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Technology Stocks : Network Associates (NET) -- Ignore unavailable to you. Want to Upgrade?

To: William F. Wager, Jr. who wrote (4061)	1/21/1999 7:05:00 PM
From: Chuzzlewit	Read Replies (1) \| Respond to of 6021

William, the issue will not blow over until we have better accounting standards. Analysts seem to be incapable of recasting the data they have, so they simply rely on "earnings" as reported by the company. As a result, they tend to see downward revisions due to changes in accounting as a negative, in spite of the fact that nothing of substance has changed! As long as analysts are incapable of thought this will remain an issue. This is not to say that NAI is blameless. I have long been a critic of the loose accounting standards that allows companies to hide all kinds of stuff under the heading of "one-time merger-ralated charges". The funny thing is, if you take the time to look at the cash flow statements, particularly cash flow from operations, you will see the strength of the company. And cash flow from operations will not change as a result of the amortization of the R&D costs. You will simply see a line item like "amortization of R&D" added to "earnings as reported" as a cash adjustment. When NETA merged with Network General I was very critical of the amount paid. NETA claimed the deal was non-dilutive, but the only way they could achieve that was to hide a fair amount of the cost in "non-recurring charges", which makes earnings in subsequent periods look better. But when you looked at the cash flow it was clear that the deal had to be dilutive. But make no mistake about it, this is the smae game most companies engage in when they use a pooling of interests merger. When they use purchase accounting they must amortize the excess paid over market value as goodwill over a reasonable period of time. I think Levitt's position on this issue is correct, and I think the fault lies with people who insist on drawing hasty conclusions while not understanding how to read financial statements. Moral: cash flow is where it's at. TTFN, CTC