To: reaper who wrote (32690 ) 2/23/2002 4:51:43 PM From: Zeev Hed Read Replies (1) | Respond to reaper, I am looking at their most recent 10Q (Dec 2001), they have $749 MM in revenues and 971 MM in expenses (including $275 MM in depreciation), thus they are essentially "cash neutral" on an operational basis. I don't see where you get the $1 B in cash flow generation from operations. If you assume they will have no additional capital expenses, then you have maybe $200 MM (before taxes) cash generation on a yearly basis. Right now, my problem is that the for the last nine months, the top line has gone down from 3465 MM to 2196 MM but expenses have gone down only from $3.355 B to 3.115 B, so, while revenue decreased $1.270 B, expenses have gone down by only $.240 B. Like you, I don't care much about the way they present their financials, but it seems that cash was generated mostly by decreasing accounts receivable by $1.157 B (which seems in their accounting scheme, eating away into that very long term contracts they have). How much more acceleration of these collections are feasible if the normal day to day operations do not pick up? As for debt, they have $3.8 B of short and LT debt that they will need to "roll over". They tried to issue a bond for about $1 B in the last two weeks or so (at a premium of 350 basis points above treasuries). With downgrading of their debt, it will not just be a question of interest premium, but availability of funding, and not just on the $1 BB of short term debt this year), but the 2.5 B in debt coming due I believe in 2003. Suddenly the premium difference is not a ere $30 B, but possibly (on the total of $3.8 B, at 500 basis points premium) but $150 MM per year. They may not generate enough cash (except of acceleration of collecting receivable) to support that, unless they cut expenses and increase revenues.
