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CyberBucks Use of ‘pro forma’ creeping into earnings reports



Internet Stock News Acquired for

Stock, Cash By Miami-Based Firm

In its first-quarter results last month, Qualcomm Inc. used the words “pro forma” quite a bit, and for good reason.

By prefacing its key numbers with the phrase, Qualcomm was able to report profits of $231.5 million, or 29 cents per diluted share. Not bad when compared to the previous year’s first quarter when it reported profits of $177 million, or 27 cents per diluted share. Of course in that quarter, it didn’t use the phrase.

Nancy Linke, a Qualcomm senior manager, said pro forma means reporting results as if a one-time, unusual financial situation had not occurred.

“It’s removing a one-time unusual circumstance so investors can understand the company on an operating results basis,” Linke said.

That’s fine, but the same report contains what Qualcomm told the Securities and Exchange Commission for its quarterly net income. In fact, the company actually suffered a net loss of nearly $229 million.

The biggest reason for the loss is Qualcomm’s setting aside a reserve of about $595 million for problems involving Globalstar, a company it formed with another big defense contractor, Loral Space and Communications.

Last month, San Jose-based Globalstar defaulted on its bond payments to Qualcomm and others, forcing the company to take precautions on any future loss of revenues and other costs it may incur involving the investment.

The company is saying by looking at the results pro forma, or as if the default hadn’t happened, it would have made $231 million.

Analysts who track the company apparently were satisfied, as were most investors, many of whom decided to buy more Qualcomm stock.

Following the news, Qualcomm rose from about $74 to about $81 on Jan. 26, the day after the results were released, and continued to climb this past week.

Qualcomm earnings were also bolstered by about $15 million in net profits it made on the sale of stock it owned during the quarter, the company revealed. It said its current stock portfolio is valued at more than $300 million. Qualcomm also said it is sitting on a cash mountain of more than $2.4 billion and has no debt.

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JNI Sees Profits Soar: JNI Corp., a San Diego-based maker of fiber channel hardware and software products used to form storage area networks, also used the term “pro forma,” but with different results.

Instead of announcing profits in place of net loss, the company said it would have earned a lower amount of profit if not for the taking of significant tax breaks during its most recent quarter.

Pro forma, the company said it had a profit of $5.2 million instead of the actual net profit of $6.3 million.

JNI spokesman Chris Wildermuth said the tax breaks were the result of benefits the company can take for research and development investment, such as the purchase of equipment. By using those, JNI had an effective tax rate of 4 percent rather than the 35 percent it would normally incur.

JNI’s results, either from a pro forma view or its actual figures, show fairly impressive gains. Its actual net income rose 417 percent for the fiscal year from $2.8 million to $14.4 million. Actual revenues increased 157 percent to $103.2 million.

Despite this, JNI shares dropped some five points to about $20 following the quarterly announcement. Just a few days earlier, the stock had been trading near $30, but that’s far off where it was in mid-November when it hit its 32-week high of $126.

At the time, JNI was the apparent victim of a rapidly falling Nasdaq and an erroneous report saying it had lost its best customer. Although the company put out a release saying the report was untrue, and a correction by the news agency was issued, the stock has not recovered.

Wildermuth said the reasons for the market reaction may be traced to JNI’s relatively flat sequential growth quarter to quarter, and the much better performance in earnings by several of its key competitors.

ISN Makes A Jump: Not all dot-coms are headed to a certain death in cyberspace. Internet Stock News, a local Web site dedicated to tracking Internet-related equities and investment, was recently acquired by a larger content provider, 123Jump.com, based in Miami.

Chris Agarwal, the former UCSD student who started the company in 1998 with his cousin, Nik Mittal, said the purchase price was “mostly stock and some cash,” but didn’t disclose any numbers.

Judging from the startup’s financials over the past two years, it’s not hard to believe Agarwal’s term for the buy as “considerable.”

IP Equity LLP, the parent firm for the ISN, turned a $3.5 million profit for 1999 on revenues of $1.7 million. The profits came on the sale of stocks held by the parent firm.

Last year, the holding company earned about $1 million on revenues of about $2 million, Agarwal said.

“We’re happy with the acquisition,” said the 24-year-old CEO. “We’re now part of a larger entity we think is definitely going places.”

ISN’s new owner, 123Jump.com, is a financial content firm with several offices in this country and in Bulgaria, Tokyo and Abu Dhabi the capital of United Arab Emirates. The firm has been on an acquisition binge, buying five companies over the past year, and looking at buying about five more this year, Agarwal said. Privately held 123Jump has about 150 employees and holds about $37 million in cash, he said.

Following the deal, ISN laid off six employees, including its in-house securities attorney, CFO and support staff. It is now hiring some sales and marketing positions for its UTC office.

For now, ISN will maintain its Web site, but it may fold it into the 123Jump.com site in the future, Agarwal said.

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Dot-com Struggles: MassHysteria, a San Diego-based Internet content provider, said it eliminated its Web site design and production business along with 29 employees last month.

Scott Phillips, MassHysteria’s CEO, said the company decided to focus itself on real-time content production for clients such as Microsoft, AOL and the National Hockey League.

“The custom application side of the business was taking too much of our resources,” Phillips said. “We were spending about 60 percent of our resources on about 20 percent of our revenues.”

The 29 jobs cut were mainly Web site design and production, although some sales people were laid off as well. Following the cuts, privately held MassHysteria now has 59 employees.

Dallas Firm Buys Trade Services: Dallas-based i2 Technologies signed a definitive agreement to buy La Jolla-based Trade Services Corp. and its affiliate ec-Content Inc. The deal, expected to close Feb. 9, is for $5 million in cash and about 2.3 million shares of i2 stock, which is traded on Nasdaq.

Trade Services, established in 1931, is a provider of product and pricing information for industrial, plumbing, and automotive markets, and ec-Content does much the same thing for firms in e-commerce. It has about 500 total employees, about half of whom work in San Diego.

Trade Services CEO Tony Dubreville said the sale to a major e-commerce content firm will result in the addition of new jobs locally, but he was unable to predict the number. The type of jobs ranged from lower paying data entry to engineers and managers who could earn about six figures.

Send any finance items related to the tech industry to mallen@sdbj.com.

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