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Politics : Ask Michael Burke -- Ignore unavailable to you. Want to Upgrade?

To: Richard Nehrboss who wrote (67770)	9/16/1999 9:34:00 AM
From: Freedom Fighter	Read Replies (2) \| Respond to of 132070

Richard, >>I believe most agree that MSFT is a very aggressive company when it comes to ESOs. As one of the most aggressive companies, they take a hit to earnings of 19% when "immunized". If this is not in question, I'd prefer not to see the number of 50% thrown out (which is a %250 greater than 19%).<< I believe you are missing "part" of the point. That you can theoretically immunize yourself or that MSFT does, does not change the fact that most DO NOT. The best reports, including Andrew Smithers', have gone to great lengths to demonstrate the effect of immunization on earnings and came to approximately the same conclusions as you. But since most companies have not immunized, a substantial portion of reported earnings and a greater amount of supposed free cash flow is being absorbed repurchasing exercised shares. (20%-50% in some cases) I can verify this because I never make an investment without looking at the footnotes and cash flow statements for option information, share repurchase activity, and number of shares outstanding. This non-immunization and vanishing shareholder equity is significant to any valuation even if theoretically the 50% number is not totally accurate. >>I've been CEO of small high tech company, and I have to take difference to this statement. It greatly benefits existing shareholders to attract talent, and reward them based on merit.<< I agree with you. I'm all for employee ownership and merit rewarding. I'm also for accurate accounting of the cost to me. >>I'd need to examine companies on a case by case basis, but often shares are not repurchased for ESOs. They are taken from an approved pool out of authorized shares. In this case, it has a dilutive effect, but does not decrease cash flow.<< Agreed. Companies need never repurchase the exercised options. But the dilutive effect costs me just as much in terms of EPS progress, percentage ownership, and ultimate investment value. Wayne