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Technology Stocks : Global Crossing - GX (formerly GBLX) -- Ignore unavailable to you. Want to Upgrade?

To: Ally who wrote (13164)	8/5/2001 12:47:15 AM
From: RobertSheldon	Read Replies (3) \| Respond to of 15615

The term "swap" was used as a negative connotation by the Prudential Securities analyst during the conference call. Part of the confusion has arisen due to how GX may be able to book the capital expenditure. Before I go any further I should point out that there is no way any analyst or anyone here on the thread would be able to verify the following scenario without intimate knowledge (non-public) of GX's books. I will also point out that for the size of the transactions in question it does NOT AMOUNT TO MUCH anyways. Finally, all this confusion can be avoided by using a more friendly calculation know to few as “Owners Earnings”. To begin lets say that the equipment in the purchase was $X. Further, lets say the Company paid $X+1 for the network it purchased. The company now has the ability to say that they paid $1/4X for the equipment and $3/4X+1 for the “Value” of the network. Why does this make a difference? It does in how the expenses will show up on the books. Whatever they bring on the books as expenditure in relation to the net tangible assets will be depreciated over 5-11 years. Whatever they identify for the books in excess of this amount will be amortized as goodwill for up to 40 years. In other words if GX wanted to show less expenses they would book as little as possible (getting auditors to agree to the entry) for equipment as the majority of the expenditure would be strung out over 40 years thus decreasing the size of expenses in a given year. Owners Earnings may be calculated by taking the following into account (this WILL level the accounting field in 80% of the cases – the other 20% that is missed is due to unscrupulous executives rolling in the hay with their accountants): Reported Earnings (we adjust the top line for cash revenues and make some minor adjustments on down the income statement to get to an adjusted ‘reported earnings’ figure for GX) + Depreciation + Depletion (not relevant here!) + Amortization + and certain other Non-Cash Charges – the average annual amount of Capital Expenditures that the business requires to maintain its competitive position and its unit volume. The rub is that it is often difficult to identify the level of capital expenditures in future years – but we feel we have this nut cracked and thus our "fiddling" confidence in our growing GX position. See, I told you this company could be reduced to simple math ;-)