The Walt Disney Company (NYSE: DIS) today reported earnings for
its first quarter ended December 31, 2022.
- Revenues for the quarter grew 8%.
- Diluted earnings per share (EPS) from continuing operations for
the quarter increased to $0.70 from $0.63 in the prior-year
quarter.
- Excluding certain items(1), diluted EPS for the quarter
decreased to $0.99 from $1.06 in the prior-year quarter.
“After a solid first quarter, we are embarking on a significant
transformation, one that will maximize the potential of our
world-class creative teams and our unparalleled brands and
franchises,” said Robert A. Iger, Chief Executive Officer, The Walt
Disney Company. “We believe the work we are doing to reshape our
company around creativity, while reducing expenses, will lead to
sustained growth and profitability for our streaming business,
better position us to weather future disruption and global economic
challenges, and deliver value for our shareholders.”
The following table summarizes the first quarter results for
fiscal 2023 and 2022 (in millions, except per share amounts):
Quarter Ended
December 31, 2022
January 1, 2022
Change
Revenues
$
23,512
$
21,819
8
%
Income from continuing operations before
income taxes
$
1,773
$
1,688
5
%
Total segment operating income(1)
$
3,043
$
3,258
(7
)%
Net income from continuing
operations(2)
$
1,279
$
1,152
11
%
Diluted EPS from continuing
operations(2)
$
0.70
$
0.63
11
%
Diluted EPS excluding certain items(1)
$
0.99
$
1.06
(7
)%
Cash used in continuing operations
$
(974
)
$
(209
)
>(100
)%
Free cash flow(1)
$
(2,155
)
$
(1,190
)
(81
)%
(1)
Diluted EPS excluding certain
items, total segment operating income and free cash flow are
non-GAAP financial measures. The most comparable GAAP measures are
diluted EPS from continuing operations, income from continuing
operations before income taxes, and cash provided by continuing
operations, respectively. See the discussion on page 2 and on pages
10 through 12 for how we define and calculate these measures and a
reconciliation thereof to the most directly comparable GAAP
measures.
(2)
Reflects amounts attributable to
shareholders of The Walt Disney Company, i.e. after deduction of
income attributable to noncontrolling interests.
SEGMENT RESULTS
The Company evaluates the performance of its operating segments
based on segment operating income, and management uses total
segment operating income as a measure of the performance of
operating businesses separate from non-operating factors. The
Company believes that information about total segment operating
income assists investors by allowing them to evaluate changes in
the operating results of the Company’s portfolio of businesses
separate from non-operational factors that affect net income, thus
providing separate insight into both operations and other factors
that affect reported results.
The following are reconciliations of income from continuing
operations before income taxes to total segment operating income
(in millions):
Quarter Ended
December 31, 2022
January 1, 2022
Change
Income from continuing operations before
income taxes
$
1,773
$
1,688
5
%
Add:
Corporate and unallocated shared
expenses
280
228
(23
)%
Restructuring and impairment charges
69
—
nm
Other expense, net
42
436
90
%
Interest expense, net
300
311
4
%
Amortization of TFCF and Hulu intangible
assets and fair value step-up on film and television costs
579
595
3
%
Total segment operating income
$
3,043
$
3,258
(7
)%
The following table summarizes the first quarter segment revenue
and segment operating income (loss) for fiscal 2023 and 2022 (in
millions):
Quarter Ended
December 31, 2022
January 1, 2022
Change
Segment Revenues:
Disney Media and Entertainment
Distribution
$
14,776
$
14,585
1
%
Disney Parks, Experiences and Products
8,736
7,234
21
%
Total Segment Revenues
$
23,512
$
21,819
8
%
Segment operating income (loss):
Disney Media and Entertainment
Distribution
$
(10
)
$
808
nm
Disney Parks, Experiences and Products
3,053
2,450
25
%
Total Segment Operating Income
$
3,043
$
3,258
(7
)%
Disney Media and Entertainment
Distribution
Revenue and operating results for the Disney Media and
Entertainment Distribution segment are as follows (in
millions):
Quarter Ended
Change
December 31, 2022
January 1, 2022
Revenues:
Linear Networks
$
7,293
$
7,706
(5
)%
Direct-to-Consumer
5,307
4,690
13
%
Content Sales/Licensing and Other
2,460
2,433
1
%
Elimination of Intrasegment Revenue(1)
(284
)
(244
)
(16
)%
$
14,776
$
14,585
1
%
Operating income (loss):
Linear Networks
$
1,255
$
1,499
(16
)%
Direct-to-Consumer
(1,053
)
(593
)
(78
)%
Content Sales/Licensing and Other
(212
)
(98
)
>(100
)%
$
(10
)
$
808
nm
(1)
Reflects fees received by the
Linear Networks from other DMED businesses for the right to air our
Linear Networks and related services.
Linear Networks
Linear Networks revenues for the quarter decreased 5% to $7.3
billion, and operating income decreased 16% to $1.3 billion. The
following table provides further detail of Linear Networks results
(in millions):
Quarter Ended
Change
December 31, 2022
January 1, 2022
Supplemental revenue detail
Domestic Channels
$
6,066
$
6,152
(1
)%
International Channels
1,227
1,554
(21
)%
$
7,293
$
7,706
(5
)%
Supplemental operating income detail
Domestic Channels
$
928
$
888
5
%
International Channels
131
369
(64
)%
Equity in the income of investees
196
242
(19
)%
$
1,255
$
1,499
(16
)%
Domestic Channels
Domestic Channels revenues for the quarter decreased 1% to $6.1
billion, and operating income increased 5% to $928 million. The
increase in operating income was due to higher results at Cable,
while results at Broadcasting were comparable to the prior-year
quarter.
The increase at Cable was due to lower programming and
production costs, partially offset by decreases in advertising and
affiliate revenue. The decrease in programming and production costs
was attributable to lower costs for sports programming and, to a
lesser extent, a lower cost mix of non-sports programming. The
decrease in sports programming and production costs was due to
lower NFL and College Football Playoff (CFP) rights costs,
partially offset by an increase in production costs. The decline in
NFL rights expense reflects the timing of costs under our new
agreement compared to the prior NFL agreement. The decrease in
costs for CFP programming was due to the timing of the CFP games
relative to our fiscal periods, partially offset by contractual
rate increases. The current quarter included two host games and two
semi-final games compared to four host games and two semi-final
games in the prior-year quarter. Lower advertising revenue was due
to a decrease in rates and fewer impressions reflecting a decline
in average viewership. Rates and impressions were impacted by the
timing of CFP games. The decrease in affiliate revenue was
attributable to a decline in subscribers, partially offset by
higher contractual rates.
Broadcasting results were comparable to the prior-year quarter
as growth at the owned television stations from higher advertising
revenue was largely offset by lower results at ABC. The decrease at
ABC was due to lower advertising revenue, partially offset by
higher affiliate revenue from contractual rate increases. Lower
advertising revenue resulted from fewer impressions reflecting a
decline in average viewership and, to a lesser extent, fewer units
delivered, partially offset by higher rates.
International Channels
International Channels revenues for the quarter decreased 21% to
$1.2 billion and operating income decreased 64% to $131 million.
The decrease in operating income was due to lower advertising
revenue, an unfavorable foreign exchange impact and a decrease in
affiliate revenue, partially offset by a decrease in programming
and production costs.
The decrease in advertising revenue was due to lower average
viewership and rates. The decline in affiliate revenue reflected
the impact of channel closures in the prior year, partially offset
by higher contractual rates. Lower programming and production costs
were due to decreased sports programming costs attributable to
lower costs for cricket rights, partially offset by higher
production costs and costs for new soccer rights.
The decreases in cricket programming costs and advertising
viewership reflected no Indian Premier League (IPL) cricket matches
aired in the current quarter compared to thirteen matches aired in
the prior-year quarter as matches shifted from fiscal 2021 into
fiscal 2022 due to COVID-19. IPL matches typically occur in the
second and third quarters of our fiscal year. The decrease in
cricket programming costs was also due to lower costs per match for
the International Cricket Council T20 World Cup compared to the
prior-year quarter.
Equity in the Income of
Investees
Income from equity investees decreased $46 million, to $196
million from $242 million, due to lower income from A+E Television
Networks attributable to lower advertising revenue and higher
programming costs.
Direct-to-Consumer
Direct-to-Consumer revenues for the quarter increased 13% to
$5.3 billion and operating loss increased $0.5 billion to $1.1
billion. The increase in operating loss was due to a higher loss at
Disney+ and a decrease in results at Hulu, partially offset by
improved results at ESPN+.
Results at Disney+ reflected higher programming and production
costs and increased technology costs, partially offset by higher
subscription revenue and a decrease in marketing costs. The
increase in programming and production costs was attributable to
more content provided on the service and higher average costs per
hour, which included an increased mix of original content. Higher
subscription revenue was due to subscriber growth, partially offset
by an unfavorable foreign exchange impact.
The decrease in results at Hulu was primarily due to higher
programming and production costs and a decrease in advertising
revenue, partially offset by subscription revenue growth. The
increase in programming and production costs was attributable to an
increase in subscriber-based fees for programming the Live TV
service, more content provided on the service and higher average
costs per hour. Higher subscriber-based fees for programming the
Live TV service were due to rate increases and more subscribers.
The decrease in advertising revenue was caused by lower
impressions, partially offset by an increase in rates. Subscription
revenue growth was due to increases in retail pricing and
subscribers.
The improvement at ESPN+ was due to growth in subscription
revenue attributable to increases in subscribers and retail
pricing.
First Quarter of Fiscal 2023 Comparison to
Fourth Quarter of Fiscal 2022
The following tables and related discussion present additional
information about our Disney+, ESPN+ and Hulu direct-to-consumer
(DTC) product offerings(1) on a sequential quarter basis.
Paid subscribers(1) as of:
(in millions)
December 31, 2022
October 1, 2022
Change
Disney+
Domestic (U.S. and Canada)
46.6
46.4
—
%
International (excluding Disney+
Hotstar)(1)
57.7
56.5
2
%
Disney+ Core(2)
104.3
102.9
1
%
Disney+ Hotstar
57.5
61.3
(6
)%
Total Disney+(2)
161.8
164.2
(1
)%
ESPN+
24.9
24.3
2
%
Hulu
SVOD Only
43.5
42.8
2
%
Live TV + SVOD
4.5
4.4
2
%
Total Hulu(2)
48.0
47.2
2
%
Average Monthly Revenue Per Paid Subscriber(1) for the quarter
ended:
December 31, 2022
October 1, 2022
Change
Disney+
Domestic (U.S. and Canada)
$
5.95
$
6.10
(2
)%
International (excluding Disney+
Hotstar)(1)
5.62
5.83
(4
)%
Disney+ Core
5.77
5.96
(3
)%
Disney+ Hotstar
0.74
0.58
28
%
Global Disney+
3.93
3.91
1
%
ESPN+
5.53
4.84
14
%
Hulu
SVOD Only
12.46
12.23
2
%
Live TV + SVOD
87.90
86.77
1
%
(1)
See discussion on page 10—DTC
Product Descriptions and Key Definitions
(2)
Total may not equal the sum of
the column due to rounding
The average monthly revenue per paid subscriber for domestic
Disney+ decreased from $6.10 to $5.95 driven by a higher mix of
subscribers to multi-product offerings, partially offset by an
increase in retail pricing.
The average monthly revenue per paid subscriber for
international Disney+ (excluding Disney+ Hotstar) decreased from
$5.83 to $5.62 due to an unfavorable foreign exchange impact.
The average monthly revenue per paid subscriber for Disney+
Hotstar increased from $0.58 to $0.74 due to higher per-subscriber
advertising revenue.
The average monthly revenue per paid subscriber for ESPN+
increased from $4.84 to $5.53 due to an increase in retail pricing,
partially offset by a higher mix of subscribers to multi-product
offerings.
The average monthly revenue per paid subscriber for the Hulu
SVOD Only service increased from $12.23 to $12.46 due to an
increase in retail pricing, partially offset by a higher mix of
subscribers to multi-product offerings and lower per-subscriber
advertising revenue.
The average monthly revenue per paid subscriber for the Hulu
Live TV + SVOD service increased from $86.77 to $87.90 due to
higher per-subscriber advertising revenue.
Content Sales/Licensing and Other
Content Sales/Licensing and Other revenues for the quarter
increased 1% to $2.5 billion and operating loss increased by $114
million to a loss of $212 million. The increase in operating loss
was due to lower TV/SVOD distribution results, higher overhead
costs and a decrease in home entertainment distribution results.
These decreases were partially offset by higher theatrical
distribution results.
The decrease in TV/SVOD distribution results was primarily due
to lower sales volumes of both film and episodic television content
reflecting the shift from licensing content to third parties to
distributing it on our DTC services. The decrease in sales of
episodic television content was also driven by the comparison to a
license of animated series in the prior-year quarter.
The decrease in home entertainment results was due to lower unit
sales of new release titles, reflecting fewer releases, and catalog
titles.
The increase in theatrical distribution results reflected the
performance of titles released in the current quarter led by Black
Panther: Wakanda Forever, as well as fewer releases, compared to
losses on titles released in the prior-year quarter, partially
offset by the comparison to income from the release of Marvel’s
Spider-Man: No Way Home co-production in the prior-year quarter.
Other releases in the current quarter included Avatar: The Way of
Water and Strange World.
Disney Parks, Experiences and
Products
Disney Parks, Experiences and Products revenues for the quarter
increased 21% to $8.7 billion and segment operating income
increased 25% to $3.1 billion. Higher operating results for the
quarter reflected increases at our domestic parks and experiences
and, to a lesser extent, our international parks and resorts.
Operating income growth at our domestic parks and experiences
was due to higher volumes and increased guest spending, partially
offset by cost inflation, higher operations support costs and
increased costs for new guest offerings. Higher volumes were
attributable to increases in passenger cruise days, attendance and
occupied room nights. Guest spending growth was due to an increase
in average per capita ticket revenue driven by Genie+ and Lightning
Lane, which were introduced in the prior-year quarter.
Increased results at our international parks and resorts were
due to growth at Disneyland Paris and higher royalties from Tokyo
Disney Resort, partially offset by a decrease at Shanghai Disney
Resort. Higher operating results at Disneyland Paris were due to an
increase in volumes and higher guest spending, partially offset by
a loss on the disposal of our ownership interest in Villages
Nature, increased costs for new guest offerings and cost inflation.
Higher volumes consisted of increases in attendance and occupied
room nights. Guest spending growth was driven by an increase in
average ticket prices and higher average daily hotel room rates.
The decrease at Shanghai Disney Resort was due to lower attendance
reflecting fewer operating days in the current quarter compared to
the prior-year quarter as a result of COVID-19-related
closures.
The following table presents supplemental revenue and operating
income detail for the Disney Parks, Experiences and Products
segment:
Quarter Ended
Change
(in millions)
December 31, 2022
January 1, 2022
Supplemental revenue detail
Parks & Experiences
Domestic
$
6,072
$
4,800
27
%
International
1,094
861
27
%
Consumer Products
1,570
1,573
—
%
$
8,736
$
7,234
21
%
Supplemental operating income detail
Parks & Experiences
Domestic
$
2,113
$
1,555
36
%
International
79
21
>100
%
Consumer Products
861
874
(1
)%
$
3,053
$
2,450
25
%
OTHER FINANCIAL INFORMATION
Corporate and Unallocated Shared
Expenses
Corporate and unallocated shared expenses increased $52 million
for the quarter, from $228 million to $280 million, driven by
higher compensation and human resource-related costs, marketing
spend on the Disney100 celebration and timing of allocations to
operating segments.
Restructuring and Impairment
Charges
In the current quarter, the Company recorded charges of $69
million related to exiting our businesses in Russia.
Other Expense, net
In the current quarter, the Company recorded a $70 million
non-cash loss to adjust its investment in DraftKings, Inc.
(DraftKings) to fair value (DraftKings loss), partially offset by a
$28 million gain on the sale of a business. In the prior-year
quarter, the Company recorded a $432 million DraftKings loss.
Interest Expense, net
Interest expense, net was as follows (in millions):
Quarter Ended
December 31, 2022
January 1, 2022
Change
Interest expense
$
(465
)
$
(361
)
(29
)%
Interest income, investment income and
other
165
50
>100
%
Interest expense, net
$
(300
)
$
(311
)
4
%
The increase in interest expense was due to higher average
rates, partially offset by lower average debt balances.
The increase in interest income, investment income and other
resulted from a favorable comparison of pension and postretirement
benefit costs, other than service cost, and higher interest income
on cash balances.
Equity in the Income of
Investees
Equity in the income of investees was as follows (in
millions):
Quarter Ended
December 31, 2022
January 1, 2022
Change
Amounts included in segment results:
Disney Media and Entertainment
Distribution
$
196
$
245
(20
)%
Disney Parks, Experiences and Products
(2
)
(3
)
33
%
Amortization of TFCF intangible assets
related to equity investees
(3
)
(3
)
—
%
Equity in the income of investees
$
191
$
239
(20
)%
Income from equity investees decreased $48 million, to $191
million from $239 million, due to lower income from A+E Television
Networks.
Income Taxes
The effective income tax rate was as follows:
Quarter Ended
December 31, 2022
January 1, 2022
Income from continuing operations before
income taxes
$
1,773
$
1,688
Income tax expense on continuing
operations
412
488
Effective income tax rate - continuing
operations
23.2
%
28.9
%
The decrease in the effective income tax rate was due to the
impact of adjustments related to prior years, which was favorable
in the current quarter and unfavorable in the prior-year quarter.
This impact was partially offset by the tax effect of employee
share-based awards, which had an unfavorable impact in the current
quarter and favorable impact in the prior-year quarter.
Noncontrolling Interests
Net income attributable to noncontrolling interests was as
follows (in millions):
Quarter Ended
December 31, 2022
January 1, 2022
Change
Net income from continuing operations
attributable to noncontrolling interests
$
(82
)
$
(48
)
(71
)%
The increase in net income from continuing operations
attributable to noncontrolling interests was primarily due to the
purchase of Major League Baseball’s 15% interest in BAMTech LLC and
lower losses at our DTC sports business, partially offset by higher
losses at Shanghai Disney Resort.
Net income attributable to noncontrolling interests is
determined on income after royalties and management fees, financing
costs and income taxes, as applicable.
Cash Flow
Cash provided by operations and free cash flow were as follows
(in millions):
Quarter Ended
December 31, 2022
January 1, 2022
Change
Cash used in operations
$
(974
)
$
(209
)
$
(765
)
Investments in parks, resorts and other
property
(1,181
)
(981
)
(200
)
Free cash flow(1)
$
(2,155
)
$
(1,190
)
$
(965
)
(1)
Free cash flow is not a financial
measure defined by GAAP. See the discussion on pages 10 through
12.
Cash used in operations increased by $765 million from $209
million in the prior-year quarter to $974 million in the current
quarter. The increase was due to collateral payments related to our
hedging program, lower operating income at Disney Media and
Entertainment Distribution and higher spending for film and
television programming, partially offset by higher operating income
at Disney Parks, Experiences and Products.
Capital Expenditures and Depreciation
Expense
Investments in parks, resorts and other property were as follows
(in millions):
Quarter Ended
December 31, 2022
January 1, 2022
Disney Media and Entertainment
Distribution
$
279
$
169
Disney Parks, Experiences and Products
Domestic
519
457
International
219
202
Total Disney Parks, Experiences and
Products
738
659
Corporate
164
153
Total investments in parks, resorts and
other property
$
1,181
$
981
Capital expenditures increased from $1.0 billion to $1.2 billion
primarily due to higher spending at Disney Media and Entertainment
Distribution and Disney Parks, Experiences and Products. Higher
spending at Disney Media and Entertainment Distribution was due to
increased technology spending to support our streaming services.
The increase in spending at Disney Parks, Experiences and Products
was primarily due to cruise ship fleet expansion.
Depreciation expense was as follows (in millions):
Quarter Ended
December 31, 2022
January 1, 2022
Disney Media and Entertainment
Distribution
$
164
$
153
Disney Parks, Experiences and Products
Domestic
452
398
International
164
168
Total Disney Parks, Experiences and
Products
616
566
Corporate
48
48
Total depreciation expense
$
828
$
767
DTC PRODUCT DESCRIPTIONS AND KEY
DEFINITIONS
Product offerings
In the U.S., Disney+, ESPN+ and Hulu SVOD Only are each offered
as a standalone service or together as part of various
multi-product offerings. Hulu Live TV + SVOD includes Disney+ and
ESPN+. Disney+ is available in more than 150 countries and
territories outside the U.S. and Canada. In India and certain other
Southeast Asian countries, the service is branded Disney+ Hotstar.
In certain Latin American countries, we offer Disney+ as well as
Star+, a general entertainment SVOD service, which is available on
a standalone basis or together with Disney+ (Combo+). Depending on
the market, our services can be purchased on our websites or
through third-party platforms/apps or are available via wholesale
arrangements.
Paid subscribers
Paid subscribers reflect subscribers for which we recognized
subscription revenue. Subscribers cease to be a paid subscriber as
of their effective cancellation date or as a result of a failed
payment method. Subscribers to multi-product offerings in the U.S.
are counted as a paid subscriber for each service included in the
multi-product offering and subscribers to Hulu Live TV + SVOD are
counted as one paid subscriber for each of the Hulu Live TV + SVOD,
Disney+ and ESPN+ services. In Latin America, if a subscriber has
either the standalone Disney+ or Star+ service or subscribes to
Combo+, the subscriber is counted as one Disney+ paid subscriber.
Subscribers include those who receive a service through wholesale
arrangements including those for which we receive a fee for the
distribution of the service to each subscriber of an existing
content distribution tier. When we aggregate the total number of
paid subscribers across our DTC streaming services, we refer to
them as paid subscriptions.
International Disney+ (excluding Disney+
Hotstar)
International Disney+ (excluding Disney+ Hotstar) includes the
Disney+ service outside the U.S. and Canada and the Star+ service
in Latin America.
Average Monthly Revenue Per Paid
Subscriber
Average monthly revenue per paid subscriber is calculated based
on the average of the monthly average paid subscribers for each
month in the period. The monthly average paid subscribers is
calculated as the sum of the beginning of the month and end of the
month paid subscriber count, divided by two. Disney+ average
monthly revenue per paid subscriber is calculated using a daily
average of paid subscribers for the period. Revenue includes
subscription fees, advertising (excluding revenue earned from
selling advertising spots to other Company businesses) and premium
and feature add-on revenue but excludes Premier Access and
Pay-Per-View revenue. The average revenue per paid subscriber is
net of discounts on offerings that carry more than one service.
Revenue is allocated to each service based on the relative retail
price of each service on a standalone basis. Hulu Live TV + SVOD
revenue is allocated to the SVOD services based on the wholesale
price of the Hulu SVOD Only, Disney+ and ESPN+ multi-product
offering. In general, wholesale arrangements have a lower average
monthly revenue per paid subscriber than subscribers that we
acquire directly or through third-party platforms.
NON-GAAP FINANCIAL
MEASURES
This earnings release presents free cash flow, diluted EPS
excluding certain items, and total segment operating income, all of
which are important financial measures for the Company, but are not
financial measures defined by GAAP.
These measures should be reviewed in conjunction with the most
comparable GAAP financial measures and are not presented as
alternative measures of cash provided by continuing operations,
diluted EPS or income from continuing operations before income
taxes as determined in accordance with GAAP. Free cash flow,
diluted EPS excluding certain items and total segment operating
income as we have calculated them may not be comparable to
similarly titled measures reported by other companies. See further
discussion of total segment operating income on page 2.
Free cash flow
The Company uses free cash flow (cash provided by continuing
operations less investments in parks, resorts and other property),
among other measures, to evaluate the ability of its operations to
generate cash that is available for purposes other than capital
expenditures. Management believes that information about free cash
flow provides investors with an important perspective on the cash
available to service debt obligations, make strategic acquisitions
and investments and pay dividends or repurchase shares.
The following table presents a summary of the Company’s
consolidated cash flows (in millions):
Quarter Ended
December 31, 2022
January 1, 2022
Cash used in operations - continuing
operations
$
(974
)
$
(209
)
Cash used in investing activities -
continuing operations
(1,292
)
(987
)
Cash used in financing activities -
continuing operations
(1,043
)
(280
)
Cash used in discontinued operations
—
(4
)
Impact of exchange rates on cash, cash
equivalents and restricted cash
164
(35
)
Change in cash, cash equivalents and
restricted cash
(3,145
)
(1,515
)
Cash, cash equivalents and restricted
cash, beginning of period
11,661
16,003
Cash, cash equivalents and restricted
cash, end of period
$
8,516
$
14,488
The following table presents a reconciliation of the Company’s
consolidated cash used in operations to free cash flow (in
millions):
Quarter Ended
December 31, 2022
January 1, 2022
Change
Cash used in operations - continuing
operations
$
(974
)
$
(209
)
$
(765
)
Investments in parks, resorts and other
property
(1,181
)
(981
)
(200
)
Free cash flow
$
(2,155
)
$
(1,190
)
$
(965
)
Diluted EPS excluding certain
items
The Company uses diluted EPS excluding (1) certain items
affecting comparability of results from period to period and (2)
amortization of TFCF and Hulu intangible assets, including purchase
accounting step-up adjustments for released content, to facilitate
the evaluation of the performance of the Company’s operations
exclusive of these items, and these adjustments reflect how senior
management is evaluating segment performance.
The Company believes that providing diluted EPS exclusive of
certain items impacting comparability is useful to investors,
particularly where the impact of the excluded items is significant
in relation to reported earnings and because the measure allows for
comparability between periods of the operating performance of the
Company’s business and allows investors to evaluate the impact of
these items separately.
The Company further believes that providing diluted EPS
exclusive of amortization of TFCF and Hulu intangible assets
associated with the acquisition in 2019 is useful to investors
because the TFCF and Hulu acquisition was considerably larger than
the Company’s historic acquisitions with a significantly greater
acquisition accounting impact.
The following table reconciles reported diluted EPS from
continuing operations to diluted EPS excluding certain items for
the first quarter:
(in millions except EPS)
Pre-Tax Income/ Loss
Tax Benefit/ Expense(1)
After-Tax Income/ Loss(2)
Diluted EPS(3)
Change vs. prior year period
Quarter Ended December 31, 2022
As reported
$
1,773
$
(412
)
$
1,361
$
0.70
11
%
Exclude:
Amortization of TFCF and Hulu intangible
assets and fair value step-up on film and television costs(4)
579
(135
)
444
0.24
Restructuring and impairment
charges(5)
69
(8
)
61
0.03
Other expense, net(6)
42
(16
)
26
0.01
Excluding certain items
$
2,463
$
(571
)
$
1,892
$
0.99
(7
)%
Quarter Ended January 1, 2022
As reported
$
1,688
$
(488
)
$
1,200
$
0.63
Exclude:
Amortization of TFCF and Hulu intangible
assets and fair value step-up on film and television costs(4)
595
(139
)
456
0.24
Other expense, net(6)
436
(102
)
334
0.18
Excluding certain items
$
2,719
$
(729
)
$
1,990
$
1.06
(1)
Tax benefit/expense is determined
using the tax rate applicable to the individual item.
(2)
Before noncontrolling interest
share.
(3)
Net of noncontrolling interest
share, where applicable. Total may not equal the sum of the column
due to rounding.
(4)
For the current quarter,
intangible asset amortization was $417 million, step-up
amortization was $159 million and amortization of intangible assets
related to TFCF equity investees was $3 million. For the prior-year
quarter, intangible asset amortization was $435 million, step-up
amortization was $157 million and amortization of intangible assets
related to TFCF equity investees was $3 million.
(5)
Charges for the current quarter
were related to exiting our businesses in Russia.
(6)
In the current quarter, other
expense, net was due to the DraftKings loss ($70 million),
partially offset by a gain on the sale of a business ($28 million).
For the prior-year quarter, other expense, net was due to the
DraftKings loss ($432 million).
CONFERENCE CALL INFORMATION
In conjunction with this release, The Walt Disney Company will
host a conference call today, February 8, 2023, at 4:30 PM EST/1:30
PM PST via a live Webcast. To access the Webcast go to www.disney.com/investors. The discussion will be
archived.
FORWARD-LOOKING STATEMENTS
Certain statements and information in this earnings release may
constitute “forward-looking statements” within the meaning of the
Private Securities Litigation Reform Act of 1995, including
statements regarding future performance and growth; business plans,
strategic priorities and drivers of growth and profitability and
other statements that are not historical in nature. These
statements are made on the basis of management’s views and
assumptions regarding future events and business performance as of
the time the statements are made. Management does not undertake any
obligation to update these statements.
Actual results may differ materially from those expressed or
implied. Such differences may result from actions taken by the
Company, including restructuring or strategic initiatives
(including capital investments, asset acquisitions or dispositions,
new or expanded business lines or cessation of certain operations),
our execution of our business plans (including the content we
create and IP we invest in, our pricing decisions, our cost
structure and our management and other personnel decisions) or
other business decisions, as well as from developments beyond the
Company’s control, including:
- further deterioration in domestic and global economic
conditions;
- deterioration in or pressures from competitive conditions,
including competition to create or acquire content and competition
for talent;
- consumer preferences and acceptance of our content, offerings,
pricing model and price increases and the market for advertising
sales on our DTC services and linear networks;
- health concerns and their impact on our businesses and
productions;
- international, regulatory, legal, political, or military
developments;
- technological developments;
- labor markets and activities;
- adverse weather conditions or natural disasters; and
- availability of content;
each such risk includes the current and future impacts of, and
may be amplified by, COVID-19 and related mitigation efforts.
Such developments may further affect entertainment, travel and
leisure businesses generally and may, among other things, affect
(or further affect, as applicable):
- our operations, business plans or profitability;
- demand for our products and services;
- the performance of the Company’s content;
- our ability to create or obtain desirable content at or under
the value we assign the content;
- the advertising market for programming;
- income tax expense; and
- performance of some or all Company businesses either directly
or through their impact on those who distribute our products.
Additional factors are set forth in the Company’s Annual Report
on Form 10-K for the year ended October 1, 2022, including under
the captions “Risk Factors,” “Management’s Discussion and Analysis
of Financial Condition and Results of Operations,” and “Business,”
quarterly reports on Form 10-Q, including under the captions “Risk
Factors” and “Management’s Discussion and Analysis of Financial
Condition and Results of Operations,” and subsequent filings with
the Securities and Exchange Commission.
The terms “Company,” “we,” and “our” are used in this report to
refer collectively to the parent company and the subsidiaries
through which our various businesses are actually conducted.
THE WALT DISNEY
COMPANY
CONDENSED CONSOLIDATED
STATEMENTS OF INCOME
(unaudited; in millions,
except per share data)
Quarter Ended
December 31, 2022
January 1, 2022
Revenues
$
23,512
$
21,819
Costs and expenses
(21,519
)
(19,623
)
Restructuring and impairment charges
(69
)
—
Other expense, net
(42
)
(436
)
Interest expense, net
(300
)
(311
)
Equity in the income of investees
191
239
Income from continuing operations before
income taxes
1,773
1,688
Income taxes on continuing operations
(412
)
(488
)
Net income from continuing operations
1,361
1,200
Loss from discontinued operations, net of
income tax benefit of $0, $14, respectively
—
(48
)
Net income
1,361
1,152
Net income from continuing operations
attributable to noncontrolling interests
(82
)
(48
)
Net income attributable to The Walt Disney
Company (Disney)
$
1,279
$
1,104
Earnings (loss) per share attributable to
Disney(1):
Diluted
Continuing operations
$
0.70
$
0.63
Discontinued operations
—
(0.03
)
$
0.70
$
0.60
Basic
Continuing operations
$
0.70
$
0.63
Discontinued operations
—
(0.03
)
$
0.70
$
0.61
Weighted average number of common and
common equivalent shares outstanding:
Diluted
1,827
1,828
Basic
1,825
1,819
(1)
Total may not equal the sum of the column
due to rounding.
THE WALT DISNEY
COMPANY
CONDENSED CONSOLIDATED BALANCE
SHEETS
(unaudited; in millions,
except per share data)
December 31, 2022
October 1, 2022
ASSETS
Current assets
Cash and cash equivalents
$
8,470
$
11,615
Receivables, net
13,993
12,652
Inventories
1,830
1,742
Content advances
1,300
1,890
Other current assets
1,319
1,199
Total current assets
26,912
29,098
Produced and licensed content costs
36,266
35,777
Investments
3,169
3,218
Parks, resorts and other property
Attractions, buildings and equipment
68,253
66,998
Accumulated depreciation
(40,641
)
(39,356
)
27,612
27,642
Projects in progress
5,430
4,814
Land
1,158
1,140
34,200
33,596
Intangible assets, net
14,347
14,837
Goodwill
77,867
77,897
Other assets
9,363
9,208
Total assets
$
202,124
$
203,631
LIABILITIES AND EQUITY
Current liabilities
Accounts payable and other accrued
liabilities
$
18,149
$
20,213
Current portion of borrowings
3,249
3,070
Deferred revenue and other
5,672
5,790
Total current liabilities
27,070
29,073
Borrowings
45,128
45,299
Deferred income taxes
8,236
8,363
Other long-term liabilities
12,812
12,518
Commitments and contingencies
Redeemable noncontrolling interests
8,743
9,499
Equity
Preferred stock
—
—
Common stock, $0.01 par value, Authorized
– 4.6 billion shares, Issued – 1.8 billion shares
56,579
56,398
Retained earnings
44,955
43,636
Accumulated other comprehensive loss
(4,478
)
(4,119
)
Treasury stock, at cost, 19 million
shares
(907
)
(907
)
Total Disney Shareholders’ equity
96,149
95,008
Noncontrolling interests
3,986
3,871
Total equity
100,135
98,879
Total liabilities and equity
$
202,124
$
203,631
THE WALT DISNEY
COMPANY
CONDENSED CONSOLIDATED
STATEMENTS OF CASH FLOWS
(unaudited; in
millions)
Quarter Ended
December 31, 2022
January 1, 2022
OPERATING ACTIVITIES
Net income from continuing operations
$
1,361
$
1,200
Depreciation and amortization
1,306
1,269
Net loss on investments and dispositions
of businesses
68
436
Deferred income taxes
(15
)
726
Equity in the income of investees
(191
)
(239
)
Cash distributions received from equity
investees
176
223
Net change in produced and licensed
content costs and advances
558
507
Equity-based compensation
270
196
Pension and postretirement medical cost
amortization
1
155
Other, net
(232
)
(7
)
Changes in operating assets and
liabilities:
Receivables
(1,423
)
(1,401
)
Inventories
(88
)
(14
)
Other assets
(443
)
(115
)
Accounts payable and other liabilities
(2,378
)
(2,579
)
Income taxes
56
(566
)
Cash used in operations - continuing
operations
(974
)
(209
)
INVESTING ACTIVITIES
Investments in parks, resorts and other
property
(1,181
)
(981
)
Other, net
(111
)
(6
)
Cash used in investing activities -
continuing operations
(1,292
)
(987
)
FINANCING ACTIVITIES
Commercial paper borrowings (payments),
net
799
(124
)
Borrowings
67
33
Reduction of borrowings
(1,000
)
—
Contributions from noncontrolling
interests
178
—
Acquisition of redeemable noncontrolling
interests
(900
)
—
Other, net
(187
)
(189
)
Cash used in financing activities -
continuing operations
(1,043
)
(280
)
CASH FLOWS FROM DISCONTINUED
OPERATIONS
Cash provided by operations - discontinued
operations
—
8
Cash used in financing activities -
discontinued operations
—
(12
)
Cash used in discontinued operations
—
(4
)
Impact of exchange rates on cash, cash
equivalents and restricted cash
164
(35
)
Change in cash, cash equivalents and
restricted cash
(3,145
)
(1,515
)
Cash, cash equivalents and restricted
cash, beginning of year
11,661
16,003
Cash, cash equivalents and restricted
cash, end of year
$
8,516
$
14,488
View source
version on businesswire.com: https://www.businesswire.com/news/home/20230208005865/en/
David Jefferson Corporate Communications 818-560-4832
Alexia Quadrani Investor Relations 818-560-6601
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