TWDC Earnings

[ford91exploder]

I like that he criticizes the current US administration while at the same time calling for China like persecution standards.

It's a good thing criticizing the government in China always turns out well...

No - only that we have punishments which fit the crime,

Stealing a few million people's retirements, spending 2 years raking the bunkers at Andrews AFB and keeping the money you stole and living in luxury the rest of your life does not fit the crime.

A fair trial, conviction, appeals and then a death sentence or life in solitary confinement do fit the crime.

 

[MichWolv]

We're commenting on Iger's quote from the earnings call:

"Our parks people in Walt Disney World believe during the peak holiday season that we were able to accommodate about 3,000 more additional guests in the Magic Kingdom per day thanks to MyMagic+."

I have no idea how this is measured, as I have no insight into the prep for the earnings call. However, way back when what became FP+ was being announced, the way this could enable the parks to accommodate more people was clear.

There are always, even at busy times, parts of the parks that are not being used to full capacity. A theater attraction where not every seat is full, a ride where some cars go out empty, a restaurant with empty tables, etc. If Disney could get people to alter their schedule to utilize those empty spots, more people could be accommodated. How could FP+ do that? Consider normal rope drop activity of running for fastpasses and/or running to a popular ride to beat the crowds. If you already have your FPs or can reserve your time on the popular ride either ahead of time or right when you arrive at the park, maybe you go do something else instead, like hit up Philharmagic when the theater would otherwise be half empty. More efficient use of existing capacity.

Or consider the guy who wants to hit up MK for Space, Splash, and Thunder, and that's about it. Instead of going to the park and having to deal with 1 FP at a time or waiting in standby lines, he can preschedule the three things he wants, and spend less time in park to do what he wants. He is accommodated in a more efficient manner, allowing the gates to reopen quicker. Or consider the family with little ones that needs to hit up characters, Dumbo, IASW, Winnie the Pooh, and Peter Pan. If that family can prearrange those things, they are in and out quicker.

As I said, I don't know if that's really what happened or how it was calculated, but it is certainly plausible for a such a statistic to occur. Indeed, I think that was the GOAL!

 

[MichWolv]

But as long as the company is 'making' money who would call them on it, I really wish the SEC would investigate wildly profitable companies with the same scrutiny that companies generating large losses incur.

Disney's occupancy claims defy the ghost towns that are the larger resorts these days, AND lots of people are renting cars because of the pricing of car rentals in the MCO market, One of the few places in the US where car rentals are more expensive is Silicon Valley.

In short I'm having a problem reconciling the ground truth with the numbers Disney is putting up, Yes the parks ARE full, the resorts ARE NOT with the exception of the values.

The SEC looks at company disclosures in two distinct streams (there are actually more, but I'll focus on the major ones).

First, there is the review by the Division of Corporation Finance. This is routine, and happens to all companies. Selection is based on a number of characteristics, but largely based on market capitalization? Why? Because the SEC is there to protect investors, so it focuses this part of its activities on those companies where investors have the most money at risk. A company the size of Disney is reviewed every year. This review consists of SEC reviewers reading the filings in question, looking at other publicly available information about the company and its industry, and then asking questions, through a "comment letter" to the company, if the SEC decides there are sufficient questions to make a letter worthwhile. These comments can deal with accuracy of disclosures, appropriateness of accounting, compliance with legal requirements of being a public company, etc. Profit or not doesn't factor into the selection, nor the questions asked.

The second stream is an investigation by the Division of the Enforcement. This is an activity that is only undertaken if there is some credible suggestions or evidence that a problem exists, rather than just speculation or theories (For example, "Disney says that hotels are full, but the parking lots are always empty" or "McDonalds says same store sales are up, but none of my friends and relatives go there because of health concerns"). Sometimes the credible evidence of a possible problem comes from the routine comment letter process I describe in the previous paragraph. Other times from tips, other times from whistleblowers, other times from evidence that comes out of shareholder lawsuits, etc. The SEC does not screen those based on whether the company is profitable or not. However, there are probably more tips, lawsuits, and whistleblowers that comes out of the woodwork when people lose money than when people are making money. The SEC could, in response to this obvious tendency, open investigations of wildly profitable companies just on the reasonable belief that some portion of them are probably screwing around but nobody is complaining about it because everybody is making money. But that would be akin to the government investigating rich people because some of them likely got rich by nefarious methods. The SEC probably has the power to do it anyways, but that isn't the way we generally want our government to proceed.

So the SEC balances its activities. About an equal amount of resources are devoted to the regular reviews by Corp. Fin. as to investigations by Enforcement.

 

[MichWolv]

As much as I hate to agree with Jimmy, this is how I interpreted what Iger was saying when I listened to the call yesterday. If the popular rides were not running at 100% capacity for the entire time the park was opening, MM+ could be helping to distribute people into times when the ride wasn't at 100%.

Not just the popular rides, of course. An empty seat in the Tiki Room is the same as an empty seat on Space Mountain in terms of capacity utlization. If you can take somebody who would otherwise by criss-crossing the park to get FPs, and let them watch the Tikis instead, filling a seat that would otherwise be empty, you have the holy grail. The park looks and feels less crowded, a higher percentage of people are enjoying attractions vs. traversing the park, the capacity of attractions is being used rather than wasted.

 

[MichWolv]

I'm as jaded as anone else here, but jmcl07 is absolutely correct on this point. Financial statements and balance sheets are thoroughly audited by independent firms. And regardless of what you think of "bean counters", they've got reputations and careers to protect. Their salaries aren't being paid by TWDC.

If one of them discovered dishonest reporting at a public company and didn't take it to the SEC, they'd be risking they're jobs and their tickets.

This is indeed true, to some extent. A bit of context...

Auditors opine on whether the financial statements comply with applicable standards. An audit is not simply a check-the-box activity where they see if the numbers pass the smell test. Instead, the auditor is required to gather sufficient evidence to say that he/she/the firm believes that the presented numbers ARE appropriate under the standards. It isn't just saying that the auditor has no reason to disagree -- the requirement is higher than that. It is to provide ASSURANCE than the number are appropriate. No auditor that isn't on the take (and the situations where that has occurred are so rare as to be virtually nonexistant when it comes to large US public companies) is going to let a known misstatement slide.

However, the room count figure that we are discussing is NOT part of the financial statements. The financial statements themselves generally are about half of the volume of an SEC filing. The rest of the filings is made of information the company is required to disclose but is not subject to accounting standards and requirements. For example, some of the best information in a public filing is in a section called "Management's Discussion and Analysis". This is the place where management describes the results of operation and tells readers what it thinks is important to understanding those results. For the parks and resorts segment of Disney, room occupancy statistics would be a common measure by which operations would be evaluated and thus, most hospitality companies do report such a measure.

That measure, however, is not subject to accounting standards, is not included in the financial statements, and therefore is not covered by the auditor's report. The auditor's responsibility for information in the filing but not in the financial statements is to read that information and consider whether the auditor has information indicating that the information is incomplete, misleading, or inconsistent with financial information. This is a lower level of responsibility. For the financial statements, the auditor must do whatever work is necessary to enable the auditor to conclude is to whether the information is correct or not. For the rest of the information in the filing, the auditor simply reads it and considers whether it knows of anything that would indicate a problem with that information -- the auditor is not required to perform any additional work to verify the accuracy of that information.

That, however, doesn't mean management can say whatever it wants. While MD&A is subject to very few specific requirements, the requirement is that all material information be disclosed, and that information disclosed not be misleading. The Sarbanes-Oxley Act introduced a requirement that the CEO, CFO, and CAO of public companies sign certifications that the information in the filing is not misleading. Falsely signing a certification (i.e., saying the information is correct when you know some of it is misleading) has civil and criminal implications.

I could go on, but this is probably long enough for now!

 

[MichWolv]

It is important to note that these accounting firms and partners are liable just as the CFO and CEO are in these violations. An accountant doesn't care about the bottom line if it means they could have their life destroyed because they signed off on your deception.

Indeed correct. No auditor with a big firm is going to knowingly let incorrect reporting go through. The benefit isn't nearly worth the risk. And auditors are trained in evaluating risk. Sometimes auditors let bad accounting go through because they don't realize it's bad accounting (and many of those times, they should have realized it), but knowingly letting fraud go through...no.

However, the line that other have suggested auditors may cross is a really a very fuzzy line. The ethical problem for auditors isn't whether to allow bad stuff go through -- the answer is no and that's easy. The ethical problem is when there are multiple potential interpretations of the standard and the company has used one different from the one the auditor prefers. The auditor must then figure out whether the difference is just a reasonable good faith different view of the best way to report a matter, or whether the difference is an impermissible attempt to deceive (of course, there are many gradation is between those ends). Sometimes auditors make the wrong judgments here and sometimes that is because they try to heard to see it their client's way.

 

[MichWolv]

And if they won't sign off on it, they'll be fired & replaced by someone who will

Nope. The reporting requirements in that situation are red flags and the company would be nailed in the markets. Little companies might pull something like that, but not a major public company.

 

[MichWolv]

There are a series of steps one must take to be covered by Whistleblower protection. Once you initiate the steps toward protected status, you are a threat to the company and become a liability to the company. Any HR department worthy of a paycheck will have you released long before you see protected status.

Once you have the knowledge of wrongdoing, there is virtually nothing the company can do to stop you from having protection under the laws.

 

[MichWolv]

Thanks,

I knew about KPMG - But let's face it 8.2M of the companies money is a drop in the bucket.

What I want to see is c-level executives paying the fines out of pocket AND doing 5-10 in Supermax not raking the bunkers at Club Fed. A few instances of this sort of prosecution would go a LONG way towards cleaning up corporate bad behavior.

The Chinese have the right idea they simply shoot the miscreant and bill the miscreant's family for the expended cartridge.

I'd have liked this if not for the final sentence. I agree with the rest.

 

[jakeman]

I'd have liked this if not for the final sentence. I agree with the rest.

Is it because it's technically stealing so we should just cut off their hands?

 

[MichWolv]

I would say we have to ASSUME the SEC filings are accurate, Because there is no whistle blower protection in the US we usually don't find out about falsified SEC filings until the company blows up at which point it's far too late.

It's been my opinion that public companies should undergo unannounced SEC forensic investigations at least once every 5 years, Doing this would go a long way towards restoring investor confidence and would help the market long term.

An example of this is Bernie Madoff had a cursory investigation by the SEC in 2000-2001 at which point his ponzi scheme had been running for 20 years, It was only in 2006 when his firm blew up that a THOROUGH investigation was initiated. As a result investors lost 18 BILLION dollars, Harvard lost a billion from endowment right there.

Bernie Madoff was one of the most trusted people on Wall St, He was the COB for the National Association of Securities Dealers for crying out loud.

We don't have to assume that the filings are correct. We may assume that they are false if we so choose. History suggests, however, that they are usually accurate. And there is whistleblower protection. Whether it works well enough...don't know. By it's better here than elsewhere.

As for the announced forensic investigations, this goes to my post a few above this one (which I made before reading you comment here). That COULD be done, and is done for brokers and investment advisers who actually hold client money because of fears that they could literally steal investor's money (don't get me started on Madoff). But doing it for public companies without any evidence of wrongdoing would require a major change that would have major implications:

1) We now have investigations without any probable cause. Sure, we could call it a requirement to enter the public capital markets and avoid the constitutional problems (unreasonable search, etc.) it would cause, but it would be a huge change in the way we think.

2) We already have by far the toughest securities regulation in the world -- nobody comes close except for the province of Ontario. Adding another huge expense to being a US public company (even if taxpayers paid for the investigators, the company must deal with the intrusion, pay its people while they are complying with the investigation, etc.) will drive companies away from the US markets. That will be a disservice to investors generally, as it will mean these companies raise capital in jurisdictions with less protections that the US currently has. Investors in US markets will also be hurt because costs borne by the company are borne by investors. The trade-off is a difficult one to judge -- improved reliability for greater cost. Investors have typically not been supportive of such a requirement (yes, it has been considered).

3) Who is going to fund the government investigations. Will it be government employees or will the government hire private companies to do the audits? And who shall pay for them? If it's the companies themselves, that's one more thing to drive companies away from the US market -- see above. If it's taxpayers in general...good luck.

 

[MichWolv]

I saw about $300 Million in debt missing. For starters

You did? Where?

 

[MichWolv]

I'm advocating a periodic forensic SEC audit for EVERY public company not just TWDC,

For TWDC specifically TWDC has had no organic growth for a LONG time, yet 2012-13 revenue up 9% and profit up 17% year over year - rationale is quite simple if it looks to good to be true it usually is.

And that's exactly the kind of analysis that has been proven to be invalid. Revenue up 9% and profit up 17% for a company that (pretend parks and resorts are all there is) increased admission prices at it's theme parks by an average of 7% and says that room occupancy is up, while we know they are not spending extra seems dead on correct.

My simple rationale is even better than yours, but neither credible evidence either than something is wrong or that it isn't.

 

[MichWolv]

I also have worked with KPMG and PWC and I would consider them above reproach however for every KPMG there is a Arthur Anderson waiting in the wings.

Too much for me to respond to directly there. If there was a dislike button, I'd have used it, so this is it.

 

[ParentsOf4]

As I said, I don't know if that's really what happened or how it was calculated, but it is certainly plausible for a such a statistic to occur. Indeed, I think that was the GOAL!

One of the early suggestions on these threads was that FP+ would be used to manipulate guest behavior into riding attractions that they otherwise might skip. (Something Disney has tried in the past with “bonus” FastPasses.)

The difficulty in reconciling this with FP+ is that most popular attractions cycle with all capacity used. Attractions such as Hall of the Presidents or Carrousel of Progress might have unused capacity during peak holiday season (as Iger specifically mentioned) but they don’t have FP+. Therefore, it’s challenging to envision how this could be used to claim that Disney was “able to accommodate about 3,000 more additional guests in the Magic Kingdom per day thanks to MyMagic+.”

MM+ does not increase the physical size of MK. It does not add ride capacity. It does not increase restaurant space. It might let guests enter the park a few seconds faster but when MK is in a phase closing as happens during peak holiday season, faster entry into the parks is not a factor.

One possible interpretation of the “3,000 more additional guests” claim can be reached by taking into account what Iger discussed next, namely FP+.

“What we are seeing there is substantially higher utilization of that product among our guests than we saw with the traditional FASTPASS. By the way by a wide margin.”

When comparing FP+ vs. FP, FP+ is able to accommodate about 3,000 more guests than FP. However, this is only because FP+ robbed capacity away from Standby lines.

The net gain of FP+ is 0, a concept that Iger did not disclose during the call, presumably either because he wanted to convince analysts that MM+ is beneficial or because he simply failed to grasp the concept of where FP+’s “substantially higher utilization” came from.

Something else I've considered is increased staff. Simply put, WDW reportedly has hired additional CMs to support MM+. Might the claim of 3,000 more guests accommodated simply be a reflection of more employees on hand (as a result of MM+) that allow for more guests to enter the park? In other words, is MK's capacity at least partially determined by a minimum CM-to-guest ratio?

 

[Monty]

Somehow the concept of people without access to concrete data challenging or arguing the conclusions reached by people have with access to that data strikes me as amusing.

 

[fillerup]

I saw about $300 Million in debt missing. For starters

Really? No one likes missing debt - least of all the readers of these boards. Could you be a little more forthcoming and direct us to where you've discovered this missing debt?

Thank you.

 

[sshindel]

Really? No one likes missing debt - least of all the readers of these boards. Could you be a little more forthcoming and direct us to where you've discovered this missing debt?

Thank you.

I wish my debt would go missing. I seem to have lost a few thousand dollars last trip to WDW. I don't know what happened, I show up at the gates and the next thing I know, I have a car full of merch and I'm in debt!

 

[Jimmy Thick]

I saw about $300 Million in debt missing. For starters

You have access to TWDC book's and know for a fact there is 300 million dollars in debt missing? I would assume it would be in your best interest to report your findings to the SEC as that would be front page news and could garner you notoriety within the business sector and could make you famous/rich in the process.

Or you can not say anything, which Iam sure you will do because you simply do not have any proof and are just spewing internet hyperbole without anything of merit to back up such erroneous claims.

Feel free to prove me wrong though.

* Jimmy chuckles *

Jimmy Thick- Yep, the internet likes to bring out certain kinds of people.

 

[jlsHouston]

I think we all need to be a little cautious about putting our full faith and trust in any regulatory body. Doesn't matter if it's the BLM, the EPA or the SEC. I'm not sure how much we are all really arguing that the recent financial report is fraudulant or inaccurate versus it is the gospel truth of the condition or WDW's financial picture. I think everyone who loves WDW wants exactly what @ParentsOf4 discusses in his thread about the price of admission. We want value for the time and money we bring to WDW. We want to come "home" to new experiences and continue to create wonderful memories. Some of us are still consistently getting that when we visit the world and some of us are not and there are all sorts of reasons for the differences. Which I don't necessarily think it is as simple as saying oh well that's because you snort pixie dust or that's because you are a doom and gloomer.