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Technology Stocks : WCOM -- Ignore unavailable to you. Want to Upgrade?

To: JM who wrote (3142)	8/7/1998 1:45:00 PM
From: ANANT	Respond to of 11568

JM: I am also of the same opinion as your CPA. These one time charges are not considered for the earnings considerations. It is the revenues and the future earnings potential that would matter. We will be better off as investors if most of the charges are taken as one time charge now and balance amortized over number of years such that the impact on the future earnings is minimized. Currently WCOM is going down by 7/8 to 51.875. This might be due to the naz going down from up of 33 to up of 14. kind rgds ANANT

To: JM who wrote (3142)	8/7/1998 1:59:00 PM
From: dougjn	Respond to of 11568

JM. Yes. 1) None of this is "real". I.e., Wcom has not discovered some great problem at MCI. There is no affect on cash flow whatsoever, and no effect on the expected value of the assets (and their cash generating ability.) 2) It was expected. 3) It is smart. The reason it is smart is because the more they write off now, the less has to amortized and deducted, drip by drip, from earnings over the next 30 years or whatever. This all comes about because of the idiocy of purchase accounting. I have long thought it should be abolished, but it is deeply entrenched in the consciousness of US/Int'l accountants. It is stupid. To oversimplify, the theory is that if you buy a company for more than its book value the excess must be some mythical "goodwill" which even more mythically must loose value. At the slowest, at least within 30 years. No investment bankers or finance types buy this absurd notion. It only gets more and more absurd as the economy evolves and value increasingly is in intangibles. But it was always absurd to some degree. Because the effect of amortizing goodwill is to depress the thing that the trading market generally uses to value companies -- reported earnings -- companies naturally try to do anything they can to avoid this absurd goodwill accounting issue. Strategy 1) use pooling instead of purchase accounting. (In my opinion this is how all mergers should be accounted for, regardless of whether the consideration is stock or cash. But nooooo.... even if the consieration is mostly stock, if it also has too much of a cash component the silly accountants enforce their ridiculous rules and disallow pooling.) This is what happened when BT said cash please, rather than stock. (Cashing out too many options can ruin the treatment too, etc., etc.) Strategy 2) Have big restructuring write offs of value following the acquisition. The market now accepts this for what it is: avoidance of the silly purchase accounting rules, as much as possible. One really easy and now absolutely routine area for doing this is to writeoff "in progress R&D". Go-go silicon valley type tech companies pioneered the routine use of this technique, and it was regarded as a bit riske for a while.... But when IBM used it massively post its acquistion of Lotus many moons ago, it became absolutely accepeted. (Except by a few accounting old guard purists.) Now these types of techniques might be thought to be a bit go go. That may be true until you consider what they really are doing. What they're doing is finding a way around purchase accounting amortization of goodwill, which is an absurdity to begin with. Telecom companies built by acquistion have inherant huge problems with goodwill amortization. (And think about it. When Wcom acquires a MFS for way over book value, what is it buying??? It's buying years to get there. Years to lay all that fiber, and get all those municipal permits, etc, etc. Its buying the organization of it all. Ultimately and really, of course, its buying the cash flow generating power of those assets and that organization.) Its why the market tends to value such companies more on cash flow than earnings. But I said tends. Especially for large companies, you want reported earnings to look OK on a PE basis also. Goodwill amortization is one of the stupidest things the accounting profession has ever visted upon finacial reporting. Hence the writeoffs. Go Wcom!!! [Don't get me wrong. There are many areas of aggressive accounting that can distort earnings upwards. One example is the regular writeoff of "extraordinary" charges. This can become a way of shifting part of the regular costs of doing business (not all R&D pans out) outside of normal earnings. I'm just saying any gynastics to erase goodwill amortization are fine with me. Generally.] Doug

To: JM who wrote (3142)	8/7/1998 3:13:00 PM
From: P.T.Burnem	Read Replies (2) \| Respond to of 11568

WCOM is a phony, a Cendant of the telecom industry. One day WCOM investors will wake up only to find out that their WCOM investment has been cut and half. That is, if they are lucky. The charge amounts to about a third of the WCOM/MCIC combined book value!

To: JM who wrote (3142)	8/7/1998 5:23:00 PM
From: PDL	Read Replies (1) \| Respond to of 11568

JM: The market rarely punishes a company taking a charge like the one announced by WCOM (unless it is long overdue and reflects a major accounting scam as in the case at Cendant [sp?]). I remember about 3 years after the break-up of the Bell System AT&T took about a $10 billion charge to write-down all their antiquated equipment -- this charge "wiped out" all the profits that AT&T had reported for the 3 years after the break-up... and the stock went up. As Dougin says: it avoids the drip-drip of higher expenses over a long period of time. This charges can be attributed to this huge combination -- there has been a ton of overhead incurred (and assets to be written down). I suspect they decided to write-off everything that could be written off so that they will look super-clean going forward. Despite PT's negatives, I believe this is going to be a great combination. Bernie Ebbers is the class of the telecom field and I couldn't be happier seeing my MCI converted into WCOM. BTW, does anyone know what the new ticker symbol is going to be?