Frankly, I am becoming paranoid...What is going on with our country when it comes to bailing out of business? Do shareholders deserve any respect whatsoever nowadays?I was burned last week with Dana, a major auto parts manufacturer that abruptly filed for bankruptcy on March 3, 2006. Yes, I know, some of you are going to say that I should have seen it coming, especially under the recent Delphi experience, blah, blah, blah, but there are a few things that truly infuriate me. Bear with me and read further instead of rolling your eyes... Dana was created about 100 years ago and has supposedly reported a profit for the past 15 years. Also for the past 15 years, the company has consistently paid dividends. They even paid a 12 cents quarterly dividend as late as September 2005.The book value stands on the last statement at around $16 with a reported cash position on 6/30/05 of $666M. The stock price dropped from $17.60 to the $5 range shortly before the bankruptcy filing.Now, we suddenly read that the last quarter alone originated a loss in the vicinity of $1,3 billion! Oh, and, by the way, we are also going to restate some of the previous reports, due to some accounting errors...So the CFO retires the day before the bankruptcy filing, but he's not leaving the distressed ship... not at all. He's going to stay as a consultant for the mere compensation of $35K a month. Certainly the company must have access to his expertise and, at such a bargain price, why not do it?Did I mention that the bankruptcy concerns only the US operations and that all the off-shore business stays as it was?Of course, you know what happens to stockholders in the case of bankruptcy... They'll be left with pennies, if they indeed get anything at all. Now, please somebody tell me how it is possible that a company could be allowed to file for bankruptcy on the very first sign of difficulty? Certainly I understand that the position of automaker parts is quite a challenging one with the consistent market share losses that Detroit is suffering from. But <$1,300,000.000> in one quarter? Didn't anybody see it coming? I feel just plain cheated. I consider myself as an educated value investor and have been investing in stocks for almost 40 years. The one thing I need to rely upon is the numbers that are given to me. If I must be suspicious of all the financial reports that are published, I might as well bail out and gamble in Las Vegas. At least, there, we know what the odds are.It certainly doesn't do me any good, financially speaking, to write that board, but it most certainly feels good to vent...
I just found out that nearly three quarters of the $1,274 million Dana claims as a loss for the 3rd Quarter are, in fact, "Income Tax Expenses". Now, isn't it interesting?http://finance.yahoo.com/q/is?s=dcnaq.pkDon't you hate being so powerlessly screwed like that?
I've been writing about this sham bankruptcy on the Ford, Dana, and GM boards. You're the first one to get the same feeling about it as I have. Here is a link to the news section on Dana's own site where they explain how they "lost" 1.3 billion http://dana.mediaroom.com/index.php/press_releases/2038The company provided a valuation allowance, as announced on Oct. 10, 2005, against its net U.S. deferred tax assets during the third quarter. The one-time impact of providing this allowance was a reduction in net income of $918 million in the period, which represents the restated net U.S. deferred tax assets at the beginning of the third quarter and also includes $13 million for a similar allowance against the company's U.K. tax assets. The valuation allowance was recorded because, based on its current outlook, Dana believes it is no longer more likely than not that the company will be able to utilize these tax assets. This action does not affect the company's ability to use these tax assets later if justified by future profitability in the U.S. and UK.Most of the rest of the "loss" was attributed to this impairment charge for their INTENTION to divest some parts of the business Additionally, on Oct. 20, 2005, the company announced its intention to divest its non-core engine hard parts, fluid products, and pump products businesses. An impairment charge to reduce the book value of certain assets of these businesses of $275 million after tax was recorded in the third quarter. Additional charges will be recorded in the fourth quarter of 2005 in connection with the classification of these businesses as discontinued operations.
It seems the new way to do business in the U.S. is to announce a restatement of earnings which puts investors on edge. Pay creditors early and even forward to create a cash flow shortage and to keep goodwill after the forthcoming bankruptcy announcement. Devalue the business by understating the value of assets, like K-Mart with it's stores (they are selling them at triple the value they claimed they were worth when filing bankruptcy) and here with Dana by taking a nearly billion charge for their deferred tax assets (although they still can use them). When the shares plunge from these actions announce the hiring of a bankruptcy firm, the inability to make a bond payment, or the inability to pay a creditor you didn't want to keep because of the created cash flow shortage. Once the trading is halted from these announcements you can claim bankruptcy. Once the shareholders are removed from the picture you still have the same company, same contracts, same machinery and buildings, but now have complete ownership. You have effectively taken the company private at near zero cost. Next is to reduce costs. Claim labor and medical rates are too high and recind the contracts. dump the pension on the PBGC. Being "bankrupt" the contracts with employees can be nullified at will. Now, with the company private, shareholder equity eliminated, pensions eliminated, and labor costs reduced, this is the new standard. Other competitors must conform to this new model or they will suffer. Collect the companies into a group like the International Automotive Components Group and then sell them to an offshore company like Wilbur Ross and Steve Miller did with the International Steel Group.
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