YYB, good questions. Jack's general answers to your post were well done.
I will add below some detail from the latest JDSU 10-Q so you can see
acquisition writeoffs in action:
The 10-Q is at:
edgar-online.com
(If this doesn't align properly, open your browser window all the way)
Information on reportable segments is as follows (in millions):
Three Months Ended Six Months Ended
December 31, December 31,
------------------- -------------------
1999 1999 1999 1999
--------- --------- --------- ---------
Components:
Shipments.............................. $201.7 $36.9 $361.6 $71.3
Intersegment sales..................... (28.0) (0.7) (46.7) (1.6)
--------- --------- --------- ---------
Net sales to external customers........ $173.7 $36.2 $314.9 $69.7
Operating income....................... $66.9 $10.0 $121.8 $19.4
[My editorial comment: Nice trends in revenues and operating
income. Year over year gains: Net sales = 351%, operating
income = 528%]
Modules:
Shipments.............................. $94.0 $12.8 $170.3 $22.0
Intersegment sales..................... -- -- -- --
--------- --------- --------- ---------
Net sales to external customers........ $94.0 $12.8 $170.3 $22.0
Operating income....................... $19.9 $3.7 $36.6 $5.5
[comment: yr over yr gains: Net sales = 674%, operating income = 565%]
Net sales by reportable segment........ $267.7 $49.0 $485.2 $91.7
All other net sales.................... 14.0 14.8 26.6 29.5
--------- --------- --------- ---------
$281.7 $63.8 $511.8 $121.2
========= ========= ========= =========
Operating income by reportable segments.. $86.8 $13.7 $158.4 $24.9
All other operating income (loss)........ 0.3 2.4 (11.6) 7.0
[comment: stop here at the above line items, and you have the
pre-tax operating income results of the core, original Uniphase business,
plus the operating results of the companies it has acquired
(JDS Fitel and others) added in. This is where you can evaluate the
profitability of the combined underlying businesses.
One caution: these numbers are not restated for the effects of
the acquired companies, Therefore, the earlier periods are revenues and
operating income before the acquisitions. The latest periods include
the acquisitions.
The result: this presentation implies a greater growth rate than the
underlying businesses actually experienced. You don't have an "apples to apples"
comparison. That is why you will sometimes see pro forma financials that
restate the prior periods to give effect to the acquisitions as
if they were already in place. That allows year over year comparisons
that are more reflective of the organic growth in the core businesses.
Nobody ever said Generally Accepted Accounting Principles are designed
to impart meaningful investor information !@#$%*!
OK. Now look to the next section below. Now we get to the other distorting
item. The acquisition writeoffs. Often you will see some of these charges
referred to as "acquired R+D".
What is management writing off? Generally speaking, as much of the
merger purchase price in excess of the value of the assets acquired as
they can justify. Get it over with as a one-time event, so future period
earnings don't have to carry any merger related, goodwill amortization charges.]
Unallocated amounts:
Acquisition related charges............ (204.8) (10.3) (377.7) (14.2)
Interest and other income, net......... 10.7 0.8 16.2 1.8
--------- --------- --------- ---------
Income (loss) before income taxes........ ($107.0) $6.6 ($214.7) $19.5
========= ========= ========= =========
[end of 10-Q excerpt]
You asked about growth rates:
So what is the right revenue growth rate for JDSU? Well, it clearly isn't
500+%, because that is jacked up by the JDS Fitel acquisition.
I haven't done the math to break out the core business growth,
excluding acquisitions, but I wager it is growing greater than 100% annually.
Yet the five year analysts estimated growth rate is 48%???
This contradiction is due to the S curve pattern that represents
technology adoption. Big spike upward off a flatter growth trend, until
market saturation slows the rate of growth.
This company reminds me so much of Cisco. Very aggressive and visionary
leadership that has made the acquisition of other technology
companies a part of their core competency and basic business strategy.
Incidentally, the Cisco earnings numbers are distorted by acquisitions,
just like JDSU's are. It just doesn't have as dramatic an impact on
CSCO's reported earnings because the acquisitions are smaller relative
to the core business.
Good luck next week!
Brian |
