Originally Posted By leemac <<Ther will always be some differencs between companies but some things are goiverned by GAAP and framed by the way the company has it's individual assets accounted for.>> I'm not sure what point you are trying to make by referring to US GAAP. US GAAP is US GAAP - if management have their management reporting in accordance with the external reporting then they should be directly comparable - it is the non-GAAP measures that won't be. <<Lee, would you not agree that the positive cash input from DVC assists the overall company as well in it's financial standing with Moody's or whoever and increases it's ability to finance future ride projects at lower costs because of the equity? >> Actually no I wouldn't agree. DVC is short term-ism in the worst sense. WDW Co. gets to book the revenue upfront which is associated with a big cash inflow. However once the resort is sold out there is no additional points to sell. Personally I prefer the hotel model where you have consistent cashflow and revenue over the life of the property. The problem with DVC is that to continue to meet its revenue targets it needs to build new resorts until they saturate the market. Not sure what you mean by "equity" in that last sentence. The only impact that DVC sales have on equity is in retained earnings.
Originally Posted By leemac <<in today's economy Lee- if this was your family company and the jobs of hundreds of thusands of people depended on your decisions.. would you go back to the 'just because' method ?>> I'm not advocating that - but investment in the parks will continue to lag behind until Hunt's model is ditched. I've hated the model since it was first introduced. You need a more holistic approach that also includes intangible benefits that can't be measured in an income statement.
Originally Posted By vbdad55 The problem with DVC is that to continue to meet its revenue targets it needs to build new resorts until they saturate the market. --- I have stated that as a potential concern also -- however bond rates etc are as much set on snapshots in time as common sense. I too wrry about maintenance fewes being able to keep up-- I hope they had good actuaries as the cap it can raise by is minute.
Originally Posted By vbdad55 as far as accounting principles- you cannot mix operations funds and general funds in most accounting models
Originally Posted By leemac <<However the positive cash flow from DVC also impacts the companies ability to re-invest also does it not ?>> Yes and no. Ultimately you can either finance decisions by debt or equity. The cost of both is determined by your gearing. Cashflow in itself isn't a true indicator of the ability to reinvest. The issue is that you have two options - hotels or DVC. DVC sees a huge cash inflow until the units are sold out whilst you will see more revenue over the life of the building from a hotel (especially as DVC hotel's release inventory is sold at a very cheap rack rate usually). The problem is that WDW Co. is incentivized on short term financial (and non-financial) KPIs - it isn't smart and it isn't clever. I'm no DVC hater - but I do believe it has had a negative impact on the allocation of capital at WDW. It has become the heroin monkey and Jim Lewis will continue to ride that monkey until they kill their own market through oversaturation. Point rates are being discounted heavily again now and secondary market rates have collapsed - there isn't an unlimited market of DVC investors and I'll be amazed if they can continue on this clip.
Originally Posted By davewasbaloo Especially in this market where disposable income is depressed. I am wondering where the elasticity point is for DVC demand?
Originally Posted By vbdad55 <<in today's economy Lee- if this was your family company and the jobs of hundreds of thusands of people depended on your decisions.. would you go back to the 'just because' method ?>> I'm not advocating that - but investment in the parks will continue to lag behind until Hunt's model is ditched. I've hated the model since it was first introduced. You need a more holistic approach that also includes intangible benefits that can't be measured in an income statement ------------------------------ I don't have access to the model , so can't comment...but am glad unlike someothers who just want to build reagrdless there has to be some prudency as well. In today's economy very few people are investing in things that cannot be shown on a balance sheet as everyone is wtching everything. Investments viewed as risky could be an issue with large groups invested in a companies stock portfolio- and then withdrawls from that can affect stock price- ( we've seen that in the last decade) - of course the real trick is to invest so that the finished product is ready as close to 'recovery' time economically as possible- be ready to meet consumer demand when it arrives. Without a crysta; ball hwoever that is a crap shoot- and I have yet to see anyone bullish on when that recovery date will come around.Even the optimists are very cautious right now.
Originally Posted By leemac <<as far as accounting principles- you cannot mix operations funds and general funds in most accounting models>> You'll need to explain that to this CPA. Do you mean the accounting for the revenue from the initial sale and the maintenance dues? The latter can either be on a gross or net basis (gross means you book the revenue and associated costs and net is that you only book the profit element and cancel out the others). Typically you would do it on a net basis if they are entirely interdependent. Again I don't see what your point is - the accounting is the accounting.
Originally Posted By leemac <<however bond rates etc are as much set on snapshots in time as common sense.>> What do the bond rates have to do with it? WDP&R is able to borrow at the rates applicable for the credit rating of TWDC as a whole - the actual usage of the funds from the debt raising is rarely considered for a company with the standing of TWDC. Debt is debt.
Originally Posted By vbdad55 the money set aside/paid for maintenance dues- are you telling me it can be used for building a commodity ?
Originally Posted By vbdad55 Debt is debt. and cash is cash no ? Are you saying P/E ratio has no bearing on bond rates ?
Originally Posted By leemac <<In today's economy very few people are investing in things that cannot be shown on a balance sheet as everyone is wtching everything. >> Again your language choice is unclear. What investment can be made that doesn't appear on a balance sheet these days? An asset is an asset - there isn't much that can be appropriately accounted for off-balance sheet. There are impairment issues like with any asset and those decisions are taken in accordance with an appropriate formula like DCF. I didn't expect to get into an accounting discussion on LP today that is for sure.
Originally Posted By leemac <<the money set aside/paid for maintenance dues- are you telling me it can be used for building a commodity ?>> Let me spell it out for you nice and clear - the accounting for the dues is irrelevant - it is governed entirely by the contract. If the contract states that it will be used for maintenance then that is what it will be used for. I suggested that there was an element bound up in that for management fees etc. that I suspect would have a profit element for TWDC - I very much doubt that DVC's entire revenue model is based on the upfront investment - if that is the case then it is doomed once the market is saturated.
Originally Posted By vbdad55 investment that does not have a return identified ( sorry - should have been clearer) -- i.e. - heavy investment into rides/attractions today without some view as to what it will return to me would be viewed as risky...doing it right before the economy changes ( and hopefully it will) and if there were studies for pent up demand for potential trips to WDW- would be great timing. merging the two is difficult. As you mentioned, it's easier to sell building another DVC unit as there is a cash flow identified ( or forecasted sell rate) at time of initial investment. I also didn't get expect to get into a detailed financial direction discussion - doing this while listening to conference calls.. not easy to focus
Originally Posted By vbdad55 Let me spell it out for you nice and clear - the accounting for the dues is irrelevant - it is governed entirely by the contract. If the contract states that it will be used for maintenance then that is what it will be used for. I suggested that there was an element bound up in that for management fees etc. that I suspect would have a profit element for TWDC - I very much doubt that DVC's entire revenue model is based on the upfront investment - if that is the case then it is doomed once the market is saturated. ---- we are not saying anything any different- I just wanted to make sure I wasn't somehow misunderstand the pot of money comment as all cannot be included in that pot of money - as you have now ackowledged. True , the management fees ( and definition of whatever that means within the official docs) would determine where that could -could notbe used for reinvestment. And again, I also have said I agree that the model cannot have ALL monies tied to up front or else you are correct - much like the underfunded pension plans in this country that were 'sized' to grow at an 8%+ return rate forever, there would come a time when the money would be gone for maintenance or anything else.
Originally Posted By leemac <<Are you saying P/E ratio has no bearing on bond rates ?>> The P/E ratio is one factor that is plugged into the model that Moody's/S&P/Fitch/Evolution use to determine the credit rating. The credit rating will determine the rate above the sovereign rate (basically the premium for lending to a company that is inherently riskier than buying T-notes). There are other factors like demand but ultimately the premium is determined by the credit rating.
