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Wednesday, May 18, 2022

Accounting Questions Face 3D; New Concerns on Real Estate

Accounting Questions Face 3D; New Concerns on Real Estate

An ongoing investigation into the timing of revenue recognition for certain transactions has caused 3D Systems Corp. to delay its year-end audit.

Valencia-based 3D Systems placed its chief financial officer, James Selzer, on administrative leave in February and lowered earlier estimates of fourth quarter sales to $31 million from $33 million to $34 million. The revised figures placed the company in non-compliance with some of its bank loan covenants.

Last week, the company said the audit committee of its board had retained the law firm Morgan Lewis & Bockius LLP, which in turn hired accounting firm BDO Seidman LLP to review certain sales transactions. The company said it seeks to complete its annual audit by the deadline (including extensions) of April 15, but can’t make any assurance that it will be successful.

3D Systems, a maker of imaging products used in making prototypes, has seen its stock slide 42 percent this year, to a recent price of $4.54 a share last week.

Anthony Palazzo

The REIT Stuff

A new report on California’s real estate market makes the case that the looming state budget deficit “has the potential to even derail the bright spot within the California economy.”

The report, put together by the brokerage firm of WR Hambrecht + Co., culls from recently released economic data and academic research.

In particular, it cites a Pacific Research Institute estimate that sales and income tax increases proposed by Gov. Gray Davis could wipe out 590,000 jobs over the next three years and shrink the state’s capital base by 1.2 percent.

“The direct correlation of lower job growth to real estate demand is unmistakable, and would not be good for multifamily and office real estate,” the report said.

The firm is also concerned about possible increases in employer contributions to the state’s Unemployment Trust Fund and a bill, sponsored by state Sen. Martha Escutia, D-Norwalk, that would mandate more frequent commercial property tax assessments.

Locally based real estate investment trusts mentioned as having exposure to the California market included Arden Realty Inc. (100 percent of portfolio in-state), Kilroy Realty Corp. (93 percent), PS Business Parks Inc. (32 percent), Alexandria Real Estate Equities Inc. (32 percent) and Macerich Co. (29 percent). None of these REITs’ shares are rated by WR Hambrecht, and as of last week, none of them had gained or lost more than 10 percent of their value thus far this year.

Anthony Palazzo

Hotel Debt

Standard & Poor’s warned that a prolonged U.S. war would increase the likelihood of additional downgrades of the debt ratings in the U.S. lodging industry, singling out Beverly Hills-based Hilton Hotels Corp.

With U.S. travel and leisure industry performance expected to decline further in the coming weeks, the magnitude of the decline remains in question, said Craig Parmelee, S & P;’s credit analyst. Much depends on the war’s length. S & P; has lowered its debt ratings on much of the industry already in 2002 and in further reductions this year.

As it stands, 55 percent of U.S. lodging companies that S & P; rates have negative outlooks on their debt ratings. Besides Hilton, it cited Marriott International Inc., Starwood Hotels & Resorts Worldwide Inc. and Four Seasons Hotels Inc.

Anthony Palazzo

For What It’s Worth

Speculation more like rumor is well under way concerning which media giant might end up acquiring all or part of Freedom Communications Inc., the Irvine-based parent of the Orange County Register.

The latest sounding come from an unidentified newspaper analyst who assuredly told Dow Jones Newswires last week not for attribution that “Gannett is going to buy it.” This analyst posited that “Freedom fits their profile in terms of a family-run company with sub-par rates of profitability, with opportunities for significant margin improvement.”

The going speculation is that all of Freedom would fetch between $2 billion and $2.5 billion, although there’s no certainty that the media concern’s controlling family is fully committed to selling the entire company. A Freedom executive said that the bidding process could last well into summer.

Tech Shift

Microsemi Corp. could close its U.S. packaging and test operations and shift the work to Asian contractors as part of an efficiency push started in October.

The Irvine-based company wouldn’t say how many workers the move would affect, although it’s not likely to shift work overseas for at least a year. It already contracts out some packaging and test work in Asia.

Jim Peterson, its chief executive, said the company was working through the red tape that goes with contracting out abroad much of its products are sold to U.S. defense contractors.

Last year, Microsemi started a so-called factory optimization plan to cut down on production costs and raise profits through efficiency. The company closed plants in Watertown, Mass., and India.

The chipmaker, which uses about 50 percent of its capacity, has been waiting for the government’s increased military spending to trickle down.

Orange County Business Journal

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