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Technology Stocks : Lucent Technologies (LU) -- Ignore unavailable to you. Want to Upgrade?

To: abbigail who wrote (12382)	1/7/2000 3:32:00 PM
From: Chuzzlewit	Read Replies (2) \| Respond to of 21876

Abbigail, I, too, do not believe in the sanctity of the cash flow statement, but they are a lot more difficult to manipulate than earnings. Barring outright fraud, I believe that cash flow statements are much more revealing than earnings. I am still uncertain about the QSPE, but this is what I believe happened: 1. LU created a non-consolidated QSPE for the purpose of selling certain A/Rs. 2. They placed $625MM of net receivables in the QSPE. But along with the net amount, there was also the provision for the doubtful accounts receivable. Let's assume that it was about 4% of the face value of the receivable, so the total placed in the QSPE was around $650MM. So, by this device they decrease A/R by $625MM and the provision for doubtful accounts by $25MM (this number is conjecture, of course). 3. The QSPE sells the A/R to another entity for $600MM. The QSPE transfers $600MM to LU and LU collateralizes the debt with $700MM of additional receivables. 4. The QSPE is treated as an investment, hence they record an investment of $625MM on the balance sheet, while simultaneously recording a cash inflow of $600MM in operating cash flow. I do not criticize LU for selling the A/R in view of what I believe is poor cash flow. But if my conjecture is correct (and it is still conjecture at this point), I fault them for papering over the problem. ***** Yes, my focus was on financing growth, but the subtext was on efficiency of execution. Clearly, I did not expect a revenue shortfall. I am still concerned about LU's ability to meet current obligations (note the level of current debt). do you think these are cause & effect? Not necessarily, although such weaknesses frequently portend the difficulties McGinn alluded to. What do you think the cash flow statement looks at 12/31/99? It must be a lot worse than 10-k? I have no idea at this point. I think we will have to see the balance sheet and income statement first. Mr. Fun believed, based on assurances from management, that operational issues were improving. Clearly, Q4 looked better than Q3. WHAT HAVE YOU LEARNED GOING FORWARD? God, you're tough! I saw problems in Q3, and what appeared to me to be financial engineering in Q4. I failed to act on those warnings (by selling) because of short-term tax considerations. I feel very stupid at this point. And like you, I have lost much. TTFN, CTC