FASB Reaffirms Plan to Eliminate Pooling (Updated)

Also, Greenspan to speak today, junk bond market continues revival, more tech titans report earnings and much more.


The Financial Accounting Standards Board (FASB) tentatively decided at Wednesday’s public meeting to eliminate the pooling-of- interests method of accounting for mergers.

All mergers and acquisitions would be accounted for under just the purchase method.

The pooling method would be eliminated following issuance of a final Statement.

This is a reconfirmation of the FASB’s decision, contained in the proposed Statement, to eliminate the pooling method.

“Based on thorough analysis and public discussion of those comments, the FASB concluded that the transparency of the reporting for business combinations would be greatly improved if all business combinations were accounted for under the purchase method,” FASB said in a statement.

In a press release, Edmund L. Jenkins, Chairman of the FASB, stated, “The purchase method, as modified by the Board during deliberations, reflects the underlying economics of business combinations by requiring that the current values of the assets and liabilities exchanged be reported to investors. Without the information that the purchase method provides, investors are left in the dark as to the real cost of one company buying another and, as a result, are unable to track future returns on the investment.”

Under the proposal, goodwill would not be amortized against earnings. Instead, it would be written down and expensed against earnings only if the value of goodwill is more than its fair value.

In mid-February, FASB will issue an Exposure Draft on the accounting for goodwill, providing a 30-day comment period.

FASB plans to issue a final statement on business combinations and intangible assets in late June of this year.

The purchase method of accounting would be required for all business combinations initiated after the issuance of a final Statement. However, the pooling method will continue to be used to account for certain business combinations initiated prior to the issuance of the final Statement.

Greenspan to Speak Today

Wall Street and corporate execs will be curious to hear what Federal Reserve chief Alan Greenspan has to say when he visits Capitol Hill today.

Greenspan is scheduled to testify before the Senate Budget Committee at 10 a.m. E.T., five days before the next FOMC meeting.

His speech will mainly address issues of the budget and tax cuts.

The interesting issue here is how his views mesh or clash with President Bush’s plans to cut taxes.

Greenspan is known to prefer using projected government surpluses to pay down the national debt instead of giving it back to taxpayers in the form of a tax cut.

And, of course, every listener with try to decipher a code word for whether Greenspan plans to cut rates next week.

Meanwhile, this morning the Labor Department reported that the employment cost index (ECI), a favorite Greenspan gauge, rose 0.8 percent in the fourth quarter of 2000.

This was down slightly from the third quarter’s 0.9 percent rise, and much slower than the consensus forecast for 1.1 percent growth.

On a year-over-year basis, however, the ECI increased 4.1%, the fastest annual rate since 1991.

More Good News From the Junk Yard

For the second day in a row, American Tower Corp. lifted the size of its upcoming junk bond sale.

The operator of broadcast and wireless communications sites originally planned to offer $350 million worth of debt. However, on Tuesday huge investor demand forced it to lift the deal size to $750 million. Then, on Wednesday it decided to make it an even $1 billion.

Already this month, $10 billion worth of junk has been sold by issuers, according to Reuters and Thomson Financial Securities Data. That is more than double the $4.16 billion they sold last quarter, and nearly a fourth what they sold all last year.

Where is this demand coming from? Well, for the two weeks ended Jan. 17, investors poured a net $1.49 billion of cash into junk bond mutual funds, according to AMG Data Services.

American Tower is expected to issue its eight- year notes late Wednesday. According to wire services, the issue, which is rated B3 by Moody’s and B by S&P, will be priced to yield around 9.375 percent.

Credit Suisse First Boston and Salomon Smith Barney are the lead underwriters.

A Hopeful Sign in VC Land

Stop the presses!

A dot-com actually secured venture capital funding.

E-marketer MarketSoft Corp. fetched $45 million in third-round funding, almost double what it had initially hoped to raise, according to The Daily Deal.

Putnam Investments, American Express Financial Corp. and J&W Seligman & Co. led the round. Fidelity Ventures also contributed.

Other contributors included previous investors, including Integral Capital Partners, Canaan Partners, Advent International, Prism Venture Partners and BancBoston Capital, according to the newspaper.

The 2-year-old company has raised more than $70 million in venture financing.

Dingell Calls for Accounting Probe

Congressman John D. Dingell (D-Mich.), ranking member of the House Committee on Energy and Commerce, called for the U.S. General Accounting Office to investigate the accounting profession’s oversight of financial reporting and auditing standards in light of recent clashes with the Securities and Exchange Commission.

In a letter sent last week to David M. Walker, the comptroller general of the GAO, Dingell asked the organization to take a second look at the accounting profession and its current governance structure, citing recent battles between the American Institute of CPAs and SEC.

“Recent events, in particular last year’s bitter fight over maintaining auditor independence, suggest that GAO needs to take another look at the accounting profession,” wrote Dingell.

Dingell, who holds the distinction of being a representative for the longest consecutive term, spearheaded the GAO’s original investigation of the accounting profession that led to a comprehensive report, “The Accounting Profession – Major Issues: Progress and Concerns,” in 1996.

Hand-held Computer Market Doubled

When you are sitting around with colleagues, do you sometimes feel like you’re the only one not tapping away at one of those hand-held computers?

This is because last year the U.S. market for hand-held computers doubled to more than $1 billion, according to The Wall Street Journal.

Revenues from these products, which are variously called organizers, pocket PCs and personal digital assistants, hit $1.03 billion in 2000, more than twice the $436.5 million sold in 1999, according to a study by market research firm, NPD Intelect. Altogether, manufacturers sold 3.5 million devices in 2000, nearly triple the 1999 figure of 1.3 million.

As is usually the case with technology products, the price is coming down as more of this stuff is sold. The average selling price for these devices dropped 11 percent to $293.51 in 2000, according to. The price decline “reflects that there is now more choice in the market,” said Sima Vasa, vice president of tech products at NPD, in the Journal article. “It’s up to each manufacturer to continue differentiating themselves from the competition.”

In the same year, U.S. PC sales grew just 10 percent, according to Gartner Group Inc.’s Dataquest unit.

The biggest seller of the hand-held devices was—no surprise here—Palm. Its unit share in 2000 was 72 percent. But, this was down from 78 percent in 1999.

Still, it’s way ahead of No. 2 Handspring, which had a unit share of 14 percent. Handspring was started by Palm co-founders and entered the market in 1999.

Earnings News

  • Veritas Software Corp. said fourth- quarter pro forma income surpassed expectations as revenues grew 64 percent from the year-ago quarter.
  • VeriSign Inc. reported fourth-quarter pro forma net earnings, excluding the costs of amortization of goodwill and other intangible assets, of $45.5 million, or 21 cents per diluted share, versus pro forma net earnings of $38.4 million, or 18 cents per diluted share, in the third quarter 2000. The consensus forecast only called for VeriSign to earn 11 cents per share.
  • Corning Inc. said its fourth-quarter profits more than doubled to $314.6 million, or 34 cents a share, compared with $142.2 million, or 18 cents a share a year ago. Wall Street had expected the company to earn 28 cents a share. However, the world’s biggest maker of fiber-optic cable warned that the overall telecommunications market may experience softness in the first quarter. Revenues soared 52 percent to $2.1 billion.
  • SDL Inc. said fourth-quarter net income came in at $48.2 million, or 53 cents a share, on revenue of $175.6 million, compared with $12.8 million, or 17 cents a share, on revenue of $58.7 million in the year-ago period. Analysts expected it to earn 49 cents per share.
  • E-Trade said first quarter earnings from ongoing operations amounted to $5.8 million, or 2 cents a share, before accounting for non- cash and one-time items. The online broker beat Wall Street’s earnings estimates by a penny.
  • Hilton Hotels Corp. said fourth-quarter earnings met analysts forecasts, but warned that revenue growth may slow this year if the economy eases some more.
  • Dow Chemical Co. said fourth-quarter earnings dropped 9 percent amid sharply higher costs, and warned that conditions will remain challenging through the first half of the year.
  • Kansas City Southern Industries Inc., now just a railroad company since it spun off its mutual fund business, posted a lower-than- expected net profit in the fourth quarter.
  • National Steel Corp. posted a much larger net loss in the fourth quarter, as revenue tumbled. The company had a net loss of $83.4 million, or $2.02 a share, compared with a year-earlier net loss of $3.2 million, or eight cents a share. Revenue fell 21% to $651.6 million. National Steel said it restated its results for 1998, 1999 and the first three quarters of 2000 because the trustee of the company’s pension master trust changed how it reported realized and unrealized gains and losses. That resulted in net losses being narrowed than previously reported or net income being higher than earlier stated.

Today’s Layoff News

  • Whirlpool said it will cut up to 6,000 jobs this year as part of an overall restructuring.
  • Hungry Minds, which publishes the “For Dummies” line of books as well as Cliff Notes, said it would lay off 130 people, or 19 percent of its employees, in order to cut costs.
  • Sony Electronics said it will lay off 500 workers as part of its plan to stop making picture rubes for computer monitors in the U.S.
  • Juno Online Services Inc. cut more than four percent of its staff of 325 people. A dozen positions were eliminated as a result of the Internet service provider’s move toward shifting its revenue base away from advertising to billable services and its efforts to keep subscriber acquisition costs down, a company spokesman told Reuters. Juno also cut an undisclosed number of people as a result of standard year-end performances and other jobs as a result of moving some positions to its India office over the last couple of months.

From the CFO.com “Brief” Case

  • The latest federal auction of wireless telecommunications licenses has raised a record of nearly $17 billion so far. Verizon Communications Inc. has been the most aggressively participant, bidding more than $8.7 billion for licenses, including $5.6 billion for two licenses in its home market, New York City.
  • Intel Corp. President and Chief Executive Craig Barrett filed to sell 400,000 shares of the company’s common stock, for a total value of about $13 million.

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