Investments & Write-Downs: How They Impacted Thai Union Group’s Financial Statements
This Finance ‘In-Action’, illustrates how decisions by management to invest (and divest) in assets affect the Balance Sheet, Cash Flow Statement and Income Statement.
“Thai Union Group Pcl, one of the world’s biggest seafood processors, posted a record quarterly loss after writing off its investment.” 1 in its Red Lobster restaurant unit.
Write-off occurs when the value (the book value) of an investment (asset on the Balance Sheet) is reduced to zero because its fair market value is below its book value (the original purchase cost). There is a corresponding impact on the Income Statement with an unexpected (extraordinary) loss, which affects Net Income 2.
“Thai Union took a one-time non-cash charge of 18.4 billion baht (USD 512 million) on Red Lobster after deciding to “exit” the US seafood restaurant chain.
According to the CEO Thiraphong Chansiri, the management decision was made last month to ‘depart’ from Red Lobster due to its “…prolonged negative financial contribution” caused by the COVID pandemic, higher interest rates & labour costs and continued industry uncertainty.
Thai Union Group’s Management decided to purchase (make) an investment in a company. That decision affected the Balance Sheet with the creation of an Asset and the Cash Flow Statement was affected by an investing activity.
Years later Management decided to write-off the value the value of the investment because of the ongoing negative financial performance. The decision to write off the value of the investment was reflected on the Balance Sheet by reducing the value of the Asset to zero and on the Income Statement with a one-time expense equal to the amount of the investment, which ultimately affects the Equity section of the Balance Sheet.
Exit From Red Lobster Restaurant Brings Record Loss to Thai Seafood Giant, Bloomberg, February 19, 2024
1. In 2016 Thai Union Pcl paid $575 million for a 25% stake in Red Lobster, plus preferred stock which can be converted into a further 24% shareholding and bought another 13.7% of common equity interest in 2020. 2. Write-Down: Definition in Accounting, When It's Needed and Impact, September 29, 2020, and Write-Off vs. Write-Down: What's the Difference in Accounting?, January 04, 2024.
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