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TheStreet Open House

The Walt Disney Company Reports Third Quarter And Nine Month Earnings For Fiscal 2014

The Walt Disney Company (NYSE: DIS) today reported third quarter earnings, which are a record for any quarter. Diluted earnings per share (EPS) for the third quarter increased 27% to $1.28 from $1.01 in the prior-year quarter. Excluding certain items affecting comparability (1), EPS for the quarter increased 24% to $1.28 from $1.03 in the prior-year quarter. Diluted EPS for the nine months ended June 28, 2014 increased 30% to $3.40 compared to $2.61 in the prior-year period. Excluding certain items affecting comparability, EPS for the nine months increased 31% to $3.43.

“Our strategy of building strong brands and franchises continues to create great value across our company,” said Robert A. Iger, chairman and CEO of The Walt Disney Company. “This quarter we delivered the highest EPS in the company’s history, and we’ve now generated greater EPS in the first three quarters of FY 2014 than we have in any previous full fiscal year. We’re extremely pleased with these results and we are also thrilled with the spectacular performance of Guardians of the Galaxy, which holds great promise as a new franchise for our company and once again reinforces the tremendous value of Marvel.”

The following table summarizes the third quarter and nine-month results for fiscal 2014 and 2013 (in millions, except per share amounts):

  Quarter Ended   Nine Months Ended
June 28,2014   June 29,2013   Change June 28,2014   June 29,2013   Change
Revenues $ 12,466 $ 11,578 8 % $ 36,424 $ 33,473 9 %

Segment operating income (2)

$ 3,857 $ 3,351 15 % $ 10,230 $ 8,240 24 %
Net income (3) $ 2,245 $ 1,847 22 % $ 6,002 $ 4,742 27 %
Diluted EPS (3) $ 1.28 $ 1.01 27 % $ 3.40 $ 2.61 30 %
Cash provided by operations $ 2,936 $ 3,413 (14 ) % $ 6,675 $ 6,717 (1 ) %
Free cash flow (2) $ 2,047 $ 2,723 (25 ) % $ 4,427 $ 4,908 (10 ) %
 

(1) See reconciliation of reported EPS to EPS excluding certain items affecting comparability on page 8. (2) Aggregate segment operating income and free cash flow are non-GAAP financial measures. See the discussion of non-GAAP financial measures that follows. (3) Reflects amounts attributable to shareholders of The Walt Disney Company, i.e. after deduction of noncontrolling interests.

SEGMENT RESULTS

The following table summarizes the third quarter and nine-month segment operating results for fiscal 2014 and 2013 (in millions):

  Quarter Ended     Nine Months Ended  
June 28,2014   June 29,2013 Change June 28,2014   June 29,2013 Change
Revenues:
Media Networks $ 5,511 $ 5,352 3 % $ 15,935 $ 15,410 3 %
Parks and Resorts 3,980 3,678 8 % 11,139 10,371 7 %
Studio Entertainment 1,807 1,590 14 % 5,500 4,473 23 %
Consumer Products 902 775 16 % 2,913 2,551 14 %
Interactive 266   183   45 % 937   668   40 %
$ 12,466   $ 11,578   8 % $ 36,424   $ 33,473   9 %
 
Segment operating income (loss):
Media Networks $ 2,296 $ 2,300 % $ 5,884 $ 5,376 9 %
Parks and Resorts 848 689 23 % 1,976 1,649 20 %
Studio Entertainment 411 201 >100 % 1,295 553 >100 %
Consumer Products 273 219 25 % 977 765 28 %
Interactive 29   (58 ) nm 98   (103 ) nm
$ 3,857   $ 3,351   15 % $ 10,230   $ 8,240   24 %
 

Media Networks

Media Networks revenues for the quarter increased 3% to $5.5 billion and segment operating income was relatively flat at $2.3 billion. The following table provides further detail of the Media Networks results (in millions):

  Quarter Ended     Nine Months Ended  
June 28,2014   June 29,2013 Change June 28,2014   June 29,2013 Change
Revenues:  
Cable Networks $ 3,942 $ 3,884 1 % $ 11,334 $ 10,880 4 %
Broadcasting 1,569   1,468   7 % 4,601   4,530   2 %
$ 5,511   $ 5,352   3 % $ 15,935   $ 15,410   3 %
Segment operating income:
Cable Networks $ 1,942 $ 2,087 (7 ) % $ 5,193 $ 4,763 9 %
Broadcasting 354   213   66 % 691   613   13 %
$ 2,296   $ 2,300   % $ 5,884   $ 5,376   9 %
 

Cable Networks

Operating income at Cable Networks decreased 7% to $1.9 billion for the quarter due to a decrease at ESPN, partially offset by an increase at ABC Family. The decrease at ESPN was due to higher programming and production costs, decreased recognition of previously deferred revenue and the absence of ESPN UK, which was sold in the fourth quarter of the prior year. These decreases were partially offset by affiliate fee contractual rate increases and higher advertising revenue. Programming and production costs increases were driven by a contractual rate increase for Major League Baseball and the addition of FIFA World Cup soccer, partially offset by the absence of X Games events in the current quarter. ESPN recognized $98 million less of previously deferred revenue during the quarter as a result of changes in contractual provisions related to annual programming commitments. ESPN advertising revenue increased due to higher rates and more units sold. Higher rates reflected the benefit of FIFA World Cup soccer in the current quarter, partially offset by two less NBA finals games this year. The increase at ABC Family was driven by lower programming costs, reflecting fewer hours of original scripted programming due to the timing of premieres, and higher affiliate fees due to rate increases.

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