To: Night Trader who wrote (15070 ) 8/6/2002 12:44:17 AM From: TimbaBear Read Replies (2) | Respond to martin knightDell spokesman T.R. Reid responded to my questions by noting the company is in an industry in which stock options are the norm. "It is highly unlikely the company could have achieved such high rates of growth over time, and resulting shareholder value, without stock-based compensation as a tool for recruiting, providing incentive to and retaining literally tens of thousands of employees," he said." "...Dell used 56% of its free cash flow over these 13 quarters to buy back its own shares.... " "At Dell, the situation was even more extreme last fiscal year: Had it spent 100% of its free cash flow on buybacks, the share count still would have risen 0.8%. Thus, one could argue that Dell had negative free cash flow for shareholders last year." Reid at Dell notes the jump in stock options granted last year was due partly to many new employees and also to a special double option grant. However, unlike regular options, which begin vesting immediately, the extra options don't begin vesting for two years (all options vest over five years). Reid said the recently granted options are neither vested nor in the money, so the stock price will have to rise over time for them to be worth anything, thereby aligning Dell employees' incentives with those of shareholders. To some extent, this analysis penalizes Dell for having a stock that's done well over time (though obviously not in the past year or so). The dilution that took place in fiscal 2001 was due mostly to stock options granted many years ago, when the stock was at a much lower price. Had the stock done badly, then many of the options would have expired worthless and the company also would have been able to buy back more of its shares for the same amount, but shareholders would, of course, be worse off today.
