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

To: YlangYlangBreeze who wrote (8962)	4/16/2000 4:49:00 AM
From: jack bittner	Read Replies (2) \| Respond to of 24042

jdsu has grown by acquisition. trading its stock for the equity of the target firm. when it pays more than book value of the target (inevitable these days), the difference between book and the "price" (market value of the jdsu stock used) is accounted for as "good will" on jdsu's books. each year a portion of the good will is written off against operating earnings. so large are jdsu's acquisitions, they wipe out even the great, growing jdsu earnings. they also eliminate income taxes. looks like a win/win. new-age investors urge you to look through net earnings (as reduced by good will) to operating earnings to determine growth. one big downer: every acquisition dilutes the stock, because now there are more stockholders in the newly merged firms by the number that had held the shares of the target. if the earnings of the target were less per share (rarely are there any earnings) than those of jdsu before the merger, jdsu's earnings have been diluted. hopefully the newly merged company will have synergy (you're bringing together several engineering geniuses and many skilled technicians plus much knowledge that had never been together before. accountants haven't figured out where to put brains on the books. this is especially true at jdsu's level. also, hopefully the merged firms will increase their market dominance and be able to raise margins. give me your address, and i'll send you my bill.

To: YlangYlangBreeze who wrote (8962)	4/16/2000 10:06:00 AM
From: Brian K Crawford	Read Replies (3) \| Respond to of 24042

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