disney/25"/mike1st/mark2nd

DAN TURNER

Staff Reporter

Long after most of the 12,000-or-so shareholders at last week's annual meeting had left to enjoy their free tickets to Disneyland, Walt Disney Co. Chairman and Chief Executive Michael Eisner abandoned his carefully scripted pep talk for a question-and-answer session, during which he made a somewhat startling acknowledgement:

"People are assuming that the Walt Disney Co. is going to keep growing at the same rate it has in the past," Eisner said. "We're having some problems with ABC, and I just wouldn't assume that."

Eisner, the highest-paid corporate executive in U.S. history, made the remarks in an effort to deflect criticism of his own 10-year employment contract, which ties his compensation to Disney's growth. He was trying to tell shareholders that his contract may not turn out to be as rich as some people think.

Eisner's public acknowledgement that the salad days at Disney may be leveling off is only one of many signs that the company has reached a crossroads in its evolution. Despite all the hype at last week's meeting and the robust performance of Disney stock, the company's earnings were actually lower in 1996 than 1995 the first time that has happened since Eisner arrived in 1984.

After increasing shareholder value at a compounded annual rate of 27 percent a year since 1985, Disney has attained a size at which that kind of growth is no longer possible, analysts say especially because of last year's $19 billion acquisition of Capital Cities/ABC Inc., which has a far slower growth curve than Disney's other operations.

"You're talking about a bigger, more mature, more complex company, and I don't think you could possibly expect them to maintain the 20 percent return on equity they've managed in the past," said Arthur Rockwell, research director at Yaeger Capital Markets.

Indeed, as Rockwell points out, one of the strongest indicators that Disney's upper management is preparing for a more down-to-earth era can be found in a seldom-mentioned aspect of Eisner's employment contract.

Eisner's compensation package has three main components: a $750,000-a-year salary, a bonus and stock options.

Under Eisner's 1989 contract, his bonus was tied to the company's return on equity (derived by dividing net income by shareholders' equity, which is the book value of the company). Under Eisner, Disney has achieved average return on equity of about 20 percent a year, bringing Eisner a bonus of $9.9 million in 1994 and $14 million in 1995.

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