DISNEY STOCK SKIDS; DISPUTED REPORT SPURS $4 DROP.

Byline: Dave McNary Daily News Staff Writer

Stock of Walt Disney Co. took a hit Monday on a report - strongly disputed by the entertainment giant - that its reported profit in the past five quarters was enhanced because of an undisclosed reserve of $2.5 billion from its purchase of Capital Cities/ABC Inc.

Disney, a component of the Dow Jones industrial average, fell $4 on the report in Barron's weekly newspaper to close at $103, even though several analysts labeled the report ``old news.''

``We already knew about the impact of the Cap Cities deal, and the article doesn't change my opinion of how Disney will perform,'' said Linda Bannister of Edward Jones in St. Louis.

The report, written by accounting professor Abraham Briloff, asserted that the reserve masked Disney's costs and expenses from its $19 billion purchase of Capital/Cities ABC Inc. in early 1996 and argued that without it, Disney's 25 percent earnings increase in its fiscal year ended Sept. 30, 1997, would have been sliced 10 percent.

Briloff also argued that Disney has largely exhausted the reserve and that it might now run into difficulties in keeping up profits. ``From here on, the true picture will become very much clearer,'' he wrote.

Disney responded that the report contains inaccuracies and misleading conclusions. It specifically disputed Briloff's characterization of the addition of $2.5 billion in liabilities to its balance sheet as a reserve.

``Briloff's contention that these adjustments to values affected our earnings is just plain wrong,'' said Disney spokesman Tom Deegan.

Burbank-based Disney also insisted that the purchase accounting principles for the Capital Cities/ABC deal were ``applied as they exist today, not as others might wish them to be.''

``The purchase accounting we applied was mandated by the rules governing this type of business combination, and this accounting and all related disclosures were reviewed and approved by Price Waterhouse, our independent accountants,'' Deegan said.

Briloff claimed in the article that Disney's accountants should not have been allowed to translate $4.1 billion in ABC's future programming commitments into $2.5 billion in liabilities and noted that Capital Cities accountants' final financial statement at the end of 1995 did not reflect those liabilities.

But Deegan insisted Disney was required to revalue the Cap Cities assets in the same manner that rivals Time Warner Inc., Seagram Co. and Westinghouse Inc. used in their purchases of Turner Broadcasting System, MCA Inc. and CBS Inc., respectively.

``We believe Briloff's argument is with the generally accepted accounting principles and not with us,'' he added.

As for Wall Street, analysts said the article told them nothing they and investors did not already know.

``We do not disagree with the article's point that Disney's reported results are enhanced by purchase price accounting benefits created from writing up liabilities and writing down assets at the time of the merger, which boosts earnings in subsequent periods since the expenses have already been booked,'' said David Londoner of Schroder & Co. Inc.

Londoner also noted that he agrees with Briloff's assertion that the benefits of such accounting decline over time.

``It is a point that has already been included in our numbers,'' he said. ``As a result, it is our opinion that today's negative reaction to the article is an overreaction to old news.''

Disney stock had increased more than 50 percent between Oct. 27, when it dropped to $77.75 amid the market's one-day crash, and Feb. 14, when it hit a record high of $114.375.

CAPTION(S):

Chart

CHART: WILD RIDE: Shares of Walt Disney Co. fell nearly 4 percent Monday after increasing more than 50 percent from late October to the end of February.