The Walt Disney Company (NYSE: DIS) today reported earnings for
its third fiscal quarter ended July 2, 2022.
- Revenues for the quarter and nine months grew 26% and 28%,
respectively.
- Diluted earnings per share (EPS) from continuing operations for
the quarter increased to $0.77 from $0.50 in the prior-year
quarter. Excluding certain items(1), diluted EPS for the quarter
increased to $1.09 from $0.80 in the prior-year quarter.
- Diluted EPS from continuing operations for the nine months
ended July 2, 2022 increased to $1.66 from $1.02 in the prior-year
period. Excluding certain items(1), diluted EPS for the nine months
increased to $3.22 from $1.91 in the prior-year period.
“We had an excellent quarter, with our world-class creative and
business teams powering outstanding performance at our domestic
theme parks, big increases in live-sports viewership, and
significant subscriber growth at our streaming services. With 14.4
million Disney+ subscribers added in the fiscal third quarter, we
now have 221 million total subscriptions across our streaming
offerings,” said Bob Chapek, Chief Executive Officer, The Walt
Disney Company. “We continue to transform entertainment as we near
our second century, with compelling new storytelling across our
many platforms and unique immersive physical experiences that
exceed guest expectations, all of which are reflected in our strong
operating results this quarter.”
The following table summarizes the third quarter results for
fiscal 2022 and 2021:
Quarter Ended
Nine Months Ended
(in millions, except per share
amounts)
July 2, 2022
July 3, 2021
Change
July 2, 2022
July 3, 2021
Change
Revenues
$
21,504
$
17,022
26
%
$
62,572
$
48,884
28
%
Income from continuing operations before
income taxes
$
2,119
$
995
>100 %
$
4,909
$
2,271
>100 %
Total segment operating income(1)
$
3,567
$
2,382
50
%
$
10,524
$
6,179
70
%
Net income from continuing
operations(2)
$
1,409
$
923
53
%
$
3,031
$
1,864
63
%
Diluted EPS from continuing
operations(2)
$
0.77
$
0.50
54
%
$
1.66
$
1.02
63
%
Diluted EPS excluding certain items(1)
$
1.09
$
0.80
36
%
$
3.22
$
1.91
69
%
Cash provided by continuing operations
$
1,922
$
1,466
31
%
$
3,478
$
2,934
19
%
Free cash flow(1)
$
187
$
528
(65
) %
$
(317
)
$
466
nm
(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 12 through
15 for how we define and calculate these measures and a
reconciliation thereof to the most directly comparable GAAP
measures.
(2)
Reflects amounts attributable to
shareholders of The Walt Disney Company, i.e. after deduction of
income attributable to noncontrolling interests.
SEGMENT RESULTS
The Company evaluates the performance of its operating segments
based on segment operating income, and management uses total
segment operating income as a measure of the performance of
operating businesses separate from non-operating factors. The
Company believes that information about total segment operating
income assists investors by allowing them to evaluate changes in
the operating results of the Company’s portfolio of businesses
separate from non-operational factors that affect net income, thus
providing separate insight into both operations and other factors
that affect reported results.
The following are reconciliations of income from continuing
operations before income taxes to total segment operating income
and revenues to segment revenues (in millions):
Quarter Ended
Nine Months Ended
July 2, 2022
July 3, 2021
Change
July 2, 2022
July 3, 2021
Change
Income from continuing operations before
income taxes
$
2,119
$
995
>100 %
$
4,909
$
2,271
>100 %
Add (subtract):
Content License Early Termination(1)
—
—
nm
1,023
—
nm
Corporate and unallocated shared
expenses
325
212
(53
) %
825
645
(28
) %
Restructuring and impairment charges
42
35
(20
) %
237
562
58
%
Other (income) expense, net
136
91
(49
) %
730
(214
)
nm
Interest expense, net
360
445
19
%
1,026
1,089
6
%
Amortization of TFCF and Hulu intangible
assets and fair value step-up on film and television costs
585
604
3
%
1,774
1,826
3
%
Total segment operating income
$
3,567
$
2,382
50
%
$
10,524
$
6,179
70
%
Quarter Ended
Nine Months Ended
July 2, 2022
July 3, 2021
Change
July 2, 2022
July 3, 2021
Change
Revenues
$
21,504
$
17,022
26
%
$
62,572
$
48,884
28
%
Contract License Early Termination(1)
—
—
nm
1,023
—
nm
Total segment revenues
$
21,504
$
17,022
26
%
$
63,595
$
48,884
30
%
(1)
During the nine months ended July 2, 2022,
the Company recognized a $1,023 million reduction in revenue for
the amount due to a customer to early terminate license agreements
for film and television content delivered in previous years in
order for the Company to use the content primarily on our
direct-to-consumer services (Content License Early Termination).
The Content License Early Termination adjustment is included in
Company revenues, but excluded from total segment revenues.
The following table summarizes the third quarter and nine-month
segment revenue and segment operating income (loss) for fiscal 2022
and 2021 (in millions):
Quarter Ended
Nine Months Ended
July 2, 2022
July 3, 2021
Change
July 2, 2022
July 3, 2021
Change
Segment Revenues:
Disney Media and Entertainment
Distribution
$
14,110
$
12,681
11
%
$
42,315
$
37,782
12
%
Disney Parks, Experiences and Products
7,394
4,341
70
%
21,280
11,102
92
%
Total Segment Revenues
$
21,504
$
17,022
26
%
$
63,595
$
48,884
30
%
Segment operating income (loss):
Disney Media and Entertainment
Distribution
$
1,381
$
2,026
(32
) %
$
4,133
$
6,348
(35
) %
Disney Parks, Experiences and Products
2,186
356
>100 %
6,391
(169
)
nm
Total Segment Operating Income
$
3,567
$
2,382
50
%
$
10,524
$
6,179
70
%
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
Nine Months Ended
July 2, 2022
July 3, 2021
July 2, 2022
July 3, 2021
Change
Revenues:
Linear Networks
$
7,189
$
6,956
3
%
$
22,011
$
21,395
3
%
Direct-to-Consumer
5,058
4,256
19
%
14,651
11,759
25
%
Content Sales/Licensing and Other
2,111
1,681
26
%
6,410
5,299
21
%
Elimination of Intrasegment Revenue(1)
(248
)
(212
)
(17
)%
(757
)
(671
)
(13
)%
$
14,110
$
12,681
11
%
$
42,315
$
37,782
12
%
Operating income (loss):
Linear Networks
$
2,469
$
2,187
13
%
$
6,783
$
6,765
—
%
Direct-to-Consumer
(1,061
)
(293
)
>(100
)%
(2,541
)
(1,049
)
>(100
)%
Content Sales/Licensing and Other
(27
)
132
nm
(109
)
632
nm
$
1,381
$
2,026
(32
)%
$
4,133
$
6,348
(35
)%
(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 increased 3% to $7.2
billion, and operating income increased 13% to $2.5 billion. The
following table provides further detail of Linear Networks results
(in millions):
Quarter Ended
Change
July 2, 2022
July 3, 2021
Supplemental revenue detail
Domestic Channels
$
5,700
$
5,561
2
%
International Channels
1,489
1,395
7
%
$
7,189
$
6,956
3
%
Supplemental operating income detail
Domestic Channels
$
2,075
$
1,803
15
%
International Channels
166
169
(2
) %
Equity in the income of investees
228
215
6
%
$
2,469
$
2,187
13
%
Domestic Channels
Domestic Channels revenues for the quarter increased 2% to $5.7
billion, and operating income increased 15% to $2.1 billion,
reflecting higher results at both Cable and Broadcasting.
The increase at Cable was due to growth in advertising revenue
and to a lesser extent, a decrease in marketing costs and an
increase in affiliate revenue. Advertising revenue growth was due
to an increase in rates and higher impressions reflecting higher
average viewership. Rates and impressions benefited from the timing
of the NBA Finals, which aired in the current quarter compared to
the fourth quarter of the prior year as a result of a delayed start
of the 2021 NBA season due to COVID-19. Higher affiliate revenue
was driven by an increase in contractual rates, partially offset by
fewer subscribers. Programming and production costs were comparable
to the prior-year quarter as higher costs for NBA programming and
an increase in sports production costs were largely offset by lower
MLB and soccer rights costs. Higher NBA rights costs reflected the
timing of the Finals, which are programmed by ESPN and aired on
ABC, and contractual rate increases, partially offset by fewer
regular season games in the current quarter. Lower costs for MLB
programming were due to airing 13 games in the current quarter
compared to 44 games in the prior-year quarter. The decrease in
soccer programming costs reflected the comparison to the airing of
UEFA Euro 2020 in the prior-year quarter. UEFA Euro typically
occurs every four years. UEFA Euro 2020 was originally scheduled to
occur in fiscal 2020, but was held in fiscal 2021 due to
COVID-19.
The increase at Broadcasting was due to higher results at ABC
and, to a lesser extent, at the owned television stations. The
increase at ABC reflected lower programming and production costs,
growth in affiliate revenue, which reflected higher contractual
rates, and a decrease in marketing costs, partially offset by lower
advertising revenue. Lower programming and production costs were
due to a lower cost mix of programming and, to a lesser extent, the
timing of the NBA Finals, which are programmed by ESPN. The lower
cost mix of programming reflected the timing of The Academy Awards
and fewer hours of scripted and acquired reality programming,
partially offset by the cost of airing new NHL programming. The
Academy Awards aired in the second quarter of the current fiscal
year compared to the third quarter of the prior fiscal year. We
acquired rights to NHL programming starting with the 2021/2022
season. Lower advertising revenue was due to the timing of The
Academy Awards, a decrease in viewership and to a lesser extent,
fewer units delivered, partially offset by higher rates. Fewer
units delivered resulted from the impact of more hours programmed
by ESPN due to the timing of the NBA Finals. The increase at the
owned television stations reflected higher affiliate and
advertising revenue. The increase in affiliate revenue was due to
higher contractual rates. Higher advertising revenue resulted from
increased rates reflecting political advertising, partially offset
by the impact of the timing of The Academy Awards.
International Channels
International Channels revenues for the quarter increased 7% to
$1.5 billion and operating income was comparable to the prior-year
quarter at $0.2 billion reflecting lower operating income from
channels that operated for the entire current and prior-year
quarters (ongoing channels), offset by a benefit from channel
closures.
Lower results from ongoing channels were primarily due to an
increase in sports programming costs, partially offset by
advertising revenue growth reflecting higher average viewership.
The increases in sports programming costs and advertising revenue
were due to the airing of 64 Indian Premier League (IPL) cricket
matches in the current quarter compared to 29 matches in the
prior-year quarter. IPL cricket matches typically occur in our
second and third fiscal quarters. The increase in the number of
matches in the current quarter was due to a shift in the timing of
matches in the prior year from the third quarter to the fourth
quarter as a result of COVID-19 and the IPL adding matches to the
current season.
Direct-to-Consumer
Direct-to-Consumer revenues for the quarter increased 19% to
$5.1 billion and operating loss increased $0.8 billion to $1.1
billion. The increase in operating loss was due to a higher loss at
Disney+, lower operating income at Hulu and, to a lesser extent, a
higher loss at ESPN+.
Lower results at Disney+ reflected higher programming and
production, technology and marketing costs, partially offset by
increases in subscription revenue and, to a lesser extent,
advertising revenue. The increase in programming and production
costs was primarily due to more content provided on the service,
including the impact of airing 64 IPL cricket matches in the
current quarter compared to 29 matches in the prior-year quarter.
Higher subscription revenue was due to subscriber growth and
increases in retail pricing, partially offset by an unfavorable
foreign exchange impact. The increase in subscribers as well as in
technology and marketing costs reflected growth in existing markets
and, to a lesser extent, expansion to new markets. Advertising
revenue growth was due to the additional IPL matches in the current
quarter.
The decrease at Hulu was due to higher programming and
production and marketing costs, partially offset by subscription
revenue growth. The increase in programming and production costs
was primarily due to higher subscriber-based fees for programming
the Live TV service reflecting an increase in the number of
subscribers, rate increases and the carriage of more networks.
Subscription revenue growth was due to increases in subscribers and
in retail pricing.
Lower results at ESPN+ were due to higher sports programming
costs, partially offset by an increase in subscription revenue due
to subscriber growth.
The following tables present additional information about our
Disney+, ESPN+ and Hulu direct-to-consumer (DTC) product
offerings(1).
Paid subscribers(1) as of:
(in millions)
July 2, 2022
July 3, 2021
Change
Disney+
Domestic (U.S. and Canada)
44.5
37.9
17
%
International (excluding Disney+
Hotstar)(1)
49.2
33.2
48
%
Disney+ (excluding Disney+ Hotstar)(2)
93.6
71.1
32
%
Disney+ Hotstar
58.4
44.9
30
%
Total Disney+(2)
152.1
116.0
31
%
ESPN+
22.8
14.9
53
%
Hulu
SVOD Only
42.2
39.1
8
%
Live TV + SVOD
4.0
3.7
8
%
Total Hulu(2)
46.2
42.8
8
%
Average Monthly Revenue Per Paid Subscriber(1) for the quarter
ended:
July 2, 2022
July 3, 2021
Change
Disney+
Domestic (U.S. and Canada)
$
6.27
$
6.62
(5
) %
International (excluding Disney+
Hotstar)(1)
$
6.31
$
5.52
14
%
Disney+ (excluding Disney+ Hotstar)
$
6.29
$
6.12
3
%
Disney+ Hotstar
$
1.20
$
0.78
54
%
Global Disney+
$
4.35
$
4.16
5
%
ESPN+
$
4.55
$
4.47
2
%
Hulu
SVOD Only
$
12.92
$
13.15
(2
) %
Live TV + SVOD
$
87.92
$
84.09
5
%
(1)
See discussion on page 11—DTC Product
Descriptions and Key Definitions
(2)
Total may not equal the sum of the column
due to rounding
The average monthly revenue per paid subscriber for domestic
Disney+ decreased from $6.62 to $6.27 due to 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) increased from
$5.52 to $6.31 due to increases in retail pricing, partially offset
by an unfavorable foreign exchange impact and a higher mix of
wholesale subscribers.
The average monthly revenue per paid subscriber for Disney+
Hotstar increased from $0.78 to $1.20 due to higher per-subscriber
advertising revenue.
The average monthly revenue per paid subscriber for ESPN+
increased from $4.47 to $4.55 due to an increase in retail pricing
and, to a lesser extent, a lower mix of annual subscribers and
higher per-subscriber advertising revenue, 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 decreased from $13.15 to $12.92 due to lower
per-subscriber advertising revenue and a higher mix of subscribers
to multi-product and promotional offerings, partially offset by an
increase in retail pricing.
The average monthly revenue per paid subscriber for the Hulu
Live TV + SVOD service increased from $84.09 to $87.92 due to an
increase in retail pricing and higher per-subscriber advertising
revenue, partially offset by a higher mix of subscribers to
multi-product offerings.
Content Sales/Licensing and Other
Content Sales/Licensing and Other revenues for the quarter
increased 26% to $2.1 billion and segment operating results
decreased from income of $132 million to a loss of $27 million. The
decrease in operating results was due to an unfavorable foreign
exchange impact and lower TV/SVOD and home entertainment
distribution results. These decreases were partially offset by an
increase at our stage play business, as productions were generally
shut down in the prior-year quarter due to COVID-19, and higher
theatrical distribution results.
The decrease in TV/SVOD distribution results was due to a
decrease in sales of theatrical film content primarily due to a
shift from licensing content to third parties to distribution on
our DTC services.
The decrease in home entertainment results was due to lower unit
sales of catalog titles.
The increase in theatrical distribution results was due to the
strong performance of Doctor Strange In the Multiverse of Madness
in the current quarter compared to Cruella in the prior-year
quarter. Current quarter releases also included Lightyear and The
Bob’s Burgers Movie.
Disney Parks, Experiences and
Products
Disney Parks, Experiences and Products revenues for the quarter
increased to $7.4 billion compared to $4.3 billion in the
prior-year quarter. Segment operating income increased $1.8 billion
to $2.2 billion compared to $0.4 billion in the prior-year quarter.
Higher operating results for the quarter reflected increases at
domestic parks and experiences and, to a lesser extent, at
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 higher costs. Higher volumes were due to increases in
attendance, occupied room nights and cruise ship sailings. Cruise
ships were operating during the entire current quarter while
sailings were suspended in the prior-year quarter. Guest spending
growth was due to an increase in average per capita ticket revenue
and higher average daily hotel room rates. The increase in average
per capita ticket revenue was due to the introduction of Genie+ and
Lightning Lane in the first quarter of the current fiscal year and
a reduced impact from promotions at Walt Disney World Resort,
partially offset by an unfavorable attendance mix at Disneyland
Resort. Higher costs were primarily due to volume growth, cost
inflation and new guest offerings. Our domestic parks and resorts
were open for the entire current quarter, whereas Disneyland Resort
was open for 65 days of the prior-year quarter, and Walt Disney
World Resort operated at reduced capacity in the prior-year
quarter.
Improved results at our international parks and resorts were
primarily due to growth at Disneyland Paris, partially offset by a
decrease at Shanghai Disney Resort. Higher operating results at
Disneyland Paris were due to increases in attendance and occupied
room nights, partially offset by higher operating costs due to
volume growth. Disneyland Paris was open for the entire current
quarter compared to 19 days in the prior-year quarter. The decrease
at Shanghai Disney Resort was due to the park being open for all of
the prior-year quarter but only for 3 days in the current
quarter.
The following table presents supplemental revenue and operating
income (loss) detail for the Disney Parks, Experiences and Products
segment:
Quarter Ended
Change
(in millions)
July 2, 2022
July 3, 2021
Supplemental revenue detail
Parks & Experiences
Domestic
$
5,423
$
2,656
>100
%
International
788
526
50
%
Consumer Products
1,183
1,159
2
%
$
7,394
$
4,341
70
%
Supplemental operating income (loss)
detail
Parks & Experiences
Domestic
$
1,651
$
2
>100
%
International
(64
)
(210
)
70
%
Consumer Products
599
564
6
%
$
2,186
$
356
>100
%
COVID-19 PANDEMIC
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 Disney
Parks, Experiences and Products 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 generally in place in the
prior year. In addition, our cruise ships have generally been
operating without COVID-19-related capacity restrictions since
April 2022. Certain of our international parks and resorts continue
to be impacted by COVID-19-related closures and capacity and travel
restrictions. At the Disney Media and Entertainment Distribution
segment, our film and television productions have generally
resumed, although we have seen disruptions of production activities
depending on local circumstances. Thus far, we have generally been
able to release our films theatrically in fiscal 2022, although
certain markets continue to impose restrictions on theater openings
and capacity.
We have incurred, and will continue to incur, costs to address
government regulations and the safety of our employees, guests and
talent, of which certain costs are capitalized and will be
amortized over future periods.
OTHER FINANCIAL INFORMATION
Corporate and Unallocated Shared
Expenses
Corporate and unallocated shared expenses increased $113 million
for the quarter, from $212 million to $325 million, driven by
higher compensation and human resource-related costs.
Restructuring and Impairment
Charges
In the current quarter, the Company recognized charges of $42
million primarily due to asset impairments related to our
businesses in Russia. During the prior-year quarter, the Company
recognized charges of $35 million due to severance at our parks and
experience businesses.
Other Income (Expense),
net
In the current quarter, the Company recorded a $136 million
non-cash loss to adjust its investment in DraftKings, Inc.
(DraftKings) to fair value (DraftKings loss). In the prior-year
quarter, the Company recorded a $217 million DraftKings loss,
partially offset by a $126 million gain on the sale of the
Company’s 50% interest in a German free-to-air (FTA) television
network (German FTA gain).
Interest Expense, net
Interest expense, net was as follows (in millions):
Quarter Ended
July 2, 2022
July 3, 2021
Change
Interest expense
$
(380
)
$
(404
)
6
%
Interest income, investment income and
other
20
(41
)
nm
Interest expense, net
$
(360
)
$
(445
)
19
%
The decrease in interest expense was driven by lower average
debt balances and higher capitalized interest, partially offset by
higher average rates.
The increase in interest income, investment income and other was
due to a favorable comparison of pension and postretirement benefit
costs, other than service cost, which was a net benefit in the
current quarter and an expense in the prior-year quarter, and lower
investment losses in the current quarter.
Equity in the Income of
Investees
Equity in the income of investees was as follows (in
millions):
Quarter Ended
July 2, 2022
July 3, 2021
Change
Amounts included in segment results:
Disney Media and Entertainment
Distribution
$
230
$
220
5
%
Disney Parks, Experiences and Products
(2
)
(5
)
60
%
Amortization of TFCF intangible assets
related to equity investees
(3
)
(4
)
25
%
Equity in the income of investees
$
225
$
211
7
%
Income Taxes
The effective income tax rate was as follows:
Quarter Ended
July 2, 2022
July 3, 2021
Income from continuing operations before
income taxes
$
2,119
$
995
Income tax expense on continuing
operations
617
(133
)
Effective income tax rate - continuing
operations
29.1
%
(13.4
) %
The effective income tax rate in the current quarter was higher
than the U.S. statutory rate due to higher effective tax rates on
foreign earnings, including the impact of foreign losses and
foreign tax credits for which we are unable to recognize a tax
benefit. The effective income tax rate was a benefit in the
prior-year quarter due to favorable adjustments related to prior
years.
Noncontrolling Interests
Net income attributable to noncontrolling interests was as
follows (in millions):
Quarter Ended
July 2, 2022
July 3, 2021
Change
Net income from continuing operations
attributable to noncontrolling interests
$
(93
)
$
(205
)
55
%
The decrease in net income from continuing operations
attributable to noncontrolling interests was due to higher losses
at Shanghai Disney Resort, partially offset by higher results at
ESPN.
Net income attributable to noncontrolling interests is
determined on income after royalties and management fees, financing
costs and income taxes, as applicable.
Cash Flow
Cash provided by operations and free cash flow were as follows
(in millions):
Nine Months Ended
July 2, 2022
July 3, 2021
Change
Cash provided by operations
$
3,478
$
2,934
$
544
Investments in parks, resorts and other
property
(3,795
)
(2,468
)
(1,327
)
Free cash flow(1)
$
(317
)
$
466
$
(783
)
(1)
Free cash flow is not a financial measure
defined by GAAP. See the discussion on pages 12 through 15.
Cash provided by operations for fiscal 2022 increased by $0.5
billion from $2.9 billion in the prior-year period to $3.5 billion
in the current period. The increase was due to higher operating
income and lower pension plan contributions, partially offset by
higher spending for film and television content and a partial
payment for the Content License Early Termination.
Capital Expenditures and Depreciation
Expense
Investments in parks, resorts and other property were as follows
(in millions):
Nine Months Ended
July 2, 2022
July 3, 2021
Disney Media and Entertainment
Distribution
$
543
$
582
Disney Parks, Experiences and Products
Domestic
2,226
1,121
International
584
502
Total Disney Parks, Experiences and
Products
2,810
1,623
Corporate
442
263
Total investments in parks, resorts and
other property
$
3,795
$
2,468
Capital expenditures increased from $2.5 billion to $3.8 billion
primarily due to higher spending at Disney Parks, Experiences and
Products on cruise ship fleet expansion. The increase also
reflected higher spending on corporate facilities.
Depreciation expense was as follows (in millions):
Nine Months Ended
July 2, 2022
July 3, 2021
Disney Media and Entertainment
Distribution
$
485
$
453
Disney Parks, Experiences and Products
Domestic
1,236
1,162
International
496
538
Total Disney Parks, Experiences and
Products
1,732
1,700
Corporate
141
139
Total depreciation expense
$
2,358
$
2,292
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 as a package that includes all three
services (the SVOD Bundle). Effective December 21, 2021, Hulu Live
TV + SVOD includes Disney+ and ESPN+ (the new Hulu Live TV + SVOD
offering), whereas previously, Hulu Live TV + SVOD was offered as a
standalone service or with Disney+ and ESPN+ as optional additions
(the old Hulu Live TV + SVOD offering). Effective March 15, 2022,
Hulu SVOD Only is also offered with Disney+ as an optional add-on.
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, through
third-party platforms/apps or 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 the SVOD Bundle are counted as a
paid subscriber for each service included in the SVOD Bundle and
subscribers to the Hulu Live TV + SVOD offerings are counted as one
paid subscriber for each of the Hulu Live TV + SVOD, Disney+ and
ESPN+ offerings. A Hulu SVOD Only subscriber that adds Disney+ is
counted as one paid subscriber for each of the Hulu SVOD Only and
Disney+ offerings. 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. Revenue for the new
Hulu Live TV + SVOD offering is allocated to the SVOD services
based on the wholesale price of the SVOD Bundle. 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
Nine Months Ended
July 2, 2022
July 3, 2021
July 2, 2022
July 3, 2021
Cash provided by operations - continuing
operations
$
1,922
$
1,466
$
3,478
$
2,934
Cash used in investing activities -
continuing operations
(1,848
)
(758
)
(3,872
)
(2,085
)
Cash used in financing activities -
continuing operations
(150
)
(530
)
(2,247
)
(2,771
)
Cash (used in) provided by discontinued
operations
—
(2
)
(4
)
6
Impact of exchange rates on cash, cash
equivalents and restricted cash
(238
)
7
(354
)
77
Change in cash, cash equivalents and
restricted cash
(314
)
183
(2,999
)
(1,839
)
Cash, cash equivalents and restricted
cash, beginning of period
13,318
15,932
16,003
17,954
Cash, cash equivalents and restricted
cash, end of period
$
13,004
$
16,115
$
13,004
$
16,115
The following table presents a reconciliation of the Company’s
consolidated cash provided by operations to free cash flow (in
millions):
Quarter Ended
Nine Months Ended
July 2, 2022
July 3, 2021
Change
July 2, 2022
July 3, 2021
Change
Cash provided by operations - continuing
operations
$
1,922
$
1,466
$
456
$
3,478
$
2,934
$
544
Investments in parks, resorts and other
property
(1,735
)
(938
)
(797
)
(3,795
)
(2,468
)
(1,327
)
Free cash flow
$
187
$
528
$
(341
)
$
(317
)
$
466
$
(783
)
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 third 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 July 2, 2022
As reported
$
2,119
$
(617
)
$
1,502
$
0.77
54
%
Exclude:
Amortization of TFCF and Hulu intangible
assets and fair value step-up on film and television costs(4)
585
(136
)
449
0.24
Other (income) expense, net(5)
136
(32
)
104
0.06
Restructuring and impairment
charges(6)
42
(10
)
32
0.02
Excluding certain items
$
2,882
$
(795
)
$
2,087
$
1.09
36
%
Quarter Ended July 3, 2021
As reported
$
995
$
133
$
1,128
$
0.50
Exclude:
Amortization of TFCF and Hulu intangible
assets and fair value step-up on film and television costs(4)
604
(141
)
463
0.25
Other (income) expense, net(5)
91
(22
)
69
0.04
Restructuring and impairment
charges(6)
35
(8
)
27
0.01
Excluding certain items
$
1,725
$
(38
)
$
1,687
$
0.80
(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 $422 million, step-up amortization was $160
million and amortization of intangible assets related to TFCF
equity investees was $3 million. For the prior-year quarter,
intangible asset amortization was $434 million, step-up
amortization was $166 million and amortization of intangible assets
related to TFCF equity investees was $4 million.
(5)
In the current quarter, other income
(expense), net was due to the DraftKings loss ($136 million). For
the prior-year quarter, other income (expense), net was due to the
DraftKings loss ($217 million), partially offset by the German FTA
gain ($126 million).
(6)
Charges for the current quarter were
primarily due to asset impairments related to our businesses in
Russia. Charges for the prior-year quarter were due to severance at
our parks and experiences businesses.
The following table reconciles reported diluted EPS from
continuing operations to diluted EPS excluding certain items for
the current and prior year nine-month periods:
(in millions except EPS)
Pre-Tax Income/
Loss
Tax Benefit/
Expense(1)
After-Tax Income/
Loss(2)
Diluted EPS(3)
Change vs. prior-year period
Nine Months Ended July 2, 2022:
As reported
$
4,909
$
(1,610
)
$
3,299
$
1.66
63
%
Exclude:
Amortization of TFCF and Hulu intangible
assets and fair value step-up on film and television costs(4)
1,774
(413
)
1,361
0.73
Contract License Early Termination
1,023
(238
)
785
0.43
Other (income) expense, net(5)
730
(170
)
560
0.31
Restructuring and impairment
charges(6)
237
(55
)
182
0.10
Excluding certain items
$
8,673
$
(2,486
)
$
6,187
$
3.22
69
%
Nine Months Ended July 3, 2021:
As reported
$
2,271
$
9
$
2,280
$
1.02
Exclude:
Amortization of TFCF and Hulu intangible
assets and fair value step-up on film and television costs(4)
1,826
(425
)
1,401
0.74
Restructuring and impairment
charges(6)
562
(132
)
430
0.24
Other (income) expense, net(5)
(214
)
49
(165
)
(0.09
)
Excluding certain items
$
4,445
$
(499
)
$
3,946
$
1.91
(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 nine-month period,
intangible asset amortization was $1,292 million, step-up
amortization was $473 million and amortization of intangible assets
related to TFCF equity investees was $9 million. For the prior-year
nine-month period, intangible asset amortization was $1,328
million, step-up amortization was $487 million and amortization of
intangible assets related to TFCF equity investees was $11
million.
(5)
For the current nine-month period, other
(income) expense, net was due to the DraftKings loss ($726
million). For the prior-year nine-month period, other (income)
expense, net was due to gains from the sales of investments ($312
million), partially offset by the DraftKings loss ($98
million).
(6)
Charges for the current nine-month period
were due to the impairment of an intangible and other assets
related to our businesses in Russia. Charges for the prior-year
nine-month period, were due to asset impairments and severance
costs primarily related to the planned closure of an animation
studio and a substantial number of our Disney-branded retail
stores, as well as severance at our other businesses.
CONFERENCE CALL INFORMATION
In conjunction with this release, The Walt Disney Company will
host a conference call today, August 10, 2022, at 4:30 PM EDT/1:30
PM PDT via a live Webcast. To access the Webcast go to www.disney.com/investors. The discussion will be
archived.
FORWARD-LOOKING STATEMENTS
Certain statements and information in this earnings release may
constitute “forward-looking statements” within the meaning of the
Private Securities Litigation Reform Act of 1995, including
statements regarding future performance and growth; and the future
impact of COVID-19 on our businesses 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 or other business decisions, as
well as from developments beyond the Company’s control,
including:
- further changes in domestic and global economic
conditions;
- changes in or pressures from competitive conditions and
consumer preferences, including competition to create or acquire
content;
- 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
is 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 2, 2021, 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
Nine Months Ended
July 2, 2022
July 3, 2021
July 2, 2022
July 3, 2021
Revenues
$
21,504
$
17,022
$
62,572
$
48,884
Costs and expenses
(19,072
)
(15,667
)
(56,344
)
(45,824
)
Restructuring and impairment charges
(42
)
(35
)
(237
)
(562
)
Other income (expense), net
(136
)
(91
)
(730
)
214
Interest expense, net
(360
)
(445
)
(1,026
)
(1,089
)
Equity in the income of investees
225
211
674
648
Income from continuing operations before
income taxes
2,119
995
4,909
2,271
Income taxes on continuing operations
(617
)
133
(1,610
)
9
Net income from continuing operations
1,502
1,128
3,299
2,280
Loss from discontinued operations, net of
income tax benefit of $0, $2, $14 and $9, respectively
—
(5
)
(48
)
(28
)
Net income
1,502
1,123
3,251
2,252
Net income from continuing operations
attributable to noncontrolling interests
(93
)
(205
)
(268
)
(416
)
Net income attributable to The Walt Disney
Company (Disney)
$
1,409
$
918
$
2,983
$
1,836
Earnings (loss) per share attributable to
Disney(1):
Diluted
Continuing operations
$
0.77
$
0.50
$
1.66
$
1.02
Discontinued operations
—
—
(0.03
)
(0.02
)
$
0.77
$
0.50
$
1.63
$
1.00
Basic
Continuing operations
$
0.77
$
0.51
$
1.66
$
1.03
Discontinued operations
—
—
(0.03
)
(0.02
)
$
0.77
$
0.50
$
1.64
$
1.01
Weighted average number of common and
common equivalent shares outstanding:
Diluted
1,825
1,830
1,827
1,827
Basic
1,823
1,818
1,821
1,816
(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)
July 2, 2022
October 2, 2021
ASSETS
Current assets
Cash and cash equivalents
$
12,959
$
15,959
Receivables, net
13,685
13,367
Inventories
1,590
1,331
Content advances
1,902
2,183
Other current assets
1,286
817
Total current assets
31,422
33,657
Produced and licensed content costs
34,077
29,549
Investments
3,236
3,935
Parks, resorts and other property
Attractions, buildings and equipment
65,599
64,892
Accumulated depreciation
(39,089
)
(37,920
)
26,510
26,972
Projects in progress
5,956
4,521
Land
1,117
1,131
33,583
32,624
Intangible assets, net
15,334
17,115
Goodwill
77,945
78,071
Other assets
8,477
8,658
Total assets
$
204,074
$
203,609
LIABILITIES AND EQUITY
Current liabilities
Accounts payable and other accrued
liabilities
$
20,858
$
20,894
Current portion of borrowings
5,580
5,866
Deferred revenue and other
4,266
4,317
Total current liabilities
30,704
31,077
Borrowings
46,022
48,540
Deferred income taxes
8,034
7,246
Other long-term liabilities
13,456
14,522
Commitments and contingencies
Redeemable noncontrolling interests
9,425
9,213
Equity
Preferred stock
—
—
Common stock, $0.01 par value, Authorized
– 4.6 billion shares, Issued – 1.8 billion shares
56,087
55,471
Retained earnings
43,462
40,429
Accumulated other comprehensive loss
(6,142
)
(6,440
)
Treasury stock, at cost, 19 million
shares
(907
)
(907
)
Total Disney Shareholders’ equity
92,500
88,553
Noncontrolling interests
3,933
4,458
Total equity
96,433
93,011
Total liabilities and equity
$
204,074
$
203,609
THE WALT DISNEY
COMPANY
CONDENSED CONSOLIDATED
STATEMENTS OF CASH FLOWS
(unaudited; in
millions)
Nine Months Ended
July 2, 2022
July 3, 2021
OPERATING ACTIVITIES
Net income from continuing operations
$
3,299
$
2,280
Depreciation and amortization
3,846
3,836
Net (gain) loss on investments
779
(325
)
Deferred income taxes
605
(749
)
Equity in the income of investees
(674
)
(648
)
Cash distributions received from equity
investees
575
546
Net change in produced and licensed
content costs and advances
(4,306
)
(3,192
)
Equity-based compensation
723
428
Pension and postretirement medical benefit
cost amortization
465
582
Other, net
492
273
Changes in operating assets and
liabilities:
Receivables
(506
)
(301
)
Inventories
(259
)
236
Other assets
(684
)
(113
)
Accounts payable and other liabilities
(892
)
341
Income taxes
15
(260
)
Cash provided by operations - continuing
operations
3,478
2,934
INVESTING ACTIVITIES
Investments in parks, resorts and other
property
(3,795
)
(2,468
)
Other, net
(77
)
383
Cash used in investing activities -
continuing operations
(3,872
)
(2,085
)
FINANCING ACTIVITIES
Commercial paper payments, net
(275
)
(99
)
Borrowings
152
43
Reduction of borrowings
(1,400
)
(2,319
)
Proceeds from exercise of stock
options
100
405
Other, net
(824
)
(801
)
Cash used in financing activities -
continuing operations
(2,247
)
(2,771
)
CASH FLOWS FROM DISCONTINUED
OPERATIONS
Cash provided by (used in) operations -
discontinued operations
8
(2
)
Cash provided by investing activities -
discontinued operations
—
8
Cash used in financing activities -
discontinued operations
(12
)
—
Cash (used in) provided by discontinued
operations
(4
)
6
Impact of exchange rates on cash, cash
equivalents and restricted cash
(354
)
77
Change in cash, cash equivalents and
restricted cash
(2,999
)
(1,839
)
Cash, cash equivalents and restricted
cash, beginning of period
16,003
17,954
Cash, cash equivalents and restricted
cash, end of period
$
13,004
$
16,115
View source
version on businesswire.com: https://www.businesswire.com/news/home/20220810005740/en/
David Jefferson Corporate Communications 818-560-4832
Alexia Quadrani Investor Relations 818-560-6601
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