RE:RE:RE:RE:RE:RE:RE:Potential Growth Story?Thanks for your contribution on this. It's certainly made me dig much deeper into this issue. Ya the warranty analogy is a good one I think and as investors it's an adjustment we need to make, but whether or not this needs to be acknowleged on the financial statements is a different matter.
I would contest that a very large percentage of the costs that they are incuring are legal. Going back to 2013 the avg cost per claim settled (this could mean that or payment was made OR the claim was dismissed) was about $20K, a very low amount relative to how big these can be if the defendant is found liable.
Doing a quick google search I found a couple of examples where Velan was granted a summary judgement, therefore no claim had to be paid.
https://asbestoscasetracker.com/wp-content/uploads/2016/07/Winhauer.pdf
https://www.ded.uscourts.gov/sites/ded/files/opinions/13-229_1.pdf
According to IFSR accounting standards a provision does not need to be recognized if any of the following criteria are not met:
- A past event gives rise to a present obligation (legal or constructive).
- It is probable – i.e. more likely than not – that an outflow of resources (typically a payment) will be required to fulfil the obligation.
- The amount can be estimated reliably.
And management states in the releases that because of the uncertainties inherent to easbestos litigation, they cannot estimate the liability reliably.
I get that this is a major uncerttainty, but they seem to be following the standards. As investors its up to us to handycap this uncertainty.
Also, on the M&A front, many potential aquirers are facing similar litigation, so would have a much better perspective on the issue than us. I don't think this is nessesarily a deal breaker.
Cheers