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To: Edwarda who wrote (577)	2/23/1999 4:23:00 PM
From: Chuzzlewit	Respond to of 1492

Edwarda, my understanding of the accounting rules is as follows: 1. R&D is expensed as in the period that it is performed. 2. When one company acquires another company under "pooling of interests" accounting, the unfinished portion of the R&D is written off as an expense. Theoretically this represents the amount of cash the acquirer will expend in completing the project. The write-off is considered a non-recurring, merger-related expense. But it seems to me that this process, even if adhered to rigidly distorts the company's performance. After all, the theory of a pooling of interests is that the companies had always existed as a single entity. So why the double standard? My read is that the in-process writeoff started life as a red flag to investors. The idea is that there are some expenses coming up that need to be accounted for (similar to rstructuring charges). Unfortunately, the standard became a device whereby companies were able to hide future expenses under the umbrella of non-recurring cost. The notion that if this accounting device is eliminated it will result in decreased merger activity is, if true, desirable. The write-off did not affect taxes or cash flow in any way, so why would merger activity dry up? Maybe because investors would begin to see that the merger wasn't in their best interests and was being used as a device to shore up flagging earnings. Or perhaps it resulted in bigger paychecks for management (depending on how their compensation packages are strucured). TTFN, CTC