It is interesting that the size of the write offs is approximately double the 2003 guidance. Even the guidance for 2003 has been now estimated at the bottom of the previous range...namely 55 cents.
If it takes that size of write downs to ensure next year's guidance, then the 2003 guidance was clearly not achievable.
With earnings this quarter(before the writedowns) at 5 cents/share and if this is all they end up actually being capable of achieving for the next four quarters, then applying a p/e ratio of 10 x to this (4 x .05 cents x 10) would give a fair market price of .......
With the governance issues outstanding and the track record in shambles and the investigation now expanding to the other managers, I expect that Scrushy is in some pretty serious trouble. He will most certainly be replaced and many of the executive team will be replaced.
The reason the 55 cents guidance is not as credible now is because it now comes on the heels of non-cash writedowns of more than $1/share. This suggests that the expenses that are normally taken quarter after quarter are being brought forward to this quarter. This will tend to inflate next year's earnings.
It is like promising that if I lose a dollar this year with writedowns, I can guarantee my business will make 55 cents next year.
When the 2003 guidance was given in December 2002, it was given assuming that there would be normal expenses would prevail. Now those expenses have been brought into this year and so of course next year's guidance will be easy to achieve.
JMO but I had always presumed that the major issues for this company was governance issues and insider trading issues. Now I am sensing that there are some serious fundamental issues at play.
Let me put it another way. If they had not taken the writedowns this quarter, there is little likelihood that they could achieve their guidance figures next year because these expenses (i.e. goodwill depreciation and such) would be taken slowly over the next few years.
Now with the sale of 20% of their sites, the company cannot possibly be the same organization until all that restructuring is done. These are fundamental issues for the company that will take many quarters, probably years to sort out.