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To: Oeconomicus who wrote (130313)	8/20/2001 1:26:57 AM
From: H James Morris	Read Replies (2) \| Respond to of 164684

Bob, before you give us any more of your EBITDA bull shit its all going to change soon. Glenn is correct when he says "give me a GAAP statement and I'll figure it out in less than 10 minutes"! August 19, 2001 NEW YORK -- Gray-suited accountants armed with new bookkeeping rules may just be corporate America's saviors in the most dismal earnings year the stock market has experienced in a decade. New accounting rules that no longer require companies to write off goodwill from past acquisitions will boost the bottom line -- at least on paper. Goodwill is the difference between the price paid for an acquired company and the fair value of the company's net tangible assets, often billions of dollars. AOL Time Warner Inc. became the latest to join the queue when the Internet and media giant said on Wednesday that its profits would shoot up by as much as $5.9 billion each year as a result of the changes. The No. 1 U.S. tax preparer, H&R Block Inc., also said on Wednesday that it would reap an additional $49.3 million next year. For AOL, the amount is particularly significant because it could push the company into the black on a net basis for the year. The increased earnings may look good to Main Street investors, but professionals by and large disregard the effect of the accounting change because it does not reflect any underlying change in the company's business performance. "It doesn't really mean a thing because it does not change the value of future cash flows of the company," said Matthew Litfin, an analyst at investment bank William Blair & Co. "And the market will undoubtedly look through it as just that." Companies currently write off the goodwill on their books steadily each year, and these noncash charges often take a chunk out of net profits. The new rules, which went into effect July 1, enable companies to leave goodwill untouched on their books until its value falls, or becomes impaired. For the corporate world, reeling from a slowdown in the U.S. economy and expectations for the worst earnings declines in a decade, the new rules are one of the few bright spots this year. The problem for the financial world, however, will be that each company is likely to treat the issue differently. "It's going to create turmoil and chaos because you'll find companies are going to adopt different approaches even though the rules have tried to be strict," said Mark Cheffers, an accountant and business valuation expert who manages and owns www.accountingmalpractice.com. "There's a great amount of leeway in how the write-off of goodwill can be reported." Double-edged sword The new accounting rules may come back to bite the companies that now are using them to boost earnings. Each quarter, companies have to test whether the goodwill on their books is worth its recorded value. If it isn't, they must write down its value. This can mean large write-offs and charges against earnings for companies in sectors like technology and telecommunications. These firms went on an acquisition spree during the tech boom and now are weighed down by assets that plummeted in value since they were bought. Fiber-optic component supplier JDS Uniphase Corp., for example, said last month that it was writing down a whopping $38.7 billion in goodwill to adjust for a drop in the value of its costly acquisitions. "There's a double-edged sword on this accounting principle," said Larry Riegel, a managing partner of assurance services at accounting firm Andersen. "What we will be seeing is that there are going to be companies that, yes, have better reported earnings, but they're also going to have these write-offs of their impaired goodwill or impaired assets -- in fact, a counter-effect." Banks, trash haulers In the meantime, a number of other companies already have alerted investors that the new accounting rules will add a sheen to earnings figures next year. Trash hauler Waste Management Inc., for example, said last week that starting in January next year, the change would add 5 cents to its earnings per share each quarter. Consumer products giant Procter & Gamble Co. said last week that the new rules would cut goodwill amortization by 13 cents per share for its fiscal year. U.S. banks that often make acquisitions, like Wells Fargo and Co., also stand to benefit from the new accounting rules, which will boost profit numbers and possibly improve investor psychology about the stocks. Bank of America Corp., the No. 3 U.S. bank holding company, said in a filing on Monday with the U.S. Securities and Exchange Commission that the elimination of goodwill amortization would annually boost net income by $600 million, or 37 cents a share. Wells Fargo also said in a filing the rule would lift its net income by about $560 million after tax next year. "There's no economic impact, but once people start focusing on the new numbers, that could help some of these banks that are seeing a big boost in numbers, on a valuation basis," said Putnam Lovell Securities analyst Jennifer Thompson. Most companies must adopt the new accounting standards -- known as the Statement of Financial Accounting Standards No. 141 and 142 -- by next January. Some companies that don't operate on a calendar fiscal year have the option to adopt the new rules earlier than others.