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Strategies & Market Trends : Gorilla and King Portfolio candidates - Moderated -- Ignore unavailable to you. Want to Upgrade?

To: tinkershaw who wrote (712)	2/15/2004 5:54:29 PM
From: Paul H. Christiansen	Respond to of 2955

On Friday, Capital Group International filed an SC-13G with the SEC, indicating that they had acquired 110,561,680 shares of ARMHY. This appears to be a new position for them and it represents 10.8% of ARM's outstanding shares. That's a pretty good sized "bet". Paul C

To: tinkershaw who wrote (712)	2/16/2004 9:48:35 AM
From: hueyone	Read Replies (1) \| Respond to of 2955

Hi Tinker, Good article posted by Mick on the Cisco thread describing how reported "free cash flows" are often questionable performance measures in that this free cash flow may subsequently disappear in the effort to offset exercise of stock options. #reply-19809749 Original aritcle in the NY Times: nytimes.com Snip: "It's surprising how poorly understood the drain on cash flow really is," Mr. Farmer said. In 2000, the analysts found, 11 top technology companies, including Dell Computer and Cisco Systems would have needed all their free cash flow, on average, to offset option-related new shares. Of course it has been my opinion that stock options should be expensed on the income statement, and that this non cash charge should subsequently be added back on to the cash flow statement as a finance activity rather than an operating activity. Imho, issuing stock options to employees should be viewed as a two stage transaction that is economically similar to the company first selling stock options on the open market (with discounts to take in to account the restrictions), and then second, turning around and compensating the employees with the cash proceeds from the sales of these stock options. Hence, there is a cash flow from financing activity as well as an employee compensation activity, and the add back in on the cash flow statement would go to the finance activity rather than the operating activity. This would solve the problem of useless, overstated cash flow from operations numbers and overstated free cash flow numbers imo. I haven't looked at SEBL lately, but according to your post a few months back on the NPI thread, precisely this phenomenon of disappearing free cash flow was happening in spades to SEBL systems. According to your post, buying back ESOs to offset dilution at SEBL was recently costing SEBL 2x its reported free cash flow. This doesn't surprise me one bit; I haven't bought in to the idea that SEBL's free cash flow numbers are meaningful or that these numbers represent real wealth building capability ever since I discovered SEBL had an average 20% stock option grant rate over the years. boards.fool.com JMO, Huey