Mark,
A couple of other important considerations between pooling/purchase acquisitions:
(1) Typically acquisitions are made a much higher price than the book value of the company. Under a purchase transaction, the difference between the book value and the purchase is considered "goodwill", and typically must be amortized over the next 15 - 30 years, which has the effect of reducing earnings per share. Under a pooling transaction, the asset and liabilities of the companies are simply combined, and there is no "goodwill" established. Companies almost always prefer pooling transactions if possible, to avoid diluting future reported earnings.
(2) Getting SEC approval to account for a transaction as a "pooling" transaction usually requires that a company is restricted from certain types of transactions, which is why there was all the talk before about when Lucent's restrictions would expire.
(3) Gary's comments were correct in terms of the how to account for sales and earnings attributable to the acquisition in the year the acquisition was made, but previous to when the purchase took place (e.g. how do you treat sales made in Q1 and Q2 for a company which was acquired in Q3). In subsequent years, sales from the acquired company will included exactly the same irrespective of which method was used. The only difference will be that the company acquired under the purchase method will have lower reported earnings due to the amortization expense. |
