Disney Abandons Hope for ‘Treasure Planet’

Walt Disney Co. said Tuesday that it lopped $47 million off its previously reported fourth-quarter earnings after its latest film, “Treasure Planet,� failed to strike gold.

Although the Space Age version of “Treasure Island� has been in theaters only one weekend, Tuesday’s announcement shows that Disney already has written off any hope for the movie: It opened to generally poor reviews and just $12.1 million at the box office, one of the weakest openings ever for a Disney animated film.

The disclosure came after Disney announced a series of lauded reforms to its board, which has been criticized in the past as being too passive. Those changes included a more stringent definition of what constitutes an “independent� director, but one that also could diminish the role of businessman Stanley P. Gold, a chief critic of Disney Chief Executive Michael Eisner.

Separately, the Burbank entertainment giant said it was cooperating with a Securities and Exchange Commission inquiry into whether it should have publicly revealed earlier than August that four of its directors had relatives working for the company or its affiliates.

The “Treasure Planet� and SEC disclosures interrupt what had been a string of good news for the long-beleaguered company, with the film “The Santa Clause 2� performing well, the Anaheim Angels winning the World Series, and progress in trying to fix lagging ratings at its ABC network.

Disney said it expects the pretax loss on “Treasure Planet� to come to $74 million, all the more painful because Disney’s animation division was once the company’s profit juggernaut, with such films as “The Lion King,� “Aladdin� and “Beauty and the Beast� earning hundreds of millions of dollars each in the early 1990s. More recently, Disney scored a hit with “Lilo & Stitch.�

“It’s a fairly substantial loss,� said analyst Jeffrey Logsdon of Gerard Klauer Mattison. He estimates that “Treasure Planet� cost $100 million to $120 million, excluding marketing expenses.

The movie’s release comes amid uncertainly over who may guide Disney’s bedrock animation division next year. Current chief Thomas Schumacher will step down from the job in June, but is negotiating a possible new role in the company’s theatrical division.

Disney announced the earnings adjustment, which came to 2 cents a share, on the eve of disclosing them in its annual financial statement filed with the SEC.

The disclosures followed a day-long Disney board meeting in New York and came after the stock market closed. Disney shares fell 85 cents, to $18.54 on the New York Stock Exchange.

Although Disney had already closed its books on its fiscal year ended Sept. 30, the company is required to revise its numbers because it had yet to file its 10-K financial report. It chose to announce the news in advance.

“We saw it as important to put out a press release indicating this required revision,� Chief Financial Officer Thomas Staggs said. Of “Treasure Planet,� he said: “It’s just one movie, and that’s the nature of the business.�

Still, analyst Paul Kim of Kaufman Bros. in New York and Logsdon noted that “Treasure Planet� is considered the last of Disney’s mega-budget animated films. Increasingly, the company has been shaving costs on its animated features.

“This is the last of a previous generation,� Logsdon said.

As for the SEC inquiry, Disney stressed that it is unrelated to any financial disclosures. Rather, it stems from a filing this summer with the SEC disclosing that director Reveta Bowers’ son once worked for its Internet group; director Gold’s daughter works in consumer products; and director Raymond Watson’s son works for the Disney channel. Disney also disclosed in that filling that director John Bryson’s wife, Louise, earned $1.35 million as a top executive at the Lifetime cable channel, in which Disney has a 50% stake.

Sources said the SEC wants to know why Disney didn’t disclose those details earlier.

Separately, Disney named former Seagram Co. Chief Financial Officer Robert Matschullat as an independent director to head the company’s audit committee, and named former U.S. Sen. George Mitchell to the new post of presiding over board meetings when Disney officers aren’t present.

Disney directors also determined Tuesday that all but five of its 17 directors -- Eisner; President Robert Iger; Vice Chairman Roy Disney; Gold, who is business partners with Roy Disney; and architect Robert Stern, who has close business ties to the company -- are independent under new guidelines. Iger, Gold and Stern won’t serve on any board committees.

The independence guidelines were unanimously adopted at the recommendation of Disney’s corporate governance consultant, Ira Millstein, a source close to the board said.

Gold couldn’t be reached for comment, but a source close to him said he doesn’t expect his watchdog role on the board to diminish and vows to remain a strong advocate for shareholders.

“It’s still a relatively insular board, but they are at least attempting to do the right thing in terms of the corporate governance environment we’re in,� analyst Kim said.