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To: John Koligman who wrote (84932)	12/11/1998 1:45:00 PM
From: jim kelley	Read Replies (1) \| Respond to of 176387

John, If you deduct the "deferred taxes " from CPQ's current assets, you will see that CPQ's working capital has been adversely affected by the merger. The "deferred Taxes" item seem to be a result of their massive writedown at merger time. Moreover, CPQ 10Q statement says that CPQ will factor accounts receivable to increase working capital as required. Such factoring will make the DSO inventory number meaningless. CPQ has not been able to actually implement it full restructuring and layoff plans yet. It appears to me that this is because such plans adversely affect their working capital. Thus they are stuck with an inefficient operation until they can generate enough funds to complete their planned restructuring and layoffs. Much of their balance sheet is based on estimated values of intangibles and in process R&D which may or may not produce competitive products. CPQ is a fiscal mess, IMO. The merger has produced a company that is very difficult to manage and which has a financial statement which is subject to change at any time. If the management had a history of being straight with the investors, I would consider investing in them at an appropriate time. But they seem to be trying to blow smoke all the time. JK

To: John Koligman who wrote (84932)	12/11/1998 2:56:00 PM
From: Chuzzlewit	Read Replies (1) \| Respond to of 176387

John, the writeoffs are currently legal and according to accounting standards, legitimate (except for some companies suspected of overdoing it), but the problem is this: when you start writing off "in-process R&D", and "restructuring costs", and "merger-related costs" the intention is all too frequently to obscure the future "cost" of doing business. Since the "analyst" community focuses on the myth of operating earnings they ignore these "non-recurring" charges. In so doing the "cost" of doing business in the future is decreased. That's one of the reasons why companies like to use a "pooling of interests" accounting procedure: they get avoid having that nasty recurring charge, "amortization of goodwill" appear on their income statements. But this is all accounting smoke and mirrors. None of this has any effect on corporate taxes or cash flow. So by changing or stretching the accounting treatment you can increase or decrease "earnings" substantially. But it has no effect on cash flow. That's why real analysts (who are known to eat quiche!) use cash flow to cut through all of the smoke and mirrors. The irony is that in some cases the practice of writing some of these items off is tantamount to restating earnings (which sends shivers up and down the investment community), but when you call it a one-time charge it's okay. Go figure. TTFN, CTC