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Strategies & Market Trends : Gorilla and King Portfolio Candidates
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To: Mike Buckley who wrote (24158)5/4/2000 1:13:00 AM
From: saukriver  Read Replies (1) of 54805
 
MSFT--Cash Drain from Put Warrant Obligations

Mike,

You said:

If puts that have been sold are required to be listed as a liability, there will also be an asset (the value of the common stock) that will offset at leat part of the liability. If the value of the shares is lower than the strike price, the asset will be lower than the liability. Conversely, if the value of the shares is higher than the strike price, the asset will be greater than the liability.

Agreed that this should not affect the balance sheet. But it seems to me that Microsoft has been taking in income from premium on selling put warrants. Looked brilliant as the stock rose. Now, with the share price down, there is a potential liability that will drain cash out. That changes the picture of how we view the company.

We need to get an accountant into this discussion to explain to us if possible when the economic consequence of the cash outflow needs to be flagged for SHs. Like a judgment in a lawsuit, this potential hit changes the picture and must be disclosed. When? Two years before the expiry date? 4 months? 2 weeks? 1 day before the expiry date seems too late for the same reason that a company cannot wait until the judgment is entered to explain to SH the risk of the lawsuit.

saukriver
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