Merger Costs Mean $25-Million Loss for Disney

Walt Disney Co. posted a rare loss of $25 million for the quarter ended March 31, although the bulk of it was attributable to one-time charges stemming from its $19-billion acquisition of Capital Cities/ABC Inc. during the quarter and to mandatory accounting changes.

But Disney’s operating results were also below the estimates of analysts, reflecting problems with the company’s weak slate of films in the second fiscal quarter as well as the sluggish ratings performance at the ABC television network.

Disney’s charges of $525 million came in two parts: $225 million related to the ABC acquisition and $300 million due to changes in the way some real estate properties are accounted for under Disney’s theme park division.

The $25-million loss that resulted contrasts with a $316-million profit a year earlier. Disney’s revenue climbed 54% in the quarter to $4.5 billion, reflecting the addition of Cap Cities.

Analysts said the company had film write-offs totaling about $50 million stemming from the weak performance of such films as “Nixon,” “White Squall,” “Mr. Wrong” and “Before and After.” In addition, analysts said, the company took a $60-million to $70-million charge to clean up the studio by writing off some other projects and development deals.

Although a quarterly loss for Disney is rare--the last one came in the fourth quarter of 1993 as a result of problems at its Disneyland Paris theme park--losses are relatively common in the first few reporting periods after companies merge, as the buyer absorbs costs related to the acquisition. In the case of Disney, the $225 million is a noncash charge reflecting interest costs in carrying money used to pay Capital Cities/ABC stockholders on March 14.

Jeffrey Logsdon, analyst with Seidler Cos., said Disney’s results weren’t too far out of line and that, as with any huge merger, it will take a couple of quarters before analysts can get a clearer picture of the company’s financial results.

Disney unveiled to Wall Street new categories in which it is reporting results, including “creative content,” which fell 37%, largely due to the film studio results. Disney noted that the results were compared with a strong quarter the year before, when the video release of “The Lion King” boosted profit.

Disney’s broadcasting division, which includes ABC’s television and radio, posted a flat profit and revenue due to softer ad revenue at ABC. Broadcasting revenue for the quarter totaled $1.4 billion, with operating income at $198 million. ABC has had an especially rough time battling NBC, which has benefited from such shows as “ER,” “Friends” and “Seinfeld.”

Operating results at Disney’s theme parks rose 11% to $202 million, with revenue rising 15% to $1.1 billion.

For the six months ended March 31, Disney said it earned $472 million, compared to $798 million a year earlier. Revenue climbed to $8.38 billion from $6.25 billion.

Disney’s stock fell 87.5 cents to $61.75 on the New York Stock Exchange on Tuesday.

In a statement, Disney Chief Executive Michael Eisner said the company’s operating results “reflect the completion of our acquisition of Capital Cities/ABC, a significant milestone in the history of our company. The integration of our two organizations is progressing well, and we believe that as the world’s premier entertainment company, the combined enterprise is ideally positioned to capitalize on the exciting opportunities that lie ahead.”

Reuters contributed to this report.

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