In Tuesday's earnings release Ener1 (HEV) shocked the market by booking a $59.4 million impairment of its investment in Th!nk Holdings, together with an additional $13.9 million "loss on financial instruments" charge to reflect its exposure under agreements that give other Th!nk stockholders the right to put their shares to Ener1 in exchange for newly issued Ener1 shares. It also announced that it had taken the further step of returning its shares to Th!nk in an effort to avoid consolidation issues.
From the tone of the subsequent conference call, it's clear that Ener1 wants to minimize its future exposure to Th!nk and hopefully realize some value for $31 million of loans to and trade receivables from Th!nk that remain on Ener1's books. Apparently the plan is to have third parties recapitalize Th!nk and repay the legacy debts to Ener1.
While anything is possible, I've seen very few restructuring and recapitalization transactions for troubled companies like Th!nk were kind to legacy creditors like Ener1. My pessimistic nature leads me to believe that a partial or full impairment of the remaining Th!nk exposure is likely later this year. If the existing put rights are exercised, the dilution impact on Ener1's existing shareholders could be significant.
As bad as the Th!nk impairments were, I'm more concerned about the remaining intangible assets on Ener1's balance sheet including $10.7 million of intangible assets and $52.8 million of goodwill that were created from the accounting aether when Ener1 issued stock in exchange for a 19.5% interest in its EnerDel subsidiary and an 83% interest in its Enertech subsidiary.
While Ener1's Form 10-Q discloses that it has "not completed the reallocation of goodwill to our new reportable operating segments as of March 31, 2011" the carrying value of those assets will have to be addressed this year.
In light of the catastrophic reorganization of C&D Technologies that was forced by an intangible asset impairment last fall, I don't believe Ener1 investors can remain sanguine when a company with $137 million in stockholders equity and substantial recurring losses will have to come to grips with up to $94.5 million in potential additional write-offs and asset impairments this year.