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Strategies & Market Trends : Bob Brinker: Market Savant & Radio Host -- Ignore unavailable to you. Want to Upgrade?

To: Skeeter Bug who wrote (16499)	8/13/2002 1:32:35 PM
From: orkrious	Read Replies (2) \| Respond to of 42834

anyone watching our leader? he sure inspires confidence.

To: Skeeter Bug who wrote (16499)	8/20/2002 1:22:39 AM
From: Simba	Respond to of 42834

Skeeter: I agree stock buybacks to offset dilution effectively reduces the cash per share of the company for the common share holder. In fact MSFT and CSCO will have to expend a large proportion of their cash to offset the dilution of theirs stocks if they hope to make reasonable EPS growth in the future in a tepid business environment. But very little dilution due to stock options is absorbed by these companies and there is no real cash cost to the shareholder. As I stated in my earlier articles, the companies want to have the cake and eat it too. If they want the IRS tax deductions on the non-cash expense (note that the fact some of this cash flow could be recycled to absorb the stock dilution later there is no assurance that it will be so and in practice it isn't so) they have to come up with a best practice approach to showing these non-cash expenses on the income statement. The other option is to not worry about the expensing but then not take advantage of the tax credit. The past few years have grotesquely distorted the parity between company values and books depending on whether they paid in options or cash. Old economy companies which took on pension, retiree obligations as proper cash liabilities and had minimal stock option schemes for the entire rank and file suffered as their book withered while the books of CSCO and MSFT inflated largely due to the positive cashflow thanks to IRS. The supporters of these companies claim it is due to the company margins and execution. While some of it true, a company such as CSCO amassed a cash hoard of 10 Billion with IRS credits as opposed to operating margins. Simba