Disney Flags Risk of Impairment Costs in Iger Overhaul

Entertainment giant may also incur more debt to acquire Comcast's stake in Hulu

Mickey Mouse waves to the crowd in Magic Kingdom Park at Walt Disney World

Courtesy of Disney

Walt Disney (DIS) may incur impairment charges under returning CEO Bob Iger's restructuring plans, the entertainment and media giant said this week.

Iger, a Disney CEO from 2005 to 2020, reclaimed the job on Nov. 20 after the company's board abruptly ousted his chosen successor Bob Chapek. Iger has since indicated his priority is restructuring the company's Disney Media and Entertainment Distribution (DMED) segment.

The business, created during Chapek's tenure, subordinated Disney's film production; TV assets including ABC, ESPN and other cable channels; and streaming platforms Disney+, Hulu, and ESPN+ to a single companywide distribution group. Iger has said he's planning an overhaul "that puts more decision-making back in the hands of our creative teams and rationalizes costs."

Key Takeaways

  • Walt Disney warns in its annual report that the overhaul planned by new CEO Bob Iger could lead to impairment and restructuring charges.
  • Disney also flagged the possibility it may incur extra debt under a deal that may lead it to purchase Comcast's 33% stake in Hulu.
  • Iger has said he plans to restructure the Disney Media and Entertainment Distribution segment created by ousted predecessor Bob Chapek.
  • Iger's changes would return budgeting control to the business units producing the company's content while also seeking to cut costs.

"While the plans are in early stages, changes in our structure and operations, including within DMED (and including possibly our distribution approach and the businesses/distribution platforms selected for the initial distribution of content), can be expected," the company said in its fiscal year 2022 annual report filed Tuesday. "The restructuring and change in business strategy, once determined, could result in impairment charges."

One likely focus of Disney's restructuring plans as well as a possible source of impairment charges is Hulu, the streaming platform in which Disney holds a 67% stake. Disney has the option to purchase the remainder from rival Comcast (CMCSA) starting in January 2024. Comcast also can require Disney to do so. In either case, Comcast would be guaranteed nearly $9.1 billion under the companies' agreement. Disney valued Comcast's stake in Hulu at $8.7 billion in its most recent filing.

Some analysts have speculated Iger will acquire full ownership of Hulu, which might lead Disney to record an impairment charge based on the difference between what it would pay Comcast for its Hulu stake and what it might deem that stake to be worth.

Disney reports restructuring and impairment charges as a single line item on its income statement, and under generally accepted accounting principles (GAAP), restructuring costs and impairment charges alike reduce net income.

The difference is that impairment charges such as a reduction in goodwill following an acquisition do not require outlays of cash, and therefore do not affect the company's cash flows. In contrast, restructuring costs may include cash outlays for severance and other expenses, which would reduce a company's cash flow from operations in addition to net income.

Elsewhere in its latest annual report, Disney warns that "the company’s obligations under the Hulu put/call agreement with [Comcast unit NBC Universal] could negatively impact the company’s free cash flow and result in the company incurring additional indebtedness." The reference to the possibility of adding debt as a result of the Hulu agreement wasn't in the prior year's annual report.

Article Sources
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  1. Walt Disney. "2021 Annual Report," Page 3.

  2. CNBC. "Iger Announces First Big Moves in New Tenure as Disney CEO: Restructuring and Departure of Chapek Right Hand Kareem Daniel."

  3. Walt Disney. "2022 Annual Report," Page 32.

  4. Walt Disney. "2022 Annual Report," Page 84.

  5. IndieWire. "Iger, The Great: With the Return of Hulu’s Hero, the Streamer Has New Options."

  6. Walt Disney. "2022 Annual Report," Page 27.

  7. Walt Disney. "2021 Annual Report," Page 27.

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