This opinion is from a 'Seeking Alpha' blog so it is questionable. But if this is true, LINE/LNCO is in deep doo-doo:
The debate about Linn Energy (LINE) is basically over. In an amended S-4/A filing in response to SEC comments, Linn Energy and Linn Co (LNCO) have effectively, and for all practical purposes, implicitly admitted that they have materially misled investors in several fundamental respects over the past few years. Specifically, on page 235 of the aforementioned SEC filing, LINN has implicitly admitted that they have been effectively forced by the SEC to revamp their accounting of such fundamental items as:
The scale and scope of Linn's effective admissions regarding misleading and/or questionable accounting practices, and the consequent changes that the company has been forced to implement, are absolutely breathtaking. These effective admissions and corrective changes are extremely significant and fundamentally alter the manner in which Linn will be forced to report its financial statements in the future (including possible restatements of financial statements of prior periods)
The analytical victory by analysts that have been critical of LINE's accounting practices has been stunning; almost total. The only question remaining is what, if any, SEC sanctions will follow and what restatements of prior financial statements the SEC will require. Linn has reported that the SEC investigations of possible wrongdoings continue.
Continued on reply to this thread.
Again, I don't know if this 'Seeking Alpha' blog is correct or not. But if it is correct a number of detrimental things will occur for LINE/LNCO:
1. The SEC will rein in LINE's faulty accounting and make them restate their true valuations for at least the last 3 years.
2. If LINE's accounting has been misleading/fraudulent, the Berry deal is dead: Berry shareholders won't okay any deal with a company that has a misleading/fraudulent management.
3. Over the next few years, LINE/LINCO legal expenses will be prohibitive for legal teams, court costs, and for class action lawsuit payouts.
4. The pps for both LINE and LNCO will collapse. How low? I don't know, but the pps' will collapse.
5. New investors in LINE/LNCO will be few and far between; a lack of interest for investing in a company that hasn't been straight forward with it's financial dealings.
6. The SEC will keep a watch on LINN for the next five years, to make sure management doesn't step over any 'accounting' red lines.
Linn's Effective Admissions And Announced Accounting Changes
There can be little doubt at this point that LINN is being forced to very substantially modify its accounting practices due to as of yet undisclosed formal or informal SEC findings to the effect that Linn may have misled investors in various critical respects. Below, I quote in its entirety a section of the S4/A entitled "Explanatory Note Regarding Non-GAAP Financial Measures and Distribution Practices." In this section, Linn details the areas where it seems that they have essentially been forced to admit, as a result of the ongoing SEC investigation, that their past accounting has been misleading, or at least highly questionable.
Historically, LINN's management has recommended, and the LINN board of directors has made a determination regarding, the appropriate level of cash distributions to unitholders by starting with "Adjusted EBITDA," which previously included adjustments for cash flows from acquisitions and divestitures between the effective date and the closing date and did not deduct premiums paid for put options, and deducting interest expense, "maintenance capital expenditures" and provision for legal matters. Going forward, LINN has decided to describe its methodology for evaluating distributions in the following manner:
•Adjusted EBITDA will no longer include adjustments for cash flows from acquisitions and divestitures between the effective date and the closing date and will deduct the premiums paid for put options that settled during the period.
•Adjusted EBITDA will no longer be the starting point for explaining LINN's management's recommendation of and the LINN board of directors' determination of the appropriate level of cash distributions to unitholders.
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•In explaining LINN's management's recommendation of and the LINN board of directors' methodology for determining the appropriate level of cash distributions to unitholders, LINN's approach:
1.no longer uses the term "distributable cash flow;"
2.starts with net cash provided by (used in) operating activities as determined in accordance with GAAP and as set forth on LINN's
3.statement of cash flows;
4.shows the difference between net cash provided by (used in) operating activities and the amount of cash distributions actually paid to unitholders for the applicable period; and
5.describes the discretionary adjustments made by the LINN board of directors when determining the amount of cash distributions to pay unitholders.
LINN's intent is to describe the specific adjustments considered by LINN's management and the LINN board of directors in recommending and determining the level of distributions and to allow investors to evaluate these adjustments.