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Technology Stocks : Gemstar Intl (GMST)
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To: 100cfm who wrote (6330)3/3/2004 11:06:52 AM
From: Mike Buckley  Read Replies (3) of 6516
 
100,

What is the reason that operating profit will only be 44-69M after getting 502M in onetime payments

Maybe it's because management expects massive recurring operating losses? Yep, that's it. :)

Rather than allude to the obvious, I should have stated it clearly: Management is projecting an operating loss next year of $433 million to $458 million excluding the one-time payments by Echostar, Comcast and Pioneer.

if it's because they're paying off all the debt then it's OK.

Repayment of debt doesn't affect operating profits. It appears in the financing cash flow statement and the balance sheet but not the income statement.

Notice that Gemstar repaid $115 million in long-term debt and capital lease obligations in 2003. The net effect is that current debt is impacted the most. The company starts out the new year with about $90 million less in current debt than at the beginning of 2003. Even so, the company improved year-to-year working capital only from $14 million to $15 million.

I'm not an accountant (duh) but I'm not as interested in the company paying off the long-term debt at this point as I gather you might be. Until the company reverses the trend of lessening free cash flow generated from recurring operations, I'd rather that the company retain massive quantities of cash so it can easily weather troubled times. Notice that the interest expense was only $6 million last year, not a huge drain on cash.

Also notice that the stockholders' equity continues to fall like a very large boulder rolling down a very steep hill. Maybe you thought as I did that the slide from $8 billion in 2000 to $895 million last year, primarily due to revaluing of intangible assets, was primarily over. Well, those intangible assets were devalued another $589 million last year and the result is that stockholders' equity fell another 60% in 2003. Thank goodness those one-time payments next year will be made in very tangible cash.

--Mike Buckley
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