SCROOGE AT DISNEY? COST-CUTTING MAY BRING HOLIDAY LAYOFFS.

Byline: Dave McNary Staff Writer

Employees of The Walt Disney Co. are worried about something that would have been unthinkable a few years ago: that pink slips will arrive around Dec. 31 at the home of the Happiest Place on Earth.

The fear stems from the fact that despite a widespread cost-cutting program at the Burbank-based entertainment giant, Wall Street investors remain unimpressed and Disney management continues to look for more ways to reduce costs.

Even though the worldwide work force has remained steady at about 120,000 employees through this year, there are pervasive jitters that further cost cutting will trigger widespread layoffs or the elimination of entire divisions, employees said this week.

``Nearly every single division has been hit, and everyone has been told to cut their budget by 10 (percent) to 20 percent,'' said one knowledgeable insider who spoke on condition of anonymity. ``Things are tight everywhere in the company.''

It's a rough time at Disney, which has a highly demanding, stressful corporate culture even during the best of times. The corporation's unique ability to deliver family entertainment has inspired strong loyalties, but the ongoing drumbeat of negative developments has darkened the outlook of employees who count Snow White and Mickey Mouse among their co-workers.

A Disney representative had no comment on questions about future layoffs or employee morale but noted, ``No major changes have taken place in terms of employee numbers.''

Nevertheless, it is startling that employees at Disney - one of America's best-known and most-admired corporations - are even wondering about layoffs during the holiday season. Before the cost-cutting started, Disney already carried a reputation for being less likely than several of its rival entertainment conglomerates to spend lavishly on perks and parties.

Fortunes falling

The fact that Disney employees are worried about losing their jobs in December reflects not only how far the company's fortunes have fallen but also how enamored Wall Street has become of layoffs as the best remedy for ailing corporations.

``It used to be that companies would not announce layoffs around the holidays, but that taboo has disappeared,'' said John Challenger, chief executive officer of the Challenger Gray Christmas outplacement firm. ``Now the bottom line comes first.''

And Disney's bottom line hasn't been pretty. Wall Street has mostly shrugged in response to Disney's cost-cutting efforts this year with many brokers lowering their enthusiasm for the company's shares and numerous institutional managers selling at least a portion of their large stakes.

Challenger, for one, noted that companies with depressed stock prices often are forced to cut jobs just to appease investors. That's a key reason why total layoffs this year are up 11 percent over the 1998 level despite a booming economy.

``Stock price is the driving force of layoffs,'' he said. ``People have little choice when shareholder pressure begins to mount. If you can't meet expectations, you have to take action to get costs in line - and people are your No. 1 cost - because the drumbeat to cut costs is often deafening.''

Still, most experts doubt that Chairman Michael Eisner will implement any kind of major layoffs. Eisner and his top executives presented a wide variety of cost-cutting strategies last month to Wall Street analysts without specifying significant job cuts.

``They basically said the goal was to save $500 million annually, but I would hate to speculate on where they might cut jobs,'' said Linda Bannister, an Edward Jones & Co. analyst who attended the meeting. ``They are planning to do a lot of things that are going to contribute to that savings.''

Another longtime Disney watcher said the corporation is unlikely to slash its work force.

``I would say that across-the-board cutting would be the last resort,'' said Steve Cesinger, managing director of Greif & Co. ``I don't believe that Eisner would want to be in the press heading up a major downsizing. Disney is more apt not to replace people that leave.''

Short of targets

Cesinger said that does not mean there will be absolutely no job cuts but that they are likely to be targeted at poorly performing areas of the corporation.

``It depends on what area of the company you're in,'' he said. ``Any company that's short of its financial targets is going to be looking at cuts, so you have to figure out if you're in a key area.''

In late April, Eisner announced that Disney would undergo a corporatewide review of costs to shore up its finances. At that point, shares had fallen 23 percent in less than a year. But Wall Street has remained unimpressed; since then, they are down another 12 percent.

It's not as if Eisner has not been trying to cut costs at the company he has headed since 1984. Steps taken this year, some not officially confirmed, include:

Ending the practice of granting long-term employment contracts to many executives.

Imposition of a hiring freeze for all positions except critical slots.

Ban on payment for overtime work.

No use of consultants and temporary workers.

Cutting annual spending on motion pictures by $500 million and letting dozens of development deals lapse.

Cutting jobs in the home video department and reorganizing the TV department.

Shuttering the five Club Disney indoor play-parks and the three ESPN retail stores.

Putting the California Angels up for sale and pledging to not pursue high-price free agents.

Reducing head count by several hundred in cartoon animation, although those numbers fluctuate along with production cycles.

``There has been sort of a rolling layoff in animation since June, and they're trying to get crews to be staffed with fewer people,'' said Steve Hulett, business agent with Local 839 of the Motion Picture Cartoonists Union.

Profits down 30 percent

Disney reported in early November that its profits for its fiscal year ended Sept. 30 fell 30 percent to $1.3 billion, or 62 cents a share. Eisner said at that point he was ``disappointed'' by the results and warned investors not to expect growth for fiscal 2000.

At the Nov. 10 analysts' meeting, Eisner promised to reduce annual costs by more than $500 million, partly through ``strategic sourcing'' to cut purchasing expenses.

A month later, the stock remains stuck at about $28 even with several triumphs - blockbuster box office performance by ``Toy Story 2,'' a favorable agreement for a Hong Kong theme park and surprisingly strong ratings for its ABC television unit, thanks to ``Who Wants to Be a Millionaire?''

It's no wonder employees are worried even with economic times as good as they've been in a generation.

``If there ever was a good time to be out looking for a job, this is it,'' Challenger said. ``If someone loses a job at Disney, they're likely to have a valuable pedigree. Those people are going to find good new jobs.''