Who is Meg?

[trr1]

and after a really massivse BlamingMeg I need an air freshner

 

[jakeman]

One is my sworn wdwmagic enemy.

I thought we worked that out and snuggled afterward?

 

[Jimmy Thick]

Jimmy Thick is fantastic. A gem to this forum. A great cure against intellectual complacency and groupthink. I do not want to see my views confirmed, I want them challenged. Thick does so with great zest, humour, and always without personal insults. Awesome. Falsification creates intellectual progress, unlike insulting and silencing minority opinions.

See, this is what we need around here, some honest facts.

From the Motley Fool - Article is a bit dated but nothing of substance has changed at Disney


Disney surely doesn't seem to be an Enron but recent events cause us to pause and wonder just how creative the auditors and financiers, accountants and executives have become nowadays at any major corporation.

Reading a paragraph about Enron in a recent Orlando Sentinel article, I in fact am reminded of Disney:

Within weeks of Lay's Sept. 26 reassurances to employees, Enron admitted publicly it had kept hundreds of millions of dollars in debt off the company's books in partnerships -- which were paying millions of dollars in fees to the Enron executives who ran them.

Has anyone ever came up with the answers to where the hundreds of millions of dollars Disney has payed out, is shown on the books? I think the answer is that the money isn't shown on the books. In fact, Disney makes no secret about the fact that it keeps secret, money paid out in "settlements", golden parachutes, and other sensitive "partnerships."

Katzenberg, All Star Sports, Ovitz, go.com and other debts that total billions of dollars in losses, seem to mysteriously never make it into financial reports for shareholders.

Now the comparison to Enron here is that there does seem to be accounting practices designed to present an incomplete picture to investors. A willingness is being demonstrated to pull the curtain on certain financial practices and provide more of a show, than accurate numbers for shareholders.

Just how many hundred-million dollar or quarter-billion dollar screwups can a company keep off of the books while bragging doctored corporate spreadsheets, can an organization withstand? Even the go.com partial-billion dollar debacle was presented as not really affecting the bottom line. "One-time charges" is a term designed to actually make a quarter-billion dollar loss, help boost stock prices. That's how screwy things have gotten. The idea is that when doctored results show less-than-expected losses even though there was a major charge, that it reflects tremendous potential for the next quarter's results that won't include the charge. The result? Favorable market reaction to a half-billion dollar loss. You can't get much more creative than that.

Enron's shares plunged to the pennies range from being right around where Disney's are today. It's a scary thought but it can happen virtually over night when losses are so seamlessly blended...a practice that does seem to have some similarities at Enron & Disney.

We talk about the possibility of a takeover at Disney. I don't think any organization in their right mind would buy Disney right now, struggling as they are. And with what only God and a handful of executives at Disney know in terms of how many billions of dollars in lawsuits and failed financial ventures, has been conveniently kept from the public ledgers.

Is it possible that Disney is the next Enron?

Probably not. But Enron may bring to question just how mainstream some of their accounting practices are. They didn't invent creative financing, they just got caught.

Disney is normally believed to be an upfront company so it would not surprise me if they did something unexpected like came out and showed exactly where they do stand financially, all losses considered. It would probably make for an initial stutter in stock prices but would instill a renewed faith in the company. It would be a sign that Disney intends to confront any weaknesses publicly and head on, in these times when Fortune 500 companies are coming under scrutiny for smoothing over real performance. But eventually, the scandalous practices build a corral around a company's finances and manufactured results reach their limit. It boils down to a time when the only thing that will allow the charade to continue, is arbitrarily writing fictitious numbers down and presenting them as real performance.

Not that what Enron, and other large corporations don't do that every quarter to some extent. But the public, creditors, the media, fans, stockholders and analysts can't be fooled forever. When almost all of them are crying foul, as seems to be the case with Disney and increasingly so, it may be a sign that the proverbial doo-doo is ready to hit the fan.

Also this,

http://mountainmentorsassociates.com/files/Lesson_IV_-_Assessing_Debt_Capacity.pdf

I'm finding it a bit unsettling that so many academics and others see similarities to ENRON in Disney's day to day operations and how any project which requires CASH like construction of new attractions is dragged out over months and years.

Lets face it that's not how organizations which are flush with cash operate, no they want the new revenue driver online as fast as possible to extract the maximum value from it.

Links to years old articles that are completely irrelevant?

Here, try this one.

Look up debt to equity ratio, see where Disney is at and then compare it to Comcast, see who is better off.


Jimmy Thick- Next thing you know, people will pull up old articles about the hostile takeover attempt from 1984...And blame Meg...

 

[Jimmy Thick]

Guess you skipped the part where I said the place was a nostalgia factory. The parks haven't been adding anything that could be considered a game changer, they haven't done much to prove that they are the best at what they do. Face it the parks are only successful now because of what was established, not what current Execs are doing. Disney is like batman, even when its bad it is still going to make tons of cash, that doesn't mean the material is any good which is what we are arguing, and what you fail to understand.

Sped2424- Some people just don't like to read...Also why am I putting an after thought as a quote from myself?

So basically people are only going to the parks because of nostalgia? You think the general public is that easily lead like sheep to spend countless thousands to go to Disney World because they can't make rational decisions but decisions based on nostalgia?

Come on now, that's ridiculous.

If the current execs were doing a bad job, or if they were offering a substandard product, the public would notice and speak with their hard earned cash. Its easy to jump on a internet bandwagon and denounce how bad the parks are or how the quality is slipping or how its all Meg's fault, but when WDW's attendance keeps going up year after year, you kind of have no legs to stand on in that regard. People, and believe me I know people as a public servant, and not fools, they won't spend thousands of dollars and keep going back if they don't feel they are getting their monies worth. I understand completely the whole situation, Iam the majority here, as the millions of happy guests at WDW can attest.

The problem is, Disney is not spending/ building rides in Florida like Universal. The fact is, Disney does not have to, they don't have to because they have the superior product. Millions upon millions just can't be wrong. Talk about slipping quality, Meg or whatnot, Disney is better because they offer the better product, its that simple.

Jimmy Thick- Meg should be congratulated for the amazing job she did.

 

[Phonedave]

What is the point of having a president of US and European parks and resorts with no decision making abilities or responsibility? What is the point of having a president of Walt Disney World or Disneyland Resort with no decision making abilities or responsibility? The way some people paint it the shift manager at the local fast food joint makes more decisions than presidents in Walt Disney Parks and Resorts.

Because it happens slowly and without notice.

I happen to work for a company in the same size range and product breadth as Disney. In fact DIS is one of the companies that is reported on the Stock Crawl that goes through our cafeteria.

one of the things that executives try very hard to do is initiate change. I have been through more change management programs than I can remember. It is extremely hard for a large company to be nimble. Many try, and there are differnt things that can be done to create nimble areas of a corporation, but it can be tough.

Another thing to remember is that publicly traded companies are beholden to their investors and the street. You can talk about vision, and what Walt wanted, and dreams till the cows come home, but miss a metric that the street was expecting and your stock rice will tumble, your rating will fall, and the cost of capital (to build things like a spiffy park expansion) will go up. When the street says "why did you miss your EBIDTA this quarter" a valid answer is not "we painted WDW and all the fans are happy now".

-dave

 

[lazyboy97o]

Another thing to remember is that publicly traded companies are beholden to their investors and the street. You can talk about vision, and what Walt wanted, and dreams till the cows come home, but miss a metric that the street was expecting and your stock rice will tumble, your rating will fall, and the cost of capital (to build things like a spiffy park expansion) will go up. When the street says "why did you miss your EBIDTA this quarter" a valid answer is not "we painted WDW and all the fans are happy now".

I have a hard time just blaming Wall Street. Other companies seem to be able to sell experience despite its inability to be financially quantified. I look far more to the Company and their internal decisions that reframed the parks from being an experience venture to a marketing and retail venture.

 

[copcarguyp71]

If the current execs were doing a bad job, or if they were offering a substandard product, the public would notice and speak with their hard earned cash.

I have noticed and have opted to go to a different venue (No, not Uni) in lieu of forking over my money to TDO. I am not alone in this but believe whatever you want. I had a trip of a lifetime (for our income bracket anyway) planned staying at the Contemporary theme park view where I have wanted to stay since I was seven years old on my first trip. Heck it was even a write off if we went in October 2014 as there is a convention I could attend in Orlando and even in light of the total write off we discussed it after our trips in 2010, 2012 and 2013 and felt that the overall value had dropped below what we felt was acceptable due to substandard showmanship and experience.

I respect your opinion Jimmy I truly do but you make it sound like nobody is truly dissatisfied and all of us come on here to spew venom like a child with a supersoaker when in fact my critical commentary is out of what is now versus the cherished memories I have of what was then...

 

[MichWolv]

No doubt it's still possible to do, but it's now looked for. It's no longer a grey area in the rules. I'm the first to say accounting fraud will always exist and can never be fully prevented, but when something as big as Enron goes down the issues surrounding it will get so much attention nobody will try to repeat that again. They will get caught. Think of it this way, what are the odds that anyone with a box cutter gets away with hijacking a plane again? Terrorism will still exist, but most likely in a different form.

Another thing to consider is that what Enron did with SPEs was technically not against the rules so Arthur Anderson allowed it. If a company does this today their audit firm would have to sign off on it. Nobody who paid big bucks to buy into a partnership is going to risk signing off on that knowing if things go south they will be left holding the bag. If/when the next "Enron like" accounting fraud goes down it won't follow the Enron play book. There will be a new game played with some other grey area.

I know far too much about the Enron situation to let all of this go.

1. While it would be lovely if it were true that nobody is doing what Enron did because Enron got caught, it isn't true. Virtually the same crap is being done, some of it being caught, and some, no doubt, not being caught. I gave many speeches lamenting the fact that even after Enron, I continued to see the same kind of games being played.

2. When Enron did with SPEs was indeed against the rules. The Arthur Andersen audit team was not aware of all of the facts surrounding the transactions. Some of the key facts were purposely withheld from Arthur Andersen. Whether the auditors should have realized they didn't have all the facts is another matter...

3. Auditor's today are signing off on off-balance structures all the time. The problems that caused the credit markets to crash in 2007-8 were facilitated (although not caused) by off-balance sheet accounting structures in which mortgages disappeared from banks' books while risks remained. Whether the accounting was against the standards of the time is a matter of some debate. I would say that most of it was not a violation of GAAP, and that's why auditors signed off on it.

4. The next "Enron like" accounting fraud has already happened.

 

[MichWolv]

This thread has taken a turn for the worse so why not a little tangent. Full disclaimer: we are about to enter into the world of accounting rules and SEC reporting. Turn back now if this stuff bores you.

Back in the days of Enron the official SEC requirement was that if a company owned 50% or more of a subsidiary they had to consolidate the subsidiary on their balance sheet. However, a loophole was created that was never fully endorsed but also never stopped by the SEC or FASB that allowed something called a special purpose entity (SPE) where a parent company could own up to 97% of a subsidiary with as little as 3% owned by outsiders and the subsidiary could still be considered independent and so there was no requirement to consolidate the subsidiary's balance sheet for the parent company. This practice had been going on since the 80s or earlier but became popular in the 90s.

Enron took it to a whole new level. They would set up these SPEs and have executives and friends of executives become the 3% outside owners. In many cases the 3% equity contributed by these "outsiders" was borrowed from Enron so in reality Enron was funding 100% of these SPEs. Because of the loophole Enron could borrow millions and maybe even billions of dollars that were never recorded on the balance sheet of Enron as debt. The investment banks fell all over themselves to lend money to these SPEs since they were usually backed by Enron stock - basically if the SPE failed and the debt was left outstanding then the banks got Enron stock. Often times the SPEs would have fictitious revenue - 97% of which went back to Enron as earnings from subsidiaries. When the whole house of cards came tumbling down these SPEs and the Enron shares that backed the debt became worthless with the rest of the business.

This is only 1 of the many ways Enron fooled everyone. One of the positives that came from the whole Enron situation is new accounting rules on consolidations. FASB issued FIN46R as a direct response to Enron. It focuses on variable interest entities and a whole lot of boring accounting stuff, but the gist of the thing is you can no longer get away with not consolidating a subsidiary and SPEs are no longer a viable way to hide debt. It is very unlikely that TWDC is hiding debt in SPEs the way Enron was.

Excellent description.

To reference my previous post, you have laid out precisely one of the key facts of which the Arthur Andersen auditors were unaware -- that some of the 3% was borrowed from Enron. With that fact, Enron failed the 3% test and had to consolidate.

This is a different issue all together also covered by different accounting rules. If a company is facing potential litigation loss and the loss is both probable and you have a good estimate of the amount it must be booked immediately as an expense and an accrued liability on the balance sheet. If the loss is "reasonably possible" then you aren't required to book an accounting entry but you must disclose the potential loss and an estimate or range of losses in the notes to your financial statements. If a loss is remote then in most cases do nothing. For Disney in each of the cases you referenced they would have expensed these settlements long ago so there would be no mention of them on the current financial statements. The point is it's very unlikely TWDC has material "secret" settlements that don't in some way pass through the financial statements.

Another excellent description. I am sensing that you are more of a technical accounting geek than I had previously realized. I'm not the only one around here, I guess!

This particular area is one where I believe companies routinely disclose less than they should. While I am confident that loss accruals are generally being recorded when they should be, I don't believe that disclosures of "reasonably possible" losses are being made in the manner and to the extent required by GAAP. That's not specific to Disney, but a general observation.

 

[Phonedave]

I have a hard time just blaming Wall Street. Other companies seem to be able to sell experience despite its inability to be financially quantified. I look far more to the Company and their internal decisions that reframed the parks from being an experience venture to a marketing and retail venture.

It all boils down to the Street - in the end. Where it becomes the executives fault is when there is an inability to communicate vision to the Street. If I am an executive, and I have a track record of making innovative changes and selling experience that generates a positive return - and here comes the key part - and I can demonstrate that to the Street - then the Street will respond in kind. Despite the anecdotal reports on this board, and what seems to many to be the relationship between experience and return, that is not what counts at shareholders meetings - what counts are facts, past history, and market research. Now, if the senior executives don't have the ability to sell an investment in experience to the Street, then THAT is their failing. It takes a lot of skill, intellegence, charisma, and yes guts to sell the Street on a long term, capital intensive project that is not expected to show returns for a number of years - but it can be done (i have seen it done before my own eyes). If Disney executives cannot make that sale, then that is their shortcomming.

I don't know enough about the inner plans of DIsney Executives (and doubt many here do) to know if they are let experience slide because they canoot prove it has a net return, they have something else that has a better return, they have the inability to sell the program to the Street, or some other combination of the causes.

-dave

 

[GoofGoof]

Excellent description.

To reference my previous post, you have laid out precisely one of the key facts of which the Arthur Andersen auditors were unaware -- that some of the 3% was borrowed from Enron. With that fact, Enron failed the 3% test and had to consolidate.



Another excellent description. I am sensing that you are more of a technical accounting geek than I had previously realized. I'm not the only one around here, I guess!

This particular area is one where I believe companies routinely disclose less than they should. While I am confident that loss accruals are generally being recorded when they should be, I don't believe that disclosures of "reasonably possible" losses are being made in the manner and to the extent required by GAAP. That's not specific to Disney, but a general observation.

In a past life I worked in public accounting. I'm now working for one of Enron's former competitors running their derivative accounting group. It's about as technical and geeky as accounting gets. Lets put it this way, my obsession with Disney actually makes me cooler...yep, that geeky.

I agree that a lot of companies (especially in the energy space) still play with SPEs and there are valid business reasons to do it. The difference now is they are mostly being forced to either consolidate the entities or at least disclose their existence. Since the Federal Government decided to use tax credits as a way to encourage developers to build "green energy" projects you end up with a lot of crazy and complicated legal entity structures. A lot of the entities who want to develop these projects don't actually have net income so they don't pay taxes. You need to bring in a partner or multiple partners with a tax appetite large enough to consume your renewable energy tax credits.

 

[The Empress Lilly]

In a past life I worked in public accounting. I'm now working for one of Enron's former competitors running their derivative accounting group. It's about as technical and geeky as accounting gets. Lets put it this way, my obsession with Disney actually makes me cooler...yep, that geeky.

That's hilarious!

 

[englanddg]

Because it happens slowly and without notice.

I happen to work for a company in the same size range and product breadth as Disney. In fact DIS is one of the companies that is reported on the Stock Crawl that goes through our cafeteria.

one of the things that executives try very hard to do is initiate change. I have been through more change management programs than I can remember. It is extremely hard for a large company to be nimble. Many try, and there are differnt things that can be done to create nimble areas of a corporation, but it can be tough.

Another thing to remember is that publicly traded companies are beholden to their investors and the street. You can talk about vision, and what Walt wanted, and dreams till the cows come home, but miss a metric that the street was expecting and your stock rice will tumble, your rating will fall, and the cost of capital (to build things like a spiffy park expansion) will go up. When the street says "why did you miss your EBIDTA this quarter" a valid answer is not "we painted WDW and all the fans are happy now".

-dave

Right, well...as an analogy, that's like saying it's acceptable for a restaurant manager to lower the quality of food service either through poor food controls (rotation, dating, FIFO) and skimping on ingrediants (using 30 pepperonis instead of 42, using 2 oz of ham instead of the 3 the recipe calls for).

Then saying it's all ok because they met or beat their food cost goals for the period.

It's silly and stupid for management to think that way. Period. Using the "market" to excuse quality control losses when part of what you sell about your product IS THE QUALITY and the EYE FOR DETAIL (just watch pretty much any Disney promo video, or, for example, the Christmas Parade...they FLAUNT this!) is just stupidity and selfish, short sighted management in motion.

Period.

EBITDA is partially a promise made by management. They say to the investors "Here's what we have earned in the past, here's what we earned this year, and here's what we think we are tracking for the future"

If you make promises you can't keep, you probably shouldn't.

Going back to my initial analogy, if you have a food cost issue in a store, the answer isn't to start skimping on the quality and presentation of the food. There are other tactics which should be employed like pushing lower cost items, reworking the menu design, investigating vendors and price controls, auditing the HECK out of your inventories to be sure they are accurate (this is one I've seen over and over from BOH managers who leave off literally hundreds of pounds of stock because they don't count prep fridges or staging areas, or don't use a scale for measurement, rather try to eyeball everything)...etc. In the last case, they are being lazy, and therefore their final numbers are inaccurate, which in turn makes the P&L inaccurate.

Lowering quality though? That's just shooting yourself in the foot.

I'm a bottom line profit guy, coming from restaurants. My management skill is making the most while spending the least, both in investments and labor. I work for a salesperson. His skill is top line.

We had an interesting discussion over lunch once where I said top line is useless without the bottom line, and e made a valid point...without the top line, there is no bottom line.

Kill the quality...kill the top line. You can play that game for a period of time, sure, and things will look rosy...but eventually, it will catch up to you.

Wall Street be damned.

 

[Phonedave]

In a past life I worked in public accounting. I'm now working for one of Enron's former competitors running their derivative accounting group. It's about as technical and geeky as accounting gets. Lets put it this way, my obsession with Disney actually makes me cooler...yep, that geeky.

I agree that a lot of companies (especially in the energy space) still play with SPEs and there are valid business reasons to do it. The difference now is they are mostly being forced to either consolidate the entities or at least disclose their existence. Since the Federal Government decided to use tax credits as a way to encourage developers to build "green energy" projects you end up with a lot of crazy and complicated legal entity structures. A lot of the entities who want to develop these projects don't actually have net income so they don't pay taxes. You need to bring in a partner or multiple partners with a tax appetite large enough to consume your renewable energy tax credits.

Oh geeze, you used "space". You clearly are very much in the corporate structure. I work in a lot of "spaces" myself. That is one corporate buzzword that really gets to me for some reason.

-dave

 

[GoofGoof]

Oh geeze, you used "space". You clearly are very much in the corporate structure. I work in a lot of "spaces" myself. That is one corporate buzzword that really gets to me for some reason.

-dave

After 12+ years I have been assimilated. Being a corporate drone isn't so bad...they give us coffee in the morning and feed us at lunch time.

 

[Phonedave]

Right, well...as an analogy, that's like saying it's acceptable for a restaurant manager to lower the quality of food service either through poor food controls (rotation, dating, FIFO) and skimping on ingrediants (using 30 pepperonis instead of 42, using 2 oz of ham instead of the 3 the recipe calls for).

Then saying it's all ok because they met or beat their food cost goals for the period.
.

I never said it was OK. I explained how it happens.

The point is, simply saying "quality has a positive ROI so we are going to do it" does not work in a publicly traded company. You have to PROOVE that it has a positive ROI. Not only that, but you have to proove that it has a BETTER ROI than a different option. Good executives should be able to do that (if it is indeed true)

To use your analogy. If a Chef (The Disney Executive) comes up with a new dish and tells the owner (the Street) that it is a money maker. the owner is going to ask why. The Chef has to be able to speak to food cost, prep time, what line resources the dish requires, what ingredients in this dish can be used in other dishes and which ones are unique, current diding trends, how it fits into the current menu structure, etc. If all the chef can say is "come on, clearly it is a great dish" a responsible owner is going to think twice about implementing it. But, if the Chef can really explain it to the owner, can show that he has done is due dillegance, and can make the owner confident that it will be a consistent winner, then maybe the owner puts it right smack on the menu from day one.

Disney Executives (and all executives) need to be able to not only come up with good ideas, but sell those ideas to the Street as well.

-dave

 

[Phonedave]

After 12+ years I have been assimilated. Being a corporate drone isn't so bad...they give us coffee in the morning and feed us at lunch time.

I moved from a field management position to corporate staff about 12 years ago myself . They don't give us anyting, we have to buy it (we do have a nice cafetieria though)

-daev

 

[Marijil]

Gosh you people are misguided and never answered the OP....Meg is a citizen of Olympus who apparently fell for the wrong guy at one time and sold her soul to Hades to help him. The guy then screwed her over and left her in Hades' servitude. Her sassy and sarcastic exterior couldn't hide her good heart. She was eventually saved by Hercules who fell in love with her rapier wit and girlish figure. It's complicated but eventually she showed her true colors and Hercules was so in love with her that he gave up his status as a god to live with her and presumably marry her, after outsmarting and outmuscling Hades and breaking her lifelong commitment to the god of the underworld. She can be spotted very infrequently at Disney parks ....full name Megara...hope this helps

 

[unkadug]

Actually, Meg is a character from the book Little Women, a novel by American author Louisa May Alcott written between 1868 and 1869 in Concord, Massachusetts and Boston, at the request of Alcott's publisher.

 

[MichWolv]

In a past life I worked in public accounting. I'm now working for one of Enron's former competitors running their derivative accounting group. It's about as technical and geeky as accounting gets. Lets put it this way, my obsession with Disney actually makes me cooler...yep, that geeky.

I agree that a lot of companies (especially in the energy space) still play with SPEs and there are valid business reasons to do it. The difference now is they are mostly being forced to either consolidate the entities or at least disclose their existence. Since the Federal Government decided to use tax credits as a way to encourage developers to build "green energy" projects you end up with a lot of crazy and complicated legal entity structures. A lot of the entities who want to develop these projects don't actually have net income so they don't pay taxes. You need to bring in a partner or multiple partners with a tax appetite large enough to consume your renewable energy tax credits.

You and I should talk and compare notes. I bet we've both got great stories for the other. Derivative accounting is heady stuff. I wrote some of those standards.