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Technology Stocks : JDS Uniphase (JDSU) -- Ignore unavailable to you. Want to Upgrade?

To: SJS who wrote (2461)	12/1/1999 7:16:00 PM
From: D. Newberry	Respond to of 24042

Hi Everyone, I am new to this stock, but have been doing my DD over the last week or so. I am about ready to take a long term position, but I have a couple of questions for those of you that have been into this stock far longer than I have. First, it appears they used the Purchase Method of accounting when they bought JDS rather that pooling of interest, which I gather means they must amortize the goodwill over 5 years. From their latest 10Q it appears this could be a drag on earnings for the next few years. Any ideas? I pasted the paragraph from the 10Q that covers that below. Also, they make mention of the transition from Gas Lasers to Solid State. I gather that they are leaders in Gas Laser technology, but perhaps there is more competition in the new Solid State Lasers. This would imply a change in technology in which they may not be leaders. Is this a concern? I'm a practicing EE, but I don't profess to be knowledgeable in fundamental laser technology. If anyone has insight into those two issues I would be appreciate your thoughts. Regards, DN 10Q Paragraph in question: P> Under U.S. generally accepted accounting principles that apply to us, we accounted for a number of business combinations using the purchase method of accounting, the most significant being the combination of Uniphase and JDS. Under purchase accounting, we recorded the market value of our common shares and the Exchangeable Shares issued in connection with Uniphase's combination with JDS, the fair value of the options to purchase JDS common shares which became options to purchase our common shares and the amount of direct transaction costs as the cost of acquiring the business of JDS. That cost was allocated to the individual assets acquired and liabilities assumed, including various identifiable intangible assets such as in-process research and development, acquired technology, acquired trademarks and trade names and acquired workforce, based on their respective fair values. We allocated the excess of the purchase cost over the fair value of the net assets to goodwill. We expensed in-process research and development of $210.4 million as of June 30, 1999. Goodwill and other intangible assets are being amortized over a five year period. The amount of purchase cost allocated to goodwill and other intangibles was $3.4 billion, including the related deferred tax effect. The amortization of goodwill and other intangible assets in equal quarterly amounts over a five year period will result in an accounting charge attributable to these items of $168 million per quarter and $672 million per year. Additionally, in the first quarter of 2000 our gross profit was adversely impacted by $11.4 million due to purchase accounting adjustments to products sold in the period. As a result, purchase accounting treatment of Uniphase's combination with JDS will result in a net loss for us in the foreseeable future, which could have a material and adverse effect on the market value of our stock.</P>