Jeff, here is my read on the fab issue:
At 7/4/99 the company had PP&E of $32.1mm and lease liabilities of $16.5mm. Given normal activity, I would expect those amounts at 9/30/99 to be around $29.5mm and $14.5mm, respectively.
We know from the Q2 cc, that there was some interest in the fab from third parties. We should be able to reasonably assume that discussions have taken place this summer and in the course of those discussions the company has been able to determine the market value of the fab.
I have reason to believe that the market value of the fab exceeds something less than $29mm (the $29mm is all their PP&E, the fab is something less). If I am right, the auditors are not going to let them take a write-off in this quarter and then record a gain in the quarter they close the sale (possibly Q4).
However, there are other factors such as close down costs and an accrual for the fact that the chips produced from the fab in those final months are going to be extremely high on a full cost absorption basis. If the actual sale price of the fab is close to BV, then when all costs are considered you could have some write-off or special charge in Q3, if the company elects to start the clock.
In any event, all of the accounting mumbo jumbo is not important. What is important is 1) that they get this part of their history behind them, 2) get the cash (whatever it is) from the sale, 3) pay off the remaining lease obligations, 4) take care of their close down obligations and 5) get on with a plan to grow the top line while enjoying the benefits of very competitive costs from their foundries.
I would like to see the decision made in Q3, because it would indicate that they are comfortable with the transition to Yamaha and the ramp up of the other two foundries and more importantly, we would start seeing the benefits on operating profits in Q4 1999. Also, we could see coverage this fall vs. sometime in Q1 of 2000.
The resolution of this fab issue is what will begin the next leg up to a price well in excess of $10. |
