iRobot disclosed a few months ago that it has about $14-16 million in Auction Rate Securities that have failed at auction. They also disclosed that they were of the student loan variety, and that they had decided not to take a charge against them because they were backed up ultimately by the federal government. HOWEVER, many companies have started taking charges against these securities of at least 20 percent and as much as 35 percent, which would mean about $3-5 million in iRobot's case. That would cut the projected $5-7 million in 2008 profit to Zero-4 million. Sad since iRobot had hoped to earn about $10 million before it ran into economic headwinds and a $1.8 million charge from the Linens 'N Things . (One possible piece of good news would be if LNT has approval to pay iRobot and others for pre-bankruptcy-filing sales in order to ensure continued product supply. Neither company has yet commented on this possibility, but we should hear more at the 2nd Quarter Conference Call coming up.)
Here is a Bloomberg story discussing the writedowns by two-thirds of companies holding student loan ARS paper.
In the meantime, lawsuits are flying, regulators are making raids and it may be a while before all this is sorted out. But there is no doubt this puts a cloud over the company, although it should not present any real liquidity problems as iRobot has zero debt and a sizeable credit line that it has yet to tap.
Tags: iRobot, securities
Sunday, July 20, 2008
Will Auction Rate Securities Wipe Out iRobot '08 Profit?
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