FY2012 TWDC financial results

[The Empress Lilly]

It's always so refreshing to read somebody who really does know what he is talking about.

 

[Taylor]

It's always so refreshing to read somebody who really does know what he is talking about.

What are you talking about every single poster on here knows everything about everything, didn't you know that?

 

[The Empress Lilly]

What are you talking about every single poster on here knows everything about everything, didn't you know that?

We would all make excellent CEO's.

DISNEY WAKE UP THERE'S SO MUCH TALENT HERE REPLACE IGER NOW

 

[MichWolv]

The problem is that Disney's cap ex of $2,242M is not just in the domestic parks; it also includes DCL, Aulani, DVC, etc. Meanwhile, the 2 major park additions, Carsland and FLE, are now coming on line and cap ex for those are declining. The annual breakdown is not published but seeing that Disney intends to decrease cap ex by $1B in 2013, this gives us some idea of how much Disney intends to squeeze cap ex in 2013 and perhaps beyond. Fundamentally, WDW and DLR are incredibly expensive to maintain, never mind improve. A car does not increase in value because I bring it in for service but Disney is including this type of maintenance in its cap ex number. Looking towards 2013 while the cap ex number includes a lot more than just WDW, it seems likely that the cap ex number will be closer to $1.2B while depreciation will approach $1B. Given that WDW alone is valued at over $50B (depending on which estimate you believe) while the cap ex number includes a lot more than just WDW, in my opinion Disney is underfunding investment in the WDW theme parks.

I wasn't suggesting that Disney is spending sufficiently -- just pointing out that you can't get to that conclusion from looking at depreciation vs. cap ex.

As for what kind of stuff Disney includes in cap ex, generally accepted accounting principles require that routine maintenance be expensed, while additions that add to an assets useful life or expand its capabilities are capitalized. It would there be contrary to accounting princicples if Disney were including in cap ex things that are analogous to oil changes, tire rotations, etc. Something analogous to overhauling a transmission would, perhaps, meet the definition of a capital expenditure.

So, hypothetically (because I have no inside knowledge), a few examples from recent WDW history:

- knocking down the old tomorrowland skyway station should be expense, not cap ex.
- building the new restrooms at the spot of the tomorrowland skyway station would be cap ex.
- work done on Splash Mountain during annual shutdown to clean and fix effects should be expense
- Work done to add mermaids to PotC would, in theory, be cap ex.
- Cleaning of equipment and film for Soarin' should be expense (if they ever actually do it)
- Test rack refurb clearly cap ex
- Change Narnia into Jack Sparrow should be expense for taking out Narnia and cap ex for putting in Jack
- New animal habitat on KS should be expense for pulling out the poachers stuff and cap ex for fixing up the area to house animals
- Fixing up Country Bears should be expense, unless something was done under the hood that extends the life of the animatronics

 

[MichWolv]

True on the steepest decline in a year, but the stock hit an all-time high in October, and even with an 11.5% drop since then, closed Friday at a higher price than anytime in the Company's history prior to June of this year, so I don't think Iger is reconsidering his strategy yet.

And today Citi upgraded its target price on Disney to $54 from $50, so the market isn't frowning on Disney's moves much.

 

[asianway]

I wasn't suggesting that Disney is spending sufficiently -- just pointing out that you can't get to that conclusion from looking at depreciation vs. cap ex.

As for what kind of stuff Disney includes in cap ex, generally accepted accounting principles require that routine maintenance be expensed, while additions that add to an assets useful life or expand its capabilities are capitalized. It would there be contrary to accounting princicples if Disney were including in cap ex things that are analogous to oil changes, tire rotations, etc. Something analogous to overhauling a transmission would, perhaps, meet the definition of a capital expenditure.

So, hypothetically (because I have no inside knowledge), a few examples from recent WDW history:

- knocking down the old tomorrowland skyway station should be expense, not cap ex.
- building the new restrooms at the spot of the tomorrowland skyway station would be cap ex.
- work done on Splash Mountain during annual shutdown to clean and fix effects should be expense
- Work done to add mermaids to PotC would, in theory, be cap ex.
- Cleaning of equipment and film for Soarin' should be expense (if they ever actually do it)
- Test rack refurb clearly cap ex
- Change Narnia into Jack Sparrow should be expense for taking out Narnia and cap ex for putting in Jack
- New animal habitat on KS should be expense for pulling out the poachers stuff and cap ex for fixing up the area to house animals
- Fixing up Country Bears should be expense, unless something was done under the hood that extends the life of the animatronics

Are you talking about the Fantasyland Skyway station? Demolition costs are typically rolled into "land" and never expensed...

 

[GoofGoof]

Actually, free cash flow is typically (and definitely in Disney's case, per the release) calculated as operating cash flow less capital expenditures. So depreciation (and other things) are added back to net income to get operating cash flow, and then cap ex is deducted to get free cash flow.

That P&R is a huge driver of cap ex is, of course, true.

Yep. We are saying the same thing. The other person was stating that P&R net income was not as large as the TV segment. I was just pointing out that net income includes depreciation which is non cash so the free cash flow from operations is a better indicator of the segments results. Capital intensive businesses are typically judged based on EBITDA instead of net income. Disney as a whole is not, but the P&R segment really should be. In other words, cash is king.

 

[MichWolv]

Are you talking about the Fantasyland Skyway station? Demolition costs are typically rolled into "land" and never expensed...

Nope. I was taking about Tomorrowland a couple years ago, but it probably applies to FLand as well. When you buy land with a building on it, and demolish that building because you were never intending to use the building when you bought the land, the demo costs get loaded into the land. When you buy land, build a building, and later demolish that building, the demolition costs generally should be added to the land balance.

 

[flynnibus]

I pretty much agree. Eisner was a cheap SOB who was fanatical about cost cutting and had no real love for the parks, but he did have more creative vision and understood the concept of spending money for "show quality". Iger seems to be equally interested in cost cutting with no real creative vision. ABC and the networks are his baby.

You say this about the man who lead the parks through it's greatest expansion period ever.. over 3 different continents. Me thinks your generalizations are off.. by a galaxy or two.

 

[asianway]

Nope. I was taking about Tomorrowland a couple years ago, but it probably applies to FLand as well. When you buy land with a building on it, and demolish that building because you were never intending to use the building when you bought the land, the demo costs get loaded into the land. When you buy land, build a building, and later demolish that building, the demolition costs generally should be added to the land balance.

TL was a partial demo, rather than full-just making sure. They didn't really build new bathrooms there, so that would be trickier

 

[flynnibus]

You hit the nail on the head. I fear it may take that kind of attendance drop to get them to green light a DCA style makeover. It is short sighted thinking, but Iger is on his way out and everyone around him is probably more worried about keeping their jobs under a new regime to suggest taking a chance.

Doubtful - the scarey message in the reports is 'We made more money, but we aren't increasing profits...' and they didn't set a framework to calm the investors to say 'here is our strategic roadmap for short term investment for long term payback'. They did none of this. That says to me they will continue to look at trying to restore faith in the metrics in short term... by cutting expenses and raising prices.

 

[GoofGoof]

You say this about the man who lead the parks through it's greatest expansion period ever.. over 3 different continents. Me thinks your generalizations are off.. by a galaxy or two.

I'll give this a shot. Please don't respond back with some snippy, condescending rant. Let's try to have a mature, adult discussion.

No argument that Eisner was in charge during the growth period at WDW but that was mostly during the Eisner/Wells era. Eisner solo (his last 10 years) was not as successful. He started the cost cutting and maintence cutbacks and he was notoriously cheap with both the studio and the parks. When he liked an idea he would spend money on it, but he did not like to spend on day to day operations. Sure they added tons of hotel rooms which he believed in and MGM, AK, DCA and EuroDisney. Many would argue that MGM and DCA were a mess and EuroDisney is/was a financial disaster. The book Disney War paints a pretty good picture of Eisner and his role. Like I said, still better than Iger in my opinion.

 

[WDW1974]

Thank you for that perfect analogy! I have often marveled at the lack of polish and profesionalism at WDW Moderate and Deluxe hotels. They get away with front-line service staff like you'd find in a basic Fairfield Inn, or at best a decent Sheraton. But they charge prices like you'd find at a Ritz, or even a Mandarin Oriental if you are there at the wrong time of year. Amazing!

And this is something I've noticed at the West Coast Disney hotels too; most notably the Grand Californian where the only people to greet me with a smile and hello were the Spanish-speaking housekeeping staff I passed in the corridors. The English speaking desk clerks, bellmen and front of house staff pretend to not work in the service industry most of the time; they are too cool to provide gracious service, and Disney has not trained them well on how to even begin to do that if they have the inclination. Pay the same amount per night at the nearby Laguna Ritz Carlton, Montage, or Newport Islands hotel, and you are treated like royalty by perfectly turned out and polished staff, so it can be done in SoCal just as it can in any other big city at that price point. But not on Disney property, apparently.

Ending a mandatory transaction with a cheesy smile and "Have a Magical Day!" does not excuse all your other service deficiences and your lack of overall profesionalism.

I can't complain about the west coast hotels, although I've stayed at all many times but it's been years and I'd always stay on a CM or AP rate.

I will say WDW resorts that can average $300-700 a night for a standard room (5-star prices) generally provide $50-100 a night service (sometimes worse).

 

[WDW1974]

True on the steepest decline in a year, but the stock hit an all-time high in October, and even with an 11.5% drop since then, closed Friday at a higher price than anytime in the Company's history prior to June of this year, so I don't think Iger is reconsidering his strategy yet.

He never will. He's way too arrogant and he's kept Wall Street largely happy ... by the time his decisions long-term consequences are known he may well be running for Governor of NY.

 

[WDW1974]

You say this about the man who lead the parks through it's greatest expansion period ever.. over 3 different continents. Me thinks your generalizations are off.. by a galaxy or two.

Or three or four ...

 

[WDW1974]

Doubtful - the scarey message in the reports is 'We made more money, but we aren't increasing profits...' and they didn't set a framework to calm the investors to say 'here is our strategic roadmap for short term investment for long term payback'. They did none of this. That says to me they will continue to look at trying to restore faith in the metrics in short term... by cutting expenses and raising prices.

You have no idea what's coming ... although I've been spelling some of it out directly and letting others read between the lines.

Yep, gonna reinvent the WDW vacation ... and charge you through the to do it!
(but at least you'll be able to get a decent iced latte on MSUSA!)

 

[GoofGoof]

Eisner was an "interesting" character.

Eisner viewed WDW as an underdeveloped money-making machine. We owe him much for wanting to develop it. Eisner also had a close relationship WDI and was always interested in injecting himself into the design work. However, he also was notoriously cheap. He wanted MGM and DAK built but he was constantly looking for ways to cut corners. Even today, most people consider MGM and DAK to be incomplete theme parks in need of some significant additions. Eisner is largely the reason for this. Although I'm glad he turned the Epcot into a more kid-friendly park, there are a lot of people who feel otherwise. Compared to the other 3 parks, Eisner made only small changes to MK and it's an interesting observation that people's favorite park continues to be the one with the least amount of Eisner's fingerprints on it. However, he (along with Wells; it started before Wells died in 1994) is the one who pressured his staff to look for ways to cut WDW's maintenance budget. A lot of the physical problems at the parks today date back to decisions made by Eisner.

Euro Disney was completely Eisner's fault. His staff warned him away from Paris, recommending (I think) the much warmer weather somewhere in Spain. He wouldn't listen. He had spent some of his earlier years in Paris and some suspected his ego got in the way. He wanted to impress the Parisians with his brilliance by opening a Disneyland-style theme park nearby. It's still a financial mess.

He completely messed up DCA. It's only this year that DCA finally seems to be the right track.

He was tired of losing so much business to offsite hotels so we really have Eisner to thank for the many onsite hotels. Of course, he also gave us DVC and Celebration. People have mixed opinions of these two.

I love TL & BB, way better than River Country, but I'm not sure how closely he was involved in those.

I much rather have Eisner over Bob Iger, who doesn't seem to care. Eisner even cared about the paper cups! See this post:

http://forums.wdwmagic.com/threads/...he-parks-part-ii.770938/page-154#post-5127924

See if they didn't overthrow him you might still have printed napkins in the parks.

 

[ibaw]

It is very refreshing to read a thread where a large number of the people can speak knowledgeably about some of the financial landscape of the Walt Disney Company. I would remind many people here however, that WDW is part of an entertainment conglomerate and when upper management of the Company makes decisions they are considering the consolidated enterprise. Therefore, they sometimes take control out of the hands of those who manage the individual units. Now by no means am I supporting/defending decisions being made or on the other hand disagreeing with the decisions, I just laugh when I read a very intelligent post which looses all credibility by making a sweeping over generalization about big bad greedy TDO...

 

[flynnibus]

I'll give this a shot. Please don't respond back with some snippy, condescending rant. Let's try to have a mature, adult discussion.

No argument that Eisner was in charge during the growth period at WDW but that was mostly during the Eisner/Wells era. Eisner solo (his last 10 years) was not as successful.

Frank Wells Died in 1994. There was huge expansion well beyond that time. From Blizzard Beach, to the expansion of DTD, DAK, Test Track, M:S, Everest, numerous other properties just at WDW.. and lets talk about a whole new MK, second gates at three other parks... the DL Resort.. the Disney Cruise Line.. Disney's move into Broadway... and this is just stuff off the top of my head... all post-Wells and not even counting the first 10 years of Eisner's years.

While Eisner and his strategies changed after several misfires - it's undeniable that Disney under Eisner (yes, even post Wells) expanded exponentially unlike any time previous.. and hasn't expanded at that rate since either. Theme park fans want to focus on one little slice and often miss the bigger picture. We also forget at times Eisner wasn't the one running the parks.. It was the mismanagement of people like Pressler and Harris that put the screws to the park operations in efforts to boost their picture to their bosses.

 

[GoofGoof]

Frank Wells Died in 1994. There was huge expansion well beyond that time. From Blizzard Beach, to the expansion of DTD, DAK, Test Track, M:S, Everest, numerous other properties just at WDW.. and lets talk about a whole new MK, second gates at three other parks... the DL Resort.. the Disney Cruise Line.. Disney's move into Broadway... and this is just stuff off the top of my head... all post-Wells and not even counting the first 10 years of Eisner's years.

While Eisner and his strategies changed after several misfires - it's undeniable that Disney under Eisner (yes, even post Wells) expanded exponentially unlike any time previous.. and hasn't expanded at that rate since either. Theme park fans want to focus on one little slice and often miss the bigger picture. We also forget at times Eisner wasn't the one running the parks.. It was the mismanagement of people like Pressler and Harris that put the screws to the park operations in efforts to boost their picture to their bosses.

Good points. He definitely was in charge during an era of growth. While those are some good examples of his success, EuroDisney, DCA version 1.0 and that attempt at a park in Virginia were all misses under his watch. I still like both AK and DHS, but some argue that they are misses too since they are not complete parks. I don't agree with that. I did start by saying I preferred Eisner to Iger (not saying much). I am not totally dumping on him. He had his pros and cons. I definitely agree that he was not running the parks. He really was focused on the studio and then later the TV network. The parks were more of an afterthought. Like I said, when he decided something was worth doing he would poor money into it which is definitely more than can be said about the current management. This was evident by his move to build hotels rather than use Marriott to run them. WDW would not be the place it is today (the good and also some of the bad) without Eisner.