Walt Disney Co (DIS)

Item 2: Management’s Discussion and Analysis of Financial Condition and Results of Operations

ORGANIZATION OF INFORMATION

Management’s Discussion and Analysis provides a narrative of the Company’s financial performance and condition that should be read in conjunction with the accompanying financial statements. It includes the following sections:

•Consolidated Results

•Current Quarter Results Compared to Prior-Year Quarter

•Current Nine-Month Period Results Compared to Prior-Year Nine-Month Period

•Seasonality

•Business Segment Results

•Corporate and Unallocated Shared Expenses

•Financial Condition

•Market Risk

•Commitments and Contingencies

•Other Matters

•Supplemental Guarantor Financial Information

CONSOLIDATED RESULTS

CURRENT QUARTER RESULTS COMPARED TO PRIOR-YEAR QUARTER

Revenues for the quarter increased 7%, or $1.6 billion, to $25.2 billion; net income attributable to Disney decreased to $2.6 billion compared to $5.3 billion in the prior-year quarter; and diluted earnings per share (EPS) attributable to Disney decreased to $1.51 compared to $2.92 in the prior-year quarter. The net income and EPS decreases reflected the comparison to a non-cash tax benefit recognized upon a change in Hulu’s U.S. income tax classification in the prior-year quarter and, to a lesser extent, an impairment of our investment in A+E in the current quarter. These decreases were partially offset by higher operating

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS — (continued)

income at Entertainment and Experiences in the current quarter and the comparison to a charge for a payment to acquire Hulu in the prior-year quarter (Hulu Charge).

Revenues

Service revenues for the quarter increased 7%, or $1.5 billion, to $22.7 billion, which included an approximate 2 percentage point favorable impact from the Fubo and NFL Transactions. Aside from this impact, service revenues increased due to growth in resorts and vacations and theme park admissions revenue and higher subscription and affiliate fees.

Product revenues for the quarter increased 6%, or $0.1 billion, to $2.6 billion due to growth in parks & experiences merchandise, food and beverage revenue.

Costs and expenses

Cost of services for the quarter increased 5%, or $0.6 billion, to $13.7 billion, which included an approximate 2 percentage point unfavorable impact from the Fubo Transaction and, to a lesser extent, NFL Transaction. Aside from this impact, cost of services increased due to the impact of new guest offerings, inflation and increased volumes at our parks and experiences businesses.

Selling, general, administrative and other costs decreased 4%, or $0.2 billion, to $4.0 billion due to lower marketing costs.

Depreciation and amortization increased 6%, or $0.1 billion, to $1.4 billion primarily due to higher depreciation at Experiences, partially offset by lower amortization of intangible assets.

Restructuring and impairment charges

Charges in the current quarter were $812 million for an impairment of our investment in A+E and $88 million for severance. Charges in the prior-year quarter were $185 million primarily for an impairment of our investment in Tata Play Limited.

Interest expense, net

Interest expense, net is as follows:

The increase in interest expense was driven by higher average debt balances, partially offset by lower effective interest rates.

The increase in interest income, investment income and other was due to a favorable comparison related to pension and postretirement benefit costs, other than service cost.

Income Taxes

The effective income tax rate was 22.0% in the current quarter compared to negative 85.1% in the prior-year quarter. The prior-year quarter included a $3.3 billion non-cash tax benefit recognized upon a change in Hulu’s U.S. income tax classification.

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS — (continued)

Noncontrolling Interests

The decrease in net income attributable to noncontrolling interests was due to the Hulu Charge in the prior-year quarter.

Net income attributable to noncontrolling interests is determined on income after royalties and management fees, financing costs and income taxes, as applicable.

Certain Items Impacting Results in the Quarter

Results for the quarter ended June 27, 2026 were impacted by the following:

•Restructuring and impairment charges of $900 million

•Acquisition Amortization of $334 million

Results for the quarter ended June 28, 2025 were impacted by the following:

•A $3,277 million non-cash tax benefit recognized upon a change in Hulu’s U.S. income tax classification recognized in “Income taxes” and $477 million Hulu Charge recognized in “Net income attributable to noncontrolling interest” (Hulu Transaction Impacts)

•Acquisition Amortization of $395 million

•Restructuring and impairment charges of $185 million

A summary of the impact of these items on EPS is as follows:

(1)Tax benefit (expense) amounts are determined using the tax rate applicable to the individual item.

(2)EPS is net of noncontrolling interest share, where applicable. Total may not equal the sum of the column due to rounding.

CURRENT NINE-MONTH PERIOD RESULTS COMPARED TO PRIOR-YEAR NINE-MONTH PERIOD

Revenues for the current period increased $4.4 billion, to $76.4 billion; net income attributable to Disney decreased $3.8 billion, to $7.3 billion; and EPS decreased to $4.12 from $6.12 in the prior-year period. The net income and EPS decreases were due to the comparison to a tax benefit recognized related to a change in Hulu’s U.S. income tax classification, a favorable resolution of a tax matter in the prior-year period, and an impairment of our investment in A+E in the current period. These decreases were partially offset by higher operating income at Experiences in the current period and the comparison to the Hulu Charge in the prior-year period.

Revenues

Service revenues for the current period increased 6%, or $4.0 billion to $68.6 billion, which included an approximate 1 percentage point net favorable impact from the Fubo, NFL and Star India Transactions. Aside from this impact, service revenues increased due to growth in resorts and vacations and theme park admissions revenue, higher subscription and affiliate fees and, to a lesser extent, an increase in content sales.

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS — (continued)

Product revenues for the current period increased 5%, or $0.4 billion, to $7.8 billion, due to growth in parks & experiences merchandise, food and beverage revenue.

Costs and expenses

Cost of services for the current period increased 7%, or $2.9 billion, to $43.1 billion, which included an approximate 1 percentage point net unfavorable impact from the Fubo, NFL and Star India Transactions. Aside from this impact, cost of services increased due to higher programming and production costs and, to a lesser extent, the impact of new guest offerings, inflation and increased volumes at our parks and experiences businesses.

Selling, general, administrative and other costs increased 1%, or $0.1 billion, to $12.2 billion due to higher marketing costs, partially offset by the comparison to legal settlements in the prior-year period.

Depreciation and amortization increased 5%, or $0.2 billion, to $4.1 billion, driven by higher depreciation at Experiences and Entertainment, partially offset by lower amortization of intangible assets.

Restructuring and impairment charges

Charges in the current period were $959 million for impairments of our investment in A+E and $180 million for severance. Charges in the prior-year period were $185 million primarily for an impairment of our investment in Tata Play Limited, $143 million for impairment of goodwill related to Star India and $109 million for content impairments.

Interest expense, net

Interest expense, net is as follows:

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ITEM 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

CONSOLIDATED RESULTS

($ in millions, except per share data)

Organization of Information

Management’s Discussion and Analysis provides a narrative on the Company’s financial performance and condition that should be read in conjunction with the accompanying financial statements. It includes the following sections:

•Consolidated Results and Non-Segment Items

•Business Segment Results

•Corporate and Unallocated Shared Expenses

•Liquidity and Capital Resources

•Trends and Uncertainties

•Critical Accounting Policies and Estimates

•Entertainment DTC Product Descriptions and Key Definitions

•Supplemental Guarantor Financial Information

In Item 7, we discuss fiscal 2025 and 2024 results and comparisons of fiscal 2025 results to fiscal 2024 results. Discussions of fiscal 2023 results and comparisons of fiscal 2024 results to fiscal 2023 results can be found in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part II, Item 7 of the Company’s Annual Report on Form 10-K for the fiscal year ended September 28, 2024.

Star India

On November 14, 2024, the Company and RIL completed the Star India Transaction (see Note 4 to the Consolidated Financial Statements). The Company recognizes its 37% share of the India joint venture’s results in “Equity in the income of investees.” Star India results through November 14, 2024 were consolidated in the Company’s financial results and reported in the Entertainment and Sports segments.

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CONSOLIDATED RESULTS AND NON-SEGMENT ITEMS

Revenues for fiscal 2025 increased 3%, or $3.1 billion, to $94.4 billion; net income attributable to Disney increased $7.4 billion to income of $12.4 billion compared to $5.0 billion in the prior year; and diluted earnings per share (EPS) from continuing operations attributable to Disney increased to $6.85 compared to $2.72 in the prior year. The net income and EPS increases were due to a lower effective tax rate in the current year compared to the prior year and the comparison to impairments related to the Star India Transaction and goodwill in the prior year. In addition, the increases in net income and EPS were due to higher operating income at Entertainment and Experiences. The lower effective tax rate was due to a non-cash tax benefit recognized in the current year upon a change in Hulu’s U.S. income tax classification (see Note 9 to the Consolidated Financial Statements).

Revenues

Service revenues for fiscal 2025 increased 3%, or $2.7 billion, to $84.6 billion, which included an approximate 3 percentage point decrease from the Star India Transaction. Aside from this impact, service revenues increased due to higher subscription revenue, growth at our parks and experiences businesses and an increase in content sales.

Product revenues for fiscal 2025 increased 3%, or $0.3 billion, to $9.8 billion, driven by growth at our parks and experiences businesses, partially offset by lower physical home entertainment distribution revenue due to a shift to licensing of physical distribution rights to third parties.

Costs and expenses

Cost of services for fiscal 2025 increased $0.2 billion to $52.7 billion, which included an approximate 4 percentage point decrease from the Star India Transaction. Aside from this impact, cost of services increased due to higher programming and production costs and, to a lesser extent, the impact of inflation at our parks and experiences businesses.

Cost of products for fiscal 2025 decreased 2%, or $0.1 billion to $6.1 billion, due to a shift to licensing of physical home entertainment distribution, partially offset by the impact of inflation at our theme parks and resorts.

Selling, general, administrative and other costs for fiscal 2025 increased 5%, or $0.7 billion, to $16.5 billion, which included approximately 2 percentage point decrease from the Star India Transaction. Aside from this impact, selling, general, administrative and other costs increased driven by higher marketing costs.

Depreciation and amortization for fiscal 2025 increased 7%, or $0.3 billion, to $5.3 billion primarily due to higher depreciation at our parks and experiences businesses.

Restructuring and Impairment Charges

(1)Primarily related to A+E (fiscal 2025 and 2024) and Tata Play Limited (fiscal 2025).

(2)Related to strategic changes in our approach to content curation.

(3)Related to general entertainment linear networks.

Other expense

In the prior year, the Company recorded a charge of $65 million related to a legal ruling.

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Interest Expense, net

The decrease in interest expense was due to lower average rates and debt balances, partially offset by a decrease in capitalized interest.

The decrease in interest income, investment income and other was driven by a lower benefit from pension and postretirement benefit costs, other than service cost, and the impact of lower average cash and cash equivalent balances and lower average rates.

Equity in the Income of Investees

Equity in the income of investees decreased $280 million to $295 million in the current year from $575 million in the prior year due to losses from the India joint venture in the current year and lower income from A+E.

Effective Income Tax Rate

The effective income tax rate was negative 11.9% in the current year compared to a positive effective income tax rate of 23.7% in the prior year. Items impacting the effective income tax rate include the following:

•The current year included a non-cash tax benefit of approximately 26 percentage points due to a change in Hulu’s U.S. income tax classification

•The prior year reflected an unfavorable impact of approximately 6 percentage points from impairments that are not tax deductible

•The current and prior year reflected favorable adjustments related to prior-year tax matters of 10 percentage points and 3 percentage points, respectively

•The current year included a non-cash tax expense of approximately 2 percentage points and the prior year included a non-cash tax benefit of approximately 1 percentage point in connection with the Star India Transaction

Noncontrolling Interests

The increase in net income attributable to noncontrolling interests was due to an incremental payment to acquire Hulu, partially offset by the accretion of NBC Universal’s interest in Hulu in the prior year.

Net income attributable to noncontrolling interests is determined on income after royalties and management fees, financing costs and income taxes, as applicable.

Certain Items Impacting Results in the Year

Results for fiscal 2025 were impacted by the following:

•Hulu Transaction Impacts consisting of a $3,277 million benefit in “Income taxes” and a $462 million charge in “Net income attributable to noncontrolling interests”

•TFCF and Hulu acquisition amortization of $1,576 million

•Favorable resolution of a prior-year tax matter of $1,016 million

•Restructuring and impairment charges of $819 million ($748 million after tax) and a non-cash tax expense of $244 million related to the Star India Transaction

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Results for fiscal 2024 were impacted by the following:

•Restructuring and impairment charges of $3,595 million

•TFCF and Hulu acquisition amortization of $1,677 million

•Other expense of $65 million related to a legal ruling

•Favorable adjustments related to prior year tax matters of $418 million

A summary of the impact of these items on EPS is as follows:

(1)Tax benefit (expense) is determined using the tax rate applicable to the individual item.

(2)EPS is net of noncontrolling interest, where applicable. Total may not equal the sum of the column due to rounding.

(3)Includes amortization of intangibles related to TFCF equity investees.

BUSINESS SEGMENT RESULTS

The Company evaluates the performance of its operating segments based on segment revenue and segment operating income.

Below is a discussion of the major revenue and e

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