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To: AlienTech who wrote (4599)	4/1/1999 9:19:00 AM
From: Susan Saline	Read Replies (1) \| Respond to of 6021

so, is this gappa day number 10 or 11? I've lost count now

To: AlienTech who wrote (4599)	4/1/1999 9:20:00 AM
From: Chuzzlewit	Respond to of 6021

One of us has something backwards. In a pooling deal there is a simple addition of balance sheets. We agree on that In a purchase deal the assets are written down to the lower of cost or market (an audit generally occurs) and the difference between the value of the assets and the purchase price is accounted for as goodwill. We agree on that. This is the part that is confusing me: The fashionable thing to do was to assign a large part of the purchase price to an asset called IPR&D, thereby reducing the amount of Goodwill recorded, and naturally avoiding its amortization expense in future years. Any amount assigned to IPR&D is written off immediately - again by operation of FASB Statement #2. If that is the case then my understanding is totally incorrect. In effect, what you are contending is that the estimated market value of the R&D of an incomplete project is removed from goodwill. My problem is in understanding how it is possible for companies that have merged under pooling rules to suddenly show IPR&D on their income statements. Second, if you are correct, then we are talking about a write-off of a portion of the purchase price rather than the creation of a prospective charge. But my reading of the 10-Ks of several companies leads me to a different conclusion. In thinking about what you said, I am even more confused because the SEC had indicated that they wanted the IPR&D charge amortized as goodwill, but I have never heard of goodwill as part of the pooling process. This is the point where we are in total agreement: Quite frankly, I don't see why this should spook any investor. We are talking about a noncash charge - amortization. Yes it would lower earnings, but would have no effect on EBITDA - Can you point me to the sources to support your contention? In the meantime I'm going to hunt around to see if I can excerpt the stuff I've been talking about. So to summarize my understanding (at least the parts that you feel I misunderstand) and contrast it with your understanding. 1. I felt that IPR&D was a prospective charge against future R&D costs designed to complete the project. You believe that IPR&D is a write-off based on the market value of the projects. Essentially the purchaser is claiming that the actual purchase was for R&D and treats this as an expense rather than an amortizable intangible. 2. I felt that IPR&D charges were arising out of a pooling transaction; you felt that they are restricted to purchase transaction. Could we both be correct? TTFN, CTC TTFN, CTC

To: AlienTech who wrote (4599)	4/1/1999 10:10:00 AM
From: Chuzzlewit	Respond to of 6021

It appears that I have egg all over my face on at least half of the issue. IPR&D definitely does arise from purchase accounting. There is a good discussion of the method in the FORE/Berkely merger: edgar-online.com I am trying to find what I thought (I may have been hallucinating) was some sort of verbiage on the use of IPR&D charges in pooling. I will be back later to report on what I find. Again, I apologize to the thread for my misunderstanding. TTFN, CTC

To: AlienTech who wrote (4599)	4/1/1999 10:33:00 AM
From: Chuzzlewit	Read Replies (1) \| Respond to of 6021

Lou, confusion prevails on this issue -- at least I am totally confused! According to Compaq's most recent 10-K, in 1997 CPQ acquired Tandem in a pooling of interest transaction, yet they recorded a $208MM IPR&D charge in connection with the deal. If that is true, then exactly what is the basis for the charge? IPR&D charges as part of purchase accounting has a lot of appeal in technology companies because it effectively brings the acquisition into harmony with what I read is the intent FASB#2. Regardless of the accounting details the point remains that cash flow is the only reliable way to analyze these companies, and the focus needs to switch from accounting earnings to cash. And when considered on a cash basis non-cash charges (amortization and depreciation) are non-events. I think the problem has been created by excessive reliance on earnings as a barometer of the company's performance. Thanks for your help on these issues. TTFN, CTC