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Technology Stocks : Applied Magnetics Corp -- Ignore unavailable to you. Want to Upgrade?

To: Richard Haugland who wrote (10110)	11/1/1997 5:41:00 PM
From: JimieA	Respond to of 12298

Here are my ideas relating to APM's tax situation. I think the US NOL carryforward of $62.7M can be used only against US income. So the first thing is to determine how much of the $100M in income in FY9/97 is from the US. APM indicated on it's 9/96 annual report that 26% of operating income was from Foreign Sources. If the same ratio applies in FY97, then of the $100M in Income only $26M would be applied against the loss carryforward. Leaving about $37M for FY98. Using the same ratio along with the lower expected income in FY98 means that the NOL carryforwards will probably continue into FY99. APM has not recorded any of the $38.8M in deferred tax assets. Recording an offsetting reserve. APM stated: "The valuation reserve at September 28, 1996 has been provided due to the uncertainty of the amount of future domestic taxable income." Over the next year or two they should be reducing this reserve to zero as they continue to be profitable. {Hopefully} Providing tax credits to the income statement. In summary, I think APM will only be reporting a small income tax expense for FY98, similar to that in FY97. The future income tax rate will be based more on the tax rate in Malaysia and when the Malaysian tax holiday ends, since about 74% of income has been outside the US. I hope this helps.

To: Richard Haugland who wrote (10110)	11/1/1997 9:57:00 PM
From: Dave Chanoux	Respond to of 12298

Richard, it is nice to be able to respond to you after all you have contributed here. In my own analysis, I have assumed a 25% tax rate. While this rate is subject to many variables (see below), I use it as a plug because the income statement which uses a 0% or very small tax rate is only short term as the tax loss carry-forward will eventually expire (I hope). 25% is based on the tax rate the company reported way back in the late 80's. I acknowledge that the business model may have changed substantially since then, but if anyone has a better rate, let me know the basis for it. The tax rate varies based on many factors. Here are some random thoughts: 1. The company is currently investing and reaps a first year investment tax credit based on capital expenditures, reducing tax obligations slightly. I assume that at least some of the investment is domestic (pretty solid assumption based on reports). 2. Income can be distributed between domestic and foreign to some extent based on cost distribution between foreign and domestic. Tax rates differ, foreign/domestic. 3. The tax holiday in the far east extends through 1998 as I understand it (I assume calendar year 1998). The company can defer taxes by pushing more income to the far east subsidiaries. There are limits. Someone else reported here that 74% of FY97 income is treated as domestic. I don't have any idea what the tax rate will be after the tax holiday expires, but if higher than the domestic rate, the comany will push the income back to domestic. 4. I assume that the tax loss carry-forward was consumed in FY97 and am somewhat surprised that the FY97 unaudited income statement released on 10/23 did not report a larger tax liability. There was no tax liability listed on the balance sheet, implying it is in the "other current liability" category. I would not be surprised to see an audited statement with tax liability in excess of the $2Million reported on 10/23. (Then again, I would not be surprised the other way either!). 5. Remember I am an electrical engineer and don't know anything about this stuff! Regards, Dave Chanoux