Comments on: Breach outliers: $118m charge for TJX http://emergentchaos.com/archives/2007/08/breach-outliers-118m-charge-for-tjx.html The Emergent Chaos Jazz Combo Wed, 01 Feb 2012 19:20:40 +0000 hourly 1 http://wordpress.org/?v=3.3.1 By: Iang http://emergentchaos.com/archives/2007/08/breach-outliers-118m-charge-for-tjx.html/comment-page-1#comment-3866 Iang Thu, 16 Aug 2007 03:14:02 +0000 http://emergentchaos.com/?p=2460#comment-3866 Um, it's to un-smooth earnings. If they were smoothing earnings they would take (e.g.) a quarter of the charge over the next 4 periods. While controversial, it is not considered wise to smooth earnings. The basic logic (backed up by lots of CAPM, etc) is that the market can do that better than you can, so you, the company, should concentrate on getting best info to the market. What is interesting is to see some the breakdown. $18 million spent this quarter seems a lot. Have they sent the cheques out already? Are those consultants really wearing out their ROI calculators that quickly? Um, it’s to un-smooth earnings. If they were smoothing earnings they would take (e.g.) a quarter of the charge over the next 4 periods.
While controversial, it is not considered wise to smooth earnings. The basic logic (backed up by lots of CAPM, etc) is that the market can do that better than you can, so you, the company, should concentrate on getting best info to the market.
What is interesting is to see some the breakdown. $18 million spent this quarter seems a lot. Have they sent the cheques out already? Are those consultants really wearing out their ROI calculators that quickly?

]]> By: Adam http://emergentchaos.com/archives/2007/08/breach-outliers-118m-charge-for-tjx.html/comment-page-1#comment-3865 Adam Wed, 15 Aug 2007 23:41:29 +0000 http://emergentchaos.com/?p=2460#comment-3865 Ummm, sure. It's not to smooth earnings, it's to insulate future earnings reports from having to be distorted by this. You say spud, I say potahto. <p> More importantly, it's likely to be on the high side of what TJX thinks is reasonable to estimate. Because if they estimate low, they have to go back to the well. Much better to be able to say that the costs of the breach are behind them. </p> Ummm, sure. It’s not to smooth earnings, it’s to insulate future earnings reports from having to be distorted by this. You say spud, I say potahto.

More importantly, it’s likely to be on the high side of what TJX thinks is reasonable to estimate. Because if they estimate low, they have to go back to the well. Much better to be able to say that the costs of the breach are behind them.

]]> By: Roger http://emergentchaos.com/archives/2007/08/breach-outliers-118m-charge-for-tjx.html/comment-page-1#comment-3864 Roger Wed, 15 Aug 2007 16:15:15 +0000 http://emergentchaos.com/?p=2460#comment-3864 Adam, I think you hit two issues here. Firstly, the primary reason of taking the $118 million charge in the 2nd quarter is not to smooth earnings, but rather to give investors information about the financial implications of events at the earliest possible time. The logic is that you disclose the financial consequences of events or decisions as soon as they can reasonably be estimated - which actually is good information for an investor to know. Secondly, if $118 is what they reasonably estimate the costs of the breach to be, I would think this is a legitimate number for the consultants' ROI calculators. Adam,
I think you hit two issues here.
Firstly, the primary reason of taking the $118 million charge in the 2nd quarter is not to smooth earnings, but rather to give investors information about the financial implications of events at the earliest possible time. The logic is that you disclose the financial consequences of events or decisions as soon as they can reasonably be estimated – which actually is good information for an investor to know.
Secondly, if $118 is what they reasonably estimate the costs of the breach to be, I would think this is a legitimate number for the consultants’ ROI calculators.

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