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

To: Mike Buckley who wrote (941)	6/14/2004 1:12:31 PM
From: rkral	Read Replies (1) \| Respond to of 2955

Mike, re "You probably don't need to be reminded that I follow FCF per share more closely than FCF. " Perhaps at my investment peril, I've not been evaluating FCF, so the reminder is helpful. re "That's because [ed: FCF per share] takes into account share dilution, including dilution caused by employee stock options. " That seems perfectly logical to me, as FCF-Per-Diluted-Share provides more accurate year-to-year comparisons over the long term. I'm assuming you use the same "Diluted Shares" number companies use to report EPS. I'm curious as to whether or not you also use FCFPDS as the basis for company-to-company comparisons. If "yes", I further assume you divide the FCFPDS by the price per share .. resulting in the comparison of dimensionless numbers. re "Huey seems to ignore in my posts when he conveniently quotes them out of context, as I believe he regularly does and did again in his most recent post here in the folder." Huey and I have discussed expensing options from time to time .. over the last 2 years IIRC .. so I interpret his post differently. I don't think he really disagrees with your argument of looking at FCF on a per share basis. He merely used the cite as a segue to express his belief that a further step should be taken, i.e., to include the impact of option expense in OCF per SFAS 123 and, thereby as a consequence, in FCF. Since the IRS does not recognize SFAS 123 employee compensation as an expense, there is consequently no tax deduction for this expense. Therefore, it is logical to use the "tax benefit from option expense" as a proxy. Hence, to include option expense and include the tax benefit in calculating FCFPDS .. is my interpretation of Huey's POV. I agree with that POV. Regards, Ron P.S. After sticking my neck out with 2 assumptions and an extensive paraphrase, I ask you to "please respond kindly". :-))

To: Mike Buckley who wrote (941)	6/15/2004 1:11:33 AM
From: hueyone	Read Replies (1) \| Respond to of 2955

Well Mike, I see that you responded to my post in a post to Rkal, and ended it with a rather presumptive declaration that this post was to be the end of the discussion with me. But since I believe it is still a free country on this thread if a person presents his arguments and beliefs in a non contentious way as the thread header states, I will respond in that manner. I commend your supposed initiative to narrow down free cash flow to free cash flow generated from core operations, but imo, your definition of free cash flow generated from core operations severely misses the mark. Here is one reason reason why---if a company like SEBL pays a great deal of its employee compensation by awarding employees with stock options, which are then subsequently exercised with the resultant shares being purchased by shareholders, then shareholders are in effect paying a portion of employee compensation, or financing employee compensation if you will--- a finance activity. Yet your free cash flow figure is inflated by this finance activity. By substituting shareholders payments to employees rather than company payments to employees, your so called free cash flow from core operations in cases such as SEBL, or generally any company that heavily relies on employee stock options to compensate employees, is severely overstated by the value of this stock option compensation less the tax savings (benefit). (Rkal, I am simplifying things here a little bit to argue my larger my point). A very good clue as to when your stated positive free cash flow from core operations numbers are severely overstated is when Standard and Poors reports zero Core Earnings for the company in question. This has consistently been the case with Sebl--- a company that you promoted on this thread as a successful Gorilla for many years. SEBL has never had positive Core Earnings since Standard and Poor's intitiated their measurement of Core Earnings three years ago, and if one goes back prior to this time and adjusts earnings for stock option expense (which is just one of the Core Earnings adjustments that S&P makes), you can see that it had no positive earnings to speak of from 1997 onward #reply-18770776 Imo, it would be virtually impossible for a company to have positive free cash flow from core operations over time, while consistently having negative Core Earnings over time. I can't think of any hypothetical situations where this could occur. So for those seriously interested in how their tech company is doing from a core operations perspective, I would highly recommend taking a look at Standard and Poor's Core Earnings measurements rather than looking at Mr. Buckley's free cash flow from core operations measurement, which imo, is typically inflated by a finance activity, a non core operations related activity. Core Earnings can be viewed on an annual basis for any company on a standard two page Standard and Poor's company report available at almost any brokerage. It is unfortunate that Standard and Poor's does not make this information available on a quarterly basis, but a rough approximation can be calculated yourself with a little homework. Core Earnings for Qualcomm the last three fiscal years, ending 9/30 2003, 2002 and 2001 were 580 million, 278 million and -512 million respectively. Qualcomm's Core Earnings per share for the same period were $0.71, $0.34 and -$0.68 respectively. This compares to reported GAAP earnings per share of $1.01, $0.44 and $-0.71 per share. For those of you interested in learning more about Standard and Poor's measurements of Core Earnings, click here: www2.standardandpoors.com JMO, Huey