Wednesday, August 06, 2008

Cossette Communications Is It Stable?

Cossette (KOS) came out with Q3 earnings and let the world know that the US operations served up an asset impairment charge. OK its all non cash and this is a communications company with strong roots in advertising. A couple of warning signals to be considered here. The CFO is leaving and a new guy is being brought in from outside. There is a short overlap period to ensure continuity. When the CFO leaves I always want to look a little harder; especially when the impairment charges are coming up. The year end audit is a big issue in Q4 and the old guy will not be around.

Read the comments they have about the US operations. “As for the U.S., we are well engaged in this market, as demonstrated by the recent acquisition of Rocket XL. The teams we have in place in our U.S. operations are energetic and dynamic. We are very confident of the quality of the service we can deliver in this market and are optimistic about the future success of the operation."

That’s a pro forma promise with a possibility of resembling GAAP at some point in the future. It is rather empty when describing just what is going on and what they are doing. If you still do not believe there are warning signals then please take a look at the balance sheet. Short term borrowings including over draft is just under $42 million. Cash flow before non cash items is $8.2 million. This is a services company without tangible assets.

Be afraid very afraid.