PROFITS DIP AT DISNEY 'TREASURE PLANET' FLOP, AIRCRAFT INVESTMENT WRITE-DOWN AFFECT EARNINGS.

Byline: Greg Hernandez Staff Writer

BURBANK - The Walt Disney Co.'s first-quarter profits dropped by 42 percent despite improved theme park attendance and higher prime-time ratings at Disney-owned ABC.

The media and entertainment conglomerate suffered from the colossal animated feature flop ``Treasure Planet,'' and was pinched by higher programming costs for televising professional sports. However, it got a boost by huge home video sales of its animated hit ``Lilo & Stitch'' and other titles. Disney's net profit of $256 million, or 13 cents a share, was down significantly when compared with net income of $438 million, or 21 cents a share, during the same quarter a year ago, according to financial results released Thursday.

First-quarter results included an after-tax charge of $83 million, or 4 cents per share, due to a write-off in investment in aircraft that Disney leased to bankrupt United Airlines. Excluding the aircraft lease charge, Disney's per-share earnings for the quarter would have been 17 cents, slightly ahead of Wall Street expectations of 15 cents.

Because the aircraft lease charge was expected, entertainment and media analyst David Miller of Sanders Morris Harris believes the company's stock will enjoy a ``slight afterglow.'' But he is concerned that long-term bookings for domestic theme park resorts in Southern California and Florida continue to struggle. Tourists worried about possible war with Iraq are waiting until the last minute to make reservations.

``I think (low advance bookings) will overshadow a very strong operating number for the studio that is due to the success of `Lilo & Stitch' on DVD,'' Miller said. ``The margins in home video are much higher than studio releases.''

Still, Disney Chairman Michael D. Eisner said he was pleased with the overall results for the quarter.

``We still have a number of challenges ahead of us but we remain convinced of the extraordinary potential of our businesses,'' he said.

Disney posted revenue of $7.47 billion during the quarter, 6 percent more than 2002's first-quarter revenue of $7.02 billion.

Domestic theme parks, which include Disneyland and Disney's California Adventure in Anaheim and Walt Disney World in Orlando, Fla., saw attendance climb resulting in a 20 percent jump in operating income to $225 million.

The West Coast parks had a 12 percent increase in visitors while the Florida resort enjoyed a 17 percent surge in attendance, executives said.

Disney President Robert Iger said long-term bookings continue to suffer because of the Iraq situation and other international unrest.

``People actually are laying low and waiting to see what happens,'' Iger said. ``We are doing a good job with aggressive local marketing and people are showing up at our parks. We just aren't seeing the bo to see.''

Disney's studio entertainment division saw a 7 percent increase in revenue to $1.9 billion while operating income decreased by 7 percent to $138 million. ``Treasure Planet'' was a costly flop, but strong DVD and VHS sales of ``Lilo & Stitch,'' as well as a special re-issue of animated classic ``Beauty and the Beast,'' were huge successes.

Eisner said there is ``nothing that makes me nervous'' about the studio's upcoming film slate, which includes ``The Recruit'' being released today and ``Shanghai Knights,'' which bows next Friday.

None of the upcoming releases carry the hefty $100 million-plus price tag of ``Treasure Planet,'' which is one of the biggest failures in studio history.

One of the highly anticipated 2003 releases is ``Finding Nemo,'' the latest in a series of films from Pixar Animation Studios to be released by Disney. The long-term agreement between the two companies - which has resulted in hits like ``Monsters, Inc.'' and ``A Bug's Life'' - has not yet been renewed.

Eisner described Disney's relationship with Pixar as ``extremely strong and good'' and said that with three years remaining in their agreement, there is no rush to reach conclusion.

``I'm optimistic and encouraged, but can't say it's a slam dunk in any sense,'' he said.

Meanwhile, ABC has climbed out of the ratings cellar. Iger said that while long-term success depends on scripted comedies and dramas, the network will depend heavily on such low-cost reality shows as ``The Bachelor'' in the coming months.

``Reality can heat up colder time periods and recruit and retain younger audiences,'' Iger said.

Iger said that because reality programming is so popular right now, the network plans to continue to take advantage of the craze, but within reason.

``We believe the smartest approach would be a blended schedule of scripted shows, sports, news franchises as well as reality programming with some limits,'' he said. ``I think you can overdo it.''

Iger also commented on the controversy involving the network's decision to move its long-running hit ``The Practice'' from its Sunday night slot to Monday nights, where it was clobbered in the ratings. The Sunday spot goes to the new series ``Dragnet,'' which bows on Sunday.

``Since `Dragnet' has not aired yet, it remains to be seen if that strategy is the right strategy,'' he said. ``We believe that it is. Would I like to see `The Practice' do better? Of course.''

Revenue for media networks, which also includes cable channels like ESPN, increased 9 percent to $3.2 billion, but operating income decreased by 7 percent to $225 million. Cable results were down due to higher programming costs for National Football League, National Basketball Association and other sports.

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(1 -- 3 -- color) Healthy sales of ``Lilo & Stitch,'' left, on video and DVD helped boost Disney's profits, and increasing attendance at Disneyland, center, helped the bottom line. But the animated ``Treasure Planet,'' top, was one of the biggest flops in studio history.

The Walt Disney Co.

(4 -- 5) Disney's California Adventure, above, and a ``Beauty and the Beast'' reissue generated welcome revenue for the company.

Andy Holzman/Staff Photographer