The Deal with George Foreman
▪the old deal with George: 60% of gross profit
–approximately $64 million in 1999
▪Is this an accounting distortion?
▪correcting the balance sheet today versus forecasting the
correction in the future?
http://www.biggeorge.com/familyman/familyman.htm
Suppose Foreman Trademark has a 3 year life.
Adjusted amounts based on amortization over 3 years = 40.5M/yr or 32.4M
more than As Reported
15 yr
amortization
3 yr
amortization
2.05
2.1
2.15
2.2
2.25
2.3
2.35
2.4
2.45
net operating asset turnover
15 yr
amortization
3 year
amortization
0
0.02
0.04
0.06
0.08
0.1
0.12
0.14
net operating margin
removing the 113.9M asset
▪benchmark price is $1417.84 (with 9/30/2000 valuation date).
–move $113,900K from Intangibles to Other Assets
▪method 2: remove asset in year 0
–set Other Asset = $0 in 2000
–lower Retained Earnings by $113,900K in 2000
–note the debt/asset ratios (19.9 current and 38.1 LT)
Salton Redux
▪what was the point again?
–accounting distortions influence on valuation
▪when we correct doesn’t matter
▪naïve extrapolation of past sales growth
▪overstatement of profitability
what happened? (so far)
Actual Actual Actual Actual Actual
Fiscal Year End Date 7/1/2000 7/1/2001 6/29/2002 6/29/2003 6/30/2004
Sales Growth 65.4% –5.4% 16.50% –3.00% 20.00%
Return on Equity 0.818 0.240 0.132 0.032 –0.445
Financial Leverage (LEV) 2.413 1.948 1.958 1.749 1.927
sales growth mean reverts quickly