Introduction
The Walt Disney Company is a renowned multinational entertainment conglomerate with a diversified business portfolio spanning media networks, parks and experiences, consumer products, studio entertainment, and direct-to-consumer and international services. This essay delves into an in-depth analysis of The Walt Disney Company’s 2022 Annual Report, covering key aspects such as the auditor’s report, balance sheet, income statement, cash flow statement, and significant accounting policies outlined in the footnotes.
Moreover, as a global leader in the entertainment industry, The Walt Disney Company’s financial health and performance are of utmost importance to stakeholders, including investors, employees, and customers. By examining the company’s annual report, one can gain valuable insights into the organization’s financial standing, growth trajectory, and prospects.
Auditors and Financial Opinions
PricewaterhouseCoopers LLP (PwC) is The Walt Disney Company’s independent registered public accounting firm. PwC provided a clean, unmodified opinion on the company’s financial statements for the fiscal year 2022. It indicates that they “present the financial position, results of operations, and cash flows fairly in all material aspects, in conformity with the United States generally accepted accounting principles (U.S. GAAP)” (The Walt Disney Company, 2022, p. 50).
Annual Report Information
Apart from the financial statements and auditor’s report, the annual report includes the company’s business description, management’s discussion and analysis of the financial condition and results of operations, risks and uncertainties, legal proceedings, management team, and the board of directors, among other details (The Walt Disney Company, 2022)
Balance Sheet
The Company’s Three Largest Assets
The company’s three most significant assets for the most recent year are goodwill, an intangible asset valued at $77,897 million. In addition, attractions, buildings, equipment, and produced and licensed content cost $66,998 million and $35,777 million, respectively (The Walt Disney Company, 2022).
The Company’s Three Largest Liabilities
In the same period, the company’s three most enormous liabilities were mainly borrowings, which amounted to $45,299 million. The latter is followed by accounts payable and other accrued liabilities at $20,213 million, and $12,518 million is the value for other long-term liabilities (The Walt Disney Company, 2022).
The Types of Stock the Company Owns
It should be noted that the company does not have preferred stocks, and its common stock has a par value of $0.01. There are 1.8 billion issued shares and 4.6 billion authorized shares, amounting to $56,398 million (The Walt Disney Company, 2022). The company has treasury stock, with 19 million shares held at a cost that results in a negative value of $907 million.
Income Statement
The Company’s Multiple-Step Income Statement
The Walt Disney Company uses a multiple-step income statement format, which provides a detailed presentation of revenues, costs, and expenses, enabling a more straightforward analysis of the company’s financial performance (The Walt Disney Company, 2022). The multiple-step format includes gross profit, operating income, and income before income taxes, not presented in a single-step income statement.
Separately Reported Items Included in the Income Statement
The income statement contains separately reported items in the year presented. These items include diluted discontinued operations, amounting to a negative $0.03 million, and basic discontinued operations, amounting to a negative $0.03 million (The Walt Disney Company, 2022). These items occurred due to an event in fiscal 2022 when the company terminated certain license agreements with a customer early for film and television content delivered in previous years. This decision allowed the company to primarily use the content on its direct-to-consumer services, an event called Content License Early Termination (The Walt Disney Company, 2022).
Since the content is considered functional IP, the company had recognized most of the consideration paid by the customer under the licenses as revenue in prior years when the content was made available under the agreements. As a result, the amounts to terminate the license agreements, net of remaining deferred revenue, were recorded as a revenue reduction in the current year.
The Trends in Revenues, Gross Profit, and Net Income
The company has experienced notable growth in revenues over the years presented. In 2020, the company reported revenues of $65,388 million, which increased to $67,418 million in 2021 and continued to grow significantly to $82,722 million in 2022 (The Walt Disney Company, 2022). This upward trend in revenue signifies that the company has successfully expanded its business and generated higher sales.
However, gross profit showed a slight decline from $3,794 million in 2020 to $3,659 million in 2021, but then experienced a significant increase in 2022, reaching $6,770 million (The Walt Disney Company, 2022). This considerable growth in gross profit in 2022 could indicate that the company has improved its operational efficiency, resulting in higher profitability.
Regarding net income, the company faced a challenging year in 2020, with a negative net income of $2,474 million. However, the company recovered in 2021, generating a net income of $2,507 million, and continued its upward trajectory with a net income of $3,505 million in 2022 (The Walt Disney Company, 2022). This improvement in net income over the years shows that the company has successfully turned its financial situation around and increased its overall profitability.
Cash Flow Statement
The Company’s Indirect Method of the Cash Flow Statement
The Walt Disney Company uses indirect methods for its cash flow statement (The Walt Disney Company, 2022). The indirect method focuses on net income first, then adjusts for non-cash items and changes in operating assets and liabilities to derive net cash from operating activities. The direct method, on the other hand, presents cash inflows and outflows from operating activities separately. The two most significant items included in cash from investing activities are investments in parks, resorts, and other property, which led to a negative cash flow of $4,943 million, and ‘other, net,’ resulting in a negative cash flow of $65 million (The Walt Disney Company, 2022).
The Two Largest Items Included in Cash From Investing and Financing Activities
In cash from financing activities, the two most significant items are the reduction of borrowings, which amounted to a negative cash flow of $4,016 million, and commercial paper payments, net, resulting in a negative cash flow of $334 million.
The Company’s Non-Cash Transactions
It should be noted that the company has two significant non-cash transactions. In fiscal 2022, it recognized a non-cash loss of $663 million from the adjustment of its investment in DraftKings Inc. (The Walt Disney Company, 2022). In addition, the company recorded non-cash impairment charges of $0.2 billion in 2022 and $0.3 billion in 2021. The fiscal 2022 charges are primarily related to the company’s businesses in Russia.
The Trend in Cash from Operations
As for the trend in cash from operations for the years presented, cash provided by continuing operations was $7,616 million in 2020, which decreased to $5,566 million in 2021 and then slightly increased to $6,002 million in 2022 (The Walt Disney Company, 2022). This trend could exist due to various factors, such as changes in the company’s operational efficiency, the economic environment, or the impact of specific events on the company’s cash flow during those years.
Footnotes
The Company’s Significant Accounting Policies
The definition of cash equivalents for The Walt Disney Company includes short-term investments with an original maturity period of three months or less, cash on hand, and demand deposits (The Walt Disney Company, 2022). The company’s cash and cash equivalents are accounted for at their original cost, which is an approximate reflection of their fair market value.
The company’s inventories primarily consist of merchandise, materials, and supplies. They are valued at a lower cost (determined principally on a moving average cost basis) or market (The Walt Disney Company, 2022). The Walt Disney Company’s property and equipment are recorded at cost and depreciated using the straight-line method over the asset’s estimated useful lives (The Walt Disney Company, 2022). The estimated useful lives are as follows:
- Buildings and improvements: 20 to 40 years.
- Leasehold improvements: The shorter of the lease term or the asset’s estimated useful life.
- Machinery and equipment: 3 to 20 years.
- Attractions: 25 to 40 years.
The Types of Property and Equipment the Company Owns
The company has various types of property and equipment, categorized under two main divisions: Disney Media and Entertainment Distribution (DMED) and Disney Parks, Experiences, and Products (DPEP). The company’s assets within Disney Media and Entertainment Distribution include linear networks, direct-to-consumer services, and content sales/licensing. As for Disney Parks, Experiences, and Products, the company’s property and equipment consist of theme parks and resorts, cruise equipment such as Disney Cruise Line, and consumer products like books and action figures (The Walt Disney Company, 2022).
The accumulated depreciation for the company is a negative $39,356 million (The Walt Disney Company, 2022). Accumulated depreciation represents the total depreciation expense recorded against the company’s assets over time, reflecting the wear and tear or usage of these assets since their acquisition. As a result, the given value reduces the book value of the assets on the company’s balance sheet.
Conclusion
In conclusion, The Walt Disney Company’s 2022 Annual Report provides valuable insights into the company’s financial performance, assets, liabilities, and accounting policies. Through the analysis of the company’s financial statements, it is evident that Disney has experienced growth in revenues, gross profit, and net income, reflected in the positive trend in cash from operations.
Reference
The Walt Disney Company. (2022). Fiscal year 2022 annual financial report. Web.