I agree- Add back in goodwill amortization for comparison.
The goodwill amortization was required by the settlement with the SEC last year. But its a non-cash entry, and only enters as a bookkeeping entry. If ECM stocks traded based on book value, then I'd worry about it, but I think revenues, earnings, forecasted growth, quality of customer business, and business risks are much more critical factors. The goodwill amortization is now being amortized by the company over ten years, versus an amortization period of over 20 years. This hits the income statement to the tune of about $1M per Q of non-cash expenses. I agree the best comparison with the ECM stocks, would be to add this 18-20 cents back in.
But there were some other costs of the Astron deal that will hit home this month. Steven Rees will recieve at least a $5M payment from Flextronics, and will get $9M worth of Flextronics stock (at 40, about 225,000 shares).
These shares, together with 1,210,243 shares issued this Q to close the Altatron and Conexao deals, adds about 1.4M shares to my estimate of about 21.1M shares the company was likely to use in the JunQ report (up from 20.8M last report). So I would use about 22.5M shares outstanding in estimating EPS. This may be conservative, because 226,000 shares haven't been released, and won't be issued until certain contingencies are met. (I have been using 22M shares on my previous posts on the thread, so I should be pretty close to the diluted share counts used in the next few quarterly reports.) I've clipped the part of the recent S-1 filing applicable to this issue, and copied it below.
From the SEC S-1 filing on 5-21-98:
On October 30, 1997 the Company acquired 92% of the outstanding ordinary shares of Neutronics Electronics Industries Holding AG ("Neutronics"), an Austrian PCB assembly company with operations in Austria and Hungary, in exchange for 2,806,000 Ordinary Shares of the Company. In addition, in fiscal 1998, the Company acquired DTM Products, Inc., a Colorado-based producer of injection molded plastics for North American OEMs, in exchange for 252,469 Ordinary Shares, Energipilot AB, a Swedish company principally engaged in providing cables and engineering services for Northern European OEMs, in
exchange for 229,990 Ordinary Shares, and Altatron, a California-based contract manufacturer, in exchange for a total of 788,650 Ordinary Shares of which 157,730 are to be issued upon the resolution of certain general and specific contingencies, and Conexao, a Brazilian contract manufacturer, in exchange for a total of 421,593 Ordinary Shares of which 118,305 are to be issued upon the resolution of certain general and specific contingencies.
The total new shares issued since last fall is about 4.5M shares. This seems to be a lot of shares, but by my estimates, the businesses they purchased did about $330M in the last year, and should do at least $550M in revenues in the next 12 months. Using $40 per share, the cost of the shares issued is $180M, so the new businesses were bought at about 55% of trailing annual revenues, and only 33% of my forward revenue estimate. Of course, they are expanding and investing in the facilities they purchased, so this last ratio can't be taken at face value.
One of the problems with Street acceptance of this stock, is all the deals and riders and time that is needed to sort through all that. But I haven't seen them do anything stupid through all these deals, even allowing for the three mistakes (Texas plant for Global Village, acquisition of A&A in Wales, and overpaying for the nChip acquistion). Given all the acquisitions they've made, this wasn't too bad. And with the write-off for the closure of the Wales plant (and transfer of the remaining business to Altatron's Scotland facility), they've now written all them off. Some good came of these apparent mistakes, for example the entry into Europe afforded by the A&A purchase and the engineering talent that came from nChip. So after sorting through all the details of these deals, the value of Flextronics business is still growing very nicely, and over time, this will translate to nice EPS growth.
Paul |
