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Some Analysts Downplay SEC Probe of Pixar

1 Sep, 2005 By: Erik Gruenwedel

The Incredibles

The Securities and Exchange Commission's (SEC) informal inquiry into Pixar Animation Studios' lower-than-expected second-quarter results is being characterized as much ado about very little, some analysts said.

The SEC wants to determine when officials at Emeryville, Calif.-based Pixar knew DVD sales of The Incredibles were off projections. The company on June 30 reported a $6 million reduction due to heavy retailer returns of the title — five days before it revealed second-quarter earnings and revenue slides of 64 percent and 60 percent, respectively.

John Coffee, professor of law at Columbia Law School in New York, said the inquiry doesn't necessarily mean there will be any court action or administrative proceeding.

“The SEC may be satisfied, or it may enter into some formal consent decree without any ominous provisions,” he said. “Any factor that could materially affect future earnings that had been recognized by management should be exposed. This is not a capital punishment offense, but I could understand why they would want to look at it.”

David Miller, analyst with Sanders Morris Harris in Los Angeles, characterized the matter as “much ado about nothing,” noting that demand for The Incredibles was overestimated by 7 percent. Miller said the SEC is including Pixar as part of a broader probe stemming from its original inquiry of DreamWorks Animation's overestimated unit demand for the Shrek 2 DVD prior to a planned secondary stock offering (since canceled).

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