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To: TimbaBear who wrote (15027)	8/2/2002 12:49:47 PM
From: Don Earl	Read Replies (2) \| Respond to of 78507

Timba, Interesting analysis. It almost looks like the issue is one of expensing stock buy backs as a current operating expense rather than one of expensing options as wages. The worst part about GAAP is it makes it fantastically difficult to tell where the money goes and there's no uniform treatment from company to company. If a company issues a few shares of new stock to control cash burn, it's not the same as spending $50 a share in the open market to issue as compensation. If nothing else, I'd think insider trading regulations should apply to the transactions. I've seen a lot of cases where a company will announce buy backs while insiders are exercising options and dumping the stock in the open market. At the very least the six month rule should apply. If the company is buying, insiders should be prohibited from selling for six months. I think there are times when buy backs make some sense. For example, when a company is debt free and has a lot of cash at the bottom of the chart. But I don't think insiders should be allowed to use shareholder assets to make a market for their personal sales.

To: TimbaBear who wrote (15027)	8/2/2002 12:56:29 PM
From: Dave	Read Replies (1) \| Respond to of 78507

Timba, Truly outstanding analysis. I especially liked the fact that you mentioned a passage from their 10K which states that the stock buy-back is to prevent dilution from the company issuing stock options. I agree with you 100% that the purchase of stock, in this case, should be included in CapEx. Thanks for your time. dave

To: TimbaBear who wrote (15027)	8/2/2002 1:03:03 PM
From: TimbaBear	Read Replies (2) \| Respond to of 78507

Dell a look at the Statement of Cash Flows (page 3) Let us now try to determine FCF from the bottom up. Again, all numbers are in the millions. Net (decrease)increase in cash: year ended: 2/02--(1,269) 2/01-- 1,101 1/00-- 2,083 Cash Flows from financing activities: <par> year ended 2/02 2/01 1/00 Purchases of Common stock (3,000) (2,700) (1,061) Issuance of common stock 295 404 289 Employee plans Other 3 (9) 77 ------ ------- -------- Net Cash Used in Financing Activities (2,702) (2,305) (695)</par> The adjustments to the bottom line cash flow from these entries would be to subtract the money from the issuance of stock for the employee plans but to do adjust nothing else. The reasoning here is that DELL has clearly said that cash to buy stock was just to prevent dilution from the exercize of stock options, so that is considered (by me) to be an operational expense because the presumption is that the employee would have insisted on being paid more cash if the options were used as an incentive. The amounts listed under "other" aren't significant enough for me to go searching out what they might be, so I'll give them the benefit of the doubt and not back them out. So... having gone through the Financing portion our numbers look like this: year ended: 2/02-- (1,269) - 295 = (1,564) 2/01-- 1,101 - 404 = 697 1/00-- 2,083 - 289 = 1,794 For the Cash Flows from investing activities I'll take a short cut and say we will add the amount spent on investment purchases and subtract the amounts received from "maturities and sales" and use the numbers just derived as the starting point, so we have: years ended: 2/02-- (1,564) + 5,382 - 3,425 = 393 2/01-- 697 + 2,606 - 2,331 = 972 1/00-- 1,794 + 3,101 - 2,319 = 2,576 So the real Free Cash Flow appears to me to be: year ended: 2/02-- 393 2/01-- 972 1/00-- 2,576 So what conclusions do I derive from this? Well one of them is that while DELL may be a successful business, in year ended 2/02 it is paying almost 90% of the profits to insiders via stock options. (393 Real FCF divided by 3,797 CFO means that only 10.4% of the profits get to the bottom line). In year ended 2/01 it paid about 77% to insiders (Real FCF of 972 divided by CFO of 4,195 means only 23.2% made it to the bottom line). In year ended 1/00 almost 65.6% flowed to the bottom line. This shows me that the trend of giving profits to the insiders is accelerating. One of the conclusions that I have drawn is that DELL is a public company that is treating its profits very similarly to a private company, they're dividing them among the insiders. While this behavior may be OK for a private company, I think it highly inappropriate for a public one. This "bottom up" method of FCF determination surely has highlighted the importance of full and accurate accounting for stock option expense. Timba

To: TimbaBear who wrote (15027)	8/2/2002 8:42:34 PM
From: Spekulatius	Respond to of 78507

Timba, the fact is that DELL is indeed a cash machine but spends the cash generated by operations in a stock repurchases. However since the number of shares is apparently about flat, all the cash is essentially used up to eliminate diluation - or in other words DELL does not have any free cash flow at all. My own method of calculating Free cash flow does not use the income or cash flow statement at all: I calculate the net cash change (cash- debt (long term and short term) of any given period - the only problem is that this can be distorted by asset sales or equity offerings so I back them out. This will also show that DELL does notm have any free cash flow.