Wednesday, January 7, 2009

In English Please!!!


So... I start my blogging day by logging on and viewing the Drudge Report. This morning's headline... "Loss For Year At World's Top Media Company."

Click.

NEW YORK (AP) -- Time Warner Cable says it expects to record a $15 billion noncash impairment charge on its cable franchise rights in the fourth quarter, resulting in a loss for 2008.

So... $15 billion... this I get. English translation: Fifteen Billion Dollars.

But what the heck is a "noncash impairment charge...?!?!" I mean... sure... I gather it's a fancy term for "loss," but, still... I'm curious.

Click.

Ahh... here we go:


"Impairment charge" is the new term for writing off worthless goodwill. These charges started making headlines in 2002 as companies adopted new accounting rules and disclosed huge goodwill write-offs (for example, AOL - $54 billion, SBC - $1.8 billion, and McDonald's - $99 million). While impairment charges have since then gone relatively unnoticed, they will get more attention as the weak economy and faltering stock market force more goodwill charge-offs and increase concerns about corporate balance sheets. This article will define the impairment charge and look at its good, bad and ugly effects.

Click.

Goodwill:
An account that can be found in the assets portion of a company's balance sheet. Goodwill can often arise when one company is purchased by another company. In an acquisition, the amount paid for the company over book value usually accounts for the target firm's intangible assets. Goodwill is seen as an intangible asset on the balance sheet because it is not a physical asset such as buildings and equipment. Goodwill typically reflects the value of intangible assets such as a strong brand name, good customer relations, good employee relations and any patents or proprietary technology.

Am I alone in gleaning a trend here...???

Smoke and mirrors... accounting gimmicks... bait and switch... IS NOTHING REAL - IS NOTHING TANGIBLE in our financial/economic system...???

Sure. At one level it's amusing. Heck... I'm making fun of "the system" right here, right now. But beyond the snark... beneath the smirk... the "joke" is on me - and on you, folks!


This $15 billion "noncash impairment charge" that Time Warner is now "recording" as a "loss" was previously recorded as a gain - as an intangible asset, but an "asset" nevertheless. In concrete terms though... in terms of REAL value... this fictional "asset" was as discarnate then as it is now. At best... "goodwill" is a hope... a wish... an excuse upon which to base optimism. At worst... "goodwill" as a valuation... as an "asset"... is a deliberate enticement to to invest real money based upon a false premise.

We're in trouble, folks. Our nation is in trouble and I fear we're headed for far worse. The sort of self-deceptive nonsensical business and accounting practices I'm commenting on here are a large part of the problem. And government ALLOWS this sort of thing!

Oh... and the truly scary part... compared to government accounting rules, private sector accounting rules are strict, transparent and logical!

(*SIGH*)

7 comments:

William R. Barker said...

PERFECT FRIGG'N EXAMPLE OF THE KIND OF $HIT I'M REFERRING TO...

http://finance.yahoo.com/news/Hill-aides-CBO-to-project-12T-apf-13990391.html

Excerpting...

-- WASHINGTON (AP) -- The federal budget deficit will hit an unparalleled $1.2 trillion for the 2009 budget year, according to a Capitol Hill aide briefed on new Congressional Budget office figures. The aide says the CBO also sees a $703 billion deficit for 2010. The dismal figures come a day after President-elect Barack Obama warned of "trillion-dollar deficits for years to come." --

BUT WAIT...!!! THAT'S NOT WHAT I'M FOCUSED ON...!!!

Continuing...

-- CBO's figures ***DON'T ACCOUNT*** for the huge economic stimulus bill that Obama is expected to propose soon to try to jolt the economy. At the same time, they ***DO NOT*** reflect the immediate cost of the Wall St. bailout. --

(*SIGH*)

See what I'm talking about, folks...?!?!

IT'S ALL LIES!!! IT'S ALL DISINFORMATION!!!

There's no honesty... no transparency... government accounting is one big frigg'n scam!!!

God bless Yahoo for POINTING OUT the underlying dishonesty inherent in the $1.2 trillion low ball figure - but I'm guessing as the basic story is reported and re-edited and spread that such "asides" will more often than not be left out of echoing news reporting.

(*SHRUG*)

God help us. God help our children and grandchildren. These bastards in Washington are destroying our country - and to those who believe I overstate the case... (*SIGH*)... you just wait and see.

The U.S. government is one big Ponzi scheme.

BILL

William R. Barker said...

File Under: WHAT THE F##K IS...???

http://www.ft.com/cms/s/0/f7e0a4cc-dc36-11dd-b07e-000077b07658.html

-- The Federal Reserve is eyeing establishing a de facto inflation target, minutes of its groundbreaking December policy meeting revealed on Tuesday. The idea would be to shore up the public expectations of positive inflation and so make it less likely that a deflationary dynamic could take hold as the US recession deepens. --

What the f##k is "positive" inflation?

Again... words matter.

Inflation is BAD.

Oh, not "all" inflation. Not bad absolutely. Obviously we expect inflation over time, but somehow I doubt this is what these bozos are referring to.

Nope. These ba$tards want to return America to the Carter years, to the Misery Index.

We're SO screwed, people.

Don't know if anyone's noticed, but over the past few weeks oil has reversed course and started to move up again - roughly from a low of $37/barrel to around $50 today.

And folks... even if this is just a blip... even if oil goes back down... how long do you think oil will remain below $60-$65/barrel?

(And aside from "market" forces, over the past few weeks I've noticed quite a few "trial balloons" released concerning proposals to RAISE federal gas taxes!)

-- Policymakers discussed the possibility of offering a "more explicit indication of their views on what longer-run rate of inflation would best promote their goals of maximum employment and price stability." They reasoned that the "added clarity in that regard might help forestall the development of expectations that inflation would decline below desired levels." --

"BELOW DESIRED LEVELS...?!?!"

FOLKS... raise your hands... how many of you want MORE inflation rather than LESS inflation?

Inflation means prices going UP.

(*SMIRK*)

Seriously. "Wage" inflation sounds good, I know, but back to the example of the '70's... back to the Carter years and the Misery Index... even if wages are going up, if prices are going up FASTER...

(*SIGH*) (*SHRUG*)

Let me ask you: Now that oil is (relatively) back to "normal," have you noticed prices of goods and services going DOWN...???

NO! NO YOU HAVEN'T!!!

Listen... when the oil spikes caused everything manufactured (and grown) and requiring transportation (meaning just about everything!), we saw inflation at the food store, at Wal-Mart, even energy "fees" accessed by airlines and delivery services and hotels...

(*SIGH*)

Has anyone seen the prices going back down overall...??? I know that back before Katrina I used to pay $30 at Wal-Mart for a full synthetic oil change. Since then the price has gone up to $35... then $40... then $45... and when oil was momentarily at $147/barrel the price was hiked to $50.

So... anyone wanna guess what the price is today - months after the oil price decline began ? Ya think it's gone DOWN...? (*SNORT*) Nope. It's gone up. It's now up to $55.

Just an illustration folks... just one example.

So... again... taking the recent low of $37/barrel or so... let's say that price goes to... uhmm... less than double - let's say $65/barrel.

Anyone wanna guess we WON'T see yet another round of pretty much across the board price rises - i.e. inflation...???

(*SNORT*)

Be afraid, people; be VERY afraid.

BILL

William R. Barker said...

Yeah... (*BASHFUL GRIN*)... I know... (*CHUCKLE*)... I'm getting a bit... err... shrill.

Folks. Seriously. Deadly seriously. We're in deep $hit.

http://www.ft.com/cms/s/0/4f5c5ba2-dc22-11dd-b07e-000077b07658.html

also

http://blogs.ft.com/maverecon/2009/01/can-the-us-economy-afford-a-keynesian-stimulus/#more-395

Ya know what... YEAH... maybe I read too much. (*SIGH*)

(IGNORING REALITY AIN'T GONNA CHANGE IT THOUGH!!!)

What does this blog and my posting do to change things? Nothing. Yes... I realize this. Usually Right does however allow me to vent. I like to believe it also serves as a clearing house for bits of information and analysis that readers overall benefit from.

(*SHRUG*)

That said... yeah... I know that I'm spitting into the wind.

Yep. I know that Obama, the Democrats, the Republicans... (*SIGH*)... they're gonna do what they're gonna do and whether it's me or the Wall Street Journal or the Financial Times or the most brilliant men and women in America and across the globe... in reality we're ALL just spitting in the wind.

God help us.

BILL

Rodak said...

And here I thought "Goodwill" was a store where you could buy a really cheap used mattress to toss on the floor of your crash pad.

Who knew?

Mary Adams said...

You asked the question, "Is nothing real, is nothing tangible in our economy?" And the answer is resoundingly no. But not for the reasons you cite. We are already living in a knowledge economy but using reporting standards that were created for the industrial economy. Most of the value of companies is not on their balance sheet. The only way it gets on there is if there is an acquisition. Then most of the value gets booked to "Goodwill" because there is no other place to put it under today's accounting rules. That doesn't mean there is nothing there--and that is the crux of the matter. Companies need to get better at reporting the intangibles that drive their revenue. Analysts need to ask more questions about intangibles. And accountants need to improve ways of describing these.

The rule of thumb is that at least half of acquisitions fail to create value. That leads to these big write-offs. If the right questions about intangibles were not asked beforehand, there should be no surprise when these assets fail to deliver on their expected value. Start asking the right questions

William R. Barker said...

Hiya Mary,

Nice to "meet" you!

"You asked the question, "Is nothing real, is nothing tangible in our economy?" And the answer is resoundingly no."

We disagree. (*SMILE*) I'll bite, though; explain yourself.

(*WAITING PATIENTLY*)

"We are already living in a knowledge economy..."

Oh, please...! (*SNORT*)

With respect, give me a break. I live in a world where "existence" depends upon actual goods and services. Food, clothing, housing... buses, trains, cars, trucks... this so-called "knowledge" economy is a misnomer. Obviously "knowledge," mental process, is behind everything human beings create, but by that logic why not refer to a "heartbeat" economy because without a beating heart...

(*SMILE*) Anyway, you get the idea.

"Most of the value of companies is not on their balance sheet."

But it SHOULD be. That's my point. (*SHRUG*)

"...most of the value gets booked to "Goodwill" because there is no other place to put it under today's accounting rules."

Again... you seem to be acknowledging my point rather than opposing it. "Goodwill" is an intangible. Obviously it plays a part in future prospects... but note the connection I've just made: 1) Intangible; 2) Prospects. The "goodwill" isn't "real" until it's REALIZED. And when it's realized... THEN it becomes measurable. (*SHRUG*) That's my point. (Or one of them.) (*WINK*)

"That doesn't mean there is nothing there--and that is the crux of the matter."

Ha! Ha! I suppose that all depends upon what the definition of "there" is. (*WINK*)

Hmm... perhaps I should go out and purchase a lottery ticket with potential winnings of $300,000,000 - and then try and get a loan for a huge commercial purchase based upon my POTENTIAL winnings. (*SMILE*) (*CHUCKLE*)

"The rule of thumb is that at least half..."

Pretty broad "rule of thumb," wouldn't you say? I mean... less than half ranges from 0% to 49.999%. (*WINK*)

Mary. I'm an "exact" kinda guy. (*GRIN*) Sure... to an extent EVERYTHING is an assumption. We "assume" a nuclear war or meteor hit won't destroy all life on earth tomorrow. (*GRIN*) Still... there are limits. There are levels of risk. (Treasury bonds are "safer" than private company bonds, etc.) I want "book-keeping" (accounting) to be as exact a science as possible, based on concrete material facts and safe assumptions as far as possible. This "goodwill" nonsense just doesn't pass the smell test for me. (*SHRUG*)

"If the right questions about intangibles were not asked beforehand, there should be no surprise when these assets fail to deliver on their expected value. Start asking the right questions."

And who are you directing that towards...??? Certainly not me since I'm the one arguing against misidentifying "potential" as real in the first place. (*LAUGHING OUT LOUD*)

Anyway... not quite sure how close or far apart we are on these question... but I definitely appreciate your taking the time to comment.

Hope you drop by regularly!

Best regards,

BILL

William R. Barker said...

File Under: Yet Another Example of... hmm... let's use an Acronym... PFEKSIRT

(*GRIN*) = Perfect Frigg'n Examaple of the Kind of $hit I'm Referring To

http://www.nytimes.com/2009/01/09/business/09norris.html?_r=2&ref=business

Excerpting...

-- Chalk up the death of another Wall Street cliché. In the late bull market, dividend payments provided one of the seemingly strongest arguments for the bulls. Maybe earnings numbers could be manipulated, but dividend payments required cash. If the company had the cash to hand out, you could be confident the earnings were real. It was a lie. --

(*SHRUG*) (While being honest, reporter Floyd Norris is far less... err... "shrill"... than I!) (*WINK*)

Continuing...

-- It is now becoming clear that the great news on the dividend front from 2004 through 2006 was not an indication of solid corporate performance; it was just another sign of lax lending standards. Lenders who willingly handed out money to homeowners with bad credit were even more generous to corporate borrowers. --

Hmm... what would you bet that dividends are yet another supposed "goodwill" measure...??? (*SNORT*) (*SMIRK*)

More smoke and mirrors, folks... more smoke and mirrors...

(*SIGH*)

Continuing...

-- Companies appeared to be flush with cash during those days, but some of that was a mirage stemming from optimistic accounting, particularly at banks. --

Hmm. (*SMIRK*) What about that... (*SNORT*) A "mirage," huh? A "mirage" stemming from optimistic ACCOUNTING... (*SNORT*)

-- From the fourth quarter of 2004 through the third quarter of 2008, the companies in the S.& P. 500 — generally the largest companies in the country — reported net earnings of $2.4 trillion. They paid $900 billion in dividends, but they also repurchased $1.7 trillion in shares. As a group, shareholders were paid about $200 billion more than their companies earned over that four-year period. Suffering investors who held onto their shares during the 2008 plunge may want to reflect on the fact that investors who were dumping shares got roughly twice as much of the money as the loyal holders did. --

(*SHAKING MY HEAD IN DISGUST*)

Here. Let's underscore...

"As a group, shareholders were paid about $200 billion more than their companies earned over that four-year period."

(*HEADACHE*) (*LAUGHING TO AVOID CRYING*)

* Oh... THANK GOD... my wife is home so I need to cut this short - it's time for racquetball!!!

BILL