filings.toolsItem 1. Financial Statements
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Item 1. Financial Statements
THE WALT DISNEY COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(unaudited; in millions, except per share data)
| Quarter Ended | |||||||||||||||||||||||
| December 31, 2022 | January 1, 2022 | ||||||||||||||||||||||
| Revenues: | |||||||||||||||||||||||
| Services | $ | 20,997 | $ | 19,542 | |||||||||||||||||||
| Products | 2,515 | 2,277 | |||||||||||||||||||||
| Total revenues | 23,512 | 21,819 | |||||||||||||||||||||
| Costs and expenses: | |||||||||||||||||||||||
| Cost of services (exclusive of depreciation and amortization) | (14,781) | (13,161) | |||||||||||||||||||||
| Cost of products (exclusive of depreciation and amortization) | (1,605) | (1,406) | |||||||||||||||||||||
| Selling, general, administrative and other | (3,827) | (3,787) | |||||||||||||||||||||
| Depreciation and amortization | (1,306) | (1,269) | |||||||||||||||||||||
| Total costs and expenses | (21,519) | (19,623) | |||||||||||||||||||||
| Restructuring and impairment charges | (69) | — | |||||||||||||||||||||
| Other expense, net | (42) | (436) | |||||||||||||||||||||
| Interest expense, net | (300) | (311) | |||||||||||||||||||||
| Equity in the income of investees | 191 | 239 | |||||||||||||||||||||
| Income from continuing operations before income taxes | 1,773 | 1,688 | |||||||||||||||||||||
| Income taxes on continuing operations | (412) | (488) | |||||||||||||||||||||
| Net income from continuing operations | 1,361 | 1,200 | |||||||||||||||||||||
| Loss from discontinued operations, net of income tax benefit of $0 and $14, respectively | — | (48) | |||||||||||||||||||||
| Net income | 1,361 | 1,152 | |||||||||||||||||||||
| Net income from continuing operations attributable to noncontrolling interests | (82) | (48) | |||||||||||||||||||||
| Net income attributable to Disney | $ | 1,279 | $ | 1,104 | |||||||||||||||||||
| Earnings (loss) per share attributable to Disney(1): | |||||||||||||||||||||||
| Diluted | |||||||||||||||||||||||
| Continuing operations | $ | 0.70 | $ | 0.63 | |||||||||||||||||||
| Discontinued operations | — | (0.03) | |||||||||||||||||||||
| $ | 0.70 | $ | 0.60 | ||||||||||||||||||||
| Basic | |||||||||||||||||||||||
| Continuing operations | $ | 0.70 | $ | 0.63 | |||||||||||||||||||
| Discontinued operations | — | (0.03) | |||||||||||||||||||||
| $ | 0.70 | $ | 0.61 | ||||||||||||||||||||
| Weighted average number of common and common equivalent shares outstanding: | |||||||||||||||||||||||
| Diluted | 1,827 | 1,828 | |||||||||||||||||||||
| Basic | 1,825 | 1,819 | |||||||||||||||||||||
(1)Total may not equal the sum of the column due to rounding.
See Notes to Condensed Consolidated Financial Statements
THE WALT DISNEY COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(unaudited; in millions)
| Quarter Ended | |||||||||||||||||||||||
| December 31, 2022 | January 1, 2022 | ||||||||||||||||||||||
| Net income | $ | 1,361 | $ | 1,152 | |||||||||||||||||||
| Other comprehensive income (loss), net of tax: | |||||||||||||||||||||||
| Market value adjustments for hedges | (542) | 50 | |||||||||||||||||||||
| Pension and postretirement medical plan adjustments | 1 | 155 | |||||||||||||||||||||
| Foreign currency translation and other | 227 | (22) | |||||||||||||||||||||
| Other comprehensive income (loss) | (314) | 183 | |||||||||||||||||||||
| Comprehensive income | 1,047 | 1,335 | |||||||||||||||||||||
| Net income from continuing operations attributable to noncontrolling interests | (82) | (48) | |||||||||||||||||||||
| Other comprehensive loss attributable to noncontrolling interests | (45) | (19) | |||||||||||||||||||||
| Comprehensive income attributable to Disney | $ | 920 | $ | 1,268 |
See Notes to Condensed Consolidated Financial Statements
THE WALT DISNEY COMPANY
CONDENSED CONSOLIDATED BALANCE SHEETS
(unaudited; in millions, except per share data)
| December 31, 2022 | October 1, 2022 | ||||||||||
| ASSETS | |||||||||||
| Current assets | |||||||||||
| Cash and cash equivalents | $ | 8,470 | $ | 11,615 | |||||||
| Receivables, net | 13,993 | 12,652 | |||||||||
| Inventories | 1,830 | 1,742 | |||||||||
| Content advances | 1,300 | 1,890 | |||||||||
| Other current assets | 1,319 | 1,199 | |||||||||
| Total current assets | 26,912 | 29,098 | |||||||||
| Produced and licensed content costs | 36,266 | 35,777 | |||||||||
| Investments | 3,169 | 3,218 | |||||||||
| Parks, resorts and other property | |||||||||||
| Attractions, buildings and equipment | 68,253 | 66,998 | |||||||||
| Accumulated depreciation | (40,641) | (39,356) | |||||||||
| 27,612 | 27,642 | ||||||||||
| Projects in progress | 5,430 | 4,814 | |||||||||
| Land | 1,158 | 1,140 | |||||||||
| 34,200 | 33,596 | ||||||||||
| Intangible assets, net | 14,347 | 14,837 | |||||||||
| Goodwill | 77,867 | 77,897 | |||||||||
| Other assets | 9,363 | 9,208 | |||||||||
| Total assets | $ | 202,124 | $ | 203,631 | |||||||
| LIABILITIES AND EQUITY | |||||||||||
| Current liabilities | |||||||||||
| Accounts payable and other accrued liabilities | $ | 18,149 | $ | 20,213 | |||||||
| Current portion of borrowings | 3,249 | 3,070 | |||||||||
| Deferred revenue and other | 5,672 | 5,790 | |||||||||
| Total current liabilities | 27,070 | 29,073 | |||||||||
| Borrowings | 45,128 | 45,299 | |||||||||
| Deferred income taxes | 8,236 | 8,363 | |||||||||
| Other long-term liabilities | 12,812 | 12,518 | |||||||||
| Commitments and contingencies (Note 13) | |||||||||||
| Redeemable noncontrolling interests | 8,743 | 9,499 | |||||||||
| Equity | |||||||||||
| Preferred stock | — | — | |||||||||
| Common stock, $0.01 par value, Authorized – 4.6 billion shares, Issued – 1.8 billion shares | 56,579 | 56,398 | |||||||||
| Retained earnings | 44,955 | 43,636 | |||||||||
| Accumulated other comprehensive loss | (4,478) | (4,119) | |||||||||
| Treasury stock, at cost, 19 million shares | (907) | (907) | |||||||||
| Total Disney Shareholders’ equity | 96,149 | 95,008 | |||||||||
| Noncontrolling interests | 3,986 | 3,871 | |||||||||
| Total equity | 100,135 | 98,879 | |||||||||
| Total liabilities and equity | $ | 202,124 | $ | 203,631 |
See Notes to Condensed Consolidated Financial Statements
THE WALT DISNEY COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited; in millions)
| Quarter Ended | |||||||||||
| December 31, 2022 | January 1, 2022 | ||||||||||
| OPERATING ACTIVITIES | |||||||||||
| Net income from continuing operations | $ | 1,361 | $ | 1,200 | |||||||
| Depreciation and amortization | 1,306 | 1,269 | |||||||||
| Net loss on investments and disposition of businesses | 68 | 436 | |||||||||
| Deferred income taxes | (15) | 726 | |||||||||
| Equity in the income of investees | (191) | (239) | |||||||||
| Cash distributions received from equity investees | 176 | 223 | |||||||||
| Net change in produced and licensed content costs and advances | 558 | 507 | |||||||||
| Equity-based compensation | 270 | 196 | |||||||||
| Pension and postretirement medical benefit cost amortization | 1 | 155 | |||||||||
| Other, net | (232) | (7) | |||||||||
| Changes in operating assets and liabilities: | |||||||||||
| Receivables | (1,423) | (1,401) | |||||||||
| Inventories | (88) | (14) | |||||||||
| Other assets | (443) | (115) | |||||||||
| Accounts payable and other liabilities | (2,378) | (2,579) | |||||||||
| Income taxes | 56 | (566) | |||||||||
| Cash used in operations - continuing operations | (974) | (209) | |||||||||
| INVESTING ACTIVITIES | |||||||||||
| Investments in parks, resorts and other property | (1,181) | (981) | |||||||||
| Other, net | (111) | (6) | |||||||||
| Cash used in investing activities - continuing operations | (1,292) | (987) | |||||||||
| FINANCING ACTIVITIES | |||||||||||
| Commercial paper borrowings (payments), net | 799 | (124) | |||||||||
| Borrowings | 67 | 33 | |||||||||
| Reduction of borrowings | (1,000) | — | |||||||||
| Sale of noncontrolling interest | 178 | — | |||||||||
| Acquisition of redeemable noncontrolling interest | (900) | — | |||||||||
| Other, net | (187) | (189) | |||||||||
| Cash used in financing activities - continuing operations | (1,043) | (280) | |||||||||
| 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 | 164 | (35) | |||||||||
| Change in cash, cash equivalents and restricted cash | (3,145) | (1,515) | |||||||||
| Cash, cash equivalents and restricted cash, beginning of period | 11,661 | 16,003 | |||||||||
| Cash, cash equivalents and restricted cash, end of period | $ | 8,516 | $ | 14,488 |
See Notes to Condensed Consolidated Financial Statements
THE WALT DISNEY COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF EQUITY
(unaudited; in millions)
| Quarter Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Equity Attributable to Disney | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Shares | Common Stock | Retained Earnings | Accumulated Other Comprehensive Income (Loss) | Treasury Stock | Total Disney Equity | Non-controlling Interests(1) | Total Equity | |||||||||||||||||||||||||||||||||||||||||||
| Balance at October 1, 2022 | 1,824 | $ | 56,398 | $ | 43,636 | $ | (4,119) | $ | (907) | $ | 95,008 | $ | 3,871 | $ | 98,879 | |||||||||||||||||||||||||||||||||||
| Comprehensive income (loss) | — | — | 1,279 | (359) | — | 920 | (16) | 904 | ||||||||||||||||||||||||||||||||||||||||||
| Equity compensation activity | 2 | 180 | — | — | — | 180 | — | 180 | ||||||||||||||||||||||||||||||||||||||||||
| Contributions | — | — | — | — | — | — | 178 | 178 | ||||||||||||||||||||||||||||||||||||||||||
| Distributions and other | — | 1 | 40 | — | — | 41 | (47) | (6) | ||||||||||||||||||||||||||||||||||||||||||
| Balance at December 31, 2022 | 1,826 | $ | 56,579 | $ | 44,955 | $ | (4,478) | $ | (907) | $ | 96,149 | $ | 3,986 | $ | 100,135 | |||||||||||||||||||||||||||||||||||
| Balance at October 2, 2021 | 1,818 | $ | 55,471 | $ | 40,429 | $ | (6,440) | $ | (907) | $ | 88,553 | $ | 4,458 | $ | 93,011 | |||||||||||||||||||||||||||||||||||
| Comprehensive income (loss) | — | — | 1,104 | 164 | — | 1,268 | (4) | 1,264 | ||||||||||||||||||||||||||||||||||||||||||
| Equity compensation activity | 3 | 29 | — | — | — | 29 | — | 29 | ||||||||||||||||||||||||||||||||||||||||||
| Contributions | — | — | — | — | — | — | 29 | 29 | ||||||||||||||||||||||||||||||||||||||||||
| Distributions and other | — | — | 14 | — | — | 14 | (37) | (23) | ||||||||||||||||||||||||||||||||||||||||||
| Balance at January 1, 2022 | 1,821 | $ | 55,500 | $ | 41,547 | $ | (6,276) | $ | (907) | $ | 89,864 | $ | 4,446 | $ | 94,310 |
(1)Excludes redeemable noncontrolling interests.
See Notes to Condensed Consolidated Financial Statements
THE WALT DISNEY COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited; tabular dollars in millions, except for per share data)
**1.**Principles of Consolidation
These Condensed Consolidated Financial Statements have been prepared in accordance with accounting principles generally accepted in the United States of America (GAAP) for interim financial information and the instructions to Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. We believe that we have included all normal recurring adjustments necessary for a fair statement of the results for the interim period. Operating results for the quarter ended December 31, 2022 are not necessarily indicative of the results that may be expected for the year ending September 30, 2023.
The terms “Company,” “Disney,” “we,” “us,” and “our” are used in this report to refer collectively to the parent company, The Walt Disney Company, as well as the subsidiaries through which its various businesses are actually conducted.
These financial statements should be read in conjunction with the Company’s 2022 Annual Report on Form 10-K.
Variable Interest Entities
The Company enters into relationships with or makes investments in other entities that may be variable interest entities (VIE). A VIE is consolidated in the financial statements if the Company has the power to direct activities that most significantly impact the economic performance of the VIE and has the obligation to absorb losses or the right to receive benefits from the VIE that could potentially be significant (as defined by ASC 810-10-25-38) to the VIE. Hong Kong Disneyland Resort and Shanghai Disney Resort (together the Asia Theme Parks) are VIEs in which the Company has less than 50% equity ownership. Company subsidiaries (the Management Companies) have management agreements with the Asia Theme Parks, which provide the Management Companies, subject to certain protective rights of joint venture partners, with the ability to direct the day-to-day operating activities and the development of business strategies that we believe most significantly impact the economic performance of the Asia Theme Parks. In addition, the Management Companies receive management fees under these arrangements that we believe could be significant to the Asia Theme Parks. Therefore, the Company has consolidated the Asia Theme Parks in its financial statements.
Redeemable Noncontrolling Interests
The Company consolidates the results of Hulu LLC (Hulu), a direct-to-consumer (DTC) streaming service provider, which is owned 67% by the Company and 33% by NBC Universal (NBCU). In May 2019, the Company entered into a put/call agreement with NBCU that provided the Company with full operational control of Hulu. Under the agreement, beginning in January 2024, NBCU has the option to require the Company to purchase NBCU’s interest in Hulu and the Company has the option to require NBCU to sell its interest in Hulu to the Company, in either case at a redemption value based on NBCU’s equity ownership percentage of the greater of Hulu’s then equity fair value or a guaranteed floor value of $27.5 billion.
NBCU’s interest will generally not be allocated its portion of Hulu’s losses, if any, as the redeemable noncontrolling interest is required to be carried at a minimum value. The minimum value is equal to the fair value as of the May 2019 agreement date accreted to the January 2024 estimated redemption value. At December 31, 2022, NBCU’s interest in Hulu is recorded in the Company’s financial statements at $8.7 billion, which is reported as “Redeemable noncontrolling interest” in the Condensed Consolidated Balance Sheets.
We are accreting NBCU’s interest in Hulu to its guaranteed floor value. In determining the redemption value, our estimate of Hulu’s equity fair value in January 2024 requires management to make significant judgments. If our estimate of the future fair value of Hulu’s equity increased above the guaranteed floor value, we would change our rate of accretion, which would generally increase the amount recorded in “Net income from continuing operations attributable to noncontrolling interests” and thus reduce “Net income attributable to Disney” in the Condensed Consolidated Statements of Income.
At October 1, 2022, Major League Baseball (MLB) held a 15% redeemable noncontrolling interest in BAMTech LLC (BAMTech), which was recorded in the Company’s financial statements at $828 million. In November 2022, the Company purchased MLB’s redeemable noncontrolling interest for $900 million, resulting in $72 million recorded as an increase in “Net income from continuing operations attributable to noncontrolling interests” in the Condensed Consolidated Statements of Income.
THE WALT DISNEY COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited; tabular dollars in millions, except for per share data)
Use of Estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and footnotes thereto. Actual results may differ from those estimates.
Reclassifications
Certain reclassifications have been made in the fiscal 2022 financial statements and notes to conform to the fiscal 2023 presentation.
**2.**Segment Information
The Company’s operations are conducted in the Disney Media and Entertainment Distribution (DMED) and Disney Parks, Experiences and Products (DPEP) segments. Our operating segments report separate financial information, which is evaluated regularly by the Chief Executive Officer to allocate resources and assess performance.
Segment operating results reflect earnings before corporate and unallocated shared expenses, restructuring and impairment charges, net other income, net interest expense, income taxes and noncontrolling interests. Segment operating income includes equity in the income of investees and excludes impairments of certain equity investments and acquisition accounting amortization of TFCF Corporation (TFCF) and Hulu assets (i.e. intangible assets and the fair value step-up for film and television costs) recognized in connection with the TFCF acquisition in fiscal 2019 (TFCF and Hulu acquisition amortization). Corporate and unallocated shared expenses principally consist of corporate functions, executive management and certain unallocated administrative support functions.
Segment operating results include allocations of certain costs, including information technology, pension, legal and other shared services costs, which are allocated based on metrics designed to correlate with consumption.
Segment revenues and segment operating income (loss) are as follows:
| Quarter Ended | |||||||||||||||||||||||
| December 31, 2022 | January 1, 2022 | ||||||||||||||||||||||
| Revenues: | |||||||||||||||||||||||
| Disney Media and Entertainment Distribution | $ | 14,776 | $ | 14,585 | |||||||||||||||||||
| Disney Parks, Experiences and Products | 8,736 | 7,234 | |||||||||||||||||||||
| Total segment revenues | $ | 23,512 | $ | 21,819 | |||||||||||||||||||
| Segment operating income (loss): | |||||||||||||||||||||||
| Disney Media and Entertainment Distribution | $ | (10) | $ | 808 | |||||||||||||||||||
| Disney Parks, Experiences and Products | 3,053 | 2,450 | |||||||||||||||||||||
| Total segment operating income(1) | $ | 3,043 | $ | 3,258 |
(1) Equity in the income of investees is included in segment operating income as follows:
| Quarter Ended | |||||||||||||||||||||||
| December 31, 2022 | January 1, 2022 | ||||||||||||||||||||||
| Disney Media and Entertainment Distribution | $ | 196 | $ | 245 | |||||||||||||||||||
| Disney Parks, Experiences and Products | (2) | (3) | |||||||||||||||||||||
| Equity in the income of investees included in segment operating income | 194 | 242 | |||||||||||||||||||||
| Amortization of TFCF intangible assets related to equity investees | (3) | (3) | |||||||||||||||||||||
| Equity in the income of investees, net | $ | 191 | $ | 239 |
THE WALT DISNEY COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited; tabular dollars in millions, except for per share data)
A reconciliation of segment operating income to income from continuing operations before income taxes is as follows:
| Quarter Ended | |||||||||||||||||||||||
| December 31, 2022 | January 1, 2022 | ||||||||||||||||||||||
| Segment operating income | $ | 3,043 | $ | 3,258 | |||||||||||||||||||
| Corporate and unallocated shared expenses | (280) | (228) | |||||||||||||||||||||
| Restructuring and impairment charges | (69) | — | |||||||||||||||||||||
| Other expense, net(1) | (42) | (436) | |||||||||||||||||||||
| Interest expense, net | (300) | (311) | |||||||||||||||||||||
| TFCF and Hulu acquisition amortization(2) | (579) | (595) | |||||||||||||||||||||
| Income from continuing operations before income taxes | $ | 1,773 | $ | 1,688 |
(1)See Note 4 for a discussion of amounts in other expense, net.
(2)For the quarter ended December 31, 2022 amortization of intangible assets, step-up of film and television costs and intangibles related to TFCF equity investees were $417 million, $159 million and $3 million, respectively. For the quarter ended January 1, 2022 amortization of intangible assets, step-up of film and television costs and intangibles related to TFCF equity investees were $435 million, $157 million, and $3 million, respectively.
Goodwill
The changes in the carrying amount of goodwill are as follows:
| DMED | DPEP | Total | |||||||||||||||||||||||||||||||||||||||
| Balance at October 1, 2022 | $ | 72,347 | $ | 5,550 | $ | 77,897 | |||||||||||||||||||||||||||||||||||
| Currency translation adjustments and other, net | (30) | — | (30) | ||||||||||||||||||||||||||||||||||||||
| Balance at December 31, 2022 | $ | 72,317 | $ | 5,550 | $ | 77,867 |
**3.**Revenues
The following table presents our revenues by segment and major source:
| Quarter Ended December 31, 2022 | Quarter Ended January 1, 2022 | ||||||||||||||||||||||||||||||||||||||||
| DMED | DPEP | Total | DMED | DPEP | Total | ||||||||||||||||||||||||||||||||||||
| Affiliate fees | $ | 4,242 | $ | — | $ | 4,242 | $ | 4,371 | $ | — | $ | 4,371 | |||||||||||||||||||||||||||||
| Subscription fees | 4,240 | — | 4,240 | 3,598 | — | 3,598 | |||||||||||||||||||||||||||||||||||
| Advertising | 3,442 | 1 | 3,443 | 3,868 | 1 | 3,869 | |||||||||||||||||||||||||||||||||||
| Theme park admissions | — | 2,641 | 2,641 | — | 2,152 | 2,152 | |||||||||||||||||||||||||||||||||||
| Resort and vacations | — | 1,980 | 1,980 | — | 1,445 | 1,445 | |||||||||||||||||||||||||||||||||||
| Retail and wholesale sales of merchandise, food and beverage | — | 2,382 | 2,382 | — | 2,089 | 2,089 | |||||||||||||||||||||||||||||||||||
| Merchandise licensing | — | 1,143 | 1,143 | — | 1,119 | 1,119 | |||||||||||||||||||||||||||||||||||
| TV/SVOD distribution licensing | 979 | — | 979 | 1,396 | — | 1,396 | |||||||||||||||||||||||||||||||||||
| Theatrical distribution licensing | 1,140 | — | 1,140 | 529 | — | 529 | |||||||||||||||||||||||||||||||||||
| Home entertainment | 135 | — | 135 | 294 | — | 294 | |||||||||||||||||||||||||||||||||||
| Other | 598 | 589 | 1,187 | 529 | 428 | 957 | |||||||||||||||||||||||||||||||||||
| $ | 14,776 | $ | 8,736 | $ | 23,512 | $ | 14,585 | $ | 7,234 | $ | 21,819 | ||||||||||||||||||||||||||||||
The following table presents our revenues by segment and primary geographical markets:
| Quarter Ended December 31, 2022 | Quarter Ended January 1, 2022 | ||||||||||||||||||||||||||||||||||||||||
| DMED | DPEP | Total | DMED | DPEP | Total | ||||||||||||||||||||||||||||||||||||
| Americas | $ | 12,018 | $ | 6,953 | $ | 18,971 | $ | 11,830 | $ | 5,711 | $ | 17,541 | |||||||||||||||||||||||||||||
| Europe | 1,574 | 1,066 | 2,640 | 1,538 | 865 | 2,403 | |||||||||||||||||||||||||||||||||||
| Asia Pacific | 1,184 | 717 | 1,901 | 1,217 | 658 | 1,875 | |||||||||||||||||||||||||||||||||||
| Total revenues | $ | 14,776 | $ | 8,736 | $ | 23,512 | $ | 14,585 | $ | 7,234 | $ | 21,819 | |||||||||||||||||||||||||||||
THE WALT DISNEY COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited; tabular dollars in millions, except for per share data)
Revenues recognized in the current and prior-year periods from performance obligations satisfied (or partially satisfied) in previous reporting periods primarily relate to revenues earned on TV/SVOD licenses for titles made available to the licensee in previous reporting periods. For the quarter ended December 31, 2022, $0.3 billion was recognized related to performance obligations satisfied as of October 1, 2022. For the quarter ended January 1, 2022, $0.4 billion was recognized related to performance obligations satisfied as of October 2, 2021.
As of December 31, 2022, revenue for unsatisfied performance obligations expected to be recognized in the future is $15 billion, primarily for content and other IP to be made available in the future under existing agreements with merchandise and co-branding licensees and sponsors, television station affiliates, sports sublicensees, advertisers, and DTC wholesalers. Of this amount, we expect to recognize approximately $4 billion in the remainder of fiscal 2023, $4 billion in fiscal 2024, $3 billion in fiscal 2025 and $4 billion thereafter. These amounts include only fixed consideration or minimum guarantees and do not include amounts related to (i) contracts with an original expected term of one year or less (such as most advertising contracts) or (ii) licenses of IP that are solely based on the sales of the licensee.
When the timing of the Company’s revenue recognition is different from the timing of customer payments, the Company recognizes either a contract asset (customer payment is subsequent to revenue recognition and subject to the Company satisfying additional performance obligations) or deferred revenue (customer payment precedes the Company satisfying the performance obligations). Consideration due under contracts with payment in arrears is recognized as accounts receivable. Deferred revenues are recognized as (or when) the Company performs under the contract. The Company’s contract assets and activity for the current and prior-year periods were not material.
Accounts receivable and deferred revenues from contracts with customers are as follows:
| December 31, 2022 | October 1, 2022 | ||||||||||
| Accounts receivable | |||||||||||
| Current | $ | 12,222 | $ | 10,886 | |||||||
| Non-current | 1,193 | 1,226 | |||||||||
| Allowance for credit losses | (166) | (179) | |||||||||
| Deferred revenues | |||||||||||
| Current | 5,392 | 5,531 | |||||||||
| Non-current | 908 | 927 |
For the quarter ended December 31, 2022, the Company recognized revenue of $3.4 billion that was included in the October 1, 2022 deferred revenue balance. For the quarter ended January 1, 2022, the Company recognized revenue of $1.9 billion that was included in the October 2, 2021 deferred revenue balance. Amounts deferred generally relate to theme park admissions and vacation packages, DTC subscriptions and advances related to merchandise and TV/SVOD licenses.
We evaluate our allowance for credit losses and estimate collectability of current and non-current accounts receivable based on historical bad debt experience, our assessment of the financial condition of individual companies with which we do business, current market conditions, and reasonable and supportable forecasts of future economic conditions. In times of economic turmoil, our estimates and judgments with respect to the collectability of our receivables are subject to greater uncertainty than in more stable periods.
The Company has accounts receivable with original maturities greater than one year related to the sale of film and television program rights (TV/SVOD licensing) and vacation club properties. These receivables are discounted to present value at contract inception and the related revenues are recognized at the discounted amount. The balance of TV/SVOD licensing receivables recorded in other non-current assets was $0.6 billion at both December 31, 2022 and October 1, 2022. The balance of vacation club receivables recorded in other non-current assets was $0.6 billion at both December 31, 2022 and October 1, 2022. The allowance for credit losses and activity for the period ended December 31, 2022 was not material.
THE WALT DISNEY COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited; tabular dollars in millions, except for per share data)
**4.**Other Expense, net
Other expense, net is as follows:
| Quarter Ended | |||||||||||||||||||||||
| December 31, 2022 | January 1, 2022 | ||||||||||||||||||||||
| DraftKings loss | $ | (70) | $ | (432) | |||||||||||||||||||
| Other, net | 28 | (4) | |||||||||||||||||||||
| Other expense, net | $ | (42) | $ | (436) |
In the current quarter, the Company recognized a $70 million non-cash loss to adjust its investment in DraftKings, Inc. (DraftKings) to fair value (DraftKings loss). In the prior-year quarter, the Company recorded a $432 million DraftKings loss.
**5.**Cash, Cash Equivalents, Restricted Cash and Borrowings
Cash, Cash Equivalents and Restricted Cash
The following table provides a reconciliation of cash, cash equivalents and restricted cash reported in the Condensed Consolidated Balance Sheets to the total of the amounts reported in the Condensed Consolidated Statements of Cash Flows.
| December 31, 2022 | October 1, 2022 | |||||||||||||
| Cash and cash equivalents | $ | 8,470 | $ | 11,615 | ||||||||||
| Restricted cash included in: | ||||||||||||||
| Other current assets | 3 | 3 | ||||||||||||
| Other assets | 43 | 43 | ||||||||||||
| Total cash, cash equivalents and restricted cash in the statement of cash flows | $ | 8,516 | $ | 11,661 |
Borrowings
During the quarter ended December 31, 2022, the Company’s borrowing activity was as follows:
| October 1, 2022 | Borrowings | Payments | Other Activity | December 31, 2022 | |||||||||||||||||||||||||||||||
| Commercial paper with original maturities less than three months | $ | 50 | $ | 362 | $ | — | $ | 1 | $ | 413 | |||||||||||||||||||||||||
| Commercial paper with original maturities greater than three months | 1,612 | 1,151 | (714) | 10 | 2,059 | ||||||||||||||||||||||||||||||
| U.S. dollar denominated notes | 45,091 | — | (1,000) | (33) | 44,058 | ||||||||||||||||||||||||||||||
| Asia Theme Parks borrowings | 1,425 | 66 | — | 58 | 1,549 | ||||||||||||||||||||||||||||||
| Foreign currency denominated debt and other(1) | 191 | 1 | — | 106 | 298 | ||||||||||||||||||||||||||||||
| $ | 48,369 | $ | 1,580 | $ | (1,714) | $ | 142 | $ | 48,377 |
(1)The other activity is primarily due to market value adjustments for debt with qualifying hedges.
THE WALT DISNEY COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited; tabular dollars in millions, except for per share data)
At December 31, 2022, the Company’s bank facilities, which are with a syndicate of lenders and support our commercial paper borrowings, were as follows:
| Committed Capacity | Capacity Used | Unused Capacity | |||||||||||||||
| Facility expiring March 2023 | $ | 5,250 | $ | — | $ | 5,250 | |||||||||||
| Facility expiring March 2025 | 3,000 | — | 3,000 | ||||||||||||||
| Facility expiring March 2027 | 4,000 | — | 4,000 | ||||||||||||||
| Total | $ | 12,250 | $ | — | $ | 12,250 |
These facilities allow for borrowings at SOFR-based rates plus a fixed spread that varies with the Company’s debt ratings assigned by Moody’s Investors Service and Standard and Poor’s ranging from 0.755% to 1.225%. The bank facilities contain only one financial covenant, relating to interest coverage of three times earnings before interest, taxes, depreciation and amortization, including both intangible amortization and amortization of our film and television production and programming costs. On December 31, 2022, the Company met this covenant by a significant margin. The bank facilities specifically exclude certain entities, including the Asia Theme Parks, from any representations, covenants or events of default. The Company also has the ability to issue up to $500 million of letters of credit under the facility expiring in March 2027, which if utilized, reduces available borrowings under this facility. As of December 31, 2022, the Company has $2.0 billion of outstanding letters of credit, of which none were issued under this facility.
Cruise Ship Credit Facilities
The Company has credit facilities to finance a significant portion of the contract price of two new cruise ships, which are scheduled to be delivered in fiscal 2025 and fiscal 2026. Under the facilities, $1.1 billion is available beginning in August 2023 and $1.1 billion is available beginning in August 2024. Each tranche of financing may be utilized within a period of 18 months from the initial availability date. If utilized, the interest rates will be fixed at 3.80% and 3.74%, respectively, and the loan and interest will be payable semi-annually over a 12-year period from the borrowing date. Early repayment is permitted subject to cancellation fees.
Interest expense, net
Interest expense (net of amounts capitalized), interest and investment income, and net periodic pension and postretirement benefit costs (other than service costs) (see Note 9) are reported net in the Condensed Consolidated Statements of Income and consist of the following:
| Quarter Ended | |||||||||||||||||||||||
| December 31, 2022 | January 1, 2022 | ||||||||||||||||||||||
| Interest expense | $ | (465) | $ | (361) | |||||||||||||||||||
| Interest and investment income | 79 | 34 | |||||||||||||||||||||
| Net periodic pension and postretirement benefit costs (other than service costs) | 86 | 16 | |||||||||||||||||||||
| Interest expense, net | $ | (300) | $ | (311) |
Interest and investment income includes gains and losses on certain publicly traded and non-public investments, investment impairments and interest earned on cash and cash equivalents and certain receivables.
**6.**International Theme Parks
The Company has a 48% ownership interest in the operations of Hong Kong Disneyland Resort and a 43% ownership interest in the operations of Shanghai Disney Resort. The Asia Theme Parks together with Disneyland Paris are collectively referred to as the International Theme Parks.
THE WALT DISNEY COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited; tabular dollars in millions, except for per share data)
The following table summarizes the carrying amounts of the Asia Theme Parks’ assets and liabilities included in the Company’s Condensed Consolidated Balance Sheets:
| December 31, 2022 | October 1, 2022 | ||||||||||
| Cash and cash equivalents | $ | 301 | $ | 280 | |||||||
| Other current assets | 179 | 137 | |||||||||
| Total current assets | 480 | 417 | |||||||||
| Parks, resorts and other property | 6,462 | 6,356 | |||||||||
| Other assets | 161 | 161 | |||||||||
| Total assets | $ | 7,103 | $ | 6,934 | |||||||
| Current liabilities | $ | 514 | $ | 468 | |||||||
| Long-term borrowings | 1,549 | 1,426 | |||||||||
| Other long-term liabilities | 410 | 395 | |||||||||
| Total liabilities | $ | 2,473 | $ | 2,289 |
The following table summarizes the International Theme Parks’ revenues and costs and expenses included in the Company’s Condensed Consolidated Statements of Income for the quarter ended December 31, 2022:
| Revenues | $ | 996 | |||
| Costs and expenses | (991) | ||||
| Equity in the loss of investees | (2) |
Asia Theme Parks’ royalty and management fees of $24 million for the quarter ended December 31, 2022 are eliminated in consolidation, but are considered in calculating earnings attributable to noncontrolling interests.
International Theme Parks’ cash flows included in the Company’s Condensed Consolidated Statements of Cash Flows for the quarter ended December 31, 2022 were $195 million provided by operating activities, $292 million used in investing activities and $66 million provided by financing activities.
Hong Kong Disneyland Resort
The Government of the Hong Kong Special Administrative Region (HKSAR) and the Company have a 52% and a 48% equity interest in Hong Kong Disneyland Resort, respectively.
The Company and HKSAR have provided loans to Hong Kong Disneyland Resort with outstanding balances of $155 million and $104 million, respectively. The interest rate on both loans is three month HIBOR plus 2%, and the maturity date is September 2025. The Company’s loan is eliminated in consolidation.
The Company has provided Hong Kong Disneyland Resort with a revolving credit facility of HK $2.1 billion ($269 million), which bears interest at a rate of three month HIBOR plus 1.25%. The line of credit was increased to HK $2.7 billion ($346 million) in November 2022 and matures in December 2028. The outstanding balance under the line of credit at December 31, 2022 was $232 million. The Company’s line of credit is eliminated in consolidation.
Shanghai Disney Resort
Shanghai Shendi (Group) Co., Ltd (Shendi) and the Company have 57% and 43% equity interests in Shanghai Disney Resort, respectively. A management company, in which the Company has a 70% interest and Shendi a 30% interest, operates Shanghai Disney Resort.
The Company has provided Shanghai Disney Resort with loans totaling $940 million, bearing interest at rates up to 8% and maturing in 2036, with early repayment permitted. The Company has also provided Shanghai Disney Resort with a 1.9 billion yuan (approximately $0.3 billion) line of credit bearing interest at 8%. As of December 31, 2022, the total amount outstanding under the line of credit was 1.2 billion yuan (approximately $176 million). These balances are eliminated in consolidation.
Shendi has provided Shanghai Disney Resort with loans totaling 8.4 billion yuan (approximately $1.2 billion), bearing interest at rates up to 8% and maturing in 2036, with early repayment permitted. Shendi has also provided Shanghai Disney
THE WALT DISNEY COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited; tabular dollars in millions, except for per share data)
Resort with a 2.6 billion yuan (approximately $0.4 billion) line of credit bearing interest at 8%. As of December 31, 2022 the total amount outstanding under the line of credit was 1.6 billion yuan (approximately $233 million).
**7.**Produced and Acquired/Licensed Content Costs and Advances
The Company classifies its capitalized produced and acquired/licensed content costs as long-term assets and classifies advances for live programming rights made prior to the live event as short-term assets. For purposes of amortization and impairment, the capitalized content costs are classified based on their predominant monetization strategy as follows:
-
Individual - lifetime value is predominantly derived from third-party revenues that are directly attributable to the specific film or television title (e.g. theatrical revenues or sales to third-party television programmers)
-
Group - lifetime value is predominantly derived from third-party revenues that are attributable only to a bundle of titles (e.g. subscription revenue for a DTC service or affiliate fees for a cable television network)
Total capitalized produced and licensed content by predominant monetization strategy is as follows:
| As of December 31, 2022 | As of October 1, 2022 | ||||||||||||||||||||||||||||||||||
| Predominantly Monetized Individually | Predominantly Monetized as a Group | Total | Predominantly Monetized Individually | Predominantly Monetized as a Group | Total | ||||||||||||||||||||||||||||||
| Produced content | |||||||||||||||||||||||||||||||||||
| Released, less amortization | $ | 5,263 | $ | 13,358 | $ | 18,621 | $ | 4,639 | $ | 12,688 | $ | 17,327 | |||||||||||||||||||||||
| Completed, not released | 116 | 1,632 | 1,748 | 214 | 2,019 | 2,233 | |||||||||||||||||||||||||||||
| In-process | 4,047 | 7,502 | 11,549 | 5,041 | 6,793 | 11,834 | |||||||||||||||||||||||||||||
| In development or pre-production | 338 | 174 | 512 | 372 | 254 | 626 | |||||||||||||||||||||||||||||
| $ | 9,764 | $ | 22,666 | 32,430 | $ | 10,266 | $ | 21,754 | 32,020 | ||||||||||||||||||||||||||
| Licensed content - Television programming rights and advances | 5,136 | 5,647 | |||||||||||||||||||||||||||||||||
| Total produced and licensed content | $ | 37,566 | $ | 37,667 | |||||||||||||||||||||||||||||||
| Current portion | $ | 1,300 | $ | 1,890 | |||||||||||||||||||||||||||||||
| Non-current portion | $ | 36,266 | $ | 35,777 |
Amortization of produced and licensed content is as follows:
| Quarter Ended | |||||||||||||||||||||||
| December 31, 2022 | January 1, 2022 | ||||||||||||||||||||||
| Produced content | |||||||||||||||||||||||
| Predominantly monetized individually | $ | 1,157 | $ | 1,033 | |||||||||||||||||||
| Predominantly monetized as a group | 2,160 | 1,618 | |||||||||||||||||||||
| 3,317 | 2,651 | ||||||||||||||||||||||
| Licensed programming rights and advances | 4,539 | 4,811 | |||||||||||||||||||||
| Total produced and licensed content costs(1) | $ | 7,856 | $ | 7,462 |
(1)Primarily included in “Costs of services” in the Condensed Consolidated Statements of Income.
**8.**Income Taxes
Unrecognized Tax Benefits
During the quarter ended December 31, 2022, the Company increased its gross unrecognized tax benefits (before interest and penalties) by $0.1 billion to $2.6 billion. In the next twelve months, it is reasonably possible that our unrecognized tax benefits could change due to resolutions of open tax matters, which would reduce our unrecognized tax benefits by $0.1 billion.
THE WALT DISNEY COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited; tabular dollars in millions, except for per share data)
**9.**Pension and Other Benefit Programs
The components of net periodic benefit cost (income) are as follows:
| Pension Plans | Postretirement Medical Plans | ||||||||||||||||||||||||||||||||||||||||||||||
| Quarter Ended | Quarter Ended | ||||||||||||||||||||||||||||||||||||||||||||||
| December 31, 2022 | January 1, 2022 | December 31, 2022 | January 1, 2022 | ||||||||||||||||||||||||||||||||||||||||||||
| Service costs | $ | 65 | $ | 100 | $ | 1 | $ | 2 | |||||||||||||||||||||||||||||||||||||||
| Other costs (benefits): | |||||||||||||||||||||||||||||||||||||||||||||||
| Interest costs | 196 | 124 | 20 | 13 | |||||||||||||||||||||||||||||||||||||||||||
| Expected return on plan assets | (288) | (293) | (15) | (15) | |||||||||||||||||||||||||||||||||||||||||||
| Amortization of previously deferred service costs | 2 | 1 | — | — | |||||||||||||||||||||||||||||||||||||||||||
| Recognized net actuarial loss | 5 | 147 | (6) | 7 | |||||||||||||||||||||||||||||||||||||||||||
| Total other costs (benefits) | (85) | (21) | (1) | 5 | |||||||||||||||||||||||||||||||||||||||||||
| Net periodic benefit cost (income) | $ | (20) | $ | 79 | $ | — | $ | 7 |
During the quarter ended December 31, 2022, the Company did not make any material contributions to its pension and postretirement medical plans and does not currently expect to make any material contributions for the remainder of fiscal 2023. Final minimum funding requirements for fiscal 2023 will be determined based on a January 1, 2023 funding actuarial valuation, which is expected to be received in the fourth quarter of fiscal 2023.
**10.**Earnings Per Share
Diluted earnings per share amounts are based upon the weighted average number of common and common equivalent shares outstanding during the period and are calculated using the treasury stock method for equity-based compensation awards (Awards). A reconciliation of the weighted average number of common and common equivalent shares outstanding and the number of Awards excluded from the diluted earnings per share calculation, as they were anti-dilutive, are as follows:
| Quarter Ended | |||||||||||||||||||||||
| December 31, 2022 | January 1, 2022 | ||||||||||||||||||||||
| Shares (in millions): | |||||||||||||||||||||||
| Weighted average number of common and common equivalent shares outstanding (basic) | 1,825 | 1,819 | |||||||||||||||||||||
| Weighted average dilutive impact of Awards | 2 | 9 | |||||||||||||||||||||
| Weighted average number of common and common equivalent shares outstanding (diluted) | 1,827 | 1,828 | |||||||||||||||||||||
| Awards excluded from diluted earnings per share | 26 | 4 |
THE WALT DISNEY COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited; tabular dollars in millions, except for per share data)
**11.**Equity
The following tables summarize the changes in each component of accumulated other comprehensive income (loss) (AOCI) including our proportional share of equity method investee amounts:
| Market Value Adjustments for Hedges | Unrecognized Pension and Postretirement Medical Expense | Foreign Currency Translation and Other | AOCI | ||||||||||||||||||||
| AOCI, before tax | |||||||||||||||||||||||
| First quarter of fiscal 2023 | |||||||||||||||||||||||
| Balance at October 1, 2022 | $ | 804 | $ | (3,770) | $ | (2,014) | $ | (4,980) | |||||||||||||||
| Quarter Ended December 31, 2022: | |||||||||||||||||||||||
| Unrealized gains (losses) arising during the period | (475) | — | 146 | (329) | |||||||||||||||||||
| Reclassifications of realized net (gains) losses to net income | (218) | 1 | 42 | (175) | |||||||||||||||||||
| Balance at December 31, 2022 | $ | 111 | $ | (3,769) | $ | (1,826) | $ | (5,484) | |||||||||||||||
| First quarter of fiscal 2022 | |||||||||||||||||||||||
| Balance at October 2, 2021 | $ | (152) | $ | (7,025) | $ | (1,047) | $ | (8,224) | |||||||||||||||
| Quarter Ended January 1, 2022: | |||||||||||||||||||||||
| Unrealized gains (losses) arising during the period | 87 | 47 | (37) | 97 | |||||||||||||||||||
| Reclassifications of realized net (gains) losses to net income | (18) | 155 | — | 137 | |||||||||||||||||||
| Balance at January 1, 2022 | $ | (83) | $ | (6,823) | $ | (1,084) | $ | (7,990) | |||||||||||||||
| Market Value Adjustments for Hedges | Unrecognized Pension and Postretirement Medical Expense | Foreign Currency Translation and Other | AOCI | ||||||||||||||||||||
| Tax on AOCI | |||||||||||||||||||||||
| First quarter of fiscal 2023 | |||||||||||||||||||||||
| Balance at October 1, 2022 | $ | (179) | $ | 901 | $ | 139 | $ | 861 | |||||||||||||||
| Quarter Ended December 31, 2022: | |||||||||||||||||||||||
| Unrealized gains (losses) arising during the period | 100 | — | 8 | 108 | |||||||||||||||||||
| Reclassifications of realized net (gains) losses to net income | 51 | — | (14) | 37 | |||||||||||||||||||
| Balance at December 31, 2022 | $ | (28) | $ | 901 | $ | 133 | $ | 1,006 | |||||||||||||||
| First quarter of fiscal 2022 | |||||||||||||||||||||||
| Balance at October 2, 2021 | $ | 42 | $ | 1,653 | $ | 89 | $ | 1,784 | |||||||||||||||
| Quarter Ended January 1, 2022: | |||||||||||||||||||||||
| Unrealized gains (losses) arising during the period | (23) | (11) | (4) | (38) | |||||||||||||||||||
| Reclassifications of realized net (gains) losses to net income | 4 | (36) | — | (32) | |||||||||||||||||||
| Balance at January 1, 2022 | $ | 23 | $ | 1,606 | $ | 85 | $ | 1,714 | |||||||||||||||
THE WALT DISNEY COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited; tabular dollars in millions, except for per share data)
| Market Value Adjustments for Hedges | Unrecognized Pension and Postretirement Medical Expense | Foreign Currency Translation and Other | AOCI | ||||||||||||||||||||
| AOCI, after tax | |||||||||||||||||||||||
| First quarter of fiscal 2023 | |||||||||||||||||||||||
| Balance at October 1, 2022 | $ | 625 | $ | (2,869) | $ | (1,875) | $ | (4,119) | |||||||||||||||
| Quarter Ended December 31, 2022: | |||||||||||||||||||||||
| Unrealized gains (losses) arising during the period | (375) | — | 154 | (221) | |||||||||||||||||||
| Reclassifications of realized net (gains) losses to net income | (167) | 1 | 28 | (138) | |||||||||||||||||||
| Balance at December 31, 2022 | $ | 83 | $ | (2,868) | $ | (1,693) | $ | (4,478) | |||||||||||||||
| First quarter of fiscal 2022 | |||||||||||||||||||||||
| Balance at October 2, 2021 | $ | (110) | $ | (5,372) | $ | (958) | $ | (6,440) | |||||||||||||||
| Quarter Ended January 1, 2022: | |||||||||||||||||||||||
| Unrealized gains (losses) arising during the period | 64 | 36 | (41) | 59 | |||||||||||||||||||
| Reclassifications of realized net (gains) losses to net income | (14) | 119 | — | 105 | |||||||||||||||||||
| Balance at January 1, 2022 | $ | (60) | $ | (5,217) | $ | (999) | $ | (6,276) | |||||||||||||||
Details about AOCI components reclassified to net income are as follows:
| Gain (loss) in net income: | Affected line item in the Condensed Consolidated Statements of Operations: | Quarter Ended | ||||||||||||||||||||||||||||||
| December 31, 2022 | January 1, 2022 | |||||||||||||||||||||||||||||||
| Market value adjustments, primarily cash flow hedges | Primarily revenue | $ | 218 | $ | 18 | |||||||||||||||||||||||||||
| Estimated tax | Income taxes | (51) | (4) | |||||||||||||||||||||||||||||
| 167 | 14 | |||||||||||||||||||||||||||||||
| Pension and postretirement medical expense | Interest expense, net | (1) | (155) | |||||||||||||||||||||||||||||
| Estimated tax | Income taxes | — | 36 | |||||||||||||||||||||||||||||
| (1) | (119) | |||||||||||||||||||||||||||||||
| Foreign currency translation and other | Restructuring and impairment charges | (42) | — | |||||||||||||||||||||||||||||
| Estimated tax | Income taxes | 14 | — | |||||||||||||||||||||||||||||
| (28) | — | |||||||||||||||||||||||||||||||
| Total reclassifications for the period | $ | 138 | $ | (105) |
THE WALT DISNEY COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited; tabular dollars in millions, except for per share data)
**12.**Equity-Based Compensation
Compensation expense related to stock options and restricted stock units (RSUs) is as follows:
| Quarter Ended | |||||||||||||||||||||||
| December 31, 2022 | January 1, 2022 | ||||||||||||||||||||||
| Stock options | $ | 19 | $ | 24 | |||||||||||||||||||
| RSUs | 251 | 172 | |||||||||||||||||||||
| Total equity-based compensation expense(1) | $ | 270 | $ | 196 | |||||||||||||||||||
| Equity-based compensation expense capitalized during the period | $ | 36 | $ | 30 |
(1)Equity-based compensation expense is net of capitalized equity-based compensation and estimated forfeitures and excludes amortization of previously capitalized equity-based compensation costs.
Unrecognized compensation cost related to unvested stock options and RSUs was $119 million and $2.2 billion, respectively, as of December 31, 2022.
During the quarter ended December 31, 2022 and January 1, 2022, the weighted average grant date fair values for options granted were $34.71 and $47.66, respectively, and for RSUs were $91.89 and $149.95, respectively.
During the quarter ended December 31, 2022, the Company made equity compensation grants consisting of 1.5 million stock options and 9.4 million RSUs.
**13.**Commitments and Contingencies
Legal Matters
The Company, together with, in some instances, certain of its directors and officers, is a defendant in various legal actions involving copyright, breach of contract and various other claims incident to the conduct of its businesses. Management does not believe that the Company has incurred a probable material loss by reason of any of those actions.
**14.**Fair Value Measurements
Fair value is defined as the amount that would be received for selling an asset or paid to transfer a liability in an orderly transaction between market participants and is generally classified in one of the following categories:
Level 1 - Quoted prices for identical instruments in active markets
Level 2 - Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations in which all significant inputs and significant value drivers are observable in active markets
Level 3 - Valuations derived from valuation techniques in which one or more significant inputs or significant value drivers are unobservable
THE WALT DISNEY COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited; tabular dollars in millions, except for per share data)
The Company’s assets and liabilities measured at fair value are summarized in the following tables by fair value measurement Level:
| Fair Value Measurement at December 31, 2022 | |||||||||||||||||||||||
| Level 1 | Level 2 | Level 3 | Total | ||||||||||||||||||||
| Assets | |||||||||||||||||||||||
| Investments | $ | 240 | $ | — | $ | — | $ | 240 | |||||||||||||||
| Derivatives | |||||||||||||||||||||||
| Foreign exchange | — | 1,133 | — | 1,133 | |||||||||||||||||||
| Other | — | 9 | — | 9 | |||||||||||||||||||
| Liabilities | |||||||||||||||||||||||
| Derivatives | |||||||||||||||||||||||
| Interest rate | — | (1,722) | — | (1,722) | |||||||||||||||||||
| Foreign exchange | — | (834) | — | (834) | |||||||||||||||||||
| Other | — | (17) | — | (17) | |||||||||||||||||||
| Other | — | (436) | — | (436) | |||||||||||||||||||
| Total recorded at fair value | $ | 240 | $ | (1,867) | $ | — | $ | (1,627) | |||||||||||||||
| Fair value of borrowings | $ | — | $ | 43,364 | $ | 1,639 | $ | 45,003 |
| Fair Value Measurement at October 1, 2022 | |||||||||||||||||||||||
| Level 1 | Level 2 | Level 3 | Total | ||||||||||||||||||||
| Assets | |||||||||||||||||||||||
| Investments | $ | 308 | $ | — | $ | — | $ | 308 | |||||||||||||||
| Derivatives | |||||||||||||||||||||||
| Interest rate | — | 1 | — | 1 | |||||||||||||||||||
| Foreign exchange | — | 2,223 | — | 2,223 | |||||||||||||||||||
| Other | — | 10 | — | 10 | |||||||||||||||||||
| Liabilities | |||||||||||||||||||||||
| Derivatives | |||||||||||||||||||||||
| Interest rate | — | (1,783) | — | (1,783) | |||||||||||||||||||
| Foreign exchange | — | (1,239) | — | (1,239) | |||||||||||||||||||
| Other | — | (31) | — | (31) | |||||||||||||||||||
| Other | — | (354) | — | (354) | |||||||||||||||||||
| Total recorded at fair value | $ | 308 | $ | (1,173) | $ | — | $ | (865) | |||||||||||||||
| Fair value of borrowings | $ | — | $ | 42,509 | $ | 1,510 | $ | 44,019 |
The fair values of Level 2 derivatives are primarily determined by internal discounted cash flow models that use observable inputs such as interest rates, yield curves and foreign currency exchange rates. Counterparty credit risk, which is mitigated by master netting agreements and collateral posting arrangements with certain counterparties, had an impact on derivative fair value estimates that was not material.
Level 2 other liabilities are primarily arrangements that are valued based on the fair value of underlying investments, which are generally measured using Level 1 and Level 2 fair value techniques.
Level 2 borrowings, which include commercial paper, U.S. dollar denominated notes and certain foreign currency denominated borrowings, are valued based on quoted prices for similar instruments in active markets or identical instruments in markets that are not active.
Level 3 borrowings include the Asia Theme Park borrowings, which are valued based on the current borrowing cost and credit risk of the Asia Theme Parks as well as prevailing market interest rates.
THE WALT DISNEY COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited; tabular dollars in millions, except for per share data)
The Company’s financial instruments also include cash, cash equivalents, receivables and accounts payable. The carrying values of these financial instruments approximate the fair values.
**15.**Derivative Instruments
The Company manages its exposure to various risks relating to its ongoing business operations according to a risk management policy. The primary risks managed with derivative instruments are interest rate risk and foreign exchange risk.
The Company’s derivative positions measured at fair value are summarized in the following tables:
| As of December 31, 2022 | |||||||||||||||||||||||
| Current Assets | Other Assets | Other Current Liabilities | Other Long- Term Liabilities | ||||||||||||||||||||
| Derivatives designated as hedges | |||||||||||||||||||||||
| Foreign exchange | $ | 559 | $ | 365 | $ | (234) | $ | (221) | |||||||||||||||
| Interest rate | — | — | (1,722) | — | |||||||||||||||||||
| Other | 8 | 1 | (3) | — | |||||||||||||||||||
| Derivatives not designated as hedges | |||||||||||||||||||||||
| Foreign exchange | 208 | 1 | (378) | (1) | |||||||||||||||||||
| Other | — | — | (14) | — | |||||||||||||||||||
| Gross fair value of derivatives | 775 | 367 | (2,351) | (222) | |||||||||||||||||||
| Counterparty netting | (653) | (264) | 804 | 113 | |||||||||||||||||||
| Cash collateral (received) paid | (63) | (22) | 1,491 | 72 | |||||||||||||||||||
| Net derivative positions | $ | 59 | $ | 81 | $ | (56) | $ | (37) |
| As of October 1, 2022 | |||||||||||||||||||||||
| Current Assets | Other Assets | Other Current Liabilities | Other Long- Term Liabilities | ||||||||||||||||||||
| Derivatives designated as hedges | |||||||||||||||||||||||
| Foreign exchange | $ | 864 | $ | 786 | $ | (228) | $ | (350) | |||||||||||||||
| Interest rate | — | 1 | (1,783) | — | |||||||||||||||||||
| Other | 10 | — | (4) | — | |||||||||||||||||||
| Derivatives not designated as hedges | |||||||||||||||||||||||
| Foreign exchange | 336 | 247 | (374) | (287) | |||||||||||||||||||
| Other | — | — | (27) | — | |||||||||||||||||||
| Gross fair value of derivatives | 1,210 | 1,034 | (2,416) | (637) | |||||||||||||||||||
| Counterparty netting | (831) | (715) | 1,070 | 476 | |||||||||||||||||||
| Cash collateral (received) paid | (341) | (151) | 1,282 | 96 | |||||||||||||||||||
| Net derivative positions | $ | 38 | $ | 168 | $ | (64) | $ | (65) |
Interest Rate Risk Management
The Company is exposed to the impact of interest rate changes primarily through its borrowing activities. The Company’s objective is to mitigate the impact of interest rate changes on earnings and cash flows and on the market value of its borrowings. In accordance with its policy, the Company targets its fixed-rate debt as a percentage of its net debt between a minimum and maximum percentage. The Company primarily uses pay-floating and pay-fixed interest rate swaps to facilitate its interest rate risk management activities.
The Company designates pay-floating interest rate swaps as fair value hedges of fixed-rate borrowings effectively converting fixed-rate borrowings to variable-rate borrowings indexed to LIBOR. The total notional amount of the Company’s pay-floating interest rate swaps at both December 31, 2022 and October 1, 2022, was $13.5 billion and $14.5 billion, respectively.
THE WALT DISNEY COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited; tabular dollars in millions, except for per share data)
The following table summarizes fair value hedge adjustments to hedged borrowings:
| Carrying Amount of Hedged Borrowings | Fair Value Adjustments Included in Hedged Borrowings | ||||||||||||||||||||||
| December 31, 2022 | October 1, 2022 | December 31, 2022 | October 1, 2022 | ||||||||||||||||||||
| Borrowings: | |||||||||||||||||||||||
| Current | $ | — | $ | 997 | $ | — | $ | (3) | |||||||||||||||
| Long-term | 12,465 | 12,358 | (1,666) | (1,733) | |||||||||||||||||||
| $ | 12,465 | $ | 13,355 | $ | (1,666) | $ | (1,736) |
The following amounts are included in “Interest expense, net” in the Condensed Consolidated Statements of Income:
| Quarter Ended | |||||||||||||||||||||||
| December 31, 2022 | January 1, 2022 | ||||||||||||||||||||||
| Gain (loss) on: | |||||||||||||||||||||||
| Pay-floating swaps | $ | 71 | $ | (178) | |||||||||||||||||||
| Borrowings hedged with pay-floating swaps | (71) | 178 | |||||||||||||||||||||
| Benefit (expense) associated with interest accruals on pay-floating swaps | (95) | 37 |
The Company may designate pay-fixed interest rate swaps as cash flow hedges of interest payments on floating-rate borrowings. Pay-fixed interest rate swaps effectively convert floating-rate borrowings to fixed-rate borrowings. The unrealized gains or losses from these cash flow hedges are deferred in AOCI and recognized in interest expense as the interest payments occur. The Company did not have pay-fixed interest rate swaps that were designated as cash flow hedges of interest payments at December 31, 2022 or at October 1, 2022, and gains and losses related to pay-fixed interest rate swaps recognized in earnings for the quarter ended December 31, 2022 and January 1, 2022 were not material.
Foreign Exchange Risk Management
The Company transacts business globally and is subject to risks associated with changing foreign currency exchange rates. The Company’s objective is to reduce earnings and cash flow fluctuations associated with foreign currency exchange rate changes, enabling management to focus on core business issues and challenges.
The Company enters into option and forward contracts that change in value as foreign currency exchange rates change to protect the value of its existing foreign currency assets, liabilities, firm commitments and forecasted but not firmly committed foreign currency transactions. In accordance with policy, the Company hedges its forecasted foreign currency transactions for periods generally not to exceed four years within an established minimum and maximum range of annual exposure. The gains and losses on these contracts offset changes in the U.S. dollar equivalent value of the related forecasted transaction, asset, liability or firm commitment. The principal currencies hedged are the euro, Japanese yen, British pound, Chinese yuan and Canadian dollar. Cross-currency swaps are used to effectively convert foreign currency denominated borrowings into U.S. dollar denominated borrowings.
The Company designates foreign exchange forward and option contracts as cash flow hedges of firmly committed and forecasted foreign currency transactions. As of December 31, 2022 and October 1, 2022, the notional amounts of the Company’s net foreign exchange cash flow hedges were $7.3 billion and $7.4 billion, respectively. Mark-to-market gains and losses on these contracts are deferred in AOCI and are recognized in earnings when the hedged transactions occur, offsetting changes in the value of the foreign currency transactions. Net deferred gains recorded in AOCI for contracts that will mature in the next twelve months total $317 million. The following table summarizes the effect of foreign exchange cash flow hedges on AOCI:
| Quarter Ended | |||||||||||||||||||||||
| December 31, 2022 | January 1, 2022 | ||||||||||||||||||||||
| Gain (loss) recognized in Other Comprehensive Income | $ | (502) | $ | 79 | |||||||||||||||||||
| Gain (loss) reclassified from AOCI into the Statements of Operations(1) | 222 | 13 |
(1)Primarily recorded in revenue.
THE WALT DISNEY COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited; tabular dollars in millions, except for per share data)
The Company designates cross currency swaps as fair value hedges of foreign currency denominated borrowings. The impact from the change in foreign currency on both the cross currency swap and borrowing is recorded to “Interest expense, net.” The impact from interest rate changes is recorded in AOCI and is amortized over the life of the cross currency swap. As of December 31, 2022 and October 1, 2022, the total notional amounts of the Company’s designated cross currency swaps were Canadian $1.3 billion ($1.0 billion) and Canadian $1.3 billion ($0.9 billion), respectively. The related gains or losses recognized in earnings were not material for the quarters ended December 31, 2022 and January 1, 2022.
Foreign exchange risk management contracts with respect to foreign currency denominated assets and liabilities are not designated as hedges and do not qualify for hedge accounting. The notional amounts of these foreign exchange contracts at December 31, 2022 and October 1, 2022 were $4.2 billion and $3.8 billion, respectively. The following table summarizes the net foreign exchange gains or losses recognized on foreign currency denominated assets and liabilities and the net foreign exchange gains or losses on the foreign exchange contracts we entered into to mitigate our exposure with respect to foreign currency denominated assets and liabilities by the corresponding line item in which they are recorded in the Condensed Consolidated Statements of Income:
| Costs and Expenses | Interest expense, net | Income Tax Expense | |||||||||||||||||||||||||||||||||
| Quarter Ended: | December 31, 2022 | January 1, 2022 | December 31, 2022 | January 1, 2022 | December 31, 2022 | January 1, 2022 | |||||||||||||||||||||||||||||
| Net gains (losses) on foreign currency denominated assets and liabilities | $ | 145 | $ | (63) | $ | (18) | $ | 1 | $ | (88) | $ | 8 | |||||||||||||||||||||||
| Net gains (losses) on foreign exchange risk management contracts not designated as hedges | (213) | 33 | 18 | — | 70 | (8) | |||||||||||||||||||||||||||||
| Net gains (losses) | $ | (68) | $ | (30) | $ | — | $ | 1 | $ | (18) | $ | — | |||||||||||||||||||||||
Commodity Price Risk Management
The Company is subject to the volatility of commodities prices and the Company designates certain commodity forward contracts as cash flow hedges of forecasted commodity purchases. Mark-to-market gains and losses on these contracts are deferred in AOCI and are recognized in earnings when the hedged transactions occur, offsetting changes in the value of commodity purchases. The notional amount of these commodities contracts at December 31, 2022 and October 1, 2022 and related gains or losses recognized in earnings for the quarter and quarter ended December 31, 2022 and January 1, 2022 were not material.
Risk Management – Other Derivatives Not Designated as Hedges
The Company enters into certain other risk management contracts that are not designated as hedges and do not qualify for hedge accounting. These contracts, which include certain total return swap contracts, are intended to offset economic exposures of the Company and are carried at market value with any changes in value recorded in earnings. The notional amounts of these contracts at December 31, 2022 and October 1, 2022 were $0.4 billion and $0.4 billion, respectively. The related gains or losses recognized in earnings were not material for the quarters ended December 31, 2022 and January 1, 2022.
Contingent Features and Cash Collateral
The Company has master netting arrangements by counterparty with respect to certain derivative financial instrument contracts. The Company may be required to post collateral in the event that a net liability position with a counterparty exceeds limits defined by contract and that vary with the Company’s credit rating. In addition, these contracts may require a counterparty to post collateral to the Company in the event that a net receivable position with a counterparty exceeds limits defined by contract and that vary with the counterparty’s credit rating. If the Company’s or the counterparty’s credit ratings were to fall below investment grade, such counterparties or the Company would also have the right to terminate our derivative contracts, which could lead to a net payment to or from the Company for the aggregate net value by counterparty of our derivative contracts. The aggregate fair values of derivative instruments with credit-risk-related contingent features in a net liability position by counterparty were $1.7 billion and $1.5 billion on December 31, 2022 and October 1, 2022, respectively.
**16.**Restructuring and Impairment Charges
For the quarter ended December 31, 2022, the Company recognized restructuring charges of $69 million related to exiting our businesses in Russia. These charges are recorded in “Restructuring and impairment charges” in the Condensed Consolidated Statements of Income.
THE WALT DISNEY COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited; tabular dollars in millions, except for per share data)
**17.**New Accounting Pronouncements
Accounting Pronouncements Not Yet Adopted
Disclosures by Business Entities about Government Assistance
In November 2021, the FASB issued guidance requiring annual disclosures about transactions with a government that are accounted for by analogizing to a grant or contribution accounting model. The new guidance requires the disclosure of the nature of the transactions, the accounting for the transactions, and the effect of the transactions on the financial statements. The guidance is effective for annual periods beginning with the Company’s 2023 fiscal year. While the guidance will not have an effect on the Company’s Consolidated Statements of Operations or Consolidated Balance Sheets upon adoption, in the fourth quarter of fiscal 2023, the Company may need to disclose the effects on the financial statements of incentives related to the production of content, which are the most significant type of government assistance we receive.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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