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Strategies & Market Trends : Value Investing -- Ignore unavailable to you. Want to Upgrade?

To: TimbaBear who wrote (15078)	8/6/2002 10:42:02 AM
From: Jurgis Bekepuris	Read Replies (1) \| Respond to of 78594

Timba, >>Had the stock done badly, then many of the options >>would have expired worthless and the company also >>would have been able to buy back more of its shares >>for the same amount, but shareholders would, of course, >> be worse off today. >I don't follow your reasoning here. The reasoning is correct. If stock tanks, the options expire worthless, there is no dilution and no need for stock buyback. Also the buyback is cheaper unless locked in by selling puts. So all cash flow is saved. BUT! THERE IS A BUT! But this is only true if the company does not grant more and more new options as the stock tanks... Jurgis - which is exactly what happens... :-(((

To: TimbaBear who wrote (15078)	8/7/2002 8:53:23 AM
From: Rock	Read Replies (1) \| Respond to of 78594

Timba, excellent work on Dell. Eye opening stuff that made me go looking for similar stuff in other co's. Was checking out Intel on Marketguide... over the last 5 fiscal years, Intel has spent $17.8 Billion on share repurchases and yet the shares outstanding has remained roughly constant (actually they increased from 6.5 to 6.7 billion shrs). There are no notes in the most recent Intel report to rival Dell's candid admission of options-related dilution management and I suspect that one would find that some of this is acquisition related dilution management, but, in the end, it seems to be an all-the-same kind of thing. Are there any other reasons why this type of expenditure should occur w/o the reduction in shares out? From a general perspective, it seems true to say that if a company is spending cash on share repurchases but the number of shares out is not declining, then the repurchase expenditure is not in the shareholder's interest. Your comments are saying that from an analysis perspective, all cash spent on repurchases should be subtracted from FCF b/c it clearly reduces cash. Then the repurchase benefit for companies that are actually decreasing the number of shares out will show when FCF is converted into value/shr. Whether or not the repurchase expenditure should reduce reported earnings is a matter of the why's of the dilution management, yes? Options dilution management is clearly compensation, so it indicates inflated earnings (e.g. Dell). Something like acquisition dilution management (i.e. you paid with shares but bought back to prevent dilution) is not part of COGS and so would not have affected net income.