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Strategies & Market Trends : Zeev's Turnips - No Politics -- Ignore unavailable to you. Want to Upgrade?

To: Zeev Hed who wrote (32680)	2/23/2002 3:41:45 PM
From: reaper	Read Replies (2) \| Respond to of 99280

Zeev, thanks for your reply. If I may... (i) cash generation Cash generation from operations (i.e. before any changes in financing) was $672mm in the nine-months, down some from $734mm in the comparable nine-months in 2000. So yes, business is falling off, but not a lot. And again, that is the real CASH that the business is generating; I personally don't much care about the P&L accounting at CA as it is bullshit and has always been bullshit. Also note that CA has always been VERY weighted to its Q4 (which is March in their case) in terms of business and cash generation. They are not quite so bad as Oracle (which does a hugely dis-proportionate share of their full-years business in their Q4, which is May), but still heavily weighted to March. Thus, looking at nine-months ended December does not give a completely accurate assessment of what cash generation for a full year is. (ii) in the nine months to December, CA used that $672mm of cash generation mostly to pay off debt. They paid off $651mm of debt. (iii) you correctly point out that short-term debt has increased in the nine-months, to the tune of $397mm, to $1,213mm. this is because CA has some debt that is now due (the principal) and needs to be paid off. if you check the 10K you will see that CA has $816mm of principal coming due in FY02 (ending March '02) which is largely paid off (the $651mm of debt paid back referenced above) and another $1,066mm of principal coming due in FY03 (ending March '03). It is my belief that CA will generate sufficient cash flow (again, they generate over $1 billion a year every year, before any changes to their financing) to pay off that $1,066 that is due in FY03. Furthermore, I believe that as a solid cash-generating entity, they should be able to re-finance that debt (instead of paying it off) if they so choose. Now, obviously they will not be able to re-finance at as attractive rates as they might have several months ago. But they will be able to re-finance. In a terrible-case scenario lets say they have to pay 300 bps more on their new debt than the old debt; so that's 300 bps times $1 billion, or about $30mm a year in extra interest payments. On a company that generates over $1 billion in cash flow a year I'm not going to stress if they have to pay an extra $30mm in interest payments (at least, I won't stress about it given that I'm paying only 9x cash flow for the equity). (iv) you talked about net tangible book value being negative. you are correct. I'm not sure why you care. for a company that doesn't generate cash (say Enron or Qwest or Calpine) then yes, what you as an investor have to fall back on is net tangible book, as that is what a company is likely to be worth when it gets liquidated. but since CA is in fact a large cash generator it is my opinion that they won't have to sell assets or get liquidated or anything like that. so i don't worry too much about the balance sheet (in terms of what the balance sheet says "net worth" is) with this particular company. (v) top-line not growing. i have no dispute here. i'm not paying a lot for the equity so i don't need growth. (vi) current burn rate too high. i don't understand this statement. they are not burning, they are generating cash. $1 billion a year. they are using that money to pay back debt. if they are able to get the $1 billion principal due next year re-financed (and as noted above I think they will) they will use the $1 billion they generate next year to buy back stock. at current prices, they could buy back 10% of the company in one year. What this really comes down to is re-financing risk. People are terrified CA won't be able to roll its debt. One, I don't think they even have to, as they'll generate enough cash to pay it off. But two, I don't think they will have any problem rolling it (though at a higher-than-optimal interest rate), which will leave huge amounts of cash flow available for stock repurchase. Anyway, that's my opinion and I'm sticking to it. Cheers

To: Zeev Hed who wrote (32680)	2/23/2002 4:57:38 PM
From: Jdaasoc	Read Replies (1) \| Respond to of 99280

Their top line is not exactly showing an important growth either CA is tied somewhat to MSFT server software upgrade cycle. Their Brightstor - Arcserve- tape back software and Inoculan anti virus software, probably will have major upgrade version income only when MSFT brings out Windows XP server software and MSFT stops support for Windows NT in May. If history repeats itself CA and other MSFT dependent software companies will stop updating older software for existing platforms and only their latest software versions will work with XP server software.