SRZ: Annual Results for 2008: review

SRZ came out with annual results for year 2008. I have re phrased it for clarity.

It was a very negative readout and the summary is basically:

Q4 2008 Revenues: 435.6 million
Year end 2008 Revenues: 1.7 billion.
Net Loss Q4 2008 : 305.6 million
Net Loss Year end 2008: 439.2 million

My Observations: Q4 2008 losses are 305.6 million and Full year 2008 losses are 439.2 million. Q4 2008 losses are 69.6% of year 2008 losses which is very large and strange.

Solving the reason for such high Q4 losses is key to understanding majority of the losses for the year 2008 and also will help us understand what actually is being reported by the company management.

Here is "my" understanding of the Q4 result:

Company has reported in Q4 2008 large paper losses for "impairement of goodwill and intangible assets" related to Marriot Senior Living and Karrington Health (122 million in Q4), "impairement of owned communities and land parcels" (30 million in Q4) in total there are 184 million of onetime related costs which has resulted in Q4 losses being 305.6 million.

Also company has shown expense growth rate higher than the revenue growth rate for consolidated communities resulting in 9 million of additional operating losses. This could be because, the german venture is now a consolidated community due to 95% ownership by SRZ.

Company has cleaned the house with these reported losses. Infact SEC has raised questions with regards to why the impairement of MSL and Karrington health is being done after so many years and not before. SEC has requested SRZ to restate their old earnings. SRZ has reported that the impairement of assets/goodwill was realized after the downturn started.

Another way to shift through the fog of financial engineering is to look at Taxes paid out. Cause SRZ can report numbers to the public but to the govt there is no fooling around and if you are making money you have to pay your taxes period.

Look at Q4 2008 Taxes paid: 11.147 million.

Look at Q4 2007 Taxes paid: -22.598 million (refund)

Conclusion: Results are bad but the management spin is more negative than the actual result...Why?

- Maybe to scare off the various lenders to sign the dotted line?....

- To have losses to write off against profits in the near future. Your guess is as good as mine.

Here is the link to the actual 10K filing