Mr. Fun,
I haven't been through the entire 10-K, so I have not yet read comments about the backlog other than from secondary sources. The backlog situation, if true, does not concern me because at worst it is a one or two quarter issue. In fact, considering the Y2K lockdowns in many companies I am not surprised, and certainly not dismayed.
Nonetheless, I hear that AR DSOs are supposed to be down another 3-5 days - I hope it is not all due to shenanigans.
Considering the way Lucent finances vendors, the forecast decrease in DSO may really be smoke and mirrors because it appears that what LU does is to consider vendor notes as a financing activity (that is, it does not include these items in receivables). My tea leaf reading tells me that LU may require additional financing -- certainly drawing down on its credit facility is a distinct possibilty. And remember, it still has those shelf offerings. In any event, I think this is a much more serious issue than the backlog.
In very general terms, the reason I believe additional financing may be necessary is that if LU's growth will be as robust as you predict and if a greater proportion of sales are to European customers there will be a big difference in the timing of the pertinent cash flows. When DSO is much greater than days payables that creates a cash gap for a growing company. The 10-K attributed the increase in DSO to increased sales to European customers who demand more liberal terms. DSO also rises with growth because every quarter is naturally back-end loaded.
Credits to Chuzz for getting this more right than me.
Not necessary. We are here to help one another in our understanding of the dynamics of our company.
TTFN,
CTC |
