Just before President Obama visited the Solyndra plant in May of 2010, the White House arranged a conference call between reporters and three administration officials: Jared Bernstein, Chief Economist to the Vice President, Matt Rogers, Senior Adviser to the Secretary of Energy, and Elizabeth Oxhorn, Spokeswoman for the Recovery Act. The transcript of this conference call doesn’t seem to be available on the Web, but you can find it on Nexis.
The whole transcript makes for interesting reading in light of the Solyndra fiasco, but one question in particular catches the eye. An unidentified reporter asked about the negative audit of Solyndra. The reply by Matt Rogers underplays the significance of the audit and is much too optimistic about the ability of the loan to attract private capital and assure the success of the IPO. There’s no dramatically new information here, but it’s interesting in light of what’s happened since to look back on the administration’s response to a direct question about Solyndra’s shaky financial footing just before President Obama visited the firm.
Q Hello. I want to see if either of you can talk about the financial stability of Solyndra and if you’re aware of a — apparently there was an audit by PriceWaterhouseCoopers in March, which expressed some concern about their ability to continue as a going concern.
MR. ROGERS: (So this is the ?) — the letter that PriceWaterhouseCoopers issued is a standard letter that most companies that have not yet gone public, have not yet had an IPO, tend to receive. They’re called a going concern letter. And what it simply says is, your company requires more capital in order to make sure that you are successful over the long term. The reason they filed for an IPO, the reason that they’ve gone to the private capital markets is in fact to raise that additional capital.
The good news, again, is that when the federal government plays its role and we make the conditional commitment or we make the loan, in this case, to Solyndra they are then able to go out and raise that kind of capital in the markets, which substantially increases their viability.
And what you’re seeing is by — as the president will be at the — at the construction site tomorrow, as you increase the — their capacity, all of a sudden you’re able to increase their revenue line and reduce their operating cost line, improving their margins. And so what we’ve created is a virtuous cycle in terms of the health of a — of the company.
So we’re quite comfortable with the ongoing health of the company. We do know, however, that in order for companies like Solyndra to be successful over the long term, we actually do need to make sure that we end the uncertainty and we pass comprehensive energy and climate legislation, because that kind of uncertainty and overhang over the market essentially leads people to defer making capital investments in this kind of equipment.
And so we end up hurting U.S. manufacturing the longer that we have that uncertainty in the marketplace.
"the letter that PriceWaterhouseCoopers issued is a standard letter that most companies that have not yet gone public, have not yet had an IPO, tend to receive"
That doesn't conform to my experience. But to date myself, when I was a practicing CPA it was with a 'Big 8', so maybe the IPO market has gotten a lot more risk-tolerant lately?
Reply to this commentLinkReport AbuseIt's a little surprising that a "going concern" would qualify for an IPO, particularly in today's economic environment. But, thinking back to the dotcom bubble, there were PLENTY of companies that did indeed issue an IPO without ever being profitable. Amazon comes to mind. I think they were a public company for some time before they even made a dime.
I thought times had changed though. Look at how long Google waited before they went public, and they were making money hand over fist; Same goes for Facebook.
Maybe "green" is the new "dotcom"?
Reply to this commentLinkReport AbuseI'm no market expert (just look at my portfolio for proof), but this statement makes no sense.
"The good news, again, is that when the federal government plays its role and we make the conditional commitment or we make the loan, in this case, to Solyndra they are then able to go out and raise that kind of capital in the markets, which substantially increases their viability."
If a company who has revenue challenges takes on more debt, how exactly does that make them more attractive to investors? If they can't make a profit at the current expense levels, how does adding to debt obligations make them more profitable?
Isn't this the thinking that gave us the dot com bust?
Reply to this commentLinkReport AbuseThat seems to be the only thinking, using the term loosely, that goes on at all anymore.
Just look at the market today. Jumping almost 300 points over the "good news" that Europe will take on more debt in order to bail out its existing obligations.
What?
Reply to this commentLinkReport AbuseFor the last 20 years or so Wall street no longer cares if a company is profitable or even has a product. They only care about the share price going up or down and making money on the trades. That's why no individual investor has any business in the stock market.
Reply to this commentLinkReport AbuseWe'll Make It Up On Volume
It is an old fallacy of the economically illiterate and the Democrats are rich in that tainted fertilizer. They really believed that a bad idea becomes better if it becomes bigger. Solyndra might have found a niche if it stayed in it's smaller factory and only attempted to expand after proving itself in the market. But no the Donks had to throw money at it so they could build a big factory, believing that would attract private capital the same way the Field of Dreams attracted dead baseball players. They honestly thought that "We'll Make It Up On Volume" could work. They never asked how many solar arrays people wanted to buy or if anyone else was supplying the market cheaper. People need to go to jail.
Reply to this commentLinkReport Abuse"And so we end up hurting U.S. manufacturing the longer that we have that uncertainty in the marketplace."
Well, now the uncertainty is over, isn't it, Mr. Rogers? We now KNOW with crystal clear certainty that Solyndra was a scam and a rat hole down which our tax dollars were poured, with appropriate flare, fanfare, and flowery speeches. Just like all of the other "clean energy" rat holes down which President Obama wishes to pour our tax dollars. As long as this loser President is picking "winners", I'll bet my personal dollars in the other direction. Unfortunately, I have little say (until November, 2012) as to how Obama's green machine wastes my taxes.
Idiots.
Reply to this commentLinkReport AbuseA "going concern" exception in an audit report is a big deal, and it is not something "most" private pre IPO companies get. Either Mr Rogers did not know that, or he did and lied to the reporter. Either explanation is distresing.
Reply to this commentLinkReport AbuseThis "Mr. Rogers" ought to be in the slammer!
Reply to this commentLinkReport AbuseIt's comforting to know we have such wise, brave men determining which companies and technologies are worthy of my hard-earned cash!
Reply to this commentLinkReport AbuseNow we hear that what was really going on was an unprecedented and illegal scheme to shunt taxpayer money to favored Democratic Party operatives, including the California Democratic Party, by making their investments in Solyndra take precedence over the government loan in the predictable event of bankruptcy. For these people there are no rules. Remember impeached judge and Democratic Congressman Alcee Hastings "We make them up as we go along"? There is a bright line running from the theft of GM, through Nancy Pelosi's ramming through of Obamacare, to this latest deconstruction of the law that sustains a capitalist economy.
Reply to this commentLinkReport AbuseSurely by now it is clear that there is a lot more stuff like this just waiting to be reported, and that the prudent thing to do is fire some of these lower-downs in order to protect the higher-ups. The refusal to do so is either (1), integrity on the part of the administration, or (2), the inability to understand how much worse this will get.
Based on the fact they gave that much money to something their own people said would fail, I'm betting on the latter.
Reply to this commentLinkReport Abuse"We do know, however, that in order for companies like Solyndra to be successful over the long term, we actually do need to make sure that we end the uncertainty and we pass comprehensive energy and climate legislation, because that kind of uncertainty and overhang over the market essentially leads people to defer making capital investments in this kind of equipment."
Make it illegal not to buy our products, or we'll go under! Heavens to murgatroyd.
Reply to this commentLinkReport AbuseWhy, oh WHY is this so hard to understand? Dem donors and lawyers were hip deep in this money laundering operation. Unfortunately (for them) the capital markets didn't cooperate and do an IPO. IF they had accomplished their IPO, the Dem donors and interestingly, the CALIFORNIA DEMOCRATIC PARTY, would have received their payout and left the taxpayer with an even bigger debt to hold. Call it what it is...a Democrat money-laundering operation that cost the taxpayers HALF A BILLION BUCKS! Indictments should follow!
Reply to this commentLinkReport AbuseIt is really hard to conceive of taking a company with a going concern opinion public in an IPO. IPOs are for promising companies, not those who have recently encountered cash management problems.
Reply to this commentLinkReport AbuseUnder GAAP, if an accountant issues a going concern letter, it does not just mean the company might not be "successful", as Mr Rogers seems to suggest. Rather, it means that the accountant think the firm might liquidate in the near future. Those are VERY different scenarios.
Reply to this commentLinkReport AbuseI started shaking my head when I read, "..., Chief Economist to the Vice President, ..., Senior Adviser to the Secretary of Energy, and ..., Spokeswoman for the Recovery Act." It was all down hill from there.
Reply to this commentLinkReport AbuseIn my experience, as a corporate attorney, almost any company that receives a "going concern" letter is, or will be upon receipt of the letter, in default to its lenders. Such an entity is never, ever, a good candidate for an IPO.
Reply to this commentLinkReport AbuseVery interesting. I searched for some academic finance studies that might shed some light on this question of how often a pre-IPO company gets a "going concern" audit opinion. I found a study by Dr. Michael Willlenbourg, Professor of Accounting at University of Connecticut from October 2010. He was looking at whether a going concern opinion was predictive of post-IPO performance of the company. His data set for analysis was 586 companies that filed pre-IPO registrations and were traceable for his analysis. Of these 586 companies, 18.6% had in their filings financial statements with a going concern opinion (12.6% of those who were audited by one of the Big 5 accounting firms and fully 53.3% of those who were audited by a non-Big 5 firm -- perhaps indicating that the non-Big 5 firms were willing to audit sketchier companies, or alternatively that they were more courageous in issuing going concern audit opinions!)
This simple descriptive data suggests that less than one in five companies that actually get to IPO filing stage have a going concern audit opinion, not a majority. Now, it is possible that there are many aspiring IPO companies that get going concern audit opinions and never get to the S-1 registration point. If that is true, then perhaps Mr. Rogers is potentially technically correct in saying its common to get such an opinion. But, he's still not on solid ground -- if it were true that most aspiring IPO companies get one of these opinions, it would also be true that most of these never get close enough to IPO to file S-1 registration documents. And, Dr. Willenbourg's research shows that those companies that do get to IPO with going concern opinions perform more poorly after IPO. So, a going concern opinion is "bad news" for the success of the company and the DOE should have treated it as such.
Reply to this commentLinkReport AbuseSo that's how a unicorn & rainbow powered economy works! It's kind of like a "perpetual motion machine" crossed with a "magic money tree":
"And what you’re seeing is by — as the president will be at the — at the construction site tomorrow, as you increase the — their capacity, all of a sudden you’re able to increase their revenue line and reduce their operating cost line, improving their margins. And so what we’ve created is a virtuous cycle in terms of the health of a — of the company."
Genius!!! SMARTEST. ADMINISTRATION. EVER!!!!
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