Walt Disney Co. — FY2023 Form 10-K Summary
Business context and reporting period
Disney is a global entertainment company operating in Entertainment, Sports and Experiences. This 10-K covers the fiscal year ended September 30, 2023; it is an annual filing, not a standalone fourth-quarter report. Fiscal 2022 was the comparable year. Disney reorganized its reporting into the three current segments during FY2023 and recast prior-period segment information.
Financial performance and liquidity
| Metric | FY2023 | FY2022 | Change |
|---|---|---|---|
| Revenue | $88.9 billion | $82.7 billion | +7% |
| Income from continuing operations before tax | $4.8 billion | $5.3 billion | -10% |
| Net income attributable to Disney | $2.4 billion | $3.1 billion | -25% |
| Diluted EPS from continuing operations | $1.29 | $1.75 | -26% |
| Cash provided by operating activities | $9.9 billion | $6.0 billion | +64% |
| Capital expenditures | $5.0 billion | $4.9 billion | +$26 million |
Operating cash flow less capital expenditures was approximately $4.9 billion, a simple cash-flow proxy rather than a company-defined free-cash-flow measure. Cash and cash equivalents were $14.2 billion at year-end. Borrowings totaled $46.4 billion, including $4.3 billion current and $42.1 billion long-term; borrowings less cash were approximately $32.2 billion. Current assets of $32.8 billion exceeded current liabilities of $31.1 billion. The company reported $12.25 billion of unused bank facilities and said it met its interest-coverage covenant by a significant margin.
Experiences was the largest operating-income contributor: revenue rose 16% to $32.5 billion and segment operating income increased 23% to $9.0 billion, led by higher park attendance, guest spending and cruise activity. Entertainment revenue increased 3% to $40.6 billion, but operating income fell 32% to $1.4 billion. Sports revenue declined 1% to $17.1 billion and operating income fell 9% to $2.5 billion. Segment operating income excludes corporate expenses, restructuring and impairment charges, interest, acquisition amortization and other items; it is not consolidated operating income.
Material changes versus FY2022
- Revenue growth was led by Experiences and higher streaming subscription fees, partly offset by falling linear-network advertising, affiliate fees and TV/VOD distribution revenue.
- Disney+ Core paid subscribers rose 9% to 112.6 million; Disney+ Hotstar subscribers fell 39% to 37.6 million. Hulu subscribers increased 3% to 48.5 million. ESPN+ subscribers increased 7% to 26.0 million.
- Direct-to-Consumer operating loss narrowed to $2.5 billion from $3.4 billion, but the business remained loss-making.
- Restructuring and impairment charges rose to $3.9 billion from $237 million, including $2.6 billion for content impairment and license terminations, $721 million of goodwill impairments and $357 million of severance.
- Operating cash flow improved substantially, reflecting lower film and episodic content spending, including production disruption from labor stoppages, and higher cash flow at Experiences.
Outlook, management commentary, risks and unusual items
- Disney expected FY2024 capital expenditures of approximately $6 billion and produced and licensed content spending of approximately $25 billion, with sports rights representing over 40% of content spend. These are expectations, not guarantees.
- The company planned approximately 15 film releases and approximately 225 episodic and film titles in FY2024, with timing and totals dependent on production resuming after writers’ and actors’ work stoppages.
- In November 2023, NBCUniversal exercised its put right requiring Disney to buy its 33% Hulu interest. Disney expected to pay a minimum of approximately $9.2 billion, net of unpaid capital-call contributions, with Hulu’s fair value to be determined in 2024; additional payment may be due if fair value exceeds the guaranteed floor. Disney will also share 50% of the related tax benefit with NBCU, primarily over 15 years.
- Key risks include continued subscriber losses in traditional television distribution, streaming profitability and churn, content and sports-rights costs, advertising-market weakness, labor disruptions, inflation, foreign exchange, regulation and reputational issues. Disney also highlighted risks from weather and other disruptions to parks and travel.
- Two major non-cash items affected results: content and goodwill impairments. The filing also disclosed a securities class action and shareholder derivative litigation alleging statements about Disney+ costs and subscriber growth; Disney said the cases were at an early stage and potential losses could not be reasonably estimated.
- Management reported effective disclosure controls and internal control over financial reporting. The independent auditor issued an unqualified opinion on the financial statements and internal controls.
Investor facts to verify
- Whether DTC losses continue to narrow and Disney+ and Hulu subscriber and average-revenue trends persist.
- Whether Experiences growth and margins hold up as attendance, pricing, labor costs and planned investment change.
- The final Hulu purchase price, payment timing, funding impact and resulting effect on leverage.
- Actual FY2024 content spending, capital expenditures and production schedules compared with management’s expectations.
- Further impairments, legal or tax developments, and the effect of continuing linear-network declines and sports-rights commitments.