Tennessee Jed asks some very important questions.
Take a look at the timing of the impairment tests. This raises further scrutiny of the combined events and their consequnce. Here is his last two posts.
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I have no idea if a company can cancel all of their shares simply because their liabilities are greater than assets. I know this has been mentioned a few times on this board and on the old SH board, but I still cannot comprehend how any company under any circumstance can just cancel all the common shares.
However, let's assume a couple of things:
1) if liab. are greater than assets, the shares can be canceled.
2) All assets could be sold, except for goodwill
As of the Q3 statements, total assets were $264M. Subtract $67M of goodwill, you're left with $197M.
Liabilities at Q3 were $315M. That leaves liab. $118M in excess of assets.
Here is where it gets interesting. In the Q3 earnings, there was a write-down of intangible assets (NOT goodwill) of exactly $118M. If that writedown did not occur, then at Q3, assets and liabilities would be about even. Add back some part of the $67M of goodwill that may have some value, and all of the sudden total assets exceeds total liabilities.
It is also interesting that the writedown in intangible assets that occurred in 2008 was in Q4, not Q3 like this year. Impairment tests are supposed to occur at the same time each year, unless there is a 'trigger' event causing them to be revalued.
I don't know what to make of any of this. The whole thing is disturbing, and I am following it closely.
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The wording in the press release is suspect.
The question is why were the intangibles tested at Q3, not at say Q2 or Q4? The revenues from the Med-Eng acquisition have never met expectations. Did the decline in revenue become so significant in Q3 that there was a 'trigger' that forced the revaluation? If so, management must have sufficient documentation to backup this claim. Luxton has claimed all along that the problem with the company has been due to the 'timing' of orders. Is he now claiming that there will essentially be no orders? Did it go from lumpy orders to no orders?
Additionally, calculating the fair value of the intangibles requires many estimates regarding expected future revenues from the underlying assets. Management must have documentation (such as communication with customers regarding potential orders, or lack thereof) that the expected FUTURE revenues from Med-Eng are significantly lower than the last time they tested.
Also, remember that in all of this impairment testing, there must have been auditors who OK'd the writedowns.
Also, the only way that there is nothing left for shareholders is if total obligations exceed assets. This was only the case after the writedowns in Q3.
What if AV wins an 'unexpected' order in a couple of months? That would imply that the intangible assets were written down too far, and that there was shareholder value at the time of the Versa transaction. Also, any reference to the 'Made in America' program is bogus because that only applies to stimulus spending. I don't think the $800 billion in stimulus spending included defense.
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