Today was one of those "Thank God It's Friday" Fridays -- with a three-day weekend coming up to boot. This week we had an anthrax scare and a Bubonic Plague scare (both unfounded). U.N. inspectors found empty chemical weapons warheads in Iraq, pushing us closer to war in the Middle East. The head of Homeland Security stressed that we face a "hate-filled, remorseless enemy" in the battle against terrorism, which he has already said could bankrupt the country if we're not careful. And the Nasdaq fell yet another 4.5%.

This is exactly what long weekends are for. We're taking Monday off to detox and huddle with our loved ones. We're not watching the news, we're not checking out portfolios. We're going to eat ice cream and pizza, watch football, and try to think happy thoughts.

Have a good one, everybody!

In today's Motley Fool Take:

Microsoft Puts Out

Clinging to its war chest like a deadbolted chastity belt, Microsoft(Nasdaq: MSFT) always scoffed at the idea of paying out a dividend. Until yesterday.

Two months ago, our own Rex Moore argued -- nay, pleaded -- that Microsoft give up some of its booty for the sake of shareholders. At the time, the company argued it wasn't prudent to begin any form of payout program while the gray clouds of legal liabilities loomed overhead. Did anyone really think Microsoft needed a $43 billion umbrella?

Well, those clouds have started to move on, and the company today announced it would finally pay a dividend on common stock. The possibility of an end to the practice of double taxation on dividends has made yields fashionable again. But, let's be frank: This dividend announcement is really just a clever ploy to throw the media hounds off the scent of its lowered fiscal 2003 targets.

Really. Microsoft is now looking to earn between $1.90 and $1.93 a share on revenues of no more than $32.1 billion this year, a bit off Wall Street's consensus of a profit of $1.98 a share on $32.5 billion in revenues. The company also declared a 2-for-1 stock split. Seriously now, when's the last time a company announced a stock split on the heels of news that would normally sink a stock organically?

Man, those Microsoft folks are good. They could've probably thrown a few more curveballs our way, too. Why not reveal that Bill Gates finally caved in on those persistent offers from Playgirl, or that CEO Steve Ballmer has been cast as Denny Terrio's heir-apparent on a Dance Fever revival?

See, the dividend itself is as petty as the news is huge. The $0.16-a-share annual payout on a pre-split basis comes out to a pathetic 0.3% yield. Even the most expense-laden money market fund is laughing at that kind of income distribution.

Do you think it will make a dent in Microsoft's vault? It won't. The company will earn far more interest on its wad of greenbacks than it pays out to investors as part of its new annual dividend policy. It's just a token gesture -- a case of throwing good money at bad news. They're not fooling us!

Discussion Board of the Day: Microsoft

What do you think of Microsoft's dividend policy? What about the two-for-one stock split? Does this really deflect some of the heat off the company's weak outlook for the rest of the fiscal year? All this and more -- in the Microsoft discussion board. Only on

GE's Rough Q4

General Electric (NYSE: GE) reported an expected fourth-quarter earnings decline today, thanks to a previously announced charge to shore up its troubled reinsurance unit. The company's sales grew, but the performance of some of its key divisions suffered.

GE's total revenues improved by 4% to $35.4 billion. The maker of everything from airplane engines to medical devices to wacky TV sitcoms earned $3.102 billion, or $0.31 a share. That's a 21% drop from last year's $3.993 billion, or $0.39. The reinsurance charge cost the conglomerate $1.5 billion.

Some of its properties excelled during the quarter. Among them was NBC, which delivered a 14% pop in profits easier than Rachel delivered that little darling Emma. (Requisite baby cuteness acknowledgment: Awwwww.) NBC also benefited by $514 million as a result of its purchase of cable channel Bravo.

Its commercial finance division produced a 30% gain in income, while its consumer finance unit returned 15% growth. The aircraft-engine segment grew profits by 1%. And that's about where the good news ends for the quarter.

The company's power systems unit, which makes gas turbine engines, experienced a decline in profits of 16% from last year. This has been an important income generator for GE over the last several years, so that smarts. It expects sales of its gas turbine engines will continue to slow through 2003, but it says other power businesses will pick up the slack and grow earnings for the division 20% or more. We'll see.

GE's consumer products division, which includes things like all the light bulbs and sub-zero fridges it churns out, saw a 32% drop-off in income. The company's plastics division melted, with profits down 36%.

The first quarter of 2003 doesn't look much brighter. It expects first-quarter profits to fall 5% to 10% compared to a year earlier. Income for the power systems group may fall as much as 50% in the quarter.

For all of 2003, GE's earnings are expected to grow 3% to 13%. (How's that for a wide berth?) Earnings grew by only 7% for 2002. It appears the storied double-digit earnings growth guaranteed for years by former CEO Jack Welch may be but a memory for investors, at least until the economy strengthens.

Quote of Note

"Economy makes men independent." -- Anonymous

eBay's Premium Valuation

Consumer confidence may be sagging overall, but not at eBay(Nasdaq: EBAY). Last night, the company reported impressive fourth-quarter results, demonstrating the financial might of being the online auction house.

Revenues for the quarter came in at $413.9 million, up an amazing 88.7% from the year-ago quarter and topping analysts' consensus estimate of $390.9 million. Profits were equally strong at $87.6 million, representing an impressive 22.4% pro forma net margin. EPS of $0.28 was four cents better than analysts' expectations. That plus strong guidance for 2003 has lifted the stock better than 3% in the early going today.

Breaking down the results a bit farther, there were several noteworthy data points:

International growth -- The strong fourth-quarter growth was largely due to strength in international operations, where transaction revenue increased 173% year over year to $107.4 million. As such, the international segment now accounts for 27.1% of total transaction revenue.

Strong gross merchandise sales (GMS) -- eBay's revenue is comprised of commissions paid on transactions, but strength in the business can also be seen in the total value of items sold, which is called gross merchandise sales, or GMS. In the fourth quarter, users transacted a record $4.60 billion in GMS, up 68% over the year-ago quarter. On an annualized basis, eBay now has five categories that generate more than $1 billion in worldwide GMS: eBay motors at $4.3 billion, computers at $1.9 billion, consumer electronics at $1.8 billion, books/movies/music at $1.4 billion, and sports at $1.2 billion.

Free cash flow (FCF) -- eBay's net income is translating directly into FCF on a one-to-one basis. For all of 2002, eBay generated reported net income of $249.9 million and FCF of $250.0 million (after deducting tax benefits for the exercise of stock options). On $1.2 billion in 2002 revenue, that's a remarkable FCF margin of 20.6%. For many growing companies, FCF trails net income because operating cash flow has to be reinvested to fuel future growth. In contrast, eBay's lightweight electronic business is capable of spinning off superb FCF, even amidst surging growth. This is a major factor supporting the company's premium valuation.

In terms of valuation, eBay is now trading for a rich 86 times 2002 FCF of $0.85 per share. But let's take a back-of-the-envelope look at what the valuation is on a forward basis:

Looking ahead, eBay is now expecting 2003 revenue of $1.9 billion, off which it might be able to generate $437 million in FCF, which assumes a few extra points of margin through efficiency gains. If stock option dilution adds, say, 5% to shares outstanding based on the Q4 '02 share count, then FCF per share for 2003 might come in at around $1.32. On that estimate -- which is about a nickel higher than the company's own 2003 pro forma EPS estimate -- eBay trades for around 56 times expected 2003 FCF per share.

The moat around eBay's business is about as deep as they come, but 56 times forward FCF is a steep price. While it's no doubt true that premium companies command premium prices, it's hard to see any margin of safety at these levels.

Shameless Plug: Your No. 1 Resolution

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Quick Takes

AOL Time Warner (NYSE: AOL) named Richard Parsons to replace outgoing chairman Steve Case. Parsons will also keep his CEO title.

Constellation Brands (NYSE: STZ) is pursuing a deal that would make it the world's largest wine seller. The New York company offered to buy Australia's BRL Hardy for a 37% premium, and Hardy's management heartily recommended its shareholders accept the terms.

Stanley Works (NYSE: SWK) dropped about 9% today after the tool maker lowered fourth-quarter estimates to the $0.41 to $0.44 per share range... about 25% below its previous forecast. CEO John Trani said his company's performance this quarter is "extremely disappointing."

Sun Microsystems (Nasdaq: SUNW) reported a second-quarter loss of $2.3 billion after the bell yesterday, but an operating profit of $10 million. Confused? $2.1 billion of that loss was related to impairment of goodwill, and another $357 million was attributed to restructuring charges.

In local news, Mary-Louisa Stilson expressed dismay that she wasn't able to "EARN $40,000 to $50,000 ANNUALLY" like the email ad promised. "I licked envelopes until my tongue bled," said Stilson, "and I wound up losing 53 cents for the entire year. I think I'll ask for my $50 starter fee back."

And Finally...

Today on

Bob Bobala, Robert Brokamp, Jeff Fischer, Tom Jacobs, LouAnn Lofton, Bill Mann, Selena Maranjian, Rex Moore, Rick Munarriz, Matt Richey, Jackie Ross, Reggie Santiago, Dayana Yochim