Disney May Be Poised to Take a Big Write-Off

Analysts say a fiscal fourth-quarter write-off could include costs related to Monday Night Football, the Jeffrey Katzenberg settlement and retail store closings.
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Could Disney (DIS) - Get Report be getting ready to take a big write-off?

As the Mouse stumbles through yet another subpar quarter, analysts are speculating that the company may be getting ready to take a major one-time charge in the hopes of leaving its bad news behind. A writedown for fiscal 1999, which ends Sept. 30, would cap Disney's

annus horriblis

, the worst year for the company since Chairman Michael Eisner took over 15 years ago. In the last month alone, Hurricane Floyd forced

Walt Disney World

to close for the first time in its history and a Disney-connected executive was arrested for trying to arrange sex with a minor.

Meanwhile, the company's earnings are expected to be down as much as 25% for the year, and analysts are now lowering expectations for fiscal 2000 as well. But with Disney stock already off 40% from its 1998 highs, Eisner may be tempted to get all the bad news out at once and give himself easier financial comparisons going forward.

"We would not be surprised to see a writedown in the September quarter,"

Gerard Klauer Mattison

analyst Alan Gould wrote in a research note on Monday. Gould listed several possible components of a write-off, including part of the $4.4 billion

ABC

is paying the

National Football League

for

Monday Night Football

through 2005. The company might also take a charge for part of its settlement with former studio head Jeffrey Katzenberg, the one-time costs to close underperforming Disney stores and severance and retirement packages to slash corporate overhead.

Gould didn't offer an estimate of how large the charge might be, and always-helpful company spokesman John Dreyer didn't return several calls seeking comment.

PaineWebber

analyst Chris Dixon says a write-off is possible but adds that the company hasn't offered analysts any guidance on whether to expect one.

Some skeptical investors, especially short-sellers, argue that one-time charges distort operating results and make it difficult for investors to figure out how a company is really doing. But most sell-side analysts, who are paid to see the good in all of us, are willing to overlook the occasional write-off. Dixon, who thinks Disney's bad news is already priced into its stock, says a write-off would be an overall plus for the company. "Anything that shows that management is looking forward would be viewed positively," Dixon says. (Dixon rates Disney attractive, while Gerard Klauer rates the company hold. Neither bank has done any recent underwriting for Disney.)

In a minor side issue, confusion over analysts' estimates for Disney's fourth quarter continues. In a conference call Monday,

Morgan Stanley Dean Witter

analyst Rich Bilotti said earnings estimates for Disney were no longer declining for the company's fourth quarter.

Disney's Decline
Earnings Slide From Year-Ago Levels

Source: First Call/Thomson Financial. Note: Disney's fiscal year ends in September. All earnings exclude one-time gains or losses, as well as losses from Disney's share of Infoseek.

Unfortunately for Bilotti -- and Disney -- the cuts are still trickling in. In fact, one British analyst reduced estimates as late as yesterday. The company blames Hurricane Floyd, which damaged tourism throughout Florida. As a result, Disney isn't likely to meet the

First Call

consensus of 11 cents per share for its fourth quarter, down from 16 cents last year. (That consensus, by the way, doesn't include a 2- or 3-cent per share charge related to the company's ownership stake in Internet company

Infoseek

(SEEK)

.) Dixon says he thinks Disney will make 9 or 10 cents a share, depending on rounding. Bilotti didn't return calls seeking comment on the issue.

Earnings aside, the quarter hasn't been all bad for Disney. The company's struggling ABC network is showing signs of life. The success of ABC's

Who Wants to Be a Millionaire

is the biggest surprise in television this year, and advertising demand is strong at all the networks. Disney's movie studio has also been very strong over the summer, with

The Sixth Sense

and other big hits putting the company first in total share of U.S. box office.

But despite the glimmers of hope, it's been a bad quarter, and a worse year, for the Mouse. The best news Disney has is that it's finally over.