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Technology Stocks : WCOM
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To: Oeconomicus who wrote (10967)6/27/2002 7:13:35 PM
From: Lizzie Tudor  Read Replies (2) of 11568
 
He apparently felt that, since they were making these payments in advance of actually using the lines to generate revenue, that the costs should be deferred and taken later against the associated revenue. The board, after conferring with KPMG said "No! You can't do that. These are operating lease payments and you can't defer the expense. And since you've possibly cost us the whole company, you're toast. Goodbye."

Thanks for this detail. This is the first I've seen, do you have a source for this?

Bonehead question for the telco people here - why make operating lease payments in advance of using the lines? Thats kindof contradictory to the terms of an operating lease is it not? Now if this was a finance lease,different story (of course no such thing as a finance lease on phone lines I know) but normally you pay as you go with operating leases.

I have to say just from a layman's perspective it is kindof a stretch to capitalize any kind of lease. I was thinking we were talking about software upgrades or comm equipment or some other capital expenditure where the lines between "maintenance" and "upgrade" are blurred.
L

edit - I just read the prior posts citing the NYT article. Still seems curious about lease payments for not yet revenue generating lines, though.
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