Silicon Investor (SI) -- The First Internet Community

STOCKTALK

We've detected that you're using an ad content blocking browser plug-in or feature. Ads provide a critical source of revenue to the continued operation of Silicon Investor. We ask that you disable ad blocking while on Silicon Investor in the best interests of our community. If you are not using an ad blocker but are still receiving this message, make sure your browser's tracking protection is set to the 'standard' level.

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

To: David Perfette who wrote (4592)	3/31/1999 10:41:00 AM
From: AlienTech	Read Replies (1) \| Respond to of 6021

It should be very easy to see what the restatements would be, just take all the companies bought for cash and see what the inprocess r&d write off's are. I think the reports say that some analyists dont think they can make up the 3 cents drop in earnings with cost cuts and increased sales.

To: David Perfette who wrote (4592)	3/31/1999 12:31:00 PM
From: Chuzzlewit	Read Replies (2) \| Respond to of 6021

David, and thread, I have repeatedly posted on this, so I feel a bit like a broken record. The essence of the SEC dispute is a technical one amounting to how earnings are presented to shareholders. Under prior SEC pooling of interests guidelines a company could take a one time charge for future expenses relating to the the completion of R&D projects in thew acquired company which were not yet finished. The effect of this is to shift a series of R&D expenses from the future to the present. The initial idea was to conservatively represent to shareholders the true cost of a merger by using a device similar to a restructuring charge. So what happens is that non-cash charges are taken now instead of cash charges taken in the future when the R&D work is completed. The effect of this is to decrease current earnings and increase future earnings to the extent that charges are shifted. BUT this in no way impacts the performance of the company. It is the same company, and these restatements do not imply a material misstatement of fact as was the case, for example, with Cendant. The best way to view the restatement is as a change in accounting principles. In fact, if you look at the company from a cash flow perspective you will find that nothing material has changed. That's why all investors should ignore accounting "earnings" in favor of operating cash flow. It is a much more revealing metric. There is a very good reason to applaud these SEC-mandated changes. If you think for a bit about how analysts examine earnings reports you will see that they generally exclude one-time charges from their radar screens. Consequently, mergers can provide a synthetic means of growing earnings in the eyes of these analysts because of the continual exclusion of one-time charges. The effect of on-going mergers is a significant understatement of expenses, and hence an overstatement of future earnings. Furthermore, this synthetic growth is addictive. You do it once or twice and you find you need to keep doing it. Why? Because after the boost to earnings growth, earnings growth once again appears to lag so the company goes hunting for its next fix. Don't be fooled by this scheme. Some analysts have contended that if the SEC prevails this will put a damper on mergers and acquisitions. I say more power to the SEC, because what the merger-hungry companies were doing was relying on accounting sleight of hand to patch over their problems. The more transparent the accounting system the better we as investors will be able to understand the gimmicks the shysters are trying to use. Financial Engineering 210 - Intermediate chicanery TTFN, CTC