Euro woes don’t dent Disney net

The Walt Disney Co. Thursday reported a 17% increase in third-quarter profits, despite absorbing a $ 30.9 million loss on its Euro Disney theme park. Robust operating results at the company’s consumer-products division made up for slowing growth at its theme parks and filmed entertainment divisions.

A number of sweeping accounting changes, involving project-related pre-opening costs, retiree benefits and income taxes, had a significant impact on operating numbers.

For the quarter, companywide revenues rose 3% to $ 1.94 billion from $ 1.88 billion in the comparable prior-year period. Net income increased 17% to a record $ 259 million, or 48 cents per share, compared to $ 221 million, or 41 cents per share, reported a year ago. Operating income increased 12% to $ 470 million compared to $ 419 million the year before.

Excluding the impact of the accounting changes, net income would have been $ 243 million, or 45 cents per share, up 10% over the prior year. Operating income would have been up 14% to $ 477 million.

Saying it was bowing to pressure from the Securities & Exchange Commission to account more quickly for project-related pre-opening costs, Disney decided to account for them all at once, rather than spreading them out over five years. To do so, it recorded a $ 271.2 million charge, recorded retroactively in its first fiscal quarter.

That massive charge, combined with a $ 100.3 million charge in the same quarter to cover mandated charges in accounting for retiree benefits and income taxes, changed what had been record first-quarter profits into a net loss.

With the accounting changes figured in, Disney lost $ 111 million, or 20 cents per share, in its October-December quarter, instead of posting profits of $ 260.3 million, or 48 cents per share.

Nine-month earnings fell 36%, from $ 593 million, or $ 1.11 per share, to $ 378 million or 69 cents, with revenue rising from $ 5.43 billion to $ 6.35 billion. Excluding the accounting changes, profits rose by 26%, to $ 749 million , or $ 1.37 per share.

But some on Wall Street discounted Disney’s contention that it was merely kowtowing to the wishes of the SEC. They say the accounting changes were made now to bump up earnings and to help cover mounting losses at Euro Disney.

They pointed out that if the changes had been made last year they would have had a negative aggregate impact rather than a positive.

The company’s investment in Euro Disney (it owns 49%) resulted in a loss of $ 30.9 million for the quarter and $ 100 million for the nine-month period.

Excluding the impact of the change in method of accounting for pre-opening costs, the company’s investment in Euro Disney would have resulted in a loss of $ 48 million for the quarter and $ 136 million for the nine-month period.

Based upon recent trends, Euro Disney expects to incur a loss during its fourth quarter, which covers the peak summer season and will have a negative impact on the company’s results.

Concerning Euro Disney, analysts said the accounting changes should save the company about 8 cents per share, per year in earnings. Overall, on a run-rate basis, the changes are expected to add about 10 cents per share to companywide annualized earnings.

Momentum slowed at both the theme parks and movie divisions compared with the first half of the year. Theme park and resorts revenues of $ 986 million rose by 7% with operating profits up 17%.

For the quarter, revenues for the filmed entertainment segment decreased 10% to $ 655 million, but operating income of $ 135 million increased 1% over a very strong prior-year performance that included the success of the homevid release of “101 Dalmatians.”

The company said results for the current quarter reflected the impact of the international theatrical release of “Jungle Book” and the success of the company’s television businesses partially offset by the lackluster performance of the company’s live-action domestic theatrical releases.

Revenues for the consumer products segment rose 24% to a record $ 296 million for the quarter, compared to $ 239 million in the prior year. Operating income increased 19% for the quarter to a record $ 72 million compared to $ 61 million in the prior year.

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