Disney's Newest Theme On Parade
As Profit, Revenue, Stock Dip, Eisner Stresses Governance
By Frank Ahrens
Saturday, August 3, 2002
(Washington Post, page E01) -- In any other time, Walt Disney Co. would have its hands full just trying to turn around three of its largest divisions -- theme parks, motion pictures and the ABC television network -- all of which limped through a tough quarter.
Reservations at the company's U.S. theme parks are down about 10 percent over the past three-month period, owing to a decline in international visitors. The company's studio entertainment division was hurt by a lack of hit movies during the quarter, while television revenue was down 10 percent, largely due to ABC's third-place position in the network ratings. All of which would be enough to make any chief executive sweat -- especially after Standard & Poor's warned that it may cut the company's long-term credit rating.
But in the current corporate climate, in which big media companies are under pressure not only to make money but to prove they are doing it efficiently and honestly, Disney Chairman Michael D. Eisner told analysts in a Thursday earnings call that Disney is focusing on corporate governance. He sought to assure investors that the Mouse house is smartly run and in orderly shape.
Eisner said Disney will trim its 16-person board of directors to an undetermined number and downsize board committees. The company had been considering shrinking the board over the past two years, and it consulted with corporate governance experts, who suggested that a smaller board could move more nimbly in today's whipsaw economic climate.
"These steps will take time, not too much time, and will further evidence our commitment to serve our shareholders," Eisner said. The terms of the Disney board members have been aligned to allow shareholders to weigh their performance regularly. The entire board stands for election next year, the company said.
Through the '80s, Disney was a booming, large-cap growth company and Eisner's leadership was acclaimed. But with the acquisition of Capital Cities/ABC Inc. radio and television in 1996, the company exposed itself to advertising cycles it had not experienced before, analysts said. The past five years have been volatile at Disney, as its stock has fluctuated between about $25 per share and more than $40. The current slide began in mid-2000; Disney shares closed yesterday at $15.31, down $1.52, or 9 percent, in heavy volume.
Disney reported on Thursday that net income was $364 million, or 18 cents a share, down 7.1 percent from $392 million (19 cents) in the same quarter a year ago. Revenue dipped 3 percent, to $5.8 billion.
Eisner has taken much of the blame for the company's recent slump, and his board sometimes has been characterized as a rubber stamp for his decisions. He has been Disney chief since 1984. There is no apparent successor in proximity.
"Eisner has the reputation of being something of a micromanager and my sense is that he or the company may be under pressure to present a board of directors that is less tied to him and more removable," said Tom Graves, an analyst with New York's Standard & Poor's.
Board members include Roy Disney, nephew of founder Walt Disney; former U.S. senator George Mitchell; actor Sidney Poitier; and Leo J. O'Donovan, former Georgetown University president. Corporate-bred members include John Bryson, chief executive of Edison International power company, and Gary Wilson, board chairman of Northwest Airlines Corp.
In addition to realigning the board, the company will begin recording stock options as expenses, Eisner said, but it will wait until accounting regulators adopt uniform standards. In the meantime, it will provide detailed forward- and backward-looking data on options to shareholders.
Disney said its changes in corporate governance and stock option accounting are part of an effort put in place before the spate of investigations against other media companies such as AOL Time Warner Inc. and French giant Vivendi Universal or the accounting scandals at WorldCom Inc., Adelphia Communications Corp. and Enron Corp.
Disney is trimming costs, Chief Financial Officer Thomas Staggs said in an interview. To keep down the cost of buying shows to air on ABC, he said, the network negotiated new contracts with producers that limit the price paid for reupping hit programs. Staggs said Disney does not anticipate making any major acquisitions in the coming months.
Graves, the Standard & Poor's analyst, advises against buying Disney stock, owing to economic uncertainty that impacts theme park visitation, movie attendance and ad revenue. But Staggs countered that compared with other media giants, the conservative Disney is better able to pull out of its slump.
"I think we are exceptionally well positioned. There is nothing close to a meltdown going on," Staggs said. "We have operational issues we are not shy in talking about. We have one of the four broadcast networks that is underperforming, but we have a tremendous financial upside."
As Profit, Revenue, Stock Dip, Eisner Stresses Governance
By Frank Ahrens
Saturday, August 3, 2002
(Washington Post, page E01) -- In any other time, Walt Disney Co. would have its hands full just trying to turn around three of its largest divisions -- theme parks, motion pictures and the ABC television network -- all of which limped through a tough quarter.
Reservations at the company's U.S. theme parks are down about 10 percent over the past three-month period, owing to a decline in international visitors. The company's studio entertainment division was hurt by a lack of hit movies during the quarter, while television revenue was down 10 percent, largely due to ABC's third-place position in the network ratings. All of which would be enough to make any chief executive sweat -- especially after Standard & Poor's warned that it may cut the company's long-term credit rating.
But in the current corporate climate, in which big media companies are under pressure not only to make money but to prove they are doing it efficiently and honestly, Disney Chairman Michael D. Eisner told analysts in a Thursday earnings call that Disney is focusing on corporate governance. He sought to assure investors that the Mouse house is smartly run and in orderly shape.
Eisner said Disney will trim its 16-person board of directors to an undetermined number and downsize board committees. The company had been considering shrinking the board over the past two years, and it consulted with corporate governance experts, who suggested that a smaller board could move more nimbly in today's whipsaw economic climate.
"These steps will take time, not too much time, and will further evidence our commitment to serve our shareholders," Eisner said. The terms of the Disney board members have been aligned to allow shareholders to weigh their performance regularly. The entire board stands for election next year, the company said.
Through the '80s, Disney was a booming, large-cap growth company and Eisner's leadership was acclaimed. But with the acquisition of Capital Cities/ABC Inc. radio and television in 1996, the company exposed itself to advertising cycles it had not experienced before, analysts said. The past five years have been volatile at Disney, as its stock has fluctuated between about $25 per share and more than $40. The current slide began in mid-2000; Disney shares closed yesterday at $15.31, down $1.52, or 9 percent, in heavy volume.
Disney reported on Thursday that net income was $364 million, or 18 cents a share, down 7.1 percent from $392 million (19 cents) in the same quarter a year ago. Revenue dipped 3 percent, to $5.8 billion.
Eisner has taken much of the blame for the company's recent slump, and his board sometimes has been characterized as a rubber stamp for his decisions. He has been Disney chief since 1984. There is no apparent successor in proximity.
"Eisner has the reputation of being something of a micromanager and my sense is that he or the company may be under pressure to present a board of directors that is less tied to him and more removable," said Tom Graves, an analyst with New York's Standard & Poor's.
Board members include Roy Disney, nephew of founder Walt Disney; former U.S. senator George Mitchell; actor Sidney Poitier; and Leo J. O'Donovan, former Georgetown University president. Corporate-bred members include John Bryson, chief executive of Edison International power company, and Gary Wilson, board chairman of Northwest Airlines Corp.
In addition to realigning the board, the company will begin recording stock options as expenses, Eisner said, but it will wait until accounting regulators adopt uniform standards. In the meantime, it will provide detailed forward- and backward-looking data on options to shareholders.
Disney said its changes in corporate governance and stock option accounting are part of an effort put in place before the spate of investigations against other media companies such as AOL Time Warner Inc. and French giant Vivendi Universal or the accounting scandals at WorldCom Inc., Adelphia Communications Corp. and Enron Corp.
Disney is trimming costs, Chief Financial Officer Thomas Staggs said in an interview. To keep down the cost of buying shows to air on ABC, he said, the network negotiated new contracts with producers that limit the price paid for reupping hit programs. Staggs said Disney does not anticipate making any major acquisitions in the coming months.
Graves, the Standard & Poor's analyst, advises against buying Disney stock, owing to economic uncertainty that impacts theme park visitation, movie attendance and ad revenue. But Staggs countered that compared with other media giants, the conservative Disney is better able to pull out of its slump.
"I think we are exceptionally well positioned. There is nothing close to a meltdown going on," Staggs said. "We have operational issues we are not shy in talking about. We have one of the four broadcast networks that is underperforming, but we have a tremendous financial upside."