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Technology Stocks : All About Sun Microsystems -- Ignore unavailable to you. Want to Upgrade?

To: Charles Tutt who wrote (48455)	4/20/2002 10:45:40 PM
From: E_K_S	Read Replies (2) \| Respond to of 64865

Hi Charles -The biggest undervalued asset I have found when researching companies are the real estate assets which is recorded on the balance sheet at the "original" cost. Land is best because it does not depreciate. Also, the older companies will usually own real estate assets with a very low cost basis since they were purchased many years ago (like Woolworth and Sears). The other undervalued asset (especially for fast growing companies) are long term leases that have fixed term lease rates (usually five years w/ option to renew at some set rate for another five). Many times these leases are assignable and the acquiring company can capitalize on the cost savings (again not shown on the balance sheet). I have seen some leases that were fixed for ten years. J.C. Penny comes to mind but they actually had more stores where they owned the real estate. I even found some of their stores where they owned the portion of the mall where the store was located. Sears also has some stores where they have a vested interest in the mall property. In Sunw's case, several years ago I developed a list of all the land and buildings they owned here in Silicon Valley. This information is public but sometimes is hidden since title is can be held through another company name (usually LP), subsidiary or holding company. I buy and sell real estate here in Silicon Valley and have a good idea of general value. Especially, new zoning changes and what a large parcel of land is worth if it is developed into buildable lots etc.. Sunw is sitting on several large parcels w/ buildings (especially the Alviso parcel recently acquired from the City of Sunnyvale). Their lowest cost parcels are those owned in Palo Alto (near Stanford University) when they first started the company. These real estate assets are recorded at cost and in some cases are worth 15 times more than what they paid for them if they were acquired during the 70's. Two items you must be alert on when reviewing the SEC forms. First, look for any major lease back contracts. When a company runs into cash flow problems, they can tap the hidden equity in their real estate and will sometime enter into a lease back agreement with a first year cash payment. Novell used a lease back agreement to finance their new San Jose Campus facility. They entered into a 10-year fixed lease, selling their land assets to a Development Company. The Development Company built Novells's new facility to their specifications but now owns the land and the buildings not Novell. Novell essentially sold their real estate and converted it into a long term fixed lease agreement. Second, when you notice a company selling their real estate holdings to finance their growth is a Red Flag warning. Generally this tells me that the management is aggressive and current sales are not supporting current cash outflows. Sometimes this strategy works but more often it is the prelude of a company going out of business or not able to compete in the market. In conclusion, booked Goodwill may reflect an over statement of value but upon further analysis of the complete balance sheet, some companies may have significant hidden assets contained in their real estate holdings or other undervalued assets. Each company is a unique case. Usually the older more established companies have greater hidden assets (from their real estate or long-term leases). EKS

To: Charles Tutt who wrote (48455)	4/21/2002 7:43:53 AM
From: cfimx	Read Replies (1) \| Respond to of 64865

good. let's ignore goodwill. that drops your bv per share down to $2.40 a share. wow. what a powerhouse.

To: Charles Tutt who wrote (48455)	4/21/2002 7:47:53 AM
From: JDN	Read Replies (1) \| Respond to of 64865

Dear Charles: Sounds like we are in agreement. Actually few knowledgeable people pay attention to goodwill anyhow. Even in lending we subtract from net worth intangible assets (this doesnt mean they are not valuable by the way, often they are THE MOST VALUE a company has,) and I think today most people would add back non cash writedowns (ie pay more attention to cash flow than earnings). So, I dont think all this discussion really means much except in an Academic Sense. The bottom line is I always preferred Pooling concept of acquisition over Purchase yet that became the frowned upon method. Glad I am retired, dont have to concern myself with these issues anymore, I would rather be JEEPING anyhow. jdn