American Eco (ECGOF, ECX on Toronto exchange) Message Board

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Gold/Mining/Energy : American Eco (ECGOF, ECX on Toronto exchange)

ECX 1.900

+2.2%

Jan 16 9:30 AM EST

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To: david james who wrote (1821)	3/1/1998 8:41:00 AM
From: JimieA	Read Replies (3) of 2841

I don't like to be the one who announces bad news, but 1. When you calculate the effect of DB's NOLs on ECO's EPS for FY98 you should include in the calculation the approximately 6.3M shares issuable on conversion of the convertible notes that will be issued. 2. When a company acquires another company with NOLs. The NOLs are generally treated under the SRLY rules. (Separate Return Limitation Year, I think) Under the SRLY rules the utilization of the NOLs is limited to the profitability of the acquired company. DB's NOLs can only be used to offset DB's income. Generally companies help along the use of the acquired NOLs by transferring profitable business to the company as well as decreasing interest expense by increasing equity in the acquired company. 3. Generally when there is a acquisition via the purchase method there is goodwill created. Especially since ECO is paying over two times shareholders equity for DB. Some of this excess will probably be added to goodwill. In this case when the combined company uses the acquired NOLs, the tax benefit would reduce goodwill and not reduce income tax expense. The logic behind this is that, if the acquirer knew, on the date of acquisition, that it was going to use the NOLs then it would create a deferred tax asset attributable for the NOLs and therefore goodwill would be less. Only when goodwill is reduced to zero would the tax benefit of the NOLs be used as a reduction of income tax expense. Therefore I do not think that ECO will be able to reduce its FY98 income tax expense by DB's net operating losses. Other then this I think the acquisition is great. There should be a lot of benefits for the combined company. Better finances, more efficient operation, better management, more exposure to wall street, etc. On another matter. The EPS of $1.20 for FY97, people on this board are disscussing is Basic EPS, without considering any shares issuable from warrants, options or other convertible securities. But since Wall St. generally uses diluted EPS in determining P/E ratios, etc. Don't you think we should as well. I enjoy reading your remarks Jim

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