Silicon Investor (SI) -- The First Internet Community

STOCKTALK

We've detected that you're using an ad content blocking browser plug-in or feature. Ads provide a critical source of revenue to the continued operation of Silicon Investor. We ask that you disable ad blocking while on Silicon Investor in the best interests of our community. If you are not using an ad blocker but are still receiving this message, make sure your browser's tracking protection is set to the 'standard' level.

Technology Stocks : Compaq -- Ignore unavailable to you. Want to Upgrade?

To: rupert1 who wrote (54405)	3/22/1999 4:01:00 PM
From: Jimbo Cobb	Respond to of 97611

Doubt I'll have time to write it.... jajajajajajajaja Jimbo.

To: rupert1 who wrote (54405)	3/22/1999 8:16:00 PM
From: my2centz	Read Replies (1) \| Respond to of 97611

No hedging of Latin America receivables: Excerpts from the Annual Report: Compaq generally has experienced longer accounts receivable cycles in its emerging markets, in particular Asia Pacific and Latin America, when compared to its U.S. and European markets. In the event that accounts receivable cycles in these developing markets lengthen further or one or more of Compaq's larger resellers in these regions fails, Compaq's operating results could be adversely affected. The value of the U.S. dollar affects Compaq's financial results. Changes in exchange rates may positively or negatively affect Compaq's revenues (as expressed in U.S. dollars), gross margins, operating expenses, and retained earnings. Compaq engages in hedging programs aimed at limiting in part the impact of currency fluctuations. Using primarily forward exchange contracts, Compaq hedges those assets and liabilities that, when re-measured according to generally accepted accounting principles, impact the income statement. For certain markets, particularly Latin America, Compaq has determined that ongoing hedging of non-U.S. dollar net monetary assets is not cost effective and instead attempts to minimize currency exposure risk through working capital management. There can be no assurance that such an approach will be successful, especially in the event of a significant and sudden decline in the value of local currencies. From time to time, Compaq purchases foreign currency option contracts as well as short-term forward exchange contracts to protect against currency exchange risks associated with the anticipated revenue of Compaq's international marketing subsidiaries, with the exception of Latin America and certain other subsidiaries that reside in countries in which such activity would not be cost effective or local regulations preclude this type of activity. These hedging activities provide only limited protection against currency exchange risks. Factors that could impact the effectiveness of Compaq's hedging programs include accuracy of sales forecasts, volatility of the currency markets, and availability of hedging instruments. All currency contracts that are entered into by Compaq are components of hedging programs and are entered into for the sole purpose of hedging an existing or anticipated currency exposure, not for speculation. Although Compaq maintains these programs to reduce the impact of changes in currency exchange rates, when the U.S. dollar sustains a strengthening position against currencies in which Compaq sells products and services or a weakening exchange rate against currencies in which Compaq incurs costs, Compaq's revenues or costs are adversely affected. Note: I think it is possible that the devaluation could exceed current estimates on this board. To wit: CPQ acknowledges that A/R cycles in Latin America are longer than average. Considering A/R at Dec 31 was $6.998 billion on 4Q Revenue of $10.859 billion, that would be an average DSO of 58 days based on an equalized revenue stream over the quarter. Seeing as Latin America is significatly slower, i.e. 60-90 days +, and Brazil is 1-2% of Revenue, that puts Brazil revenue for 4Q at $108 million to $216 million. It is entirely possible that this entire amount was outstanding at the time of the devaluation. We certainly can surmise that it wasn't hedged. Given the devaluation % of 35%, this equates to a currency loss of between 38 million to 76 million. A lot lower than $200 million, but certainly more than we have considered. A loss of $76 million could have a conceivable effect up to 4.4 cents on EPS. my2centz