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Technology Stocks : THREE FIVE SYSTEM (TFS) - up from here? -- Ignore unavailable to you. Want to Upgrade?

To: dfloydr who wrote (1447)	5/5/1998 12:14:00 AM
From: Noblesse Oblige	Respond to of 3247

Hi Floyd, You have noted that TFS is using very conservative accounting practices by expensing the pre-opening costs for the China expansion. This is right on the money, as the company had the choice to capitalize much of those expenses, benefiting the current quarter's numbers at the expense of a longer-term charge against earnings. In fact, the $ 1 million that will be charged against the second quarter income statement would have fallen right to the bottom line, assuming the company chose to do the less conservative accounting treatment. Thus, assuming a 40% tax rate, the charges cost shareholders approximately $600,000 in income in the second quarter, by my calculations roughly the difference from my expected result of $.17-$.18 to approximately $ .25 per share. The difference is substantial, and based on the current stock price, reporting $ .25 would clearly have had a short term benefit. However, capitalized expenses can occasionally come back to bite you later, and I applaud the company's decision to take the less aggressive accounting stance. Having said that, I certainly hope that when the numbers are reported management will make a special effort to "telegraph" the importance of the charges (and the concomitant reduction in reported earnings) to the shareholders AND Wall Street. Although analysts will unquestionably pick the information up, it should be noted that though Bob Cihra (of Furman Selz) is doing a solid job covering the company, that his "reach" and impact on the institutional community is at best limited. It would be much better to assume nothing about Furman's ability to deliver the full story to the institutions, and it certainly wouldn't hurt if the corporate press release was written in a way to call attention to the results for Dow Jones...which then might make mention of the "reality" of the underlying improvements in the business. Thanks for the "heads-up", Floyd, You have a perspicacious understanding of the importance in the details.