Walt Disney Co [DIS] Filings

10-Q 1 dis-20220402.htm FORM 10-Q dis-20220402

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended April 2, 2022

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from __________ to __________.

Commission File Number 001-38842


Delaware						83-0940635
State or Other Jurisdiction of						I.R.S. Employer Identification
Incorporation or Organization

500 South Buena Vista Street

Burbank, California 91521

Address of Principal Executive Offices and Zip Code

(818) 560-1000

Registrant’s Telephone Number, Including Area Code

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock, $0.01 par value

DIS

New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ¨

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer

☒

Accelerated filer

☐

Non-accelerated filer

☐

Smaller reporting company

☐

Emerging growth company

☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No ☒

There were 1,821,483,742 shares of common stock outstanding as of May 4, 2022.

PART I. FINANCIAL INFORMATION

Item 1: Financial Statements

THE WALT DISNEY COMPANY

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(unaudited; in millions, except per share data)


	Quarter Ended				Six Months Ended
	April 2, 2022		April 3, 2021		April 2, 2022		April 3, 2021
Revenues:
Services	$	17,212	$	14,522	$	36,754	$	29,393
Products	2,037		1,091		4,314		2,469
Total revenues	19,249		15,613		41,068		31,862
Costs and expenses:
Cost of services (exclusive of depreciation and amortization)	(11,330)		(8,932)		(24,491)		(19,670)
Cost of products (exclusive of depreciation and amortization)	(1,264)		(850)		(2,670)		(1,887)
Selling, general, administrative and other	(3,768)		(3,113)		(7,555)		(6,030)
Depreciation and amortization	(1,287)		(1,272)		(2,556)		(2,570)
Total costs and expenses	(17,649)		(14,167)		(37,272)		(30,157)
Restructuring and impairment charges	(195)		(414)		(195)		(527)
Other income (expense), net	(158)		305		(594)		305
Interest expense, net	(355)		(320)		(666)		(644)
Equity in the income of investees	210		213		449		437
Income from continuing operations before income taxes	1,102		1,230		2,790		1,276
Income taxes on continuing operations	(505)		(108)		(993)		(124)
Net income from continuing operations	597		1,122		1,797		1,152
Loss from discontinued operations, net of income tax benefit of $0, $3, $14 and $7, respectively	—		(11)		(48)		(23)
Net income	597		1,111		1,749		1,129
Net income from continuing operations attributable to noncontrolling interests	(127)		(210)		(175)		(211)

Net income attributable to Disney	$	470	$	901	$	1,574	$	918

Earnings (loss) per share attributable to Disney(1):
Diluted
Continuing operations	$	0.26	$	0.50	$	0.89	$	0.52
Discontinued operations	—		(0.01)		(0.03)		(0.01)
	$	0.26	$	0.49	$	0.86	$	0.50
Basic
Continuing operations	$	0.26	$	0.50	$	0.89	$	0.52
Discontinued operations	—		(0.01)		(0.03)		(0.01)
	$	0.26	$	0.50	$	0.86	$	0.51

Weighted average number of common and common equivalent shares outstanding:
Diluted	1,828		1,829		1,828		1,826
Basic	1,822		1,817		1,820		1,814

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

See Notes to Condensed Consolidated Financial Statements

THE WALT DISNEY COMPANY

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(unaudited; in millions)


	Quarter Ended				Six Months Ended
	April 2, 2022		April 3, 2021		April 2, 2022		April 3, 2021
Net income	$	597	$	1,111	$	1,749	$	1,129
Other comprehensive income (loss), net of tax:
Market value adjustments for hedges	28		110		78		(63)
Pension and postretirement medical plan adjustments	119		191		274		341
Foreign currency translation and other	(191)		(93)		(213)		184
Other comprehensive income (loss)	(44)		208		139		462
Comprehensive income	553		1,319		1,888		1,591
Net income from continuing operations attributable to noncontrolling interests	(127)		(210)		(175)		(211)
Other comprehensive income (loss) attributable to noncontrolling interests	8		15		(11)		(58)
Comprehensive income attributable to Disney	$	434	$	1,124	$	1,702	$	1,322

See Notes to Condensed Consolidated Financial Statements

THE WALT DISNEY COMPANY

CONDENSED CONSOLIDATED BALANCE SHEETS

(unaudited; in millions, except per share data)


	April 2, 2022		October 2, 2021
ASSETS
Current assets
Cash and cash equivalents	$	13,272	$	15,959
Receivables, net	13,746		13,367
Inventories	1,428		1,331
Content advances	1,796		2,183

Other current assets	1,185		817

Total current assets	31,427		33,657
Produced and licensed content costs	32,349		29,549
Investments	3,356		3,935
Parks, resorts and other property
Attractions, buildings and equipment	65,247		64,892
Accumulated depreciation	(38,783)		(37,920)
	26,464		26,972
Projects in progress	5,327		4,521
Land	1,126		1,131
	32,917		32,624
Intangible assets, net	15,875		17,115
Goodwill	78,019		78,071

Other assets	8,510		8,658
Total assets	$	202,453	$	203,609

LIABILITIES AND EQUITY
Current liabilities
Accounts payable and other accrued liabilities	$	19,669	$	20,894
Current portion of borrowings	5,399		5,866
Deferred revenue and other	4,533		4,317

Total current liabilities	29,601		31,077
Borrowings	46,624		48,540
Deferred income taxes	8,407		7,246

Other long-term liabilities	13,808		14,522
Commitments and contingencies (Note 13)
Redeemable noncontrolling interests	9,354		9,213
Equity
Preferred stock	—		—
Common stock, $0.01 par value, Authorized – 4.6 billion shares, Issued – 1.8 billion shares	55,823		55,471
Retained earnings	42,032		40,429
Accumulated other comprehensive loss	(6,312)		(6,440)

Treasury stock, at cost, 19 million shares	(907)		(907)
Total Disney Shareholders’ equity	90,636		88,553
Noncontrolling interests	4,023		4,458
Total equity	94,659		93,011
Total liabilities and equity	$	202,453	$	203,609

See Notes to Condensed Consolidated Financial Statements

THE WALT DISNEY COMPANY

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited; in millions)


	Six Months Ended
	April 2, 2022		April 3, 2021
OPERATING ACTIVITIES
Net income from continuing operations	$	1,797	$	1,152
Depreciation and amortization	2,556		2,570

Net (gain) loss on investments	632		(481)
Deferred income taxes	983		(556)
Equity in the income of investees	(449)		(437)
Cash distributions received from equity investees	406		372
Net change in produced and licensed content costs and advances	(2,279)		(1,685)

Equity-based compensation	450		270
Pension and postretirement medical benefit cost amortization	310		388
Other, net	264		248
Changes in operating assets and liabilities:
Receivables	(342)		(37)
Inventories	(97)		175
Other assets	(676)		(131)
Accounts payable and other liabilities	(1,349)		(780)
Income taxes	(650)		400
Cash provided by operations - continuing operations	1,556		1,468

INVESTING ACTIVITIES
Investments in parks, resorts and other property	(2,060)		(1,530)


Other, net	36		203
Cash used in investing activities - continuing operations	(2,024)		(1,327)

FINANCING ACTIVITIES
Commercial paper payments, net	(130)		(87)
Borrowings	70		37
Reduction of borrowings	(1,400)		(1,816)


Proceeds from exercise of stock options	88		394


Other, net	(725)		(769)
Cash used in financing activities - continuing operations	(2,097)		(2,241)

CASH FLOWS FROM DISCONTINUED OPERATIONS
Cash provided by operations - discontinued operations	8		4
Cash provided by investing activities - discontinued operations	—		4
Cash used in financing activities - discontinued operations	(12)		—
Cash (used in) provided by discontinued operations	(4)		8

Impact of exchange rates on cash, cash equivalents and restricted cash	(116)		70

Change in cash, cash equivalents and restricted cash	(2,685)		(2,022)
Cash, cash equivalents and restricted cash, beginning of period	16,003		17,954
Cash, cash equivalents and restricted cash, end of period	$	13,318	$	15,932

See Notes to Condensed Consolidated Financial Statements

THE WALT DISNEY COMPANY

CONDENSED CONSOLIDATED STATEMENTS OF EQUITY

(unaudited; in millions)


	Quarter Ended
	Equity Attributable to Disney
	Shares	Common Stock		Retained Earnings		Accumulated Other Comprehensive Income (Loss)			Treasury Stock		Total Disney Equity		Non-controlling Interests(1)		Total Equity
Balance at January 1, 2022	1,821	$	55,500	$	41,547		$	(6,276)	$	(907)	$	89,864	$	4,446	$	94,310
Comprehensive income	—	—		470			(36)		—		434		49		483
Equity compensation activity	1	327		—			—		—		327		—		327








Distributions and other	—	(4)		15			—		—		11		(472)		(461)
Balance at April 2, 2022	1,822	$	55,823	$	42,032		$	(6,312)	$	(907)	$	90,636	$	4,023	$	94,659

Balance at January 2, 2021	1,814	$	54,663	$	38,456		$	(8,141)	$	(907)	$	84,071	$	4,657	$	88,728
Comprehensive income	—	—		901			223		—		1,124		115		1,239
Equity compensation activity	3	337		—			—		—		337		—		337



Cumulative effect of accounting change	—	—		(5)			—		—		(5)		—		(5)




Distributions and other	—	—		13			—		—		13		(526)		(513)
Balance at April 3, 2021	1,817	$	55,000	$	39,365		$	(7,918)	$	(907)	$	85,540	$	4,246	$	89,786

(1)Excludes redeemable noncontrolling interests.

See Notes to Condensed Consolidated Financial Statements

THE WALT DISNEY COMPANY

CONDENSED CONSOLIDATED STATEMENTS OF EQUITY

(unaudited; in millions)


	Six Months Ended
	Equity Attributable to Disney
	Shares	Common Stock		Retained Earnings		Accumulated Other Comprehensive Income (Loss)			Treasury Stock		Total Disney Equity		Non-controlling Interests(1)		Total Equity
Balance at October 2, 2021	1,818	$	55,471	$	40,429		$	(6,440)	$	(907)	$	88,553	$	4,458	$	93,011
Comprehensive income	—	—		1,574			128		—		1,702		45		1,747
Equity compensation activity	4	356		—			—		—		356		—		356


Contributions	—	—		—			—		—		—		29		29









Distributions and other	—	(4)		29			—		—		25		(509)		(484)
Balance at April 2, 2022	1,822	$	55,823	$	42,032		$	(6,312)	$	(907)	$	90,636	$	4,023	$	94,659

Balance at October 3, 2020	1,810	$	54,497	$	38,315		$	(8,322)	$	(907)	$	83,583	$	4,680	$	88,263
Comprehensive income (loss)	—	—		918			404		—		1,322		109		1,431
Equity compensation activity	7	502		—			—		—		502		—		502


Contributions	—	—		—			—		—		—		5		5





Cumulative effect of accounting change	—	—		105			—		—		105		—		105



Distributions and other	—	1		27			—		—		28		(548)		(520)
Balance at April 3, 2021	1,817	$	55,000	$	39,365		$	(7,918)	$	(907)	$	85,540	$	4,246	$	89,786

(1)Excludes redeemable noncontrolling interests.

See Notes to Condensed Consolidated Financial Statements

THE WALT DISNEY COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited; tabular dollars in millions, except for per share data)

1.Principles of Consolidation

These Condensed Consolidated Financial Statements have been prepared in accordance with accounting principles generally accepted in the United States of America (GAAP) for interim financial information and the instructions to Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. We believe that we have included all normal recurring adjustments necessary for a fair statement of the results for the interim period. Operating results for the six months ended April 2, 2022 are not necessarily indicative of the results that may be expected for the year ending October 1, 2022.

The terms “Company,” “Disney,” “we,” “us,” and “our” are used in this report to refer collectively to the parent company, The Walt Disney Company, as well as the subsidiaries through which its various businesses are actually conducted.

These financial statements should be read in conjunction with the Company’s 2021 Annual Report on Form 10-K.

The Fox sports media business in Mexico was sold in November 2021. The Company recognized a $58 million loss on the sale, which is presented as discontinued operations in the Condensed Consolidated Statement of Income for the six months ended April 2, 2022. At October 2, 2021, the assets and liabilities of the Fox sports media business in Mexico were not material and were included in other assets and other liabilities in the Condensed Consolidated Balance Sheets.

Variable Interest Entities

The Company enters into relationships with or makes investments in other entities that may be variable interest entities (VIE). A VIE is consolidated in the financial statements if the Company has the power to direct activities that most significantly impact the economic performance of the VIE and has the obligation to absorb losses or the right to receive benefits from the VIE that could potentially be significant (as defined by ASC 810-10-25-38) to the VIE. Hong Kong Disneyland Resort and Shanghai Disney Resort (together the Asia Theme Parks) are VIEs in which the Company has less than 50% equity ownership. Company subsidiaries (the Management Companies) have management agreements with the Asia Theme Parks, which provide the Management Companies, subject to certain protective rights of joint venture partners, with the ability to direct the day-to-day operating activities and the development of business strategies that we believe most significantly impact the economic performance of the Asia Theme Parks. In addition, the Management Companies receive management fees under these arrangements that we believe could be significant to the Asia Theme Parks. Therefore, the Company has consolidated the Asia Theme Parks in its financial statements.

Redeemable Noncontrolling Interests

The Company consolidates the results of certain subsidiaries that are less than 100% owned and for which the noncontrolling interest shareholders have the rights to require the Company to purchase their interests in these subsidiaries. The most significant of these are Hulu LLC (Hulu) and BAMTech LLC (BAMTech).

Hulu provides direct-to-consumer (DTC) streaming services and is owned 67% by the Company and 33% by NBC Universal (NBCU). In May 2019, the Company entered into a put/call agreement with NBCU that provided the Company with full operational control of Hulu. Under the agreement, beginning in January 2024, NBCU has the option to require the Company to purchase NBCU’s interest in Hulu and the Company has the option to require NBCU to sell its interest in Hulu to the Company, in either case at a redemption value based on NBCU’s equity ownership percentage of the greater of Hulu’s then equity fair value or a guaranteed floor value of $27.5 billion.

NBCU’s interest will generally not be allocated its portion of Hulu’s losses, if any, as the redeemable noncontrolling interest is required to be carried at a minimum value. The minimum value is equal to the fair value as of the May 2019 agreement date accreted to the January 2024 estimated redemption value. At April 2, 2022, NBCU’s interest in Hulu is recorded in the Company’s financial statements at $8.5 billion.

BAMTech provides streaming technology services to third parties and is owned 85% by the Company and 15% by Major League Baseball (MLB). MLB has the right to sell its interest to the Company and the Company has the right to buy MLB’s interest starting five years from and ending ten years after the Company’s September 25, 2017 acquisition date of BAMTech in either case at a redemption value based on MLB’s equity ownership percentage of the greater of MLB’s then equity fair value or a guaranteed floor value ($563 million accreting at 8% annually for eight years from the date of acquisition).

THE WALT DISNEY COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited; tabular dollars in millions, except for per share data)

The MLB interest is required to be carried at a minimum value equal to its acquisition date fair value accreted to its estimated redemption value through the applicable redemption date. Therefore, the MLB interest is generally not allocated its portion of BAMTech losses, if any. As of April 2, 2022, the MLB interest was recorded in the Company’s financial statements at $823 million.

Our estimate of the redemption value of noncontrolling interests requires management to make significant judgments with respect to the future value of the noncontrolling interests. We are accreting the noncontrolling interests of both BAMTech and Hulu to their guaranteed floor values. If our estimate of the future redemption value increased above either of the guaranteed floor values, we would change our rate of accretion, which would generally increase the amount recorded in “Net income from continuing operations attributable to noncontrolling interests” and thus reduce “Net income attributable to Disney” in the Condensed Consolidated Statements of Income.

Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and footnotes thereto. Actual results may differ from those estimates.

Reclassifications

Certain reclassifications have been made in the fiscal 2021 financial statements and notes to conform to the fiscal 2022 presentation.

2.Segment Information

The Company’s operations are conducted in the Disney Media and Entertainment Distribution (DMED) and Disney Parks, Experiences and Products (DPEP) segments. Our operating segments report separate financial information, which is evaluated regularly by the Chief Executive Officer in order to decide how to allocate resources and assess performance.

Segment operating results reflect earnings before corporate and unallocated shared expenses, restructuring and impairment charges, net other income, net interest expense, income taxes and noncontrolling interests. Segment operating income includes equity in the income of investees and excludes impairments of certain equity investments and acquisition accounting amortization of TFCF Corporation (TFCF) and Hulu assets (i.e. intangible assets and the fair value step-up for film and television costs) recognized in connection with the TFCF acquisition in fiscal 2019 (TFCF and Hulu acquisition amortization). Corporate and unallocated shared expenses principally consist of corporate functions, executive management and certain unallocated administrative support functions.

Segment operating results include allocations of certain costs, including information technology, pension, legal and other shared services costs, which are allocated based on metrics designed to correlate with consumption.

Impact of COVID-19

Since early 2020, the world has been, and continues to be, impacted by the novel coronavirus (COVID-19) and its variants. COVID-19 and measures to prevent its spread have impacted our segments in a number of ways, most significantly at the DPEP segment where our theme parks and resorts were closed and cruise ship sailings and guided tours were suspended. These operations resumed at various points since May 2020, initially at reduced operating capacities as a result of COVID-19 restrictions. In fiscal 2020 and 2021, we delayed, or in some cases, shortened or canceled theatrical releases. In addition, we experienced significant disruptions in the production and availability of content, including the delay of key live sports programming during fiscal 2020 and fiscal 2021.

In fiscal 2022, our domestic parks and resorts are generally operating without significant COVID-19-related capacity restrictions, such as those that were in place during the prior year. Certain of our international parks and resorts and cruise ship operations continue to be impacted by COVID-19-related closures and capacity and travel restrictions. At the DMED segment, our film and television productions have generally resumed, although we have seen disruptions of production activities depending on local circumstances. We have generally been able to release our films theatrically in the first half of fiscal 2022, although certain markets continue to impose restrictions on theater openings and capacity.

The impact of these disruptions and the extent of their adverse impact on our financial and operating results will depend on the length of time that such disruptions continue. This will, in turn, depend on the duration and severity of the impacts of COVID-19 and its variants, and among other things, the impact of governmental actions imposed in response to COVID-19 and individuals’ and companies’ risk tolerance regarding health matters going forward. We have incurred and will continue to incur additional costs to address government regulations and the safety of our employees, guests and talent.

THE WALT DISNEY COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited; tabular dollars in millions, except for per share data)

Segment revenues and segment operating income (loss) are as follows:


	Quarter Ended				Six Months Ended
	April 2, 2022		April 3, 2021		April 2, 2022		April 3, 2021
Revenues:
Disney Media and Entertainment Distribution	$	13,620	$	12,440	$	28,205	$	25,101
Disney Parks, Experiences and Products	6,652		3,173		13,886		6,761




Total segment revenues	$	20,272	$	15,613	$	42,091	$	31,862
Segment operating income (loss):
Disney Media and Entertainment Distribution	$	1,944	$	2,871	$	2,752	$	4,322
Disney Parks, Experiences and Products	1,755		(406)		4,205		(525)




Total segment operating income(1)	$	3,699	$	2,465	$	6,957	$	3,797

(1) Equity in the income of investees is included in segment operating income as follows:


	Quarter Ended				Six Months Ended
	April 2, 2022		April 3, 2021		April 2, 2022		April 3, 2021
Disney Media and Entertainment Distribution	$	218	$	226	$	463	$	461
Disney Parks, Experiences and Products	(5)		(9)		(8)		(17)


Equity in the income of investees included in segment operating income	213		217		455		444

Amortization of TFCF intangible assets related to equity investees	(3)		(4)		(6)		(7)
Equity in the income of investees, net	$	210	$	213	$	449	$	437

A reconciliation of segment revenues to total revenues is as follows:


	Quarter Ended				Six Months Ended
	April 2, 2022		April 3, 2021		April 2, 2022		April 3, 2021
Segment revenues	$	20,272	$	15,613	$	42,091	$	31,862
Content License Early Termination(1)	(1,023)		—		(1,023)		—
Total revenues	$	19,249	$	15,613	$	41,068	$	31,862

(1)During the quarter and six months ended April 2, 2022, the Company recognized a reduction in revenue for amounts to early terminate certain license agreements with a customer for film and television content, which was delivered in previous years, in order for the Company to use the content primarily on our direct-to-consumer services (Content License Early Termination). Because the content is functional intellectual property (IP), we recognized substantially all of the consideration to be paid by the customer under the licenses as revenue in prior years when the content was made available under the agreements. Consequently, we have recorded the amounts to terminate the licenses agreements, net of remaining amounts of deferred revenue, as a reduction of revenue in the current quarter.

THE WALT DISNEY COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited; tabular dollars in millions, except for per share data)

A reconciliation of segment operating income to income from continuing operations before income taxes is as follows:


	Quarter Ended				Six Months Ended
	April 2, 2022		April 3, 2021		April 2, 2022		April 3, 2021
Segment operating income	$	3,699	$	2,465	$	6,957

Walt Disney Co [DIS] Filings
10-Q	[2022-05-11]
10-Q	[2022-02-09]
10-K	[2021-11-24]
10-Q	[2021-08-12]
10-Q	[2021-05-13]
10-Q	[2021-02-11]
10-K	[2020-11-25]
10-Q	[2020-08-04]
10-Q	[2020-05-05]
10-Q	[2020-02-04]
10-K	[2019-11-20]
10-Q	[2019-08-06]
10-Q	[2019-05-08]