hotstar) (1) 66.7 66.1 1 % Disney+ Core (2) 122.7 112.6 9 % Disney+ Hotstar 35.9 37.6 (5) % Hulu SVOD Only 47.4 43.9 8 % Live TV + SVOD 4.6 4.6 — % Total Hulu (2) 52.0 48.5 7 % 39 TABLE OF CONTENTS Average Monthly Revenue Per Paid Subscriber for the fiscal year ended: 2024 2023 % Change Better (Worse) Disney+ Domestic (U.S. and Canada) $ 7.89 $ 6.97 13 % International (excluding Disney+ Hotstar) (1) 6.60 5.93 11 % Disney+ Core 7.18 6.39 12 % Disney+ Hotstar 0.96 0.66 45 % Hulu SVOD Only 12.35 12.17 1 % Live TV + SVOD 95.12 90.52 5 % (1) See discussion on page 55 —DTC Product Descriptions, Key Definitions and Supplemental Information (2) Total may not equal the sum of the column due to rounding. Domestic Disney+ average monthly revenue per paid subscriber increased from $6.97 to $7.89 due to higher retail pricing, partially offset by a higher mix of subscribers to wholesale offerings. International Disney+ (excluding Disney+ Hotstar) average monthly revenue per paid subscriber increased from $5.93 to $6.60 due to increases in retail pricing, partially offset by a higher mix of subscribers to ad-supported and promotional offerings and an unfavorable Foreign Exchange Impact. Disney+ Hotstar average monthly revenue per paid subscriber increased from $0.66 to $0.96 due to higher retail pricing and higher advertising revenue, partially offset by a higher mix of subscribers in lower-priced markets. Hulu SVOD Only average monthly revenue per paid subscriber increased from $12.17 to $12.35 due to increases in retail pricing, partially offset by a lower mix of subscribers with premium add-ons and a higher mix of subscribers to multi-product and promotional offerings. Hulu Live TV + SVOD average monthly revenue per paid subscriber increased from $90.52 to $95.12 due to higher retail pricing, partially offset by lower advertising, a lower mix of subscribers with premium add-ons and a higher mix of subscribers to promotional offerings. Operating Expenses ($ in millions) 2024 2023 % Change Better (Worse) Programming and production costs Hulu $ (8,582) $ (8,265) (4) % Disney+ and other (5,499) (5,694) 3 % Total programming and production costs (14,081) (13,959) (1) % Other operating expense (3,667) (3,900) 6 % $ (17,748) $ (17,859) 1 % Higher programming and production costs at Hulu were due to an increase in subscriber-based fees for programming the Hulu Live TV service primarily attributable to rate increases. The decrease in programming and production costs at Disney+ and other was attributable to lower costs for non-sports content available on Disney+, partially offset by higher costs for cricket programming at Disney+ Hotstar. The increase in cricket programming costs reflected two significant ICC tournaments in the current year compared to one in the prior year. Other operating expenses decreased due to lower distribution costs. Selling, general, administrative and other Selling, general, administrative and other costs increased $406 million, to $4,574 million from $4,168 million, primarily attributable to increases in marketing and labor costs. Operating Income (Loss) from Direct-to-Consumer Operating results from Direct-to-Consumer increased $2,639 million, to operating income of $143 million from an operating loss of $2,496 million due to improved results at Disney+. 40 TABLE OF CONTENTS Content Sales/Licensing and Other Operating results for Content Sales/Licensing and Other are as follows: ($ in millions) 2024 2023 % Change Better (Worse) Revenues TV/VOD distribution $ 2,255 $ 2,618 (14) % Theatrical distribution 2,266 3,174 (29) % Home entertainment distribution 753 931 (19) % Other 2,444 2,325 5 % Total revenues 7,718 9,048 (15) % Operating expenses (4,901) (6,280) 22 % Selling, general, administrative and other (2,108) (2,595) 19 % Depreciation and amortization (371) (347) (7) % Equity in the loss of investees (10) (5) (100) % Operating Income (Loss) $ 328 $ (179) nm Revenues - TV/VOD distribution The decrease in TV/VOD distribution revenue was due to lower sales of episodic and, to a lesser extent, film content. Revenues - Theatrical distribution The decrease in theatrical distribution revenue reflected fewer significant releases in the current year compared to the prior year. The current year included Inside Out 2, Deadpool & Wolverine, Kingdom of the Planet of the Apes, Alien: Romulus, Wish and The Marvels. The prior year included Avatar: The Way of Water, Black Panther: Wakanda Forever, Guardians of the Galaxy Vol. 3, The Little Mermaid , Ant-Man and the Wasp: Quantumania , Elemental and Indiana Jones and the Dial of Destiny. Revenues - Home entertainment distribution The decrease in home entertainment distribution revenue was due to lower unit sales. Revenues - Other Other revenue increased primarily due to higher revenue at Lucasfilm’s special effects business due to higher rates and more projects. Operating expenses ($ in millions) 2024 2023 % Change Better (Worse) Programming and production costs $ (4,135) $ (5,383) 23 % Distribution costs and cost of goods sold (766) (897) 15 % $ (4,901) $ (6,280) 22 % The decrease in programming and production costs was due to lower production cost amortization attributable to the decreases in theatrical and TV/VOD distribution revenues, partially offset by higher film cost impairments. Lower distribution costs and cost of goods sold were driven by decreases in theatrical, home entertainment and TV/VOD distribution costs, partially offset by an increase at Lucasfilm’s special effects business due to more projects. Selling, general, administrative and other Selling, general, administrative and other costs decreased $487 million, to $2,108 million from $2,595 million, driven by lower theatrical marketing costs reflecting fewer significant releases in the current year. Operating Income (Loss) from Content Sales/Licensing and Other Operating results from Content Sales/Licensing and Other increased $507 million, to income of $328 million from a loss of $179 million due to higher theatrical distribution results. 41 TABLE OF CONTENTS Items Excluded from Segment Operating Income Related to Entertainment The following table presents supplemental information for items related to Entertainment that are excluded from segment operating income: ($ in millions) 2024 2023 % Change Better (Worse) Restructuring and impairment charges (1) $ (1,670) $ (3,431) 51 % TFCF and Hulu acquisition amortization (2) (1,337) (1,602) 17 % Gain on sale of a business — 28 (100) % (1) Fiscal 2024 includes $1,287 million for goodwill impairments related to our general entertainment linear networks, $187 million for content impairments, a $158 million impairment of an equity investment and $38 million of severance. Fiscal 2023 includes $2,521 million for content impairments (net of the A+E gain), $425 million for a goodwill impairment related to our general entertainment linear networks, $248 million of severance, a $141 million impairment of an equity investment and $96 million of charges primarily related to exiting our businesses in Russia. (2) In fiscal 2024, amortization of step-up on film and television costs was $271 million and amortization of intangible assets was $1,054 million. In fiscal 2023, amortization of step-up on film and television costs was $439 million and amortization of intangible assets was $1,151 million. Sports Operating results for the Sports segment are as follows: ($ in millions) 2024 2023 % Change Better (Worse) Revenues Affiliate fees $ 10,418 $ 10,590 (2) % Advertising 4,388 3,920 12 % Subscription fees 1,650 1,517 9 % Other 1,163 1,084 7 % Total revenues 17,619 17,111 3 % Operating expenses (13,934) (13,314) (5) % Selling, general, administrative and other (1,298) (1,314) 1 % Depreciation and amortization (39) (73) 47 % Equity in the income of investees 58 55 5 % Operating Income $ 2,406 $ 2,465 (2) % Revenues - Affiliate fees ($ in millions) 2024 2023 % Change Better (Worse) ESPN Domestic $ 9,131 $ 9,267 (1) % International 1,049 1,051 — % 10,180 10,318 (1) % Star India 238 272 (13) % $ 10,418 $ 10,590 (2) % The decrease in domestic ESPN affiliate revenue was due to a decrease of 8% from fewer subscribers, partially offset by an increase of 7% from higher effective rates. International ESPN affiliate revenue was comparable to the prior year, as decreases from an unfavorable Foreign Exchange Impact and fewer subscribers were largely offset by higher effective rates. Lower Star India affiliate revenue was attributable to decreases of 7% from lower effective rates and 4% from fewer subscribers. 42 TABLE OF CONTENTS Revenues - Advertising ($ in millions) 2024 2023 % Change Better (Worse) ESPN Domestic $ 3,763 $ 3,413 10 % International 181 189 (4) % 3,944 3,602 9 % Star India 444 318 40 % $ 4,388 $ 3,920 12 % The increase in domestic ESPN advertising revenue was due to increases of 8% from higher rates and 3% from sponsorship revenue growth, partially offset by a decrease of 2% from lower average viewership. The decrease in international ESPN advertising revenue was due to a decrease of 11% from an unfavorable Foreign Exchange Impact, partially offset by increases of 5% from higher rates and 2% from higher average viewership. Higher Star India advertising revenue was attributable to airing two significant ICC cricket tournaments in the current year compared to one in the prior year. Revenues - Subscription fees Subscription fees increased $133 million, to $1,650 million from $1,517 million, due to higher rates attributable to increases in retail pricing. Revenues - Other Other revenue increased $79 million, to $1,163 million from $1,084 million, due to higher fees received from the Entertainment segment to program sports and an increase in revenue from licensing the ESPN brand, partially offset by an unfavorable Foreign Exchange Impact. Key metrics In addition to revenue, costs and operating income, management uses the following key metrics (1) to analyze trends and evaluate the overall performance of ESPN+, and we believe these metrics are useful to investors in analyzing the business: September 28, 2024 September 30, 2023 % Change Better (Worse) Paid subscribers at fiscal year end (in millions) 25.6 26.0 (2) % Average Monthly Revenue per Paid Subscriber for the fiscal year $ 6.14 $ 5.49 12 % ESPN+ average monthly revenue per paid subscriber increased from $5.49 to $6.14 due to increases in retail pricing and higher advertising revenue. (1) See discussion on page 55 —DTC Product Descriptions, Key Definitions and Supplemental Information Operating expenses ($ in millions) 2024 2023 % Change Better (Worse) Programming and production costs ESPN Domestic $ (10,435) $ (10,221) (2) % International (1,194) (1,127) (6) % (11,629) (11,348) (2) % Star India (1,354) (1,025) (32) % (12,983) (12,373) (5) % Other operating expenses (951) (941) (1) % $ (13,934) $ (13,314) (5) % Programming and production costs at domestic ESPN increased in the current year compared to the prior year due to contractual rate increases and higher production costs. 43 TABLE OF CONTENTS The increase in international ESPN programming and production costs was due to new soccer rights. Higher Star India programming and production costs were attributable to an increase in cricket programming costs due to airing two significant ICC tournaments in the current year compared to one in the prior year. This increase was partially offset by the comparison to costs for Board of Control for Cricket in India cricket programming in the prior year, which rights we did not renew for the current fiscal year. Depreciation and amortization Depreciation and amortization decreased $34 million, to $39 million from $73 million primarily due to technology assets that were fully depreciated in the prior year. Operating Income from Sports Operating income decreased $59 million, to $2,406 million from $2,465 million due to higher operating losses at Star India and, to a lesser extent, international ESPN, partially offset by an increase at domestic ESPN. Supplemental revenue and operating income The following table provides supplemental revenue and operating income (loss) detail for the Sports segment: ($ in millions) 2024 2023 % Change Better (Worse) Supplemental revenue detail ESPN Domestic $ 15,339 $ 14,945 3 % International 1,439 1,437 — % 16,778 16,382 2 % Star India 841 729 15 % $ 17,619 $ 17,111 3 % Supplemental operating income (loss) detail ESPN Domestic $ 3,056 $ 2,881 6 % International (72) (39) (85) % 2,984 2,842 5 % Star India (636) (432) (47) % Equity in the income of investees 58 55 5 % $ 2,406 $ 2,465 (2) % Items Excluded from Segment Operating Income Related to Sports The following table presents supplemental information for items related to Sports that are excluded from segment operating income: ($ in millions) 2024 2023 % Change Better (Worse) TFCF acquisition amortization (1) $ (333) $ (388) 14 % Restructuring and impairment charges (2) (12) (346) 97 % (1) Represents amortization of intangible assets. (2) Fiscal 2023 includes $296 million for a goodwill impairment and $50 million for severance. 44 TABLE OF CONTENTS Experiences Operating results for the Experiences segment are as follows: ($ in millions) 2024 2023 % Change Better (Worse) Revenues Theme park admissions $ 11,171 $ 10,423 7 % Resorts and vacations 8,375 7,949 5 % Parks & Experiences merchandise, food and beverage 8,039 7,712 4 % Merchandise licensing and retail 4,307 4,358 (1) % Parks licensing and other 2,259 2,107 7 % Total revenues 34,151 32,549 5 % Operating expenses (18,356) (17,129) (7) % Selling, general, administrative and other (3,944) (3,675) (7) % Depreciation and amortization (2,579) (2,789) 8 % Equity in the loss of investees — (2) 100 % Operating Income $ 9,272 $ 8,954 4 % Revenues - Theme park admissions The increase in theme park admissions revenue was due to increases of 5% from higher average per capita ticket revenue and 2% from attendance growth. Revenues - Resorts and vacations Growth in resorts and vacations revenue was primarily attributable to increases of 3% from higher average ticket prices for cruise line sailings, 1% from an increase in average daily hotel room rates and 1% from higher occupied hotel room nights, partially offset by a decrease of 1% from lower unit sales at Disney Vacation Club. Revenues - Parks & Experiences merchandise, food and beverage Parks & Experiences merchandise, food and beverage revenue growth was due to increases of 2% from higher volumes and 2% from higher average guest spending. Revenues - Merchandise licensing and retail Lower merchandise licensing and retail revenue was due to decreases of 1% from an unfavorable Foreign Exchange Impact and 1% from retail, partially offset by an increase of 1% from merchandise licensing. Lower retail revenue was due to a decrease in online sales. Growth in licensing revenue was due to higher royalties from merchandise sales, partially offset by lower minimum guarantee shortfall recognition. Revenues - Parks licensing and other The increase in parks licensing and other revenue was attributable to higher sponsorship revenues, a favorable Foreign Exchange Impact and higher royalties from Tokyo Disney Resort. 45 TABLE OF CONTENTS Key Metrics In addition to revenue, costs and operating income, management uses the following key metrics to analyze trends and evaluate the overall performance of our theme parks and resorts, and we believe these metrics are useful to investors in analyzing the business : Domestic International (1) 2024 2023 2024 2023 Parks Increase (decrease) Attendance (2) 1 % 6 % 9 % 55 % Per Capita Guest Spending (3) 3 % 3 % 4 % 21 % Hotels Occupancy (4) 85 % 85 % 82 % 74 % Available Room Nights (in thousands) (5) 10,193 10,096 3,178 3,178 Change in Per Room Guest Spending (6) 3 % — % 2 % 14 % (1) Per capita guest spending growth rate and per room guest spending growth rate exclude the impact of changes in foreign currency exchange rates. (2) Attendance is used to analyze volume trends at our theme parks and is based on the number of unique daily entries, i.e. a person visiting multiple theme parks in a single day is counted only once. Our attendance count includes complimentary entries but excludes entries by children under the age of three. (3) Per capita guest spending is used to analyze guest spending trends and is defined as total revenue from ticket sales and sales of food, beverage and merchandise in our theme parks, divided by total theme park attendance. (4) Occupancy is used to analyze the usage of available capacity at hotels and is defined as the number of room nights occupied by guests as a percentage of available hotel room nights. (5) Available hotel room nights are defined as the total number of room nights that are available at our hotels and at DVC properties located at our theme parks and resorts that are not utilized by DVC members. Available hotel room nights include rooms temporarily taken out of service. (6) Per room guest spending is used to analyze guest spending at our hotels and is defined as total revenue from room rentals and sales of food, beverage and merchandise at our hotels, divided by total occupied hotel room nights. In the third quarter of the prior fiscal year, the Company revised its method of allocating revenue on the sales of Disneyland Paris vacation packages between hotel room revenue and admissions revenue. The new method resulted in a decrease in the percentage of revenue allocated to hotel rooms. If we had applied the new method in the first six months of the prior year, the impact would have been a decrease of approximatel y $30 million i n the prior year. Operating expenses ($ in millions) 2024 2023 % Change Better (Worse) Operating labor $ (8,392) $ (7,550) (11) % Infrastructure costs (3,363) (3,127) (8) % Cost of goods sold and distribution costs (3,319) (3,357) 1 % Other operating expenses (3,282) (3,095) (6) % $ (18,356) $ (17,129) (7) % The increase in operating labor was primarily due to inflation and higher volumes. Higher infrastructure costs were primarily attributable to higher technology spending and an increase in operations support costs. The increase in other operating expenses was primarily due to an unfavorable Foreign Exchange Impact, higher volumes and increased operations support costs. Selling, general, administrative and other Selling, general, administrative and other costs increased $269 million from $3,675 million to $3,944 million, driven by inflation and increased marketing costs for new guest offerings, partially offset by the comparison to a loss in the prior year on the disposal of our ownership interest in Villages Nature. 46 TABLE OF CONTENTS Depreciation and amortization Depreciation and amortization decreased $210 million from $2,789 million to $2,579 million, due to the comparison to depreciation in the prior year related to the closure of Star Wars: Galactic Starcruiser. Operating Income from Experiences Segment operating income increased $318 million, from $8,954 million to $9,272 million primarily due to growth at international parks and experiences. Supplemental revenue and operating income The following table presents supplemental revenue and operating income detail for the Experiences segment: ($ in millions) 2024 2023 % Change Better (Worse) Supplemental revenue detail Parks & Experiences Domestic $ 23,596 $ 22,677 4 % International 6,183 5,475 13 % Consumer Products 4,372 4,397 (1) % $ 34,151 $ 32,549 5 % Supplemental operating income detail Parks & Experiences Domestic $ 5,878 $ 5,876 — % International 1,354 1,104 23 % Consumer Products 2,040 1,974 3 % $ 9,272 $ 8,954 4 % Items Excluded from Segment Operating Income Related to Experiences The following table presents supplemental information for items related to Experiences that are excluded from segment operating income: ($ in millions) 2024 2023 % Change Better (Worse) Restructuring and impairment charges (1) $ (331) $ (25) >(100) % Charge related to a legal ruling (65) (101) 36 % TFCF acquisition amortization (7) (8) 13 % (1) Charges for the current year were due to an impairment of assets at our retail business. CORPORATE AND UNALLOCATED SHARED EXPENSES Corporate and unallocated shared expenses are as follows: ($ in millions) 2024 2023 % Change Better (Worse) Corporate and unallocated shared expenses $ (1,435) $ (1,147) (25) % The increase in corporate and unallocated shared expenses was primarily due to higher labor costs, increases in professional services and costs related to our proxy solicitation. 47 TABLE OF CONTENTS LIQUIDITY AND CAPITAL RESOURCES The change in cash, cash equivalents and restricted cash is as follows: ($ in millions) 2024 2023 Cash provided by operations $ 13,971 $ 9,866 Cash used in investing activities ( 6,881 ) ( 4,641 ) Cash used in financing activities ( 15,288 ) ( 2,724 ) Impact of exchange rates on cash, cash equivalents and restricted cash 65 73 Change in cash, cash equivalents and restricted cash $ (8,133) $ 2,574 Operating Activities Cash provided by operating activities increased 42% or $4.1 billion to $14.0 billion in the current year compared to $9.9 billion in the prior year. The increase was driven by lower film and television production spending and the timing of payments for sports rights. The increase also reflected collateral receipts related to our hedging program in the current year compared to collateral payments in the prior year, higher operating cash flows at Entertainment and the comparison to a payment in the prior year related to the termination of content licenses in fiscal 2022. The increase in operating cash flows at Entertainment was driven by lower cash disbursements due to a decrease in operating expenses. These increases were partially offset by higher cash tax payments in the current year compared to the prior year. Fiscal 2023 U.S. federal and California state tax payments were deferred and paid in fiscal 2024 pursuant to relief provided by the Internal Revenue Service and California State Board of Equalization as a result of 2023 winter storms in California. In addition, a portion of fiscal 2024 U.S. federal and Florida state taxes was paid in fiscal 2024 and the remainder has been deferred to fiscal 2025 pursuant to relief provided by the Internal Revenue Service and Florida Department of Revenue as a result of 2024 hurricanes in Florida. Depreciation expense is as follows: ($ in millions) 2024 2023 Entertainment $ 681 $ 669 Sports 39 73 Experiences Domestic 1,744 2,011 International 726 669 Total Experiences 2,470 2,680 Corporate 244 204 Total depreciation expense $ 3,434 $ 3,626 Amortization of intangible assets is as follows: ($ in millions) 2024 2023 Entertainment $ 53 $ 87 Experiences 109 109 TFCF and Hulu 1,394 1,547 Total amortization of intangible assets $ 1,556 $ 1,743 Produced and licensed content costs The Entertainment and Sports segments incur costs to produce and license film, episodic, sports and other content. Production costs include spend on content internally produced at our studios such as live-action and animated films, episodic series, specials, shorts and theatrical stage plays. Production costs also include original content commissioned from third-party studios. Programming costs include content rights licensed from third parties for use on the Company’s sports and general entertainment networks and DTC streaming services. Programming assets are generally recorded when the programming becomes available to us with a corresponding increase in programming liabilities. 48 TABLE OF CONTENTS The Company’s production and programming activity for fiscal 2024 and 2023 are as follows: ($ in millions) 2024 2023 Beginning balances: Production and programming assets $ 36,593 $ 37,667 Programming liabilities (3,792) (3,940) 32,801 33,727 Spending: Licensed programming and rights 13,619 14,851 Produced content 9,816 12,323 23,435 27,174 Amortization: Licensed programming and rights (14,027) (13,405) Produced content (10,454) (11,861) (24,481) (25,266) Change in production and programming costs (1,046) 1,908 Content impairment (187) (2,266) Produced and licensed content reclassified to assets held for sale (1,084) — Other non-cash activity 233 (568) Ending balances: Production and programming assets 34,409 36,593 Programming liabilities (3,692) (3,792) $ 30,717 $ 32,801 The Company currently expects its fiscal 2025 spend on produced and licensed content to be approximately $24 billion including sports rights but excluding Star India. See Note 14 to the Consolidated Financial Statements for information regarding the Company’s contractual commitments to acquire sports and broadcast programming. Commitments and guarantees The Company has various commitments and guarantees, such as long-term leases, purchase commitments and other executory contracts, that are disclosed in the footnotes to the financial statements. See Notes 14 and 15 to the Consolidated Financial Statements for further information regarding these commitments. Legal and Tax Matters As disclosed in Notes 9 and 14 to the Consolidated Financial Statements, the Company has exposure for certain tax and legal matters. Investing Activities Investing activities, which consist principally of investments in parks, resorts and other property and acquisition and divestiture activity, for fiscal 2024 and 2023 are as follows: ($ in millions) 2024 2023 Entertainment $ 977 $ 1,032 Sports 10 15 Experiences Domestic 2,710 2,203 International 949 822 Total Experiences 3,659 3,025 Corporate 766 897 Total investments in parks, resorts and other property 5,412 4,969 Cash used in (provided by) other investing activities, net 1,469 (328) Cash used in investing activities $ 6,881 $ 4,641 49 TABLE OF CONTENTS Investments in Parks, Resorts and Other Property Capital expenditures at Entertainment primarily reflect investments in technology and in facilities and equipment for expanding and upgrading broadcast centers, production facilities and television station facilities. Capital expenditures at Experiences are principally for theme park and resort expansion, new attractions, cruise ships, capital improvements and systems infrastructure. The increase in capital expenditures in fiscal 2024 compared to fiscal 2023 was due to higher spending on cruise ship fleet expansion, theme park and resort expansion and new attractions. Capital expenditures at Corporate primarily reflect investments in facilities, information technology infrastructure and equipment. The decrease in fiscal 2024 compared to fiscal 2023 was due to lower spending on facilities. The Company currently expects its fiscal 2025 capital expenditures to total approximately $8 billion compared to fiscal 2024 capital expenditures of $5 billion. The projected increase in capital expenditures is primarily due to higher spending at Experiences, attributable to continued investment in cruise ship fleet expansion and new guest offerings at our theme parks. Other Investing Activities Cash used in other investing activities was $1.5 billion in fiscal 2024 reflecting an investment in Epic Games, Inc. Cash provided by other investing activities was $328 million for fiscal 2023 reflecting proceeds from the sale of investments. Financing Activities Financing activities for fiscal 2024 and 2023 are as follows: ($ in millions) 2024 2023 Change in borrowings $ (1,400) $ (1,783) Dividends ( 1,366 ) — Repurchases of common stock ( 2,992 ) — Activities related to noncontrolling and redeemable noncontrolling interests (1) (9,156) (707) Cash used in other financing activities, net (2) (374) (234) Cash used in financing activities $ (15,288) $ (2,724) (1) Activities related to noncontrolling and redeemable noncontrolling interests in the current year were due to an $8.6 billion payment for Hulu’s redeemable noncontrolling interest and $0.5 billion of dividend payments to noncontrolling interest holders. Activities in the prior year were due to a $0.9 billion payment for BAMTech LLC’s redeemable noncontrolling interest and $0.5 billion of dividend payments to noncontrolling interest holders, partially offset by a $0.7 billion contribution from Hearst to acquire a 20% interest in our DTC sports business. (2) Primarily consists of equity award activity. Borrowings activities and other During the year ended September 28, 2024, the Company’s borrowing activity was as follows: ($ in millions) September 30, 2023 Borrowings Payments Other Activity September 28, 2024 Commercial paper with original maturities less than three months (1) $ 289 $ 431 $ — $ 7 $ 727 Commercial paper with original maturities greater than three months 1,187 4,305 ( 3,204 ) 25 2,313 U.S. dollar denominated notes (2) 43,504 — (2,870) (138) 40,496 Asia Theme Parks borrowings (3) 1,308 — (62) 46 1,292 Foreign currency denominated debt and other (4) 143 132 (132) 844 987 $ 46,431 $ 4,868 $ (6,268) $ 784 $ 45,815 (1) Borrowings and reductions of borrowings are reported net. (2) The other activity is primarily due to the amortization of purchase accounting adjustments and debt issuance fees. (3) See Note 6 to the Consolidated Financial Statements for information regarding commitments to fund the Asia Theme Parks. (4) The other activity is due to market value adjustments for debt with qualifying hedges. See Note 8 to the Consolidated Financial Statements for a summary of the Company’s borrowing activities in fiscal 2024 and information regarding the Company’s bank facilities. The Company may use cash balances, operating cash flows, 50 TABLE OF CONTENTS commercial paper borrowings up to the amount of its unused $12.25 billion bank facilities and incremental term debt issuances to retire or refinance other borrowings before or as they come due. See Note 11 to the Consolidated Financial Statements for a summary of dividends and share repurchases in fiscal 2024. There were no dividends paid or share repurchases in fiscal 2023. The Company is targeting a total of $3 billion in share repurchases in fiscal 2025. The Company may be required to pay an incremental amount for Hulu depending on a final determination of Hulu’s fair value. See Note 2 to the Consolidated Financial Statements for further discussion of the transactions with noncontrolling interest holders. The Company’s operating cash flow and access to the capital markets can be impacted by factors outside of its control. We believe that the Company’s financial condition is strong and that its cash balances, other liquid assets, operating cash flows, access to debt and equity capital markets and borrowing capacity under current bank facilities, taken together, provide adequate resources to fund ongoing operating requirements, contractual obligations, upcoming debt maturities as well as future capital expenditures related to the expansion of existing businesses and development of new projects. In addition, the Company could undertake other measures to ensure sufficient liquidity, such as raising additional financing, reducing or not declaring future dividends; reducing or stopping share repurchases; reducing capital spending; reducing film and episodic content investments; or implementing further cost-saving initiatives. The Company’s borrowing costs can also be impacted by short- and long-term debt ratings assigned by nationally recognized rating agencies, which are based, in significant part, on the Company’s performance as measured by certain credit metrics such as leverage and interest coverage ratios. As of September 28, 2024, Moody’s Ratings’ long- and short-term debt ratings for the Company were A2 and P-1 (Stable), respectively, S&P Global Ratings’ long- and short-term debt ratings for the Company were A- and A-2 (Positive), respectively, and Fitch Ratings’ long- and short-term debt ratings for the Company were A- and F2 (Stable), respectively. The Company’s bank facilities contain only one financial covenant, relating to interest coverage of three times earnings before interest, taxes, depreciation and amortization, including both intangible amortization and amortization of our film and television production and programming costs. On September 28, 2024, the Company met this covenant by a significant margin. The Company’s bank facilities also specifically exclude certain entities, including the Asia Theme Parks, from any representations, covenants or events of default. DEVELOPMENTS AND TRENDS Star India Transaction The Company and RIL plan to close a transaction on or about November 14, 2024, which will form a joint venture that combines our Star-branded and other general entertainment and sports television channels and Disney+ Hotstar service in India (Star India) and certain media and entertainment businesses of RIL (see Note 4 of the Consolidated Financial Statements for additional information). The Company will have a 37% interest in the joint venture. The Company has consolidated, and will continue to consolidate, the income statement and cash flow activities of Star India through the closing date, at which time the Company will recognize on its balance sheet the 37% investment at fair value. In addition, the Company will begin recognizing its proportional share of the joint venture’s results in “Equity in the income of investees, net” in the Consolidated Statement of Income. The equity earnings of the joint venture will not be reported in our segments’ operating results. Trends To drive growth at our sports and entertainment businesses, we are, among other things, making strategic investments in our DTC offerings. Although there can be no assurances these investments will be successful, we expect that they will lead to growth in subscription fees and advertising revenues that will more than offset impacts on affiliate fees and advertising revenue from declines in linear network subscribers and the related decrease in average viewership, which we expect will continue. CRITICAL ACCOUNTING POLICIES AND ESTIMATES We believe that the application of the following accounting policies, which are important to our financial position and results of operations, require significant judgments and estimates on the part of management. For a summary of our significant accounting policies, including the accounting policies discussed below, see Note 2 to the Consolidated Financial Statements. Produced and Acquired/Licensed Content Costs We amortize and test for impairment capitalized film and television production costs based on whether the content is predominantly monetized individually or as a group. See Note 2 to the Consolidated Financial Statements for further discussion. Production costs that are classified as individual are amortized based upon the ratio of the current period’s revenues to the estimated remaining total revenues (Ultimate Revenues). 51 TABLE OF CONTENTS With respect to produced films intended for theatrical release, the most sensitive factor affecting our estimate of Ultimate Revenues is theatrical performance. Revenues derived from other markets subsequent to the theatrical release are generally highly correlated with theatrical performance. Theatrical performance varies primarily based upon the public interest and demand for a particular film, the popularity of competing films at the time of release and the level of marketing effort. Upon a film’s release and determination of the theatrical performance, the Company’s estimates of revenues from succeeding windows and markets, which may include imputed license fees for content that is used on our DTC streaming services, are revised based on historical relationships and an analysis of current market trends. With respect to capitalized television production costs that are classified as individual, the most sensitive factor affecting estimates of Ultimate Revenues is program ratings of the content on our licensees’ platforms. Program ratings, which are an indication of market acceptance, directly affect the program’s ability to generate advertising and subscriber revenues and are correlated with the license fees we can charge for the content in subsequent windows and for subsequent seasons. Ultimate Revenues are reassessed each reporting period and the impact of any changes on amortization of production cost is accounted for as if the change occurred at the beginning of the current fiscal year. If our estimate of Ultimate Revenues decreases, amortization of costs may be accelerated or result in an impairment. Conversely, if our estimate of Ultimate Revenues increases, cost amortization may be slowed. Production costs classified as individual are tested for impairment at the individual title level by comparing that title’s unamortized costs to the present value of discounted cash flows directly attributable to the title. To the extent the title’s unamortized costs exceed the present value of discounted cash flows, an impairment charge is recorded for the excess. Produced content costs that are part of a group and acquired/licensed content costs are amortized based on projected usage, typically resulting in an accelerated or straight-line amortization pattern. The determination of projected usage requires judgment and is reviewed on a regular basis for changes. Adjustments to projected usage are applied prospectively in the period of the change. Historical viewing patterns are the most significant input into determining the projected usage, and significant judgment is required in using historical viewing patterns to derive projected usage. If projected usage changes we may need to accelerate or slow the recognition of amortization expense. Cost of content that is predominantly monetized as a group is tested for impairment by comparing the present value of the discounted cash flows of the group to the aggregate unamortized costs of the group. The group is established by identifying the lowest level for which cash flows are independent of the cash flows of other produced and licensed content. If the unamortized costs exceed the present value of discounted cash flows, an impairment charge is recorded for the excess and allocated to individual titles based on the relative carrying value of each title in the group. If there are no plans to continue to use an individual film or television program that is part of a group, the unamortized cost of the individual title is written down to its estimated fair value. Licensed content is included as part of the group within which it is monetized for purposes of impairment testing. The amortization of multi-year sports rights is based on projections of revenues for each season relative to projections of total revenues over the contract period (estimated relative value). Projected revenues include advertising revenue and an allocation of affiliate revenue. If the annual contractual payments related to each season approximate each season’s estimated relative value, we expense the related contractual payments during the applicable season. If estimated relative values by year were to change significantly, amortization of our sports rights costs may be accelerated or slowed. Revenue Recognition The Company has revenue recognition policies for its various operating segments that are appropriate to the circumstances of each business. Refer to Note 2 to the Consolidated Financial Statements for our revenue recognition policies. Pension and Postretirement Medical Plan Actuarial Assumptions The Company’s pension and postretirement medical benefit obligations and related costs are calculated using a number of actuarial assumptions. Two critical assumptions, the discount rate and the expected return on plan assets, are important elements of expense and/or liability measurement, which we evaluate annually. Other assumptions include the healthcare cost trend rate and employee demographic factors such as retirement patterns, mortality, turnover and rate of compensation increase. The discount rate enables us to state expected future cash payments for benefits as a present value on the measurement date. A lower discount rate increases the present value of benefit obligations and increases pension and postretirement medical expense. The guideline for setting this rate is a high-quality long-term corporate bond rate. We decreased our discount rate to 5.06 % at the end of fiscal 2024 from 5.94 % at the end of fiscal 2023 to reflect market interest rate conditions at our fiscal 2024 year-end measurement date. The Company’s discount rate was determined by considering yield curves constructed of a large population of high-quality corporate bonds and reflects the matching of the plans’ liability cash flows to the yield curves. A one percentage point decrease in the assumed discount rate would increase total benefit expense for fiscal 2025 by approximately $0.2 billion and would increase the projected benefit obligation at September 28, 2024 by approximately $2.4 billion. A one 52 TABLE OF CONTENTS percentage point increase in the assumed discount rate would decrease total benefit expense and the projected benefit obligation by approximately $0.2 billion and $2.1 billion, respectively. To determine the expected long-term rate of return on the plan assets, we consider the current and expected asset allocation, as well as historical and expected returns on each plan asset class. Our expected return on plan assets is 7.25%. A lower expected rate of return on plan assets will increase pension and postretirement medical expense. A one percentage point change in the long-term asset return assumption would impact fiscal 2025 annual expense by approximately $ 168 million. Goodwill, Other Intangible Assets, Long-Lived Assets and Investments The Company is required to test goodwill and other indefinite-lived intangible assets for impairment on an annual basis and if current events or circumstances require, on an interim basis. The Company performs its annual test of goodwill and indefinite-lived intangible assets for impairment in its fiscal fourth quarter. Goodwill is allocated to various reporting units, which are an operating segment or one level below the operating segment. To test goodwill for impairment, the Company first performs a qualitative assessment to determine if it is more likely than not that the carrying amount of a reporting unit exceeds its fair value. If it is, a quantitative assessment is required. Alternatively, the Company may bypass the qualitative assessment and perform a quantitative impairment test. The qualitative assessment requires the consideration of factors such as recent market transactions, macroeconomic conditions and changes in projected future cash flows of the reporting unit. The quantitative assessment compares the fair value of each reporting unit to its carrying amount, and to the extent the carrying amount exceeds the fair value, an impairment of goodwill is recognized for the excess up to the amount of goodwill allocated to the reporting unit. The impairment test for goodwill requires judgment related to the identification of reporting units, determining whether reporting units should be aggregated, the assignment of assets and liabilities including goodwill to reporting units, and the determination of fair value of the reporting units. In fiscal 2024, we determined that our entertainment businesses, including DTC services, linear networks, and content sales/licensing, should be aggregated into a single reporting unit due to their interdependencies, including shared operating costs such as content, marketing, and technology, the similarity of products and services delivered, customers served and distribution channels used, and projected long term financial performance (e.g., operating margins). For our annual impairment test, we bypassed the qualitative test and performed a quantitative assessment of goodwill for impairment. To determine the fair value of our reporting units, we generally use a present value technique (discounted cash flows) corroborated by market multiples when available and as appropriate. The discounted cash flow analyses are sensitive to our estimated projected future cash flows as well as the discount rates used to calculate their present value. Our future cash flows are based on internal forecasts for each reporting unit, which consider projected inflation and other economic indicators, as well as industry growth projections. Discount rates are determined based on the inherent risks of the underlying operations. Significant judgments and assumptions in the discounted cash flow model used to determine fair value relate to future revenues and certain operating expenses, operating margins, terminal growth rates and discount rates. We believe our estimates are consistent with how a marketplace participant would value our businesses. Changes to these assumptions and shifts in market trends or macroeconomic events could impact test results in the future. As discussed in Note 18 to the Consolidated Financial Statements, in the second and fourth quarters of fiscal 2024, the Company recorded non-cash goodwill impairment charges of $0.7 billion and $0.6 billion, respectively, related to our entertainment linear networks reporting unit prior to aggregating all of our entertainment reporting units into a single reporting unit in the fourth quarter of fiscal 2024. The carrying amount of the aggregated entertainment reporting unit goodwill after these impairments is approximately $51 billion. After the impairments, the fair value of the entertainment reporting unit exceeds its carrying amount by less than 10%. An approximate 40 basis point increase in the discount rate or an approximate 6% reduction in projected annual cash flows used to determine the fair value of the entertainment reporting unit would effectively eliminate the excess fair value over carrying amount. To test other indefinite-lived intangible assets for impairment, the Company first performs a qualitative assessment to determine if it is more likely than not that the carrying amount of each of its indefinite-lived intangible assets exceeds its fair value. If it is, a quantitative assessment is required. Alternatively, the Company may bypass the qualitative assessment and perform a quantitative impairment test. 53 TABLE OF CONTENTS The qualitative assessment requires the consideration of factors such as recent market transactions, macroeconomic conditions and changes in projected future cash flows. The quantitative assessment compares the fair value of an indefinite-lived intangible asset to its carrying amount. If the carrying amount of an indefinite-lived intangible asset exceeds its fair value, an impairment loss is recognized for the excess. Fair values of indefinite-lived intangible assets are determined based on discounted cash flows or appraised values, as appropriate. The Company tests long-lived assets, including amortizable intangible assets, for impairment whenever events or changes in circumstances (triggering events) indicate that the carrying amount may not be recoverable. Once a triggering event has occurred, the impairment test employed is based on whether the Company’s intent is to hold the asset for continued use or to hold the asset for sale. The impairment test for assets held for use requires a comparison of the estimated undiscounted future cash flows expected to be generated over the useful life of the significant assets of an asset group to the carrying amount of the asset group. An asset group is generally established by identifying the lowest level of cash flows generated by a group of assets that are largely independent of the cash flows of other assets and could include assets used across multiple businesses. If the carrying amount of an asset group exceeds the estimated undiscounted future cash flows, an impairment would be measured as the difference between the fair value of the asset group and the carrying amount of the asset group. For assets held for sale, to the extent the carrying amount is greater than the asset’s fair value less costs to sell, an impairment loss is recognized for the difference. Determining whether a long-lived asset is impaired requires various estimates and assumptions, including whether a triggering event has occurred, the identification of asset groups, estimates of future cash flows and the discount rate used to determine fair values. As discussed in Note 4 to the Consolidated Financial Statements, the Company recorded $1.5 billion of non-cash impairment charges related to the Star India Transaction in fiscal 2024 to reflect Star India at its estimated fair value less costs to sell. The Company has investments in equity securities. For equity securities that do not have a readily determinable fair value, we consider forecasted financial performance of the investee companies, as well as volatility inherent in the external markets for these investments. If these forecasts are not met, impairment charges may be recorded. The Company tested its indefinite-lived intangible assets, long-lived assets and investments for impairment and recorded non-cash impairment charges of $0.7 billion and $2.3 billion in fiscal 2024 and 2023, respectively. The fiscal 2024 charges related to impairments of retail assets, content assets, and equity investments. The fiscal 2023 charges primarily related to content impairments resulting from a strategic change in our approach to content curation. See Note 18 to the Consolidated Financial Statements for additional information. Allowance for Credit Losses We evaluate our allowance for credit losses and estimate collectability of accounts receivable based on historical bad debt experience, our assessment of the financial condition of individual companies with which we do business, current market conditions, and reasonable and supportable forecasts of future economic conditions. In times of economic turmoil our estimates and judgments with respect to the collectability of our receivables are subject to greater uncertainty than in more stable periods. If our estimate of uncollectible accounts is too low, costs and expenses may increase in future periods, and if it is too high, costs and expenses may decrease in future periods. See Note 2 to the Consolidated Financial Statements for additional discussion. Contingencies and Litigation We are currently involved in certain legal proceedings and, as required, have accrued estimates of the probable and estimable losses for the resolution of these proceedings. These estimates are based upon an analysis of potential results, assuming a combination of litigation and settlement strategies and have been developed in consultation with outside counsel as appropriate. From time to time, we are also involved in other contingent matters for which we accrue estimates for a probable and estimable loss. It is possible, however, that future results of operations for any particular quarterly or annual period could be materially affected by changes in our assumptions or the effectiveness of our strategies related to legal proceedings or our assumptions regarding other contingent matters. See Note 14 to the Consolidated Financial Statements for more information on litigation exposure. Income Tax As a matter of course, the Company is regularly audited by federal, state and foreign tax authorities. From time to time, these audits result in proposed assessments. Our determinations regarding the recognition of income tax benefits are made in consultation with outside tax and legal counsel, where appropriate, and are based upon the technical merits of our tax positions in consideration of applicable tax statutes and related interpretations and precedents and upon the expected outcome of proceedings (or negotiations) with taxing and legal authorities. The tax benefits ultimately realized by the Company may differ from those recognized in our future financial statements based on a number of factors, including the Company’s decision to 54 TABLE OF CONTENTS settle rather than litigate a matter, relevant legal precedent related to similar matters and the Company’s success in supporting its filing positions with taxing authorities. See Note 9 to the Consolidated Financial Statements for additional discussion. New Accounting Pronouncements See Note 19 to the Consolidated Financial Statements for information regarding new accounting pronouncements. DTC PRODUCT DESCRIPTIONS, KEY DEFINITIONS AND SUPPLEMENTAL INFORMATION Product Offerings In the U.S., Disney+, ESPN+ and Hulu SVOD Only are each offered as a standalone service or as part of various multi-product offerings. Hulu Live TV + SVOD includes Disney+ and ESPN+. Disney+ is available in more than 150 countries and territories outside the U.S. and Canada. In India and certain other Southeast Asian countries, the service is branded Disney+ Hotstar. In certain Latin American countries prior to July 2024, we offered Disney+ as well as Star+, a general entertainment SVOD service, which was available on a standalone basis or together with Disney+ (Combo+). At the end of June 2024, we merged these services into a single Disney+ product offering. Depending on the market, our services can be purchased on our websites or through third-party platforms/apps or are available via wholesale arrangements. Paid Subscribers Paid subscribers reflect subscribers for which we recognized subscription revenue. Certain product offerings provide the option for an extra member to be added to an account (extra member add-on). These extra members are not counted as paid subscribers. Subscribers cease to be a paid subscriber as of their effective cancellation date or as a result of a failed payment method. Subscribers to multi-product offerings in the U.S. are counted as a paid subscriber for each of the Company's services included in the multi-product offering and subscribers to Hulu Live TV + SVOD are counted as one paid subscriber for each of the Hulu Live TV + SVOD, Disney+ and ESPN+ services. In Latin America prior to July 2024, if a subscriber had either the standalone Disney+ or Star+ service or subscribed to Combo+, the subscriber was counted as one Disney+ paid subscriber. Subscribers include those who receive an entitlement to a service through wholesale arrangements, including those for which the service is available to each subscriber of an existing content distribution tier. When we aggregate the total number of paid subscribers across our DTC streaming services, we refer to them as paid subscriptions. International Disney+ (excluding Disney+ Hotstar) International Disney+ (excluding Disney+ Hotstar) includes the Disney+ service outside the U.S. and Canada. Average Monthly Revenue Per Paid Subscriber Hulu and ESPN+ average monthly revenue per paid subscriber is calculated based on the average of the monthly average paid subscribers for each month in the period. The monthly average paid subscribers is calculated as the sum of the beginning of the month and end of the month paid subscriber count, divided by two. Disney+ average monthly revenue per paid subscriber is calculated using a daily average of paid subscribers for the period. Revenue includes subscription fees, advertising (excluding revenue earned from selling advertising spots to other Company businesses), premium and feature add-on revenue and extra member add-on revenue but excludes Pay-Per-View revenue. Advertising revenue generated by content on one DTC streaming service that is accessed through another DTC streaming service by subscribers to both streaming services is allocated between both streaming services. The average revenue per paid subscriber is net of discounts on offerings that carry more than one service. Revenue is allocated to each service based on the relative retail or wholesale price of each service on a standalone basis. Hulu Live TV + SVOD revenue is allocated to the SVOD services based on the wholesale price of the Hulu SVOD Only, Disney+ and ESPN+ multi-product offering. In general, wholesale arrangements have a lower average monthly revenue per paid subscriber than subscribers that we acquire directly or through third-party platforms. 55 TABLE OF CONTENTS Supplemental information about paid subscribers (1) : (in millions) September 28, 2024 September 30, 2023 Domestic (U.S. and Canada) standalone 59.6 55.5 Domestic (U.S. and Canada) multi-product (1) 27.1 22.6 Domestic (U.S. and Canada) (2) 86.7 78.1 International (3)(4) 66.7 66.1 Total (2) 153.4 144.2 (1) At September 28, 2024, there were 19.7 million and 7.4 million subscribers to multi-product offerings with two and three of the Company’s services, respectively. At September 30, 2023, there were 20.3 million and 2.3 million subscribers to multi-product offerings with two and three of the Company’s services, respectively. (2) Total may not equal the sum of the column due to rounding. (3) Disney+ Hotstar is not included in any of the Company’s multi-product offerings. (4) The services within the Combo+ multi-product offering were merged into a single Disney+ product offering in fiscal 2024. The Combo+ subscribers at September 30, 2023 were 10.8 million. SUPPLEMENTAL GUARANTOR FINANCIAL INFORMATION On March 20, 2019, as part of the acquisition of TFCF, The Walt Disney Company (“TWDC”) became the ultimate parent of TWDC Enterprises 18 Corp. (formerly known as The Walt Disney Company) (“Legacy Disney”). Legacy Disney and TWDC are collectively referred to as “Obligor Group”, and individually, as a “Guarantor”. Concurrent with the close of the TFCF acquisition, $16.8 billion of TFCF’s assumed public debt (which then constituted 96% of such debt) was exchanged for senior notes of TWDC (the “exchange notes”) issued pursuant to an exemption from registration under the Securities Act of 1933, as amended (the “Securities Act”), pursuant to an Indenture, dated as of March 20, 2019, between TWDC, Legacy Disney, as guarantor, and Citibank, N.A., as trustee (the “TWDC Indenture”) and guaranteed by Legacy Disney. On November 26, 2019, $14.0 billion of the outstanding exchange notes were exchanged for new senior notes of TWDC registered under the Securities Act, issued pursuant to the TWDC Indenture and guaranteed by Legacy Disney. In addition, contemporaneously with the closing of the March 20, 2019 exchange offer, TWDC entered into a guarantee of the registered debt securities issued by Legacy Disney under the Indenture dated as of September 24, 2001 between Legacy Disney and Wells Fargo Bank, National Association, as trustee (the “2001 Trustee”) (as amended by the first supplemental indenture among Legacy Disney, as issuer, TWDC, as guarantor, and the 2001 Trustee, as trustee). Other subsidiaries of the Company do not guarantee the registered debt securities of either TWDC or Legacy Disney (such subsidiaries are referred to as the “non-Guarantors”). The par value and carrying value of total outstanding and guaranteed registered debt securities of the Obligor Group at September 28, 2024 was as follows: TWDC Legacy Disney ($ in millions) Par Value Carrying Value Par Value Carrying Value Registered debt with unconditional guarantee $ 32,360 $ 33,148 $ 8,125 $ 8,024 The guarantees by TWDC and Legacy Disney are full and unconditional and cover all payment obligations arising under the guaranteed registered debt securities. The guarantees may be released and discharged upon (i) as a general matter, the indebtedness for borrowed money of the consolidated subsidiaries of TWDC in aggregate constituting no more than 10% of all consolidated indebtedness for borrowed money of TWDC and its subsidiaries (subject to certain exclusions), (ii) upon the sale, transfer or disposition of all or substantially all of the equity interests or all or substantially all, or substantially as an entirety, the assets of Legacy Disney to a third party, and (iii) other customary events constituting a discharge of a guarantor’s obligations. In addition, in the case of Legacy Disney’s guarantee of registered debt securities issued by TWDC, Legacy Disney may be released and discharged from its guarantee at any time Legacy Disney is not a borrower, issuer or guarantor under certain material bank facilities or any debt securities. Operations are conducted almost entirely through the Company’s subsidiaries. Accordingly, the Obligor Group’s cash flow and ability to service its debt, including the public debt, are dependent upon the earnings of the Company’s subsidiaries and the distribution of those earnings to the Obligor Group, whether by dividends, loans or otherwise. Holders of the guaranteed registered debt securities have a direct claim only against the Obligor Group. 56 TABLE OF CONTENTS Set forth below are summarized financial information for the Obligor Group on a combined basis after elimination of (i) intercompany transactions and balances between TWDC and Legacy Disney and (ii) equity in the earnings from and investments in any subsidiary that is a non-Guarantor. This summarized financial information has been prepared and presented pursuant to the Securities and Exchange Commission Regulation S-X Rule 13-01, “Financial Disclosures about Guarantors and Issuers of Guaranteed Securities” and is not intended to present the financial position or results of operations of the Obligor Group in accordance with U.S. GAAP. Results of operations ($ in millions) 2024 Revenues $ — Costs and expenses — Net income (loss) (2,497) Net income (loss) attributable to TWDC shareholders (2,497) Balance Sheet ($ in millions) September 28, 2024 September 30, 2023 Current assets $ 2,767 $ 8,544 Noncurrent assets 3,336 2,927 Current liabilities 7,640 5,746 Noncurrent liabilities (excluding intercompany to non-Guarantors) 40,608 43,307 Intercompany payables to non-Guarantors 157,925 154,018