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Gold/Mining/Energy : GEAC.....Canadian best kept secret -- Ignore unavailable to you. Want to Upgrade?

To: john.d who wrote (1030)	2/4/2000 11:37:00 PM
From: PlayTheKing	Read Replies (2) \| Respond to of 1571

John, Sultan, et al. The allocation between intangible assets and goodwill is a subjective matter that auditors and management have come to an agreement with. The OSC is quite "lenient" when it comes to these allocations as compared to their counterparts in the U.S. (i.e the SEC). Basically, Geac bought all the outstanding shares of JBA for X amount of dollars. The accounting guidelines state that the purchase price (i.e amount paid) must be allocated to the fair market value of the assets and liabilities of the former JBA; these amounts must be present valued, e.g. for cash flows to be received / paid over more than one year. The guidelines also call for valuing "off balance sheet items", including estimating the value of intangibles which includes intellectual property. How one "values" intellectual property is an excercise in futility, IMO, as NOBODY KNOWS WHAT THE VALUE IS. How can you value an "intangible". However, the accounting guidelines state you must provide a "best estimate" and Geac has estimated it to be $180M. Other items would include tax-loss carryforwards. The difference between the above amounts (which is not a comprehensive list) and the amount paid by Geac is called Goodwill. I'm not too concerned about the valuation of goodwill and intangibles as these represent sunk costs. The real test here is how much Geac paid above and beyond the net book value of JBA. In this case, the total Goodwill paid was around $395M. This may be more or less given the valuation of the intangibles. The interesting thing is that if Geac really wanted to play with earnings they would have argued for a lower valuation for the intangible and allocated more to Goodwill as their accounting policy calls for a longer amortization period for its goodwill compared to the intangible, i.e 5 years vs. 3 years. Basically, the hit to income would be less as the amounts would be amortized to income over 5 years rather than 3. Under Canadian GAAP Geac could have selected an amortization period for its goodwill not exceeding 40 years; they chose 5 years. The choice reflects management's conservative nature. As stated by John the more important factors that we must be concerned with is how geac will turn JBA around so that they can earn an acceptable NOI and postive cash flows so that they can pay down their debt or pursue additonal acquisitions. Analysts get so bogged down with EPS that they fail to see that the choice of accounting policies can really skew the results. I believe that cash earnings and assessing the Statement of Cash Flows to determine how management has used its cash resources is more insightful to determine whether management is really managing this company. As long as they are not squandering our cash then I would give management the benefit of the doubt. Whether the analysts consider the JBA acquisition to be a good or not is irrelevant as they will never understand the true synergies that exist between these two companies compared to Geac and JBA's management teams. As long as mangement sticks to its plan and DELIVERS RESULTS, then I would trust them over any analyst report. Sorry for the long post... PlayTheKing Still long and purchased today between 18.75 - 19.10.