Is it just me?

Warren Whitmore · #1 10-29-2003, 07:44 PM

Or does anyone else think it strange that RJR loses 40 bucks per share this quarter and at the same time its price goes from $40 to $50 per share. Sure its merging but a loss is still a loss.

adios · #2 10-30-2003, 01:23 AM

Almost the entire loss was due to a goodwill impairment charge which is a non cash charge. Market has long ago discounted the acquisitions that put the goodwill on the balance sheet. Don't know exactly how the goodwill ended up on the balance sheet for RJR but here's a fairly typical situation especially for tech stocks. Company A acquired company B when both companies stock prices were much higher in a stock swap deal. The difference between what company A paid for company B and company B's book value goes on the balance sheet as an asset called goodwill. However since company A's stock price is inflated and it's a stock swap deal the value of the goodwill doesn't decline as the price of company A declines so it appears to be a lot of money but in reality it's not. This is because company A paid for the acquisistion with it's inflated stock value and not cash. This is exactly what happened when the now Time Warner then AOL lost a $100 billion or $50 billion or something like that. The same thing happened with Sun Microsytems when they reported a multi billion dollar loss awhile back. The Financial Accounting Standards Board (FASB) changed the rules on accounting for goodwill awhile back. Goodwill used to be amoritized as expenses over a period of time but FASB changed the rules to do impairment testing of goodwill and when goodwill fails these impairment tests the charge is taken. A lot of hype in the press when this happens but it amounts to a whole lot of nothing. I've said more about goodwill than probably needs to be said.

Warren Whitmore · #3 10-30-2003, 07:47 AM

Wildbill · #4 11-02-2003, 10:18 PM

Who could ever forget JDS Uniphase and their monumental write-off awhile back. It was something in the BILLIONS!!! They were among the most serial of acquirers and they just used their stock to get the companies they bought. Accounting rules requires a market price based on stock, even if the company doesn't pay a dime for an acquired company. Isn't capitalism great, you can buy something for almost nothing! All it costs you is potential EPS, but if you make a good acquisition even that doesn't have to be a cost. Most acquisitions don't live up to the hype, but some do and those that are bought by just issuing paper are examples of good management at their best.

adios · #5 11-03-2003, 10:01 AM

"Most acquisitions don't live up to the hype, but some do and those that are bought by just issuing paper are examples of good management at their best. "

I agree with this especially if your company's valuation is up in the stratosphere somewhere. Why not use the currency of your stock to pick up valuable, moneymaking assets especially if you're especially good at identifying them? As always I sincerely appreciate your insightful, intelligent, and rational commentary. Thank you and IMO you're a true and valuable asset to all the forums that you post on.