computer associates international inc is leading business software company the compa 626114

Computer Associates International, Inc., is leading business software company. The company was founded in 1977 with four employees and has grown to 18,200 employees and about 4.2 billion in revenues.

The company”s statements of cash flows for the years 2002 through 2004 follow.

Then the relevant portion of Management”s Discussion and Analysis of the statement of cash flows is provided.

Consolidated statements of cash flows Year Ended March 31

Liquidity and capital resources Cash, cash equivalents and marketable securities totaled USD 850 million at 2004 March 31, a decrease of USD 537 million from the 2003 March 31 balance of USD 1,387 million. During fiscal year 2004, the Company used cash on hand to repay over USD 900 million in debt and repurchase approximately USD 450 million in treasury stock. Cash generated from operations for fiscal year 2001 was USD 1,383 million, a decrease of USD 183 million from the prior year”s cash from operations of USD 1,566 million. Cash from operations was unfavorably impacted this current fiscal year due  to higher costs associated with increased headcount and other expenses related to the Sterling acquisition. The Company”s bank credit facilities consist of a USD 1 billion four-year revolving  credit facility, a USD 2 billion four-year term loan, and a 75 million British Pound Sterling denominated 364-day term loan. During the year, the Company repaid all  outstanding amounts under both its USD 1.3 billion 364-day and four-year revolving credit agreements. As a reflection of its continued reduced need for bank borrowings,  emphasis on debt reduction, and overall expected ability to generate cash from operations, the Company did not renew its USD 1.3 billion 364-day revolving credit facility when it expired in May 2004. As of 2004 March 31, USD 2 billion remained outstanding under the four-year term loan and approximately USD 124 million was outstanding under the pound sterling term loan at various interest rates. There are no drawings under the Company”s USD 1 billion four-year revolving credit facility. The interest rates on such debt are determined based on a ratings grid, which applies a margin to the prevailing London InterBank Offered Rate (“LIBOR”). In addition, the Company established a USD 1 billion US Commercial Paper (“CP”) program in the first quarter of this year to refinance some of its debt at more attractive interest levels. As of 2004 March 31, USD 340 million was outstanding under the CP program. The Company also utilizes other financial markets in order to maintain its broad sources of liquidity. In fiscal 2002, USD 1.75 billion of unsecured Senior Notes were issued in a transaction governed by Rule 144A of the Securities Act of 1933. Amounts borrowed, rates and maturities for each issue were USD 575 million at 6.25 percent due 2006 April 15, USD 825 million at 6.375 percent due 2008 April 15 and USD 350 million at 6.5 percent due 2011 April 15. As of 2004 March 31, USD 192 million was outstanding under the Company”s 6.77 percent Senior Notes. These Notes call for annual repayment of USD 64 million each April until final maturity in 2006. Unsecured and uncommitted multicurrency lines of credit are available to meet any short-term working capital needs for subsidiaries operating outside the US. These lines total USD 56 million, of which USD 14 million was drawn as of 2004 March 31. Debt ratings for the Company”s senior unsecured notes and its bank credit facilities are BBB+ and Baa1 from Standard & Poor”s and Moody”s Investor Services, respectively. The Company”s Commercial Paper program is rated A-2 from Standard & Poor”s and P-2 from Moody”s. Peak borrowings under all debt facilities during fiscal year 2004 totaled approximately USD 5.4 billion with a weighted-average interest rate of 7.2 percent. As of 2004 March 31, the cumulative number of shares purchased under the  Company”s various open market Common Stock repurchase programs, including almost 16 million shares purchased in the current fiscal year, was 166 million. The remaining number of shares authorized for repurchase is approximately 34 million. Capital resource requirements as of 2004 March 31 consisted of lease obligations for office space, computer equipment, mortgage or loan obligations and amounts due as a result of product and company acquisitions. It is expected that existing cash,  cash equivalents, marketable securities, the availability of borrowings under credit lines and cash provided from operations will be sufficient to meet on going cash requirements. The Company expects its long-standing history of providing extended payment terms to customers to continue under the new business model and thus does not expect a change to its future cash flow, since customers are expected to continue to  finance their purchases over the contract period.

a. Explain how the company could have a net loss in 2004 and yet have a positive net cash provided by operating activities.

b. What was the reason given by management for repaying all outstanding amounts under revolving credit agreements.

c. What is the interest rate on borrowings?

d. What information would normally appear immediately below the statement of cash flows that seems to be missing?

e. Does the amount of cash provided by operating activities seem large enough to continue the present dividend payments?

f. Given the following data, calculate the cash flow per share of common stock ratio, the cash flow margin ratio, and cash flow liquidity ratio.