The Walt Disney Company (NYSE: DIS) today reported earnings for
its second quarter ended April 1, 2023.
- Revenues for the quarter and six months grew 13% and 10%,
respectively.
- Diluted earnings per share (EPS) from continuing operations for
the quarter increased to $0.69 from $0.26 in the prior-year
quarter.
- Excluding certain items(1), diluted EPS for the quarter
decreased to $0.93 from $1.08 in the prior-year quarter.
- EPS from continuing operations for the six months ended April
1, 2023 increased to $1.39 from $0.89 in the prior-year
period.
- Excluding certain items(1), diluted EPS for the six months
ended April 1, 2023 decreased to $1.91 from $2.14 in the prior-year
period.
“We’re pleased with our accomplishments this quarter, including
the improved financial performance of our streaming business, which
reflect the strategic changes we’ve been making throughout the
company to realign Disney for sustained growth and success,” said
Robert A. Iger, Chief Executive Officer, The Walt Disney Company.
“From movies to television, to sports, news, and our theme parks,
we continue to deliver for consumers, while establishing a more
efficient, coordinated, and streamlined approach to our
operations.”
The following table summarizes the second quarter results for
fiscal 2023 and 2022 (in millions, except per share amounts):
Quarter Ended
Six Months Ended
April 1, 2023
April 2, 2022
Change
April 1, 2023
April 2, 2022
Change
Revenues
$
21,815
$
19,249
13
%
$
45,327
$
41,068
10
%
Income from continuing operations before
income taxes
$
2,123
$
1,102
93
%
$
3,896
$
2,790
40
%
Total segment operating income(1)
$
3,285
$
3,699
(11
)%
$
6,328
$
6,957
(9
)%
Net income from continuing
operations(2)
$
1,271
$
470
>100
%
$
2,550
$
1,622
57
%
Diluted EPS from continuing
operations(2)
$
0.69
$
0.26
>100
%
$
1.39
$
0.89
56
%
Diluted EPS excluding certain items(1)
$
0.93
$
1.08
(14
)%
$
1.91
$
2.14
(11
)%
Cash provided by continuing operations
$
3,236
$
1,765
83
%
$
2,262
$
1,556
45
%
Free cash flow(1)
$
1,987
$
686
>100
%
$
(168
)
$
(504
)
67
%
(1)
Diluted EPS excluding certain
items, total segment operating income and free cash flow are
non-GAAP financial measures. The most comparable GAAP measures are
diluted EPS from continuing operations, income from continuing
operations before income taxes, and cash provided by continuing
operations, respectively. See the discussion on page 2 and on pages
11 through 14 for how we define and calculate these measures and a
reconciliation thereof to the most directly comparable GAAP
measures.
(2)
Reflects amounts attributable to
shareholders of The Walt Disney Company, i.e. after deduction of
income attributable to noncontrolling interests.
SEGMENT RESULTS
The Company evaluates the performance of its operating segments
based on segment operating income, and management uses total
segment operating income as a measure of the performance of
operating businesses separate from non-operating factors. The
Company believes that information about total segment operating
income assists investors by allowing them to evaluate changes in
the operating results of the Company’s portfolio of businesses
separate from non-operational factors that affect net income, thus
providing separate insight into both operations and other factors
that affect reported results.
The following are reconciliations of income from continuing
operations before income taxes to total segment operating income
and revenues to total segment revenues (in millions):
Quarter Ended
Six Months Ended
April 1, 2023
April 2, 2022
Change
April 1, 2023
April 2, 2022
Change
Income from continuing operations before
income taxes
$
2,123
$
1,102
93
%
$
3,896
$
2,790
40
%
Add:
Content License Early Termination(1)
—
1,023
100
%
—
1,023
100
%
Corporate and unallocated shared
expenses
279
272
(3
)%
559
500
(12
)%
Restructuring and impairment charges
152
195
22
%
221
195
(13
)%
Other (income) expense, net
(149
)
158
nm
(107
)
594
nm
Interest expense, net
322
355
9
%
622
666
7
%
Amortization of TFCF and Hulu intangible
assets and fair value step-up on film and television costs
558
594
6
%
1,137
1,189
4
%
Total segment operating income
$
3,285
$
3,699
(11
)%
$
6,328
$
6,957
(9
)%
Quarter Ended
Six Months Ended
April 1, 2023
April 2, 2022
Change
April 1, 2023
April 2, 2022
Change
Revenues
$
21,815
$
19,249
13
%
$
45,327
$
41,068
10
%
Content License Early Termination(1)
—
1,023
100
%
—
1,023
100
%
Total segment revenues
$
21,815
$
20,272
8
%
$
45,327
$
42,091
8
%
(1)
In February 2022, the Company
terminated certain license agreements with a customer for film and
television content, which was delivered in previous years, in order
for the Company to use the content primarily on our
direct-to-consumer services (Content License Early
Termination).
The following table summarizes the second quarter segment
revenue and segment operating income for fiscal 2023 and 2022 (in
millions):
Quarter Ended
Six Months Ended
April 1, 2023
April 2, 2022
Change
April 1, 2023
April 2, 2022
Change
Segment Revenues:
Disney Media and Entertainment
Distribution
$
14,039
$
13,620
3
%
$
28,815
$
28,205
2
%
Disney Parks, Experiences and Products
7,776
6,652
17
%
16,512
13,886
19
%
Total Segment Revenues
$
21,815
$
20,272
8
%
$
45,327
$
42,091
8
%
Segment operating income:
Disney Media and Entertainment
Distribution
$
1,119
$
1,944
(42
)%
$
1,109
$
2,752
(60
)%
Disney Parks, Experiences and Products
2,166
1,755
23
%
5,219
4,205
24
%
Total Segment Operating Income
$
3,285
$
3,699
(11
)%
$
6,328
$
6,957
(9
)%
Disney Media and Entertainment
Distribution
Revenue and operating results for the Disney Media and
Entertainment Distribution segment are as follows (in
millions):
Quarter Ended
Change
Six Months Ended
April 1, 2023
April 2, 2022
April 1, 2023
April 2, 2022
Change
Revenues:
Linear Networks
$
6,625
$
7,116
(7
)%
$
13,918
$
14,822
(6
)%
Direct-to-Consumer
5,514
4,903
12
%
10,821
9,593
13
%
Content Sales/Licensing and Other
2,197
1,866
18
%
4,657
4,299
8
%
Elimination of Intrasegment Revenue(1)
(297
)
(265
)
(12
)%
(581
)
(509
)
(14
)%
$
14,039
$
13,620
3
%
$
28,815
$
28,205
2
%
Operating income (loss):
Linear Networks
$
1,828
$
2,815
(35
)%
$
3,083
$
4,314
(29
)%
Direct-to-Consumer
(659
)
(887
)
26
%
(1,712
)
(1,480
)
(16
)%
Content Sales/Licensing and Other
(50
)
16
nm
(262
)
(82
)
>(100)
%
$
1,119
$
1,944
(42
)%
$
1,109
$
2,752
(60
)%
(1)
Reflects fees received by the
Linear Networks from other DMED businesses for the right to air our
Linear Networks and related services.
Linear Networks
Linear Networks revenues for the quarter decreased 7% to $6.6
billion, and operating income decreased 35% to $1.8 billion. The
following table provides further detail of Linear Networks results
(in millions):
Quarter Ended
Change
April 1, 2023
April 2, 2022
Supplemental revenue detail
Domestic Channels
$
5,573
$
5,826
(4
)%
International Channels
1,052
1,290
(18
)%
$
6,625
$
7,116
(7
)%
Supplemental operating income detail
Domestic Channels
$
1,568
$
2,349
(33
)%
International Channels
85
245
(65
)%
Equity in the income of investees
175
221
(21
)%
$
1,828
$
2,815
(35
)%
Domestic Channels
Domestic Channels revenues for the quarter decreased 4% to $5.6
billion, and operating income decreased 33% to $1.6 billion. The
decrease in operating income was due to lower results at both Cable
and Broadcasting.
The decrease at Cable was due to higher sports programming and
production costs and, to a lesser extent, lower affiliate and
advertising revenue. The increase in sports programming and
production costs was attributable to higher College Football
Playoffs (CFP) and NFL programming costs and, to a lesser extent,
contractual rate increases for NBA programming and an increase in
production costs. The increase in costs for CFP programming was due
to the timing of games relative to our fiscal periods as the
current quarter included three CFP games compared to one game in
the prior-year quarter. Higher NFL rights costs were due to the
timing of costs under our new agreement compared to the prior NFL
agreement. Lower affiliate revenue resulted from a decline in
subscribers, partially offset by higher contractual rates.
Advertising revenue decreased because of lower impressions at the
non-sports channels, partially offset by the timing of the CFP.
The decrease at Broadcasting was due to lower results at ABC and
the owned television stations, both of which reflected lower
advertising revenue. The decrease at ABC was driven by lower
average viewership, while the decrease at the owned television
stations was due to lower rates.
International Channels
International Channels revenues for the quarter decreased 18% to
$1.1 billion and operating income decreased 65% to $85 million. The
decrease in operating income was primarily due to lower advertising
revenue, partially offset by a decrease in programming costs.
Lower advertising revenue was due to decreases in impressions
and rates and an unfavorable foreign exchange impact. Lower
impressions were attributable to decreases in average viewership at
our sports and non-sports channels. The decrease at our sports
channels was primarily due to cricket programming, which reflected
airing fewer Indian Premier League (IPL) matches in the current
quarter compared to the prior-year quarter as the 2023 IPL season
started approximately one week later than the 2022 season. This
decrease was partially offset by airing more Board of Control for
Cricket in India matches in the current quarter compared to the
prior-year quarter.
Programming costs decreased compared to the prior-year quarter
due to a favorable foreign exchange impact, partially offset by
costs for new soccer rights.
Equity in the Income of
Investees
Income from equity investees decreased $46 million, to $175
million from $221 million, primarily due to lower income from A+E
Television Networks attributable to a decrease in advertising
revenue and higher programming costs.
Direct-to-Consumer
Direct-to-Consumer revenues for the quarter increased 12% to
$5.5 billion and operating loss decreased $0.2 billion to $0.7
billion. The decrease in operating loss was due to improved results
at Disney+ and ESPN+, partially offset by lower operating income at
Hulu.
The improvement at Disney+ was due to higher subscription
revenue and a decrease in marketing costs, partially offset by
higher programming and production costs and, to a lesser extent,
increased technology costs. Higher subscription revenue was
attributable to subscriber growth and increases in retail pricing,
partially offset by an unfavorable foreign exchange impact. The
increase in programming and production costs was due to more
content provided on the service.
Improved results at ESPN+ were attributable to growth in
subscription revenue due to an increase in retail pricing and
subscriber growth.
The decrease in operating income at Hulu was due to higher
programming and production costs and lower advertising revenue,
partially offset by subscription revenue growth and, to a lesser
extent, lower marketing costs. The increase in programming and
production costs was attributable to more content provided on the
service and an increase in subscriber-based fees for programming
the Live TV service, partially offset by a lower average cost mix
of SVOD content. Higher subscriber-based fees for programming the
Live TV service were due to rate increases and more subscribers.
The decrease in advertising revenue resulted from lower
impressions, partially offset by higher rates. Subscription revenue
growth was due to increases in retail pricing and subscribers.
Second Quarter of Fiscal 2023 Comparison
to First Quarter of Fiscal 2023
The following tables and related discussion present additional
information about our Disney+, ESPN+ and Hulu direct-to-consumer
(DTC) product offerings(1) on a sequential quarter basis.
Paid subscribers(1) at:
(in millions)
April 1, 2023
December 31, 2022
Change
Disney+
Domestic (U.S. and Canada)
46.3
46.6
(1
)%
International (excluding Disney+
Hotstar)(1)
58.6
57.7
2
%
Disney+ Core(2)
104.9
104.3
1
%
Disney+ Hotstar
52.9
57.5
(8
)%
Total Disney+(2)
157.8
161.8
(2
)%
ESPN+
25.3
24.9
2
%
Hulu
SVOD Only
43.7
43.5
—
%
Live TV + SVOD
4.4
4.5
(2
)%
Total Hulu(2)
48.2
48.0
—
%
Average Monthly Revenue Per Paid Subscriber(1) for the quarter
ended:
April 1, 2023
December 31, 2022
Change
Disney+
Domestic (U.S. and Canada)
$
7.14
$
5.95
20
%
International (excluding Disney+
Hotstar)(1)
5.93
5.62
6
%
Disney+ Core
6.47
5.77
12
%
Disney+ Hotstar
0.59
0.74
(20
)%
Global Disney+
4.44
3.93
13
%
ESPN+
5.64
5.53
2
%
Hulu
SVOD Only
11.73
12.46
(6
)%
Live TV + SVOD
92.32
87.90
5
%
(1) See discussion on page 11—DTC
Product Descriptions and Key Definitions
(2) Total may not equal the sum
of the column due to rounding
Domestic Disney+ average monthly revenue per paid subscriber
increased from $5.95 to $7.14 due to an increase in average retail
pricing.
International Disney+ (excluding Disney+ Hotstar) average
monthly revenue per paid subscriber increased from $5.62 to $5.93
due to a favorable foreign exchange impact, a lower mix of
wholesale subscribers and an increase in wholesale pricing.
Disney+ Hotstar average monthly revenue per paid subscriber
decreased from $0.74 to $0.59 due to lower per-subscriber
advertising revenue.
ESPN+ average monthly revenue per paid subscriber increased from
$5.53 to $5.64 driven by higher per-subscriber advertising revenue,
partially offset by a higher mix of subscribers to multi-product
offerings.
Hulu SVOD Only average monthly revenue per paid subscriber
decreased from $12.46 to $11.73 due to lower per-subscriber
advertising revenue and a higher mix of subscribers to
multi-product offerings, partially offset by an increase in average
retail pricing.
Hulu Live TV + SVOD average monthly revenue per paid subscriber
increased from $87.90 to $92.32 primarily due to an increase in
average retail pricing, partially offset by lower per-subscriber
advertising revenue.
Content Sales/Licensing and Other
Content Sales/Licensing and Other revenues for the quarter
increased 18% to $2.2 billion and operating results decreased from
income of $16 million to a loss of $50 million. The decrease was
due to lower TV/SVOD distribution results, partially offset by an
improvement at theatrical distribution.
The decrease in TV/SVOD distribution results was primarily due
to lower sales volumes of film content, which included the impact
of the shift from licensing our content to third parties to
distributing it on our DTC streaming services.
The improvement at theatrical distribution was due to the
continued success of Avatar: The Way of Water, which was released
in the first quarter of the current year, partially offset by the
comparison to co-production income in the prior-year quarter from
Marvel’s Spider-Man: No Way Home. The current quarter included the
release of Ant-Man and the Wasp: Quantumania whereas the prior-year
quarter included the release of Death on the Nile.
Disney Parks, Experiences and
Products
Disney Parks, Experiences and Products revenues for the quarter
increased 17% to $7.8 billion and segment operating income
increased 23% to $2.2 billion. Higher operating results for the
quarter reflected increases at our international and domestic parks
and experiences businesses, partially offset by lower results at
our merchandise licensing business.
Higher operating results at our international parks and resorts
were due to growth at Shanghai Disney Resort, Disneyland Paris and
Hong Kong Disneyland Resort. The increase at Shanghai Disney Resort
was due to higher volumes and guest spending growth. Higher volumes
were attributable to increased attendance while guest spending
growth was due to increases in average ticket prices and food,
beverage and merchandise spending. The increase in operating
results at Disneyland Paris was due to volume growth, which was
attributable to higher attendance, and increased guest spending,
partially offset by higher costs. Guest spending growth was due to
increases in average ticket prices, average daily hotel room rates
and food, beverage and merchandise spending. The increase in costs
was primarily due to inflation and higher costs associated with new
guest offerings. Higher results at Hong Kong Disneyland Resort
reflected more operating days in the current quarter due to
COVID-19-related closures in the prior-year quarter.
Operating income growth at our domestic parks and experiences
was attributable to an increase at Disney Cruise Line, partially
offset by the comparison to a real estate gain in the prior-year
quarter. Higher results at Disney Cruise Line were due to an
increase in passenger cruise days including the addition of the
Disney Wish, which launched in the fourth quarter of the prior
year, partially offset by higher costs associated with our ongoing
fleet expansion. Results at our domestic parks and resorts were
slightly unfavorable to the prior-year quarter, as a decrease at
Walt Disney World Resort was largely offset by growth at Disneyland
Resort. The decrease at Walt Disney World Resort was due to higher
costs, partially offset by increased volumes. Higher costs
reflected cost inflation, increased expenses associated with new
guest offerings and higher depreciation. The increase in volumes
was due to attendance growth and higher occupied room nights.
Increased operating income at Disneyland Resort resulted from
growth in attendance and guest spending, partially offset by higher
costs. Higher guest spending was due to increases in average ticket
prices and average daily hotel room rates. The increase in costs
was primarily due to higher operations support costs and increased
costs associated with new guest offerings.
The decrease in merchandise licensing operating income included
lower revenue from merchandise based on Star Wars, Spider-Man,
Frozen and Avengers.
The following table presents supplemental revenue and operating
income detail for the Disney Parks, Experiences and Products
segment:
Quarter Ended
Change
(in millions)
April 1, 2023
April 2, 2022
Supplemental revenue detail
Parks & Experiences
Domestic
$
5,572
$
4,898
14
%
International
1,184
574
>100
%
Consumer Products
1,020
1,180
(14
)%
$
7,776
$
6,652
17
%
Supplemental operating income detail
Parks & Experiences
Domestic
$
1,519
$
1,385
10
%
International
156
(268
)
nm
Consumer Products
491
638
(23
)%
$
2,166
$
1,755
23
%
OTHER FINANCIAL INFORMATION
Restructuring and Impairment
Charges
In the current quarter, the Company recorded charges of $152
million primarily for severance. During the prior-year quarter, the
Company recorded charges of $195 million due to the impairment of
an intangible asset related to the Disney Channel in Russia.
Other Income (Expense),
net
In the current quarter, the Company recorded a $149 million
non-cash gain to adjust its investment in DraftKings, Inc.
(DraftKings) to fair value (DraftKings gain (loss)). In the
prior-year quarter, the Company recorded a $158 million DraftKings
loss.
Interest Expense, net
Interest expense, net was as follows (in millions):
Quarter Ended
April 1, 2023
April 2, 2022
Change
Interest expense
$
(504
)
$
(374
)
(35
)%
Interest income, investment income and
other
182
19
>100
%
Interest expense, net
$
(322
)
$
(355
)
9
%
The increase in interest expense was due to higher average
rates, partially offset by lower average debt balances.
The increase in interest income, investment income and other
resulted from a favorable comparison of pension and postretirement
benefit costs, other than service cost, higher interest income on
cash balances, and investment gains in the current quarter compared
to investment losses in the prior-year quarter.
Equity in the Income of
Investees
Equity in the income of investees was as follows (in
millions):
Quarter Ended
April 1, 2023
April 2, 2022
Change
Amounts included in segment results:
Disney Media and Entertainment
Distribution
$
176
$
218
(19
)%
Disney Parks, Experiences and Products
—
(5
)
100
%
Amortization of TFCF intangible assets
related to equity investees
(3
)
(3
)
—
%
Equity in the income of investees
$
173
$
210
(18
)%
Income from equity investees decreased $37 million, to $173
million from $210 million, primarily due to lower income from A+E
Television Networks.
Income Taxes
The effective income tax rate was as follows:
Quarter Ended
April 1, 2023
April 2, 2022
Income from continuing operations before
income taxes
$
2,123
$
1,102
Income tax expense on continuing
operations
635
505
Effective income tax rate - continuing
operations
29.9
%
45.8
%
The decrease in the effective income tax rate was driven by the
comparison to an unfavorable impact in the prior-year quarter from
new tax regulations that limit our ability to utilize certain
foreign tax credits.
Noncontrolling Interests
Net income attributable to noncontrolling interests was as
follows (in millions):
Quarter Ended
April 1, 2023
April 2, 2022
Change
Net income from continuing operations
attributable to noncontrolling interests
$
(217
)
$
(127
)
(71
)%
The increase in net income from continuing operations
attributable to noncontrolling interests was due to improved
results at Shanghai Disney Resort and lower losses at Hong Kong
Disneyland Resort and at our DTC sports business, partially offset
by lower results at ESPN.
Net income attributable to noncontrolling interests is
determined on income after royalties and management fees, financing
costs and income taxes, as applicable.
Cash Flow
Cash provided by operations and free cash flow were as follows
(in millions):
Six Months Ended
April 1, 2023
April 2, 2022
Change
Cash provided by operations
$
2,262
$
1,556
$
706
Investments in parks, resorts and other
property
(2,430
)
(2,060
)
(370
)
Free cash flow(1)
$
(168
)
$
(504
)
$
336
(1) Free cash flow is not a
financial measure defined by GAAP. See the discussion on pages 11
through 14.
Cash provided by operations increased by $706 million from
$1,556 million in the prior-year period to $2,262 million in the
current period. The increase was due to higher operating income at
Disney Parks, Experiences and Products, partially offset by lower
operating income at Disney Media and Entertainment
Distribution.
Capital Expenditures and Depreciation
Expense
Investments in parks, resorts and other property were as follows
(in millions):
Six Months Ended
April 1, 2023
April 2, 2022
Disney Media and Entertainment
Distribution
$
548
$
334
Disney Parks, Experiences and Products
Domestic
1,024
1,047
International
410
391
Total Disney Parks, Experiences and
Products
1,434
1,438
Corporate
448
288
Total investments in parks, resorts and
other property
$
2,430
$
2,060
Capital expenditures increased from $2.1 billion to $2.4 billion
primarily due to higher spending at Disney Media and Entertainment
Distribution and Corporate. The increase at Disney Media and
Entertainment Distribution was driven by higher technology spending
to support our streaming services, while the increase at Corporate
was due to higher spending on facilities.
Depreciation expense was as follows (in millions):
Six Months Ended
April 1, 2023
April 2, 2022
Disney Media and Entertainment
Distribution
$
333
$
322
Disney Parks, Experiences and Products
Domestic
907
802
International
333
335
Total Disney Parks, Experiences and
Products
1,240
1,137
Corporate
100
94
Total depreciation expense
$
1,673
$
1,553
DTC PRODUCT DESCRIPTIONS AND KEY
DEFINITIONS
Product offerings
In the U.S., Disney+, ESPN+ and Hulu SVOD Only are each offered
as a standalone service or together 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, we offer Disney+ as well as
Star+, a general entertainment SVOD service, which is available on
a standalone basis or together with Disney+ (Combo+). 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. 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 service 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, if a subscriber has
either the standalone Disney+ or Star+ service or subscribes to
Combo+, the subscriber is counted as one Disney+ paid subscriber.
Subscribers include those who receive a service through wholesale
arrangements including those for which we receive a fee for the
distribution of the service to each subscriber 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 and the Star+ service
in Latin America.
Average Monthly Revenue Per Paid
Subscriber
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) and premium
and feature add-on revenue but excludes Premier Access and
Pay-Per-View revenue. 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
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.
NON-GAAP FINANCIAL
MEASURES
This earnings release presents free cash flow, diluted EPS
excluding certain items, and total segment operating income, all of
which are important financial measures for the Company, but are not
financial measures defined by GAAP.
These measures should be reviewed in conjunction with the most
comparable GAAP financial measures and are not presented as
alternative measures of cash provided by continuing operations,
diluted EPS or income from continuing operations before income
taxes as determined in accordance with GAAP. Free cash flow,
diluted EPS excluding certain items and total segment operating
income as we have calculated them may not be comparable to
similarly titled measures reported by other companies. See further
discussion of total segment operating income on page 2.
Free cash flow
The Company uses free cash flow (cash provided by continuing
operations less investments in parks, resorts and other property),
among other measures, to evaluate the ability of its operations to
generate cash that is available for purposes other than capital
expenditures. Management believes that information about free cash
flow provides investors with an important perspective on the cash
available to service debt obligations, make strategic acquisitions
and investments and pay dividends or repurchase shares.
The following table presents a summary of the Company’s
consolidated cash flows (in millions):
Quarter Ended
Six Months Ended
April 1, 2023
April 2, 2022
April 1, 2023
April 2, 2022
Cash provided by operations - continuing
operations
$
3,236
$
1,765
$
2,262
$
1,556
Cash used in investing activities -
continuing operations
(1,249
)
(1,037
)
(2,541
)
(2,024
)
Cash used in financing activities -
continuing operations
(83
)
(1,817
)
(1,126
)
(2,097
)
Cash used in discontinued operations
—
—
—
(4
)
Impact of exchange rates on cash, cash
equivalents and restricted cash
33
(81
)
197
(116
)
Change in cash, cash equivalents and
restricted cash
1,937
(1,170
)
(1,208
)
(2,685
)
Cash, cash equivalents and restricted
cash, beginning of period
8,516
14,488
11,661
16,003
Cash, cash equivalents and restricted
cash, end of period
$
10,453
$
13,318
$
10,453
$
13,318
The following table presents a reconciliation of the Company’s
consolidated cash provided by operations to free cash flow (in
millions):
Quarter Ended
Six Months Ended
April 1, 2023
April 2, 2022
Change
April 1, 2023
April 2, 2022
Change
Cash provided by operations - continuing
operations
$
3,236
$
1,765
$
1,471
$
2,262
$
1,556
$
706
Investments in parks, resorts and other
property
(1,249
)
(1,079
)
(170
)
(2,430
)
(2,060
)
(370
)
Free cash flow
$
1,987
$
686
$
1,301
$
(168
)
$
(504
)
$
336
Diluted EPS excluding certain
items
The Company uses diluted EPS excluding (1) certain items
affecting comparability of results from period to period and (2)
amortization of TFCF and Hulu intangible assets, including purchase
accounting step-up adjustments for released content, to facilitate
the evaluation of the performance of the Company’s operations
exclusive of these items, and these adjustments reflect how senior
management is evaluating segment performance.
The Company believes that providing diluted EPS exclusive of
certain items impacting comparability is useful to investors,
particularly where the impact of the excluded items is significant
in relation to reported earnings and because the measure allows for
comparability between periods of the operating performance of the
Company’s business and allows investors to evaluate the impact of
these items separately.
The Company further believes that providing diluted EPS
exclusive of amortization of TFCF and Hulu intangible assets
associated with the acquisition in 2019 is useful to investors
because the TFCF and Hulu acquisition was considerably larger than
the Company’s historic acquisitions with a significantly greater
acquisition accounting impact.
The following table reconciles reported diluted EPS from
continuing operations to diluted EPS excluding certain items for
the second quarter:
(in millions except EPS)
Pre-Tax Income/
Loss
Tax Benefit/
Expense(1)
After-Tax Income/
Loss(2)
Diluted EPS(3)
Change vs. prior year period
Quarter Ended April 1, 2023
As reported
$
2,123
$
(635
)
$
1,488
$
0.69
>100
%
Exclude:
Amortization of TFCF and Hulu intangible
assets and fair value step-up on film and television costs(4)
558
(130
)
428
0.23
Restructuring and impairment
charges(5)
152
(35
)
117
0.06
Other income, net(6)
(149
)
35
(114
)
(0.06
)
Excluding certain items
$
2,684
$
(765
)
$
1,919
$
0.93
(14
)%
Quarter Ended April 2, 2022
As reported
$
1,102
$
(505
)
$
597
$
0.26
Exclude:
Content License Early Termination
1,023
(238
)
785
0.43
Amortization of TFCF and Hulu intangible
assets and fair value step-up on film and television costs(4)
594
(138
)
456
0.24
Restructuring and impairment
charges(5)
195
(45
)
150
0.08
Other expense, net(6)
158
(37
)
121
0.07
Excluding certain items
$
3,072
$
(963
)
$
2,109
$
1.08
(1)
Tax benefit/expense is determined
using the tax rate applicable to the individual item.
(2)
Before noncontrolling interest
share.
(3)
Net of noncontrolling interest
share, where applicable. Total may not equal the sum of the column
due to rounding.
(4)
For the current quarter,
intangible asset amortization was $408 million, step-up
amortization was $147 million and amortization of intangible assets
related to TFCF equity investees was $3 million. For the prior-year
quarter, intangible asset amortization was $435 million, step-up
amortization was $156 million and amortization of intangible assets
related to TFCF equity investees was $3 million.
(5)
Charges for the current quarter
were primarily for severance. Charges for the prior-year quarter
were due to the impairment of an intangible asset related to the
Disney Channel in Russia.
(6)
In the current quarter, other
income, net was due to the DraftKings gain ($149 million). For the
prior-year quarter, other expense, net was due to the DraftKings
loss ($158 million).
The following table reconciles reported diluted EPS from
continuing operations to diluted EPS excluding certain items for
the current and prior-year six-month periods:
(in millions except EPS)
Pre-Tax Income/
Loss
Tax Benefit/
Expense(1)
After-Tax Income/
Loss(2)
Diluted EPS(3)
Change vs. prior-year period
Six Months Ended April 1, 2023:
As reported
$
3,896
$
(1,047
)
$
2,849
$
1.39
56
%
Exclude:
Amortization of TFCF and Hulu intangible
assets and fair value step-up on film and television costs(4)
1,137
(264
)
873
0.47
Restructuring and impairment
charges(6)
221
(43
)
178
0.10
Other income, net(5)
(107
)
18
(89
)
(0.05
)
Excluding certain items
$
5,147
$
(1,336
)
$
3,811
$
1.91
(11
)%
Six Months Ended April 2, 2022:
As reported
$
2,790
$
(993
)
$
1,797
$
0.89
Exclude:
Amortization of TFCF and Hulu intangible
assets and fair value step-up on film and television costs(4)
1,189
(277
)
912
0.49
Content License Early Termination
1,023
(238
)
785
0.43
Other expense, net(5)
594
(138
)
456
0.25
Restructuring and impairment
charges(6)
195
(45
)
150
0.08
Excluding certain items
$
5,791
$
(1,691
)
$
4,100
$
2.14
(1)
Tax benefit/expense is determined
using the tax rate applicable to the individual item.
(2)
Before noncontrolling interest
share.
(3)
Net of noncontrolling interest
share, where applicable. Total may not equal the sum of the column
due to rounding.
(4)
For the current period,
intangible asset amortization was $825 million, step-up
amortization was $306 million and amortization of intangible assets
related to TFCF equity investees was $6 million. For the prior-year
period, intangible asset amortization was $870 million, step-up
amortization was $313 million and amortization of intangible assets
related to TFCF equity investees was $6 million.
(5)
For the current period, other
income, net was due to the DraftKings gain ($79 million) and a gain
on the sale of a business ($28 million). For the prior-year period,
other expense, net was due to the DraftKings loss ($590
million).
(6)
Charges for the current period
related to severance and exiting our businesses in Russia. Charges
for the prior-year period were due to the impairment of an
intangible asset related to the Disney Channel in Russia.
CONFERENCE CALL INFORMATION
In conjunction with this release, The Walt Disney Company will
host a conference call today, May 10, 2023, at 4:30 PM EDT/1:30 PM
PDT via a live Webcast. To access the Webcast go to
www.disney.com/investors. The discussion will be archived.
FORWARD-LOOKING STATEMENTS
Certain statements and information in this earnings release may
constitute “forward-looking statements” within the meaning of the
Private Securities Litigation Reform Act of 1995, including
statements regarding future performance and growth; business plans,
strategic priorities and drivers of growth and profitability and
other statements that are not historical in nature. Any information
that is not historical in nature included in this earnings release
is subject to change. These statements are made on the basis of
management’s views and assumptions regarding future events and
business performance as of the time the statements are made.
Management does not undertake any obligation to update these
statements.
Actual results may differ materially from those expressed or
implied. Such differences may result from actions taken by the
Company, including restructuring or strategic initiatives
(including capital investments, asset acquisitions or dispositions,
new or expanded business lines or cessation of certain operations),
our execution of our business plans (including the content we
create and IP we invest in, our pricing decisions, our cost
structure and our management and other personnel decisions) or
other business decisions, as well as from developments beyond the
Company’s control, including:
- further deterioration in domestic and global economic
conditions;
- deterioration in or pressures from competitive conditions,
including competition to create or acquire content and competition
for talent;
- consumer preferences and acceptance of our content, offerings,
pricing model and price increases and the market for advertising
sales on our DTC services and linear networks;
- health concerns and their impact on our businesses and
productions;
- international, political or military developments;
- regulatory and legal developments;
- technological developments;
- labor markets and activities, including work stoppages;
- adverse weather conditions or natural disasters; and
- availability of content.
Such developments may further affect entertainment, travel and
leisure businesses generally and may, among other things, affect
(or further affect, as applicable):
- our operations, business plans or profitability;
- demand for our products and services;
- the performance of the Company’s content;
- our ability to create or obtain desirable content at or under
the value we assign the content;
- the advertising market for programming;
- income tax expense; and
- performance of some or all Company businesses either directly
or through their impact on those who distribute our products.
Additional factors are set forth in the Company’s Annual Report
on Form 10-K for the year ended October 1, 2022, including under
the captions “Risk Factors,” “Management’s Discussion and Analysis
of Financial Condition and Results of Operations,” and “Business,”
quarterly reports on Form 10-Q, including under the captions “Risk
Factors” and “Management’s Discussion and Analysis of Financial
Condition and Results of Operations,” and subsequent filings with
the Securities and Exchange Commission.
The terms “Company,” “we,” and “our” are used in this report to
refer collectively to the parent company and the subsidiaries
through which our various businesses are actually conducted.
THE WALT DISNEY
COMPANY
CONDENSED CONSOLIDATED
STATEMENTS OF INCOME
(unaudited; in millions,
except per share data)
Quarter Ended
Six Months Ended
April 1, 2023
April 2, 2022
April 1, 2023
April 2, 2022
Revenues
$
21,815
$
19,249
$
45,327
$
41,068
Costs and expenses
(19,540
)
(17,649
)
(41,059
)
(37,272
)
Restructuring and impairment charges
(152
)
(195
)
(221
)
(195
)
Other income (expense), net
149
(158
)
107
(594
)
Interest expense, net
(322
)
(355
)
(622
)
(666
)
Equity in the income of investees
173
210
364
449
Income from continuing operations before
income taxes
2,123
1,102
3,896
2,790
Income taxes on continuing operations
(635
)
(505
)
(1,047
)
(993
)
Net income from continuing operations
1,488
597
2,849
1,797
Loss from discontinued operations, net of
income tax benefit of $0, $0, $0 and $14, respectively
—
—
—
(48
)
Net income
1,488
597
2,849
1,749
Net income from continuing operations
attributable to noncontrolling interests
(217
)
(127
)
(299
)
(175
)
Net income attributable to The Walt Disney
Company (Disney)
$
1,271
$
470
$
2,550
$
1,574
Earnings (loss) per share attributable to
Disney(1):
Diluted
Continuing operations
$
0.69
$
0.26
$
1.39
$
0.89
Discontinued operations
—
—
—
(0.03
)
$
0.69
$
0.26
$
1.39
$
0.86
Basic
Continuing operations
$
0.70
$
0.26
$
1.40
$
0.89
Discontinued operations
—
—
—
(0.03
)
$
0.70
$
0.26
$
1.40
$
0.86
Weighted average number of common and
common equivalent shares outstanding:
Diluted
1,831
1,828
1,829
1,828
Basic
1,828
1,822
1,827
1,820
(1) Total may not equal the sum of the column due to
rounding.
THE WALT DISNEY
COMPANY
CONDENSED CONSOLIDATED BALANCE
SHEETS
(unaudited; in millions,
except per share data)
April 1, 2023
October 1, 2022
ASSETS
Current assets
Cash and cash equivalents
$
10,399
$
11,615
Receivables, net
12,770
12,652
Inventories
1,848
1,742
Content advances
1,872
1,890
Other current assets
1,374
1,199
Total current assets
28,263
29,098
Produced and licensed content costs
36,949
35,777
Investments
3,387
3,218
Parks, resorts and other property
Attractions, buildings and equipment
69,695
66,998
Accumulated depreciation
(41,452
)
(39,356
)
28,243
27,642
Projects in progress
5,175
4,814
Land
1,161
1,140
34,579
33,596
Intangible assets, net
13,887
14,837
Goodwill
77,878
77,897
Other assets
9,915
9,208
Total assets
$
204,858
$
203,631
LIABILITIES AND EQUITY
Current liabilities
Accounts payable and other accrued
liabilities
$
18,591
$
20,213
Current portion of borrowings
3,452
3,070
Deferred revenue and other
6,013
5,790
Total current liabilities
28,056
29,073
Borrowings
45,066
45,299
Deferred income taxes
8,134
8,363
Other long-term liabilities
13,232
12,518
Commitments and contingencies
Redeemable noncontrolling interests
8,814
9,499
Equity
Preferred stock
—
—
Common stock, $0.01 par value, Authorized
– 4.6 billion shares, Issued – 1.8 billion shares
56,919
56,398
Retained earnings
46,236
43,636
Accumulated other comprehensive loss
(4,389
)
(4,119
)
Treasury stock, at cost, 19 million
shares
(907
)
(907
)
Total Disney Shareholders’ equity
97,859
95,008
Noncontrolling interests
3,697
3,871
Total equity
101,556
98,879
Total liabilities and equity
$
204,858
$
203,631
THE WALT DISNEY
COMPANY
CONDENSED CONSOLIDATED
STATEMENTS OF CASH FLOWS
(unaudited; in
millions)
Six Months Ended
April 1, 2023
April 2, 2022
OPERATING ACTIVITIES
Net income from continuing operations
$
2,849
$
1,797
Depreciation and amortization
2,616
2,556
Net (gain)/loss on investments and
disposition of businesses
(88
)
632
Deferred income taxes
(46
)
983
Equity in the income of investees
(364
)
(449
)
Cash distributions received from equity
investees
363
406
Net change in produced and licensed
content costs and advances
(824
)
(2,279
)
Equity-based compensation
570
450
Pension and postretirement medical benefit
cost amortization
2
310
Other, net
(234
)
264
Changes in operating assets and
liabilities:
Receivables
(413
)
(342
)
Inventories
(107
)
(97
)
Other assets
(345
)
(676
)
Accounts payable and other liabilities
(2,133
)
(1,349
)
Income taxes
416
(650
)
Cash provided by operations - continuing
operations
2,262
1,556
INVESTING ACTIVITIES
Investments in parks, resorts and other
property
(2,430
)
(2,060
)
Other, net
(111
)
36
Cash used in investing activities -
continuing operations
(2,541
)
(2,024
)
FINANCING ACTIVITIES
Commercial paper borrowings (payments),
net
714
(130
)
Borrowings
70
70
Reduction of borrowings
(1,000
)
(1,400
)
Sale of noncontrolling interest
178
—
Acquisition of redeemable noncontrolling
interest
(900
)
—
Other, net
(188
)
(637
)
Cash used in financing activities -
continuing operations
(1,126
)
(2,097
)
CASH FLOWS FROM DISCONTINUED
OPERATIONS
Cash provided by operations - discontinued
operations
—
8
Cash used in financing activities -
discontinued operations
—
(12
)
Cash used in discontinued operations
—
(4
)
Impact of exchange rates on cash, cash
equivalents and restricted cash
197
(116
)
Change in cash, cash equivalents and
restricted cash
(1,208
)
(2,685
)
Cash, cash equivalents and restricted
cash, beginning of period
11,661
16,003
Cash, cash equivalents and restricted
cash, end of period
$
10,453
$
13,318
View source
version on businesswire.com: https://www.businesswire.com/news/home/20230510005954/en/
David Jefferson Corporate Communications 818-560-4832
Alexia Quadrani Investor Relations 818-560-6601
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