I glanced at the Yahoo balance sheets for some reason or other when I noticed that Goodwill has been increasing. I assume that the only way that happens is that a company acquires something and pays more than the book value, so must record the excess as "goodwill" or "intangible assets". I no longer understand which one is which, but intangibles are still amortized while goodwill used to be, but the accounting standards boards decided to stop doing that a few years ago and instead calls upon companies to make regular revaluations of their goodwill and to write it down or up if it does not represent real value (like trade names which could be sold, etc). To me that is like encouraging managments to manage their earnings and I would have preferred the regular writedowns of value even though they sometimes are inaccurate.

In any case, Raven has a growing good will account. What the heck? They are not acquiring anything. So I pulled out my 2009 annual report and, as usual, found the explanation clearly and easily annotated in note 4 on "Goodwill and Intangibles". I had not been aware of it, but Raven is paying "acquisition earn outs" which I take to be part of the agreement to buy Starlink (wasn't that the name of the company in Texas which provided GPS technology and the marine navigation business?). Anyway, there have been acquisition earnouts every year in the Applied Technology division of between $200,000 and $600,000 (nearly $.03 a share last year).

I'm guessing that Raven is paying that those amounts to the previous owners based upon how well their products do for us, but instead of expensing the payout, we increase goodwill because it is part of the original purchase contract to increase the sales price if the acquisition performs well.

Incidentally, the other units also have some relatively miniscule goodwill accounts which are stable as I would have expected. Perhaps Ron or Tom will address this observation I'm making in an upcoming conference call or meeting.

Best, L.