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Technology Stocks : Gemstar Intl (GMST)
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To: tinkershaw who wrote (6314)2/29/2004 2:39:50 PM
From: Mike Buckley  Read Replies (1) of 6516
 
GMST's old $300 million or so free cash flow peak in their hey day

I'd like to put Tinker's comment about that into perspective. Using the textbook definition of free cash flow, he's right that the peak was $294 million. That occurred in calendar year 2000 and includes restated, post-Yuen SEC filings.

However, if you deduct the $64 million tax benefit related to employee-exercised stock options, the free cash flow generated from core operations (the making and selling of product) was only $230 million that year. That more meaningful bar to hurdle is lower than you would think if you look only at textbook free cash flow, which in my opinion is misleading.

As he mentioned, since then the free cash flow (when measured both ways) has been declining precipitously. The company generated meaningful free cash flow only once in the last five reported quarters. I expect free cash flow declined yet again in 2003. So, the turnaround is probably not yet at hand. However, recent announcements might reasonably cause us to believe that free cash flow will increase in 2004, the first time in four years.

The gap between textbook free cash flow and free cash flow measured to exclude the stock options tax benefit has narrowed so much that in 2002 there was only a $2 million difference between the two. That's also true for the first three quarters of 2003.

We'll see very soon what the free cash flow was for 2003. Even if the earnings press release to be published Tuesday doesn't contain it, the SEC filing containing it is required no later than the end of March.

--Mike Buckley
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