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  • Tesla: Firing On All Cylinders Without Cylinders [View article]
    "So you wanna have only your opinion unchallenged in the comments section ? If my opinion does not suite you, simply do not reply to my reply.... "

    You wish to argue when there are no grounds to argue. Just an irritant.
    May 3, 2015. 10:02 PM | 3 Likes Like |Link to Comment
  • About Linn Energy's First Quarter [View article]

    See my comment on your article. Hedging is not a problem. It achieves the objective for which it was entered into, stable cash flow. GAAP distorts economic reality.
    May 3, 2015. 09:42 PM | Likes Like |Link to Comment
  • The Hedge Bomb - Why Hedging Will Not Save Shale Oil [View article]

    The hedges are not a problem, they insure stable cash flow. If energy prices rise, GAAP records losses on those derivatives, true. But, that isn't a "bomb" or problem. When energy prices rise, the value of the reserves also rise, even though GAAP fails to recognize that increase in value.

    So, if I have hedged 300,000 of barrels of oil with a put option, with a strike price of $90, my purpose is to get at least $90 for its sale, or $27,000,000.

    Let's say that in the 4th Qtr of 2014 the price of oil fell to $50 per barrel. My option contract went from a value of $0 to $12,000,000, which GAAP recognizes. But the value of my reserves that are hedged also fell in value by $12,000,000. GAAP does not recognize that. Basically, there has been no material profit or loss because the increase in value of the hedge has offset the loss in value of the reserves, even though GAAP fails to capture that reality because I have not declared the derivative as a hedge for accounting purposes.

    Then if prices rise $10 at March 31, 2015, from $50 to $60 a barrel, my derivative will lose $3,000,000 in value, so now it is only worth $9,000,000. GAAP recognizes that, but because I haven't declared the derivative as a hedge, GAAP fails to recognize that the hedged item, the 300,000 barrels of oil, have also risen in value by about the same amount. Again, there has been no material profit or loss.

    Let's say I sell the oil at $60 a barrel and settle the derivative contract, on May 15, 2015:

    Sale of oil:
    Debit: Cash $18,000,000
    Credit: Revenue $18,000,000

    Settle the derivative:
    Debit: Cash $9,000,000
    Credit: Put option (asset) $9,000,000

    I have achieved my objective of getting at least $90 per barrel for the sale of my assets. Because I have not declared my derivatives as hedges, under GAAP the timing of the gains and losses on the value of my assets, both the reserves hedged and the derivative, are not matched in the same period, as they would have been if I had declared the derivative as a hedge. Nevertheless, I have achieved my objective of selling my assets, the reserves, at a specified price to achieve stable cash flow.

    The final result: no material profit or loss on the hedged assets and my cash flow objective has been achieved.

    I find your article pointless, a tortured, very wordy and lengthy, exercise in futility. GAAP creates distortions in Net Income and Loss because it fails to capture the changes in FMV of the hedged item, the reserves. Hint: GAAP does not reflect economic reality.
    May 3, 2015. 09:35 PM | Likes Like |Link to Comment
  • Tesla: Firing On All Cylinders Without Cylinders [View article]

    See my post above. I am not talking to you.
    May 3, 2015. 07:34 PM | 1 Like Like |Link to Comment
  • Tesla: Firing On All Cylinders Without Cylinders [View article]

    I have stated I don't wish to debate with you because you don't accept facts. Don't reply to my posts again. I wish I could mute you.
    May 3, 2015. 07:32 PM | 1 Like Like |Link to Comment
  • Linn Energy, A Perfect Cash Burner [View article]

    What I meant is that LINE does not pay down their debt but keeps on accumulating it. They spend all of their meager income on distributions and don't use any of it to pay "down" debt.

    The derivatives you speak of were paid for with debt and equity, not earnings.

    Sorry, but LINE's model doesn't work and the collapse in energy prices shows the weakness of the model.

    It's like a person who spends more than they make. They borrow off of credit cards to keep up the lifestyle until the credit card payments require more cash than what they can pay back on a monthly basis and they have no net worth. It is irresponsible.

    The assets paid with debt and equity are now worth substantially less and whether they will recover that loss in value is in question. The assets were all paid for with debt and equity, not what LINE earned. LINE, like homeowners right before the great recession, was banking on the assets being worth more and more as the years passed. That didn't happen. So LINE's "interest only" mortgages (not paying anything towards the principal) have become an albatross, rather than an asset.

    They need to be reducing debt to a more acceptable level and paying out less in distributions. That is holding something back, rather than spending it all on distributions. I think what I am saying here is LINE's Free Cash Flow has always been negative. That needs to change.
    May 3, 2015. 10:52 AM | Likes Like |Link to Comment
  • Tesla: Firing On All Cylinders Without Cylinders [View article]

    I don't see any I would consider will be below 50% of purchase price in a year, price reduction or not, and most of these are 2013 models. Nothing close to $55000 to $60000, much less $50,000.
    May 2, 2015. 07:29 PM | Likes Like |Link to Comment
  • Linn Energy, A Perfect Cash Burner [View article]
    @Pedro de Almeida,

    "The fact that many companies now try to deprecate GAAP is just to be able to trick investors into investing in bad companies"

    I am simply trying to point out that GAAP doesn't reflect the underlying economic reality. From the textbook, "Financial Statement Analysis" by Subramanyam and Wild, 9th edition, copyright 2007, Chapter Four: Analyzing Investing Activities, Page 212:
    "From our analysis perspective, two distortions arise from asset impairment:
    1. Conservative biases distort long-term asset valuation because assets are written down but not written up.
    2. Large transitory effects from recognizing asset impairments distort net income."

    No tricks, just opinion from authoritative sources. Both authors have doctorates in accounting, are college professors, and write regularly for prestigious accounting journals and other accounting literature sources.

    If energy prices go up, the value of the hedges go down, but you failed to mention that the FMV of LINE's reserves would go up, which means the assets written down for impairments would increase in value, yet the change in FMV of the reserves isn't reflected under GAAP. Are they? That's a real problem. GAAP fails to capture the economic reality in such a situation.

    That is similar to the Real Estate Industry. Asset values increase but GAAP fails to capture that value. Taking that into consideration, along with the derivatives, the impairments, and depletion, I submit that LINE had earnings almost every year since going public.

    NOTE: I am not advocating a position in LINE, just trying to talk sense about LINE's financials and why they can't be taken at face value.
    May 2, 2015. 06:32 PM | 5 Likes Like |Link to Comment
  • Linn Energy, A Perfect Cash Burner [View article]
    @M Plaut,

    Line has little earnings (although I would argue they do have a some) and depends on debt and equity issues to fund growth and, I would argue, some distributions. LINE has accumulated more and more debt to the point their survival is at risk now, IMO. Other MLPs such as Magellan Midstream Partners, and a few others, don't distribute near the amount of cash as LINE in relation to their share price. I think LINE needs to rethink their Model, assuming they survive this downturn in commodity prices. Saving some for a rainy day is just prudent.
    May 2, 2015. 05:58 PM | Likes Like |Link to Comment
  • Linn Energy, A Perfect Cash Burner [View article]

    "LINE history of net losses,"

    GAAP isn't credible. The hedging materially distorts operating results and so do some of the impairments, and it can be argued that deprecation does as well.

    LINE's debt levels, the price of oil tanking, and the amounts LINE has paid out in distributions historically are different issues.

    The author doesn't recognize the flaws in GAAP for a company like LINE.

    Not long or short. Just a long time critic that LINE didn't earn enough to pay the amount of distributions it did.
    May 2, 2015. 01:34 PM | 2 Likes Like |Link to Comment
  • Tesla: Firing On All Cylinders Without Cylinders [View article]

    "Okay thanks, but now you say lease term. I'm talking about cars which are sold with full payment on delivery. Are these also treated as leases in the accounts (if sold with the guaranteed resale value)"

    The cars sold with the resale value guarantee are treated for GAAP as operating leases. So the transaction upon sale is:

    Debit: Cash $110,000
    Credit: Deferred Revenue $55,000*
    Credit: Resale Value Guarantee Liability $55,000*

    (*RVG and deferred revenue are estimates)

    Debit: Operating Lease Vehicle $80,000 (cost to manufacture)
    Credit: Inventory $80,000

    Cash is received up front for the full purchase price, but all of it is deferred under GAAP at the start. The deferred revenue portion is recognized as revenue, monthly, over the lease term of 3 years. The asset is transferred out of inventory into a lease asset account and it is depreciated over the lease term.

    After first month of lease:
    Debit: Deferred Revenue $1527.77 ($55,000 divided by 36)
    Credit: Auto Lease Revenue $1527.77

    Debit: Depreciation Expense xxxxx
    Credit: Accumulated Depreciation, Operating Lease Vehicle xxxxx
    (To record depreciation expense on leased vehicle)
    May 2, 2015. 01:07 PM | 1 Like Like |Link to Comment
  • Linn Energy, A Perfect Cash Burner [View article]
    @Pedro de Almeida,

    No comment to what I have stated here?
    May 2, 2015. 12:13 PM | Likes Like |Link to Comment
  • Linn Energy, A Perfect Cash Burner [View article]
    "They clearly intimated wrong doing on the accounting of LINE"

    But that is not why the SEC quit the inquiry. The ruling said there may be a better way to calculate DCF, as Barron's was asserting, but that wasn't their job, to determine who was correct. They simply said that LINE had not been deceptive or misleading in their presentations and had been sufficiently transparent in making those presentations.
    May 2, 2015. 12:11 PM | 1 Like Like |Link to Comment
  • Linn Energy, A Perfect Cash Burner [View article]
    @Pedro de Ameida,

    No, I am not wrong. You are right that GAAP isn't perfect. And, yes, it was developed to represent the best measure of a company's results/situation, I agree with you there 100%. I am a supporter of GAAP.

    But GAAP, was developed for "general purpose financial statements", meaning it is a broad set of standards that doesn't fit all circumstances perfectly. In some situations, such as LINE or the Real Estate Industry, GAAP actually distorts the underlying economic reality. You are familiar with the Real Estate Industry, I assume? When was the last time you saw a knowledgeable analyst or investor use GAAP Net Income or Loss or EPS as a valid measuring stick for that industry?

    As I stated in another post below, the impairment expenses are estimates based on "current conditions" not what will actually occur in the future because no one knows what will occur in the future. If oil goes back up to some degree, those "impairments" will be materially wrong. But GAAP doesn't allow the assets to be increased in value if that happens.

    On the hedges, the GAAP standard, SFAS 133, was written for when a company "declares" a hedge for accounting purposes, so that the revenue and expense or gains and losses are matched up at the same time. But, LINE doesn't "declare" its hedges for accounting purposes. This causes the hedges to be reflected at FMV but the hedged item, the oil and gas reserves, remain at historical cost less estimated depletion. So, just one side of the transaction is fairly reflected in the Income Statement, the gain or loss in value of the hedges. The values of the reserves are not marked to FMV. So, GAAP distorts the economic reality, as a result.

    You are giving too much credibility to GAAP and trying to make things more certain than they really are. I wish such credibility were warranted in LINE's case, but it isn't.

    "The accounting for derivative instruments at fair value creates a common issue for organizations that hedge risks using such instruments. Specifically, such organizations may face an accounting mismatch
    between the derivative instrument which is measured at fair value, and the underlying exposure being hedged, as typically underlying exposures are recognized assets or liabilities that are accounted for on a cost or an amortized cost basis, or future transactions that have yet to be recognized. This accounting mismatch results in volatility in the financial statements as there is no offset to the change in the fair value of the derivative instrument.

    In LINE's case, the cash flow statement is a more reliable statement for determining the company's results, yet you seem to discount it. Why? Look at 2012 through 2014 for that statement. There is a huge disparity between those positive cash flows and the Income Statement. The cash flows are real. The Income Statement contains many estimates, derivatives, impairments, and depreciation being 3 of such estimates.
    May 2, 2015. 11:56 AM | 8 Likes Like |Link to Comment
  • Tesla: Firing On All Cylinders Without Cylinders [View article]

    Yes. About half of the sales price is called "deferred revenue" and recognized monthly over the lease term. The lease is considered an operating lease.

    The resale value guarantee amount is booked as a long term liability. Its disposition is determined between month 36 to 39. If the customer keeps the car, it is booked as revenue then with the liability being wiped out.

    Debit: Resale value guarantee liability xxxxxx
    Credit: Auto sales revenue xxxxx

    If the customer turns the car back in the liability is wiped out when the cash is paid out.

    Debit: Resale value guarantee liability xxxxx
    Credit: Cash xxxxx

    I'm not sure if the above EITF is still in force, but it prescribes the accounting that Tesla is following.
    May 2, 2015. 11:32 AM | 1 Like Like |Link to Comment