What does all this American FASB determination mean to my wealth?
Just got this from GS ... to anybody on the thread, what does it all mean, if anything, to the CSCOs of this world?
Thanks in advance, Chugs
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December 20, 2000
ALL GOODWILL AMORTIZATION TO CEASE; "CASH EPS" CONCEPT ABANDONED
Background
As discussed in our On Call Bulletin of December 7, 2000 and numerous press articles, the Financial Accounting Standards Board (the "FASB") has tentatively decided that goodwill will no longer be systematically amortized against earnings, but rather written off to expense only when its value has been determined to have been impaired. This announcement raised several side issues, the most intriguing of which was: What will happen to existing goodwill, including goodwill on acquisitions that are being worked on now and may be closed or even just announced before a final new Statement is released?
Current Events
At today's meeting, the FASB came to several more tentative decisions regarding goodwill accounting issues. (Note our description of both the December 6th and 20th decisions as "tentative" because the process is ongoing as discussed below; there could be revisions or modifications.)
The Decisions
1. All existing goodwill will cease being amortized as of the effective date of the Statement, and reviewed for impairment as of that date and subsequently. Further discussion on the effective date is included below.
2. Some specifically identified intangible assets will be treated similarly to goodwill. Recall that the September, 1999 Exposure Draft provided for certain intangibles to be carried without amortization and the final Statement is expected to expand that population. If a company is already carrying such intangibles on its balance sheet, the currently-required amortization of them will also cease and impairment evaluation commence.
3. The concept of "cash EPS" (or, more precisely, the subtotal for "earnings from continuing operations before goodwill amortization") that was an element of the FASB's prior proposal contained in their September, 1999 Exposure Draft has been abandoned. Goodwill impairment writedowns, when required, will be an element of earnings before tax. We believe the FASB intends to have such writedowns as an element of operating earnings, but the level to which the Statement will go into such income statement geography remains to be seen. There is anticipated to be no ability, however, to present any subtotal, with or without a related EPS calculation, that excludes goodwill writedowns.
4. Specifics of the impairment reviews, both for newly recognized as well as existing goodwill being frozen by the Statement, were also discussed. After we have seen the FASB's official release on today's meeting, another On Call Bulletin devoted to the impairment issues will be forthcoming.
What's Next (and Timing)
The FASB decided that a revised Exposure Draft would be issued, but limited to the new decisions regarding goodwill amortization. They are shooting for:
-- One more meeting to discuss some remaining goodwill-related issues (e.g., treatment of negative goodwill) on January 10, 2001
-- Release of a revised ED by late January or early February
-- Short (30 day) comment period and no public hearings
-- Final Statement to be released by June.
Assuming this timetable is met, goodwill amortization will cease as of the beginning of the first quarter following the release of the Statement (i.e., July 1 for calendar-year companies). No revision of prior quarters is contemplated, although some guidance on pro forma information to be presented is expected.
Whither Poolings?
Remember that all these decisions are part of the FASB's standard "redeliberation" process after evaluating all the feedback received on its September, 1999 Exposure Draft, and that same Exposure Draft called for the complete elimination of pooling-of-interests accounting as of the release of the final Statement. This decision will also be "redeliberated" in a future meeting, probably in January, 2001.
If, as anticipated, the decision to prohibit poolings is reaffirmed, transactions will need to be "initiated" (i.e., announced with major terms, including the exchange ratio or formula, agreed by the parties) by the end of June to be eligible under the current pooling rules.
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