From article on Ascend's earnings.....
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Even though Ascend beat third-quarter earnings expectations, nervous investors Tuesday focused on a $8.7 million charge the company took in the latest period to write down loans to competitive local exchange carrier, or CLEC, customers. But Ejabat fired back, saying "Wall Street does not understand" Ascend's write-down for loans to customers. He said Ascend has been using the same accounting practices since 1993.
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However, some on Wall Street were unnerved by a $8.7 million financing charge - which showed up in Ascend's sales, general and administrative line in the third quarter - since the company is writing off all of the financing loans it provided to CLECs in the quarter to purchase its equipment.
"It raises a lot of concerns that Ascend is doing bad business," said Sanford C. Bernstein & Co. analyst Paul Sagawa, "that it is doing business with companies that can't pay."
Sagawa explained that a number of networking equipment vendors have started to offer financing to CLECs, which had been financing their network equipment purchases with junk bonds and stock offerings, but have seen these sources of capital dry up in recent months.
But Ejabat explained that when Ascend provides financing for customers, it writes off all the money. Only when customers pay the bills for the financing does the company record the money, Ejabat said.
So, they recognize sales, immediately write off the receivable against income, the re-recognize as income if and when it's paid. I wonder where they found that in the GAAP manual. |
