RE:RE:RE:The fly in the ointmentnavajojoe wrote: Whydunnit wrote: navajojoe wrote: This is something you will never see mentioned by the pumpers here, or on "the other board". Whether it is dishonesty, or just plain ignorance, I have no idea.
The Global HVAC acquisition contained this clause;
a vendor performance payment equal to 45% of adjusted 3 years cumulative earnings after-tax in excess of $4.5 million
A little vague, as we don't know if that was supposed to mean "all" of our earnings, or just those attributable to Global. But because Global is being so intertwined with KNR, and there is the $4.5 million not included (KNR's share?), we have to assume it will be all earnings above that level.
It sounds like the payment will be made at the end of the 3-year period, so won't affect the earnings that show up on the books, but it does mean that almost half of our net earnings for the next 3 years will be going to the owners of Global.
Just something to keep in mind.
I'm not making the assumption that all KNR earnings are included in that clause. In fact that would be an insane clause to agree to IMO, and would violate Ghezzi's mantra of buying cheap. It would be a simple matter to isolate Global's earnings going forward, just as it was when they were a solo company. They are probably still operating an their own entity for all intents and purposes, even if they are using KNR software, hardware and ideas. Easy peasy for an accountant.
So why is the first $4.5 million of earnings exempt from this arrangement?
I think it's also pretty common to use tiers in contracts. Like, you get 10% commission on sales but anything past 100 triggers 15%, or if there's more gold in the ground than we thought you'll get 1.5 million shares instead of 1 million. In this case in particular it seems to me that KNR simply wanted to pocket some cash, maybe to apply to the purchase price, integration costs, marketing or whatever, before sharing with the previous owners.