Transcript Down Goes RESOURCES UNLIMITED

Tanya Burnside
MSM 630 T-301
July 29, 2013
FROM THE BEGINNING TO THE END
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IN THE BEGINNING
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CORPORATE HISTORY
PROFITS 1986 – 1988
GAS and OIL ACCOUNTS?
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1988 & 1990
MOVIN’ AND A SHAKIN’
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DERIVITIVES…HEDGE FUND ACCOUNTS
ENTRY LEVEL $$$$
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BASIS FOR ENTRY LEVEL MANAGEMENT SALARIES
SHE WORKS HARD FOR THE MONEY
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ENTRY LEVEL MANAGEMENT SALARIES
PROPOSED FEMALE SALARY TO AVOID LAWSUIT
ACCOUNTS GOING DOWN?
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CORPORATE SENIOR MANAGEMENT STYLE
FAULTY ACCOUNTING PRACTICES
SHAKY PROFIT STRUCTURE
FAULTY COMMUNICATION
IN THE BEGINNING…
• 1985 MERGER OF TWO NATURAL PIPLINE COMPANIES FORM
RESOURCES UNLIMITED
• RESOURCE UNLIMITED BECAME LARGEST GAS DISTRIBUTION
NETWORK IN THE U.S. WITH 38,000 MILES OF PIPELINE
• NATURAL GAS INDUSTRY UNDER FEDERAL REGULATION
• RESOURCE UNLIMITED PURCHASED GAS AT FEDERALLY APPROVED
PRICES AND SOLD GAS TO USERS AT FEDERALLY APPROVED PRICES
• DEMAND WAS HIGH AND CONSISTENT AND SO WERE PROJECTED
PROFITS
IN THE BEGINNING…
• DEREGULATION HITS THE NATURAL GAS INDUSTRY
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PURCHASE COST SWELL
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SALES COST ARE UNPREDICTIBLE
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SUPPLY AND DEMAND CHANGES DAILY
• PRESIDENT OF RESOURCES UNLIMITED USES COMPLEX MODELS
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DERIVITIVES AND HEDGES
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ABSORB RISKS OF UNPREDICTIBLE COSTS AND PRICES
PROFITS 1986 – 1988 (DATA IN MILLIONS)
400
350
300
250
200
1986-1987
150
1987-1988
100
50
0
Quarter 1
BASELINE PROFITS:
Quarter 2
Quarter 3
Quarter 4
1986 – 1987 Quarterly average $271.75
1987 – 1988 Quarterly average $200.75
GAS and OIL ACCOUNTS?
100
80
60
1988
40
1990
20
0
GAS
GAS ACCOUNTS
OIL ACCOUNTS
OIL
1988
32
64
1990
43
86
MOVIN’ AND A SHAKIN’
ACTUAL ACCOUNTS VS. HEDGE ACCOUNTS
ACTUAL GAS
ACCOUNTS
GAS ACCOUNTS
REQUIRED
TRANSFERRED TO
DUMMY HEDGED
FUND
ACTUAL GAS ACCOUNTS IN 1988
GAS ACCOUNTS REQUIRED TO MAINTAIN THIRTY DAY CASH FLOW
TRANSFERRED ACCOUNTS TO DUMMY HEDGE FUND
32
500
468
ENTRY LEVEL MANAGEMENT $$$
AVERAGE ENTRY LEVEL SALARIES
STANDARD DEVIATION
MEAN SALARY
ENTRY LEVEL
SALARIES
SALARY 3
SALARY 2
SALARY 1
$0
$20,000 $40,000 $60,000
THREE MALE ENTRY LEVEL SALARIES
MEAN SALARY
STANDARD DEVIATION
$50,000 $55,000 $52,000
$52,333
$2,054.80
SHE WORKS HARD FOR THE MONEY
MALE VS. FEMALE SALARIES
FEMALE SALARY
STANDARD DEVIATION
MEAN SALARY
MALE SALARY 3
MALE SALARY 2
MALE SALARY 1
SALARIES
$0
$20,000 $40,000 $60,000
THREE MALE ENTRY LEVEL SALARIES
MEAN SALARY
STANDARD DEVIATION
SALARY ADJUSTMENT REQUIRED
TO AVOID LAWSUIT
$50,000 $55,000 $52,000
$52,333
$2,054.8
$52,333 – ($2055+2055) = $48,223
$48,223 – 32,000 = $16,000 (ROUNDED)
DOWN GOES RESOURCES UNLIMITED
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CORPORTE SENIOR MANAGEMENT STYLE
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CEO MAKES HIGH RISKS CHOICES
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DERIVITIVES USED TO HEDGE RISKS
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Investopedia (2013) asserted that concern should arise when companies use
derivatives. Companies may use them for protection against unforeseen
events, “adverse foreign-exchange or interest-rate movements, and
unexpected increases in input costs. The investor on the other side of the
derivative transaction is the speculator”. The protection well cost the company
no matter the outcome. “Warren Buffett's stand is famous: he has attacked all
derivatives, saying he and his company "view them as time bombs, both for the
parties that deal in them and the economic system“ - 2003 Berkshire Hathaway
Annual Report” (as cited in How Companies, 2010).
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DECISIONS VOID OF RESEARCH WHICH EXPLORES OPTIONS
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NO CORPORATE GOVERNANCE
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J. Wolfensohn, 1999 president of the World Bank defines corporate governance
as “…promoting corporate fairness, transparency and accountability”
(Definitions of Corporate Governance, 2013)
DOWN GOES RESOURCES UNLIMITED
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FAULTY ACCOUNTING PRACTICES
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LACK OF ACCOUNTABILITY
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WILLFUL PARTICIPATION IN UNETHICAL FINANCIAL PRACTICES
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ETHICAL RESPONSIBILITY TO REPORT FINDINGS
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SHAKY PROFIT STRUCTURE
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UNRELIABLE – UNVERIFIABLE /FRAUDULENT DATA PRESENTED TO WALL ST. ,
STAKEHOLDERS, AND THE PUBLIC
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UNSTABLE
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PREDICTIONS UNREALISTIC
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SALTY COMMUNICATION
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POOR TOP-DOWN COMMUNICATION
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ACCOUNTING AND OTHER MANAGEMENT PERSONNEL’S FAILURE TO REPORT
UNETHICAL PRACTICES
JUNE 1994 RESOURCES UNLIMITED GOES BANKRUPT
(Written Analysis of the Case Study Problems in Management., 2013)
REFERENCES
Carroll-Chu, M. C. (2008). Basic statistics: Mean and standard deviation.
Retrieved from http://scienceblogs.com/goodmath/2008/03/24/basicstatistics-mean-and-stan/
Cooper, D. R. & Schindler, P. S. (2011). Business Research Methods.
NewYork, NY.McGraw-Hill/Irwin
Definitions of Corporate Governance. (2013). Retrieved from
http://www.mbaknol.com/strategic-management/definitions-of-corporategovernance/
Dorr, H. (2013, Week 7-Summer). Standard deviation. [Lecture]. Retrieved
https://cyberactive.bellevue.edu/webapps/portal/frameset.jsp?tab_tab_gro
up_id=_2_1&url=%2Fwebapps%2Fblackboard%2Fexecute%2Flauncher
%3Ftype%3DCourse%26id%3D_293486_1%26url%3D
How Companies Use Derivatives to Hedge High Risk. (2010). Retrieved
fromhttp://www.investopedia.com/articles/stocks/04/122204.asp
REFERENCES
Standard Deviation Formula (Chart Controls). (2013). Retrieved from
http://msdn.microsoft.com/enus/library/vstudio/dd489251(v=vs.100).aspx
Written Analysis of the Case Study Problems in Management. (2013).
Retrieved from http://www.mbaknol.com/management-concepts/writtenanalysis-of-the-case-study-problems-in-management/