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Red Hat, Inc. (RHAT) Message Board

  • parkerbooty parkerbooty Mar 17, 2002 7:13 PM Flag

    Result RHAT will not announce

    My last statement about cost of options and warrants should be ($.27 to $1.04) in any event it is much greater than the measly $.02 pro forma earning per share they will claim. These are the footnotes from last February's annual report, hidden away on page 75:


    SFAS 123 requires the Company to disclose pro forma information regarding
    stock option grants and warrants issued to its employees. SFAS 123
    specifies certain valuation techniques that produce estimated compensation
    charges that are included in the pro forma results below. These amounts
    have not been reflected in the Company's Consolidated Statement of
    Operations, because APB 25 specifies that no compensation charge arises
    when the exercise price of employees' stock options and warrants equal the
    market value of the underlying stock at the grant date, as in the case of
    options and warrants granted to the Company's employees. The fair value of
    options and warrants was estimated using the following assumptions for the
    years ended February 28, 2001, February 29, 2000 and February 28, 1999:


    Year Ended Year Ended Year Ended
    February 28, February 29, February 28,
    ----------- ----------- -----------
    2001 2000 1999
    ---- ---- ----

    Expected divided yield 0.00% 0.00% 0.00%
    Risk-free interest rate 5.75% 5.85% 4.98%
    Expected volatility 120.02% 129.96% 0.00%
    Expected Life (in years) 5 5 6


    Had the Company accounted for its stock option plan and stock warrants by
    recording compensation expense based on the fair value at the grant date on
    a straight-line basis over the vesting period, stock-based compensation
    costs would have increased net loss available to common stockholders by
    $89,712,040, $106,895,916 and $13,329,510 for the years ended February 28,
    2001, February 29, 2000 and February 28, 1999, respectively. The pro forma
    effect on basic and diluted earnings per common share would have been a
    reduction of $0.54, $1.04 and $0.27 for the years ended February 28, 2001,
    February 29, 2000 and February 28, 1999, respectively.

    The weighted average estimated fair value of employee stock options granted
    was $18.20, $10.31, and $0.41 per share during the years ended February 28,
    2001, February 29, 2000 and February 28, 1999, respectively. The weighted
    average estimated fair value of the warrants at the time of grant was
    $0.0001 per share.

    75

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    • Parker,

      I read what you're writing, but I'd like you to do the equivalent analysis of MSFT for the last ten years and give us the results. You're barking up the wrong tree.

      • 2 Replies to pcparadigm
      • <<I read what you're writing, but I'd like you to do the equivalent analysis of MSFT for the last ten years and give us the results. You're barking up the wrong tree.>>


        "Since fiscal 1990, Microsoft has repurchased 813 million common shares while
        2.05 billion shares were issued under the Company's employee stock option and
        purchase plans. The market value of all outstanding stock options was $36
        billion as of December 31, 2000."

        While $36 Billion sounds like a lot, considering the revenue they generated since 1990 and earnings, it is not proportionally bad. They also repuchased about 1/4 of those shares, which shows up on the balance sheet, while RHAT just issues more stock.

      • I realize that this isn't a problem exclusive to RHAT, that many technology stocks have done this, and I would add that they are overvalued compared to a "plain vanilla" accounting scheme. It is one reason Warren Buffet stays away from technology stocks. I will look at MSFT, but I am not pro MSFT, I even shorted that this year, and made a couple of % gain. But the main difference I would expect to find is that MSFTs employee compensation is less than the value earnings have generated, or at least more proportional. Anything RHAT generated was due to stock offerings, and they valued the company at something like $.001 /share before the IPO to make the numbers not be required show up in the balance sheet. So even if the stock didn't go to $95 and have a secondary offering, just taking RHAT public was going to make these guy in charge of a losing business rich.

 

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