Fooling Some of the People All of the Time, a Long Short (And Now Complete) Story, Updated With New Epilogue
“We’ve seen a lot of examples in short sales where the company maintains that the short-sellers are wrong, but at the same time the company has to change either its accounting or business practices so that the results fail to live up to previous standards. This process began for Allied with this quarterly announcement. Allied announced only forty-one cents per share of net investment income (this term excludes write-ups and write-downs of investments and is used interchangeably with operating e...arnings) compared to fifty-three cents per share the prior quarter and forty-six cents in the year-ago quarter. Analysts expected fifty-seven cents per share. Weeks before, Walton highlighted the importance of these “recurring earnings” from interest, fee, and dividend streams that excluded volatile gains and losses in the portfolio. Interest income was less than expected, because non-accrual loans more than doubled from $40 million in the March quarter to $89 million in the June quarter. PIK (payment-in-kind) income fell from $13 million in the first quarter to $8 million in the second quarter, and fee income fell from $16 million to $11 million. Clearly, Allied adopted a more conservative revenue recognition policy.MoreLess
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