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Technology Stocks : All About Sun Microsystems
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To: Charles Tutt who wrote (53075)1/16/2003 6:49:45 PM
From: Robert  Read Replies (1) of 64865
 
The FASB rules regarding goodwill impairment is a compromise
between the SEC and technology lobbyists. Previously,
acquisitive companies like Cisco (which paid for purchases
with stock) could charge the excess of market value to book
value to their balance sheets as R&D and expense the total
cost virtually immediately, instead of amortizing the cost.
This would boost profits going ahead into the future.

The rules were supposed to prevent companies writing off the
total cost as R&D but create an impairment account to mark
to market the value of the goodwill. Now... I seriously
doubt that the Cobalt and Highground acquitions were so
poorly chosen that their resale value is worthless in less
than a few years, but for tax purposes this adds about
$50 million in pretax income going forward. At the same
time, by reducing the shareholders equity by $2 billion,
return on shareholders funds is boosted by about 22%,
(because of dividing by $7 billion instead of $9 billion)
all pretty good for sleigh of hand....
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