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To: Adam Nash who wrote (47560)	1/30/2001 4:20:28 PM
From: GVTucker	Respond to of 77400

RE: discounting tax shields vs discounting operational cash flow For the most part, that makes sense. I've gone back and forth on this issue a few dozen times. In the end, I like cash flows form operations (that's true operations, mind you) better than cash flows from tax shields because they are more in control of management. While it is difficult to estimate anything in technology five years hence, one thing is certain, and that is that tax laws will change. Think of the '86 tax law that just about imploded numerous real estate companies that were dependent upon the distinction between passive and active gains. That said, I still don't distinguish between the cash flows that we're talking about when I run numbers, because the issue is complex enough to me to give credence to both sides. I do take the numbers I'm given and make a qualitative preference for companies that generate cash flows from operations. Not really scientific, I know, but I've always believed that investing is more art than science. Of course, to paraphrase Richard Cline, if investing is indeed mainly art, it is my sincere hope that I'm not discovered after I'm dead.

To: Adam Nash who wrote (47560)	1/30/2001 4:26:52 PM
From: Eric	Respond to of 77400

Adam Thanks for the clear dissertation on options. It should help a lot of folks understand what is happening. Eric

To: Adam Nash who wrote (47560)	1/30/2001 5:26:01 PM
From: Wyätt Gwyön	Read Replies (1) \| Respond to of 77400

I believe if options have any real value, it should be as an incentive. But there should be a greater recognition in the investment community that they are a form of compensation. In terms of value as a tax shield, or other financial machinations, I don't think these flows deserve a premium multiple. They look like extraordinary gains to me--strengthening a company's balance sheet, but not a predictable annuity. If anything, from the perspective of one trying to discount future "real" operating cash flows, the options morass is just a big confusing mess. Makes it harder to assess the real earning power of an enterprise, both because expenses are skewed, and the share count is skewed. Confusion deserves a lower multiple in my book. To paraphrase Buffett, if options aren't a form of compensation, what are they? And if compensation isn't an expense, what is it? And if an expense shouldn't count against discounted present value, where should it go?

To: Adam Nash who wrote (47560)	1/30/2001 5:26:02 PM
From: Wyätt Gwyön	Respond to of 77400

I believe if options have any real value, it should be as an incentive. But there should be a greater recognition in the investment community that they are a form of compensation. In terms of value as a tax shield, or other financial machinations, I don't think these flows deserve a premium multiple. They look like extraordinary gains to me--strengthening a company's balance sheet, but not a predictable annuity. If anything, from the perspective of one trying to discount future "real" operating cash flows, the options morass is just a big confusing mess. Makes it harder to assess the real earning power of an enterprise, both because expenses are skewed, and the share count is skewed. Confusion deserves a lower multiple in my book. To paraphrase Buffett, if options aren't a form of compensation, what are they? And if compensation isn't an expense, what is it? And if an expense shouldn't count against discounted present value, where should it go?

To: Adam Nash who wrote (47560)	1/30/2001 5:26:02 PM
From: Wyätt Gwyön	Respond to of 77400

I believe if options have any real value, it should be as an incentive. But there should be a greater recognition in the investment community that they are a form of compensation. In terms of value as a tax shield, or other financial machinations, I don't think these flows deserve a premium multiple. They look like extraordinary gains to me--strengthening a company's balance sheet, but not a predictable annuity. If anything, from the perspective of one trying to discount future "real" operating cash flows, the options morass is just a big confusing mess. Makes it harder to assess the real earning power of an enterprise, both because expenses are skewed, and the share count is skewed. Confusion deserves a lower multiple in my book. To paraphrase Buffett, if options aren't a form of compensation, what are they? And if compensation isn't an expense, what is it? And if an expense shouldn't count against discounted present value, where should it go?

To: Adam Nash who wrote (47560)	1/30/2001 5:26:02 PM
From: Wyätt Gwyön	Read Replies (1) \| Respond to of 77400

I believe if options have any real value, it should be as an incentive. But there should be a greater recognition in the investment community that they are a form of compensation. In terms of value as a tax shield, or other financial machinations, I don't think these flows deserve a premium multiple. They look like extraordinary gains to me--strengthening a company's balance sheet, but not a predictable annuity. If anything, from the perspective of one trying to discount future "real" operating cash flows, the options morass is just a big confusing mess. Makes it harder to assess the real earning power of an enterprise, both because expenses are skewed, and the share count is skewed. Confusion deserves a lower multiple in my book. To paraphrase Buffett, if options aren't a form of compensation, what are they? And if compensation isn't an expense, what is it? And if an expense shouldn't count against earnings, where should it go?

To: Adam Nash who wrote (47560)	1/30/2001 5:26:02 PM
From: Wyätt Gwyön	Respond to of 77400

I believe if options have any real value, it should be as an incentive. But there should be a greater recognition in the investment community that they are a form of compensation. In terms of value as a tax shield, or other financial machinations, I don't think these flows deserve a premium multiple. They look like extraordinary gains to me--strengthening a company's balance sheet, but not a predictable annuity. If anything, from the perspective of one trying to discount future "real" operating cash flows, the options morass is just a big confusing mess. Makes it harder to assess the real earning power of an enterprise, both because expenses are skewed, and the share count is skewed. Confusion deserves a lower multiple in my book. To paraphrase Buffett, if options aren't a form of compensation, what are they? And if compensation isn't an expense, what is it? And if an expense shouldn't count against net present value, where should it go?

To: Adam Nash who wrote (47560)	1/30/2001 5:28:12 PM
From: Wyätt Gwyön	Read Replies (2) \| Respond to of 77400

I believe if options have any real value, it should be as an incentive. But there should be a greater recognition in the investment community that they are a form of compensation. In terms of value as a tax shield, or other financial machinations, I don't think these flows deserve a premium multiple. They look like extraordinary gains to me--strengthening a company's balance sheet, but not a predictable annuity. If anything, from the perspective of one trying to discount future "real" operating cash flows, the options morass is just a big confusing mess. Makes it harder to assess the real earning power of an enterprise, both because expenses are skewed, and the share count is skewed. Confusion deserves a lower multiple in my book. To paraphrase Buffett, if options aren't a form of compensation, what are they? And if compensation isn't an expense, what is it? And if an expense shouldn't count against net present value, where should it go?