FY2014_Q4_10K

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended September 27, 2014
  
Commission File Number 1-11605
 
Incorporated in Delaware
500 South Buena Vista Street, Burbank, California 91521
(818) 560-1000
  
I.R.S. Employer Identification No.
95-4545390
Securities Registered Pursuant to Section 12(b) of the Act:
Title of Each Class
  
 
Name of Each Exchange
on Which Registered
Common Stock, $.01 par value
 
New York Stock Exchange
Securities Registered Pursuant to Section 12(g) of the Act: None.
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the
Securities Act.  Yes x No o
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d)
of the Act.  Yes  o  No  x
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months and (2) has been subject to such filing requirements for the past 90 days.    Yes  x   No  o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).     Yes x    No  o
Indicate by check mark if disclosure of delinquent filers pursuant to Rule 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ü ]
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer”, “accelerated filer”, and “smaller reporting company” in Rule 12b-2 of the Exchange Act (Check one).
Large accelerated filer
 
x
 
Accelerated filer
 
 o
 
 
 
 
 
Non-accelerated filer (do not check if smaller reporting company)
 
o
 
Smaller reporting company
 
 o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).     Yes  o No x
The aggregate market value of common stock held by non-affiliates (based on the closing price on the last business day of the registrant’s most recently completed second fiscal quarter as reported on the New York Stock Exchange-Composite Transactions) was $137.5 billion. All executive officers and directors of the registrant and all persons filing a Schedule 13D with the Securities and Exchange Commission in respect to registrant’s common stock have been deemed, solely for the purpose of the foregoing calculation, to be “affiliates” of the registrant.
There were 1,695,710,842 shares of common stock outstanding as of November 13, 2014.
Documents Incorporated by Reference
Certain information required for Part III of this report is incorporated herein by reference to the proxy statement for the 2015 annual meeting of the Company’s shareholders.



THE WALT DISNEY COMPANY AND SUBSIDIARIES
TABLE OF CONTENTS
 
 
 
Page
PART I
 
 
 
ITEM 1.
 
 
 
ITEM 1A.
 
 
 
ITEM 1B.
 
 
 
ITEM 2.
 
 
 
ITEM 3.
 
 
ITEM 4.
 
 
 
PART II
 
 
 
ITEM 5.
 
 
 
ITEM 6.
 
 
 
ITEM 7.
 
 
 
ITEM 7A.
 
 
 
ITEM 8.
 
 
 
ITEM 9.
 
 
 
ITEM 9A.
 
 
 
ITEM 9B.
 
PART III
 
 
 
ITEM 10.
 
 
 
ITEM 11.
 
 
 
ITEM 12.
 
 
 
ITEM 13.
 
 
 
ITEM 14.
 
PART IV
 
 
 
ITEM 15.
 
 
 
 


TABLE OF CONTENTS

PART I
ITEM 1. Business

The Walt Disney Company, together with its subsidiaries, is a diversified worldwide entertainment company with operations in five business segments: Media Networks, Parks and Resorts, Studio Entertainment, Consumer Products and Interactive. On May 7, 2014, the Company acquired Maker Studios, Inc. (Maker), a leading network of online video content. See Note 3 to the Consolidated Financial Statements. Maker results are included primarily in our Media Networks and Studio Entertainment segments. For convenience, the terms “Company” and “we” are used to refer collectively to the parent company and the subsidiaries through which our various businesses are actually conducted.
Information on the Company’s revenues, segment operating income and identifiable assets appears in Note 1 to the Consolidated Financial Statements included in Item 8 hereof. The Company employed approximately 180,000 people as of September 27, 2014.

MEDIA NETWORKS
The Media Networks segment includes broadcast and cable television networks, television production operations, television distribution, domestic television stations and radio networks and stations.
The businesses in the Media Networks segment generate revenue from fees charged to cable, satellite and telecommunications service providers (Multi-channel Video Programming Distributors or MVPDs) and television stations affiliated with our domestic broadcast television network, from the sale to advertisers of time in programs for commercial announcements and from other sources such as the sale and distribution of television programming. Significant operating expenses include programming and production costs, technical support costs, distribution costs and operating labor.
Cable Networks
Our cable networks include ESPN, the Disney Channels and ABC Family. We also operate the UTV/Bindass networks in India. The cable networks group produces its own programs or acquires rights from third-parties to air programs on our networks. The Company also has interests in joint ventures that operate cable and broadcast programming services and are accounted for under the equity method of accounting.
Cable networks derive the majority of their revenues from fees charged to MVPDs for the right to deliver our programming to their customers (Subscribers) and, for certain networks (primarily ESPN and ABC Family), the sale to advertisers of time in network programs for commercial announcements. Generally, the Company’s cable networks operate under multi-year agreements with MVPDs that include contractually determined fees. The amounts that we can charge to MVPDs for our cable network services are largely dependent on the quality and quantity of programming that we can provide and the competitive market. The ability to sell time for commercial announcements and the rates received are primarily dependent on the size and nature of the audience that the network can deliver to the advertiser as well as overall advertiser demand. We also sell programming developed by our cable networks worldwide in pay and syndication television markets and in physical (DVD and Blu-ray) and electronic formats.

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The Company’s significant cable networks, along with the estimated number of subscribers as of September 27, 2014 are set forth in the following table:
 
 
Estimated
Subscribers
(in millions) (1)
ESPN (80% owned)
 
ESPN
95

ESPN2
95

ESPNU
74

ESPNEWS
73

SEC Network
63

ESPN Classic
27

ESPN channels internationally
115

Disney Channels (100% owned)
 
Disney Channel - Domestic
97

Disney Channels – International
185

Disney Junior – Domestic
74

Disney Junior – International
108

Disney XD - Domestic
80

Disney XD – International
115

ABC Family (100% owned)
94

A&E Television Networks (AETN) (50% owned)
 
A&E
97

HISTORY
97

Lifetime
96

Lifetime Movie Network (LMN)
82

H2
70

FYI
65

 
(1) 
Estimated domestic subscriber counts are according to Nielsen Media Research, except for the SEC Network, which is not yet measured by Nielsen Media Research. For our international channels and the SEC Network, subscriber counts are based on internal management reports.
ESPN
ESPN is a multimedia sports entertainment company that operates eight 24-hour domestic television sports networks: ESPN, ESPN2, ESPNU (a network devoted to college sports), ESPNEWS, the recently launched SEC Network (a sports programming network dedicated to Southeastern Conference college athletics), ESPN Classic, the regionally focused Longhorn Network (a network dedicated to The University of Texas athletics) and ESPN Deportes (a Spanish language network), which are all simulcast in high definition except ESPN Classic. ESPN programs the sports schedule on the ABC Television Network, which is branded ESPN on ABC. ESPN owns 16 television networks outside of the United States (primarily in Latin America) that allow ESPN to reach sports fans in over 60 countries and territories in four languages. In addition, ESPN holds a 30% equity interest in CTV Specialty Television, Inc., which owns television networks in Canada, including The Sports Network, The Sports Network 2, Le Réseau des Sports (RDS), RDS2, RDS Info, ESPN Classic Canada, the NHL Network and Discovery Canada.
ESPN holds rights for various professional and college sports programming including the National Football League (NFL), the National Basketball Association (NBA), Major League Baseball (MLB), the College Football Playoffs, major college football and basketball conferences, National Association of Stock Car Auto Racing (NASCAR), the Wimbledon Championships, US Open Tennis and the British Open and Masters golf tournaments.
ESPN also operates:
ESPN.com – which delivers comprehensive sports news, information and video each month through its national hub and six local sites – ESPNBoston.com, ESPNChicago.com, ESPNDallas.com, ESPNDeportesLosAngeles.com, ESPNLosAngeles.com and ESPNNewYork.com

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WatchESPN – which delivers live access to ESPN, ESPN2, ESPNU, ESPN3, ESPNEWS, SEC Network, Longhorn Network and ESPN Deportes on computers and mobile devices and is currently accessible in 75 million households
ESPN3 – which is ESPN’s live multi-screen sports network and is a destination that delivers thousands of exclusive sports events annually. It is accessible at WatchESPN and streamed through various third party services
ESPN Mobile Properties – which delivers content, including live game coverage, alerts and highlights, to mobile devices
ESPN Events – which owns and operates a large portfolio of collegiate sporting events worldwide
ESPN Radio – which distributes talk and play by play programming and is one of the largest sports radio networks in the U.S. ESPN Radio network programming is carried on more than 500 terrestrial stations including four ESPN owned stations in New York, Los Angeles, Chicago and Dallas and on satellite and internet radio
ESPN The Magazine – which is a bi-weekly sports magazine
ESPN Enterprises – which develops branded licensing opportunities
espnW – which provides an online destination for female sports fans
Disney Channels
The Disney Channels includes over 100 channels available in 34 languages and 164 countries/territories. Branded channels include Disney Channel, Disney Junior, Disney XD, Disney Cinemagic and DLife. Disney Channels also operates Radio Disney and has content available through subscription and video-on-demand services and online through our websites: DisneyChannel.com, DisneyXD.com, DisneyJunior.com and RadioDisney.com. Programming for these networks includes internally developed and acquired programming. WatchDisneyChannel, WatchDisneyJunior and WatchDisneyXD launched in the U.S. in 2012 and provide a way for subscribers of MVPDs to watch the channel feed either live or on a delayed basis through a computer or mobile device. Select Disney Channel content is also available without a MVPD subscription.
Disney Channel - Disney Channel is a cable network airing original series and movie programming targeted to kids ages 2 to 14. In the U.S., Disney Channel airs 24 hours a day. Disney Channel develops and produces shows for exhibition on its network, including live-action comedy series, animated programming and preschool series as well as original movies. Live-action comedy series include Austin & Ally, Dog with a Blog, I Didn’t Do It, Girl Meets World, Jessie and Liv & Maddie. Disney Channel animated programs include Gravity Falls, Phineas and Ferb, Wander Over Yonder and series for preschoolers including Disney’s Mickey Mouse Clubhouse, Doc McStuffins, Jake and the Never Land Pirates and Sofia the First. Disney Channel also airs programming and content from Disney’s theatrical film and television programming library.
Disney Junior - Disney Junior is a cable network that airs programming for kids ages 2 to 7 and their parents and caregivers, featuring animated and live-action programming that blends Disney’s storytelling and characters with learning. In the U.S., Disney Junior airs 24 hours a day. Programming focuses on early math and language skills, healthy eating and social skills. Disney Junior also airs as a programming block on the Disney Channel. Original Disney Junior animated series include Disney’s Mickey Mouse Clubhouse, Doc McStuffins, Henry Hugglemonster, Jake and the Never Land Pirates, Sheriff Callie’s Wild West and Sofia the First.
Disney XD - Disney XD is a cable channel airing a mix of live-action and animated original programming for kids ages 6 to 14. In the U.S., Disney XD airs 24 hours a day. Programming includes live-action series Kickin’ It, Lab Rats and Mighty Med and animated series Gravity Falls, Hulk and the Agents of S.M.A.S.H., Marvel’s Avengers Assemble, Marvel’s Ultimate Spider-Man Web Warriors, Phineas and Ferb, Randy Cunningham 9th Grade Ninja, Star Wars Rebels, The 7D and Wander Over Yonder.
Disney Cinemagic - Disney Cinemagic is a premium subscription service available in certain countries in Europe airing Disney movies, classic and newer Disney cartoons and shorts as well as animated television series.
Radio Disney - Radio Disney is a 24-hour radio network devoted to kids, tweens and families reaching listeners through its Los Angeles based national broadcast, Sirius XM, RadioDisney.com, TuneIn, the Radio Disney iPhone, iPad and Android apps, iTunes Radio Tuner and Aha Radio. Radio Disney operates from a terrestrial radio station in Los Angeles. The Company owns 23 additional terrestrial Radio Disney stations in the U.S. Radio Disney is also available throughout Latin America on two owned terrestrial stations and through agreements with third-party radio stations. In August 2014, the Company announced its intention to sell all of its U.S. based terrestrial Radio Disney stations, except for its Los Angeles station.
Seven TV - On November 18, 2011, the Company acquired a 49% interest in Seven TV for $300 million. Seven TV is a broadcast television network that was converted to an advertising-supported, free-to-air Disney Channel in Russia following the acquisition. In October 2014, new regulations were adopted in Russia that prohibit more than 20% foreign ownership of media companies and could require the Company to divest a portion of its interest by January 2016. The Company is

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evaluating its options with respect to these regulations and, depending on the outcome, we could have an impairment of some or all of our investment. The Company’s share of the financial results of Seven TV is reported as “Equity in the income of investees” in the Company’s Consolidated Statements of Income.
Das Vierte - In fiscal 2013, the Company acquired the Das Vierte channel in Germany and converted it to an advertising-supported, free-to-air Disney Channel in fiscal 2014.
ABC Family
ABC Family is a domestic cable network that targets viewers in the 14 to 34 age demographic. ABC Family produces original live-action programming including the returning series Switched at Birth, The Fosters, Melissa & Joey and Baby Daddy as well as the new original series Chasing Life, Young and Hungry and Mystery Girls. ABC Family also acquires programming from third parties including the returning series Pretty Little Liars. Additionally, ABC Family airs content from our owned theatrical film library and features branded holiday programming events such as “13 Nights of Halloween” and “25 Days of Christmas”.
WatchABCFamily launched in the U.S. in 2014 and provides a way for subscribers of MVPDs to watch the channel feed either live or on a delayed basis through a computer or mobile device. Select ABC Family content is also available without a MVPD subscription. ABCFamily.com also provides online extensions to ABC Family programming such as Pretty Dirty Secrets, which is an extension of Pretty Little Liars.
SOAPnet
SOAPnet ceased operations on December 31, 2013, and all MVPDs that carried SOAPnet have transitioned to now carry the Disney Junior Network.
Hungama
Hungama is a kids general entertainment cable network in India, which features a mix of anime, Hindi-language series and game shows.
UTV Networks
In India, we operate the Bindass, UTV World Movies, UTV Action, UTV Movies and UTV Stars cable television channels. UTV Stars was converted to Bindass Play in October 2014.
AETN
The A&E Television Networks (AETN), a joint venture owned 50% by the Company and 50% by the Hearst Corporation, operates a variety of cable networks including:
• A&E – which offers entertainment programming including reality series, original movies, dramatic series and justice shows
• HISTORY – which offers original non-fiction series and event-driven specials
• Lifetime – which is devoted to women’s lifestyle programming
• LMN – which is a 24-hour movie channel
• H2 – which focuses on the culture and history of various countries throughout the world from the perspective of locals
• FYI – which offers contemporary lifestyle programming
• Lifetime Real Women – which is a 24-hour cable network with programming focusing on women
Internationally, AETN programming is available in over 150 countries. The Company’s share of AETN’s financial results is reported as “Equity in the income of investees” in the Company’s Consolidated Statements of Income.

Broadcasting
Our broadcasting business includes a domestic broadcast network, television production and distribution operations and eight owned domestic television stations. The Company also has a 33% interest in Hulu LLC (Hulu), a venture that distributes film and television content on the internet, and a 50% effective interest in Fusion, a news, pop culture and lifestyle television and digital network targeted at millennials.

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Domestic Broadcast Television Network
The Company operates the ABC Television Network (ABC), which as of September 27, 2014, had affiliation agreements with 240 local television stations reaching 99% of all U.S. television households. ABC broadcasts programs in the following “dayparts”: primetime, daytime, late night, news and sports.
ABC produces its own programs and also acquires programming rights from third parties as well as entities that are owned by or affiliated with the Company. ABC derives the majority of its revenues from the sale to advertisers of time in network programs for commercial announcements. The ability to sell time for commercial announcements and the rates received are primarily dependent on the size and nature of the audience that the network can deliver to the advertiser as well as overall advertiser demand for time on network broadcasts. ABC also receives fees for its broadcast feed from affiliated television stations.
ABC.com is the official website of ABC and provides access to full-length episodes of ABC shows online. The Watch ABC app provides subscribers of participating MVPDs access to the participating local ABC TV linear feed along with full-length episodes of ABC programming on mobile devices. Non-subscribers have access to a more limited range of programming and do not get access to the linear feed. ABCNews.com provides in-depth worldwide news coverage online and video-on-demand news reports from ABC News broadcasts. ABC News also has an agreement to provide news content to Yahoo! News.
Television Production
The Company produces the majority of its original live-action television programming under the ABC Studios label. Program development is carried out in collaboration with independent writers, producers and creative teams, with a focus on half-hour comedies and one-hour dramas, primarily for primetime broadcasts. Primetime programming produced either for our networks or for third parties for the 2014/2015 television season includes the returning one-hour dramas: Castle, Criminal Minds, Marvel’s Agents of S.H.I.E.L.D., Grey’s Anatomy, Nashville, Once Upon a Time, Resurrection, Revenge and Scandal; and the returning half-hour comedy Cougar Town. New primetime series include the one-hour dramas: How to Get Away With Murder and Red Band Society, and half-hour comedies, Black-ish and Benched. Additionally, the drama series American Crime, Astronauts Wives Club, Marvel’s Agent Carter, Marvel’s Daredevil and Jessica Jones (produced for Netflix), Secrets and Lies and Whispers and the comedy Galavant are in production for mid-season or summer launch. The Company also produces the late night show, Jimmy Kimmel Live, a variety of primetime specials for network television and live-action syndicated programming.
Syndicated programming includes the daytime talk show Live! with Kelly and Michael and the game show, Who Wants to Be a Millionaire. The Company also produces news programming including World News Tonight, 20/20, Nightline, Good Morning America and This Week with George Stephanopoulos and programming for daytime such as General Hospital, The View and The Chew.
Television Distribution
We distribute the Company’s productions worldwide in pay and syndication television markets, in DVD and Blu-ray formats and also online via Hulu and third-party services.
Domestic Television Stations
The Company owns eight television stations, six of which are located in the top-ten markets in the U.S. The television stations derive the majority of their revenues from the sale to advertisers of time in station programming for commercial announcements. The stations also receive retransmission fees from MVPDs for the right to deliver the stations’ programming to the MVPD’s subscribers. All of our television stations are affiliated with ABC and collectively reach 23% of the nation’s television households. Each owned station broadcasts three digital channels: the first consists of local, ABC and syndicated programming; the second is the Live Well Network in standard definition; and the third is the Live Well Network in high definition.

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Details for the stations we own are as follows: 
TV Station
 
Market
  
Television
Market
Ranking(1)
WABC
 
New York, NY
  
1
KABC
 
Los Angeles, CA
  
2
WLS
 
Chicago, IL
  
3
WPVI
 
Philadelphia, PA
  
4
KGO
 
San Francisco, CA
  
6
KTRK
 
Houston, TX
  
10
WTVD
 
Raleigh-Durham, NC
  
24
KFSN
 
Fresno, CA
  
55
 
 
(1) 
Based on Nielsen Media Research, U.S. Television Household Estimates, January 1, 2014
Hulu
Hulu is a joint venture owned one-third each by Fox Entertainment Group, NBCUniversal and the Company. Its principal business is to aggregate television and film entertainment for viewing on the internet. Hulu offers a free service and a subscription-based service, Hulu Plus. The Hulu Plus service offers more content and less commercial time than the free service. In July 2013, Fox Entertainment Group, NBCUniversal and the Company agreed to provide Hulu with $750 million in cash to fund Hulu’s operations and investments for future growth, of which $380 million has been provided as of September 27, 2014. The Company has contributed $134 million of its $257 million share of this cash commitment. (See Note 3 to the Consolidated Financial Statements.) The Company’s share of Hulu’s financial results is reported as “Equity in the income of investees” in the Company’s Consolidated Statements of Income.
Fusion
In October 2013, the Company and Univision jointly launched Fusion, a news, pop culture and lifestyle television and digital network targeted at millennials. The network had 17 million subscribers as of September 27, 2014. The Company’s share of Fusion’s financial results is reported as "Equity in the income of investees" in the Company’s Consolidated Statements of Income.
Competition and Seasonality
The Company’s Media Networks businesses compete for viewers primarily with other television and cable networks, independent television stations and other media, such as DVD and Blu-ray formats, video games and the internet. With respect to the sale of advertising time, our broadcasting operations, certain of our cable networks and our television and radio stations compete with other television networks and radio stations, independent television stations, MVPDs and other advertising media such as newspapers, magazines, billboards and the internet. Our television and radio stations primarily compete for audiences in individual market areas. A television or radio station in one market generally does not compete directly with stations in other markets.
The growth in the number of networks distributed by MVPDs has resulted in increased competitive pressures for advertising revenues for our broadcast and cable networks. The Company’s cable networks also face competition from other cable networks for carriage by MVPDs. The Company’s contractual agreements with MVPDs are renewed or renegotiated from time to time in the ordinary course of business. Consolidation and other market conditions in the cable and satellite distribution industry and other factors may adversely affect the Company’s ability to obtain and maintain contractual terms for the distribution of its various cable programming services that are as favorable as those currently in place.
The Company’s Media Networks businesses also compete for the acquisition of sports and other programming. The market for programming is very competitive, particularly for sports programming. The Company currently has sports rights agreements with the NFL, NBA, MLB, college football (including college football bowl games) and basketball conferences, NASCAR, and also for golf, tennis and soccer programming.
The Company’s internet websites and digital products compete with other websites and entertainment products in their respective categories.

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Advertising revenues at Media Networks are subject to seasonal advertising patterns and changes in viewership levels. Revenues are typically somewhat higher during the fall and somewhat lower during the summer months. Affiliate revenues are typically collected ratably throughout the year. Certain affiliate revenues at ESPN have in the past been deferred until annual programming commitments are met. These commitments have typically been satisfied during the second half of the Company’s fiscal year, which generally resulted in higher revenue recognition during this period. As of October 2014, most MVPD contracts no longer have annual programming commitments that would result in the deferral of revenues during the fiscal year.
Federal Regulation
Television and radio broadcasting are subject to extensive regulation by the Federal Communications Commission (FCC) under federal laws and regulations, including the Communications Act of 1934, as amended. Violation of FCC regulations can result in substantial monetary forfeitures, limited renewals of licenses and, in egregious cases, denial of license renewal or revocation of a license. FCC regulations that affect our Media Networks segment include the following:
 
Licensing of television and radio stations. Each of the television and radio stations we own must be licensed by the FCC. These licenses are granted for periods of up to eight years, and we must obtain renewal of licenses as they expire in order to continue operating the stations. We (and the acquiring entity in the case of a divestiture) must also obtain FCC approval whenever we seek to have a license transferred in connection with the acquisition or divestiture of a station. The FCC may decline to renew or approve the transfer of a license in certain circumstances and may delay renewals while permitting a licensee to continue operating. The FCC has delayed renewals for a number of broadcast licensees, including a number of our licenses, in recent years while permitting the licensees to continue operating. Although we have received such renewals and approvals in the past or have been permitted to continue operations when renewal is delayed, there can be no assurance that this will be the case in the future.
Television and radio station ownership limits. The FCC imposes limitations on the number of television stations and radio stations we can own in a specific market, on the combined number of television and radio stations we can own in a single market and on the aggregate percentage of the national audience that can be reached by television stations we own. Currently:
FCC regulations may restrict our ability to own more than one television station in a market, depending on the size and nature of the market. We do not own more than one television station in any of the markets in which we own a television station.
Federal statutes permit our television stations in the aggregate to reach a maximum of 39% of the national audience (for this purpose, FCC regulations attribute to UHF television stations only 50% of the television households in their market). For purposes of the FCC’s rules, our eight stations reach approximately 21% of the national audience. Although the FCC is currently considering a proposal to repeal or revise the UHF discount, the outcome of that rulemaking would not affect our operations because our eight stations would only be deemed to reach approximately 23% of the national audience, if the UHF discount did not apply.
FCC regulations in some cases impose restrictions on our ability to acquire additional radio or television stations in the markets in which we own radio stations, but we do not believe any such limitations are material to our current operating plans.
Dual networks. FCC rules currently prohibit any of the four major television networks — ABC, CBS, Fox and NBC — from being under common ownership or control.
Regulation of programming. The FCC regulates broadcast programming by, among other things, banning “indecent” programming, regulating political advertising and imposing commercial time limits during children’s programming. Penalties for broadcasting indecent programming can range up to $325,000 per indecent utterance or image per station.
Federal legislation and FCC rules also limit the amount of commercial matter that may be shown on broadcast or cable channels during programming designed for children 12 years of age and younger. In addition, broadcast channels are generally required to provide a minimum of three hours per week of programming that has as a “significant purpose” meeting the educational and informational needs of children 16 years of age and younger. FCC rules also give television station owners the right to reject or refuse network programming in certain circumstances or to substitute programming that the licensee reasonably believes to be of greater local or national importance.
Cable and satellite carriage of broadcast television stations. With respect to cable systems operating within a television station’s Designated Market Area, FCC rules require that every three years each television station elect either “must carry” status, pursuant to which cable operators generally must carry a local television station in the station’s market, or “retransmission consent” status, pursuant to which the cable operator must negotiate with the

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television station to obtain the consent of the television station prior to carrying its signal. Under the Satellite Home Viewer Improvement Act and its successors, including most recently the Satellite Television Extension and Localism Act (STELA), which also requires the “must carry” or “retransmission consent” election, satellite carriers are permitted to retransmit a local television station’s signal into its local market with the consent of the local television station. Portions of these satellite laws are set to expire on December 31, 2014, but legislative deliberations are proceeding with respect to their renewal. Under “must carry,” if a satellite carrier elects to carry one local station in a market, the satellite carrier must carry the signals of all local television stations that also request carriage.
Cable and satellite carriage of programming. The Communications Act and FCC rules regulate some aspects of negotiations regarding cable and satellite retransmission consent, and some cable and satellite companies have sought regulation of additional aspects of the carriage of programming on cable and satellite systems. New legislation, court action or regulation in this area could, depending on its specific nature, have an impact on the Company’s operations.
The foregoing is a brief summary of certain provisions of the Communications Act and other legislation and of specific FCC rules and policies. Reference should be made to the Communications Act, other legislation, FCC rules and public notices and rulings of the FCC for further information concerning the nature and extent of the FCC’s regulatory authority.
FCC laws and regulations are subject to change, and the Company generally cannot predict whether new legislation, court action or regulations, or a change in the extent of application or enforcement of current laws and regulations, would have an adverse impact on our operations.

PARKS AND RESORTS
The Company owns and operates the Walt Disney World Resort in Florida, the Disneyland Resort in California, Aulani, a Disney Resort & Spa in Hawaii, the Disney Vacation Club, the Disney Cruise Line and Adventures by Disney. The Company manages and has effective ownership interests as of September 27, 2014 of 51% in Disneyland Paris, 48% in Hong Kong Disneyland Resort and 43% in Shanghai Disney Resort, each of which is consolidated in our financial statements. The Company also licenses the operations of the Tokyo Disney Resort in Japan. The Company’s Walt Disney Imagineering unit designs and develops new theme park concepts and attractions as well as resort properties.
The businesses in the Parks and Resorts segment generate revenues predominately from the sale of admissions to theme parks, sales of food, beverage and merchandise, charges for room nights at hotels, sales of cruise vacation packages, and sales and rentals of vacation club properties. Significant costs include labor, depreciation, costs of merchandise, food and beverage sold, marketing and sales expense, infrastructure costs and cost of vacation club units. Infrastructure costs include information systems expense, repairs and maintenance, utilities, property taxes, insurance and transportation.
Walt Disney World Resort
The Walt Disney World Resort is located 22 miles southwest of Orlando, Florida, on approximately 25,000 acres of owned land. The resort includes theme parks (the Magic Kingdom, Epcot, Disney’s Hollywood Studios and Disney’s Animal Kingdom); hotels; vacation club properties; a retail, dining and entertainment complex; a sports complex; conference centers; campgrounds; golf courses; water parks; and other recreational facilities designed to attract visitors for an extended stay.
The Walt Disney World Resort is marketed through a variety of international, national and local advertising and promotional activities. A number of attractions and restaurants in each of the theme parks are sponsored by other corporations through long-term agreements.
Magic Kingdom — The Magic Kingdom consists of six themed areas: Adventureland, Fantasyland, Frontierland, Liberty Square, Main Street USA and Tomorrowland. Each land provides a unique guest experience featuring themed attractions, live Disney character interactions, restaurants, refreshment areas and merchandise shops. Additionally, there are daily parades and a nighttime fireworks extravaganza, Wishes. In fiscal 2014, the Company completed its multi-year expansion of Fantasyland that includes new themed spaces and attractions that nearly doubled the size of the area.
Epcot — Epcot consists of two major themed areas: Future World and World Showcase. Future World dramatizes certain historical developments and addresses the challenges facing the world today through pavilions devoted to showcasing science and technology improvements, communication, energy, transportation, use of imagination, nature and food production, the ocean environment and space. World Showcase presents a community of nations focusing on the culture, traditions and accomplishments of people around the world. Countries represented with pavilions include Canada, China, France, Germany, Italy, Japan, Mexico, Morocco, Norway, the United Kingdom and the United States. Both areas feature themed attractions,

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restaurants and merchandise shops. Epcot also features Illuminations: Reflections of Earth, a nighttime entertainment spectacular.
Disney’s Hollywood Studios — Disney’s Hollywood Studios consists of eight themed areas: Animation Courtyard, Commissary Lane, Echo Lake, Hollywood Boulevard, Mickey Avenue, Pixar Place, Streets of America and Sunset Boulevard. The eight areas provide behind-the-scenes glimpses of Hollywood-style action through various shows and attractions and offer themed food service and merchandise facilities. The park also features Fantasmic!, a nighttime entertainment spectacular.
Disney’s Animal Kingdom — Disney’s Animal Kingdom consists of a 145-foot Tree of Life centerpiece surrounded by six themed areas: Africa, Asia, Dinoland U.S.A., Discovery Island, Oasis and Rafiki’s Planet Watch. Each themed area contains attractions, entertainment, restaurants and merchandise shops. The park features more than 300 species of mammals, birds, reptiles and amphibians and 3,000 varieties of vegetation. In September 2011, the Company announced an agreement with James Cameron’s Lightstorm Entertainment and Fox Filmed Entertainment for the exclusive global theme park rights to create themed lands based on the AVATAR franchise with the first land planned for Disney’s Animal Kingdom. Scheduled to open in 2017, the AVATAR-inspired land will be a part of an expansion of Disney’s Animal Kingdom, which will include new entertainment and nighttime experiences.
Hotels and Other Resort Facilities — As of September 27, 2014, the Company owned and operated 18 resort hotels at the Walt Disney World Resort, with a total of approximately 23,000 rooms and 3,000 vacation club units. Resort facilities include 468,000 square feet of conference meeting space and Disney’s Fort Wilderness camping and recreational area, which offers approximately 800 campsites.
The Walt Disney World Resort also hosts a 120-acre retail, dining and entertainment complex known as Downtown Disney. Downtown Disney is home to Cirque du Soleil, DisneyQuest, the House of Blues and the 51,000-square-foot World of Disney retail store featuring Disney-branded merchandise. A number of the Downtown Disney facilities are operated by third parties that pay rent to the Company. The Company is currently in a multi-year expansion to transform Downtown Disney into Disney Springs, which will provide visitors with more shopping, dining and entertainment options and is expected to open in phases through fiscal 2016.
ESPN Wide World of Sports Complex is a 230-acre sports center that hosts professional caliber training and competitions, festival and tournament events and interactive sports activities. The complex, which welcomes over 200 amateur and professional events each year, accommodates multiple sporting events, including baseball, basketball, football, soccer, softball, tennis and track and field. Its stadium, which has a seating capacity of approximately 9,500, is the spring training site for MLB’s Atlanta Braves.
In the Downtown Disney Resort area, seven independently-operated hotels are situated on property leased from the Company. These hotels include approximately 3,700 rooms. Additionally, the Walt Disney World Swan and the Walt Disney World Dolphin hotels, which have approximately 2,300 total rooms, are independently operated on property leased from the Company near Epcot.
Other recreational amenities and activities available at the Walt Disney World Resort include three championship golf courses, miniature golf courses, full-service spas, tennis, sailing, water skiing, swimming, horseback riding and a number of other noncompetitive sports and leisure time activities. The resort also includes two water parks: Blizzard Beach and Typhoon Lagoon.

In 2014, Walt Disney World Resort launched MyMagic+, a series of technology-based tools to enhance the guest experience. These tools include the My Disney Experience app and website, MagicBand and Disney’s FastPass+, a reservation system for attractions and entertainment experiences.  MyMagic+ is available to all guests at Walt Disney World and provides a more personal and customized visit.
Disneyland Resort
The Company owns 461 acres and has the rights under long-term lease for use of an additional 49 acres of land in Anaheim, California. The Disneyland Resort includes two theme parks (Disneyland and Disney California Adventure), three hotels and Downtown Disney, a retail, dining and entertainment complex designed to attract visitors for an extended stay.
The Disneyland Resort is marketed as a destination through international, national and local advertising and promotional activities. A number of the attractions and restaurants at the theme parks are sponsored by other corporations through long-term agreements.

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Disneyland — Disneyland consists of eight themed areas: Adventureland, Critter Country, Fantasyland, Frontierland, Main Street USA, Mickey’s Toontown, New Orleans Square and Tomorrowland. These areas feature themed attractions, shows, restaurants, merchandise shops and refreshment stands. Additionally, Disneyland offers daily parades and a nighttime entertainment spectacular, Fantasmic!.
Disney California Adventure — Disney California Adventure is adjacent to Disneyland and includes eight themed areas: Buena Vista Street, Cars Land, Condor Flats, Grizzly Peak, Hollywood Land, Pacific Wharf, Paradise Pier and “a bug’s land”. These areas include attractions, shows, restaurants, merchandise shops and refreshment stands. Additionally, Disney California Adventure offers a nighttime water spectacular, World of Color.
Hotels and Other Resort Facilities — Disneyland Resort includes three Company-owned and operated hotels with a total of approximately 2,400 rooms, 50 vacation club units and 180,000 square feet of conference meeting space.
Downtown Disney, a themed 15-acre outdoor complex of entertainment, dining and shopping venues, is located adjacent to both Disneyland and Disney California Adventure. A number of the Downtown Disney facilities are operated by third parties that pay rent to the Company.
Aulani, a Disney Resort & Spa
The Company operates a mixed-use family resort on a 21-acre oceanfront property on Oahu, Hawaii. Aulani, a Disney Resort & Spa features 351 hotel rooms, an 18,000-square-foot spa and 12,000 square feet of conference meeting space. The resort also has 481 Disney Vacation Club units.
Disneyland Paris
The Company has a 51% effective ownership interest in Disneyland Paris, a 5,510-acre development located in Marne-la-Vallée, approximately 20 miles east of Paris, France, which has been developed pursuant to a master agreement with French governmental authorities. The Company manages and has a 40% equity interest in Euro Disney S.C.A., a publicly-traded French entity that is the holding company for Euro Disney Associés S.C.A., the primary operating company of Disneyland Paris in which the Company has a direct 18% ownership interest. Euro Disney S.C.A. and its subsidiaries operate Disneyland Paris, which includes two theme parks (Disneyland Park and Walt Disney Studios Park); seven themed hotels; two convention centers; a shopping, dining and entertainment complex; and a 27-hole golf facility. Of the 5,510 acres comprising the site, approximately half have been developed to date, including the Val d’Europe development discussed below. An indirect, wholly-owned subsidiary of the Company is responsible for managing Disneyland Paris. Euro Disney Associés S.C.A. is required to pay royalties and management fees to the Company based on the operating performance of the resort.
Disneyland Park — Disneyland Park consists of five themed areas: Adventureland, Discoveryland, Fantasyland, Frontierland and Main Street, U.S.A. These areas include themed attractions, shows, restaurants, merchandise shops and refreshment stands. Disneyland Park also features a daily parade and a nighttime entertainment spectacular, Disney Dreams!.
Walt Disney Studios Park — Walt Disney Studios Park takes guests into the worlds of cinema, animation and television and includes four themed areas: Backlot, Front Lot, Production Courtyard and Toon Studio. These areas each include themed attractions, shows, restaurants, merchandise shops and refreshment stands. In fiscal 2014, a new attraction and restaurant based on the DisneyŸPixar movie Ratatouille opened in the park.
Hotels and Other Facilities — Disneyland Paris operates seven resort hotels, with a total of approximately 5,800 rooms and 210,000 square feet of conference meeting space. In addition, several on-site hotels that are owned and operated by third parties provide approximately 2,300 rooms.
Disneyland Paris also includes Disney Village, a retail, dining and entertainment complex of approximately 500,000 square feet, located between the theme parks and the hotels. A number of the Disney Village facilities are operated by third parties that pay rent to a subsidiary of Euro Disney S.C.A.
Val d’Europe is a planned community that is being developed near Disneyland Paris. The development is being completed in phases and currently includes a regional train station, hotels and a town center consisting of a shopping center as well as office, commercial and residential space. Third parties operate these developments on land leased or purchased from Euro Disney S.C.A. and its subsidiaries.
Pursuant to the master agreement with French government authorities, Euro Disney Associés S.C.A. and a 50% joint venture partner, Pierre & Vacances-Center Parcs, are developing Villages Nature, a new European eco-tourism destination, which is targeted to open in phases beginning 2016.

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As of September 27, 2014, Euro Disney Associés S.C.A. had €1.8 billion in outstanding loans from the Company. In order to improve Disneyland Paris’ financial position, Euro Disney S.C.A. announced, with the Company’s backing, a €1.0 billion recapitalization through an equity rights offering to raise €0.4 billion of equity along with the conversion of €0.6 billion of loans from the Company into equity in Disneyland Paris. (See Note 6 to the Consolidated Financial Statements.)
Hong Kong Disneyland Resort
The Company owns a 48% interest in Hong Kong Disneyland Resort through Hongkong International Theme Parks Limited, an entity in which the Government of the Hong Kong Special Administrative Region (HKSAR) owns a 52% majority interest. The resort is located on 310 acres on Lantau Island and is in close proximity to the Hong Kong International Airport. Hong Kong Disneyland Resort includes one theme park and two themed hotels. A separate Hong Kong subsidiary of the Company is responsible for managing Hong Kong Disneyland Resort. The Company is entitled to receive royalties and management fees based on the operating performance of Hong Kong Disneyland Resort.
Hong Kong Disneyland – Hong Kong Disneyland consists of seven themed areas: Adventureland, Fantasyland, Grizzly Gulch, Main Street USA, Mystic Point, Tomorrowland and Toy Story Land. These areas feature themed attractions, shows, restaurants, merchandise shops and refreshment stands. Additionally, there are daily parades and a nighttime fireworks extravaganza, Disney in the Stars. In fiscal 2014, Hong Kong Disneyland Resort announced it will open a new themed area at the park based on Marvel’s Iron Man franchise in late 2016.
Hotels – Hong Kong Disneyland Resort includes two themed hotels with a total of 1,000 rooms. In fiscal 2014, HKDL announced a plan to build a third hotel at the resort expected to open in 2017. (See Note 6 to the Consolidated Financial Statements.)
Shanghai Disney Resort
The Company and Shanghai Shendi (Group) Co., Ltd (Shendi) are constructing a Disney resort (Shanghai Disney Resort) in the Pudong district of Shanghai, which will be located on approximately 1,000 acres and will include the Shanghai Disneyland theme park; two themed hotels with a total of 1,220 rooms; a retail, dining and entertainment complex; and an outdoor recreational area. The original planned investment of approximately 29 billion yuan was increased in fiscal 2014 by approximately 5 billion yuan, primarily to fund additional attractions, entertainment and other offerings to increase capacity at the theme park. Construction on the project began in April 2011, with the resort opening date expected to be announced in early calendar 2015. The total investment will be funded in accordance with each partner’s equity ownership percentage, with approximately 67% from equity contributions and 33% from shareholder loans.  Shanghai Disney Resort is owned through two joint venture companies, in which Shendi owns 57% and the Company owns 43%. An additional joint venture management company, in which Disney has a 70% interest and Shendi a 30% interest, is responsible for creating, constructing and operating the resort. The management company will be entitled to receive management fees based on operating performance of the resort.  Shanghai Disney Resort will also pay the Company royalties based on resort revenues.
Tokyo Disney Resort
Tokyo Disney Resort is located on 494 acres of land, six miles east of downtown Tokyo, Japan. The resort includes two theme parks (Tokyo Disneyland and Tokyo DisneySea); three Disney-branded hotels; six independently operated hotels; and a retail, dining and entertainment complex.
The Company earns royalties on revenues generated by the Tokyo Disney Resort, which is owned and operated by Oriental Land Co., Ltd. (OLC), a Japanese corporation in which the Company has no equity interest.
Tokyo Disneyland — Tokyo Disneyland was the first Disney theme park to open outside the U.S. Tokyo Disneyland consists of seven themed areas: Adventureland, Critter Country, Fantasyland, Tomorrowland, Toontown, Westernland and World Bazaar.
Tokyo DisneySea — Tokyo DisneySea, adjacent to Tokyo Disneyland, is divided into seven “ports of call,” including American Waterfront, Arabian Coast, Lost River Delta, Mediterranean Harbor, Mermaid Lagoon, Mysterious Island and Port Discovery.
Hotels and Other Resort Facilities — The resort includes three Disney-branded hotels with a total of more than 1,700 rooms. The resort also includes the Disney Resort Line monorail, which links the theme parks and resort hotels with Ikspiari, a retail, dining and entertainment complex, and Bon Voyage, a Disney-themed merchandise location.
In 2014, OLC announced a 10-year investment plan for Tokyo Disney Resort, which will include an expansion of Fantasyland at Tokyo Disneyland and a new themed area at Tokyo DisneySea.

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Disney Vacation Club
The Disney Vacation Club (DVC) offers ownership interests in 12 resort facilities located at the Walt Disney World Resort; Disneyland Resort; Vero Beach, Florida; Hilton Head Island, South Carolina; and Oahu, Hawaii. Available units at each facility are offered for sale under a vacation ownership plan and are operated as hotel rooms when not occupied by vacation club members. The Company’s vacation club units consist of a mix of units ranging from one-bedroom studios to three-bedroom villas. Unit counts in this document are presented in terms of two-bedroom equivalents. DVC had 3,647 vacation club units as of September 27, 2014. The Company is currently constructing a new vacation club property, Disney’s Polynesian Villas and Bungalows, at the Walt Disney World Resort, which is expected to be completed in 2015.
Disney Cruise Line
Disney Cruise Line (DCL) is a four-ship vacation cruise line, which operates out of ports in North America and Europe. The Disney Magic and the Disney Wonder are 85,000-ton 877-stateroom ships, and the Disney Dream and the Disney Fantasy are 130,000-ton 1,250-stateroom ships. DCL caters to families, children, teenagers and adults, with distinctly-themed areas and activities for each group. Many cruise vacations include a visit to Disney’s Castaway Cay, a 1,000-acre private Bahamian island.
Adventures by Disney
Adventures by Disney offers all-inclusive guided vacation tour packages predominantly at non-Disney sites around the world. The Company offered 27 different excursion packages during 2014.
Walt Disney Imagineering
Walt Disney Imagineering provides master planning, real estate development, attraction, entertainment and show design, engineering support, production support, project management and other development services, including research and development for the Company’s Parks and Resorts operations.
Competition and Seasonality
The Company’s theme parks and resorts as well as Disney Cruise Line and Disney Vacation Club compete with other forms of entertainment, lodging, tourism and recreational activities. The profitability of the leisure-time industry may be influenced by various factors that are not directly controllable, such as economic conditions including business cycle and exchange rate fluctuations, travel industry trends, amount of available leisure time, oil and transportation prices, weather patterns and natural disasters.
All of the theme parks and the associated resort facilities are operated on a year-round basis. Typically, the theme parks and resorts business experiences fluctuations in theme park attendance and resort occupancy resulting from the seasonal nature of vacation travel and local entertainment excursions. Peak attendance and resort occupancy generally occur during the summer months when school vacations occur and during early-winter and spring-holiday periods.

STUDIO ENTERTAINMENT
The Studio Entertainment segment produces and acquires live-action and animated motion pictures, direct-to-video content, musical recordings and live stage plays.
The businesses in the Studio Entertainment segment generate revenue from the distribution of films in the theatrical, home entertainment and television markets, the distribution of recorded music, stage play ticket sales and licensing revenues from live entertainment events. Significant operating expenses include film cost amortization, which consists of production cost and participations and residuals expense amortization, distribution expenses and costs of sales.
The Company distributes films primarily under the Walt Disney Pictures, Pixar, Marvel, Touchstone and Lucasfilm banners. The Company produces and distributes Indian movies through its UTV banner.
In August 2009, the Company entered into an agreement with DreamWorks Studios (DreamWorks) to distribute live-action motion pictures produced by DreamWorks for seven years under the Touchstone Pictures banner for which the Company receives a distribution fee. Under this agreement, the Company has distributed eleven films to date. As part of the agreement, the Company provided loans to DreamWorks, which as of September 27, 2014 totaled $156 million. There is an additional $90 million available to DreamWorks.

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Prior to the Company’s acquisition of Marvel, Marvel had licensed the rights to third-party studios to produce and distribute feature films based on certain Marvel properties including Spider-Man, The Fantastic Four and X-Men. Under the licensing arrangements, the third-party studios incur the costs to produce and distribute the films and the Company retains the merchandise licensing rights. Under the licensing arrangement for Spider-Man, the Company pays the third-party studio a licensing fee based on each film’s box office receipts, subject to specified limits. Under the licensing arrangements for The Fantastic Four and X-Men, the third-party studio pays the Company a licensing fee, and the third-party studio receives a share of the Company’s merchandise revenue on these properties. The Company distributes all Marvel-produced films with the exception of The Incredible Hulk, which is distributed by a third-party studio.
Prior to the Company’s acquisition, Lucasfilm produced six Star Wars films (Episodes 1 through 6).  Lucasfilm retained the rights to consumer products related to all of those films and the rights related to television and electronic distribution formats for all of those films, with the exception of the rights for Episode 4, which are owned by a third-party studio.  All of the films are distributed by a third-party studio in the theatrical and home entertainment markets. The theatrical and home entertainment distribution rights for these films revert back to Lucasfilm in May 2020 with the exception of Episode 4, for which these distribution rights are retained in perpetuity by the third-party studio.
Lucasfilm also includes Industrial Light & Magic and Skywalker Sound, which provide visual and audio effects and other post-production services to the Company and third-party producers.
Theatrical Market
We produce and distribute both live-action films and full-length animated films. In the domestic theatrical market, we generally distribute and market our filmed products directly. In most major international markets, we distribute our filmed products directly while in other markets our films are distributed by independent distribution companies or joint ventures. During fiscal 2015, we expect to distribute eleven of our own produced feature films domestically. As of September 27, 2014, the Company has released domestically approximately 997 full-length live-action features and 97 full-length animated features.
The Company incurs significant marketing and advertising costs before and throughout the theatrical release of a film in an effort to generate public awareness of the film, to increase the public’s intent to view the film and to help generate consumer interest in the subsequent home entertainment and other ancillary markets. These costs are expensed as incurred. Therefore, we typically incur losses on a film in the theatrical markets, including in periods prior to the theatrical release of the film.
Home Entertainment Market
In the domestic market, we distribute home entertainment releases directly under each of our motion picture banners. In the international market, we distribute home entertainment releases under each of our motion picture banners both directly and through independent distribution companies. In addition, we acquire and produce original content for direct-to-video release.
Domestic and international home entertainment distribution typically starts three to six months after the theatrical release in each market. Home entertainment releases may be distributed in both physical (DVD and Blu-ray) and electronic formats. Titles are generally sold to retailers, such as Wal-Mart and Best Buy and physical rental channels, such as Netflix. However, distribution in the rental channels may be delayed up to 28 days after the start of home entertainment distribution.
As of September 27, 2014, we had approximately 1,400 active produced and acquired titles, including 1,000 live-action titles and 400 animated titles, in the domestic home entertainment marketplace and approximately 2,500 active produced and acquired titles, including 2,000 live-action titles and 500 animated titles, in the international marketplace.
Television Market
Pay-Per-View (PPV)/Video-on-Demand (VOD) — Concurrently with, or up to one month after, home entertainment distribution begins, we license titles to PPV/VOD service providers for electronic delivery to consumers for a specified rental period (e.g. 24 hours).
Pay Television (Pay 1) — There are generally three pay television windows. The first window is generally eighteen months in duration and follows the PPV/VOD window. The Company has licensed exclusive domestic pay television rights to substantially all films released theatrically through calendar year 2015 under the Walt Disney Pictures, Pixar and Touchstone Pictures banners, along with films released under the Marvel banner starting with Iron Man 3 to the Starz pay television service. DreamWorks titles distributed by the Company are licensed to Showtime under a separate agreement.
Free Television (Free 1) — The Pay 1 window is followed by a television window that may last up to 84 months. Motion pictures are usually sold in the Free 1 window to major broadcast networks, including ABC, and basic cable services.

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Pay Television 2 (Pay 2) and Free Television 2 (Free 2) — In the U.S., Free 1 is generally followed by a twelve-month Pay 2 window under our license arrangements with Starz and Showtime, and then by a Free 2 window that generally lasts up to 84 months. Packages of the Company’s feature films have been licensed for broadcast under multi-year agreements within the Free 2 window. The Free 2 window is a syndication window where films are licensed both to basic cable networks, subscription video on demand (SVOD) services and to third-party television station groups.
Pay Television 3 (Pay 3) and Free Television 3 (Free 3) — In the U.S., Free 2 is generally followed by a seven-month Pay 3 window under our license arrangements with Starz and Showtime, and then by a Free 3 window. Packages of the Company’s feature films have been licensed for broadcast under multi-year agreements within the Free 3 window. The Free 3 window is a syndication window where films are licensed to basic cable networks and SVOD services.
Following the conclusion of Starz’s exclusive domestic Pay 1, Pay 2 and Pay 3 television rights for films released theatrically through the end of calendar year 2015, Netflix will have exclusive domestic pay television rights for the Pay 1 and Pay 2 windows for films released theatrically through calendar year 2018.
International Television — The Company also licenses its films outside of the U.S. The typical windowing sequence is consistent with the domestic cycle such that titles premiere on television in PPV/VOD then air in pay TV before airing in free TV. Windowing strategies are developed in response to local market practices and conditions, and the exact sequence and length of each window can vary country by country.
Disney Music Group
The Disney Music Group includes Walt Disney Records, Hollywood Records, Disney Music Publishing and Buena Vista Concerts.
Walt Disney Records and Hollywood Records develop, produce, market and distribute recorded music in the U.S. and license our music properties throughout the rest of the world. Walt Disney Records categories include infant, children’s read-along, teen, all-family and soundtracks from film and television properties distributed by Walt Disney Pictures and Disney Channel. Hollywood Records develops musical talent and produces and markets their recordings across a spectrum of music genres.
The Disney Music Group commissions new music for the Company’s motion pictures and television programs, records the songs and licenses the song and recording copyrights to others for printed music, records, audio-visual devices, public performances and digital distribution. Buena Vista Concerts produces live musical concerts with the Company’s intellectual property and artists signed to the Disney Music Group record labels.
Disney Music Publishing controls the copyrights of thousands of musical compositions derived from the Company’s motion picture, television and theme park properties as well as musical compositions written by songwriters under exclusive contract. It is responsible for the management, protection and licensing of the Disney song catalog on a worldwide basis.
Disney Theatrical Group
Disney Theatrical Group develops, produces and licenses live entertainment events. The Company has produced and licensed Broadway productions around the world, including Aladdin, Beauty and the Beast, The Lion King, Elton John & Tim Rice’s Aida, TARZAN®, Mary Poppins (a co-production with Cameron Mackintosh Ltd), The Little Mermaid and Newsies.
Disney Theatrical Group licenses the Company’s intellectual property to Feld Entertainment, the producer of Disney On Ice and Disney Live!. Feld’s newest production, Disney on Ice: Frozen, launched in August 2014 for a North America tour.
Competition and Seasonality
The Studio Entertainment businesses compete with all forms of entertainment. A significant number of companies produce and/or distribute theatrical and television films, exploit products in the home entertainment market, provide pay television programming services and sponsor live theater. We also compete to obtain creative and performing talents, story properties, advertiser support and broadcast rights that are essential to the success of our Studio Entertainment businesses.
The success of Studio Entertainment operations is heavily dependent upon public taste and preferences. In addition, Studio Entertainment operating results fluctuate due to the timing and performance of releases in the theatrical, home entertainment and television markets. Release dates are determined by several factors, including competition and the timing of vacation and holiday periods.


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CONSUMER PRODUCTS
The Consumer Products segment engages with licensees, publishers and retailers throughout the world to design, develop, publish, promote and sell a wide variety of products based on the Company’s intellectual property through its Merchandise Licensing, Publishing and Retail businesses. In addition to using the Company’s film and television properties, Consumer Products also develops its own intellectual property, which can be used across the Company’s businesses.
The Consumer Products segment generates revenue from:
licensing characters from our film, television and other properties to third parties for use on consumer merchandise
wholesale revenue from publishing children’s books and magazines and comic books
sales of merchandise at our retail stores and wholesale business
fees charged at our English language learning centers; and
sales of merchandise at internet shopping sites
Significant costs include costs of goods sold and distribution expenses, operating labor and retail occupancy costs.
Merchandise Licensing
The Company’s merchandise licensing operations cover a diverse range of product categories, the most significant of which are: toys, apparel, home décor and furnishings, stationery, accessories, health and beauty, food, footwear and consumer electronics. The Company licenses characters from its film, television and other properties for use on third-party products in these categories and earns royalties, which are usually based on a fixed percentage of the wholesale or retail selling price of the products. Some of the major properties licensed by the Company include: Mickey and Minnie; the Marvel properties including Spider-Man, The Avengers and Iron Man; Disney Channel properties; Disney Princess; Star Wars; Cars; Frozen; Winnie the Pooh; Planes; Disney Classics; Toy Story; and Monsters. The Company also provides input on the design of individual products and creates exclusive themed and seasonal promotional campaigns for retailers based on the Company’s characters, movies and TV shows.
Publishing
Disney Publishing Worldwide (DPW) creates, distributes, licenses and publishes children’s books, magazine and learning products in print and digital formats and storytelling apps in multiple countries and languages based on the Company’s branded franchises. DPW also operates Disney English, which develops and delivers an English language learning curriculum for Chinese children using Disney content in 33 learning centers in nine cities across China.
Marvel Publishing creates and publishes comic books, and graphic novel collections of comic books, principally in North America in print and digital formats. Marvel Publishing also licenses the right to publish translated versions of these comic books, principally in Europe and Latin America.
Retail
The Company markets Disney-, Marvel- and Lucasfilm-themed products through retail stores operated under the Disney Store name and through internet sites in North America (DisneyStore.com and MarvelStore.com), Western Europe and Japan. The stores, which are generally located in leading shopping malls and other retail complexes, carry a wide variety of Disney merchandise and promote other businesses of the Company. The Company currently owns and operates 210 stores in North America, 73 stores in Europe and 45 stores in Japan. The Company also offers merchandise that it designs and develops under wholesale arrangements.
Competition and Seasonality
The Company’s merchandise licensing, publishing and retail businesses compete with other licensors, publishers and retailers of character, brand and celebrity names. Operating results for the licensing and retail businesses are influenced by seasonal consumer purchasing behavior, consumer preferences, levels of marketing and promotion and by the timing and performance of theatrical releases and cable programming broadcasts.

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INTERACTIVE
The Interactive segment creates and delivers branded entertainment and lifestyle content across interactive media platforms. Interactive’s primary operations include the production and global distribution of multi-platform games, the licensing of content for games and mobile devices, website management and design for other Company businesses and the development of branded online services.
The Interactive segment generates revenue from:
the sale of multi-platform games to retailers and distributors and through micro transactions and subscription fees
licensing content to third-party game publishers and mobile phone providers
online advertising and sponsorships
Significant costs include product development, cost of goods sold, marketing expenses and distribution expenses.
Games
Interactive develops console, mobile and virtual world games, which are marketed and distributed on a worldwide basis. Disney Infinity, a game that delivers Company content and features a game world that combines physical toys and story-driven gameplay, was our significant console game in release in fiscal 2014. Mobile games are distributed on smartphones and tablets and social networking websites and include Tsum Tsum, Frozen Free Fall and Marvel Avengers Alliance. The Company’s virtual world game is Disney’s Club Penguin. Certain properties are also licensed to third-party video game publishers.
Other Content
Interactive licenses Disney properties and content to mobile phone carriers in Japan. In addition, we develop, publish and distribute interactive family content through a portfolio of platforms including Disney.com, Disney on YouTube and Babble.com and develop and publish apps for moms and families. Interactive also provides website maintenance and design for other Company businesses.
Competition and Seasonality
The Company’s game business competes primarily with other publishers of game software and other types of home entertainment. The Company’s online sites and products compete with a wide variety of other online sites and products. Operating results for the game business fluctuate due to the performance and timing of game releases, which are determined by several factors including theatrical releases and cable programming broadcasts, competition and the timing of holiday periods. Revenues from certain of the Company’s online and mobile operations are subject to similar seasonal trends.


INTELLECTUAL PROPERTY PROTECTION
The Company’s businesses throughout the world are affected by its ability to exploit and protect against infringement of its intellectual property, including trademarks, trade names, copyrights, patents and trade secrets. Important intellectual property includes rights in the content of motion pictures, television programs, electronic games, sound recordings, character likenesses, theme park attractions, books and magazines. Risks related to the protection and exploitation of intellectual property rights are set forth in Item 1A – Risk Factors.

AVAILABLE INFORMATION
Our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports are available without charge on our website, www.disney.com/investors, as soon as reasonably practicable after they are filed electronically with the Securities and Exchange Commission (SEC). We are providing the address to our internet site solely for the information of investors. We do not intend the address to be an active link or to otherwise incorporate the contents of the website into this report.
 

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ITEM 1A. Risk Factors
For an enterprise as large and complex as the Company, a wide range of factors could materially affect future developments and performance. In addition to the factors affecting specific business operations identified in connection with the description of these operations and the financial results of these operations elsewhere in this report, the most significant factors affecting our operations include the following:
Changes in U.S., global, or regional economic conditions could have an adverse effect on the profitability of some or all of our businesses.
A decline in economic activity in the U.S. and other regions of the world in which we do business can adversely affect demand for any of our businesses, thus reducing our revenue and earnings. The most recent decline in economic conditions reduced spending at our parks and resorts, purchase of and prices for advertising on our broadcast and cable networks and owned stations, performance of our home entertainment releases, and purchases of Company-branded consumer products, and similar impacts can be expected should such conditions recur. A decline in economic conditions could also reduce attendance at our parks and resorts, prices that MVPDs pay for our cable programming or subscription levels for our cable programming. Recent instability in European economies has had similar impacts on some of our European operations. Economic conditions can also impair the ability of those with whom we do business to satisfy their obligations to us. In addition, an increase in price levels generally, or in price levels in a particular sector such as the energy sector, could result in a shift in consumer demand away from the entertainment and consumer products we offer, which could also adversely affect our revenues and, at the same time, increase our costs. Changes in exchange rates for foreign currencies may reduce international demand for our products, increase our labor or supply costs in non-U.S. markets, or reduce the U.S. dollar value of revenue we receive from other markets, and economic or political conditions in a country could reduce our ability to hedge exposure to currency fluctuations in the country or our ability to repatriate revenue from the country.
Changes in public and consumer tastes and preferences for entertainment and consumer products could reduce demand for our entertainment offerings and products and adversely affect the profitability of any of our businesses.
Our businesses create entertainment, travel or consumer products whose success depends substantially on consumer tastes and preferences that change in often unpredictable ways. The success of our businesses depends on our ability to consistently create and distribute filmed entertainment, broadcast and cable programming, online material, electronic games, theme park attractions, hotels and other resort facilities and travel experiences and consumer products that meet the changing preferences of the broad consumer market and respond to competition from an expanding array of choices facilitated by technological developments in the delivery of content. Many of our businesses increasingly depend on acceptance of our offerings and products by consumers outside the U.S., and their success therefore depends on our ability to successfully predict and adapt to changing consumer tastes and preferences outside as well as inside the U.S. Moreover, we must often invest substantial amounts in film production, broadcast and cable programming, electronic games, theme park attractions, cruise ships or hotels and other resort facilities before we learn the extent to which these products will earn consumer acceptance. If our entertainment offerings and products do not achieve sufficient consumer acceptance, our revenue from advertising sales (which are based in part on ratings for the programs in which advertisements air) or subscription fees for broadcast and cable programming and online services, from theatrical film receipts or home entertainment or electronic game sales, from theme park admissions, hotel room charges and merchandise, food and beverage sales, from sales of licensed consumer products or from sales of our other consumer products and services may decline or fail to grow to the extent we anticipate when making investment decisions and thereby adversely affect the profitability of one or more of our businesses.

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Changes in technology and in consumer consumption patterns may affect demand for our entertainment products, the revenue we can generate from these products or the cost of producing or distributing products.
The media entertainment and internet businesses in which we participate increasingly depend on our ability to successfully adapt to shifting patterns of content consumption through the adoption and exploitation of new technologies. New technologies affect the demand for our products, the manner in which our products are distributed to consumers, the sources and nature of competing content offerings, the time and manner in which consumers acquire and view some of our entertainment products and the options available to advertisers for reaching their desired audiences. This trend has disrupted and challenged the business model for certain traditional forms of distribution, as evidenced by the industry-wide decline in ratings for broadcast television, the reduction in demand for home entertainment sales of theatrical content and the development of alternative distribution channels for broadcast and cable programming. In order to respond to these developments, we may be required to alter our business models and there can be no assurance that we will successfully respond to these changes, that we will not experience disruption as we develop responses to the changes, or that the business models we develop will be as profitable as our current business models. As a result, the income from our entertainment offerings may decline or increase at slower rates than our historical experience or our expectations when we make investments in products.
The success of our businesses is highly dependent on the existence and maintenance of intellectual property rights in the entertainment products and services we create.
The value to us of our intellectual property rights is dependent on the scope and duration of our rights as defined by applicable laws in the U.S. and abroad and the manner in which those laws are construed. If those laws are drafted or interpreted in ways that limit the extent or duration of our rights, or if existing laws are changed, our ability to generate revenue from our intellectual property may decrease, or the cost of obtaining and maintaining rights may increase.
The unauthorized use of our intellectual property rights may increase the cost of protecting these rights or reduce our revenues. New technologies such as the convergence of computing, communication, and entertainment devices, the falling prices of devices incorporating such technologies, increased broadband internet speed and penetration and increased availability and speed of mobile data transmission have made the unauthorized digital copying and distribution of our films, television productions and other creative works easier and faster and enforcement of intellectual property rights more challenging. The unauthorized use of intellectual property in the entertainment industry generally continues to be a significant challenge for intellectual property rights holders. Inadequate laws or weak enforcement mechanisms to protect intellectual property in one country can adversely affect the results of the Company’s operations worldwide, despite the Company’s efforts to protect its intellectual property rights. These developments require us to devote substantial resources to protecting our intellectual property against unlicensed use and present the risk of increased losses of revenue as a result of unlicensed distribution of our content.
With respect to intellectual property developed by the Company and rights acquired by the Company from others, the Company is subject to the risk of challenges to our copyright, trademark and patent rights by third parties. Successful challenges to our rights in intellectual property may result in increased costs for obtaining rights or the loss of the opportunity to earn revenue from the intellectual property that is the subject of challenged rights.
Protection of electronically stored data is costly and if our data is compromised in spite of this protection, we may incur additional costs, lost opportunities and damage to our reputation.
We maintain information necessary to conduct our business, including confidential and proprietary information as well as personal information regarding our customers and employees, in digital form. Data maintained in digital form is subject to the risk of intrusion, tampering and theft. We develop and maintain systems to prevent this from occurring, but the development and maintenance of these systems is costly and requires ongoing monitoring and updating as technologies change and efforts to overcome security measures become more sophisticated. Moreover, despite our efforts, the possibility of intrusion, tampering and theft cannot be eliminated entirely, and risks associated with each of these remain. In addition, we provide confidential, proprietary and personal information to third parties when it is necessary to pursue business objectives. While we obtain assurances that these third parties will protect this information and, where appropriate, monitor the protections employed by these third parties, there is a risk the confidentiality of data held by third parties may be compromised. If our data systems are compromised, our ability to conduct our business may be impaired, we may lose profitable opportunities or the value of those opportunities may be diminished and, as described above, we may lose revenue as a result of unlicensed use of our intellectual property. If personal information of our customers or employees is misappropriated, our reputation with our customers and employees may be injured resulting in loss of business or morale, and we may incur costs to remediate possible injury to our customers and employees or to pay fines or take other action with respect to judicial or regulatory actions arising out of the incident.

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A variety of uncontrollable events may reduce demand for our products and services, impair our ability to provide our products and services or increase the cost of providing our products and services.
Demand for our products and services, particularly our theme parks and resorts, is highly dependent on the general environment for travel and tourism. The environment for travel and tourism, as well as demand for other entertainment products, can be significantly adversely affected in the U.S., globally or in specific regions as a result of a variety of factors beyond our control, including: adverse weather conditions arising from short-term weather patterns or long-term change, catastrophic events or natural disasters (such as excessive heat or rain, hurricanes, typhoons, floods, tsunamis and earthquakes); health concerns; international, political or military developments; and terrorist attacks. These events and others, such as fluctuations in travel and energy costs and computer virus attacks, intrusions or other widespread computing or telecommunications failures, may also damage our ability to provide our products and services or to obtain insurance coverage with respect to these events. In addition, we derive royalties from the sales of our licensed goods and services by third parties and the management of businesses operated under brands licensed from the Company, and we are therefore dependent on the successes of those third parties for that portion of our revenue. A wide variety of factors could influence the success of those third parties and if negative factors significantly impacted a sufficient number of our licensees, that could adversely affect the profitability of one or more of our businesses. We obtain insurance against the risk of losses relating to some of these events, generally including physical damage to our property and resulting business interruption, certain injuries occurring on our property and some liabilities for alleged breach of legal responsibilities. When insurance is obtained it is subject to deductibles, exclusions, terms, conditions and limits of liability. The types and levels of coverage we obtain vary from time to time depending on our view of the likelihood of specific types and levels of loss in relation to the cost of obtaining coverage for such types and levels of loss.
Changes in our business strategy or restructuring of our businesses may increase our costs or otherwise affect the profitability of our businesses.
As changes in our business environment occur we may need to adjust our business strategies to meet these changes or we may otherwise find it necessary to restructure our operations or particular businesses or assets. In addition, external events including acceptance of our theatrical offerings and changes in macroeconomic conditions may impair the value of our assets. When these changes or events occur, we may incur costs to change our business strategy and may need to write down the value of assets. We also make investments in existing or new businesses, including investments in international expansion of our business and in new business lines. In recent years, such investments have included expansion and renovation of certain of our theme park attractions and investment in Shanghai Disney Resort. Some of these investments may have short-term returns that are negative or low and the ultimate business prospects of the businesses may be uncertain. In any of these events, our costs may increase, we may have significant charges associated with the write-down of assets or returns on new investments may be lower than prior to the change in strategy or restructuring.
Turmoil in the financial markets could increase our cost of borrowing and impede access to or increase the cost of financing our operations and investments.
Past disruptions in the U.S. and global credit and equity markets made it difficult for many businesses to obtain financing on acceptable terms. These conditions tended to increase the cost of borrowing and if they recur, our cost of borrowing could increase and it may be more difficult to obtain financing for our operations or investments. In addition, our borrowing costs can be affected by short- and long-term debt ratings assigned by independent rating agencies that are based, in part, on the Company’s performance as measured by credit metrics such as interest coverage and leverage ratios. A decrease in these ratings would likely increase our cost of borrowing and/or make it more difficult for us to obtain financing. Past disruptions in the global financial markets also impacted some of the financial institutions with which we do business. A similar decline in the financial stability of financial institutions could affect our ability to secure credit-worthy counterparties for our interest rate and foreign currency hedging programs and could affect our ability to settle existing contracts.
Increased competitive pressures may reduce our revenues or increase our costs.
We face substantial competition in each of our businesses from alternative providers of the products and services we offer and from other forms of entertainment, lodging, tourism and recreational activities. We also must compete to obtain human resources, programming and other resources we require in operating our business. For example:
 
Our broadcast and cable networks, stations and online offerings compete for viewers with other broadcast, cable and satellite services as well as with home entertainment products and internet usage.
Our broadcast and cable networks and stations compete for the sale of advertising time with other broadcast, cable and satellite services, and the internet, as well as with newspapers, magazines and billboards.
Our cable networks compete for carriage of their programming with other programming providers.

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Our broadcast and cable networks compete for the acquisition of creative talent and sports and other programming with other broadcast and cable networks.
Our theme parks and resorts compete for guests with all other forms of entertainment, lodging, tourism and recreation activities.
Our studio operations compete for customers with all other forms of entertainment.
Our studio operations, broadcast and cable networks compete to obtain creative and performing talent, story properties, advertiser support, broadcast rights and market share.
Our consumer products segment competes with other licensors, publishers and retailers of character, brand and celebrity names.
Our interactive game operations compete with other publishers of console, online and mobile games and other types of home entertainment.
Competition in each of these areas may increase as a result of technological developments and changes in market structure, including consolidation of suppliers of resources and distribution channels. Increased competition may divert consumers from our creative or other products, or to other products or other forms of entertainment, which could reduce our revenue or increase our marketing costs. Such competition may also reduce, or limit growth in, prices for our products and services, including advertising rates and subscription fees at our media networks, parks and resorts admissions and room rates, and prices for consumer products from which we derive license revenues. Competition for the acquisition of resources can increase the cost of producing our products and services.
Sustained increases in costs of pension and postretirement medical and other employee health and welfare benefits may reduce our profitability.
With approximately 180,000 employees, our profitability is substantially affected by costs of pension benefits and current and postretirement medical benefits. We may experience significant increases in these costs as a result of macro-economic factors, which are beyond our control, including increases in the cost of health care. In addition, changes in investment returns and discount rates used to calculate pension expense and related assets and liabilities can be volatile and may have an unfavorable impact on our costs in some years. These macroeconomic factors as well as a decline in the fair value of pension and postretirement medical plan assets may put upward pressure on the cost of providing pension and postretirement medical benefits and may increase future funding requirements. Although we have actively sought to control increases in these costs, there can be no assurance that we will succeed in limiting cost increases, and continued upward pressure could reduce the profitability of our businesses.
Our results may be adversely affected if long-term programming or carriage contracts are not renewed on sufficiently favorable terms.
We enter into long-term contracts for both the acquisition and the distribution of media programming and products, including contracts for the acquisition of programming rights for sporting events and other programs, and contracts for the distribution of our programming to content distributors. As these contracts expire, we must renew or renegotiate the contracts, and if we are unable to renew them on acceptable terms, we may lose programming rights or distribution rights. Even if these contracts are renewed, the cost of obtaining programming rights may increase (or increase at faster rates than our historical experience) or the terms on which we distribute programming (including the breadth of distribution by a carrier) may reduce revenue from distribution of programs (or increase revenue at slower rates than our historical experience). With respect to the acquisition of programming rights, particularly sports programming rights, the impact of these long-term contracts on our results over the term of the contracts depends on a number of factors, including the strength of advertising markets, effectiveness of marketing efforts and the size of viewer audiences. There can be no assurance that revenues from programming based on these rights will exceed the cost of the rights plus the other costs of producing and distributing the programming.
Changes in regulations applicable to our businesses may impair the profitability of our businesses.
Our broadcast networks and television stations are highly regulated, and each of our other businesses is subject to a variety of U.S. and overseas regulations. These regulations include:
 
U.S. FCC regulation of our television and radio networks, our national programming networks, and our owned television stations. See Item 1 — Business — Media Networks, Federal Regulation.
Environmental protection regulations.
Federal, state and foreign privacy and data protection laws and regulations.
Regulation of the safety of consumer products and theme park operations.
Imposition by foreign countries of trade restrictions, ownership restrictions, currency exchange controls or motion picture or television content requirements or quotas.

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Domestic and international tax laws or currency controls.
Changes in any of these regulations or regulatory activities in any of these areas may require us to spend additional amounts to comply with the regulations, or may restrict our ability to offer products and services that are profitable.
Our operations outside the United States may be adversely affected by the operation of laws in those jurisdictions.
Our operations in non-U.S. jurisdictions are in many cases subject to the laws of the jurisdictions in which they operate rather than U.S. law. Laws in some jurisdictions differ in significant respects from those in the U.S., and these differences can affect our ability to react to changes in our business and our rights or ability to enforce rights may be different than would be expected under U.S. law. Moreover, enforcement of laws in some overseas jurisdictions can be inconsistent and unpredictable, which can affect both our ability to enforce our rights and to undertake activities that we believe are beneficial to our business. In addition, the business and political climate in some jurisdictions may encourage corruption, which could reduce our ability to compete successfully in those jurisdictions while remaining in compliance with local laws or United States anti-corruption laws applicable to our businesses. As a result, our ability to generate revenue and our expenses in non-U.S. jurisdictions may differ from what would be expected if U.S. law governed these operations.
Labor disputes may disrupt our operations and adversely affect the profitability of any of our businesses.
A significant number of employees in various of our businesses are covered by collective bargaining agreements, including employees of our theme parks and resorts as well as writers, directors, actors, production personnel and others employed in our media networks and studio operations. In addition, the employees of licensees who manufacture and retailers who sell our consumer products, and employees of providers of programming content (such as sports leagues) may be covered by labor agreements with their employers. In general, a labor dispute involving our employees or the employees of our licensees or retailers who sell our consumer products or providers of programming content may disrupt our operations and reduce our revenues, and resolution of disputes may increase our costs.
The seasonality of certain of our businesses could exacerbate negative impacts on our operations.
Each of our businesses is normally subject to seasonal variations, as follows:
 
Revenues in our Media Networks segment are subject to seasonal advertising patterns and changes in viewership levels. In general, advertising revenues are somewhat higher during the fall and somewhat lower during the summer months. Affiliate revenues are typically collected ratably throughout the year.
Revenues in our Parks and Resorts segment fluctuate with changes in theme park attendance and resort occupancy resulting from the seasonal nature of vacation travel and leisure activities. Peak attendance and resort occupancy generally occur during the summer months when school vacations occur and during early-winter and spring-holiday periods.
Revenues in our Studio Entertainment segment fluctuate due to the timing and performance of releases in the theatrical, home entertainment and television markets. Release dates are determined by several factors, including competition and the timing of vacation and holiday periods.
Revenues in our Consumer Products segment are influenced by seasonal consumer purchasing behavior, which generally results in higher revenues during the Company’s first fiscal quarter, and by the timing and performance of theatrical releases and cable programming broadcasts.
Revenues in our Interactive segment fluctuate due to the timing and performance of video game releases, which are determined by several factors, including theatrical releases and cable programming broadcasts, competition and the timing of holiday periods. Revenues from certain of our internet and mobile operations are subject to similar seasonal trends.
Accordingly, if a short-term negative impact on our business occurs during a time of high seasonal demand (such as hurricane damage to our parks during the summer travel season), the effect could have a disproportionate effect on the results of that business for the year.

ITEM 1B.
Unresolved Staff Comments
The Company has received no written comments regarding its periodic or current reports from the staff of the SEC that were issued 180 days or more preceding the end of its 2014 fiscal year and that remain unresolved.


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ITEM 2.
Properties
The Walt Disney World Resort, Disneyland Resort and other properties of the Company and its subsidiaries are described in Item 1 under the caption Parks and Resorts. Film library properties are described in Item 1 under the caption Studio Entertainment. Television stations owned by the Company are described in Item 1 under the caption Media Networks.
The Company and its subsidiaries own and lease properties throughout the world. In addition to the properties noted above, the table below provides a brief description of other significant properties and the related business segment. 
Location
  
Property /
Approximate Size
  
Use
  
Business Segment(1)
Burbank, CA
  
Land (52 acres) & Buildings (1,978,000 ft2)
  
Owned Office/Production/Warehouse
  
Corp/Studio/Media/CP/P&R
 
 
 
 
Burbank, CA & surrounding cities(2)
  
Buildings (1,218,000 ft2)
  
Leased Office/Warehouse
  
Corp/Studio/Media/CP/ Interactive
 
 
 
 
Glendale, CA & surrounding cities(2)
  
Land (149 acres) & Buildings (2,789,000 ft2)
  
Owned Office/Warehouse (includes 357,000 ft2 sublet to third-party tenants)
  
Corp/Studio/Media/CP/ P&R/Interactive
 
 
 
 
Glendale, CA
  
Buildings (210,000 ft2)
  
Leased Office/Warehouse
  
Corp/Media/P&R
 
 
 
 
Los Angeles, CA
  
Land (22 acres) & Buildings (600,000 ft2)
  
Owned Office/Production/Technical
  
Media/Studio
 
 
 
 
Los Angeles, CA
  
Buildings (342,000 ft2)
  
Leased Office/Production/Technical/Theater (includes 14,000 ft2 sublet to third-party tenants)
  
Media/Studio
 
 
 
 
New York, NY
  
Land (5 acres) & Buildings (1,418,000 ft2)
  
Owned Office/Production/Technical
  
Media/Corp
 
 
 
 
New York, NY
  
Buildings (302,000 ft2)
  
Leased Office/Production/Theater/Warehouse (includes 23,000 ft2 sublet to third-party tenants)
  
Corp/Studio/Media/Interactive
 
 
 
 
Bristol, CT
  
Land (117 acres) & Buildings (962,000 ft2)
  
Owned Office/Production/Technical
  
Media
 
 
 
 
Bristol, CT
  
Buildings (512,000 ft2)
  
Leased Office/Warehouse/Technical
  
Media
 
 
 
 
Emeryville, CA
  
Land (20 acres) & Buildings (430,000 ft2)
  
Owned Office/Production/Technical
  
Studio
 
 
 
 
Emeryville, CA
  
Buildings (89,000 ft2)
  
Leased Office/Storage (includes 16,000 ft2 sublet to third party tenants)
  
Studio
 
 
 
 
San Francisco, CA
  
Buildings (542,000 ft2)
  
Leased Office/Production/Technical/Theater
  
Studio/Media/CP/P&R/Interactive
 
 
 
 
 
 
 
USA & Canada
  
Land and Buildings (Multiple sites and sizes)
  
Owned and Leased Office/ Production/Transmitter/Retail/Theaters/Warehouse
  
Corp/Studio/Media/CP/ P&R/Interactive
 
 
 
 
Hammersmith, England
  
Building (279,500 ft2)
  
Leased Office
  
Corp/Studio/Media/CP/ P&R/Interactive
 
 
 
 
Europe, Asia, Australia & Latin America
  
Buildings (Multiple sites and sizes)
  
Leased Office/Retail/Warehouse
  
Corp/Studio/Media/CP/ P&R/Interactive
 
(1) 
Corp – Corporate, CP – Consumer Products, P&R – Parks and Resorts
(2) 
Surrounding cities include North Hollywood, CA and Sun Valley, CA

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ITEM 3. Legal Proceedings

As disclosed in Note 14 to the Consolidated Financial Statements, the Company is engaged in certain legal matters, and the disclosure set forth in Note 14 relating to certain legal matters is incorporated herein by reference.

The Company, together with, in some instances, certain of its directors and officers, is a defendant or codefendant in various other legal actions involving copyright, breach of contract and various other claims incident to the conduct of its businesses. Management does not expect the Company to suffer any material liability by reason of these actions.

ITEM 4. Mine Safety Disclosures
Not applicable.

Executive Officers of the Company
The executive officers of the Company are elected each year at the organizational meeting of the Board of Directors, which follows the annual meeting of the shareholders, and at other Board of Directors meetings, as appropriate. Each of the executive officers has been employed by the Company in the position or positions indicated in the list and pertinent notes below. Each of the executive officers has been employed by the Company for more than five years.
At September 27, 2014, the executive officers of the Company were as follows:
Name
 
Age
 
Title
 
Executive
Officer Since
Robert A. Iger
 
63
 
Chairman and Chief Executive Officer(1)
 
2000
James A. Rasulo
 
58
 
Senior Executive Vice President and Chief Financial Officer(2)
 
2010
Alan N. Braverman
 
66
 
Senior Executive Vice President, General Counsel and Secretary
 
2003
Kevin A. Mayer
 
52
 
Executive Vice President, Corporate Strategy and Business Development
 
2005
Christine M. McCarthy
 
59
 
Executive Vice President, Corporate Real Estate, Alliances and Treasurer
 
2005
Mary Jayne Parker
 
53
 
Executive Vice President and Chief Human Resources Officer
 
2009
 
(1) 
Mr. Iger was appointed Chairman of the Board and Chief Executive Officer effective March 13, 2012. He was President and Chief Executive Officer from October 2, 2005 through that date.
(2) 
Mr. Rasulo was appointed Senior Executive Vice President and Chief Financial Officer effective January 1, 2010. He was Chairman, Walt Disney Parks and Resorts Worldwide from 2005 to 2009, and was President, Walt Disney Parks and Resorts from 2002 to 2005.




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PART II
ITEM 5. Market for the Company’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
The Company’s common stock is listed on the New York Stock Exchange under the ticker symbol “DIS”. The following table shows, for the periods indicated, the high and low sales prices per share of common stock as reported in the Bloomberg Financial markets services.
 
 
Sales Price
 
High
 
Low
2014
 
 
 
4th Quarter

$91.20

 

$84.87

3rd Quarter
85.86

 
76.31

2nd Quarter
83.65

 
69.85

1st Quarter
74.78

 
63.10

2013
 
 
 
4th Quarter
67.65

 
60.41

3rd Quarter
67.89

 
56.15

2nd Quarter
57.82

 
48.80

1st Quarter
53.15

 
46.53

On December 4, 2013, the Company declared a $0.86 per share dividend ($1.5 billion) related to fiscal 2013 for shareholders of record on December 16, 2013, which was paid on January 16, 2014. The Board of Directors has not declared a dividend related to fiscal 2014 as of the date of this report.
As of September 27, 2014, the approximate number of common shareholders of record was 958,420.
The following table provides information about Company purchases of equity securities that are registered by the Company pursuant to Section 12 of the Exchange Act during the quarter ended September 27, 2014:
 
Period
 
Total Number
of Shares
Purchased (1)
 
Weighted
Average Price
Paid per Share
 
Total Number 
of Shares 
Purchased
as Part of 
Publicly
Announced 
Plans or 
Programs
 
Maximum 
Number of 
Shares that 
May Yet Be 
Purchased
Under the
Plans or
Programs(2)
June 29, 2014 – July 31, 2014
 
5,614,142

 
$85.93
 
5,586,167

 
87 million
August 1, 2014 – August 31, 2014
 
6,826,974

 
88.20
 
6,804,000

 
81 million
September 1, 2014 – September 27, 2014
 
4,017,177

 
90.08
 
3,994,854

 
77 million
Total
 
16,458,293

 
87.88
 
16,385,021

 
77 million
  
(1) 
73,272 shares were purchased on the open market to provide shares to participants in the Walt Disney Investment Plan (WDIP) and Employee Stock Purchase Plan (ESPP). These purchases were not made pursuant to a publicly announced repurchase plan or program.
(2) 
Under a share repurchase program implemented effective June 10, 1998, the Company is authorized to repurchase shares of its common stock. On March 22, 2011, the Company’s Board of Directors increased the repurchase authorization to a total of 400 million shares as of that date. The repurchase program does not have an expiration date.

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ITEM 6. Selected Financial Data
(in millions, except per share data)
 
 
2014 (1)
 
2013 (2)
 
2012 (3)
 
2011 (4)
 
2010 (5)
Statements of income
 
 
 
 
 
 
 
 
 
Revenues
$
48,813

 
$
45,041

 
$
42,278

 
$
40,893

 
$
38,063

Net income
8,004

 
6,636

 
6,173

 
5,258

 
4,313

Net income attributable to Disney
7,501

 
6,136

 
5,682

 
4,807

 
3,963

Per common share
 
 
 
 
 
 
 
 
 
Earnings attributable to Disney
 
 
 
 
 
 
 
 
 
Diluted
$
4.26

 
$
3.38

 
$
3.13

 
$
2.52

 
$
2.03

Basic
4.31

 
3.42

 
3.17

 
2.56

 
2.07

Dividends
0.86

 
0.75

 
0.60

 
0.40

 
0.35

Balance sheets
 
 
 
 
 
 
 
 
 
Total assets
$
84,186

 
$
81,241

 
$
74,898

 
$
72,124

 
$
69,206

Long-term obligations
18,618

 
17,337

 
17,876

 
17,717

 
16,234

Disney shareholders’ equity
44,958

 
45,429

 
39,759

 
37,385

 
37,519

Statements of cash flows
 
 
 
 
 
 
 
 
 
Cash provided (used) by:
 
 
 
 
 
 
 
 
 
Operating activities
$
9,780

 
$
9,452

 
$
7,966

 
$
6,994

 
$
6,578

Investing activities
(3,345
)
 
(4,676
)
 
(4,759
)
 
(3,286
)
 
(4,523
)
Financing activities
(6,710
)
 
(4,214
)
 
(2,985
)
 
(3,233
)
 
(2,663
)
 
 

(1) 
The fiscal 2014 results include a loss resulting from the foreign currency translation of net monetary assets denominated in Venezuelan currency ($0.05 per diluted share) (see Note 4 to the Consolidated Financial Statements), restructuring and impairment charges ($0.05 per diluted share), a gain on the sale of property ($0.03 per diluted share) and a portion of a settlement of an affiliate contract dispute ($0.01 per diluted share). These items collectively resulted in a net adverse impact of $0.06 per diluted share.
(2) 
During fiscal 2013, the Company completed a cash and stock acquisition for the outstanding capital stock of Lucasfilm for $4.1 billion (see Note 3 to the Consolidated Financial Statements for further discussion). In addition, results for the year include a charge related to the Celador litigation ($0.11 per diluted share) (see Note 14 to the Consolidated Financial Statements), restructuring and impairment charges ($0.07 per diluted share), a charge related to an equity redemption by Hulu (Hulu Equity Redemption) ($0.02 per diluted share) (see Note 3 to the Consolidated Financial Statements), favorable tax adjustments related to an increase in the amount of prior-year foreign earnings considered to be indefinitely reinvested outside of the United States and favorable tax adjustments related to pre-tax earnings in prior years ($0.12 per diluted share) and gains in connection with the sale of our equity interest in ESPN STAR Sports and certain businesses ($0.08 per diluted share) (See Note 4 to the Consolidated Financial Statements). These items collectively resulted in a net adverse impact of $0.01 per diluted share.
(3) 
The fiscal 2012 results include a non-cash gain in connection with the acquisition of a controlling interest in UTV ($0.06 per diluted share) (see Note 3 to the Consolidated Financial Statements for further discussion), a recovery of a previously written-off receivable from Lehman Brothers ($0.03 per diluted share), restructuring and impairment charges ($0.03 per diluted share) and costs related to the Disneyland Paris debt refinancing (rounded to $0.00 per diluted share) (see Note 6 to the Consolidated Financial Statements). These items collectively resulted in a net positive benefit of $0.06 per diluted share.
(4) 
The fiscal 2011 results include restructuring and impairment charges that rounded to $0.00 per diluted share and a net after tax loss on the sales of businesses including Miramax ($0.02 per diluted share), which collectively resulted in a net adverse impact of $0.02 per diluted share.
(5) 
During fiscal 2010, the Company completed a cash and stock acquisition for the outstanding capital stock of Marvel for $4.2 billion. In addition, results include restructuring and impairment charges ($0.09 per diluted share), gains on the sales of investments in two television services in Europe ($0.02 per diluted share), a gain on the sale of the Power Rangers property ($0.01 per diluted share), and an accounting gain related to the acquisition of The Disney Store Japan ($0.01 per diluted share). These items collectively resulted in a net adverse impact of $0.04 per diluted share.


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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)
 
 
 
 
 
 
 
 
% Change
Better/(Worse)
 
 
2014
 
2013
 
2012
 
2014
vs.
2013
 
2013
vs.
2012
 
Revenues:
 
 
 
 
 
 
 
 


 
Services
$
40,246

 
$
37,280

 
$
34,625

 
8
 %
 
8
 %
 
Products
8,567

 
7,761

 
7,653

 
10
 %
 
1
 %
 
Total revenues
48,813

 
45,041

 
42,278

 
8
 %
 
7
 %
 
Costs and expenses:
 
 
 
 
 
 
 
 
 
 
Cost of services (exclusive of depreciation and amortization)
(21,356
)
 
(20,090
)
 
(18,625
)
 
(6
)%
 
(8
)%
 
Cost of products (exclusive of depreciation and amortization)
(5,064
)
 
(4,944
)
 
(4,843
)
 
(2
)%
 
(2
)%
 
Selling, general, administrative and other
(8,565
)
 
(8,365
)
 
(7,960
)
 
(2
)%
 
(5
)%
 
Depreciation and amortization
(2,288
)
 
(2,192
)
 
(1,987
)
 
(4
)%
 
(10
)%
 
Total costs and expenses
(37,273
)
 
(35,591
)
 
(33,415
)
 
(5
)%
 
(7
)%
 
Restructuring and impairment charges
(140
)
 
(214
)
 
(100
)
 
35
 %
 
>(100)%
Other income/(expense), net
(31
)
 
(69
)
 
239

 
55
 %
 
nm

 
Interest income/(expense), net
23

 
(235
)
 
(369
)
 
nm

 
36
 %
 
Equity in the income of investees
854

 
688

 
627

 
24
 %
 
10
 %
 
Income before income taxes
12,246

 
9,620

 
9,260

 
27
 %
 
4
 %
 
Income taxes
(4,242
)
 
(2,984
)
 
(3,087
)
 
(42
)%
 
3
 %
 
Net income
8,004

 
6,636

 
6,173

 
21
 %
 
8
 %
 
Less: Net income attributable to noncontrolling interests
(503
)
 
(500
)
 
(491
)
 
(1
)%
 
(2
)%
 
Net income attributable to The Walt Disney Company (Disney)
$
7,501

 
$
6,136

 
$
5,682

 
22
 %
 
8
 %
 
Earnings per share attributable to Disney:
 
 
 
 
 
 
 
 


 
Diluted
$
4.26

 
$
3.38

 
$
3.13

 
26
 %
 
8
 %
 
Basic
$
4.31

 
$
3.42

 
$
3.17

 
26
 %
 
8
 %
 
Weighted average number of common and common equivalent shares outstanding:
 
 
 
 
 
 
 
 
 
 
Diluted
1,759

 
1,813

 
1,818

 
 
 
 
 
Basic
1,740

 
1,792

 
1,794

 
 
 
 
 

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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 — 2014 vs. 2013
Business Segment Results — 2013 vs. 2012
Corporate and Unallocated Shared Expenses
Pension and Postretirement Medical Benefit Costs
Seven TV Investment
Impact of Fiscal Reporting Calendar
Liquidity and Capital Resources
Contractual Obligations, Commitments and Off Balance Sheet Arrangements
Accounting Policies and Estimates
Forward-Looking Statements
CONSOLIDATED RESULTS AND NON-SEGMENT ITEMS
2014 vs. 2013
Revenues for fiscal 2014 increased 8%, or $3.8 billion, to $48.8 billion; net income attributable to Disney increased 22%, or $1.4 billion, to $7.5 billion; and diluted earnings per share attributable to Disney (EPS) for the year increased 26% or $0.88 to $4.26. The EPS increase in fiscal 2014 reflected improved operating performance, a decrease in the weighted average shares outstanding as a result of our share repurchase program and higher investment gains.
Revenues
Service revenues for fiscal 2014 increased 8%, or $3.0 billion, to $40.2 billion driven by the strong worldwide theatrical performance of Frozen, higher MVPD fees (Affiliate Fees) at ESPN, Broadcasting and the domestic Disney Channels, increased average guest spending for admissions and occupancy at our domestic parks and resorts operations, higher advertising revenues at ESPN and an increase in merchandise licensing revenue driven by Frozen and Disney Channel properties.
Product revenues for fiscal 2014 increased 10%, or $0.8 billion, to $8.6 billion reflecting higher worldwide home entertainment revenues driven by Frozen, increased guest spending on food, beverage and merchandise and higher volumes at our domestic parks and resorts operations and growth at our console games business driven by the success of Disney Infinity.
Costs and expenses
Cost of services for fiscal 2014 increased 6%, or $1.3 billion, to $21.4 billion driven by higher programming costs at ESPN and the ABC Television Network and an increase at our domestic parks and resorts due to MyMagic+, higher volumes and labor cost inflation.
Cost of products for fiscal 2014 increased 2%, or $120 million, to $5.1 billion driven by higher home entertainment unit sales, higher costs at our console games business driven by Disney Infinity and labor and other cost inflation and higher volumes at our domestic parks and resorts operations, partially offset by lower average home entertainment per unit costs.
Selling, general, administrative and other costs increased 2%, or $200 million, to $8.6 billion primarily due to higher theatrical marketing expenses driven by more titles in wide release.
Depreciation and amortization costs increased 4%, or $96 million, to $2.3 billion driven by MyMagic+ at our domestic parks and resorts operations.
Restructuring and Impairment Charges
The Company recorded $140 million and $214 million of restructuring and impairment charges in fiscal years 2014 and 2013, respectively. Charges in 2014 were primarily due to severance costs across various of our segments and radio FCC license impairments, which were determined in connection with the plan to sell Radio Disney stations. Charges in fiscal 2013 were due to severance, contract and lease termination costs and intangible and other asset impairments. Charges in each fiscal year were largely driven by organizational and cost structure initiatives across various of our businesses.

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Other Income/(Expense), net
Other income/(expense) is as follows (see Note 4 to the Consolidated Financial Statements): 
(in millions)
2014
 
2013
Venezuelan foreign currency translation loss
$
(143
)
 
$

Gain on sale of property
77

 

Celador litigation charge

 
(321
)
Gain on sale of equity interest in ESPN STAR Sports (ESS)

 
219

Other (1)
35

 
33

Other income/(expense), net
$
(31
)
 
$
(69
)

(1) Fiscal 2014 includes income of $29 million representing a portion of a settlement of an affiliate contract dispute in the current year and fiscal 2013 includes gains on the sale of businesses.
Interest Income/(Expense), net
Interest income/(expense), net is as follows: 
(in millions)
 
2014
 
2013
 
% Change
 Better/(Worse) 
Interest expense
 
$
(294
)
 
$
(349
)
 
16
%
 
Interest and investment income
 
317

 
114

 
>100%
Interest income/(expense), net
 
$
23

 
$
(235
)
 
nm

 
The decrease in interest expense was due to lower effective interest rates, partially offset by higher average debt balances.
The increase in interest and investment income was primarily due to gains on sales of investments. Interest income also benefited from income on late payments realized in connection with the settlement of an affiliate contract dispute.
Equity in the Income of Investees
Equity in the income of investees increased 24%, or $166 million, to $0.9 billion driven by the absence of a charge in the prior year for our share of expense related to an equity redemption at Hulu LLC (Hulu Equity Redemption).
Effective Income Tax Rate 
 
2014
 
2013
 
Change
Better/(Worse)
Effective income tax rate
34.6
%
 
31.0
%
 
(3.6
)
ppt
The increase in the effective income tax rate was primarily due to tax benefits recognized in the prior year, which included an increase in prior-year earnings from foreign operations indefinitely reinvested outside the United States that are subject to tax rates lower than the federal statutory income tax rate.
Noncontrolling Interests
Net income attributable to noncontrolling interests for the year increased $3 million to $503 million driven by improved operating results at Hong Kong Disneyland Resort, partially offset by a lower noncontrolling interest impact related to ESPN. The decrease at ESPN was due to lower net income in the current year driven by after-tax gains recognized in the prior year on the sales of a joint venture interest and our ESPN UK business, partially offset by improved operating results.
Net income attributable to noncontrolling interests is determined on income after royalties and management fees, financing costs and income taxes.


28

TABLE OF CONTENTS

2013 vs. 2012
Revenues for fiscal 2013 increased 7%, or $2.8 billion, to $45.0 billion; net income attributable to Disney increased 8%, or $454 million, to $6.1 billion; and diluted earnings per share attributable to Disney (EPS) for the year increased 8% or $0.25 to $3.38. The EPS increase in fiscal 2013 reflected improved operating performance and lower net interest expense driven by lower effective interest rates.
Revenues
Service revenues for fiscal 2013 increased 8%, or $2.7 billion, to $37.3 billion driven by higher guest spending for admissions, more passenger cruise ship days, higher attendance and an increase in occupied room nights at our domestic parks and resorts operations, contractual Affiliate Fee growth at ESPN, the domestic Disney Channels and Broadcasting, the strong theatrical performance of Wreck-It Ralph and Oz the Great and Powerful and growth at our merchandise licensing business.
Product revenues of $7.8 billion for fiscal 2013 were relatively flat compared to fiscal 2012, as higher volumes and higher average guest spending on food, beverage and merchandise at our domestic parks and resorts operations and the success of Disney Infinity were largely offset by a decrease in home entertainment units sold.
Costs and expenses
Cost of services for fiscal 2013 increased 8%, or $1.5 billion, to $20.1 billion driven by higher programming costs at ESPN and ABC primetime, higher film cost amortization driven by more theatrical releases and an increase at domestic parks and resorts driven by new guest offerings, labor and other cost inflation and higher volumes.
Cost of products of $4.9 billion for fiscal 2013 was relatively flat compared to fiscal 2012 as higher costs due to volume growth and labor and other cost inflation at our domestic parks and resorts operations and the success of Disney Infinity were largely offset by lower volumes at our home entertainment business.
Selling, general, administrative and other costs increased 5%, or $405 million, to $8.4 billion reflected higher information technology spending driven by MyMagic+ and higher marketing costs due to the fall launch of ABC programming and more theatrical titles in release.
Depreciation and amortization costs increased 10%, or $205 million, to $2.2 billion driven by new guest offerings at our domestic parks and resorts operations.
Restructuring and Impairment Charges
The Company recorded $100 million of restructuring and impairment charges in fiscal 2012 primarily due to severance, lease termination costs and the write-off of an intellectual property asset. These charges were largely due to organizational and cost structure initiatives across various of our businesses.
Other Income/(Expense), net
Other income/(expense) in fiscal 2012 is as follows (see Note 4 to the Consolidated Financial Statements): 
(in millions)
2012
Gain related to the acquisition of UTV
184

Lehman recovery
79

DLP debt charge
(24
)
Other income/(expense), net
$
239



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TABLE OF CONTENTS

Net Interest Expense
Net interest expense is as follows: 
(in millions)
 
2013
 
2012
 
% Change
 Better/(Worse) 
Interest expense
 
$
(349
)
 
$
(472
)
 
26
%
 
Interest and investment income
 
114

 
103

 
11
%
 
Net interest expense
 
$
(235
)
 
$
(369
)
 
36
%
 
The decrease in interest expense was due to lower effective interest rates.
The increase in interest and investment income was due to gains on sales of investments, partially offset by higher write-downs of investments.
Equity in the Income of Investees
Equity in the income of investees increased 10%, or $61 million, to $0.7 billion due to a charge for our share of expense related to the Hulu Equity Redemption.
Effective Income Tax Rate
 
2013
 
2012
 
Change
 Better/(Worse) 
Effective income tax rate
31.0
%
 
33.3
%
 
2.3

ppt
The effective tax rate decreased 2.3 percentage points for the year primarily due to an increase in the amount of prior-year foreign earnings considered to be indefinitely reinvested outside of the United States that are subject to foreign tax rates lower than the federal statutory income tax rate and from favorable tax adjustments related to pre-tax earnings in prior years.
Noncontrolling Interests
Net income attributable to noncontrolling interests for the year increased $9 million to $500 million due to higher net income at ESPN. This increase was partially offset by a higher allocation of expense to the noncontrolling interest at Hong Kong Disneyland Resort due to higher recognition of royalty and management fee expense. Additionally the impact of pre-opening costs at Shanghai Disney Resort also reduced net income attributable to noncontrolling interests.
Certain Items Impacting Comparability
Results for fiscal 2014 were impacted by the following:
A Venezuelan foreign currency translation loss of $143 million
Restructuring and impairment charges totaling $140 million
A $77 million gain on the sale of a property
Income of $29 million representing a portion of a settlement of an affiliate contract dispute
Results for fiscal 2013 were impacted by the following:
A $321 million charge related to the Celador litigation
Restructuring and impairment charges totaling $214 million
A $55 million charge for our share of expense related to the Hulu Equity Redemption. See Note 3 to the Consolidated Financial Statements for further discussion
A tax benefit related to an increase in the amount of prior-year foreign earnings considered to be indefinitely reinvested outside of the United States and favorable tax adjustments related to pre-tax earnings in prior years, which together totaled $207 million
A $219 million gain on the sale of our 50% interest in ESS and gains of $33 million on the sale of certain businesses

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Results for fiscal 2012 were impacted by the following:
A $184 million non-cash gain recorded in connection with the acquisition of a controlling interest in UTV (UTV Gain)
$79 million for the recovery of a receivable from Lehman Brothers that was written off in fiscal 2008 as a result of the Lehman Brothers bankruptcy (Lehman recovery)
Restructuring and impairment charges totaling $100 million
A $24 million net charge related to the refinancing of Disneyland Paris borrowings (DLP debt charge)
A summary of the impact of these items on EPS is as follows:
(in millions, except per share data)
Pre-Tax Income/(Loss)
 
Tax Benefit/(Expense)
 
After-Tax Income/(Loss)
 
EPS Favorable/(Adverse) (1)
Year Ended September 27, 2014:
 
 
 
 
 
 
 
Venezuela foreign currency translation loss(2)
$
(143
)
 
$
53

 
$
(90
)
 
$
(0.05
)
Restructuring and impairment charges
(140
)
 
48

 
(92
)
 
(0.05
)
Gain on sale of property(2)
77

 
(28
)
 
49

 
0.03

Settlement income(2)
29

 
(11
)
 
18

 
0.01

Other(2)
6

 
(2
)
 
4

 

Total
$
(171
)
 
$
60

 
$
(111
)
 
$
(0.06
)
 
 
 
 
 
 
 
 
Year Ended September 28, 2013:
 
 
 
 
 
 
 
Celador litigation charge(2)
$
(321
)
 
$
119

 
$
(202
)
 
$
(0.11
)
Restructuring and impairment charges
(214
)
 
78

 
(136
)
 
(0.07
)
Hulu Equity Redemption charge(3)
(55
)
 
20

 
(35
)
 
(0.02
)
Gain on sale of businesses and equity interest in ESS(2)
252

 
(48
)
 
204

 
0.08

Favorable tax adjustments

 
207

 
207

 
0.12

Total
$
(338
)
 
$
376

 
$
38

 
$
(0.01
)
 
 
 
 
 
 
 
 
Year Ended September 29, 2012:
 
 
 
 
 
 
 
UTV Gain(2)
$
184

 
$
(68
)
 
$
116

 
$
0.06

Lehman recovery(2)
79

 
(29
)
 
50

 
0.03

Restructuring and impairment charges
(100
)
 
37

 
(63
)
 
(0.03
)
DLP debt charge(2)
(24
)
 
4

 
(20
)
 

Total
$
139

 
$
(56
)
 
$
83

 
$
0.06

(1) 
EPS is net of noncontrolling interest share, where applicable. Total may not equal the sum of the column due to rounding.
(2) 
Recorded in "Other income/(expense), net" in the Consolidated Statements of Income.
(3) 
See Note 3 of the Consolidated Financial Statements for discussion of the Hulu Equity Redemption Charge.


BUSINESS SEGMENT RESULTS — 2014 vs. 2013
Below is a discussion of the major revenue and expense categories for our business segments. Costs and expenses for each segment consist of operating expenses, selling, general, administrative and other expenses and depreciation and amortization. Selling, general, administrative and other costs include third-party and internal marketing expenses.
Our Media Networks segment generates revenue from Affiliate Fees charged to MVPDs and ABC affiliated stations, advertising revenues from the sale to advertisers of time in programs for commercial announcements and other revenues, which include the sale and distribution of television programming. Significant operating expenses include amortization of programming, production, participations and residuals costs, technical support costs, distribution costs and operating labor.

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Our Parks and Resorts segment generates revenue from the sale of admissions to theme parks, the sale of food, beverage and merchandise, charges for room nights at hotels, sales of cruise vacation packages and sales and rentals of vacation club properties. Significant operating expenses include operating labor, costs of sales and infrastructure costs. Infrastructure costs include information systems expense, repairs and maintenance, utilities, property taxes, insurance and transportation.
Our Studio Entertainment segment generates revenue from the distribution of films in the theatrical, home entertainment and television and SVOD markets (TV/SVOD), ticket sales for live stage plays, music distribution and licensing of live entertainment events. Significant operating expenses include amortization of production, participations and residuals costs, distribution expenses and costs of sales.
Our Consumer Products segment generates revenue from licensing characters from our film, television and other properties to third parties for use on consumer merchandise, publishing children’s books and magazines and comic books, operating retail stores and internet shopping sites, the sale of merchandise to retailers and operating English language learning centers. Significant operating expenses include costs of goods sold and distribution expenses, operating labor and retail occupancy costs.
Our Interactive segment generates revenue from the development and sale of multi-platform games, subscriptions to and micro transactions for online and mobile games, licensing content for Disney-branded mobile phones in Japan, and online advertising and sponsorships. We also license our properties to third-party game publishers. Significant operating expenses include cost of goods sold, distribution expense and product development.
  
 
 
 
 
 
 
 
% Change
Better/(Worse)
 
(in millions)
 
2014
 
2013
 
2012
 
2014
vs.
2013
 
2013
vs.
2012
 
Revenues:
 
 
 
 
 
 
 
 
 
 
 
Media Networks
 
$
21,152

 
$
20,356

 
$
19,436

 
4
%
 
5
 %
 
Parks and Resorts
 
15,099

 
14,087

 
12,920

 
7
%
 
9
 %
 
Studio Entertainment
 
7,278

 
5,979

 
5,825

 
22
%
 
3
 %
 
Consumer Products
 
3,985

 
3,555

 
3,252

 
12
%
 
9
 %
 
Interactive
 
1,299

 
1,064

 
845

 
22
%
 
26
 %
 
 
 
$
48,813

 
$
45,041

 
$
42,278

 
8
%
 
7
 %
 
Segment operating income (loss):
 
 
 
 
 
 
 
 
 
 
 
Media Networks
 
$
7,321

 
$
6,818

 
$
6,619

 
7
%
 
3
 %
 
Parks and Resorts
 
2,663

 
2,220

 
1,902

 
20
%
 
17
 %
 
Studio Entertainment
 
1,549

 
661

 
722

 
>100%
(8
)%
 
Consumer Products
 
1,356

 
1,112

 
937

 
22
%
 
19
 %
 
Interactive
 
116

 
(87
)
 
(216
)
 
nm

 
60
 %
 
 
 
$
13,005

 
$
10,724

 
$
9,964

 
21
%
 
8
 %
 

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TABLE OF CONTENTS

The Company evaluates the performance of its operating segments based on segment operating income, and management uses aggregate segment operating income as a measure of the overall performance of the operating businesses. The Company believes that information about aggregate segment operating income assists investors by allowing them to evaluate changes in the operating results of the Company’s portfolio of businesses separate from factors other than business operations that affect net income. The following table reconciles segment operating income to income before income taxes. 
  
 
 
 
 
 
 
 
% Change
Better/(Worse)
 
(in millions)
 
2014
 
2013
 
2012
 
2014
vs.
2013
 
2013
vs.
2012
 
Segment operating income
 
$
13,005

 
$
10,724

 
$
9,964

 
21
 %
 
8
 %
 
Corporate and unallocated shared expenses
 
(611
)
 
(531
)
 
(474
)
 
(15
)%
 
(12
)%
 
Restructuring and impairment charges
 
(140
)
 
(214
)
 
(100
)
 
35
 %
 
>(100)%
Other income/(expense), net
 
(31
)
 
(69
)
 
239

 
55
 %
 
nm

 
Interest income/(expense), net
 
23

 
(235
)
 
(369
)
 
nm

 
36
 %
 
Hulu Equity Redemption charge
 

 
(55
)
 

 
 %
 
nm

 
Income before income taxes
 
$
12,246

 
$
9,620

 
$
9,260

 
27
 %
 
4
 %
 


Media Networks
Operating results for the Media Networks segment are as follows: 
 
Year Ended
 
% Change
Better /
(Worse)
(in millions)
September 27, 2014
 
September 28, 2013
 
Revenues
 
 
 
 
 
 
Affiliate Fees
$
10,632

 
$
10,018

 
6
 %
 
Advertising
8,031

 
7,923

 
1
 %
 
Other
2,489

 
2,415

 
3
 %
 
Total revenues
21,152

 
20,356

 
4
 %
 
Operating expenses
(11,794
)
 
(11,261
)
 
(5
)%
 
Selling, general, administrative and other
(2,643
)
 
(2,768
)
 
5
 %
 
Depreciation and amortization
(250
)
 
(251
)
 
 %
 
Equity in the income of investees
856

 
742

 
15
 %
 
Operating Income
$
7,321

 
$
6,818

 
7
 %
 
Revenues
The 6% increase in Affiliate Fee revenue was due to an increase of 8% from higher contractual rates and an increase of 1% from an increase in subscribers, partially offset by a decrease of 2% due to the sale of our ESPN UK business in the fourth quarter of the prior year and a decrease of 1% due to unfavorable foreign currency translation impacts. The increase in subscribers was driven by international subscriber growth and the launch of the SEC Network, partially offset by a decline in domestic subscribers.
The 1% increase in advertising revenues was due to an increase of $165 million at Cable Networks, from $3,963 million to $4,128 million, partially offset by a decrease of $57 million at Broadcasting, from $3,960 million to $3,903 million. The increase at Cable Networks was driven by a 6% increase from higher rates and a 3% increase from more units delivered, partially offset by a 4% decrease from lower ratings. The decrease in advertising revenues at Broadcasting was due to a 2% decrease from lower units delivered, a 1% decrease due to lower owned television stations revenue and a 1% decrease from lower network ratings, partially offset by a 2% increase due to higher network rates.
Other revenue increased $74 million from $2,415 million to $2,489 million driven by the inclusion of revenues from Maker Studios, Lucasfilm SVOD sales and higher international program syndication fees at ESPN.

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TABLE OF CONTENTS

Costs and Expenses
Operating expenses include programming and production costs, which increased $526 million from $9,703 million to $10,229 million. At Cable Networks, programming and production costs increased $378 million due to contractual rate increases for sports programming rights and the airing of FIFA World Cup soccer, partially offset by a decrease as a result of the sale of our ESPN UK business and lower production costs for international X Games events that have been discontinued. At Broadcasting, programming and production costs increased $148 million due to a contractual rate increase for Modern Family and higher program write-offs.
Selling, general, administrative and other costs decreased $125 million from $2,768 million to $2,643 million driven by lower marketing and labor costs. Marketing costs declined at the domestic Disney Channels and ESPN, partially offset by an increase at the international Disney Channels driven by a new channel in Germany that was launched in January 2014 and higher affiliate support in Latin America. Lower marketing costs at the domestic Disney Channels reflected decreased affiliate marketing support including the absence of prior-year costs to launch the Watch Disney Channel apps. The decrease at ESPN was due to the sale of the ESPN UK business. The reduction in labor costs was driven by lower pension costs.
Equity in the Income of Investees
Income from equity investees increased $114 million from $742 million to $856 million primarily due to an increase at AETN driven by higher advertising and affiliate revenues.

Segment Operating Income
Segment operating income increased 7%, or $503 million, to $7,321 million due to increases at ESPN, the domestic Disney Channels, AETN, ABC Family, the owned television stations and the ABC Television Network, partially offset by a decrease at the international Disney Channels.
The following table provides supplemental revenue and operating income detail for the Media Networks segment: 
 
Year Ended
 
% Change
Better /
(Worse)
(in millions)
September 27, 2014
 
September 28, 2013
 
Revenues
 
 
 
 
 
 
Cable Networks
$
15,110

 
$
14,453

 
5
%
 
Broadcasting
6,042

 
5,903

 
2
%
 
 
$
21,152

 
$
20,356

 
4
%
 
Segment operating income
 
 
 
 
 
 
Cable Networks
$
6,467

 
$
6,047

 
7
%
 
Broadcasting
854

 
771

 
11
%
 
 
$
7,321

 
$
6,818

 
7
%
 
Restructuring and impairment charges and Other income/(expense), net
The Company recorded charges of $78 million, $85 million and $14 million related to Media Networks for fiscal years 2014, 2013 and 2012, respectively. The charges in fiscal 2014 were due to radio FCC license and investment impairments and severance. The severance charges resulted from organizational and cost structure initiatives. The charges in fiscal 2013 were primarily for severance and contract settlement costs. The charges in fiscal 2012 were primarily related to severance. The fiscal 2014 radio FCC license impairments were determined in connection with the plan to sell Radio Disney stations. These charges were reported in “Restructuring and impairment charges” in the Consolidated Statements of Income. The Company recorded a $100 million loss related to Cable Networks in fiscal 2014 resulting from the foreign currency translation of net monetary assets denominated in Venezuelan currency, which was reported in "Other income/(expense), net" in the Consolidated Statements of Income.



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TABLE OF CONTENTS

Parks and Resorts
Operating results for the Parks and Resorts segment are as follows: 
 
Year Ended
 
% Change
Better /
(Worse)
(in millions)
September 27, 2014
 
September 28, 2013
 
Revenues
 
 
 
 
 
 
Domestic
$
12,329

 
$
11,394

 
8
 %
 
International
2,770

 
2,693

 
3
 %
 
Total revenues
15,099

 
14,087

 
7
 %
 
Operating expenses
(9,106
)
 
(8,537
)
 
(7
)%
 
Selling, general, administrative and other
(1,856
)
 
(1,960
)
 
5
 %
 
Depreciation and amortization
(1,472
)
 
(1,370
)
 
(7
)%
 
Equity in the loss of investees
(2
)
 

 
nm

 
Operating Income
$
2,663

 
$
2,220

 
20
 %
 
Revenues
Parks and Resorts revenues increased 7%, or $1.0 billion, to $15.1 billion due to an increase of $935 million at our domestic operations and an increase of $77 million at our international operations.
Revenue growth of 8% at our domestic operations reflected increases of 5% from higher average guest spending and 2% from higher volumes. Increased guest spending was primarily due to higher average ticket prices for admissions at our theme parks and for sailings at our cruise line and increased food, beverage and merchandise spending. Higher volumes were due to attendance growth and higher occupied room nights.
Revenue growth of 3% at our international operations reflected a 4% increase from higher average guest spending and a 1% increase from foreign currency translation, partially offset by a 3% decrease from lower volumes. Guest spending growth was due to higher average ticket prices and higher merchandise, food and beverage spending. Lower volumes were due to decreases in attendance and occupied room nights at Disneyland Paris.
The following table presents supplemental attendance, per capita theme park guest spending and hotel statistics: 
 
Domestic
 
International (2)
 
Total
 
Fiscal Year 2014
 
Fiscal Year 2013
 
Fiscal Year 2014
 
Fiscal Year 2013
 
Fiscal Year 2014
 
Fiscal Year 2013
Parks
 
 
 
 
 
 
 
 
 
 
 
Increase/ (decrease)
 
 
 
 
 
 
 
 
 
 
 
Attendance
3
%
 
4
%
 
(3
)%
 
(2
)%
 
1
%
 
2
%
Per Capita Guest Spending
7
%
 
8
%
 
7
 %
 
4
 %
 
7
%
 
7
%
Hotels (1)
 
 
 
 
 
 
 
 
 
 
 
Occupancy
83
%
 
79
%
 
78
 %
 
81
 %
 
82
%
 
80
%
Available Room Nights
(in thousands)
10,470

 
10,558

 
2,466

 
2,466

 
12,936

 
13,024

Per Room Guest Spending

$280

 

$267

 

$319

 

$312

 

$287

 

$276

 
(1)
Per room guest spending consists of the average daily hotel room rate as well as guest spending on food, beverage and merchandise at the hotels. Hotel statistics include rentals of Disney Vacation Club units.
(2)
Per capita guest spending and per room guest spending are stated at prior-year foreign currency exchange rates to remove the impact of foreign currency translation. The euro to U.S. dollar weighted average foreign currency exchange rate was $1.36, $1.31 and $1.30 for fiscal years 2014, 2013 and 2012, respectively.
Costs and Expenses
Operating expenses include operating labor, which increased $139 million from $4,094 million to $4,233 million, cost of sales, which increased $77 million from $1,348 million to $1,425 million, and infrastructure costs, which increased $99 million from $1,755 million to $1,854 million. The increase in operating labor was primarily due to inflation, new guest offerings, including MyMagic+, and higher volumes, partially offset by lower pension and postretirement medical costs. The increase in

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cost of sales was due to higher volumes and inflation. The increase in infrastructure costs was due to the roll out of MyMagic+. In addition, other operating expenses increased driven by higher volumes.
Selling, general, administrative and other costs decreased $104 million from $1,960 million to $1,856 million due to the absence of development costs for MyMagic+, partially offset by higher marketing and sales costs and higher pre-opening costs at Shanghai Disney Resort. In the current year, costs for MyMagic+ are included in operating expenses as MyMagic+ has been made available to guests. Higher marketing and sales costs were driven by marketing for new guest offerings.
The increase in depreciation and amortization was due to MyMagic+.
Segment Operating Income
Segment operating income increased 20%, or $443 million, to $2,663 million due to growth at our domestic operations partially offset by a decrease at Disneyland Paris.

Studio Entertainment
Operating results for the Studio Entertainment segment are as follows: 
 
Year Ended
 
% Change
Better /
(Worse)
(in millions)
September 27, 2014
 
September 28, 2013
 
Revenues
 
 
 
 
 
 
Theatrical distribution
$
2,431

 
$
1,870

 
30
 %
 
Home entertainment
2,094

 
1,750

 
20
 %
 
Television and SVOD distribution and other
2,753

 
2,359

 
17
 %
 
Total revenues
7,278

 
5,979

 
22
 %
 
Operating expenses
(3,137
)
 
(3,012
)
 
(4
)%
 
Selling, general, administrative and other
(2,456
)
 
(2,145
)
 
(14
)%
 
Depreciation and amortization
(136
)
 
(161
)
 
16
 %
 
Operating Income
$
1,549

 
$
661

 
>100 %
 
Revenues
The increase in theatrical distribution revenue was due to the performance of Frozen in the current year. The benefit of three Marvel titles and Maleficent in the current year was essentially offset by one Marvel title, the animated titles Monsters University and Wreck-It Ralph, and Oz The Great And Powerful in the prior year.
Growth in home entertainment revenue reflected a 13% increase from higher unit sales and a 9% increase from higher average net effective pricing. Growth in unit sales was due to sales of new releases reflecting the performance of Frozen. Higher pricing was primarily due to an increase in the current year sales mix of new releases, which have a higher relative sales price compared to catalog titles. Net effective pricing is the wholesale selling price adjusted for discounts, sales incentives and returns. Other significant titles in release included Monsters University, Marvel’s Thor: The Dark World, Planes and Marvel’s Captain America 2: The Winter Soldier in the current year compared to Brave, Wreck-It Ralph, Marvel’s Iron Man 3, Oz The Great And Powerful and Marvel’s The Avengers in the prior year.
Higher TV/SVOD distribution and other revenue reflected an increase of 16% from other revenues due to an increase at Lucasfilm’s special effects business driven by higher volume and inclusion of a full year of results (Lucasfilm was acquired in December 2012), higher stage play revenues due to more productions in the current year and higher music distribution revenues reflecting the success of the Frozen soundtrack.

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Costs and Expenses
Operating expenses include a decrease of $4 million in film cost amortization, from $1,806 million to $1,802 million, driven by a lower average amortization rate due to the success of Frozen compared to titles in the prior year, which was essentially offset by the impact of higher revenues. Operating expenses also include distribution costs and cost of goods sold, which increased $129 million, from $1,206 million to $1,335 million. The increase was driven by higher revenues from Lucasfilm’s special effects business, more stage play productions and increased music sales, partially offset by a decrease at home entertainment. Lower home entertainment distribution costs and cost of goods sold were primarily due to lower average per unit costs, which included the benefit of cost saving initiatives, partially offset by an increase in units sold.
Selling, general, administrative and other costs increased $311 million from $2,145 million to $2,456 million primarily due to higher theatrical marketing expenses driven by more titles in wide release.
The decrease in depreciation and amortization was due to lower amortization of intangible assets.
Segment Operating Income
Segment operating income increased $888 million to $1,549 million due to increases in home entertainment and theatrical distribution.
Restructuring and impairment charges and Other income/(expense), net
The Company recorded charges of $7 million, $18 million and $18 million related to Studio Entertainment for fiscal years 2014, 2013 and 2012, respectively. The charges in fiscal 2014 and 2013 were primarily for severance costs from organizational and cost structure initiatives. The charges in fiscal 2012 were primarily due to an impairment of an intangible asset. These charges were reported in “Restructuring and impairment charges” in the Consolidated Statements of Income. The Company recorded a $31 million loss related to Studio Entertainment in fiscal 2014 resulting from the foreign currency translation of net monetary assets denominated in Venezuelan currency, which was reported in "Other income/(expense), net" in the Consolidated Statements of Income.
Consumer Products
Operating results for the Consumer Products segment are as follows: 
 
Year Ended
 
% Change
Better /
(Worse)
(in millions)
September 27, 2014
 
September 28, 2013
 
Revenues
 
 
 
 
 
 
Licensing and publishing
$
2,538

 
$
2,254

 
13
 %
 
Retail and other
1,447

 
1,301

 
11
 %
 
Total revenues
3,985

 
3,555

 
12
 %
 
Operating expenses
(1,683
)
 
(1,566
)
 
(7
)%
 
Selling, general, administrative and other
(778
)
 
(731
)
 
(6
)%
 
Depreciation and amortization
(168
)
 
(146
)
 
(15
)%
 
Operating Income
$
1,356

 
$
1,112

 
22
 %
 
Revenues
The 13% increase in licensing and publishing revenues was due to a 12% increase from our licensing business driven by performance of merchandise based on Frozen, Disney Channel, Mickey and Minnie, Planes and Spider-Man partially offset by lower earned revenue from Cars and Monsters merchandise.
The 11% increase in retail and other revenue was from our retail business, due to comparable store sales growth in our key markets, higher online sales in North America and Europe and a new wholesale distribution business in North America, which launched in the fourth quarter of the prior year. These increases were partially offset by a decrease from store closures in Europe.

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Costs and Expenses
Operating expenses included an increase of $39 million in cost of goods sold, from $641 million to $680 million, due to higher sales at our retail business including the wholesale distribution business in North America. Operating expenses also include labor, distribution and occupancy costs, which increased $60 million from $810 million to $870 million. The increase was primarily due to higher third-party royalty expense at our merchandise licensing business and higher labor and distribution costs at our retail business.
Selling, general, administrative and other costs increased $47 million from $731 million to $778 million driven by higher labor costs and higher technology development costs.
The increase in depreciation and amortization was driven by a full period of intangible asset amortization related to Lucasfilm.
Segment Operating Income
Segment operating income increased 22% to $1,356 million due to increases at our merchandise licensing and retail businesses.
Restructuring and impairment charges and Other income/(expense), net
The Company recorded charges of $0, $49 million and $34 million related to Consumer Products for fiscal years 2014, 2013 and 2012, respectively. The charges in fiscal 2013 and fiscal 2012 were primarily due to severance costs from organizational and cost structure initiatives. These charges were reported in “Restructuring and impairment charges” in the Consolidated Statements of Income. The Company recorded a $16 million loss related to Consumer Products in fiscal 2014 resulting from the foreign currency translation of net monetary assets denominated in Venezuelan currency, which was reported in "Other income/(expense), net" in the Consolidated Statements of Income.

Interactive
Operating results for the Interactive segment are as follows: 
 
Year Ended (1)
 
% Change
Better /
(Worse)
(in millions)
September 27, 2014
 
September 28, 2013
 
Revenues
 
 
 
 
 
 
Games
$
1,056

 
$
812

 
30
 %
 
Other content
243

 
252

 
(4
)%
 
Total revenues
1,299

 
1,064

 
22
 %
 
Operating expenses
(700
)
 
(658
)
 
(6
)%
 
Selling, general, administrative and other
(460
)
 
(449
)
 
(2
)%
 
Depreciation and amortization
(23
)
 
(44
)
 
48
 %
 
Operating Income/(Loss)
$
116

 
$
(87
)
 
nm

 

(1) Certain reclassifications have been made to the revenue amounts presented for fiscal 2013 to conform to the fiscal 2014 presentation. The principal change was to reclassify game-related revenue from our Japan mobile business from Other content to Games.

Revenues
Games revenues grew $244 million from $812 million to $1,056 million due to increases of 24% from sales of console games and 10% from social/mobile games. The increase in sales of console games was due to the success of the Disney Infinity franchise, partially offset by the performance of Epic Mickey 2 in the prior year. The current year benefited from the launch of Disney Infinity 2.0 on September 23, 2014 and higher sales of Disney Infinity 1.0, which was launched on August 18, 2013. The increase in social/mobile games revenue was driven by performance of Tsum Tsum and Frozen Free Fall, partially offset by a decrease as a result of discontinued games.
Revenue from other content decreased $9 million from $252 million to $243 million primarily due to the expiration of a distribution contract in the current year and lower online advertising revenues, partially offset by an increase in revenue at our mobile phone business in Japan. The increase in revenue at our mobile phone business in Japan was due to higher handset sales.

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Costs and Expenses
Operating expenses reflected an $86 million increase in cost of sales from $332 million to $418 million, partially offset by a $44 million decrease in product development from $326 million to $282 million. The increase in cost of sales was due to higher Disney Infinity sales volume, partially offset by fewer units sold of other titles. Lower product development costs reflected fewer titles in development and the benefit of restructuring activities.
The decrease in depreciation and amortization was driven by lower amortization of intangible assets.
Segment Operating Income/(Loss)
Segment operating results improved from a loss of $87 million to income of $116 million due to growth at our games business and higher licensing fees from our mobile phone business in Japan.
Restructuring and Impairment Charges
The Company recorded charges totaling $44 million, $11 million and $21 million related to Interactive for fiscal years 2014, 2013 and 2012, respectively, which were primarily severance costs for organizational and cost structure initiatives. These charges were reported in “Restructuring and impairment charges” in the Consolidated Statements of Income.


BUSINESS SEGMENT RESULTS – 2013 vs. 2012
Media Networks
Operating results for the Media Networks segment are as follows: 
 
Year Ended
 
% Change
Better /
(Worse)
(in millions)
September 28, 2013
 
September 29, 2012
 
Revenues
 
 
 
 
 
 
Affiliate Fees
$
10,018

 
$
9,360

 
7
 %
 
Advertising
7,923

 
7,699

 
3
 %
 
Other
2,415

 
2,377

 
2
 %
 
Total revenues
20,356

 
19,436

 
5
 %
 
Operating expenses
(11,261
)
 
(10,535
)
 
(7
)%
 
Selling, general, administrative and other
(2,768
)
 
(2,651
)
 
(4
)%
 
Depreciation and amortization
(251
)
 
(258
)
 
3
 %
 
Equity in the income of investees
742

 
627

 
18
 %
 
Operating Income
$
6,818

 
$
6,619

 
3
 %
 
Revenues
Affiliate Fee growth of 7% was due to an increase of 7% from higher contractual rates.
Higher advertising revenues were due to an increase of $178 million at Cable Networks from $3,785 million to $3,963 million, and an increase of $46 million at Broadcasting from $3,914 million to $3,960 million. The increase at Cable Networks reflected increases of 7% due to higher units delivered and 4% due to higher rates, partially offset by a decrease of 6% due to lower ratings. Higher advertising revenues at Broadcasting reflected increases of 5% due to higher units delivered, 4% due to higher network advertising rates and 1% due to growth in online advertising, partially offset by a decrease of 8% due to lower primetime ratings.
The increase in other revenues was due to higher program sales at Broadcasting, the inclusion of revenues from Lucasfilm and higher international program syndication fees at ESPN, partially offset by lower royalties from MVPD distribution of our programs. Higher program sales reflected increased subscription revenues from programs distributed through Hulu.com. Syndication sales were comparable to the prior year as increases driven by Scandal, Revenge, Katie and Once Upon a Time were offset by decreases from Desperate Housewives, Castle and Grey’s Anatomy.

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Costs and Expenses
Operating expenses include programming and production costs, which increased $712 million from $8,991 million to $9,703 million. At Cable Networks, an increase in programming and production costs of $468 million was primarily due to contractual rate increases for college sports, NFL, MLB and NBA rights, production costs for new X Games events, the addition of new college football rights and more episodes of original programming at the domestic Disney Channels. At Broadcasting, programming and production costs increased $244 million driven by a shift of primetime hours from lower cost reality and primetime news to higher cost original scripted programming.
Selling, general, administrative and other costs increased $117 million from $2,651 million to $2,768 million driven by higher marketing costs related to the fall launch of the ABC primetime season and an increase in labor related costs.
Equity in the Income of Investees
Income from equity investees increased to $742 million in the current year from $627 million in the prior year due to an increase at AETN primarily due to higher advertising and affiliate revenues, partially offset by higher sales and marketing and programming costs. The increase in equity income from AETN includes the benefit from an increase in the Company’s ownership interest from 42% to 50%.
Segment Operating Income
Segment operating income increased 3%, or $199 million, to $6.8 billion. The increase was primarily due to increases at ESPN and the domestic Disney Channels and increased equit