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GT Advanced Technologies: Potential Value To Current Shareholders Is Still Murky At Best
Oct. 10, 2014 1:05 PM ET
Late Thursday evening, GT Advanced Technologies (NASDAQ:GTAT) filed an emergency motion to wind down both operations and the employee incentive plan at its sapphire growing facilities. In addition, it is seeking authority to reject certain executory contracts and unexpired leases.
In simple terms, GTAT wants to exit the business of manufacturing sapphire. The next court hearing, at which these motions will be reviewed, is scheduled for October 15th at 2PM ET.
GTAT will not be disclosing to the public what led to its bankruptcy filing. The judge overseeing the case ruled that Apple (NASDAQ:AAPL) and GTAT can keep the details of their arrangement confidential. The judge also authorized the sealing of court papers explaining what went wrong in the financing and supply agreement with Apple.
The sealing of the case tells us a few things. First, GTAT is being respectful and playing well with (at least some) others, including its largest creditors. GTAT has a financial incentive of $50m to keep Apple's secrets confidential, and it is acting on that incentive, which may benefit its creditors. Its behavior in the legal proceeding shows respect of Apple's privacy and may keep the relationship on a somewhat stable footing. It would seem GTAT is trying to exit its business with Apple as cleanly as possible.
One interesting tidbit emerging from Thursday's hearing is that holders of more than 4.75% of the stock are restricted from trading it. These include Wellington Management, Blackrock Institutional Trust, Systematic Financial Management, Vanguard Group and Fidelity Management.
I've spent considerable time perusing news articles, speaking with the WSJ and discussing possible options for GTAT shareholders with bankruptcy lawyers. Some readers have asked whether it makes sense to buy GTAT as a speculative play. It goes without saying that there is far too much uncertainty now for me or anyone else to make such a recommendation.
A Comment From GTAT About Shareholder Losses
GTAT's attorney did make a public statement regarding the loss of shareholder value:
“
"The company feels terrible about the loss of value and we will work every day, 24/7, to try to recover that value."
Aside from observing that the terms of this promise make it literally impossible to keep even if the company wants to, we can consider what it may actually mean. Is the company tipping its hand that it intends to exit bankruptcy with current shareholder equity intact? If that is its intention, are there legal means for it to do so? Given the inconsistency thus far between GTAT's words and its actions, can we believe it has the ability (legally, financially or operationally) to stand behind any of its statements? I am thinking here of its promise to explain to shareholders the reasons behind the bankruptcy, followed quickly by a motion just hours before the hearing to seal that information from the public.
We Need Clarity About Mesa Before We Can Assign Any Value To GTAT As A Speculative Bankruptcy Turnaround Play
Outside the Apple sapphire materials business, GTAT does have operations that can generate sizable revenue and earnings. Will they emerge from the bankruptcy to see the light of day, or will they be liquidated? If GTAT does emerge from bankruptcy, will current shareholders hold any equity? We don't know the answer, but we do know the odds are against us. How the court treats the assets at Mesa is key.
If GTAT winds down the plant, what happens to the equipment and inventory? GTAT owes Apple $440m and has other creditors besides. Will Apple will take possession of the equipment and try to run the Mesa facility? This will depend in part on whether Apple is committed to sapphire screens for its future products. Apple has told the WSJ that it wants to preserve jobs in Mesa but has made no distinction as to who might be the employer. Since GTAT plans to wind down the facility and Apple does not manufacture materials and components, this may just be a weak stab at public relations, but it may be that Apple will try to force GTAT to keep the facility running.
GTAT's 700 employees at the Mesa facility have ostensibly learned a thing or two about growing and fabricating sapphire. Is it possible that Apple would take over the plant but contract the work to GTAT? Since there are still yield issues to overcome, this would make more sense than letting it go dormant and trying to ramp it back up in the Spring. It would also incur considerable costs, however, and Apple is already in the hole on this deal.
Without answers to these questions, we can only guess whether GTAT will exist after bankruptcy. With court proceedings sealed, we may receive little more clarity for some time to come. One imagines that details will leak, especially about the status of employees. For what little good a full parking lot did to inform our thesis, an empty parking lot will be a sure sign indeed.
Editor's Note: This article covers one or more stocks trading at less than $1 per share and/or with less than a $100 million market cap. Please be aware of the risks associated with these stocks
http://seekingalpha.com/article/2553675-gt-advanced-technologies-potential-value-to-current-shareholders-is-still-murky-at-best?app=1&uprof=44
GT Advanced to Close Arizona, Massachusetts Sapphire Plants
1:00p ET October 10, 2014 (Dow Jones) Print
GT Advanced to Close Arizona, Massachusetts Sapphire Plants
By Joseph Checkler
Apple Inc. supplier GT Advanced Technologies Inc. said Friday the closure of its Arizona and Massachusetts sapphire plants will cost 890 people their jobs.
In filings with U.S. Bankruptcy Court in New Hampshire, GT Advanced called its agreements with Apple to produce sapphire materials for iPhones "oppressive and burdensome" and that terminating their deal was the only way to stop the bleeding.
One of the filings seeks to reject GT Advanced's contract with Apple, while the other seeks court permission to wind down its sapphire manufacturing plants in Mesa, Ariz., and Salem, Mass.
"The cash burn at GTAT's sapphire manufacturing operations for the benefit of Apple is not sustainable," lawyers for GT Advanced said in the request to wind down the facilities.
While the company said it regrets the potential lost jobs, winding the facility down by the end of the year will help "stop its mounting losses." The company said it would seek to close the plant during a court hearing Thursday.
As part of the wind-down, GT Advanced is seeking permission to pay incentive bonuses totaling up to $64,700 to some 13 employees who will help wind down the plant.
In seeking to reject the agreements with Apple, GT Advanced said it wants permission to assert further claims against Apple in the future.
"GTAT believes that it has many claims against Apple arising out of its business relationship with Apple," the company said in the fling.
Apple declined to address GT Advanced latest court filings, but reiterated its statement from Wednesday. "We are focused on preserving jobs in Arizona following GT's surprising decision and we will continue to work with state and local officials as we consider our next steps."
GT Advanced filed for bankruptcy earlier this week, a surprise to many investors and those who follow the company closely.
In GT Advanced's bankruptcy court debut Thursday, Judge Henry Boroff ruled the company could keep details of the Apple arrangement confidential. Judge Boroff also authorized GT Advanced to seal court papers that explain what went wrong in the financing and supply arrangement with Apple, GT's largest creditor and once its potentially largest customer.
The lack of information in GT's initial court filings about the status of its relationship with Apple left trade creditors, owed $145 million, and bondholders, owed about $434 million, eager for more details.
Daisuke Wakabayashi and Peg Brickley contributed to this article.
Write to Joseph Checkler at joseph.checkler@wsj.com
GTAT, Calls apple contracts oppressive and burdensome 11:45 am
GTAT, Wind down of sapphire business to cost 890 Jobs 11:39 am
DJCNEWS
The problem is liquidate to ordinary shareholders.
It's a risk or not?
Thanks,
A Surprise, S-U-T-R
GT Advanced Technologies (GTAT) Says Sapphire Operations Must be Wound Down (AAPL)
October 10, 2014 11:11 AM EDT
GT Advanced Technologies (NASDAQ: GTAT) says sapphire operations must be wound down and that cash burn for Apple (Nasdaq: AAPL) benefit is «not sustainable.»
GT also wants to reject sapphire operations accords with Apple, saying they will "no longer be required."
GT would like to wind down sapphire operations by December 31, 2014.
http://www.streetinsider.com/Hot+Corp.+News/GT+Advanced+Technologies+%28GTAT%29+Says+Sapphire+Operations+Must+be+Wound+Down+%28AAPL%29/9902691.html?si_email_click=2014101011
I sold to $ 1.07. I'm waiting, but I'm seeing something wrong on my board.
They are manipulating a fall, it is my opinion
Short sellers, cover to buy in premarket
Everything can be. This issue is very hermetic.
Smells like cat entrapped
Apple Supplier Wants to Wind Down Production
7:19p ET October 9, 2014 (Dow Jones) Print
Apple Supplier Wants to Wind Down Production
By Peg Brickley
Distressed Apple Inc. supplier GT Advanced Technologies Inc. plans to exit the business of manufacturing sapphire after a failed effort to produce material for Apple's smartphone screens, court documents disclosed.
A U.S. bankruptcy judge on Thursday allowed GT to keep secret the details of its problems with Apple which preceded its filing for protection from creditors. GT's Chapter 11 bankruptcy filing shocked investors and other backers and sent its stock price plummeting.
After a closed session with Apple and GT on Thursday, Judge Henry Boroff ruled the two companies can keep the details of their arrangement confidential. Judge Boroff also authorized GT Advanced to seal court papers that explain what went wrong in the financing and supply arrangement with Apple, GT's largest creditor and once its potentially largest customer.
The lack of information in GT's initial court filings about the status of its relationship with Apple left trade creditors, owed $145 million, and bondholders, owed about $434 million, hoping for more details when GT made its first appearance before a judge in Manchester, N.H., on Thursday.
Instead, GT lawyer Luc Despins said the company is "tied up in knots with confidentiality agreements" and can't reveal the full story behind the liquidity crisis that prompted its reorganization petition. Disclosing "the full causes of the filing and the game plan in the case" could cost GT $50 million in damages from a third party that has prohibited it from even discussing the confidentiality arrangements, Mr. Despins said. Later, a courtroom reference confirmed the third party is Apple.
Judge Boroff closed the courtroom to the public, and held a session attended only by representatives for Apple, GT and U.S. Trustee William Harrington, an officer of the Justice Department responsible for monitoring the bankruptcy courts.
The judge signed an order sealing a supplemental declaration from a GT executive that pertains to the relationship with Apple. He also told GT to file emergency motions, including one asking for authorization "to wind down operations at sapphire manufacturing facilities."
Additionally, GT will be filing motions seeking expedited hearings on its "motion to wind down certain operations" and get out of contracts and leases connected to the operations. The judge set an Oct. 15 date for a hearing in Springfield, Mass., on the wind-down request.
Exactly what happened to GT's supply arrangement and the related financing deals with Apple hasn't been revealed.
Apple declined to comment on the proceedings, but reiterated its statement from Wednesday. "We are focused on preserving jobs in Arizona following GT's surprising decision and we will continue to work with state and local officials as we consider our next steps."
Thursday's decision came at a secret court session convened hours into the hearing in GT's Chapter 11 case. During a recess, Judge Boroff sent a court official into the courtroom to remove those assembled.
The judge didn't provide an explanation.
GT's unusual motion to seal a motion to seal was filed at about 1 a.m. on Thursday. Judge Boroff's order says GT Advanced must give Apple three days notice if it wants to discuss their business relationship with the public or press, so that Apple can get a court order prohibiting disclosure of the information.
Apple and GT linked up in a $578 million financing arrangement that transformed GT from a producer of solar power and sapphire equipment into a manufacturer of sapphire material that was considered for use in Apple's new smartphones.
GT plunged to less than $1 a share from $11 a share in the wake of Monday's bankruptcy filing. GT lawyer Mr. Despins said, "The company feels terrible about that loss of value and we will work every day, 24/7, to try to recover that value." By the end of December, GT will have rung up total net operating losses of approximately $152 million, which translates into potential tax breaks of about $50 million, GT lawyer James Grogan said.
Meanwhile, GT Thursday won interim court approval of rules restricting trading for holders of more than 4.75% of the stock. That is a bow to Internal Revenue Service rules that limit the use of net operating losses when companies undergo a change in control
Daisuke Wakabayashi and Joseph Checkler contributed to this article.
Write to Peg Brickley at peg.brickley@wsj.com
Subscribe to WSJ: http://online.wsj.com?mod=djnwires
(END) Dow Jones Newswires
October 09, 2014 19:19 ET (23:19 GMT)
GT Advanced seeks to wind down sapphire manufacturing ops
.
Oct 9 2014, 19:18 ET
GT Advanced (NASDAQ:GTAT) plans to file a motion seeking authorization to wind down operations at its sapphire manufacturing plants, and has been ordered (.pdf) by bankruptcy judge Henry Boroff to immediately file it. A hearing on the motion is set for 2PM ET on Oct. 15.
Boroff also orders GT (referred to as "the Debtor") to "provide all such information as shall be reasonably requested to any party in interest and the United States Trustee and, in the Debtor’s sole discretion, to the public press, except that in the event that any such information relates to the details of the Debtors’ business relationship with Apple."
The order follows a GT request to keep its bankruptcy hearing (with Boroff and Apple) and court documents private. The WSJ says it "inquired about registering a protest over GT’s motion to seal the documents that explain what went wrong between GT and Apple," but didn't receive a response before today's court session.
GTAT -27.9% AH to $0.93
http://seekingalpha.com/news/2024265-gt-advanced-seeks-to-wind-down-sapphire-manufacturing-ops?app=1&uprof=44#email_link
As a strategy it is very good, freezes all debt. Now,GTAT has to work without pressure.
Transactions after hours,i expected. The movement does not exceed 10% of the last purchases before closing.
It is possible, although I do not think. Is not the business of apple . It would be more expenses and increased cost.
I think aloud. GLW could buy GTAT with the dagger of apple in GTAT
It is better to be in cash. I made a bet after hours, bought in @ .78
Now is a bet until Monday, the last day on the Nasdaq
In the last 18 minutes, I see a change in orders(Positive)
Last transaction:783,158shares,buy,Green in ask$1.29 15:59:59
663,921 shares,buy,green in ask $1.25 15:42 hs
646,996 shares,buy,green in ask $1.27 15:43 hs
635,240 shares,buy,green in ask $1.29 15:44 hs
595,689 shares,sell,red in bid $1.28 15:45 hs
1,163,138 shares,buy,green in ask $1.30 15:46 hs
528,959 shares,buy,green in ask $1.31 15:47 hs
975,124 shares,buy,green in ask $1.31 15:48 hs
286,428 shares,sell,red in bid $1.30 15:49 hs
977,990 shares,buy,green in ask $1.33 15:50 hs
497,803 shares,sell,red in bid $1.30 15:51 hs
944,434 shares,sell,red in bid $1.28 15:52 hs
255,189 shares,sell,red in bid $1.27 15:53 hs
480,697 shares,buy,green in ask $1.27 15:54 hs
144,410 shares,buy,green in ask $1.27 15:55 hs
576,133 shares,sell,red in bid $1.27 15:56 hs
563,056 shares,buy,green in ask $1.27 15:57 hs
646,540 shares,sell,red in bid $1.27 15:48 hs
738,158 shares,buy,green in ask $1.29 15:59:59 hs market close.
A positive bet after hour
Apple, GT Advanced in Secret Session with Bankruptcy Judge
1:54p ET October 9, 2014 (Dow Jones) Print
Apple, GT Advanced in Secret Session with Bankruptcy Judge
By Peg Brickley
A bankruptcy judge is huddling privately with GT Advanced Technologies Inc. and Apple Inc. over the problems that sent GT into bankruptcy Monday, shocking investors and other backers and sending its stock price into a tailspin.
Judge Henry Boroff dispatched a court official into the courtroom during a recess to bar the public and creditors who had assembled for the debut hearing in GT's Chapter 11 case, while GT and Apple talk things over.
The judge didn't explain his reasoning, and court staff didn't respond before Thursday's court session to inquiries from The Wall Street Journal about opportunities to register a protest over GT's motion to seal the documents that explain what went wrong between GT and Apple.
GT's unprecedented double-secrecy motion was filed at about 1 a.m. Thursday.
Discussions going on behind closed doors could well be the key to figuring out whether GT Advanced can reverse its fortunes in bankruptcy. Apple and GT linked up in a $578 million financing arrangement that transformed GT from a supplier of solar power equipment to a manufacturer of synthetic sapphire that was supposed to be used in Apple's new smartphones.
The iPhone 6 rolled out with Corning Inc.'s Gorilla glass instead, and GT filed for Chapter 11 protection in the U.S. Bankruptcy Court in New Hampshire, giving only a sketchy explanation of its financial situation.
That left trade creditors, owed $145 million, and bondholders, owed about $434 million, hoping for more details Thursday, when GT made its first appearance before a judge. Instead, GT lawyer Luc Despins said the company is "tied up in knots with confidentiality agreements" and can't reveal the full story behind the liquidity crisis that sent it into Chapter 11.
Setting out in public view "the full causes of the filing and the game plan in the case" could put GT at risk of being hit with $50 million in damages from a third party that has bound it to such secrecy that it can't even discuss the confidentiality arrangements, Mr. Despins said. Later, a courtroom reference confirmed the third party is Apple.
Exactly what happened to GT's supply arrangement and the related financing deals with Apple hasn't been revealed. Some published accounts allege GT's synthetic sapphire wasn't tough enough; other accounts allege GT couldn't make enough of the stuff to reassure Apple that it could meet the demand for the new iPhones. One person told the Journal that Apple was continuing to work with GT to try to resolve technical issues.
Suppliers, bondholders and shareholders are anxious to ascertain the status of GT's relationship with Apple, to evaluate the company's chances for survival. Some are demanding money now, fearful that the rift won't be repaired.
"We're already getting calls and threats," GT lawyer James Grogan said.
Federal bankruptcy monitors are also clamoring for more information about the company's finances, in a case where the usual disclosures haven't been made. "The record is insufficient for the court to find what the court needs to find," Ann Marie Dirsa, attorney for U.S. Trustee William Harrington, said during the public portion of Thursday's hearing.
A lawyer for the U.S. trustee was invited into the secret court session.
During the public portion of Thursday's court session, bondholder attorney William Baldiga urged that the business be kept running. The company's bankruptcy has "taken everyone here by surprise, not just bondholders, but I'm sure the trade creditors as well," Mr. Baldiga said. Keeping GT on its feet preserves creditor hopes, the lawyer said.
As for investors who saw share prices plunge from $11 per share to under $1 per share in the wake of Monday's bankruptcy filing, GT lawyer Mr. Despins said, "The company feels terrible about that loss of value and we will work every day, 24/7, to try to recover that value."
Meanwhile, GT Thursday won interim court approval of rules restricting trading for holders of more than 4.75% of the stock. That is a bow to Internal Revenue Service rules that limit the use of net operating losses when companies undergo a change in control
By the end of December, GT will have rung up total net operating losses of approximately $152 million, which translates into potential tax breaks of about $50 million, Mr. Grogan said.
Daisuke Wakabayashi and Joseph Checkler contributed to this article.
On Tuesday, Pink Sheet, GTATQ
Monday is holiday
Bankruptcy Judge Closes Court Hearing To Public,1:12p
Apple, GT Advanced In Secret Session With Bankruptcy Judge (Dow Jones)1:12p
My suggestion, is in cash. I sold , I gained in these days of rises and falls. Now there is a bankruptcy in the middle, and no one knows anything yet. I prefer to sleep peacefully and with cash in the bank and not a possible miracle.
If he crashes, bought for pennies. If all goes well and up, I buy too.
Conclucion, I win anyway
The level of short sale, is on the highest level.
Everyone is betting on the collapse of cents.
Buy at the time. Right now I'm waiting.
Everyone wants the collapse, to cover cents and earn fortunes. In these situations it is better to wait.
GT Advanced requests bankruptcy details remain sealed
.
Oct 9 2014, 12:14 ET
Squashing hopes that today's hearing would unearth crucial details about GT Advanced's (GTAT +2.3%) Chap. 11 filing, a lawyer representing the company stated a confidentiality agreement prevents it from sharing the cause of its bankruptcy, or its restructuring plan.
The agreement, said to put GT on the hook for $50M in damages per violation, almost certainly involves Apple, which is famous for demanding airtight secrecy from suppliers.
A lawyer from the DOJ's bankruptcy watchdog criticized GT's request. "The record is insufficient for the court to find what the court needs to find
http://seekingalpha.com/news/2023205-gt-advanced-requests-bankruptcy-details-remain-sealed?app=1&uprof=44
GT Advanced Technologies: What Went Wrong And What Investors Need To Know About The Bankruptcy Process
Oct. 9, 2014 11:51 AM ET | 1 comment | About: GT Advanced Technologies, Inc. (GTAT)
Disclosure: The author is long GTA
Summary
•We believe the management has been blindsided and do not believe the management misled or otherwise committed any fraud.
•The management can certainly be accused of ineptitude and poor risk management.
•There are many unknowns and the management owes investors some candid answers to the fullest extent possible within the limits of the Apple NDA.
We are believers in several of GT Advanced Technologies (NASDAQ:GTAT) product lines but, as our series of articles about GTAT clearly state, we have always viewed the GTAT's Apple (NASDAQ:AAPL) business as a risky one. The contract with Apple obligated GTAT to produce but did not guarantee any sapphire revenues. We took that risk to be real and modeled different scenarios that are likely to play out depending on Apple adoption. In various articles and discussions on Seeking Alpha, we even suggested that readers should assume that Apple business going to zero in the worst case scenario.
We believed, based on our reading of the Apple contract, that Apple loan was secured by the assets of LLC setup by GTAT for this business and not GT Advanced Technologies Inc. We saw that construct as a fair risk given the potential for a large return. What we did not foresee is a catastrophic cash drain situation that landed the Company where it is today.
Whatever it is that drove the company into bankruptcy was a surprise catastrophic event. The management appears to have been blindsided as they were forecasting in August that the Company had sufficient cash for the foreseeable future. Readers can see the following exchanges in GTAT's Q2 earnings call transcript:
“
Brian Lee - Goldman Sachs
Hey guys, thanks for taking the questions. Just from, first off, how should we think about the level of cash burn for 3Q and 4Q and do you see the need to raise additional capital to get Arizona scaled up to targeted operational efficiency. And then I have a follow-up.
Tom Gutierrez - President and CEO
As our guidance for the year suggests I mean we are expecting to end the year with approximately $400 million of cash on the balance sheet. And as you know from prior history, this business really starts to generate the cash once the order flow and the revenue flow starts to move. So at the moment, okay, we don't expect need to go out into the marketplace to raise additional capital.
Stephen Chin - UBS
Okay and may be a follow-on to that. If the final prepayment does not come through by that October timeframe is there an extension possible to that or is there a scenario where you then might need to raise more cash, if you don't get that prepayment?
Tom Gutierrez - President and CEO
I would say that these are milestone based, right and so when you reached a milestone, you get paid, they are not cliffs per se. And so I feel very confident based on the progress that we are making that we will achieve the milestone in that timeframe but as I indicated with the projection of having close to $400 million in the bank at the end of the year, it's not a world-ending event, if it slides although again I don't anticipate that it will slide.
It should be clear to readers from the above exchange that the management did not see a reason for additional capital in the near term, let alone be concerned about bankruptcy. Unless one is prone to conspiracy theories, whatever happened in the last two months was catastrophic and was far outside of management expectations. This development has also blindsided the street. To the best of our knowledge, the worst case scenario in many analysts' thinking was the need to raise additional capital in 2015. In spite of the predictable Monday morning quarterbacking on the subject, no analyst that we are aware of even uttered the word "bankruptcy" in GTAT context prior to the actual event.
While the bankruptcy is clearly distressing to stockholders, the Company seems to have enough equity to cover the debt and there seems to be some equity left for the stockholders. Per the bankruptcy press release, the Company has assets of about $1.5B and liabilities of $1.3B as of June 28. However, much of the liabilities are to a single customer, Apple. Apple's loan is collateralized by the Company's assets at Mesa. The heavy redactions of the Apple agreement make it difficult to predict how the collateralization would work. However, we expect that the net effect of any settlement with Apple is likely to lead to a carve out of the Mesa facility which would result in the Apple loan being offset by the equipment and working capital at Mesa. In effect, the balance sheet would become substantially lighter with likely superior debt to asset ratio. There is another factor that may skew the numbers further in GTAT stockholders favor. While we are no accounting experts, we believe the Mesa assets are currently being held on GTAT's books at cost (we invite accounting experts to comment below if they see it differently). In the event of transfer of these assets, we find it likely that the transfer would occur at a price consistent with the MDSA, which would give GTAT a significant margin on the sale. Such onetime event would substantially boost the book value of the Company. It is hard to put numbers on any of this due to the secrecy of the Apple deal but suffice it to say, this is in no way a typical bankruptcy.
As of September 29, the Company also has a cash position of $85M which it plans to use for ongoing operations. While this is not a huge cushion, it gives the Company a runway to operate as it negotiates through the process. And the runway is especially useful given the ramp up of many significant products at GTAT. The Company's Merlin, Hyperion, ASF, HiCz, and Polysilicon products are about to experience a strong growth spurt. These are high margin products and as these devices start selling in the Q4 timeframe, the Company's balance sheet will start to recover. However, the bankruptcy is likely to disrupt the product sales and we would not be surprised if some of the equipment sales get delayed or cancelled.
It is important to understand that the Company's outcome in the bankruptcy process is not defined by the balance sheet alone but the perception of value of various business units from the creditors view point. In this context, readers may be interested in our articles about the sum of parts valuation of the Company. We believe the creditors are likely to look at the Company in a similar way to determine how they should proceed to protect their interests. Note that majority of the Company's debt, outside of Apple debt, is in the form of convertibles. These holders have in the past viewed the equity of the Company as being potentially valuable. If the stockholders interests can be preserved through this liquidity crisis, we believe the Company has great products that are likely to deliver in spades over the next three years. We have considerable conviction in saying that the sum-of-parts of GTAT far exceeds GTAT's stock price before the bankruptcy. Whether the debt holders accept or recognize this view is speculative. And, even more speculative is how the recognition value, or the lack there of, would affect the management's negotiations with the creditors.
In other words, this bankruptcy is caused by liquidity crisis and stockholder interests may survive depending on the Company's next steps. Unfortunately, there is scant information available and it is unclear what effect the bankruptcy process can have on the equity going forward.
With the current publicly available information we do not suspect that management has mislead the investors and we do not believe the management committed any fraud. However, we are highly skeptical of the Company's risk management discipline. We do not understand how the management can take a risk of this scale and how the board of directors can approve such a risk without sufficient risk mitigation.
There are also some intriguing aspects of the bankruptcy that raise considerable risk for the stockholders. According to recent Wall Street Journal article:
“
"On Wednesday, Apple called the bankruptcy filing "a surprising decision." A person familiar with the matter said Apple had been working with GT to keep it solvent. In addition, Apple hadn't demanded repayment of loans as it could have, based on GT's weak cash position, people familiar with the matter said."
Per a separate Reuters article, Apple spokesman Chris Gaither said in an email that "We are focused on preserving jobs in Arizona following GT's surprising decision and we will continue to work with state and local officials as we consider our next steps"
These statements to us indicate a troubled relationships between the companies and raises more questions than they answer. While the details may not be known until the bankruptcy hearing, and may be not even then due to Apple confidentiality reasons, the most likely culprit that got GTAT to this situation is the relationship with Apple. Regardless of the exact reason, some key questions for investors to ask, and the management to answer, are:
- What exactly did GTAT fail to deliver that led to this situation? Was it yields? Cost? Schedule? Material performance such as breakage? Something else? It is critical that management address this issue. Investors need to understand the failure mechanism that led to this disaster.
- Is the relationship with Apple salvageable?
- Given the current state of the Apple relationship, how much of the Company's 2014 guidance still remains intact?
- Can GTAT hand over the keys to the Mesa facility to Apple and write off the assets and debt from its balance sheet? (this was our worst case assumption)
- Can the cross defaults on convertible notes and other debt be cured without inflicting substantial pain on the common stockholders?
- Does GTAT need concessions from any lenders other than Apple?
- And, last but not the least, was the Company aware of what could go wrong with the contract? Why was such a catastrophic risk not managed? Why did the Company not raise cash in Q1 or Q2 or even Q3?
Management owes its investors an open and honest communication in this regard so that investors can make a reasonable assessment of the Company's stock value. We understand that the Apple NDA prevents disclosure and holds the Company accountable to a tune of $50M per violation. However, the Company has to push the limits of the NDA to the extent possible to give the investors as much information as possible.
Can the current shareholders survive or get wiped out by the Chapter 11 process? The unfortunate answer to is that there is no certainty in the Chapter 11 process. Investors will get a better idea of the equity as the process plays out and the stock is bound to oscillate at a penny stock or near penny stock level based on speculation.
While the equity in GTAT currently is speculative, the bond market may provide an interesting opportunities for aggressive investors. Bond investors should note that GTAT bonds CUSIP ID GTAT3908991 and GTAT4078167 are trading by traditional bankruptcy metrics assuming the worst for the company. We believe the assumptions behind this pricing are flawed. GTAT is in a rapidly growing markets with great products. The problem here is liquidity and an aggressive bet on a single customer in one of Company's markets. Considering the underlying dynamics, especially with Apple's debt being secured by Mesa assets, these bonds are severely mispriced. We currently see a decent potential for the equity to survive. Which, in turn implies that debt holders are likely to come out of the process nearly unscathed. Given the Company's on balance sheet assets as well as off-balance sheet prospects, we believe the bond investors have a lot to gain by purchasing these securities at the current levels.
Regardless of the outcome, the management team and the board should be held accountable.
http://seekingalpha.com/article/2550985-gt-advanced-technologies-what-went-wrong-and-what-investors-need-to-know-about-the-bankruptcy-process?app=1&uprof=44
GTAT, Has been operating at loss could reach $152 M by December
11:37:00 AM (Bezinga)
You believe that lie? Apple claims its warranty, sapphire entire plant with its machinery. The money is small change for apple and is fortunate to deduct from income tax.
You think apple urine holy water? haha!
GT Advanced (GTAT) Has a Few More Days to Trade Like a Real Stock Before Moving to the Abyss(StreetInsider.com)
With GT Advanced Technologies (NASDAQ: GTAT) filing for Chapter 11 bankruptcy protection Monday, NASDAQ rules govern how long the stock can remain trading on the exchange before it gets shuffled down to the lowly pink sheets or OTCBB.
According to NASDAQ rules: When a company announces that it has filed for bankruptcy protection, or that filing is imminent, NASDAQ will impose a news dissemination halt. Generally, trading will be allowed to resume 30 minutes following release of the news. Shortly following the resumption of trading, NASDAQ will issue a delisting letter to the company, which will indicate that the company will be delisted in nine calendar days from the date of the determination letter unless it requests a hearing within seven calendar days. The company is required to publicly disclose that it has received this letter as soon as possible, but in no event later than four business days from receipt of the letter. If the company requests a hearing, trading will usually continue until the Panel issues its determination. Hearings for bankrupt companies are generally scheduled within 25-30 days of the date of NASDAQ's delisting letter.
So assuming NASDAQ fired off the letter yesterday and assuming GT Advanced doesn't appeal the delisting, which will likely be the case, shares could be delisted as soon as October 14th.
The stock will likely start trading under the ticker symbol "GTATQ" (with the Q indicating bankruptcy) following the delisting.
GT Advanced Technologies: Can Current Shareholders Walk Away With Any Value?
Should I Sell My Shares Of GTAT Or Wait For Thursday’s Bankruptcy Hearing?
The risk of GT Advanced Technologies' (NASDAQ:GTAT) shares ending up worthless is very, very high. I have reviewed several recent chapter 11 bankruptcy filings. In only 10% of them did existing shareholders receive equity after the company emerged from bankruptcy. In some cases that took as few as two months, and in other cases it took years. Usually the bankruptcy gives the company a smaller balance sheet, but it also wipes out existing shareholders and issues new equity shares.
In other words, the odds do not favor appreciation in GT shares. Total loss is more likely.
In order for shareholders to walk away with any value at the end of the day, GTAT has to sell assets in order to raise cash so it can pay off creditors. It also has to retain enough assets to return to profitability.
The bankruptcy hearing starts at 10 AM ET on Thursday October 9th. If GTAT declares that it does not intend to preserve any equity for shareholders, this is a clear message that the shares will be worthless. The window to sell shares for more than $1 may abruptly close on Thursday morning during the court hearing.
I am still holding 60% of my investment. If share price crosses $2 before the hearing begins, I will sell half of my holdings. If not, I plan to hold my remaining shares in hopes that Apple (NASDAQ:AAPL) will be a "white knight" and return some value to GTAT.
GTAT's Sapphire Materials Business Is The Only Business Worth Selling
The quickest and most attractive way to raise cash, improve GTAT's balance sheet and return to profitability is to sell the sapphire materials business to Apple. The sapphire business is worth only as much as the assets on the books, however. In order to change that, GTAT needs to prove to Apple that they can hit the quality and yield metrics that were required to receive the final prepayment. If GTAT successfully ramps up the Mesa plant, Apple may feel compelled to give GTAT's sapphire materials business and current GTAT shareholders a premium cash investment.
Apple does not traditionally operate manufacturing facilities or supply its own components or materials, however. GTAT has already gone through the growing pains of hiring and training hundreds of new sapphire growth and fabrication employees since the beginning of 2014. GTAT already lost $45m in inventory associated with the ramp in Q2. It probably lost even more in Q3, resulting in Monday's bankruptcy filing. GTAT burned through $83m per month over the past three months. It still failed to hit the metrics required to receive the final prepayment, which might have allowed it to stave off bankruptcy.
Looking back at turnover in personnel, heated discussions between management, and unconfirmed reports of good sapphire boules being recycled, it is evident that GTAT bit off more than it could chew. It appears management may have tried to cover up operational issues that emerged after September 9th. While it may be the case that Apple initiated remedial action against GTAT in accordance with the terms of the prepayment plan, it is also quite possible that GTAT placed the call to Apple at the end of Q3 after it picked up the pieces and realized its financial position was significantly worse than expected. Regardless who initiated it, a review of GTAT's financials clearly revealed a default against the terms of the prepayment agreement, and the call was made to file chapter 11 bankruptcy last week. We will find out as early as Thursday morning exactly what happened inside Mesa that led to GTAT's current liquidity crisis.
During the two weeks preceding the bankruptcy announcement I received not one but two confirmations from separate sources that the Mesa facility was ramping and/or producing volumes of sapphire. I have no information related to the number of furnaces running or the quality of boules being produced by the facility.
GTAT may be operating under chapter 11 bankruptcy protection, but I believe the company is still trying to receive the final prepayment from Apple. At this point, however, the final prepayment is not enough to save GTAT from bankruptcy.
The only way GTAT can come out of bankruptcy quickly without a major restructuring plan and preserve current shareholders is to successfully ramp the Mesa facility and persuade Apple either to invest in or divest itself of GTAT.
GTAT's sapphire materials operations has approximately $700m of assets comprised mostly of ASF growth furnaces and fabrication equipment. I estimate inventory of $150m as of September 29th, up from $100m as of June 2014. In addition approximately 700 employees are still working at Mesa.
Sapphire materials operational liabilities are approximately $585m. This includes repayment of Apple's $440m prepayment and $145m owed to trade partners.
The annual payroll expense for the 700 employees is approximately $45m. This is included in COGS and reflected in the gross margins. At full capacity, the Mesa plant is capable of producing $1B+ revenue with mature margins of 25% less corporate taxes of 35%, resulting in a positive cash flow of $163m per year.
If Apple chooses to invest in GTAT, I believe it must write a check for over $1B to acquire GTAT's equipment and inventory and pay off GTAT's suppliers. This is the only hope for current shareholders. A minimum investment of $1B from Apple would leave GTAT with approximately $385m in cash less the bankruptcy costs, which is not far off from the $400m cash balance the company once expected to have at the end of the year.
Even if GTAT does ramp up the plant, Apple does not typically produce or operate component-manufacturing facilities. This is a major issue. Apple would need to subcontract out the sapphire growth and fabrication process to a third party. Can its relationship with GTAT be repaired to the point that Apple would entrust GTAT to continue running the facility? There are other possibilities for Apple, but they may entail even more risk.
The second major obstacle is that GTAT has been trying to perfect the sapphire growth process since January 2014 without any luck. Although GTAT is ramping up the plant, I'm very unconvinced that it has a handle on the situation.
GTAT's Remaining Lines Of Business: Solar, Hyperion And Merlin
Outside of Apple materials, GTAT has four significant assets that can generate revenue right now: Solar, Hyperion, Merlin and ASF equipment. I believe these assets can add tremendous value over time, but with little demand or no history of sales or POs, the company could shed these assets/IP only at a deep discount. The cash raised would probably not be adequate, and GTAT would have no meaningful assets left with which to run a business.
GTAT's Solar Business
GTAT's most consistent business line has always been its equipment business, which today includes traditional solar and Hyperion. Although GTAT has a 60%-70% share of the solar equipment market, a general solar capital recovery is not expected to begin until 2H 2015. I believe GTAT's solar business can generate more than $500m a year by 2016. With no expectations of large orders for 6 months, however, it is unlikely anyone will offer a very high price for these assets.
GTAT's Hyperion and Merlin Businesses
GTAT's Hyperion product has yet to arrive in the marketplace. Without a PO, acquirers are likely to value Hyperion at a small fraction of its potential worth. GTAT also owns IP for its Merlin technology. Like Hyperion, Merlin has tremendous potential, but GTAT has yet to announce any sales. Merlin also is likely to be valued at pennies on the dollar. GTAT also holds over 70 patents, but these are not worth enough to fix the company's cash position.
GTAT's ASF Furnaces
The agreement with Apple significantly impacts the potential value of GTAT's ASF equipment business. This business represents $333m of GTAT's backlog, but the overall market that the company serves is limited. The probable impact of the sale of the Apple materials business on the ASF equipment business is unknown. At this moment I am hesitant to assign any substantial value to GTAT's ASF equipment business due to the uncertainty surrounding Apple's exclusivity clause.
http://seekingalpha.com/article/2548935-gt-advanced-technologies-can-current-shareholders-walk-away-with-any-value?app=1&uprof=44
In a statement, Apple said that it is “focused on preserving jobs in Arizona following GT Advanced Technologies (NASDAQ: GTAT) surprising decision and we will continue to work with state and local officials as we consider our next steps.” GT Advanced will begin bankruptcy hearings tomorrow. Shares of GT Advanced lost 9.09 percent, closing at $1.10
Apple, Others Surprised by Sapphire Partner GT's Bankruptcy Filing--update
3:45p ET October 8, 2014 (Dow Jones)
Apple, Others Surprised by Sapphire Partner GT's Bankruptcy Filing--update
By Daisuke Wakabayashi And Joseph Checkler
The abrupt bankruptcy filing by GT Advanced Technologies Inc. earlier this week stunned investors, creditors and partners including Apple Inc., which backed the materials maker for its massive bet on sapphire screen technology.
GT last week made a scheduled bond payment and promised a business update this week. Its shares remained unusually buoyant for a company on the verge of bankruptcy. As recently as August, executives said they expected to end the year with $400 million in the bank.
On Wednesday, Apple called the bankruptcy filing "a surprising decision." A person familiar with the matter said Apple had been working with GT to keep it solvent. In addition, Apple hadn't demanded repayment of loans as it could have, based on GT's weak cash position, people familiar with the matter said.
A hint of troubles at GT came last month, when Apple said it wouldn't use sapphire screens in its new iPhones, contrary to what many observers expected. Apple added to GT's financial pressures by not making a final $139 million prepayment loan because GT hadn't met the technical milestones laid out by the company, the people familiar with the matter said. GT had said earlier that it expected Apple to make that payment by the end of October.
But one of these people said that Apple was working with GT to overcome the technical hurdles so that GT could qualify for the final payment.
"To be clear, we did not see this coming," Pavel Molchanov, an analyst with Raymond James & Associates, wrote in a note Monday. "We don't think anyone else did either."
In its bankruptcy filing Monday, GT offered few details about why it was seeking protection from creditors. In a section of the filing titled "Events Leading To Chapter 11," typically the meatiest part of a filing, Chief Operating Officer Daniel W. Squiller said only that company was in the midst of a "severe liquidity crisis due to circumstances that will be more fully described" in subsequent hearings. GT also didn't mention Apple in that declaration, referring to a "series of transactions with a key customer."
Some answers may emerge at GT's first bankruptcy hearing Thursday before Judge Henry J. Boroff of U.S. Bankruptcy Court in Massachusetts. GT declined to comment.
In November 2013, Apple and GT announced a partnership to build the world's largest factory for synthetic sapphire. Apple bought a 1.4-million-square-foot Arizona facility--about the size of two dozen football fields--from a solar-panel producer for $113 million and leased it to GT, a leading maker of furnaces used to produce sapphire.
The deal launched GT into a new business. Until then, GT had focused on making furnaces to grow synthetic sapphire, not the sapphire itself.
Apple agreed to lend GT $578 million to outfit the factory with cutting-edge furnaces. GT agreed to start repaying Apple in 2015. Apple made the first three of its four prepayments totaling $439 million, even though GT didn't always meet the technical milestones for the plant, one of the people familiar with the situation said.
Apple considered sapphire a potential solution to a problem for iPhones and other smartphones: broken or scratched screens. The Mesa, Ariz., plant was expected to produce enough sapphire to meet the massive demand for iPhone screens, but the material performed poorly in testing.
Apple already uses sapphire from other manufacturers to cover the iPhone's camera lens and fingerprint reader. It also plans to use sapphire screens for two of its three smartwatches coming next year.
In August, GT Chief Executive Thomas Gutierrez told investors the company was confident it would meet the final milestone to receive a $139 million payment from Apple by the end of October.
Even if it didn't meet those targets, he said, it wouldn't be "a world-ending event," because the company expected to have close to $400 million in the bank at the end of 2014. He also said that GT didn't see a need to raise capital in the market.
In its filings, GT said it had about $85 million in cash as of Sept. 29, and is seeking debtor-in-possession financing. A provision of the loan agreement allowed Apple to demand repayment if GT's cash balance fell below $125 million; but Apple didn't exercise that provision, a person familiar with the matter said. GT said it expects to receive court authorization to conduct business as usual during the reorganization effort.
In a petition filed with U.S. Bankruptcy Court in New Hampshire, GT and its affiliates reported $1.5 billion in assets and roughly $1.3 billion in liabilities.
The filing was unusual in several ways, because it wasn't obvious that the company was on the brink. Typically, a company's share price plunges in the weeks before it files for Chapter 11, often trading so low that the stock gets delisted.
GT shares had fallen more than 35% since Apple said it wasn't using sapphire screens in the new iPhones, but they still traded around $11 before Nasdaq halted trading Monday. When trading reopened, the stock predictably plummeted below $1. Shares have recovered slightly, recently changing hands at $1.61.
GT, which has more than $400 million in convertible bonds outstanding, also made a scheduled payment to those bondholders last week, just days before filing for bankruptcy protection. Usually, when a company is on the brink of a bankruptcy filing, it negotiates an extension with investors or the payment isn't made at all.
Write to Daisuke Wakabayashi at Daisuke.Wakabayashi@wsj.com
MSTX:In level two, transactions changed from sell(red) to neutral
The main chart ends the day with a white candle.
Volume begins to see more and more investors. A good sign!
It is a technical issue of chart. At this price a long red cross
40,100 SHARES BUY @.5899 15:03 +8,575 @.5899 15:12 HS +3,533@.5899 15:28
They're buying. Is a critical month, as some good news
AMERICAN BULLS: STAY LONG, The Delayed Intraday Module is OFF.
Signal Update
Our system’s recommendation today is to STAY LONG. The previous BUY recommendation was issued on 24/09/2014, 7 days ago, when the stock price was 0,5684. Since then MSTX has risen by +3,80%.
Market Outlook
The bulls are strong. The negative sentiment that led to the last bearish pattern has evaporated. The current price is quite distant from the confirmation level, so the probability of a bearish confirmation is very low. Besides, the signal is suggesting to STAY LONG. It is best to follow the signal and continue to hold this security, but with a more cautious attitude. The Delayed Intraday Module is OFF
Analyst Ratings Network:Price Target: $2.10 (255.93% upside)
Ratings Breakdown: 1 Sell Rating(s), 4 Buy Rating(s)
Consensus Rating: Buy (Score: 2.60)
Consensus Price Target: $2.10 (255.93% upside)
9/16/2014 Piper Jaffray Reiterated Rating Overweight $1.00 -> $1.20
9/8/2014 Laidlaw Reiterated Rating Buy
8/6/2014 Laidlaw Initiated Coverage Buy $2.50
6/16/2014 ISI Group Initiated Coverage Reduce
10/3/2013 Canaccord Genuity Initiated Coverage Reduce -> Buy $3.00
10/3/2013 Cantor Fitzgerald Initiated Coverage Buy
6/25/2013 Piper Jaffray Initiated Coverage Overweight
4/2/2013 JMP Securities Initiated Coverage Outperform $2.00
Fannie Mae Ruling Means Ackman's Valuation Is Now $100-$250
Oct. 1, 2014 8:49 AM ET
Summary
•The ruling revealed that the government is following all of its laws and will be revealing Fannie and Freddie to private shareholders.
•The government is signaling that the warrants are going to be cancelled for anyone who actually reads filings and understands what is going on.
•No takings have occurred yet. Another amendment is to follow. The entities are in conservatorship and not receivership. The stock continues to trade.
Have you been assuming that the Third Amendment will not be amended? Me too! That's why you need to read what I am about to say to make sense of what I am pointing out as the biggest win for common shareholders that I didn't know about until a few hours ago! The Third Amendment is a great thing! It ended the 10% interest payments!
“
Treasury agreed to a net worth sweep in exchange for
eliminating the cash dividend equivalent to 10% of the GSEs' liquidation preference
I would like to thank Frank Fosco for helping me write this article. He has shown me the light and the truth. This whole situation is absolutely straight forward for anyone reading court filings. The filing reads:
“
But, just as there was a Third Amendment, the Court cannot definitively say there will be no Fourth or Fifth Amendment
This is relevant in the context of:
“
But the plaintiffs cannot overcome FHFA's sweeping congressional mandate with conclusory statements regarding the Third Amendment's effect on the plaintiffs' prospective-and not present-rights to dividends and liquidation preferences
Most importantly do not forget:
“
A claim is not ripe for adjudication if it rests upon 'contingent future events that may not occur as anticipated, or indeed may not occur at all.'
The Warrants Will Be Voided
This is going to be crazy. This could be a 100-bagger from here in my lifetime. I do not know how I missed this. The truth is that if this went the other way, the stock would be worth $20-$50. This way is so much better for the commons!
Ackman's valuation with the warrants in play is $20-$50. If you back out the 80% dilution, you quickly get to $100-$250. Odds are that they will be recapitalized by way of some sort of dilutive offering on their way out of the gate instead of through earnings, but the monster upside is inescapable.
The Stock Continues to Trade
“
Indeed, GSE shares are traded daily on public over-the-counter (OTC) exchanges.
The court rules that it agrees that Fannie Mae (OTCQB:FNMA) and Freddie Mac (OTCQB:FMCC) are not in receivership. They are in conservatorship. The conservator has not breached its fiduciary duty as it has not paid back in excess of that which it has borrowed with interest. Therefore there is no grounds for a takings claim, yet. Now, that is obviously subject to change in the future in the event that they continue to not follow up with another amendment and the businesses do end up paying more than they borrowed.
As Richard Epstein points out eloquently and I find entirely agreeable:
“
By the end of September 2014, it is possible that the payments under the August 2012 Third Amendment to the PSPAs will be in excess of the 10 percent annual dividend currently payable under the original agreement on the senior preferred. In other words, the takings by the government will exceed the $188 billion previously advanced by U.S. taxpayers to Fannie and Freddie. Within in a short period of time thereafter, the total payments are likely to exceed the amount of the advances plus interest. What happens next?
The Fourth Amendment Will Come
This means that there will be a Fourth Amendment that will follow the third that will change the flow of profits once the government is paid back from the government to private shareholders. The government is doing its job. I've been wrong all along in my wild accusations because I interpreted the Third Amendment as the end all be all. There will be a Fourth Amendment. The Fourth Amendment will be the driving force behind ending the conservatorship as the GSEs are returned back to stockholders.
http://seekingalpha.com/article/2533645-fannie-mae-ruling-means-ackmans-valuation-is-now-100-250
With the problems of today in the world, I think you can fall much further, may be to $ 9.5 / 10.00
He bought in pre market to F-N-M-A in @ .98? Now, $ 1.73 High $1.97
http://stockcharts.com/freecharts/gallery.html?s=PBR
The main chart,RSI(14)33.01.By enter in oversold level! last time in this level 3/17/14 $10.01
Be careful with the rebound technical!
http://stockcharts.com/h-sc/ui?s=PBR&p=D&b=5&g=0&id=p26099102557&a=264845671
Pre market -12% $14.35.They are covering the short interest at the lowest possible price to win more
Another opportunity like this again difficult
TIME TO BUY INVESTORS!
Another opportunity like this again difficult.
They are covering the short interest at the lowest possible price to win more
Ford Exec Expects US Auto Sales To Top 17 Million In 2015
Ford America's president, has revealed company plans to improve productivity in anticipation of 2015 US auto sales
Published: September 26, 2014 at 4:01 pm EST
By: George Zack
In an interview on CNBC, Ford Motor Company's (F) America president, Joseph Hinrichs, shared his expectations for the US auto industry in 2015. According to Hinrichs, US auto industry sales in 2015 might reach 16.8 to 17.5 million, considering favorable interest rates and economic growth. He also mentioned that some even anticipate the number to top 18 million units. This will break the sales records of the past 14 years
Hinrichs mentioned that Ford is prepping itself to tap into this market. Further views on Ford’s future performance expectations will be discussed during Investor Day Ford’s Current Sales Performancepresentations on Monday.
Ford’s Current Sales Performance
For the first quarter of 2014, Ford Motors recorded strong sales volume, along with a 6% increase in revenue, beating analysts' expectations. However, most sales were generated from the Asia-Pacific region. In China, Ford’s market share rose by 3.4%, whereas the North American region registered a 5% drop in revenue.
However, second quarter results revealed that its biggest region – the US – showed better results compared to Q1. Pre-tax profits for Ford recorded a 3% increase. The month of August was not stellar for Ford, as it posted 0.4% sales growth in the US automobile market.
Contrary to expectations, the industry research firm, Edmund’s.com, expects Ford to report a 4% drop in sales this September, owing to its preparation for the launch of the 2015 model F-150 pickup truck. In order to support the preparations for 2015, production of the F-150 was cut in 2014.
Increase in Productivity
To reach its goal of improved sales in 2015, Ford is investing $1.1 billion to optimize productivity. As per Ford’s new release yesterday, America’s second-largest car maker plans to hire 1,200 workers for its truck and van factory in Missouri. These new workers will start work from November, working in the second shift. This will enhance the production capability to now almost 500,000 vehicles by the end of 2014.
This is a strategic move to ramp up productivity to tap into America’s growing truck market, registering a 13.32% rise in demand for July
In August 2014, companies in the truck segment witnessed strong growth. Fiat Chrysler (FIATY) truck sales increased by 21%, and General Motors Company (GM) surged 2.7% in the same segment. In September, new car and truck sales recorded a 10% high according to LMC Automotive and J.D. Power. This consistent growth in the truck market highlights the prospects for Ford in the face of increased production.
Fiat S.p.A (FIATY), and Japanese car maker, Mitsubishi Motors Corporation (MMTOF), will be partnering to manufacture mid-sized pickup trucks, based on the upcoming Mitsubishi L200 series. Toyota Motors Corporation (ADR) (TM) and GM have also been quite active in the truck market recently.
Back in 2012, GM abandoned its midsize pickup line, following low demand. However, the company will soon be back in the game in 2015 with low cost Canyon and Chevrolet Colorado midsize pickups.
Ford Motors dropped 1.28% during market hours yesterday, closing at $16.2. However, it gained 0.25% in after-hour market trading to reach $16.24 on the NYSE.
http://www.bidnessetc.com/26365-ford-exec-expects-us-auto-sales-to-top-17-million-in-2015/2/
Last transaction, 1,031,890 shares in block +69,943 shares= 1,101,833 buy green in ask $16.33 15:00:09 hs market close
BIG BUY! Monday,sorprise???
Ford Investor Day, Monday Sept. 29: Stock Potentially Trading At 30% - 35% Discount To Intrinsic Value
Seeking Alpha,Sep. 25, 2014 2:08 PM ET
Summary
•Ford holding an Investor Day, Monday Sept. 29, '14.
•Stock has been in trading range all year, after December '13 guidance;
•Europe is recovering;
•Think intrinsic value is $23 - $25 per share.
•Risk to stock is the $14 per share price level;
Ford (NYSE:F) is scheduled to hold an Investor Day on Monday, September 29, 2014 and management might give some idea of Q3 '14 and 2014 guidance, which should include Q4 '14. (Of course that isn't a given, but it is hard to believe Ford management would hold an Investor Day and not give some idea of how the quarter and year are going, with just 3 months left in calendar '14.)
Ford management might talk 2015 at this early stage, but it wasn't until last December, 2013 that Ford management dropped the bomb about 2014 start-up costs, and basically crushed the stock at the end of 2013 and for this year so far.
Auto demand seems solid, and financing seems reasonable, so guidance should be more about Ford's cost structure and margins as much as anything else.
According to Ycharts.com, F's total return (the stock) is down 4.5% for the last 30 days, but is up 8.82% YTD (trailing the SP 500, but not as much as I thought) however F is down 2% for a trailing 1-year return, versus the SP 500's 20% 1-year return.
F's return data over various time periods
Period F SP 500
1-month -4.42% +0.66%
YTD 8.82% +9.74%
1-year -2.17% +20.18%
* Source: Ycharts.com
We've written repeatedly about F over the last few years (here, and here) and have a nice capital gain on the stock, which we have held in client accounts since early 2010.
Although not the focus of this article, our recent article on GM (NYSE:GM) briefly discussed Ford, with GM trading at a steeper discount to intrinsic value at that time. Now with both stocks having fallen or consolidated for most of 2014, and both stocks look cheap and are trading at healthy discounts to intrinsic value.
However, this article is about Ford, and I do think fair or intrinsic value is $23 - $25 per share.
Recent data points: Ford has seen strong retail demand all spring and summer, but has lost market share YTD. F's 14.9% YTD market share is down 120 bp's, and per one analyst estimate, every 50 basis point decline is worth $650 ml in earnings before interest and taxes (EBIT) and $0.10 per share in earnings per share (EPS).
Surprisingly, Ford's consensus EPS and revenue estimates (per Thomson Reuters) is tracking steady to slightly higher for calendar 2014, despite the market share data.
As the reader can see, after December 2013's guidance for calendar 2014 crushed the EPS estimates (mainly due to launch costs for a plethora of new Ford models being introduced this year), EPS estimates have been steady since April '14 for calendar 2014.
2015 is looking quite healthy from both an EPS and revenue perspective, so we DO NOT want to hear Ford management make cautious comments about 2015 either on Monday September 29th, or on the Q3 '14 earnings call in late October.
Despite incentives not being too heavy, I don't like to see the negative revenue revisions for F for 2014. Since Jan '14, the consensus revenue estimate for F has fallen almost $2 billion, or 1.5%. For a high operating leverage business like F, a 1.5% change in revenues, is not an insignificant deal.
Ford management may not choose to comment on calendar 2015 until later in 2014.
Technicals: Ford bounced off its 200 day moving average this week, and is currently trading above the key level of $16.27. The stock is oversold on the daily chart. Ford could trade as low as $14 and still be technically intact, but we are hoping that doesn't happen (obviously).
The early January '11 high for F was $18.97. That continues to be a key level for the stock.
A quick look at the positives and negatives around F:
1.) With the recent estimate of 15.5 to 17.5 million cars expected to be sold in 2015, overall consumer demand should be supportive of F's financials;
2.) Europe as a region was in the black in Q2 '14 for the first quarter since June, 2011 or 12 quarters. Europe's operating income was just $14 million, which translates into 3/10th's of a cent, given F's 4.05 billion shares outstanding but in 2013, Europe was a $0.40 drag on EPS. If only F's non US operations can breakeven, it would add nicely to F for a calendar year;
3.) Ford's pre-tax auto margin is at a record thanks to numerous initiatives to improve productivity and lower fixed costs at F. The higher expected auto volume COULD help drive margin gains, but the fact is they will be harder to come by at this point in the cycle;
4.) Ford's balance sheet and free-cash-flow have improved greatly the last 3 years. Ford's 4 qtr trailing free-cash-flow was over $2 billion as of June 30 '14.
Ford is currently yielding about 2.90% - 3% in terms of the dividend yield, while GM is yielding is 3.5%.
5.) Ford has a habit of lowering guidance sharply and then outperforming: in 2013, management guided to a $2 billion or $0.50 per share European operating loss. The loss was just $0.39 per share, which isn't great. Will the "launch cost" guide in 2013, which crushed the stock so far in '14 come in less than expected ?
6,) Can't recall the source, but the "average" car on the road today is thought to be 11 years old. There should be huge pent-up demand for new cars, which you would think we might have seen already given job growth and interest rates. Maybe higher incentives are required;
Negatives:
1.) Don't like to see the Ford market share losses in 2014;
2.) The fact is a union company with high fixed costs and high operating leverage is always a risk. Would prefer to see revenue estimates turn higher for F, which would indicate better demand and pricing;
3.) The transition to aluminum is always a risk. The product transitions that cost 2014 EPS estimates are a risk and we are poised to hear how these new 2015 launches will fare, particularly the F150;
4.) As Europe has turned positive on a breakeven level, South America lost $295 million in Q2 '14 and has lost money for 3 consecutive quarters;
Valuation:
Ford's current consensus EPS for Q3 '14 and Q4 '14 are $0.31 and $0.37, which is a 30% y/y drop for Q3 '14 and 20% expected growth in Q4 '14.
Current revenue consensus is $34.1 bl in revenues for flat y/y growth in Q3 '14 and $35.8 billion in Q4 '14 for expected revenue growth of 1%.
Full year 2014 consensus is expected to see 20% drop in EPS on basically flat revenue growth.
Full year 2015 consensus at this point is expected at 44% EPS growth on 7% revenue growth.
If we blend the two years investors still get positive low single digit revenue growth and roughly 10% - 12% EPS growth.
Our intrinsic value model puts a $28 fair or intrinsic value estimate on F, while Morningstar's model values Ford closer to $25 per share.
I do think "peak earnings" for Ford could be $2.50 - $3, but the stock historically never really trades more than 10(x) earnings. Given F's high operating leverage, more than 7(x) earnings or 5(x) EBITDA (earnings before interest taxes depreciation and amortization) is a plus. However because Ford has record high margins today and will likely sustain them, we think 10(x) the forward multiple is sustainable.
Today's price still leaves the stock trading at a substantial discount to fair value.
To be frank, I think you can either Ford or GM here providing you have a holding period longer than a few months.
Given the December '13 guide for F, this Investor Day is critical for Ford.
http://seekingalpha.com/article/2521255-ford-investor-day-monday-sept-29-stock-potentially-trading-at-30-percent-35-percent-discount-to-intrinsic-value?app=1&uprof=44