Sunday, August 9, 2009

What playing the disclosure gambit tells your investors

As previously noted, I publish my rants and opinions in this forum, and desperately try to keep to the facts on Filing Watch™ and Private Semiconductor™. My work tweezing strategic information from semiconductor company SEC and court filings for publication in Filing Watch™ has revealed a great diversity in corporations' interpretation and application of accounting standards, regulations, case law and generally accepted practices. Some corporations continue to view the objective of regulatory filings to be minimal compliance, while others appear to follow the spirit of the rules and disclose information useful to the investor community for judging both the merit and risk of owning the company's stock. As an example, the disclosure of customer concentration; all customers contributing more than 10% of the company's revenue during the reporting period can be addressed in the following ways:
  • Complete evasion method: Customer "A"= 27%, Customer "B"= 16%, Customer "C" = 12%
  • Hiding behind ODMs and distributors: Foxconn = 27%, ASUSTeK = 16%, Avnet = 12%
  • Telling the useful truth: Apple = 27%, HP = 16%, Dell = 12%
Another puzzling act is the pooling of acquisition financials. Here is a recent example from Intersil:
  • During the third quarter of 2008, we purchased D2Audio Corporation (“D2Audio”) and Kenet, Inc. (“Kenet”). D2Audio was a privately-held fabless semiconductor company with leading technology in the design of digital audio power amplifiers. Kenet was a privately-held, fabless semiconductor company with leading technology in the design of high-speed, extremely low power data converters. During the fourth quarter of 2008, we purchased Zilker Labs, Inc. (“Zilker”), a privately-held, fabless semiconductor company with technology leadership in high efficiency digital power integrated circuits. The purchase consideration for the three acquisitions was $44.7 million in cash paid to complete the mergers, net of cash and cash equivalents received for the three companies, and for professional fees and the assumption of certain liabilities. The purchase consideration is subject to change depending on the final purchase accounting. Based on our preliminary evaluations, which are expected to be completed no later than the fourth quarter of fiscal year 2009, the acquisitions included approximately $13.2 million of definite-lived intangible assets, which will be amortized over five to seven years, and goodwill of approximately $19.2 million. In addition, approximately $2.8 million of in-process research and development (“IPR&D”) was expensed as a result of the acquisitions.
So, what message are companies choosing to send to their investors? Do they treat their disclosure obligations as a deposition and try to get away with one word answers, or do they provide useful and insightful information, allowing those who read SEC filings to made informed decisions?

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