FASB dealt with "Goodwill," what about "BAD-Will"?
Mikie, re: your questions...I'll give them a shot,
but PLEASE don't ever ask me any questions ever again, okay? :)
Question #1: "New Accounting Procedures"?
(probably much more than you wanted to know)
Earlier this year a panel of the Financial Accounting Standards Board (FASB), and independent organization which sets up the U.S. accounting standards, decided to set new standards for the valuing of things like: brand names, customer lists, patent rights, earning potential, and other so-called "intangible assets" that companies have been reporting under the "Total Assets" column of their quarterly and annual reports to shareholders.
During the "irrational exuberance" of the late 90's, the Securities and Exchange Commission (SEC) realized that about 50% of all SEC enforcement cases were involving cases of "financial accounting and reporting regarding revenue recognition." In other words, companies were listing on their books (and in their reports to shareholders) huge "assets" listed as "intangibles" giving them some kind actual dollar value that often didn't exist at all. It became very clear to all that those overly inflated "intangibles" made it extremely difficult to understand the true worth of a company.
One of the major "intangibles" is called "goodwill." In the good-old-days, the classic definition of "goodwill" had a very different meaning. Basically, it meant things like the value (always somewhat subjective) of a company's "brand name," reputation, and good relations with its customers. For example, in my salad days before I became a World-Famous-Architect, my accountant kept trying to come up with a "goodwill" value for my company's name and reputation, if I was to sell the company. I kept telling him, "My company's name and reputation is worth absolutely zero at the moment...Hell's bells, I ain't no damn Starbucks or anything...Nobody knows my name except a small handful of close friends and family." Of course now my company's "goodwill" value would be absolutely astronomical. :)
Nowadays, "goodwill" has come to mean (among other things) the amount OVER the fair market value that a company actually paid to acquire an asset (for example: buying another company like GNET), versus the true value of the purchase. It very often completely distorted a company's true "Total Asset" value, especially in the late 90's, when the value of many of the "assets" that companies acquired completely tanked in value, often becoming completely worthless. And yet, under the old accounting rules, companies true profits and assets values were often completely distorted, as they continued to amortize, or systematically reduce the value of the "goodwill" (which was now completely false value) over a period of years...often long after little or any real value of the "assets" existed at all.
The hope is that these new FASB accounting standards will give both investors and analysts a more realistic picture of the true "Total Asset" value of a company. In the recent past companies had some fairly dubious "assets," which they were carrying on their books as "intangible assets," but which had often become completely worthless (or at least worth considerable less then they had been indicating in their financial reports).
This whole intangible/goodwill asset thing really became more of a big problem during (and following) wild roller-coaster ride of DotCom/DotBomb years. Especially when the realization finally dawned on the world that the incredibly over-inflated values of many (if not most) of the technology stocks were way beyond any realistic sense of what they were truly worth...many having absolutely no real value as business enterprises whatsoever. Many people believe that one of the primary reasons many companies (most especially tech companies) began to report "Pro-Forma" earnings, is that those reports often left out non-cash items, which can include a long laundry list of stuff (true expenses) like stock options, and the decisions to call them "intangibles" and/or not list them as expenses (and/or assets). It was pretty much left up to the whims of each company...but that another story.
As an example perhaps a little closer to home. Let's say you buy a house for $1 million. If the value of the house continues to rise because of inflation (or the fact that such a famous person as "Mikie" lives there, which might then be said to have a "goodwill" famous name-recognition value) to say $1.5 million, your equity (or asset value) has now increased by $500,000. Now, let's say you apply for a bank loan to buy a hotel in Hawaii (or something), and have to provide a total "net worth" statement. The $1.5 million you put down in the "asset" column on the loan form is really an "intangible asset," until you actually sell the house and get the actual cash in your hands.
However, lets say that sometime after you got the bank loan (based on your home's value being assessed as $1.5 million at the time), the value of your home later actually drastically tanks in value (like so many DotBombs), declining by let's say $1 million in value (perhaps because some sleazebag former high-tech CEO moved in next door, thus completely destroying the of value not only your home, but the entire neighborhood as well). Your home's new true "intangible" asset value is now only $500,000, not $1.5 million that you listed on your net worth form to the bank. If you continued to list it's value at $1.5 million, instead of its new true value of $.5 million, you'd be lying. So to be honest, the next time you "reported" your net worth, you'd have to write-down your "total asset" value by $1 million. Get it? I hope so, cause I'm not completely sure I do. :)
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Question #2: "Importance of Cash"?
Yes, cash is nice. I love cash. In fact, I actually remember a time back in 1964 when I actually had some.
Microsoft has almost always had tons of cash, as far back as I can remember. In these times a company having a nice stash of cash (or "cash equivalents" for bartering for stuff to survive...like food). In these times it provides a company with several advantages. It gives them a security blanket for potential operating losses, until their business grows and the improves, or the economy turns around. It can also allow a company to make some strategic acquisitions (such as hiring top-flight people and/or business assets), sometimes for some relatively cheap prices. However, having "cash" is NEVER a substitute for "earnings." It is also NEVER a substitute for having a great business plan, excellent implementation of that plan, outstanding management, a terrific oversight BOD, top-flight employees...and of course providing products and/or services the world really wants, and is willing to pay for. IMO. the company INSP is greatly lacking in many of the above...although they do still have some of Paul Allen's GNET cash. And also IMO, if it wasn't for that money they got from the "merger" with GNET, INSP would have completely folded long ago. I could write several pages on that alone. Suffice to say, as of June 30, 2000 (less than a month before the "potential" merger with INSP was announced), GNET reported that they had $250,904,000 in "Current Assets" (cash & short-terms investments etc...). In addition they reported an additional $55,774,000 in "Long Term Investments." That makes GNET's total cash/cash equivalents, and short & long-term investments (as of 6/30/00) $306,714,000.
Trying to compare apples with apples, how much did INSP report they had in 1st Qtr.-2002 earnings report yesterday? I believe that Tammy said during the CC that INSP currently has left only $289,000,000 in "cash," and investment-grade securities (which also includes accounts & payroll taxes receivable).
Now, if you look at what INSP indicated it had back on 6/30/00, it was $202,999,000 in total "Current Assets" plus $13,805,000 in "Long-term investments, thus totaling $216,824,000. It appears to me that in just 22 months INSP has not only burned through their original approx. $217+ million, but also burned through about $17 million in GNET's money, for a total burn of approx. $234,000,000 gone in less than 22 months. That's a burn rate of about $10.6 million/month...$32 million/quarter (almost exactly what they declared losing again this last quarter)...or about $128,000,000 per year. And NONE of this includes any of recent reporting yesterday of the new FASB accounting "intangibles" adjustments to their "Total Asset Value." The new INSP "intangible" losses reported for this last quarter was approx. $204 million. IMO, that's a hell of a lot, for a company who's total market cap that is now only in the $400 million range (BTW, do you recognize that figure from anyone's "insider's sales"?).
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Question #3: "Is the end (for INSP) in sight"?
(no fair, you slipped it into Question 2)
For me personally, I must humbly reply...Yep! Not quite here right now, but it's definitely within sight...2-3 years max., IMO. Oh, perhaps they'll somehow survive as a very small niche player in the areas of "Merchant Services," "Wireless," or perhaps even "Broadband"...but not anything even close to being a truly "major player" in any of those areas, IMO. Nothing at all like very major role Paul Allen once envisioned that GNET would play in his "wired world" plans...which was the primary reason I personally held so much of this stock for far too long. Oh well, water over the bridge.
I sold the last of my trading shares of what some have called a complete SHAM of a company. What others have called a pyramid scheme, and still others a "Piece of Crap" company (disclaimer: not my "quotes," but apparently Merrill Lynch's) run by a shady wheeling-dealing snake-oil salesman and complete "Sleazebag" (see previous disclaimer). I don't personally believe any of those really mean nasty cruel descriptions of the company or its fearless leader at all. Nope, not me. I think such really mean statements like those are said by incredibly impoverished homeless people...who are just jealous that someone else got so filthy rich, and they're now so pathetically dirt poor. Yep, that must be it...just bitter losers. They weren't conned by a true master of the game, they were just plain born dumb. Yep, that must be it.
What I got for my last trading shares barely covered a few mortgage payments. If I'd sold them at their over-hyped high or anywhere near), they would have easily paid off the entire mortgage. Stupid me! Yep, just plain born dumb, I guess.
But I'm certainly not the only one who got royally taken-in by this complete fiasco. Paul Allen is perhaps the only major investor in GNET who never sold a single share, until well after the "merger" with INSP. He lost the most of anyone, by far. I'll never forget what he told me during our last little chat in 2001, regarding GNET & INSP. It was something like, "Yeah, a lot of us should have sold at the high." At one time his 11,922,406 GNET shares were worth over $1.329 billion. He finally dumped them all for his first and only "sell" of either company on 9/10/01 as INSP ("converted") shares, for a mere $22 million. It's small consolation, but it does make me feel just slightly less dumb that the 3rd. (or 4th.?) richest person on the entire planet can also make a huge mistake in judgment when it comes to his stock "investments."
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Anyway, please don't ever ask me a question again! <ggg>
Because, as someone recently wrote on one of the SI boards...
"Bevity is the soul of wit." ;)
Roger
PS. And yeah, what about having a category in financial reporting called "Bad-Will"? Companies who not only have absolutely no "goodwill" whatsoever with the public, their customers, shareholders, analysts, Wall Street, etc. Those companies having a reputation so repulsively "Bad" (perhaps just short of criminal, but not necessarily) that they will be required to have "independent auditors" review just how much they are required to delete from their "Total Asset" reporting balance sheets, because of being so Gawd-awful BAD!
Proposed new FASB accounting standards item:
BAD-WILL (deductions from "Total Assets")
(totally hypothetical, of course)
1. CEO rated a lying slime-ball...$1 trillion loss
2. Treating employees like sh*t...$1 trillion loss
3. BOD rated totally incompetent...$1 trillion loss
4. Hiring paid "touts" on Yahoo/RB boards...$1 trillion loss
5. Falsely saying "Diversifying Portfolio"...$1 trillion loss
6. Insider "Pumping n' Dumping"...$1 trillion loss
7. Claim'g "I'm smarter than B. Gates"...$1 trillion loss
8. 6 yrs. never mak'g a GAAP profit...$1 trillion loss
9. Being arrogant to shareholders...$1 trillion loss
10. "Leav'g to Spend More Time w/Family"...$1 trillion loss
11. Chang'g "Business Plan" over 10 times...$1 trillion loss
12. Providing SPAM or stupid "Alerts"...$1 trillion loss
13. Enabling "Pop-Up" ads on websites...$100 trillion loss
A trillion "loss" here, a trillion "loss" there, and (as somebody once said), "Pretty soon we're talking real money"...perhaps even as much as $100 trillion for the truly worst of the "BAD-Guys." |
