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Technology Stocks : DELL Bear Thread -- Ignore unavailable to you. Want to Upgrade?

To: Thorr who wrote (878)	5/27/1998 12:31:00 AM
From: Sr K	Read Replies (2) \| Respond to of 2578

Make that minus. The stock buybacks in Q1FY1999 1998 1997 of $ (334) (1,023) (495) generally exceeded "earnings" 305 944 518 and left just (31) (79) +23 The bull argument that proper accounting for options at the time of grant would take just 9 cents from 1997 earnings (per the 10-K) is just the Black-Scholes valuation of the option at the date of grant, not the real value taken by the option holder and no longer in the pot for the shareholders: Had the Company accounted for its stock option and stock purchase plans 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 reduced pretax income by $100 million ($69 million, net of taxes), $22 million ($16 million, net of taxes) and $8 million ($6 million, net of taxes) in fiscal 1998, 1997 and 1996, respectively. The pro forma effect on diluted earnings per common share would have been a reduction of $0.09, $0.02 and $0.01 for fiscal years 1998, 1997 and 1996, respectively.

To: Thorr who wrote (878)	5/27/1998 8:56:00 AM
From: Bilow	Read Replies (2) \| Respond to of 2578

Hi Thorr, BEKlein; About the value of those options that DELL gives employees... The 9 cent correction to earnings is obtained by computing the fair market value of the options at the time of grant. This value is computed using the option theory of Black-Scholes (sp), and seems a fair way to account for them. In order to destroy a major portion of DELL's earnings, we would have to value the options at their value when exercised. But that is not predictable at the time of grant. So if accountants tried to use that idea, they wouldn't know what costs this year's production would have until this year's options were exercised - as much as 10 years from now. This is clearly not the proper way to account for options. Another way of looking at it is to see that at the time DELL makes an option grant, the employee receives a gift. That gift increases (or decreases) in value with time. Thus the employee becomes an investor. As an investor, the gains are therefore not automatically subtracted from the company earnings. DELL buys back shares for several reasons, one of which is to prevent the float from increasing due to option exercise, therefore you can't simply subtract costs spent on stock from earnings. For instance, cash-flow in a lot of companies is more than earnings, so such a company can buy more stock back than they earn. This is not a sign of an unprofitable company. Nor is a company that lets the number of shares increase obviously losing money. In fact, options exercise, like secondary offerings, increase the amount of cash in the company. Secondary offerings are sometimes made by profitable companies in order to obtain funds to expand faster. The real problem with DELL is in the future. Look for further, much more radical drops in their ASP, in my opinion. Today ought to be pretty exciting for day traders. Best of luck! I've found it to be very useful in the stock market, and intend on using my portion today! -- Carl