RE:RE:Points expiry policyYou're right but for the wrong reason. Points show up as liabilities because an accountant decided that how it should be done. But you could argue, and it's been argued on this board before, that the value of the liability on the balance sheet should range from 0 to full balance sheet value. Further on that idea, any investor in Aimia knows that the bottom line earnings numbers are to a certain extent, worthless information. Public accounting was designed to help give investors information to value a business and understand how well it is doing. But in this case, the traditional accounting provides a very skewed picture of what’s going on, bad or good.
To further illustrate: So we have this thing called deferred points liabilities, that carries no interest, that shows up as a liability on the balance sheet as calculated by someone with a CPA who is following some general rules. The even more strange thing is that the value of the liability is controllable by management. The liability has no maturity (with the new law) and can be redeemed at any point. And even more strange is we have creditors who ghost their claim on that debt.
Now I'm not an accountant, I'm an investor who takes accounting information and attempts to translate it into reality (real dollars and cents - not accounting earnings and paper numbers). But to me throwing points liabilities on the balance sheet doesn't make any sense. It’s more of a steady state operating cost than a business liability. It certainly doesn’t deserve to be next to a bond or preferred obligation. Those have legal fixed obligations after the business goes into bankruptcy – points don’t. IMO points should be an off balance sheet item that are used as an input for an investment analyst to calculate future operating costs along with the steady state redemption trends. They should be disclosed by # active and # inactive along with the average points costs (which is already there or at least can be calculated I believe).
For Aimia, the two things that matter are the 1. net float assets and 2. the steady state cash flow. The steady state cash flow acts as the margin of safety in this case. The probability of cash flows times the net float assets is a good idea of the value of aimia at the low end. Probabily of cash flow is a function of the net points outstanding, the average points redemption, points cost, and future outlook of points accumulation.
If you include deferred points as a liability on the balance sheet, Aimia will always appear as if it’s in financial trouble, even if there are massive cashflows. So whether or not you include the inactive points in financial health ratios, those ratios already don’t provide useful information. The value of Aimia has little to do with the net equity. The current accounting rules applied in Aimia should be changed to provide investors a better picture of what actually matters.
Deferred points are part of the business model that affects operation’s ability to generate cash flow and are not a balance sheet liability that incurs interest or implies ownership of the profits. They can disappear if the company shuts down operations. Debt and preferred obligations do not.