Alloy’s overworked accounting department.
In last week’s conference call, Alloy’s CEO Matt Diamond mentioned the company is reporting an "extraordinary gain" of $5,500,000. This amount comes from the purchase of Channel One from Primedia, Inc. earlier in the year.
Putting it as simple as we can:
- Primedia tried for years to find a big, reputable company to invest in, or buy Channel One. No company wanted Channel One.
- At the last minute before Primedia was to pull the plug on Channel One, Alloy Media and Marketing offered to take Channel One off Primedia’s hands. It was widely reported that Alloy received the assets of Channel One and assumed liabilities that equaled the value of the assets. In other words, Channel One went from Primedia to Alloy and had a net worth of zero (assets = liabilities).
- Now in December, Alloy reports their 3rd quarter financial earnings and says they made a BIG BOO BOO. It seems, Alloy’s silly accountants had overestimated Channel One’s liabilities. Instead of $8.6 million in assets and $8.6 million in liabilities, Channel One only had $3.1 in liabilities. Therefore Alloy gets to bump up its earnings this quarter by $5.5 million.
What this means:
Channel One didn’t have ZERO net worth – they had NEGATIVE net worth. Primedia PAID ALLOY TO TAKE CHANNEL ONE.
It was embarrassing enough for Channel One to be taken over by a company like Alloy Media and Marketing. It was embarrassing enough for the public to know that Channel One had sunk to a value of zero. Now it is REALLY embarrassing to know that Primedia had to not only give all Channel One’s assets to Alloy but also had to sweeten the deal by giving Alloy an additional $5.5 million.
Obligation’s Jim Metrock said, "This ‘mistake’ on Alloy’s part sounds phony. How can business people make a 177% mistake in calculating the acquisition costs related to Channel One? You have to be close to a complete idiot to manage that and complete idiots are very rare especially in the business world of Manhattan. Did Alloy inflate the liabilities to make them equal the assets so there would be no unpleasant stories about the magnitude of Channel One’s collapse? What this new information means is Channel One is close to being ‘radioactive’. It may be so deadly that it will kill, or make very, very sick whatever company owns it. In 1995 Channel One was purchased for a quarter of a billion dollars. Millions and millions of dollars have been poured into the company since then. Now we discover Channel One’ parent company not only didn’t receive a PENNY for the company, but it had to PAY someone to make the problem – Channel One News – go away."
| From Alloy’s 3rd Quarter 10-Q Statement |
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ALLOY, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (In thousands, except per share amounts) |
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Channel One On April 20, 2007, the Company acquired the operating assets of Channel One Communications Corporation (“Channel One”), receiving $8,600 of working capital, of which $5,000 was cash, from PRIMEDIA, Inc., by assuming certain liabilities of Channel One, with an approximate value of $8,600. Accordingly, the fair market value of the assets acquired is approximately the value of the assumed liabilities. Channel One provides news and public affairs content to secondary schools throughout the United States free of charge, in exchange for the schools’ commitment to air at least 90% of its programs, including commercial announcements. Channel One’s programming is delivered daily during the school year, via satellite, and reaches millions of students. The results of Channel One’s operations since the date of acquisition have been included in the accompanying consolidated financial statements. Channel One is a part of the Company’s Media segment. During the third quarter of fiscal 2007, the Company adjusted the liabilities of Channel One, resulting in a gain of $5,500. This gain is more fully discussed in Note 5. 5. Extraordinary Gain In conjunction with the Channel One acquisition which is more fully described in Note 4, the Company assumed certain liabilities of Channel One which had an estimated value of $8,600. The actual value of certain assumed contract obligations and severance agreements, after all tax considerations, was determined to be $3,100, or $5,500 less than $8,600, the amount originally estimated. As a result, $5,500 was recognized as an extraordinary gain and a
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