Dear Tench and Tony:
You are completely incorrect! You do not like what is said, so that must mean it is wrong!
Re: "acquisition costs are irrelevant when it comes to meeting estimates"
This is totally wrong when Intel gets to define what are acquisition costs and what gets into the cost side of the Pro Forma earnings. They also determine what goes into the revenue side. Since they determine the amount and kinds of both revenues and costs, the amount of acquisition costs included in (or excluded from) Pro Forma earnings have a direct bearing on the earnings.
It is the same if a person stated that they acquired a wife who makes $50K a year but excludes the fact that two quadraplegic sons were also gotten in the marriage who cost $100K a year each, that their total Pro Forma family earnings are now $175K a year. By GAAP rules, the family loses $25K a year. Only the later really shows the picture of the family finances (If you have a problem with the example, use partner for wife, worker's comp. employees for sons, and partnership for family).
If your statement is accurate, then you would not have a problem with Intel acquiring a $100 million dollar book company with $100 million in annual revenue, $90 million a year in operating costs for $50 billion. "Acquisition costs have no bearing on meeting of estimates". Then the Pro Forma earnings comes out, the $100 million are in revenue, $32 million are in costs, but the $2.5 billion of interest costs to buy the company are excluded as is the $49.9 billion in goodwill plus some $58 million in costs went into that somehow was counted as more goodwill. The $68 million in extra profits beat the street estimate by a penny (just barely). And you are OK with that?
I do not believe you would be that foolish! You would be berating management for such a foolish and moronic purchase. You would get out of Intel ASAP and probably start a shareholder's lawsuit to boot, if you couldn't get out in time.
There is too many ways for Pro Forma earnings to be abused. It should be eliminated.
Pete |
