Originally Published MDDI March 2002
BUSINESS CLIMATE FORECAST
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The fortunes of medical device firms will likely be affected by two developments in the finance world that took place in 2001. Large, public medical device companies may see some fallout from the collapse of energy trading giant Enron in the nation's largest-ever bankruptcy filing. Reports on Enron's "creative" accounting practices are bound to attract headlines for months to come amid congressional and criminal investigations.
"We anticipate that we might get increased questions from shareholders since the exposure to Enron brings to the forefront the subtleties of accounting rules," says John Wareham, chairman, president, and CEO of Beckman Coulter Inc. (Fullerton, CA). "All public companies will see some impact. Certainly, we'll see increased audit fees," he adds with a laugh. "Beyond that, there are likely to be new rules on employee benefits that are stock based."
Wareham says a recently released accounting rule will have a much larger impact on Beckman Coulter—the Financial Accounting Standards Board (Norwalk, CT) has changed the way that goodwill (an intangible asset that provides a competitive edge) and other intangible assets are treated.
"Before, goodwill had to be amortized, and worse yet, most was not tax deductible," Wareham explains. "Now we don't have to amortize goodwill and some of our other intangible assets. The impact of adopting this new accounting standard will mean an additional $15 million—less amortization expense—for us, which we will be rechanneling into strategic activities."
Industry experts expect that mergers and acquisitions will increase as a result of this ruling once the economy picks up.
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