Raytheon vs Nortel essays

Raytheon vs Nortel essays Two companies taking similar actions that are obtaining very different results What is happening to the debt position? Nortel Networks engaged in several acquisitions in 1998. The effect on their income statement was staggering. Despite $17.575 billion in revenues (a $213 million increase from 1997), Nortels net income before taxes was negative $537 million. ROE was negative 4.64% compared to the industry average of 13.8%. Acquisitions, mergers, and partnerships have become a major strategy of many companies in the telecommunications industry. Nortel frequently participates in acquiring other companies in order to expand their business units, products, and lines. In 1998, Nortels largest acquisition occurred when they acquired Bay Networks for an estimated US$9.1 billion. In looking at the 1998 financials (I mention these because of the large dollar amount spent on acquisitions that year), Nortel's Debt/Equity ratio was interesting. Looking at the balance sheet, total liabilities increased by $1.1 billion (15%). The Statement of Cash Flows shows that Nortel repurchased approximately $1 billion of outstanding stock. Looking at these two numbers, one would expect the debt/equity ratio to increase but it actually decreased by 58%. And from 1997 to 1999, it has decreased from .41 to .16. The 1998 Income Statement also showed a large increase (144000) in the number of outstanding shares. The large increase was due to the conversion of outstanding Bay Networks shares and to exercise stock options by Bay Networks executives. The operating earnings number on Nortels 1999 annual report shows two figures on page 1, GAAP earnings ($-0.15/share) and operating earnings ($1.28/share). What's behind the difference? The cost of all the Nortel acquisitions: purchased IPRD (intellectual property research goodwill worth $639MM. That's about $2 billion i...