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Top 10 Cash Offender Countdown: No. 3 to No. 1

Tom Jacobs
September 27, 2012

Of the 10 companies whose stock-based compensation over the last 12 months is 100% or more of operating cash flow, the final three don't even come close to a passing grade in my book. By adding back stock-based comp, they may accurately reflect that it doesn't cost them any cold hard cash today, but it implies that it won't have a huge impact on the future. Yet stock-based comp represents an IOU, and when options are eventually exercised, investors get diluted.

And now the top three offenders, where "top" is the worst designation:

Cash Flow Statement (all TTM, in millions, and rounded)

No. 3: Atlas Energy

No. 2: Youku Tudou

No. 1: Fortress Investment Group

Stock-Based Comp $26 $13 $805
OCF $5 $2 $80
Stock Based Comp as % of OCF 392% 529% 903%
Real OCF ($21) ($11) ($725)
Earnings per Diluted Share ($0.46) ($2.82) ($3.46)


Source: S&P Capital IQ, data as of market close, Sept. 24, 2012.

No. 3: Atlas Energy LP (NYSE: ATLS  )
Atlas is the general partner for two other companies with attractive businesses: Atlas Pipeline Partners (NYSE: APL  ) and Atlas Resource Partners (NYSE: ARP  ) . Atlas Pipeline is a dependable tollbooth, caring not which energy car -- oil, natural gas, or natural gas liquids -- passes through, so long as it collects the toll for passage. Atlas Resource has moved into some of the most important natural gas plays in the country: Mississippi Lime and the Utica and Marcellus shales. Both send cash up to the GP, Atlas Energy.

But what then does Atlas Energy do with the cash? As holders of limited partnership interests, investors have limited power over a general partner in this structure, with few rights to stand against management's incentive to feather its nest to turn it into a bird mansion.

Here, note stock-based comp at 392% of OCF. True, the GP-LP structure makes this number not so simple and OCF more confusing, but not enough to move us from strong advice. Atlas Energy essentially issues options to itself -- IOUs that, while they have no current cash value, just put off taking your cash in the form of dilution ahead. No wonder a recent company presentation is all about Atlas Energy's two units and not about what the GP -- Atlas Energy -- does for shareholders.

Investors, I advise you stand not on Atlas Energy's shoulders.

No. 2: Youku Tudou (NYSE: YOKU  )
I wouldn't recommend that Youku Tudou, an Internet television company in China, be on any investor's list. Red-hot annual revenue growth hasn't brought positive earnings per share or EBITDA, let alone the types of cash flow we prefer to see.</