Tuesday, March 18, 2008

Auction Rate Securities

Two small cap companies got tripped up in the problems impacting the Auction Rate Securities market. 4Kids Entertainment (KDE) and Ballantyne of Omaha (BTN) both reported problems in its latest earnings reports:

4Kids Entertainment (KDE)

“As of 12/31/07 the company held auction rate securities having an aggregate principal amount of approximately $60 million. The auction rate securities held by the company are private placement debt securities with long term nominal maturities and interest rates that reset monthly.”

"As of Feb 29, 08, the company unrealized loss on its auction rates securities has increased by $7.9 million to $11.9 million based upon statements provided by an investment bank through which the company holds such securities. Given the failed auctions many of the company’s auction rate securities are currently inliquid. Accordingly, the company has reclassified approximately $20.4 million in auction rate securities from current to non-current assets in the balance sheet due to the fact the company deems the liquidity of these securities to be restored in the period longer than 12 months."

Ballantyne of Omaha (BTN)

"The company ended fiscal 2007 with total cash and cash equivalents and investments of $17.2 million including $13 million of investments in AAA rated auction rate securities."

"Ballantyne has no reason to believe that any of the issues of these securities are presently at risk or that the AAA rated credit quality of the assets backing the securities are impacted by the current reduced market liquidity of these securities. Ballantyne also believes that it maintains sufficient liquidity to run our business via its cash position that we hold in a commercial bank and our ability to draw on our line of credit. Effective with the fourth quarter and for the full year 2007 we have reclassified these securities from cash and cash equivalents to investments in accordance with current accounting guidance."

Both companies are still receiving interest on the investments.

Transcripts are from Seeking Alpha.

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