We are still in the midst of “annual report season” as companies have been submitting their 10-K filings with the SEC. Or in some cases delaying those filings.  There is one theme that has been much stronger during this recession than during any recent years, and that is the dreaded “GOING CONCERN” notice from auditors in the amount of companies which are well known.  And this year’s round of GOING CONCERN notes has a host of names that were formally great stocks.

A going concern is the ability of a company to continue to operate as things are now and not go out of business or have to liquidate its assets.  The out is of course that the company must be able to raise enough capital or exit certain operations to stay operational.   Here are some of the big names with the notes that have come out this week:

Aventine Renewable Energy Holdings, Inc. (NYSE: AVR) has already been in trouble for some time.  The former high-flying ethanol sector is now junk.  Aventine warned that it might have to file for bankruptcy protection and it has the going concern note attached.  And ethanol is still viable?

Blockbuster Inc. (NYSE: BBI) posted a loss after items, and the company’s CEO said that many other companies are also facing the same challenges.  The auditor’s note of a going concern is said to be in place until its financing is complete and its liquidity is assured.  The good news is that this one rose this week on the financing discussions.  It seems that video rental stores are still like smokers, the numbers keep declining each year yet they still exist.

Crocs, Inc. (NASDAQ: CROX) said that its annual report will have a going concern note from independent registered public accounting firm, Deloitte & Touche, that raises doubt about the company’s ability to continue as a going concern.  The company had more than $51 million in cash and equivalents and $22.4 million in credit facility borrowings which mature next month.  Ugly shoes that were meant for gardening couldn’t stay mainstream for too long.

Eddie Bauer Holdings Inc. (NASDAQ: EBHI) was also hit hard this week on its massive losses.  The company’s report will have a going concern note because of the current economic situation and restrictions under amendments to its term loan agreement.  It looks like the company was in compliance at the end of 2008 but 2009 looks like it will be a different story.  The preppy retailer has not gone without a troubled history.

MGM Mirage (NYSE: MGM) posted a fourth-quarter net loss after recording a $1.2 billion write-down.  This reflects a difficult environment, but it has also prompted the MGM’s auditor to raise doubts about its ability to continue as a going concern.  Can people afford to go to casinos in a recession when they know that the odds are stacked against them when they walk in the doors?

There were many others over the last week, namely in the auto parts sector and in speculative companies.  But these companies above either have household names that have been there for some time or were not that long ago traded as great growth stocks.  What a difference a year makes.

JON C. OGG
MARCH 20, 2009

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