Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

ORGANIZATION OF INFORMATION

Management’s Discussion and Analysis provides a narrative of the Company’s financial performance and condition that should be read in conjunction with the accompanying financial statements. It includes the following sections:

  • Consolidated Results

  • Current Quarter Results Compared to Prior-Year Quarter

  • Current Six-Month Period Results Compared to Prior-Year Six-Month Period

  • Seasonality

  • Business Segment Results

  • Corporate and Unallocated Shared Expenses

  • Financial Condition

  • Market Risk

  • Commitments and Contingencies

  • Other Matters

  • DTC Product Descriptions, Key Definitions and Supplemental Information

  • Supplemental Guarantor Financial Information

CONSOLIDATED RESULTS

Quarter Ended% Change Better (Worse)Six Months Ended% Change Better (Worse)
(in millions, except per share data)March 30, 2024April 1, 2023March 30, 2024April 1, 2023
Revenues:
Services$19,757$19,5861 %$40,732$40,583— %
Products2,3262,2294 %4,9004,7443 %
Total revenues22,08321,8151 %45,63245,3271 %
Costs and expenses:
Cost of services (exclusive of depreciation and amortization)(12,663)(13,160)4 %(26,585)(27,941)5 %
Cost of products (exclusive of depreciation and amortization)(1,509)(1,456)(4) %(3,174)(3,061)(4) %
Selling, general, administrative and other(3,790)(3,614)(5) %(7,573)(7,441)(2) %
Depreciation and amortization(1,242)(1,310)5 %(2,485)(2,616)5 %
Total costs and expenses(19,204)(19,540)2 %(39,817)(41,059)3 %
Restructuring and impairment charges(2,052)(152)>(100) %(2,052)(221)>(100) %
Other income, net—149(100) %—107(100) %
Interest expense, net(311)(322)3 %(557)(622)10 %
Equity in the income of investees141173(18) %322364(12) %
Income before income taxes6572,123(69) %3,5283,896(9) %
Income taxes(441)(635)31 %(1,161)(1,047)(11) %
Net income2161,488(85) %2,3672,849(17) %
Net income attributable to noncontrolling interests(236)(217)(9) %(476)(299)(59) %
Net income (loss) attributable to Disney$(20)$1,271nm$1,891$2,550(26) %
Diluted earnings (loss) per share attributable to Disney$(0.01)$0.69nm$1.03$1.39(26) %

CURRENT QUARTER RESULTS COMPARED TO PRIOR-YEAR QUARTER

Revenues for the quarter increased 1%, or $0.3 billion, to $22.1 billion; net income attributable to Disney decreased to a loss of $20 million in the current quarter compared to income of $1.3 billion in the prior-year quarter; and diluted earnings per share (EPS) attributable to Disney decreased to a loss of $0.01 compared to income of $0.69 in the prior-year quarter. The EPS

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS — (continued)

decrease was due to goodwill impairments in the current quarter, partially offset by higher operating income at Entertainment and Experiences.

Revenues

Service revenues for the quarter increased 1%, or $0.2 billion, to $19.8 billion resulting from higher DTC subscription revenue and increased revenue at our theme parks and resorts. These increases were partially offset by lower theatrical distribution revenue and, to a lesser extent, lower TV/VOD distribution revenue.

Product revenues for the quarter increased 4%, or $0.1 billion, to $2.3 billion due to higher sales volumes of merchandise, food and beverage at our theme parks and resorts.

Costs and expenses

Cost of services for the quarter decreased 4%, or $0.5 billion, to $12.7 billion due to lower programming and production costs and, to a lesser extent, lower distribution costs at Entertainment, partially offset by the impact of inflation and increased volumes at our theme parks and resorts.

Cost of products for the quarter increased 4%, or $0.1 billion, to $1.5 billion due to inflation and higher sales volumes of merchandise, food and beverage at our theme parks and resorts.

Selling, general, administrative and other costs increased 5%, or $0.2 billion, to $3.8 billion, primarily due to higher marketing costs.

Depreciation and amortization decreased 5%, or $0.1 billion, to $1.2 billion driven by lower TFCF and Hulu acquisition amortization.

Restructuring and impairment charges

In the current quarter, the Company recorded charges of $2,052 million due to goodwill impairments related to the Star India Transaction and entertainment linear networks. In the prior-year quarter, the Company recognized charges of $152 million primarily for severance.

Other income, net

Other income, net in the prior-year quarter included a DraftKings gain of $149 million.

Interest expense, net

Interest expense, net is as follows:

Quarter Ended
(in millions)March 30, 2024April 1, 2023% Change Better (Worse)
Interest expense$(501)$(504)1 %
Interest income, investment income and other1901824 %
Interest expense, net$(311)$(322)3 %

Equity in the Income of Investees

Income from equity investees decreased $32 million, to $141 million from $173 million, due to lower income from A+E Television Networks.

Income Taxes

Quarter Ended
March 30, 2024April 1, 2023
Income before income taxes$657$2,123
Income tax441635
Effective income tax rate67.1%29.9%

The increase in the effective income tax rate was due to an unfavorable impact from the goodwill impairments recognized in the current quarter, which are not tax deductible, partially offset by a benefit from adjustments related to prior years, which were favorable in the current quarter and unfavorable in the prior-year quarter.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS — (continued)

Noncontrolling Interests

Quarter Ended
(in millions)March 30, 2024April 1, 2023% Change Better (Worse)
Net income attributable to noncontrolling interests$(236)$(217)(9) %

The increase in net income attributable to noncontrolling interests was primarily due to improved results at Hong Kong Disneyland Resort, partially offset by the comparison to the accretion of NBCU’s interest in Hulu in the prior-year quarter with no accretion in the current quarter as we had fully accreted to the amount paid in December 2023 (see Note 1 to the Condensed Consolidated Financial Statements).

Net income attributable to noncontrolling interests is determined on income after royalties and management fees, financing costs and income taxes, as applicable.

Certain Items Impacting Results in the Quarter

Results for the quarter ended March 30, 2024 were impacted by the following:

  • Restructuring and impairment charges of $2,052 million

  • TFCF and Hulu acquisition amortization of $434 million

Results for the quarter ended April 1, 2023 were impacted by the following:

  • TFCF and Hulu acquisition amortization of $558 million

  • Restructuring and impairment charges of $152 million

  • Other income of $149 million due to the DraftKings gain

A summary of the impact of these items on EPS is as follows:

(in millions, except per share data)Pre-Tax Income (Loss)Tax Benefit (Expense)(1)After-Tax Income (Loss)EPS Favorable (Adverse)(2)
Quarter Ended March 30, 2024:
Restructuring and impairment charges$(2,052)$121$(1,931)$(1.06)
TFCF and Hulu acquisition amortization(434)101(333)(0.17)
Total$(2,486)$222$(2,264)$(1.22)
Quarter Ended April 1, 2023:
TFCF and Hulu acquisition amortization$(558)$130$(428)$(0.23)
Restructuring and impairment charges(152)35(117)(0.06)
Other income (expense), net149(35)1140.06
Total$(561)$130$(431)$(0.23)

(1)Tax benefit (expense) amounts are determined using the tax rate applicable to the individual item.

(2)EPS is net of noncontrolling interest share, where applicable. Total may not equal the sum of the column due to rounding.

CURRENT SIX-MONTH PERIOD RESULTS COMPARED TO PRIOR-YEAR SIX-MONTH PERIOD

Revenues for the current period increased $0.3 billion, to $45.6 billion; net income attributable to Disney decreased $0.7 billion, to $1.9 billion; and EPS decreased to $1.03 from $1.39 in the prior-year period. The EPS decrease was due to goodwill impairments in the current period, partially offset by higher operating income at Entertainment and Experiences.

Revenues

Service revenues for the current period increased $0.1 billion to $40.7 billion, resulting from higher DTC subscription revenue and increased revenue at our theme parks and resorts. These increases were largely offset by lower theatrical distribution revenue and, to a lesser extent, lower TV/VOD distribution revenue.

Product revenues for the current period increased 3%, or $0.2 billion, to $4.9 billion, due to higher sales volumes of merchandise, food and beverage at our theme parks and resorts.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS — (continued)

Costs and expenses

Cost of services for the current period decreased 5%, or $1.4 billion, to $26.6 billion, primarily due to lower programming and production costs and, to a lesser extent, lower distribution costs at Entertainment, partially offset by the impact of inflation and increased volumes at our theme parks and resorts.

Cost of products for the current period increased 4%, or $0.1 billion, to $3.2 billion, due to inflation and higher sales volumes of merchandise, food and beverage at our theme parks and resorts.

Depreciation and amortization decreased 5%, or $0.1 billion, to $2.5 billion due to lower TFCF & Hulu intangible amortization.

Restructuring and impairment charges

In the current period, the Company recorded charges of $2,052 million due to goodwill impairments related to the Star India Transaction and entertainment linear networks.

In the prior-year period, the Company recorded charges of $221 million primarily for severance and costs related to exiting our businesses in Russia.

Other income, net

Other income, net in the prior-year period included a DraftKings gain of $79 million and a $28 million gain on the sale of a business.

Interest expense, net

Interest expense, net is as follows:

Six Months Ended
(in millions)March 30, 2024April 1, 2023% Change Better (Worse)
Interest expense$(1,029)$(969)(6) %
Interest income, investment income and other47234736 %
Interest expense, net$(557)$(622)10 %

The increase in interest expense was due to higher average rates, partially offset by higher capitalized interest.

The increase in interest income, investment income and other resulted from from higher interest income on cash balances and a favorable comparison of pension and postretirement benefit costs, other than service cost.

Equity in the Income of Investees

Income from equity investees decreased $42 million, to $322 million from $364 million, due to lower income from A+E Television Networks.

Effective Income Tax Rate

Six Months Ended
March 30, 2024April 1, 2023
Income from continuing operations before income taxes$3,528$3,896
Income tax on continuing operations1,1611,047
Effective income tax rate - continuing operations32.9%26.9%

The increase in the effective income tax rate was due to an unfavorable impact from the goodwill impairments recognized in the current period, which are not tax deductible, partially offset by a lower effective tax rate on foreign earnings in the current period.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS — (continued)

Noncontrolling Interests

Six Months Ended
(in millions)March 30, 2024April 1, 2023% Change Better (Worse)
Net income from continuing operations attributable to noncontrolling interests$(476)$(299)(59) %

The increase in net income from continuing operations attributable to noncontrolling interests was due to improved results at our Asia Theme Parks, the accretion of Hulu’s noncontrolling interest to the amount paid in December 2023 (see Note 1 to the Condensed Consolidated Financial Statements) and improved results at ESPN, partially offset by the impact of the purchase of Major League Baseball’s 15% interest in BAMtech LLC in the prior-year period.

Certain Items Impacting Results in the Six Month Period

Results for the six months ended March 30, 2024 were impacted by the following:

  • Restructuring and impairment charges of $2,052 million

  • TFCF and Hulu acquisition amortization of $885 million

Results for the six months ended April 1, 2023 were impacted by the following:

  • TFCF and Hulu acquisition amortization of $1,137 million

  • Restructuring and impairment charges of $221 million

  • Other income of $107 million due to the DraftKings gain of $79 million and a gain on the sale of a business of $28 million

A summary of the impact of these items on EPS is as follows:

(in millions, except per share data)Pre-Tax Income (Loss)Tax Benefit (Expense)(1)After-Tax Income (Loss)EPS Favorable (Adverse)(2)
Six Months Ended March 30, 2024:
Restructuring and impairment charges$(2,052)$121$(1,931)$(1.06)
TFCF and Hulu acquisition amortization(885)206(679)(0.36)
Total$(2,937)$327$(2,610)$(1.41)
Six Months Ended April 1, 2023:
TFCF and Hulu acquisition amortization$(1,137)$264$(873)$(0.47)
Restructuring and impairment charges(221)43(178)(0.10)
Other income (expense), net107(18)890.05
Total$(1,251)$289$(962)$(0.52)

(1)Tax benefit (expense) amounts are determined using the tax rate applicable to the individual item.

(2)EPS is net of noncontrolling interest share, where applicable. Total may not equal the sum of the column due to rounding.

SEASONALITY

The Company’s businesses are subject to the effects of seasonality. Consequently, the operating results for the six months ended March 30, 2024 for each business segment, and for the Company as a whole, are not necessarily indicative of results to be expected for the full year.

Entertainment revenues are subject to seasonal advertising patterns, changes in viewership and subscriber levels, timing and performance of film releases in the theatrical and home entertainment markets, and the timing of and demand for film and television programs. In general, domestic advertising revenues are typically somewhat higher during the fall and somewhat lower during the summer months. Affiliate revenues vary with the subscriber trends of multi-channel video programming distributors (i.e. cable, satellite telecommunications and digital over-the-top service providers). Theatrical release dates are determined by several factors, including competition and the timing of vacation and holiday periods.

Sports revenues are subject to seasonal advertising patterns, changes in viewership and subscriber levels, and the availability of and demand for sports programming. In addition, advertising revenues generated from sports programming are impacted by the timing of sports seasons and events, which varies throughout the year or may take place periodically (e.g. biannually, quadrennially).

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS — (continued)

Experiences revenues fluctuate with changes in theme park attendance and resort occupancy resulting from the seasonal nature of vacation travel and leisure activities, which generally results in higher revenues during the Company’s first and fourth fiscal quarters, the opening of new guest offerings and pricing and promotional offers. Peak attendance and resort occupancy generally occur during the summer months when school vacations occur and during early winter and spring holiday periods. In addition, theme park and resort revenues may be higher during significant celebrations such as theme park or character anniversaries and lower in the periods following such celebrations. Consumer products revenue fluctuates with consumer purchasing behavior, which generally results in higher revenues during the Company’s first fiscal quarter due to the winter holiday season. In addition, licensing revenues fluctuate with the timing and performance of our film and television content.

BUSINESS SEGMENT RESULTS

The Company evaluates the performance of its operating businesses based on segment revenue and segment operating income.

The following table presents revenues from our operating segments:

Quarter Ended% Change Better (Worse)Six Months Ended% Change Better (Worse)
(in millions)March 30, 2024April 1, 2023March 30, 2024April 1, 2023
Entertainment$9,796$10,309(5) %$19,777$20,984(6) %
Sports4,3124,2262 %9,1478,8663 %
Experiences8,3937,64610 %17,52516,1918 %
Eliminations (1)(418)(366)(14) %(817)(714)(14) %
Revenues$22,083$21,8151 %$45,632$45,3271 %

(1)Reflects fees paid by Direct-to-Consumer to Sports and other Entertainment businesses for the right to air their linear networks on Hulu Live and fees paid by Entertainment to Sports to program sports on the ABC Network and Star+.

The following table presents income from our operating segments and other components of income before income taxes:

Quarter Ended% Change Better (Worse)Six Months Ended% Change Better (Worse)
(in millions)March 30, 2024April 1, 2023March 30, 2024April 1, 2023
Entertainment operating income$781$45572 %$1,655$800>100 %
Sports operating income778794(2) %6756307 %
Experiences operating income2,2862,03612 %5,3914,89810 %
Corporate and unallocated shared expenses(391)(279)(40) %(699)(559)(25) %
Restructuring and impairment charges(2,052)(152)>(100) %(2,052)(221)>(100) %
Other income, net—149(100) %—107(100) %
Interest expense, net(311)(322)3 %(557)(622)10 %
TFCF and Hulu acquisition amortization(434)(558)22 %(885)(1,137)22 %
Income before income taxes$657$2,123(69) %$3,528$3,896(9) %

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS — (continued)

Depreciation expense is as follows:

Quarter Ended% Change Better (Worse)Six Months Ended% Change Better (Worse)
(in millions)March 30, 2024April 1, 2023March 30, 2024April 1, 2023
Entertainment$169$150(13) %$332$304(9) %
Sports111942 %222924 %
Experiences
Domestic4264556 %8509076 %
International182169(8) %353333(6) %
Total Experiences6086243 %1,2031,2403 %
Corporate51522 %105100(5) %
Total depreciation expense$839$8451 %$1,662$1,6731 %

Amortization of intangible assets is as follows:

Quarter Ended% Change Better (Worse)Six Months Ended% Change Better (Worse)
(in millions)March 30, 2024April 1, 2023March 30, 2024April 1, 2023
Entertainment$14$3053 %$27$6458 %
Sports——nm——nm
Experiences2727— %5454— %
TFCF and Hulu intangible assets36240811 %74282510 %
Total amortization of intangible assets$403$46513 %$823$94313 %

BUSINESS SEGMENT RESULTS - Current Quarter Results Compared to Prior-Year Quarter

Entertainment

Revenue and operating results for the Entertainment segment are as follows:

Quarter Ended% Change Better (Worse)
(in millions)March 30, 2024April 1, 2023
Revenues:
Linear Networks$2,765$2,999(8) %
Direct-to-Consumer5,6424,98313 %
Content Sales/Licensing and Other1,3892,327(40) %
$9,796$10,309(5) %
Segment operating income (loss):
Linear Networks$752$959(22) %
Direct-to-Consumer47(587)nm
Content Sales/Licensing and Other(18)83nm
$781$45572 %

Revenues

The decrease in Entertainment revenues was primarily due to lower theatrical distribution revenue and, to a lesser extent, a decrease in TV/VOD distribution revenue, partially offset by subscription revenue growth.

Operating income

The increase in operating income in the current quarter compared to the prior-year quarter was due to improved results at Direct-to-Consumer, partially offset by declines at Linear Networks and Content Sales/Licensing and Other.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS — (continued)

Linear Networks

Operating results for Linear Networks are as follows:

Quarter Ended% Change Better (Worse)
(in millions)March 30, 2024April 1, 2023
Revenues
Affiliate fees$1,759$1,925(9) %
Advertising9741,031(6) %
Other3243(26) %
Total revenues2,7652,999(8) %
Operating expenses(1,458)(1,515)4 %
Selling, general, administrative and other(684)(672)(2) %
Depreciation and amortization(11)(12)8 %
Equity in the income of investees140159(12) %
Operating Income$752$959(22) %

Revenues - Affiliate fees

Quarter Ended% Change Better (Worse)
(in millions)March 30, 2024April 1, 2023
Domestic$1,506$1,609(6) %
International253316(20) %
$1,759$1,925(9) %

The decrease in domestic affiliate revenue was primarily due to a decrease of 12% from fewer subscribers, including the impact of the non-renewal of carriage of certain networks by an affiliate, partially offset by an increase of 7% from higher contractual rates.

Lower international affiliate revenue was primarily attributable to decreases of 11% from fewer subscribers and 4% from lower contractual rates.

Revenues - Advertising

Quarter Ended% Change Better (Worse)
(in millions)March 30, 2024April 1, 2023
Domestic$743$813(9) %
International2312186 %
$974$1,031(6) %

The decline in domestic advertising revenue was due to a decrease of 12% from fewer impressions, partially offset by an increase of 3% from higher rates primarily due to increased political advertising at the owned television stations. The decrease in impressions was due to lower average viewership.

Higher international advertising revenue was attributable to an increase of 10% from higher rates, partially offset by a decrease of 3% from an unfavorable foreign exchange impact.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS — (continued)

Operating expenses

Quarter Ended% Change Better (Worse)
(in millions)March 30, 2024April 1, 2023
Programming and production costs
Domestic$(1,048)$(1,068)2 %
International(178)(178)— %
Total programming and production costs(1,226)(1,246)2 %
Other operating expenses(232)(269)14 %
$(1,458)$(1,515)4 %

The decrease in domestic programming and production costs was due to a lower average cost mix of programming at ABC Network, partially offset by an increase in the average cost of programming at FX Channels.

The decrease in other operating expenses was primarily due to lower technology and distribution costs.

Equity in the Income of Investees

Income from equity investees decreased $19 million, to $140 million from $159 million, due to lower income from A+E Television Networks attributable to decreases in advertising and affiliate revenue.

Operating Income from Linear Networks

Operating income from Linear Networks decreased $207 million, to $752 million from $959 million, due to decreases at our domestic and international businesses.

Supplemental revenue and operating income

The following table provides supplemental revenue and operating income detail for Linear Networks:

Quarter Ended% Change Better (Worse)
(in millions)March 30, 2024April 1, 2023
Supplemental revenue detail
Domestic$2,269$2,440(7) %
International496559(11) %
$2,765$2,999(8) %
Supplemental operating income detail
Domestic$520$635(18) %
International92165(44) %
Equity in the income of investees140159(12) %
$752$959(22) %

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS — (continued)

Direct-to-Consumer

Operating results for Direct-to-Consumer are as follows:

Quarter Ended% Change Better (Worse)
(in millions)March 30, 2024April 1, 2023
Revenues
Subscription fees$4,805$4,22514 %
Advertising7627068 %
Other755244 %
Total revenues5,6424,98313 %
Operating expenses(4,414)(4,530)3 %
Selling, general, administrative and other(1,106)(955)(16) %
Depreciation and amortization(75)(85)12 %
Operating Income (Loss)$47$(587)nm

Revenues - Subscription fees

Growth in subscription fees in the current quarter compared to the prior-year quarter reflected increases of 9% from higher rates attributable to increases in retail pricing at Disney+ Core and Hulu, and 6% from more subscribers due to growth at Disney+ Core.

Revenues - Advertising

Higher advertising revenue in the current quarter compared to the prior-year quarter reflected an increase of 25% from higher impressions, partially offset by a decrease of 17% from lower rates.

Key metrics

In addition to revenue, costs and operating income, management uses the following key metrics to analyze trends and evaluate the overall performance of Disney+(1) and Hulu(1), and we believe these metrics are useful to investors in analyzing the business:

Paid subscribers*(1)* at:% Change Better (Worse)
(in millions)March 30, 2024December 30, 2023April 1, 2023Mar. 30, 2024 vs. Dec. 30, 2023Mar. 30, 2024 vs. Apr. 1, 2023
Disney+
Domestic (U.S. and Canada)54.046.146.317 %17 %
International (excluding Disney+ Hotstar)(1)63.665.258.6(2) %9 %
Disney+ Core(2)117.6111.3104.96 %12 %
Disney+ Hotstar36.038.352.9(6) %(32) %
Hulu
SVOD Only45.845.143.72 %5 %
Live TV + SVOD4.54.64.4(2) %2 %
Total Hulu(2)50.249.748.21 %4 %

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS — (continued)

Average Monthly Revenue Per Paid Subscriber*(1)**:*

Quarter Ended% Change Better (Worse)
March 30, 2024December 30, 2023April 1, 2023Mar. 30, 2024 vs. Dec. 30, 2023Mar. 30, 2024 vs. Apr. 1, 2023
Disney+
Domestic (U.S. and Canada)$8.00$8.15$7.14(2) %12 %
International (excluding Disney+ Hotstar)(1)6.665.915.9313 %12 %
Disney+ Core7.286.846.476 %13 %
Disney+ Hotstar0.701.280.59(45) %19 %
Hulu
SVOD Only11.8412.2911.73(4) %1 %
Live TV + SVOD95.0193.6192.321 %3 %

(1)See discussion on pages 71-72 —DTC Product Descriptions, Key Definitions and Supplemental Information.

(2)Total may not equal the sum of the column due to rounding.

Average Monthly Revenue Per Paid Subscriber - Second Quarter of Fiscal 2024 Comparison to First Quarter of Fiscal 2024

Domestic Disney+ average monthly revenue per paid subscriber decreased from $8.15 to $8.00 due to a higher mix of wholesale subscribers, partially offset by increases in retail pricing.

International Disney+ (excluding Disney+ Hotstar) average monthly revenue per paid subscriber increased from $5.91 to $6.66 due to increases in retail pricing and a lower mix of subscribers to promotional offerings.

Disney+ Hotstar average monthly revenue per paid subscriber decreased from $1.28 to $0.70 due to lower advertising revenue.

Hulu SVOD Only average monthly revenue per paid subscriber decreased from $12.29 to $11.84 due to lower advertising revenue, partially offset by increases in retail pricing.

Hulu Live TV + SVOD average monthly revenue per paid subscriber increased from $93.61 to $95.01 due to increases in retail pricing and a lower mix of subscribers to promotional offerings, partially offset by lower advertising revenue.

Average Monthly Revenue Per Paid Subscriber - Second Quarter of Fiscal 2024 Comparison to Second Quarter of Fiscal 2023

Domestic Disney+ average monthly revenue per paid subscriber increased from $7.14 to $8.00 due to increases in retail pricing, partially offset by a higher mix of wholesale subscribers and of subscribers to multi-product offerings.

International Disney+ (excluding Disney+ Hotstar) average monthly revenue per paid subscriber increased from $5.93 to $6.66 due to increases in retail pricing, partially offset by the addition of subscribers to ad-supported offerings.

Disney+ Hotstar average monthly revenue per paid subscriber increased from $0.59 to $0.70 due to increases in retail pricing, partially offset by a higher mix of subscribers from lower-priced markets and lower advertising revenue.

Hulu SVOD Only average monthly revenue per paid subscriber increased from $11.73 to $11.84 reflecting increases in retail pricing, partially offset by a higher mix of subscribers to multi-product offerings and to promotional offerings, lower premium add-on revenue and a higher mix of wholesale subscribers.

Hulu Live TV + SVOD average monthly revenue per paid subscriber increased from $92.32 to $95.01 due to increases in retail pricing, partially offset by lower advertising and premium add-on revenue.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS — (continued)

Operating expenses

Quarter Ended% Change Better (Worse)
(in millions)March 30, 2024April 1, 2023
Programming and production costs
Hulu$(2,169)$(2,128)(2) %
Disney+ and other(1,308)(1,309)— %
Total programming and production costs(3,477)(3,437)(1) %
Other operating expense(937)(1,093)14 %
$(4,414)$(4,530)3 %

Higher programming and production costs at Hulu in the current quarter compared to the prior-year quarter were primarily due to higher subscriber-based fees for programming the Hulu Live TV service and more programming provided on the service, partially offset by lower average costs per hour of content available on the service. The increase in Hulu Live TV subscriber-based fees was attributable to rate increases and more subscribers.

Programming and production costs at Disney+ and other in the current quarter were comparable to the prior-year quarter as lower average costs per hour of content available was offset by more content provided on the service.

The decrease in other operating expense was due to lower distribution costs.

Selling, general, administrative and other

Selling, general, administrative and other costs increased $151 million, to $1,106 million from $955 million, due to higher marketing costs.

Operating Income (Loss) from Direct-to-Consumer

Operating results from Direct-to-Consumer increased $634 million, to income of $47 million from a loss of $587 million, due to improved results at Disney+.

Content Sales/Licensing and Other

Operating results for Content Sales/Licensing and Other are as follows:

Quarter Ended% Change Better (Worse)
(in millions)March 30, 2024April 1, 2023
Revenues
TV/VOD distribution$470$790(41) %
Theatrical distribution123767(84) %
Home entertainment distribution189202(6) %
Other6075687 %
Total revenues1,3892,327(40) %
Operating expenses(926)(1,612)43 %
Selling, general, administrative and other(382)(550)31 %
Depreciation and amortization(97)(83)(17) %
Equity in the income (loss) of investees(2)1nm
Operating Income (Loss)$(18)$83nm

Revenues - TV/VOD distribution

The decrease in TV/VOD distribution revenue was due to lower sales of episodic content.

Revenues - Theatrical distribution

Theatrical distribution revenue was lower as there were no significant titles released in the current quarter compared to Ant-Man And The Wasp: Quantumania in the prior-year quarter. The prior-year quarter also included the benefit of the ongoing performance of Avatar: The Way of Water, which was released in December 2022.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS — (continued)

Operating expenses

Quarter Ended% Change Better (Worse)
(in millions)March 30, 2024April 1, 2023
Programming and production costs$(762)$(1,392)45 %
Distribution costs and cost of goods sold(164)(220)25 %
$(926)$(1,612)43 %

The decrease in programming and production costs was due to lower production cost amortization attributable to the decreases in theatrical and TV/VOD distribution revenues, partially offset by higher film cost impairments in the current quarter.

The decrease in distribution costs and cost of goods sold was attributable to lower theatrical distribution costs.

Selling, general, administrative and other

Selling, general, administrative and other costs decreased $168 million, to $382 million from $550 million, driven by lower theatrical marketing costs reflecting the absence of significant releases in the current quarter.

Operating Income (Loss) from Content Sales/Licensing and Other

Operating results from Content Sales/Licensing and Other decreased $101 million, to a loss of $18 million from income of $83 million due to lower theatrical distribution results and higher film cost impairments.

Items Excluded from Segment Operating Income Related to Entertainment

The following table presents supplemental information for items related to the Entertainment segment that are excluded from segment operating income:

Quarter Ended% Change Better (Worse)
(in millions)March 30, 2024April 1, 2023
Restructuring and impairment charges(1)$(717)$(112)>(100) %
TFCF and Hulu acquisition amortization(2)(343)(459)25 %

(1)Charges for the current quarter were due to a goodwill impairment related to linear networks. Charges for the prior-year quarter were primarily for severance.

(2)In the current quarter, amortization of intangible assets was $271 million and amortization of step-up on film and television costs was $69 million. In the prior-year quarter, amortization of intangible assets was $309 million and amortization of step-up on film and television costs was $147 million.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS — (continued)

Sports

Operating results for Sports are as follows:

Quarter Ended% Change Better (Worse)
(in millions)March 30, 2024April 1, 2023
Revenues
Affiliate fees$2,678$2,766(3) %
Advertising95078122 %
Subscription fees41738010 %
Other267299(11) %
Total revenues4,3124,2262 %
Operating expenses(3,214)(3,072)(5) %
Selling, general, administrative and other(315)(357)12 %
Depreciation and amortization(11)(19)42 %
Equity in the income of investees616(63) %
Operating Income$778$794(2) %

Revenues - Affiliate fees

Quarter Ended% Change Better (Worse)
(in millions)March 30, 2024April 1, 2023
ESPN
Domestic$2,369$2,435(3) %
International246268(8) %
2,6152,703(3) %
Star India6363— %
$2,678$2,766(3) %

Lower domestic ESPN affiliate revenue was driven by a decrease of 8% from fewer subscribers, partially offset by an increase of 6% from higher contractual rates.

The decrease in international ESPN affiliate revenue was due to decreases of 47% from an unfavorable foreign exchange impact and 7% from fewer subscribers, partially offset by an increase of 46% from higher contractual rates.

Revenues - Advertising

Quarter Ended% Change Better (Worse)
(in millions)March 30, 2024April 1, 2023
ESPN
Domestic$870$70124 %
International4346(7) %
91374722 %
Star India37349 %
$950$78122 %

The increase in domestic ESPN advertising revenue was primarily due to increases of 15% from higher rates and 3% from higher average viewership. These increases included the benefits from an additional College Football Playoff (CFP) game due to timing and an additional NFL playoff game in the current quarter. In the current quarter, we aired the CFP championship game, two semi-final games and one host game compared to the CFP championship game and two host games in the prior-year quarter.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS — (continued)

Revenues - Subscription fees

Subscription fees increased $37 million, to $417 million from $380 million, due to higher rates.

Revenues - Other

Other revenue decreased $32 million, to $267 million from $299 million, due to the comparison to sub-licensing fees from Board of Control for Cricket in India (BCCI) programming in the prior-year quarter as we did not renew the rights for the current fiscal year, and lower Ultimate Fighting Championship (UFC) pay-per-view fees primarily attributable to the impact of airing one less event in the current quarter compared to the prior-year quarter. These decreases were partially offset by higher fees received from the Entertainment segment to program sports on Star+.

Key Metrics

In addition to revenue, costs and operating income, management uses the following key metrics to analyze trends and evaluate the overall performance of ESPN+(1), and we believe these metrics are useful to investors in analyzing the business:

Quarter Ended% Change Better (Worse)
March 30, 2024December 30, 2023April 1, 2023Mar. 30, 2024 vs. Dec. 30, 2023Mar. 30, 2024 vs. Apr. 1, 2023
Paid subscribers(1) at (in millions)24.825.225.3(2) %(2) %
Average Monthly Revenue per Paid Subscriber(1) for the quarter end$6.30$6.09$5.643 %12 %

(1)See discussion on page 71-72 —DTC Product Descriptions, Key Definitions and Supplemental Information.

Average Monthly Revenue Per Paid Subscriber - Second Quarter of Fiscal 2024 Comparison to First Quarter of Fiscal 2024

ESPN+ average monthly revenue per paid subscriber increased from $6.09 to $6.30 due to increases in retail pricing and higher advertising revenue.

Average Monthly Revenue Per Paid Subscriber - Second Quarter of Fiscal 2024 Comparison to Second Quarter of Fiscal 2023

ESPN+ average monthly revenue per paid subscriber increased from $5.64 to $6.30 due to increases in retail pricing and higher advertising revenue.

Operating expenses

Quarter Ended% Change Better (Worse)
(in millions)March 30, 2024April 1, 2023
Programming and production costs
ESPN
Domestic$(2,616)$(2,392)(9) %
International(260)(263)1 %
(2,876)(2,655)(8) %
Star India(102)(195)48 %
(2,978)(2,850)(4) %
Other operating expenses(236)(222)(6) %
$(3,214)$(3,072)(5) %

Domestic ESPN programming and production costs increased in the current quarter compared to the prior-year quarter due to higher CFP rights costs attributable to the additional game in the current quarter.

International ESPN programming and production costs were comparable to the prior-year quarter due to a favorable foreign exchange impact, largely offset by inflation and higher costs for soccer programming.

The decrease in Star India programming and production costs reflected the comparison to costs for BCCI cricket programming in the prior-year quarter, partially offset by an increase in Indian Premier League (IPL) cricket programming costs due to more matches aired in the current quarter compared to the prior-year quarter.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS — (continued)

Selling, general, administrative and other

Selling, general, administrative and other costs decreased $42 million, to $315 million from $357 million, reflecting a favorable foreign exchange impact.

Operating Income from Sports

Operating income decreased $16 million, to $778 million from $794 million, reflecting a decrease at domestic ESPN, largely offset by improved results at Star India.

Supplemental revenue and operating income

The following table provides supplemental revenue and operating income (loss) detail for Sports:

Quarter Ended% Change Better (Worse)
(in millions)March 30, 2024April 1, 2023
Supplemental revenue detail
ESPN
Domestic$3,866$3,7334 %
International341366(7) %
4,2074,0993 %
Star India105127(17) %
$4,312$4,2262 %
Supplemental operating income (loss) detail
ESPN
Domestic$780$858(9) %
International1919— %
799877(9) %
Star India(27)(99)73 %
Equity in the income of investees616(63) %
$778$794(2) %

Items Excluded from Segment Operating Income Related to Sports

The following table presents supplemental information for items related to the Sports segment that are excluded from segment operating income:

Quarter Ended% Change Better (Worse)
(in millions)March 30, 2024April 1, 2023
TFCF acquisition amortization(1)$(89)$(97)8 %
Restructuring and impairment charges—(10)100 %

(1)Amortization of intangible assets

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS — (continued)

Experiences

Operating results for the Experiences segment are as follows:

Quarter Ended% Change Better (Worse)
(in millions)March 30, 2024April 1, 2023
Revenues
Theme park admissions$2,806$2,42816 %
Resorts and vacations2,1011,9498 %
Parks & Experiences merchandise, food and beverage2,0291,9037 %
Merchandise licensing and retail8898811 %
Parks licensing and other56848517 %
Total revenues8,3937,64610 %
Operating expenses(4,509)(4,106)(10) %
Selling, general, administrative and other(963)(853)(13) %
Depreciation and amortization(635)(651)2 %
Operating Income$2,286$2,03612 %

Revenues - Theme park admissions

Theme park admissions revenue growth was due to increases of 12% from higher average per capita ticket revenue and 4% from attendance growth. Attendance growth was due to an increase at our international parks attributable to higher attendance at Hong Kong Disneyland Resort, which benefited from the park being open for more days in the current quarter, Shanghai Disney Resort and, to a lesser extent, Disneyland Paris. Growth in attendance at our domestic parks was due to an increase in attendance at Disneyland Resort.

Revenues - Resorts and vacations

Higher resorts and vacations revenue was due to increases of 5% from higher average ticket prices for cruise line sailings, 2% from higher occupied hotel room nights and 2% from an increase in average daily hotel room rates.

Revenues - Park & Experiences merchandise, food and beverage

Parks & Experiences merchandise, food and beverage revenue growth resulted from increases of 4% from higher volumes and 2% from guest spending growth. Higher volumes were primarily attributable to an increase at our international parks and experiences reflecting growth at Hong Kong Disneyland Resort.

Revenues - Merchandise licensing and retail

Merchandise licensing and retail revenue was comparable to the prior-year quarter as an increase of 5% from licensing was largely offset by decreases of 2% from retail and 2% from an unfavorable foreign exchange impact. The increase in licensing revenue was driven by higher sales of products based on Spider-Man and Mickey and Friends, partially offset by a decrease in sales of products based on Star Wars.

Revenues - Parks Licensing and Other

The increase in parks licensing and other revenue was driven by higher sponsorship revenues and a favorable foreign exchange impact.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS — (continued)

Key metrics

In addition to revenue, costs and operating income, management uses the following key metrics to analyze trends and evaluate the overall performance of our theme parks and resorts, and we believe these metrics are useful to investors in analyzing the business:

DomesticInternational(1)Total(1)
Quarter EndedQuarter EndedQuarter Ended
Mar. 30, 2024Apr. 1, 2023Mar. 30, 2024Apr. 1, 2023Mar. 30, 2024Apr. 1, 2023
Parks
Increase (decrease)
Attendance(2)2 %7 %15 %>100 %6 %27 %
Per Capita Guest Spending(3)5 %2 %14 %19 %6 %(1) %
Hotels
Occupancy(4)90 %89 %85 %72 %89 %85 %
Available Hotel Room Nights (in thousands)(5)2,5502,5187937873,3433,305
Change in Per Room Guest Spending(6)3 %— %16 %29 %4 %1 %

(1)Per capita guest spending growth rate and per room guest spending growth rate exclude the impact of changes in foreign exchange rates.

(2)Attendance is used to analyze volume trends at our theme parks and is based on the number of unique daily entries, i.e. a person visiting multiple theme parks in a single day is counted only once. Our attendance count includes complimentary entries but excludes entries by children under the age of three.

(3)Per capita guest spending is used to analyze guest spending trends and is defined as total revenue from ticket sales and sales of food, beverage and merchandise in our theme parks, divided by total theme park attendance.

(4)Occupancy is used to analyze the usage of available capacity at hotels and is defined as the number of room nights occupied by guests as a percentage of available hotel room nights.

(5)Available hotel room nights is defined as the total number of room nights that are available at our hotels and at Disney Vacation Club (DVC) properties located at our theme parks and resorts that are not utilized by DVC members. Available hotel room nights include rooms temporarily taken out of service.

(6)Per room guest spending is used to analyze guest spending at our hotels and is defined as total revenue from room rentals and sales of food, beverage and merchandise at our hotels, divided by total occupied hotel room nights. In the third quarter of the prior fiscal year, the Company revised its method of allocating revenue on the sales of Disneyland Paris vacation packages between hotel room revenue and admissions revenue. The new method resulted in a decrease in the percentage of revenue allocated to hotel rooms. If we had applied the new method in the prior-year quarter, the impact would have been a decrease of approximately $9 million in the prior-year quarter.

Operating expenses

Quarter Ended% Change Better (Worse)
(in millions)March 30, 2024April 1, 2023
Operating labor$(2,068)$(1,826)(13) %
Infrastructure costs(812)(750)(8) %
Cost of goods sold and distribution costs(798)(767)(4) %
Other operating expense(831)(763)(9) %
$(4,509)$(4,106)(10) %

Higher operating labor was primarily due to inflation. The increase in infrastructure costs was driven by higher costs for new guest offerings and an increase in operations support costs. Cost of goods sold and distribution costs increased due to higher volumes. The increase in other operating expense was attributable to volume growth, higher operations support costs and inflation.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS — (continued)

Selling, general, administrative and other

Selling, general, administrative and other costs increased $110 million, to $963 million from $853 million driven by higher marketing costs.

Depreciation and amortization

Depreciation and amortization decreased $16 million, to $635 million from $651 million, due to lower depreciation at our domestic parks and experiences.

Operating Income from Experiences

Segment operating income increased from $2,036 million to $2,286 million due to growth at our international and domestic parks and experiences.

Supplemental revenue and operating income

The following table presents supplemental revenue and operating income detail for the Experiences segment:

Quarter Ended% Change Better (Worse)
(in millions)March 30, 2024April 1, 2023
Supplemental revenue detail
Parks & Experiences
Domestic$5,958$5,5727 %
International1,5221,18429 %
Consumer Products9138903 %
$8,393$7,64610 %
Supplemental operating income detail
Parks & Experiences
Domestic$1,607$1,5196 %
International29215687 %
Consumer Products3873617 %
$2,286$2,03612 %

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS — (continued)

BUSINESS SEGMENT RESULTS - Current Period Six-Month Results Compared to the Prior-Year Six-Month Period

Entertainment

Revenue and operating results for the Entertainment segment are as follows:

Six Months Ended% Change Better (Worse)
(in millions)March 30, 2024April 1, 2023
Revenues:
Linear Networks$5,568$6,201(10) %
Direct-to-Consumer11,1889,80514 %
Content Sales/Licensing and Other3,0214,978(39) %
$19,777$20,984(6) %
Segment operating income (loss):
Linear Networks$1,988$2,289(13) %
Direct-to-Consumer(91)(1,571)94 %
Content Sales/Licensing and Other(242)82nm
$1,655$800>100 %

Revenues

The decrease in Entertainment revenues was due to lower theatrical distribution revenue and, to a lesser extent, decreases in TV/VOD distribution, advertising and affiliate revenue. These decreases were partially offset by subscription revenue growth.

Operating income

The increase in operating income was due to improved results at Direct-to-Consumer, partially offset by declines at Content Sales/Licensing and Other and Linear Networks.

Linear Networks

Operating results for Linear Networks are as follows:

Six Months Ended% Change Better (Worse)
(in millions)March 30, 2024April 1, 2023
Revenues
Affiliate fees$3,525$3,798(7) %
Advertising1,9682,298(14) %
Other75105(29) %
Total revenues5,5686,201(10) %
Operating expenses(2,629)(2,977)12 %
Selling, general, administrative and other(1,241)(1,263)2 %
Depreciation and amortization(23)(24)4 %
Equity in the income of investees313352(11) %
Operating Income$1,988$2,289(13) %

Revenues - Affiliate fees

Six Months Ended% Change Better (Worse)
(in millions)March 30, 2024April 1, 2023
Domestic$2,986$3,166(6) %
International539632(15) %
$3,525$3,798(7) %

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS — (continued)

The decrease in domestic affiliate revenue was due to a decline of 11% from fewer subscribers, including the impact of the non-renewal of carriage of certain networks by an affiliate, partially offset by an increase of 6% from higher contractual rates.

Lower international affiliate revenue was attributable to decreases of 10% from fewer subscribers and 2% from lower contractual rates.

Revenues - Advertising

Six Months Ended% Change Better (Worse)
(in millions)March 30, 2024April 1, 2023
Domestic$1,449$1,793(19) %
International5195053 %
$1,968$2,298(14) %

The decline in domestic advertising revenue was due to decreases of 13% from fewer impressions and 5% from lower rates. The decrease in impressions was due to lower average viewership and, to a lesser extent, fewer units delivered.

Higher international advertising revenue was due to an increase of 6% from higher rates, partially offset by a decrease of 3% from an unfavorable foreign exchange impact.

Operating expenses

Six Months Ended% Change Better (Worse)
(in millions)March 30, 2024April 1, 2023
Programming and production costs
Domestic$(1,808)$(2,095)14 %
International(361)(341)(6) %
Total programming and production costs(2,169)(2,436)11 %
Other operating expenses(460)(541)15 %
$(2,629)$(2,977)12 %

The decrease in domestic programming and production costs was due to fewer hours of scripted programming in the current period, reflecting the impact of guild strikes. Scripted programming was primarily replaced with lower average cost non-scripted programming as well as ESPN on ABC sports programming, the costs of which are recognized in the Sports segment.

International programming and production costs increased due to inflation.

The decrease in other operating expenses was driven by lower technology and distribution costs.

Equity in the Income of Investees

Income from equity investees decreased $39 million, to $313 million from $352 million, due to lower income from A+E Television Networks attributable to decreases in advertising and affiliate revenue, partially offset by a gain on the sale of an investment.

Operating Income from Linear Networks

Operating income from Linear Networks decreased $301 million, to $1,988 million from $2,289 million, due to decreases at our domestic and international businesses.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS — (continued)

Supplemental revenue and operating income

The following table provides supplemental revenue and operating income detail for Linear Networks:

Six Months Ended% Change Better (Worse)
(in millions)March 30, 2024April 1, 2023
Supplemental revenue detail
Domestic$4,479$5,005(11) %
International1,0891,196(9) %
$5,568$6,201(10) %
Supplemental operating income detail
Domestic$1,358$1,514(10) %
International317423(25) %
Equity in the income of investees313352(11) %
$1,988$2,289(13) %

Direct-to-Consumer

Operating results for Direct-to-Consumer are as follows:

Six Months Ended% Change Better (Worse)
(in millions)March 30, 2024April 1, 2023
Revenues
Subscription fees$9,312$8,08615 %
Advertising1,7361,57210 %
Other140147(5) %
Total revenues11,1889,80514 %
Operating expenses(8,907)(9,153)3 %
Selling, general, administrative and other(2,227)(2,042)(9) %
Depreciation and amortization(145)(181)20 %
Operating Loss$(91)$(1,571)94 %

Revenues - Subscription fees

Growth in subscription fees reflected an increase of 10% from higher rates attributable to increases in retail pricing at Disney+ Core and, to a lesser extent, Hulu, and 5% from more subscribers due to growth at Disney+ Core and, to a lesser extent, Hulu.

Revenues - Advertising

Higher advertising revenue reflected an increase of 28% from higher impressions, partially offset by a decrease of 18% from lower rates. The increase in impressions was due to growth of the ad-supported Disney+ service, which launched in December 2022, airing more hours of International Cricket Council (ICC) cricket programming compared to the prior-year period and higher impressions at Hulu.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS — (continued)

Key metrics

Average Monthly Revenue Per Paid Subscriber:

Six Months Ended% Change Better (Worse)
March 30, 2024April 1, 2023
Disney+
Domestic (U.S. and Canada)$8.07$6.5623 %
International (excluding Disney+ Hotstar)6.285.789 %
Disney+ Core7.066.1315 %
Disney+ Hotstar1.000.6749 %
Hulu
SVOD Only12.0612.10— %
Live TV + SVOD94.3090.115 %

Domestic Disney+ average monthly revenue per paid subscriber increased from $6.56 to $8.07 due to increases in retail pricing, partially offset by a higher mix of wholesale subscribers.

International Disney+ (excluding Disney+ Hotstar) average monthly revenue per paid subscriber increased from $5.78 to $6.28 due to increases in retail pricing, partially offset by the addition of subscribers to ad-supported offerings.

Disney+ Hotstar average monthly revenue per paid subscriber increased from $0.67 to $1.00 due to increases in retail pricing and higher advertising revenue.

The average monthly revenue per paid subscriber for Hulu SVOD Only was comparable to the prior-year period as a higher mix of subscribers to promotional offerings, decreases in advertising revenue and premium add-on revenue, and a higher mix of subscribers to multi-product offerings were largely offset by increases in retail pricing.

Hulu Live TV + SVOD average monthly revenue per paid subscriber increased from $90.11 to $94.30 due to increases in retail pricing, partially offset by decreases in advertising revenue and premium add-on revenue.

Operating expenses

Six Months Ended% Change Better (Worse)
(in millions)March 30, 2024April 1, 2023
Programming and production costs
Hulu$(4,295)$(4,234)(1) %
Disney+ and other(2,767)(2,865)3 %
Total programming and production costs(7,062)(7,099)1 %
Other operating expense(1,845)(2,054)10 %
$(8,907)$(9,153)3 %

Higher programming and production costs at Hulu were due to higher subscriber-based fees for programming the Hulu Live TV service and more programming provided on the service, partially offset by lower average costs per hour of content available on the service. The increase in Hulu Live TV subscriber-based fees was attributable to rate increases and more subscribers.

The decrease in programming and production costs at Disney+ and other was attributable to a decrease in non-sports content costs, largely offset by higher costs for ICC cricket programming due to higher average costs per match and more matches aired. The decrease in non-sports content costs was due to lower average cost per hour of content available, partially offset by more content provided on the service.

Other operating expenses decreased due to lower distribution costs.

Selling, general, administrative and other

Selling, general, administrative and other costs increased $185 million, to $2,227 million from $2,042 million, due to higher marketing costs.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS — (continued)

Depreciation and amortization

Depreciation and amortization decreased $36 million, from $181 million to $145 million, primarily due to assets that were fully depreciated.

Operating Loss from Direct-to-Consumer

The operating loss from Direct-to-Consumer decreased $1,480 million, to $91 million from $1,571 million, due to a lower loss at Disney+ and, to a lesser extent, higher operating income at Hulu.

Content Sales/Licensing and Other

Operating results for Content Sales/Licensing and Other are as follows:

Six Months Ended% Change Better (Worse)
(in millions)March 30, 2024April 1, 2023
Revenues
TV/VOD distribution$992$1,503(34) %
Theatrical distribution3741,907(80) %
Home entertainment distribution3983873 %
Other1,2571,1816 %
Total revenues3,0214,978(39) %
Operating expenses(2,101)(3,462)39 %
Selling, general, administrative and other(967)(1,272)24 %
Depreciation and amortization(191)(163)(17) %
Equity in the income (loss) of investees(4)1nm
Operating Income (Loss)$(242)$82nm

Revenues - TV/VOD distribution

The decrease in TV/VOD distribution revenue was attributable to lower sales of episodic content.

Revenues - Theatrical distribution

The decrease in theatrical distribution revenue was due to the performance of Wish and The Marvels in the current period compared to Avatar: The Way of Water, Black Panther: Wakanda Forever and Ant-Man and the Wasp: Quantumania in the prior-year period. Other titles released in the current period included Poor Things, while the prior-year period included The Menu and Strange World.

Revenues - Other

The increase in other revenue was attributable to higher music revenues and an increase in revenue at Lucasfilm’s special effects business primarily due to more projects.

Operating expenses

Six Months Ended% Change Better (Worse)
(in millions)March 30, 2024April 1, 2023
Programming and production costs$(1,752)$(2,997)42 %
Distribution costs and cost of goods sold(349)(465)25 %
$(2,101)$(3,462)39 %

The decrease in programming and production costs was due to lower production cost amortization attributable to the decreases in theatrical and, to a lesser extent, TV/VOD distribution revenues, partially offset by an increase in film cost impairments.

Lower distribution costs and cost of goods sold were driven by decreased theatrical distribution costs, partially offset by an increase at Lucasfilm’s special effects business due to more projects.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS — (continued)

Selling, general, administrative and other

Selling, general, administrative and other costs decreased $305 million, to $967 million from $1,272 million, primarily due to lower theatrical marketing costs reflecting fewer significant releases in the current period.

Depreciation and amortization

Depreciation and amortization increased $28 million, to $191 million from $163 million, attributable to increased investment in technology assets.

Operating Loss from Content Sales/Licensing and Other

The operating results from Content Sales/Licensing and Other decreased $324 million, to a loss of $242 million from income of $82 million due to lower theatrical distribution results and higher film cost impairments.

Items Excluded from Segment Operating Income Related to Entertainment

The following table presents supplemental information for items related to the Entertainment segment that are excluded from segment operating income:

Six Months Ended% Change Better (Worse)
(in millions)March 30, 2024April 1, 2023
Restructuring and impairment charges(1)$(717)$(181)>(100) %
TFCF and Hulu acquisition amortization(2)(696)(939)26 %
Gain on sale of a business—28(100) %

(1)Charges for the current period were due to a goodwill impairment related to linear networks. Charges for the prior-year period were due to severance and exiting our businesses in Russia.

(2)In the current period, amortization of intangible assets was $553 million and amortization of step-up on film and television costs was $137 million. In the prior-year period, amortization of intangible assets was $627 million and amortization of step-up on film and television costs was $306 million.

Sports

Operating results for Sports are as follows:

Six Months Ended% Change Better (Worse)
(in millions)March 30, 2024April 1, 2023
Revenues
Affiliate fees$5,347$5,419(1) %
Advertising2,3012,04313 %
Subscription fees83275910 %
Other6676453 %
Total revenues9,1478,8663 %
Operating expenses(7,813)(7,573)(3) %
Selling, general, administrative and other(656)(653)— %
Depreciation and amortization(22)(29)24 %
Equity in the income of investees1919— %
Operating Income$675$6307 %

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS — (continued)

Revenues - Affiliate fees

Six Months Ended% Change Better (Worse)
(in millions)March 30, 2024April 1, 2023
ESPN
Domestic$4,708$4,763(1) %
International511524(2) %
5,2195,287(1) %
Star India128132(3) %
$5,347$5,419(1) %

The decrease in domestic ESPN affiliate revenue was primarily due to a decline of 7% from fewer subscribers, partially offset by an increase of 6% from higher contractual rates.

The decrease in international ESPN affiliate revenue was primarily attributable to decreases of 30% from an unfavorable foreign exchange impact and 6% from fewer subscribers, partially offset by an increase of 35% from higher contractual rates.

Revenues - Advertising

Six Months Ended% Change Better (Worse)
(in millions)March 30, 2024April 1, 2023
ESPN
Domestic$1,988$1,8398 %
International9298(6) %
2,0801,9377 %
Star India221106>100 %
$2,301$2,04313 %

The increase in domestic ESPN advertising revenue was due to increases of 5% from higher rates and 2% from an increase in sponsorship revenue.

Growth in Star India advertising revenue in the current period compared to the prior-year period was due to higher impressions, partially offset by lower rates. Higher impressions were due to increases in units delivered and average viewership, both of which reflected more hours of ICC cricket programming compared to the prior-year period.

Revenues - Subscription fees

Subscription fees increased $73 million, to $832 million from $759 million, due to increases of 8% from higher rates and 2% from more subscribers.

Key Metrics

Six Months Ended% Change Better (Worse)
March 30 2024April 1, 2023
Average Monthly Revenue per Paid Subscriber for the period$6.20$5.5811 %

ESPN+ average monthly revenue per paid subscriber increased from $5.58 to $6.20 due to increases in retail pricing and higher advertising revenue.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS — (continued)

Operating expenses

Six Months Ended% Change Better (Worse)
(in millions)March 30, 2024April 1, 2023
Programming and production costs
ESPN
Domestic$(6,005)$(6,041)1 %
International(566)(533)(6) %
(6,571)(6,574)— %
Star India(786)(521)(51) %
(7,357)(7,095)(4) %
Other operating expenses(456)(478)5 %
$(7,813)$(7,573)(3) %

Programming and production costs at domestic ESPN decreased in the current period compared to the prior-year period due to a lower cost mix of college football programming rights in the current period, partially offset by contractual rate increases.

The increase in international ESPN programming and production costs was attributable to higher soccer rights costs and production cost inflation, partially offset by a favorable foreign exchange impact. The increase in soccer rights costs was due to higher rates and new rights.

Higher Star India programming and production costs were attributable to higher rights costs for ICC and, to a lesser extent, IPL cricket programming in the current period compared to the prior-year period. The increase in ICC cricket programming costs was due to an increase in average costs per match and more matches aired, while the increase in costs for IPL cricket programming was due to more matches aired. These increases were partially offset by the comparison to costs for BCCI cricket programming in the prior-year period as we did not renew the rights for the current fiscal year.

Operating Income from Sports

Operating income from Sports increased $45 million, to $675 million from $630 million, due to growth at domestic ESPN, partially offset by lower results at Star India and international ESPN.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS — (continued)

Supplemental revenue and operating income

The following table provides supplemental revenue and operating income (loss) detail for Sports:

Six Months Ended% Change Better (Worse)
(in millions)March 30, 2024April 1, 2023
Supplemental revenue detail
ESPN
Domestic$7,939$7,7822 %
International704724(3) %
8,6438,5062 %
Star India50436040 %
$9,147$8,8663 %
Supplemental operating income detail
ESPN
Domestic$1,035$81727 %
International(37)22nm
99883919 %
Star India(342)(228)(50) %
Equity in the income of investees1919— %
$675$6307 %

Items Excluded from Segment Operating Income Related to Sports

The following table presents supplemental information for items related to the Sports segment that are excluded from segment operating income:

Six Months Ended% Change Better (Worse)
(in millions)March 30, 2024April 1, 2023
TFCF acquisition amortization(1)$(185)$(194)5 %
Restructuring and impairment charges—(10)100 %

(1)Amortization of intangible assets

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS — (continued)

Experiences

Operating results for the Experiences segment are as follows:

Six Months Ended% Change Better (Worse)
(in millions)March 30, 2024April 1, 2023
Revenues
Theme park admissions$5,788$5,06914 %
Resorts and vacations4,2193,9297 %
Parks & Experiences merchandise, food and beverage4,1323,8836 %
Merchandise licensing and retail2,2302,236— %
Parks licensing and other1,1561,0748 %
Total revenues17,52516,1918 %
Operating expenses(8,989)(8,245)(9) %
Selling, general, administrative and other(1,888)(1,752)(8) %
Depreciation and amortization(1,257)(1,294)3 %
Equity in the loss of investees—(2)100 %
Operating Income$5,391$4,89810 %

Revenues - Theme park admissions

The increase in theme park admissions revenue was due to increases of 11% from higher average per capita ticket revenue and 3% from attendance growth. Attendance growth at our international parks was attributable to higher attendance at Shanghai Disney Resort and Hong Kong Disneyland Resort, which benefited from the park being open for more days in the current period. Growth in attendance at our domestic parks was due to an increase in attendance at Disneyland Resort, partially offset by lower attendance at Walt Disney World Resort.

Revenues - Resorts and vacations

Higher resorts and vacations revenue was attributable to increases of 4% from higher average ticket prices for cruise line sailings, 1% from increased occupied hotel room nights and 1% from higher average daily hotel room rates.

Revenues - Park & Experiences merchandise, food and beverage

Parks & Experiences merchandise, food and beverage revenue growth was due to increases of 4% from higher volumes and 2% from increased average guest spending.

Revenues - Merchandise licensing and retail

Merchandise licensing and retail revenue was comparable to the prior-year period as decreases of 3% from retail and 2% from an unfavorable foreign exchange impact were largely offset by an increase of 4% from merchandise licensing. Lower retail revenue was due to a decrease in online sales. The increase in merchandise licensing revenue was due to higher sales of merchandise based on Spider-Man and Mickey and Friends, partially offset by lower sales of merchandise based on Star Wars.

Revenues - Parks licensing and other

The increase in parks licensing and other revenue was due to an increase in sponsorship revenue and higher royalties from Tokyo Disney Resort.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS — (continued)

Key metrics

DomesticInternationalTotal
Six Months EndedSix Months EndedSix Months Ended
Mar. 30, 2024Apr. 1, 2023Mar. 30, 2024Apr. 1, 2023Mar. 30, 2024Apr. 1, 2023
Parks
Increase (decrease)
Attendance1 %9 %22 %52 %7 %19 %
Per Capita Guest Spending4 %6 %13 %22 %4 %5 %
Hotels
Occupancy88 %89 %83 %70 %86 %84 %
Available Hotel Room Nights (in thousands)5,0985,0381,5921,5876,6906,625
Change in Per Room Guest Spending(1)2 %1 %9 %13 %2 %2 %

(1)In the third quarter of the prior fiscal year, the Company revised its method of allocating revenue on the sales of Disneyland Paris vacation packages between hotel room revenue and admissions revenue. The new method resulted in a decrease in the percentage of revenue allocated to hotel rooms. If we had applied the new method in the prior-year period, the impact would have been a decrease of approximately $26 million in the prior-year period.

Operating expenses

Six Months Ended% Change Better (Worse)
(in millions)March 30, 2024April 1, 2023
Operating labor$(4,068)$(3,615)(13) %
Infrastructure costs(1,609)(1,472)(9) %
Cost of goods sold and distribution costs(1,702)(1,679)(1) %
Other operating expense(1,610)(1,479)(9) %
$(8,989)$(8,245)(9) %

The increase in operating labor was attributable to inflation, higher volumes and increased operations support costs, partially offset by cost saving initiatives. The increase in infrastructure costs was driven by higher operations support costs and increased costs for new guest offerings. Cost of goods sold and distribution costs increased due to higher volumes. Other operating expense increased primarily due to inflation, higher operations support costs and volume growth.

Selling, general, administrative and other

Selling, general, administrative and other costs increased $136 million, to $1,888 million from $1,752 million, driven by inflation and increased marketing costs for new guest offerings, partially offset by the comparison to a loss in the prior-year period on the disposal of our ownership interest in Villages Nature.

Depreciation and amortization

Depreciation and amortization decreased $37 million, to $1,257 million from $1,294 million, due to lower depreciation at our domestic parks and experiences.

Operating Income from Experiences

Segment operating income increased from $4.9 billion to $5.4 billion due to growth at our international parks and experiences and, to a lesser extent, at our consumer products business and domestic parks and experiences.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS — (continued)

Supplemental revenue and operating income

The following table presents supplemental revenue and operating income (loss) detail for the Experiences segment:

Six Months Ended% Change Better (Worse)
(in millions)March 30, 2024April 1, 2023
Supplemental revenue detail
Parks & Experiences
Domestic$12,255$11,6445 %
International2,9982,27832 %
Consumer Products2,2722,269— %
$17,525$16,1918 %
Supplemental operating income (loss) detail
Parks & Experiences
Domestic$3,684$3,6321 %
International620235>100 %
Consumer Products1,0871,0315 %
$5,391$4,89810 %

CORPORATE AND UNALLOCATED SHARED EXPENSES

Quarter Ended% Change Better (Worse)Six Months Ended% Change Better (Worse)
(in millions)March 30, 2024April 1, 2023March 30, 2024April 1, 2023
Corporate and unallocated shared expenses$(391)$(279)(40) %$(699)$(559)(25) %

Corporate and unallocated shared expenses increased $112 million for the quarter, from $279 million to $391 million, primarily attributable to higher costs related to our proxy solicitation and annual shareholder meeting, increased compensation costs and, to a lesser extent, other cost inflation. Corporate and unallocated shared expenses for the current six-month period increased $140 million, from $559 million to $699 million, primarily attributable to increased compensation and human resource-related costs, higher costs related to our proxy solicitation and annual shareholder meeting, and other cost inflation.

FINANCIAL CONDITION

The change in cash and cash equivalents is as follows:

Six Months Ended% Change Better (Worse)
(in millions)March 30, 2024April 1, 2023
Cash provided by operations$5,851$2,262>100 %
Cash used in investing activities(2,553)(2,541)— %
Cash used in financing activities(10,824)(1,126)>(100) %
Impact of exchange rates on cash, cash equivalents and restricted cash17197(91) %
Change in cash, cash equivalents and restricted cash$(7,509)$(1,208)>(100) %

Operating Activities

Cash provided by operations increased $3.6 billion from $2.3 billion in the prior-year period to $5.9 billion for the current period. The increase was due to lower film and television production spending and the timing of payments for sports rights. The increase also reflected lower collateral payments related to our hedging program, a payment in the prior-year period related to the termination of content licenses in fiscal 2022 and higher operating cash flow at Experiences. The increase in operating cash flow at Experiences was due to higher operating cash receipts attributable to revenue growth, partially offset by higher operating cash payments. These increases were partially offset by payment in the current period of fiscal 2023 federal and California income taxes, which were deferred pursuant to relief provided by the Internal Revenue Service and California State Board of Equalization as a result of 2023 winter storms in California.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS — (continued)

Produced and licensed programming costs

The Entertainment and Sports segments incur costs to produce and license film, episodic, sports and other content. Production costs include spend on content internally produced at our studios such as live-action and animated films, episodic series, specials, shorts and theatrical stage plays. Production costs also include original content commissioned from third-party studios. Programming costs include content rights licensed from third parties for use on the Company’s sports and general entertainment networks and DTC streaming services. Programming assets are generally recorded when the programming becomes available to us with a corresponding increase in programming liabilities.

The Company’s film and television production and programming activity for the six months ended March 30, 2024 and April 1, 2023 are as follows:

Six Months Ended
(in millions)March 30, 2024April 1, 2023
Beginning balances:
Produced and licensed programming assets$36,593$37,667
Programming liabilities(3,792)(3,940)
32,80133,727
Spending:
Programming licenses and rights6,8067,498
Produced film and television content4,3767,336
11,18214,834
Amortization:
Programming licenses and rights(7,956)(7,735)
Produced film and television content(4,925)(6,275)
(12,881)(14,010)
Change in produced and licensed content costs(1,699)824
Produced and licensed content costs reclassified to assets held for sale(730)—
Other non-cash activity41412
Ending balances:
Produced and licensed programming assets34,51138,821
Programming liabilities(3,725)(4,258)
$30,786$34,563

The Company currently expects its fiscal 2024 spend on produced and licensed content, including sports rights, to be approximately $24 billion compared to fiscal 2023 spend of $27 billion.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS — (continued)

Investing Activities

Investing activities consist principally of investments in parks, resorts and other property and acquisition and divestiture activity. The Company’s investing activities for the six months ended March 30, 2024 and April 1, 2023 are as follows:

Six Months Ended
(in millions)March 30, 2024April 1, 2023
Investments in parks, resorts and other property:
Entertainment$522$541
Sports17
Experiences
Domestic1,1981,024
International466410
Total Experiences1,6641,434
Corporate371448
Total investments in parks, resorts and other property2,5582,430
Cash used in (provided by) other investing activities, net(5)111
Cash used in investing activities$2,553$2,541

Capital expenditures at the Entertainment segment primarily reflect investments in technology and in facilities and equipment for expanding and upgrading broadcast centers, production facilities and television station facilities.

Capital expenditures at the Experiences segment are principally for theme park and resort expansion, new attractions, cruise ships, capital improvements and technology. The increase in the current period compared to the prior-year period was due to higher spend on new attractions and cruise ship fleet expansion.

Capital expenditures at Corporate primarily reflect investments in corporate facilities, technology and equipment.

The Company currently expects its fiscal 2024 capital expenditures to total approximately $6 billion compared to fiscal 2023 capital expenditures of $5 billion. The increase in capital expenditures is primarily due to higher spending at Experiences, in part due to continued investment in our Disney Cruise Line business.

Financing Activities

Financing activities for the six months ended March 30, 2024 and April 1, 2023 are as follows:

Six Months Ended
(in millions)March 30, 2024April 1, 2023
Change in borrowings$(470)$(216)
Dividends(549)—
Repurchases of common stock(1,001)—
Activities related to noncontrolling and redeemable noncontrolling interests(1)(8,610)(722)
Cash used in other financing activities, net(194)(188)
Cash used in financing activities$(10,824)$(1,126)

(1)Activities related to noncontrolling and redeemable noncontrolling interests in the current and prior-year period were due to payments for redeemable noncontrolling interests in Hulu and BAMTech, respectively (see Note 1 to the Condensed Consolidated Financial Statements).

See Note 6 to the Condensed Consolidated Financial Statements for a summary of the Company’s borrowing activities during the six months ended March 30, 2024 and information regarding the Company’s bank facilities. The Company may use cash balances, operating cash flows, commercial paper borrowings up to the amount of its unused $12.25 billion bank facilities and incremental term debt issuances to retire or refinance other borrowings before or as they come due.

See Note 12 to the Condensed Consolidated Financial Statements for a summary of dividends and share repurchases in fiscal 2024. There were no dividends paid or share repurchases in fiscal 2023. The Company is targeting a total of $3 billion in share repurchases in fiscal 2024.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS — (continued)

The Company’s operating cash flow and access to the capital markets can be impacted by factors outside of its control. We believe that the Company’s financial condition is strong and that its cash balances, other liquid assets, operating cash flows, access to debt and equity capital markets and borrowing capacity under current bank facilities, taken together, provide adequate resources to fund ongoing operating requirements, contractual obligations, upcoming debt maturities as well as future capital expenditures related to the expansion of existing businesses and development of new projects. In addition, the Company could undertake other measures to ensure sufficient liquidity, such as raising additional financing, reducing or not declaring future dividends; reducing or stopping share repurchases; reducing capital spending; reducing film and episodic content investments; or implementing furloughs or reductions in force.

The Company’s borrowing costs can also be impacted by short- and long-term debt ratings assigned by nationally recognized rating agencies, which are based, in significant part, on the Company’s performance as measured by certain credit metrics such as leverage and interest coverage ratios. As of March 30, 2024, Moody’s Investors Service’s long- and short-term debt ratings for the Company were A2 and P-1 (Stable), respectively, Standard and Poor’s long- and short-term debt ratings for the Company were A- and A-2 (Positive), respectively, and Fitch’s long- and short-term debt ratings for the Company were A- and F2 (Stable), respectively. The Company’s bank facilities contain only one financial covenant, relating to interest coverage of three times earnings before interest, taxes, depreciation and amortization, including both intangible amortization and amortization of our film and television production and programming costs. On March 30, 2024, the Company met this covenant by a significant margin. The Company’s bank facilities also specifically exclude certain entities, including the Asia Theme Parks, from any representations, covenants or events of default.

MARKET RISK

The Company is exposed to the impact of interest rate changes, foreign currency fluctuations, commodity fluctuations and changes in the market values of its investments.

Policies and Procedures

In the normal course of business, we employ established policies and procedures to manage the Company’s exposure to changes in interest rates, foreign currencies and commodities using a variety of financial instruments.

Our objectives in managing exposure to interest rate changes are to limit the impact of interest rate volatility on earnings and cash flows and to lower overall borrowing costs. To achieve these objectives, we primarily use interest rate swaps to manage net exposure to interest rate changes related to the Company’s portfolio of borrowings. By policy, the Company targets fixed-rate debt as a percentage of its net debt between minimum and maximum percentages.

Our objective in managing exposure to foreign currency fluctuations is to reduce volatility of earnings and cash flows in order to allow management to focus on core business issues and challenges. Accordingly, the Company enters into various contracts that change in value as foreign exchange rates change to protect the U.S. dollar equivalent value of its existing foreign currency assets, liabilities, commitments and forecasted foreign currency revenues and expenses. The Company utilizes option strategies and forward contracts that provide for the purchase or sale of foreign currencies to hedge probable, but not firmly committed, transactions. The Company also uses forward and option contracts to hedge foreign currency assets and liabilities. The principal foreign 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 to U.S. dollar denominated borrowings. By policy, the Company maintains hedge coverage between minimum and maximum percentages of its forecasted foreign exchange exposures generally for periods not to exceed four years. The gains and losses on these contracts are intended to offset changes in the U.S. dollar equivalent value of the related exposures. The economic or political conditions in a country have reduced and in the future could reduce our ability to hedge exposure to currency fluctuations in the country or our ability to repatriate revenue from the country.

Our objectives in managing exposure to commodity fluctuations are to use commodity derivatives to reduce volatility of earnings and cash flows arising from commodity price changes. The amounts hedged using commodity swap contracts are based on forecasted levels of consumption of certain commodities, such as fuel oil and gasoline.

Our objectives in managing exposures to market-based fluctuations in certain retirement liabilities are to use total return swap contracts to reduce the volatility of earnings arising from changes in these retirement liabilities. The amounts hedged using total return swap contracts are based on estimated liability balances.

It is the Company’s policy to enter into foreign currency and interest rate derivative transactions and other financial instruments only to the extent considered necessary to meet its objectives as stated above. The Company does not enter into these transactions or any other hedging transactions for speculative purposes.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS — (continued)

COMMITMENTS AND CONTINGENCIES

Legal Matters

As disclosed in Note 14 to the Condensed Consolidated Financial Statements, the Company has exposure for certain legal matters.

Guarantees

See Note 14 to the Consolidated Financial Statements in the 2023 Annual Report on Form 10-K.

Tax Matters

As disclosed in Note 9 to the Consolidated Financial Statements in the 2023 Annual Report on Form 10-K, the Company has exposure for certain tax matters.

Contractual Commitments

See Note 14 to the Condensed Consolidated Financial Statements and Note 14 to the Consolidated Financial Statements in the 2023 Annual Report on Form 10-K.

OTHER MATTERS

Accounting Policies and Estimates

We believe that the application of the following accounting policies, which are important to our financial position and results of operations, require significant judgments and estimates on the part of management. For a summary of our significant accounting policies, including the accounting policies discussed below, see Note 2 to the Consolidated Financial Statements in the 2023 Annual Report on Form 10-K.

Produced and Acquired/Licensed Content Costs

We amortize and test for impairment of capitalized film and television production costs based on whether the content is predominantly monetized individually or as a group. See Note 8 to the Condensed Consolidated Financial Statements for further discussion.

Production costs that are classified as individual are amortized based upon the ratio of the current period’s revenues to the estimated remaining total revenues (Ultimate Revenues).

With respect to produced films intended for theatrical release, the most sensitive factor affecting our estimate of Ultimate Revenues is theatrical performance. Revenues derived from other markets subsequent to the theatrical release are generally highly correlated with theatrical performance. Theatrical performance varies primarily based upon the public interest and demand for a particular film, the popularity of competing films at the time of release and the level of marketing effort. Upon a film’s release and determination of the theatrical performance, the Company’s estimates of revenues from succeeding windows and markets, which may include imputed license fees for content that is used on our DTC streaming services, are revised based on historical relationships and an analysis of current market trends.

With respect to capitalized television production costs that are classified as individual, the most sensitive factor affecting estimates of Ultimate Revenues is program ratings of the content on our licensees’ platforms. Program ratings, which are an indication of market acceptance, directly affect the program’s ability to generate advertising and subscriber revenues and are correlated with the license fees we can charge for the content in subsequent windows and for subsequent seasons.

Ultimate Revenues are reassessed each reporting period and the impact of any changes on amortization of production cost is accounted for as if the change occurred at the beginning of the current fiscal year. If our estimate of Ultimate Revenues decreases, amortization of costs may be accelerated or result in an impairment. Conversely, if our estimate of Ultimate Revenues increases, cost amortization may be slowed.

Production costs classified as individual are tested for impairment at the individual title level by comparing that title’s unamortized costs to the present value of discounted cash flows directly attributable to the title. To the extent the title’s unamortized costs exceed the present value of discounted cash flows, an impairment charge is recorded for the excess.

Produced content costs that are part of a group and acquired/licensed content costs are amortized based on projected usage, typically resulting in an accelerated or straight-line amortization pattern. The determination of projected usage requires judgment and is reviewed on a regular basis for changes. Adjustments to projected usage are applied prospectively in the period of the change. Historical viewing patterns are the most significant input into determining the projected usage, and significant judgment is required in using historical viewing patterns to derive projected usage. If projected usage changes we may need to accelerate or slow the recognition of amortization expense.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS — (continued)

Cost of content that is predominantly monetized as a group is tested for impairment by comparing the present value of the discounted cash flows of the group to the aggregate unamortized costs of the group. The group is established by identifying the lowest level for which cash flows are independent of the cash flows of other produced and licensed content. If the unamortized costs exceed the present value of discounted cash flows, an impairment charge is recorded for the excess and allocated to individual titles based on the relative carrying value of each title in the group. If there are no plans to continue to use an individual film or television program that is part of a group, the unamortized cost of the individual title is written down to its estimated fair value. Licensed content is included as part of the group within which it is monetized for purposes of impairment testing.

The amortization of multi-year sports rights is based on projections of revenues for each season relative to projections of total revenues over the contract period (estimated relative value). Projected revenues include advertising revenue and an allocation of affiliate revenue. If the annual contractual payments related to each season approximate each season’s estimated relative value, we expense the related contractual payments during the applicable season. If estimated relative values by year were to change significantly, amortization of our sports rights costs may be accelerated or slowed.

Revenue Recognition

The Company has revenue recognition policies for its various operating segments that are appropriate to the circumstances of each business. Refer to Note 2 to the Consolidated Financial Statements in the 2023 Annual Report on Form 10-K for our revenue recognition policies.

Pension and Postretirement Medical Plan Actuarial Assumptions

The Company’s pension and postretirement medical benefit obligations and related costs are calculated using a number of actuarial assumptions. Two critical assumptions, the discount rate and the expected return on plan assets, are important elements of expense and/or liability measurement, which we evaluate annually. See Note 10 to the Consolidated Financial Statements in the 2023 Annual Report on Form 10-K for estimated impacts of changes in these assumptions. Other assumptions include the healthcare cost trend rate and employee demographic factors such as retirement patterns, mortality, turnover and rate of compensation increase.

The discount rate enables us to state expected future cash payments for benefits as a present value on the measurement date. A lower discount rate increases the present value of benefit obligations and increases pension and postretirement medical expense. The guideline for setting this rate is a high-quality long-term corporate bond rate. The Company’s discount rate was determined by considering yield curves constructed of a large population of high-quality corporate bonds and reflects the matching of the plans’ liability cash flows to the yield curves.

To determine the expected long-term rate of return on the plan assets, we consider the current and expected asset allocation, as well as historical and expected returns on each plan asset class. A lower expected rate of return on plan assets will increase pension and postretirement medical expense.

Goodwill, Other Intangible Assets, Long-Lived Assets and Investments

The Company is required to test goodwill and other indefinite-lived intangible assets for impairment on an annual basis and if current events or circumstances require, on an interim basis. The Company performs its annual test of goodwill and indefinite-lived intangible assets for impairment in its fiscal fourth quarter.

Goodwill is allocated to various reporting units, which are an operating segment or one level below the operating segment. To test goodwill for impairment, the Company first performs a qualitative assessment to determine if it is more likely than not that the carrying amount of a reporting unit exceeds its fair value. If it is, a quantitative assessment is required. Alternatively, the Company may bypass the qualitative assessment and perform a quantitative impairment test.

The qualitative assessment requires the consideration of factors such as recent market transactions, macroeconomic conditions and changes in projected future cash flows of the reporting unit.

The quantitative assessment compares the fair value of each reporting unit to its carrying amount, and to the extent the carrying amount exceeds the fair value, an impairment of goodwill is recognized for the excess up to the amount of goodwill allocated to the reporting unit.

The impairment test for goodwill requires judgment related to the identification of reporting units, the assignment of assets and liabilities including goodwill to reporting units, and the determination of fair value of the reporting units. To determine the fair value of our reporting units, we generally use a present value technique (discounted cash flows) corroborated by market multiples when available and as appropriate. The discounted cash flow analyses are sensitive to our estimated projected future cash flows as well as the discount rates used to calculate their present value. Our future cash flows are based on internal forecasts for each reporting unit, which consider projected inflation and other economic indicators, as well as industry

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS — (continued)

growth projections. Discount rates are determined based on the inherent risks of the underlying operations. We believe our estimates are consistent with how a marketplace participant would value our businesses.

As discussed in Note 17 to the Condensed Consolidated Financial Statements, the Company recorded a non-cash goodwill impairment charge at our entertainment linear networks reporting unit of $0.7 billion. The entertainment linear networks reporting unit goodwill after impairment is approximately $6 billion.

After impairment, our entertainment linear networks reporting unit does not have excess fair value over carrying amount, and a 25 basis point increase in the discount rate or a 1% reduction in projected annual cash flows used to determine fair value would each result in an incremental impairment charge of approximately $0.3 billion.

In addition, as discussed in our Critical Accounting Policies and Estimates section of our fiscal 2023 Annual Report on Form 10-K, the fair value of our entertainment DTC services reporting unit exceeded its carrying amount by less than 10%. Goodwill of the entertainment DTC services reporting unit is approximately $45 billion.

For our entertainment DTC services reporting unit, a 25 basis point increase in the discount rate used to determine fair value would eliminate the excess fair value over carrying amount, and a 1% reduction in projected annual cash flows would result in a decrease in the excess fair value over carrying amount by approximately $0.9 billion.

Significant judgments and assumptions in the discounted cash flow model used to determine fair value relate to future revenues and certain operating expenses, terminal growth rates and discount rates. Changes to these assumptions, shifts in market trends, or the impact of macroeconomic events could produce test results in the future that differ, and we could be required to record additional impairment charges.

To test other indefinite-lived intangible assets for impairment, the Company first performs a qualitative assessment to determine if it is more likely than not that the carrying amount of each of its indefinite-lived intangible assets exceeds its fair value. If it is, a quantitative assessment is required. Alternatively, the Company may bypass the qualitative assessment and perform a quantitative impairment test.

The qualitative assessment requires the consideration of factors such as recent market transactions, macroeconomic conditions and changes in projected future cash flows.

The quantitative assessment compares the fair value of an indefinite-lived intangible asset to its carrying amount. If the carrying amount of an indefinite-lived intangible asset exceeds its fair value, an impairment loss is recognized for the excess. Fair values of indefinite-lived intangible assets are determined based on discounted cash flows or appraised values, as appropriate.

The Company tests long-lived assets, including amortizable intangible assets, for impairment whenever events or changes in circumstances (triggering events) indicate that the carrying amount may not be recoverable. Once a triggering event has occurred, the impairment test employed is based on whether the Company’s intent is to hold the asset for continued use or to hold the asset for sale. The impairment test for assets held for use requires a comparison of the estimated undiscounted future cash flows expected to be generated over the useful life of the significant assets of an asset group to the carrying amount of the asset group. An asset group is generally established by identifying the lowest level of cash flows generated by a group of assets that are largely independent of the cash flows of other assets and could include assets used across multiple businesses. If the carrying amount of an asset group exceeds the estimated undiscounted future cash flows, an impairment would be measured as the difference between the fair value of the asset group and the carrying amount of the asset group. For assets held for sale, to the extent the carrying amount is greater than the asset’s fair value less costs to sell, an impairment loss is recognized for the difference. Determining whether a long-lived asset is impaired requires various estimates and assumptions, including whether a triggering event has occurred, the identification of asset groups, estimates of future cash flows and the discount rate used to determine fair values.

As discussed in Note 4 to the Condensed Consolidated Financial Statements, the Company recorded a non-cash goodwill impairment charge related to the Star India Transaction of $1.3 billion to reflect Star India at its estimated fair value less costs to sell. The fair value and carrying amount of Star India are subject to change depending on developments and results of operations for the duration that Star India is classified as held for sale and we may be required to record additional impairment charges.

The Company has investments in equity securities. For equity securities that do not have a readily determinable fair value, we consider forecasted financial performance of the investee companies, as well as volatility inherent in the external markets for these investments. If these forecasts are not met, impairment charges may be recorded.

Allowance for Credit Losses

We evaluate our allowance for credit losses and estimate collectability of accounts receivable based on historical bad debt experience, our assessment of the financial condition of individual companies with which we do business, current market

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS — (continued)

conditions, and reasonable and supportable forecasts of future economic conditions. In times of economic turmoil, including COVID-19, our estimates and judgments with respect to the collectability of our receivables are subject to greater uncertainty than in more stable periods. If our estimate of uncollectible accounts is too low, costs and expenses may increase in future periods, and if it is too high, costs and expenses may decrease in future periods. See Note 3 to the Condensed Consolidated Financial Statements for additional discussion.

Contingencies and Litigation

We are currently involved in certain legal proceedings and, as required, have accrued estimates of the probable and estimable losses for the resolution of these proceedings. These estimates are based upon an analysis of potential results, assuming a combination of litigation and settlement strategies and have been developed in consultation with outside counsel as appropriate. From time to time, we are also involved in other contingent matters for which we accrue estimates for a probable and estimable loss. It is possible, however, that future results of operations for any particular quarterly or annual period could be materially affected by changes in our assumptions or the effectiveness of our strategies related to legal proceedings or our assumptions regarding other contingent matters. See Note 14 to the Condensed Consolidated Financial Statements for more detailed information on litigation exposure.

Income Tax

As a matter of course, the Company is regularly audited by federal, state and foreign tax authorities. From time to time, these audits result in proposed assessments. Our determinations regarding the recognition of income tax benefits are made in consultation with outside tax and legal counsel, where appropriate, and are based upon the technical merits of our tax positions in consideration of applicable tax statutes and related interpretations and precedents and upon the expected outcome of proceedings (or negotiations) with taxing and legal authorities. The tax benefits ultimately realized by the Company may differ from those recognized in our future financial statements based on a number of factors, including the Company’s decision to settle rather than litigate a matter, relevant legal precedent related to similar matters and the Company’s success in supporting its filing positions with taxing authorities.

New Accounting Pronouncements

See Note 18 to the Condensed Consolidated Financial Statements for information regarding new accounting pronouncements.

DTC PRODUCT DESCRIPTIONS, KEY DEFINITIONS AND SUPPLEMENTAL INFORMATION

Product Offerings

In the U.S., Disney+, ESPN+ and Hulu SVOD Only are each offered as a standalone service or 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 an entitlement to a service through wholesale arrangements, including those for which the service is available to each subscriber of an existing content distribution tier. When we aggregate the total number of paid subscribers across our DTC streaming services, we refer to them as paid subscriptions.

International Disney+ (excluding Disney+ Hotstar)

International Disney+ (excluding Disney+ Hotstar) includes the Disney+ service outside the U.S. and Canada and the Star+ service in Latin America.

Average Monthly Revenue Per Paid Subscriber

Hulu and ESPN+ average monthly revenue per paid subscriber is calculated based on the average of the monthly average paid subscribers for each month in the period. The monthly average paid subscribers is calculated as the sum of the beginning of the month and end of the month paid subscriber count, divided by two. Disney+ average monthly revenue per paid subscriber is calculated using a daily average of paid subscribers for the period. Revenue includes subscription fees, advertising (excluding

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS — (continued)

revenue earned from selling advertising spots to other Company businesses) and premium and feature add-on revenue but excludes Pay-Per-View revenue. Advertising revenue generated by content on one DTC streaming service that is accessed through another DTC streaming service by subscribers to both streaming services is allocated between both streaming services. The average revenue per paid subscriber is net of discounts on offerings that carry more than one service. Revenue is allocated to each service based on the relative retail or wholesale price of each service on a standalone basis. Hulu Live TV + SVOD revenue is allocated to the SVOD services based on the wholesale price of the Hulu SVOD Only, Disney+ and ESPN+ multi-product offering. In general, wholesale arrangements have a lower average monthly revenue per paid subscriber than subscribers that we acquire directly or through third-party platforms.

Supplemental information about paid subscribers:

(in millions)March 30, 2024December 30, 2023April 1, 2023
Domestic (U.S. and Canada) standalone61.453.857.0
Domestic (U.S. and Canada) multi-product(1)24.223.721.4
85.577.578.4
International standalone (excluding Disney+ Hotstar)(2)51.853.749.6
International multi-product(3)11.711.59.0
63.665.258.6
Total(4)149.1142.7137.0

(1)At March 30, 2024, there were 19.4 million and 4.8 million subscribers to three-service and two-service multi-product offerings, respectively. At December 30, 2023, there were 19.8 million and 3.9 million subscribers to three-service and two-service multi-product offerings, respectively. At April 1, 2023, there were 20.0 million and 1.4 million subscribers to three-service and two-service multi-product offerings, respectively.

(2)Disney+ Hotstar is not included in any of the Company’s multi-product offerings.

(3)Consists of subscribers to Combo+.

(4)Total may not equal the sum of the column due to rounding.

SUPPLEMENTAL GUARANTOR FINANCIAL INFORMATION

On March 20, 2019 as part of the acquisition of TFCF, The Walt Disney Company (“TWDC”) became the ultimate parent of TWDC Enterprises 18 Corp. (formerly known as The Walt Disney Company) (“Legacy Disney”). Legacy Disney and TWDC are collectively referred to as “Obligor Group”, and individually, as a “Guarantor”. Concurrent with the close of the TFCF acquisition, $16.8 billion of TFCF’s assumed public debt (which then constituted 96% of such debt) was exchanged for senior notes of TWDC (the “exchange notes”) issued pursuant to an exemption from registration under the Securities Act of 1933, as amended (the “Securities Act”), pursuant to an Indenture, dated as of March 20, 2019, between TWDC, Legacy Disney, as guarantor, and Citibank, N.A., as trustee (the “TWDC Indenture”) and guaranteed by Legacy Disney. On November 26, 2019, $14.0 billion of the outstanding exchange notes were exchanged for new senior notes of TWDC registered under the Securities Act, issued pursuant to the TWDC Indenture and guaranteed by Legacy Disney. In addition, contemporaneously with the closing of the March 20, 2019 exchange offer, TWDC entered into a guarantee of the registered debt securities issued by Legacy Disney under the Indenture dated as of September 24, 2001 between Legacy Disney and Wells Fargo Bank, National Association, as trustee (the “2001 Trustee”) (as amended by the first supplemental indenture among Legacy Disney, as issuer, TWDC, as guarantor, and the 2001 Trustee, as trustee).

Other subsidiaries of the Company do not guarantee the registered debt securities of either TWDC or Legacy Disney (such subsidiaries are referred to as the “non-Guarantors”). The par value and carrying value of total outstanding and guaranteed registered debt securities of the Obligor Group at March 30, 2024 was as follows:

TWDCLegacy Disney
(in millions)Par ValueCarrying ValuePar ValueCarrying Value
Registered debt with unconditional guarantee$34,627$35,089$8,123$7,940

The guarantees by TWDC and Legacy Disney are full and unconditional and cover all payment obligations arising under the guaranteed registered debt securities. The guarantees may be released and discharged upon (i) as a general matter, the indebtedness for borrowed money of the consolidated subsidiaries of TWDC in aggregate constituting no more than 10% of all

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS — (continued)

consolidated indebtedness for borrowed money of TWDC and its subsidiaries (subject to certain exclusions), (ii) upon the sale, transfer or disposition of all or substantially all of the equity interests or all or substantially all, or substantially as an entirety, the assets of Legacy Disney to a third party, and (iii) other customary events constituting a discharge of a guarantor’s obligations. In addition, in the case of Legacy Disney’s guarantee of registered debt securities issued by TWDC, Legacy Disney may be released and discharged from its guarantee at any time Legacy Disney is not a borrower, issuer or guarantor under certain material bank facilities or any debt securities.

Operations are conducted almost entirely through the Company’s subsidiaries. Accordingly, the Obligor Group’s cash flow and ability to service its debt, including the public debt, are dependent upon the earnings of the Company’s subsidiaries and the distribution of those earnings to the Obligor Group, whether by dividends, loans or otherwise. Holders of the guaranteed registered debt securities have a direct claim only against the Obligor Group.

Set forth below is summarized financial information for the Obligor Group on a combined basis after elimination of (i) intercompany transactions and balances between TWDC and Legacy Disney and (ii) equity in the earnings from and investments in any subsidiary that is a non-Guarantor. This summarized financial information has been prepared and presented pursuant to the Securities and Exchange Commission Regulation S-X Rule 13-01, “Financial Disclosures about Guarantors and Issuers of Guaranteed Securities” and is not intended to present the financial position or results of operations of the Obligor Group in accordance with GAAP.

Results of operations (in millions)Six Months Ended March 30, 2024
Revenues$—
Costs and expenses—
Net income (loss)(419)
Net income (loss) attributable to TWDC shareholders(419)
Balance Sheet (in millions)March 30, 2024September 30, 2023
Current assets$2,975$8,544
Noncurrent assets3,2042,927
Current liabilities8,6465,746
Noncurrent liabilities (excluding intercompany to non-Guarantors)40,80143,307
Intercompany payables to non-Guarantors153,061154,018

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