Business context and reporting period
The Walt Disney Company is a diversified entertainment company operating through Disney Media and Entertainment Distribution (DMED) and Disney Parks, Experiences and Products (DPEP). This 10-K covers fiscal 2022, the 52 weeks ended October 1, 2022; it is an annual report, not a standalone 2022 fourth-quarter filing.
Financial performance
| Metric | FY2022 | FY2021 | Change |
|---|---|---|---|
| Revenue | $82.7 billion | $67.4 billion | +23% |
| Income from continuing operations before taxes | $5.3 billion | $2.6 billion | More than doubled |
| Net income attributable to Disney | $3.1 billion | $2.0 billion | +58% |
| Diluted EPS from continuing operations | $1.75 | $1.11 | +58% |
| Cash from continuing operations | $6.0 billion | $5.6 billion | +8% |
| Capital expenditures | $4.9 billion | $3.6 billion | +38% |
Cash from operations less capital expenditures was approximately $1.1 billion in FY2022. This is a simple calculation, not a company-reported free-cash-flow measure. Net margin was approximately 3.8%, calculated using Disney-attributable net income and reported revenue.
Segments
| Segment | FY2022 revenue | FY2022 operating income | Prior-year comparison |
|---|---|---|---|
| DMED | $55.0 billion | $4.2 billion | Revenue +8%; operating income -42% |
| DPEP | $28.7 billion | $7.9 billion | Revenue +73%; operating income rose from $0.5 billion |
Segment operating income is a non-GAAP measure. DMED’s direct-to-consumer (DTC) business generated $19.6 billion of revenue and a $4.0 billion operating loss, versus a $1.7 billion loss in FY2021. Disney+ had 164.2 million paid subscribers at year-end, ESPN+ 24.3 million and Hulu 47.2 million.
Liquidity, debt and capital allocation
- Cash and cash equivalents were $11.6 billion at October 1, 2022, down from $16.0 billion a year earlier.
- Total borrowings were $48.4 billion, down from $54.4 billion; reported current and long-term borrowings were $3.1 billion and $45.3 billion, respectively. Cash less borrowings was approximately negative $36.8 billion.
- Current assets of $29.1 billion were approximately equal to current liabilities of $29.1 billion.
- The company had $12.25 billion of unused committed bank facilities and reported meeting its interest-coverage covenant by a significant margin.
- No dividends were declared or paid for FY2022, and no shares were repurchased under a public repurchase plan.
Material changes, outlook and notable items
- Recovery in parks and experiences drove much of the improvement: DPEP segment operating income reached $7.9 billion, from $0.5 billion, as operations faced fewer COVID-related closures and capacity restrictions. Domestic parks and experiences operating income was $5.3 billion.
- DMED results weakened despite revenue growth, principally because DTC losses widened and Content Sales/Licensing moved from $0.6 billion of operating income to a $0.3 billion loss. Linear Networks operating income was broadly stable.
- Reported revenue included a $1.0 billion reduction from terminating certain prior content-licensing agreements so the content could be used primarily on Disney’s own DTC services. The company also recorded a $663 million non-cash loss on its DraftKings investment, $237 million of restructuring and impairment charges, and $2.4 billion of TFCF/Hulu acquisition amortization.
- Management expected FY2023 spending on produced and licensed content, including sports rights, to be in the low-$30-billion range, and capital expenditures of up to approximately $6.7 billion. The filing provides no specific consolidated revenue or EPS guidance.
- Disney planned to launch an ad-supported Disney+ tier in the U.S. in December 2022 and internationally beginning in late 2023. After the fiscal year-end, CEO Robert Iger returned on November 20, 2022, with organizational and operating changes anticipated; management noted these could lead to impairment charges.
- Key risks include DTC profitability and subscriber retention, continued pressure on linear television, content and sports-rights costs, inflation and foreign exchange, the effects of COVID-19 and other disruptions, and execution of organizational changes. Disney also cited $75.7 billion of contractual commitments for sports, film and other programming, including cruise ships and talent-related commitments.
Important facts for investors to verify
- Track whether DTC subscriber growth, pricing and cost controls narrow the $4.0 billion annual operating loss.
- Assess whether parks recovery and guest spending can sustain DPEP’s sharply higher earnings amid inflation, labor costs and international operating disruptions.
- Review cash generation against planned FY2023 capital spending, content investment and debt maturities; also monitor the company’s dividend policy.
- Evaluate the potential funding implications of Hulu’s NBCUniversal put/call agreement, exercisable beginning in January 2024, with a $27.5 billion guaranteed floor value for Hulu.
- Monitor the new leadership’s restructuring plans, any resulting impairments, and the accounting estimates for content amortization and recoverability.