Disney revs up growth despite French park woes - Walt Disney Co

BURBANK, Calif. -- Appearing recently on the "Larry King Live" television program, Walt Disney Co. chairman Michael Eisner said the entertainment conglomerate and its partners in Euro Disney SCA could face liquidity problems spelling "big, big trouble" if 20 or more banks are unable to restructure the debts of the company's loss-plagued theme park and resort near Paris.

Nonethless, Disney -- which posted record annual revenues and operating income for the year ended Sept. 30 despite a rare quarterly loss blamed on the European venture -- has heaped its plate with new expansion plans.

In moves that would bolster Disney's standing as a titan of the U.S. foodservice industry, the Burbank-based company last month added a 100-acre amateur sports complex in Florida and the historical "Disney America" theme park in Virginia to a list of projects that include a proposed $3 billion expansion of Disneyland in Anaheim.

Disney also disclosed plans to add at least five new resort hotels to a slate of three already under construction at Walt Disney World near Orlando, Fla.

In addition, Disney would share, as landlord, in results from a 400-seat, 20,000-square-foot Planet Hollywood restaurant branch that broke ground last month for a scheduled December 1994 debut in Disney World's Pleasure Island entertainment area.

A Disney official said the deal with eight-unit Planet Hollywood -- the first chain-restaurant brand to be developed at a Disney park -- could lead to a pact for additional openings of the movie-artifact-studded concept at Disney's Anaheim, Tokyo and Paris theme parks.

All of Disney's new plans and projects hold positive implications for its foodservice organization, whose restaurants and snack outlets account for an estimated 11 cents out of every dollar generated by the company's diverse portfolio of productions, attractions and consumer products.

But attention has focused on Euro Disney's troubles, largely as a result of their contributions to a 63-percent decline in Disney's annual earnings for fiscal 1993, to $299.8 million. The unfavorable spotlight has shone despite the apparently undaunted conglomerate's ambitious expansion agenda or the company's 14-percent annual increase in revenues, to $8.5 billion, and 20-percent gain in operating income, to $1.7 billion.

Eisner, interviewed by Larry King on his CNN show, conceded that Disney has little experience dealing with the kind of financial adversity afflicting Euro Disney, which recorded a 5.34 billion-franc net loss -- a deficit of about $921 million -- in its first full year ended Sept. 30.

Disney's share of that loss triggered the company's first quarterly shortfall in nine years--a $77.8 million net loss in the fourth period -- and forced Disney to charge $350 million against pretax earnings to offset the company's deferred collection of Euro Disney management fees and to fund the French park for what Disney described as a "limited period" during the proposed restructuring.

Disney owns 49 percent of Euro Disney SCA, whose Euro Disneyland park and adjacent hotels have suffered from lower-than-expected attendance and the apparent reluctance of French visitors to spend on meals, lodging and souvenirs in similar proportions to per-capita expenditures at Disney parks in America and Japan.

Last month Euro Disney said 950 jobs would be cut in the face of continuing losses.

Wall Street analysts and theme-park pundits have blamed Euro Disney's troubles on Europe's lingering recession, France's wet weather and the strength of the French franc against other currencies.

An observed tendency of French visitors to bring their own food into the park to avoid dining in its theme restaurants also has been cited, along with Euro Disney's belated introduction of beer and wine following the park's 1992 debut.

Analysts say those negatives have undermined what Disney officials point out is the French park's first-year attendance record of some 12 million visitors, more than were drawn during inaugural years at any other Disney park.

Disney pointed out that its net annual income would have increased 9 percent, to $890 million, compared with $816.7 million a year ago, if the $350 million reserve for Euro Disney had not driven total reserves to $671.3 million, including accounting changes made in the third quarter.

Nevertheless, Eisner could offer only ambiguous answers to Larry King's questions about the fate of the French park if debt-restructuring negotiations cannot be completed by a proposed spring deadline.

"If the [20 or more banks] don't come through, we have a liquidity problem," Eisner said. "That's a nice word for big, big trouble." Still, eisner said he was confident that Euro Disney would mature into profitability if financing could be secured to help the resort weather its current difficulties.

Against the backdrop of Euro Disney's daily loss of more than $2.5 million during its first full year, analysts suggested that the resort's owners have only limited options to spark a turnaround.

An outright shutdown of the $4.1 billion, 4,800-acre complex is one unlikely choice proposed by a few observers who doubt Disney would be willing to pump hundreds of millions of dollars a year for an indefinite period into what could be a losing effort to salvage the venture.

Other suggested remedies are regarded as more logical. One calls for shuttering Euro Disney's six hotels, whose 5,200 rooms have been shunned by a preponderance by day-trippers and are seen as impeding earnings.

Another move would be to operate seasonally to avoid France's cold, rainy months -- a strategy that could be foiled by the prospect of militant unions fighting layoffs.

Trading debt for equity seems the most likely prospect, so long as Euro Disney's owners can line up skeptical banks and then tolerate their demands.

"Finding more investors or holding a successful [secondary] public offering is a real long shot," wrote analysts Alan Citron and James Bates in the Los Angeles Times. "Who would invest?"

Although the U.S. stock market's far-reaching declines last month were seen as an overdue "correction" in the price of many expensive issues, Disney Co. stock slipped slightly to $39 the day after Eisner's CNN interview, furthering an overall 19-percent dip from the company's 1993 high of nearly $48 a share.

How much of that drop can be traced to investors' concerns over Euro Disney is unclear. But Disney's disclosure of plans for a Virginia theme park and the amateur sports complex in Florida offered new prospects for profit.

The company said Disney America, 30 miles west of Washington in Virginia's Prince William County, would create nearly 3,000 jobs and generate $1.5 billion in new county and state tax revenues. The company declined to estimate the park's revenue potential or construction costs, but sources said the development tab could exceed $500 million by the planned 1998 opening of the 100-acre attraction.

Plans call for high-tech virtual reality rides and re-enactments allowing visitors to "meet" past presidents and "participate" in historical events. Disney America's restaurant plans were not detailed. But Disney said the park, which would rise on a 3,000-acre parcel near the Bull Run and Manassas battlefield sites, would include a Civil War-era village, a Native American village and Enterprise, a factory town with a roller-coaster. Hotels, homes and a golf course are also planned.

Disney officials said they are still several months away from deciding whether to proceed with the $3 billion expansion of Disneyland in Anaheim, but they said the company's Virginia proposal was unrelated and would have no effect on that decision.

The company said the "international amateur sports center" proposed for Disney World property would include a 5,000-seat stadium, a field house, multisport practice fields and professional-caliber training centers as well as competition sites for at least 25 individual and team sports.

A spokesman said foodservice facilities would be part of the complex.

Although earmarked mainly for amateur sports and televised events, the complex could house preseason training camps for professional teams and would aid efforts to attract those teams to settle in the Orlando area, Disney said.

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