Paul & thread, the estimates of $.41 and $.45 under US and Canadian GAAP respectively are assuming approximately 28% growth rate in earnings (Q4'98 were $.32 under US and $.35 under Canadian GAAP).
It appears that the analysts came up with their US GAAP estimates by just compounding earnings at a growth rate of 28%. However, they failed to factor in huge differences in the tax rate under the two methods. Under Canadian GAAP, NT's effective tax rate was 23.9% for Q4'99 (the decrease was a consequence of US tax deduction relating to exercising of stock options). Under US GAAP, NT's effective tax rate was 33.8% for Q4'99. This huge difference in tax rate was the primary reason why under Canadian GAAP, NT had a blowout quarter ($.55 vs .$45) but under US GAAP, NT beat $.03 ($.44 vs $.41).
It is not fair for estimates to be converted to US GAAP at the same expected growth rate of 28%, given the fact that the reported tax rate would be jumping significantly (23.9% to 33.8%). US GAAP earnings estimates need to be adjusted at least $.02 lower, i.e. $.39, not $.41. On the other hand, NT's tax rate of 23.9% was unusually low, so the Canadian GAAP earnings of $.55 was a little inflated (for Q4'98, NT's tax rate was 28%).
In my opinion, NT had an excellent quarter, close to a blowout, but not a real blowout of $.10 as we thought. Given the stock split announcement and the strong order backlog (book-bill of 1.3), the future looks bright and I expect the stock to respond strongly to the report.
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