News

'Treasure' Buries Disney Stock, Earnings

12/08/2002 7:00 PM Eastern

The Walt Disney Co.'s stock took a beating last week, after the company revealed in a flurry of announcements that it would restate financial results for its fiscal fourth quarter, that it was the subject of a "non-accounting" investigation by federal regulators and that it had realigned its corporate governance.

Disney stock dipped nearly 5 percent on Dec. 4 to $17.68 per share, down 86 cents each, after trading as low as $16.85. In a statement, Disney said it would revise its fourth- quarter revenue results downward by $47 million after taxes, reflecting the poor performance of its latest animated feature, Treasure Planet.

The film, which cost an estimated $140 million to produce, took in just $16.6 million in box office receipts during its opening over the five-day Thanksgiving weekend.

In the statement, Disney said that because the film was released after its 2002 initial earnings statement but prior to its 10-K annual report filing with the SEC, current accounting rules required an adjustment to the film's book value. As a result, Disney reduced its fiscal fourth-quarter net income from $222 million to $175 million.

For the year ended Sept. 30, net income was reduced from $1.29 billion to $1.24 billion.

The poor box office performance of Treasure Planet
is expected to continue, and the company said it will likely effect fiscal first-quarter earnings estimates by about 1 cent per share.

Relatives investigated

Disney also revealed that it was the subject of an SEC non-accounting investigation regarding an amended 10-K filing first released in August. That filing disclosed that certain relatives of its current directors had worked for the company.

In the amended 10-K filed in August, Disney disclosed that board member Reveta Bowers' son Craig had worked for the Walt Disney Internet Group in 2001 and received a salary of $81,863. Bowers is no longer employed by the company.

Other Disney directors with family members on the payroll are: Stanley Gold, also a financial adviser to Disney vice chairman Roy Disney, whose daughter, Jennifer, works for Disney's Consumer Products division and received $85,111 in compensation in 2001; Raymond Watson, whose son, David, works for Disney Channel and received $152,608 in compensation in 2001; and John Bryson, whose wife, Louise, is executive vice president of affiliate sales for Lifetime Television (50 percent owned by Disney), and received $1.35 million in compensation in 2001.

In its 10-K annual report filed with the SEC Dec. 4, Disney said that Jennifer Gold received a salary of $86,033 in fiscal 2002 and David Watson received $155,917. Louise Bryson's 2002 salary at Lifetime was $386,000. However, the company said Bryson also is entitled to an annual bonus, which has yet to be determined.

In addition, Disney said that Eugene Bay, father-in-law of Disney president Robert Iger, was paid about $70,000 in 2002 for sports-marketing services provided to Disney's ESPN unit. The company said that the relationship with Bay's company — Eugene Bay Associates Inc. — began in 1990, before Iger married Mr. Bay's daughter, Cable News Network personality Willow Bay.

Disney also paid $623,782 in 2002 to Air Shamrock as reimbursement for use of a private aircraft by Roy Disney. The company also said it contributed $5 million to develop the Walt Disney Concert Hall, part of a $25 million pledge to the Performing Arts Center of Los Angeles. Center chairman and CEO Andrea Van de Kamp is also a Disney board member, although she did not serve in that capacity when the pledge was first made in 1997.

The disclosures were part of a yearlong effort to provide more transparency to investors. As part of that plan, Disney also created a new position of presiding director and named a current board member, former U.S. Sen. George Mitchell, to the post.

Governance gain

But the embattled Eisner appeared to win one victory. In revising Disney's definition of independent director, Eisner effectively removed one of his most outspoken critics — Stanley Gold — from several key board committees.

Gold had been on Disney's governance and nominating committee. With his new status, Gold is not a member of any board committee.

Under the new guidelines, Gold's status as an independent board member was removed because of his close financial relationship with Roy Disney. Robert Stern also lost his independent board member status because he is providing architectural services to Eisner.

Gold — who, as head of investment boutique Shamrock Holdings Inc., was instrumental in bringing in Eisner as Disney chairman in 1984 — has lately criticized the CEO for the precipitous drop in Disney's stock price this year and his reluctance to name a successor.

Disney shares have fallen about 25 percent since April.

Disney also said it would seek to pare down its board from 15 members to 12, and that two board meetings per year would be closed to non-independent directors. Mitchell, as the presiding board member, would run those meetings.

The company also named former Seagram Ltd. chief financial officer and current private investor Robert Matschullat to the board. He will also chair the board's audit committee.

March