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To: MeDroogies who wrote (88652)	1/5/2001 4:58:52 PM
From: MeDroogies	Respond to of 97611

wow...this is one thing I've never seen SI do... a triple repeat...

To: MeDroogies who wrote (88652)	1/5/2001 5:04:47 PM
From: Elwood P. Dowd	Respond to of 97611

Brian Cranston is a pretty smart cookie. Here's his take on the Euro thing: Re: Anyone know what the EURO was when by: brian_cranston 1/5/01 1:21 am Msg: 209452 of 209679 ok, i did a little math. it is sloppy, but can anyone confirm if it makes sense at least? CPQ hedged the Euro near the beginning of Q4. (at which time CPQ was still expecting to do $12.4B in rev.) approx 33% of CPQ's revenue comes from Europe. $12.4B x .33 = $4.09B. CPQ stated the cost of the hedge was 4 cents/share x 1.7B shares = $68 million. the cost of the premium per dollar of European revenue is $68 million / $4.09B = 1.66 cents. CPQ stated that they hedged the Euro at .88. so in effect, CPQ paid 1.66 cents per dollar of European revenue to lock in an exchange rate of no less than .88. CPQ guaranteed that no matter how low the Euro sunk during the Q, they could exchange at .88, but if the Euro recovered above .88, CPQ would of course exchange at the higher exchange rate. after CPQ instituted the hedge, the Euro dropped to .82 and then recovered to .95 at the end of the Q. for simplicity, lets say CPQ converted all of its Euro revenue for the Q at the end of the Q. .95 - .88 = .07. .07 - .0166 (the cost/dollar of the hedge) = .0534. CPQ gained an extra 5.3 cents of revenue per dollar of European revenue due to the increase in the Euro. CPQ's revised revenue guidance when they issued their warning was for $11.2B. lets assume the same 33% of revenue from Europe, although more of the shortfall was likely from North America. $11.2B x .33 = $3.7B. CPQ gained 5.3 cents per dollar of European revenue, or .053 x $3.7B = $196M. also assuming that this increased revenue falls directly to the bottom line, but accounting for a 33% tax rate: $196M x .66 = $129M. $129M/1.7B shares = 7.5 cents/share extra income in Q4 due to the rise in the Euro. this assumes however, that CPQ converted all its European revenue at the peak exchange rate for the Q. if CPQ had been continuously converting revenue throughout the Q as it was booked, then this figure would be much less, as the Euro was low most of the Q, and only recovered near the end. to be conservative lets say the actual benefit is only half what i calculated, about 4 cents/share. assuming that market conditions did not get significantly worse after CPQ issued its warning and revised earnings guidance of $.28-$.30/share, it would seem that CPQ could report $.32-$.34/share. however, by most accounts things did get much slower at the end of December, so i wouldn't be surprised if the added earnings from the rise in the Euro were offset by even slower demand than CPQ had predicted when they issued their warning.