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Technology Stocks : Intel Corporation (INTC) -- Ignore unavailable to you. Want to Upgrade?

To: Dan3 who wrote (171659)	10/17/2002 12:16:19 AM
From: The Duke of URL©	Respond to of 186894

Thank you for your response. I'm not an accountant, but I play one in a court room. And I have now done a VERY brief reconnoiter of 142 and 141 gaap. The conclusions you may draw are not as black and white as they seem to have been treated in the press and by some members of this thread. Goodwill is occasioned in this case by acquisitions of other companies. It is the excess over the book value of the assets paid by one company, Intel, to acquire another. When this last company, called the target company is "folded" into the acquiring company this difference has been "capitalized" and called "Goodwill". Goodwill is the value of an asset, over and above what it had cost the seller and/or it is the value of assets that when combined are worth more than their separate costs. Much theory goes into these rules the discussions that lead to the adopting of one way to treat the item over another can take years to argue, BUT, and this is the key point here... IT IS MUCH MORE REALISTIC TO ARGUE THAT INTEL HAS BEEN UNDERSTATING IT'S INCOME FOR THE LAST NUMBER OF YEARS, RATHER THAN OVERSTATING IT THIS ONE QUARTER. Warren Buffett's theory of investment is that real GOODWILL never looses value, and that is one reason that David Clark and Mary Buffett's book called Buffettology, (the name I invented, but did not copyright) is of interest. The new rules call for the write-off or deduction from current income of Goodwill after it becomes impaired. Just as Cisco did, and many other companies. For instance, Intel may have purchased a company called Level One Communications, and obtained 800 communications engineers which helped it develop 802.11a and give intel the ability to put it on the chip. Intel may well have folded these assets in to Intel Corporation thru the use of a subsidiary under what is called an Upstream Reorganization under 368 of the Internal Revenue Code of 1954, as amended. Well, if Intel had hired these 800 engineers in the open market, it might have cost them approximately 66 Million dollars in headhunter commissions, which they did not have to pay. In effect one might call this 66 Mill, good will. Existing law says write this off over 40 years. That is completely arbitrary and is no longer the law. That 66 million will now be written off, if at all at the time it looses value. This new way of treating stuff is no better or worse that the old way....you just have to understand what is happening. If you look at it in the manner I have postulated then it is arguable that Intel's earnings have been understated by 2 Billion dollars a year for EACH OF the last 4 or five years. I am not suggesting you do this, it really is to each his own, and there are intellectual arguments on both sides. But, of course, I like my way and feel quite comfortable applying it to a company like intel. Gosh, "It's Good to Be Duke." :))