Interesting piece, particularly speculation about park attendance…
I think they mean Disney’s 2020 fiscal year ending September 30 (not calendar year 2020). Still very bad news, but the 3 months does make a difference in this context.
Good point! I see that the crowd tracker accurately reflects this too
I saw that last week, but I was wondering, since this is the perspective of Wall Street rather than from the overall health side of things, how much stock we can put into this. Might be right, but might not.
I also wondered if “zero park attendance” literally means no one in the parks, versus zero park attendance revenue…meaning, the only folks who end up in the parks will be with money that has already been spent. From a Wall Street perspective, if the only people who show up in the parks are those who spent money on the tickets, etc., months ago…there is no new revenue. And even if there are some people who come now who haven’t yet paid, you have Disney needing to refund a lot of folks as well, mean basically makes it a “zero park revenue” situation, even if not zero park attendance.
Disney Corp prepares the financial statements on the accrual basis of accounting, which means that revenue is recognized (reported as income) when it’s earned, not when it is received. As the parks begin to reopen and guests return, the financial statements will begin reporting the income. Until then, it’s considered a liability. Refunds don’t hit the income statement unless the revenue has already been recognized (the guest checks in, enters a park, etc). In that case, it would be like when the guest is dissatisfied and disney offers them some type of compensation. That’s actually why they push FPP or other non-monetary methods of making us happy. Those don’t hit the financials.
So, when Disney (or any company for that matter) has cash reserves, does that mean in addition to any cash they have “waiting” somewhere counted as a liability?
It seems like Disney would have millions of dollars in, for example, tickets already sold but have not yet been redeemed. Does that money sit in account somewhere? If cash reserves includes this amount, then Disney doesn’t actually have as much as they would appear.
No, that money is paying for all the construction. It’s still a liability but it is not like an escrow account where they can’t touch it till the transaction is complete.
Cash and income are two totally separate things in the accounting world.
If they have a million dollars worth of advance ticket sales (and nothing else on the books), you’d see…
Cash: $1 million debit balance
Liability for deferred revenue: $1 million credit balance
Then when the tickets get used, the liability clears and they recognize it as revenue from theme park admissions.
However, Disney can spend that cash whenever they want. They don’t have to leave it sitting in the cash account until the tickets are used.
“Cahall forecasts “zero park attendance” for the back half of fiscal 2020 and only 50% capacity in fiscal 2021. Disney’s current fiscal year should end around September, meaning the equity research firm is projecting that the current closures will last until at least then.”
This would be the period April-September they are predicting as closed. I don’t know that they have any more basis for that projection than all the wild guesses we make here!
I find it presumptuous that Well Fargo, who graciously brought us the last recession, now feels qualified to gaze into their crystal ball and predict Disney’s fiscal future.
This news makes me believe it will be quiet in the parks for a while…
" Disney revealed in a new SEC filing on Monday that it entered into a 364-day credit agreement with Citibank for up to $5B just last Friday, with the option to extend the maturity beyond April 9, 2021 if lenders consent."
Exactly. The rules just changed this past year further defining what exactly constitutes deferred revenue. I expect them to change in the future to require some type of escrow or reserve bank account to cover the deferred revenue as a result of COVID and the refunds that companies have been (or should have been) shelling out
I’m thinking that would further devastate a lot of company’s cash flows, which is the last thing that’s needed right now.
It would also move more companies to making things explicitly “non-refundable” (because I would think that would avoid escrow requirements) which isn’t really in the best interests of consumers.
I agree that it would be devastating to force that kind of requirement on companies now, but in five years? I wouldn’t be surprised if at least a portion of deferred revenue needed to be backed up by liquid assets.
I’m also a CPA but haven’t practiced in ages so am terribly uninformed. I barely keep up with CPE to maintain my cert. My college textbook had a little supplemental booklet included that introduced the concept of the Statement of Cash Flows.
I agree that if there’s enough backlash about lost deposits as a result of this, there will be an accounting change to require a reserve (see: pension plans). We always seem to be five years behind the crisis, though.
Now to return to complaining about the youngsters and reminiscing about the good ol’ days.