Fundamental misunderstanding

Post #323,767 by beepster 3/30/10 12:41:31 PM Reply	Fundamental misunderstanding while it is currently a "non-cash" item, over the next couple of years it will become a cash item. So, what will a company now do? They have 2 years to figure out a way to reduce the cash impact. How will they do this? Cut benefits to retirees. When that doesn't get them all the way there, what will they do? Cut jobs. They will get back to the level of shareholder return that they feel necessary (and this is generally a management team/board level decision)...in other words, that "non cash charge" will be treated like any other expense. So the initial link...and your claim of Armageddon in jest...are making light of an issue that you clearly don't understand. I will choose a path that's clear. I will choose freewill.
Post #323,768 by Another Scott 3/30/10 12:57:26 PM Reply	Not so. I didn't say there would be no impact. Business management has to adjust to changing circumstances all the time. That's their job. GM didn't pay $39B when they took their non-cash charge. They made an accounting change. The world will change a lot by 2013. If AT&T cuts benefits, it could be due to reasons other than this change in the tax rules (say, losing exclusivity on the iPhone and losing customers). The charge is a convenient whipping boy that they're hoping to use to sway changes in Congress. If they cut benefits, perhaps they'll lose important employees and have to spend more to recruit and train than they would have had they not made the benefits cuts. In short, this isn't Armageddon!!!!111, no matter how much Rep. Boehner claims it is. Life, and business, isn't binary. Tax law changes that close loopholes aren't always bad. Why should non-profits not be treated the same way as large corporations when it comes to health benefits? AT&T and other big companies taking a charge for a change in the tax rules isn't going to destroy their business nor their employees. Maybe we'll see how strong the arguments on both sides are at Waxman's hearings on April 21. Cheers, Scott.
Post #323,787 by Another Scott 3/30/10 5:47:00 PM Reply	More... Let's look at what happened to GM when it took that $39B charge on November 7, 2007. GM's stock prices from Yahoo: 11/1 $37.25 16.66 M shares 11/2 $36.99 12.57 M shares 11/5 $36.00 15.47 M shares 11/6 $36.16 13.21 M shares 11/7 $33.95 35.12 M shares 11/8 $33.15 29.27 M shares 11/9 $31.28 21.04 M shares 11/12 $30.79 16.53 M shares 11/13 $31.62 11.98 M shares So, the stock took a bit of a hit. I can't find the GM's market cap on 11/7/2007, but on October 30, 2006 it was about $19.19 B - http://en.wikipedia....of_General_Motors That day the closing stock price was $34.53, so a ballpark guess is that the market cap didn't change much as of 11/7/2007. So they took a $38B charge in the quarter when the whole company was worth about $20B, and the stock price only dropped about 7% from the previous day. Does that sound like they really lost $38B that day? Of course not. They made an accounting change. Similarly, AT&T made an accounting change because tax law required they do so when the health care reform act was signed. Oh, let's look at what happened to AT&T's share price since the act was signed (on Tuesday the 23th): March 1 - $25.00 March 8 - $25.28 March 15 - $25.78 March 22 - $26.40 March 23 - $26.55 March 24 - $26.26 March 25 - $26.15 March 26 - $26.24 March 30 - $25.95 Yeah, they really lost $1B on the 23rd. Not. They took an accounting charge. Eventually it may have a real impact on their bottom line, but so far it's just a number. The stockholders are ignoring it, just as they did in GM's case. Q.E.D. Cheers, Scott.
Post #323,790 by boxley 3/30/10 6:14:08 PM Reply	what does the price of stock have to do with P&L? Let me see if I can find a free accounting 101 program for you. It would help your understanding of these things. thanx bill If we torture the data long enough, it will confess. (Ronald Coase, Nobel Prize for Economic Sciences, 1991)
Post #323,798 by beepster 3/30/10 8:51:56 PM Reply	Nearly nothing and all that the value is saying is that investors expect these companies will make the adjustments to benefits or staffing that will keep them whole. I will choose a path that's clear. I will choose freewill.
Post #323,800 by Another Scott 3/30/10 9:06:35 PM Reply	GM's stockholders expected a $38B "adjustment"? <boggle>
Post #323,802 by boxley 3/30/10 9:37:19 PM Reply	they dont build all those pretty buildings in vegas by giving away money nother, stock market is no different. Its no difference than blackjack, craps or roulette or indexed stock If we torture the data long enough, it will confess. (Ronald Coase, Nobel Prize for Economic Sciences, 1991)
Post #323,807 by Another Scott 3/30/10 9:56:27 PM Reply	We're talking past each other. Yes, stock prices are based on expectations and hunches - in a way, it's very similar to playing Vegas. But it's *also* tied to something tangible - a share of ownership of the value (over some future period of time) of the company and its profits. Compare GM's stock price in November 2007 with its price in April 2009. $30-ish versus $1-2-ish. Stock prices collapse when companies have huge losses. WorldComm, Enron, GM, Chrysler, etc. GM's stock price being in the $30s shows that its $38B charge was not "real money". If that charge were real, the company would have had to be liquidated and the stock would have been worthless. AT&T's $1B charge is *presently* in the same category. It's a "non-cash charge". It's not a "loss" and doesn't impact P&L. Nobody knows what AT&T's stock price is going to be in 2013, so saying that any changes then are going to be the result of this charge is silly. The stock market said it has no impact on the stock price. What does the stock price have to do with P&L? See the first paragraph. A company that is bankrupt does not have a high stock price and a high market capitalization. HTH. Cheers, Scott.
Post #323,813 by beepster 3/31/10 12:32:50 AM 3/31/10 12:39:07 AM Reply	No, you're still not there the $1B charge does not hit the P&L >yet<. An accrual is a balance sheet item that is essentially a forced savings account for something that will hit the P&L in the future. The charge is real and will eventually come from revenue in a P&L. Post edit: not entirely accurate...it will come from revenue now, and impact P&L now...but the nature of the accounting entry at this point is internal..it comes from revenue and transfers to the balance sheet...(non cash meaning the cash isn't going out the door yet)...it will become a cash item when the expense is realized in 2013. I will choose a path that's clear. I will choose freewill. Edited by beepster March 31, 2010, 12:39:07 AM EDT Expand All History
Post #323,822 by boxley 3/31/10 8:48:35 AM Reply	nit If you increase liability now it impacts net profit now If we torture the data long enough, it will confess. (Ronald Coase, Nobel Prize for Economic Sciences, 1991)
Post #323,827 by beepster 3/31/10 11:14:31 AM Reply	Ayup which is why I added the edit. I will choose a path that's clear. I will choose freewill.
Post #323,791 by drook 3/30/10 6:15:26 PM Reply	Two words for you: Boo Yah! -- Drew
Post #323,811 by Another Scott 3/30/10 10:43:11 PM Reply	I thought I knew what that meant... http://www.urbandict....php?term=boo-yah Bwahahaha. :-) Cheers, Scott.

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