Silicon Investor (SI) -- The First Internet Community

STOCKTALK

We've detected that you're using an ad content blocking browser plug-in or feature. Ads provide a critical source of revenue to the continued operation of Silicon Investor. We ask that you disable ad blocking while on Silicon Investor in the best interests of our community. If you are not using an ad blocker but are still receiving this message, make sure your browser's tracking protection is set to the 'standard' level.

Technology Stocks : Ascend Communications (ASND) -- Ignore unavailable to you. Want to Upgrade?

To: Mighty Mizzou who wrote (56329)	10/21/1998 1:42:00 PM
From: The Phoenix	Respond to of 61433

The Lunchtime News Oct 21, 1998 FOOL PLATE SPECIAL An Investment Opinion by Dale Wettlaufer Ascend Loan Reserve Questions Network access and switching systems provider Ascend Communications (Nasdaq:ASND - news) gets the award for this quarter's most confusing earnings report! We congratulate it for this award for its third quarter earnings release made on Monday evening and which is still the topic of heated discussion on Internet message boards. First, let's deal with the unusual items that have attracted so much attention. There were four discrete items, three that reduced earnings and one that increased earnings. The charges were a $5 million patent agreement payment, a $7 million write-down of an old receivable, and an $8.7 million reserve against loans given to customers this quarter. The credit to earnings was an $18.3 million reversal of earlier merger expense accruals (from the Cascade deal). Some people have focused on comments from Paul Johnson of CS First Boston. Johnson looks at the company as having earned $0.30 per share for the quarter rather than $0.32. Here's why: Johnson takes out two of the charges as well as the credit to earnings and leaves the $8.7 million write-down in the operating earnings. So, we add back to reported pre-tax earnings of $102.444 million the $5 million patent payment and the $7 million write-off of the old receivable and we deduct from the reported pre-tax earnings the $18.279 unwinding of the earlier accrual. Therefore, pre-tax earnings with all the stuff scrubbed out are $96.165 million. Apply the 35.5% tax rate and you get net income of $62.026 million. Using the diluted share count, EPS was $0.2975, or $0.30 per share. Much attention has been paid to the issue of the company's accounting, with CEO Mory Ejabat telling Dow Jones that Wall Street doesn't understand the accounting issues involved in yesterday's report. However, it is strange that the company says these are good credits, yet the revenues from the sale of equipment to these customers are being deferred. It's a generally accepted accounting principle that revenues should be recognized when realized or realizable. Revenues are realized or realizable when either cash is received or claims to cash that can be converted into a known amount of cash are received from the customer. The company has claims to cash and believes that the credits are good, ergo these sales should be realized with a credit loss provision (expense) matching the company's estimates on what loans will actually go bad. You can be overconservative with revenue recognition. It's nowhere near as much of a sin as being too aggressive, but a company should make its best efforts to estimate exposures in lending. My conjecture is that the analysts believe the company is managing revenues and earnings too heavily. In addition, Ascend went out of its way to emphasize that the working capital loan program is new, yet Mory Ejabat said yesterday that it is continuing accounting treatments that have been in effect since 1993. If the company is that conservative, why did a write-off of a receivable from 1996 and early 1997 come through the income statement this quarter? A company that is really consistent would have reserved against that specific account long ago, with the ultimate write-off not affecting the income statement today but in the actual quarter when the reserve was taken. Analysts and investors just want a little transparency on what is going into and coming out of the deferred revenue accounts, what the working capital loans are, what the reserves are, and what is happening in general with how the company is using its resources. None of this is to say that this is why the stock was down yesterday -- it was down for other reasons having to do with the sales and profitability outlook. Perhaps the most telling comment came out of Paul Johnson of BankBoston Robertson Stephens in his report yesterday: "The company's financial performance, as measured by its return on invested capital (ROIC), declined slightly in the quarter; in light of the increased level of competition in the market, we suspect that we may never see the company's historical performance achieved again." Ouch. Wondering why the stock was down now?

To: Mighty Mizzou who wrote (56329)	10/21/1998 2:57:00 PM
From: Mighty Mizzou	Read Replies (4) \| Respond to of 61433

I dont understand why in the heck Im getting so much flack for simply covering my butt. I thought I put out an idea that some of you believers might want to pick up on to make some money. After all, I thought that was the overall objective here, not cheerleading Ascend but to use Ascend to further our personal agendas. I love Ascend just as much as the next guy but for Pete's sake give me a break for using my head instead of my emotions to get ahead a little until the market figures out and gets comfortable with Ascend's plan. Now the media is picking up on the loan thing just like Monicagate. Well heck, if the media is going to bash ASND Im going to make a buck off of it. If ASND kicks the medias butt then Im going to make a buck off of it. That's all. I just thought this was good idea that was presented to me last quarter by a friend more savvy than I at the time and since I blew it last quarter I decided to give it a try this quarter. Since I consider you my "cyber friends" I thought Id pass this idea along to maybe help somebody or just provide a little food for thought. I didnt expect the knee jerk negativity. I guess it's time I should just move on and keep my mouth shut.