Disney Numbers Change With Accounting Rule

Dec 22, 2003  •  Post A Comment

The Walt Disney Co. said it expects to include in its fiscal first-quarter numbers the financial results of its theme parks in France and Hong Kong as a result of a new accounting rule interpretation, and warned that the same interpretation might force the company to include the results of cable networks in which Disney owns a stake.
The notification, which came last week in the company’s annual filing with the Securities and Exchange Commission, was tied to the company’s decision to adopt Financial Accounting Standard Board Interpretation No. 46, which requires a company with equity stakes in other entities to consolidate the financial results of those entities when the primary beneficiary is determined to be that company. In Disney’s case, the company determined that its theme parks Euro Disney in Paris, and the Hong Kong Disneyland, which will open in 2005-06, benefit the media company.
Because the accounting standards board continues to examine which types of equity stakes are subject to this rule, Disney said it is possible that subsequent interpretations will force the company to consolidate the financial stakes of cable networks it does not control with the company’s overall results. Disney owns a 37.5 percent stake in cable channel A&E, a 50 percent stake in Lifetime and a 39.6 percent stake in E! Entertainment.
Richard Greenfield, an analyst with Fulcrum Global Partners, estimated that in the fiscal first quarter ended Dec. 31, Disney’s debt level will rise by $2.4 billion as a result of adopting the rule, while revenue and expenses would each rise by $1 billion.
Mr. Greenfield added that while the inclusion of the theme parks’ results won’t affect the company’s overall liquidity picture, the company’s adoption of the rule would make it more complicated to value. He cited John Malone’s Liberty Media as an example of a company Wall Street has long complained is too complicated to properly value. (Liberty, for its part, is addressing this gripe by acquiring controlling stakes in several properties in previously owned stakes, in a bid to become a more active owner of entertainment assets.)