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Cash Flow.com
Why Its Important to Focus on Cash
Economics
Update Volume 9
This report outlines a practical framework for analyzing the cash economics
of business models.
Our analysis indicates that knowledge-oriented companies tend to have
superior cash economics than their physical asset oriented counterparts.
Exemplifying this trend, the income statement of companies such as Dell,
Yahoo!, and Amazon.com understate their ability to generate cash.
US Investment Strategy
Michael J. Mauboussin
212 325 3108
michael.mauboussin@csfb.com
Alexander Schay
212 325 4466
alexander.schay@csfb.com
This potential for higher cash flows helps explain for the valuation premiums
that investors observe in knowledge-based sectors
Cash Flow.com
2 August 2001
Executive Summary
Cash is king. In recent years, scores of startup companies have barged into the
consciousness of investors. These companiesepitomized by the dot.com
phenomenonhoped to reshape the corporate landscape. But all companies are
ultimately held to a singular standard: the ability to generate long-term cash flows.
Investors can draw two lessons from the gyrations in technology company
valuations. First, many will try and few will succeed. This pattern has played out
time and time again in the business annals. Second, as corporate landscape
transitions from a reliance on physical to knowledge assets, the pattern of cash
flows is changing. Specifically, companies are increasingly expensing their
investments, while their tangible assets remain relatively modest. As a result,
income statement analysis is misleadinginvestors must follow the cash.
What you see is not what you get. Investors calculate free cash flow by subtracting
investments from a companys cash earnings. Most physical asset intensive
companiescompanies that rely on physical assets for their source of competitive
advantage-have a cash inflow from earnings and a cash outflow from investments
such as working capital and capital spending. Thus, cash earnings for these
companies will typically overstate their free cash flow. For example, Barnes and
Noble generated $225 million in cash earnings for the 12 months ending on January
30, 2001. However, it also invested over $450 million during the period, translating
into negative free cash flow of $225 million. For every $1 in investment, Barnes and
Noble generated $2 in new sales.
What you see is not what you get, part two. Knowledge oriented companieswhich
rely on people as their source of competitive advantageoften have superior cash
economics. Yet they generate cash in a totally different way. Some can generate
cash from their balance sheets through a combination of negative working capital
totals and relatively modest fixed asset investments. This means that cash earnings
for a knowledge company can dramatically understate the companys total free cash
flow. Amazon.com is a case in point: in 2000, a $1 investment supported $10 in new
sales. Some knowledge companies will see their ratio of investment to new sales
diminish.
Heed the balance sheet. Investors anxious to own cash cows have naturally
focused on the income statement. However, our analysis indicates that looking at
the balance sheet of a knowledge company can unveil an important source of cash.
Investors must look at both financial statements, as it is free cash flowthe sum of
a firms cash earnings and investmentsthat drives shareholder value creation. We
believe that understanding these fundamental differences in the cash economics of
business models will become increasingly important as the digital revolution
transforms the world.
Cash Flow.com
2 August 2001
Introduction
On the final exam [for a business valuation course], Id probably take an Internet
company, and [ask], How much is it worth? And anybody that gave me an answer, Id
flunk...
1
Warren Buffett
Some investors claim that we are in a new age where old rules do not apply. We
disagree. Yes, for companies with no earnings, old valuation rules-of-thumb like priceto-earnings ratios have lost their relevance. But the fundamental drivers of value remain
the same. When investors spend their hard-earned cash to buy a piece of a companys
equity, they are buying a share of the companys future cash flows. And whether
investors are purchasing nascent Internet companies or mature manufacturing
companies, the goal is the sameto buy into a stream of cash flows with a current
value greater than the price they paid.
To understand how the market values any company, then, we first need to understand
the cash economics of business modelsa companys propensity to generate or
consume cash. What is obvious is that many knowledge companies are currently
incurring losses as they spend millions in marketing, while their off-line competitors reap
cash earnings. What is less obvious is that these companies invest much less in their
computers and office space than their more traditional peers spend on bricks-andmortar and working capital. We believe that understanding these fundamental
differences in the cash economics of business models will become increasingly
important as the digital revolution transforms the world.
This report is broken into four parts. First, we have outlined a practical framework for
analyzing the cash economics of business models. Second, we have introduced a
graphical way of highlighting differences between business modelsthe cash
economics matrixand apply this framework to compare companies. Third, we
generalized from our case studies to outline a cash economics lifecycle for companies.
Finally, since the market values a companys ability to generate cash, we have used this
cash economics analysis to explain one possible source of the continuing high
valuations of some knowledge companies.
Cash Flow.com
2 August 2001
Charlie Munger
Vice Chairman, Berkshire Hathaway
Earnings growth rates and P/Es may dominate Wall Street banter, but as any small
business owner knows, a companys value stems from its ability to generate cash.
Common sense dictatesand the empirical evidence corroboratesthat the same
3
currency that pays the bills also drives shareholder value.
An investors first step in valuing a company, then, is to assess how much cash a firm
generates or consumes in future years. There are two components to this:
Cash earnings. A company can generate or consume cash from its after-tax
operating profit. We can calculate this figure by subtracting a firms cash taxes from
4
its operating income. Note that a companys cash earnings may be radically
different from accounting metrics such as net income owing to distortions from
noncash accounting entries such as goodwill amortization and financing costs such
as interest expense.
This analysis tells us exactly how much cash a company generates or consumes from
these two components. In addition, the sum of these two amounts gives us free cash
flow for that periodthe cash pool available to pay the firms capital providers. This is
critical because the market values a company by discounting its best guess of future
cash flows to the present value at the firms opportunity cost of capitala blended
average of the firms cost of debt and equity. The higher the cash flows, the more
valuable the firm.
Cash Flow.com
2 August 2001
Sales
Operating
Margin
Cash
Earnings
Cash
Taxes
Free Cash Flow
Working
Capital
Capital
Expenditures
Cash
Investments
Cash available
for distribution to
all claimholders
Acquisitions/
Divestitures
Source: CSFB analysis.
Cash Flow.com
2 August 2001
Investment
Outflow
Earnings
Inflow
Earnings
Outflow
Investment
Inflow
Profitable Buildout
Value Destruction
Turnarounds
or
or
Startup
Emerging Capital
Efficient Company
Cash Flow.com
2 August 2001
new stores, Barnes and Nobles total cash investment in fiscal 2001 exceeded $450
million.
So even though Barnes and Noble generated $225 million in cash earnings over the
same period, its investments more than consumed this amount, translating into $228 of
negative free cash flow.
Amazons cash economics matrix tells a completely different story. As skeptics have
correctly emphasized, the companys sales remain insufficient to offset the costs of the
its high marketing expenses, fulfillment costs, and the burden of its fixed infrastructure.
The result has been steady, albeit narrowing, losses. However, during two of its most
recent four quarters, Amazon generated considerable cash from its balance sheet.
Arguably, this places Amazon on the path to the Emerging Capital Efficient Company
quadrant.
By reducing its net working capital investment to negative $187 million over the course
of 2000, Amazon offset its fixed asset investment of around $300 million (including
capitalized leases) and cut its negative free cash flow in half. With a decline in fixed
asset investment Amazon may fulfill the true promise of its operating model by
ultimately creating cash from its investments. In the fourth quarter of 2000 Amazon
generated an enormous $249 million in cash from its balance sheet (aided materially by
the seasonality of the business). Despite a cash earnings loss of $61 million for the
quarter, AMZN generated $188 in positive free cash flow.
Amazons potential combination of earnings outflows and investment inflows is the exact
opposite of Barnes and Nobles more traditional combination of earnings inflows and
investment outflows. Investors anxious to own companies that just drown you in cash
have naturally focused on the income statement. However, looking at the balance sheet
of a knowledge company can unveil an important source of cash. Investors must look at
both financial statements, as it is free cash flowthe sum of a firms cash earnings and
investmentsthat drives shareholder value creation.
Cash Flow.com
2 August 2001
400.0
E arnings
Inflow
200.0
1 /0 1
Cash Earnings
Super
C a sh
F lo w
600.0
P os itive
Free C as h Flow
4 /9 4
(600.0)
(300.0)
Negative
Free C as h Flow
300.0
600.0
(200.0)
E arnings
Outflow
(400.0)
Investment Outflow
Investme nt Intflow
(600.0)
C a s h In v e stm e n t
Profitable
B uildout
Quadrant
Cash Earnings
Earnings
Inflow
S uper
C ash Flow
Quadrant
250.0
P os itive
Free Cash Flow
(500.0)
(250.0)
3 /9 9
Earnings
O utflow
1 2 /0 0
(250.0)
(500.0)
C ash Investment
250.0
Negative
Free Cash Flow
500.0
Cash Flow.com
2 August 2001
Cash Flow.com
2 August 2001
Super
C ash Flow
Quadrant
800.0
1 2 /0 0
400.0
Cash Earnings
Earnings
Inflow
9 /9 6
P ositive
Free Cash Flow
(800.0)
(400.0)
400.0
800.0
Negative
Free Cash Flow
Earnings
O utflow
(400.0)
(800.0)
Cash Investment
Cash Earnings
Earnings
Inflow
Super
C ash Flow
Quadrant
350.0
175.0
1 2 /0 1
P os itive
Free Cash Flow
(350.0)
1 2 /9 6
(175.0)
Negative
Free Cash Flow
Earnings
Outflow
(175.0)
(350.0)
Cash Investment
10
175.0
350.0
Cash Flow.com
2 August 2001
This case study provides further insight into the possibilities surrounding these new
business models:
Cash earnings for a physical company will typically overstate a companys free cash
flow. For example, in 1999-2000, the New York Times generated free cash flow of
$131 milliononly 17% of its cash earnings of $774 million.
11
Cash Flow.com
2 August 2001
Bill Miller
President, Legg Mason Fund Advisors
After calculating cash economics matrices for a slew of physical and knowledge
companies, it has become evident that each category follows a distinct trend. In fact, the
pattern is so clear that we can generally say that physical asset oriented companies
have a certain cash economics lifecycle. Further, although the cash economics of
knowledge-based companies differ dramatically from their physical counterparts, they
too have their own lifecycle.
12
Cash Flow.com
2 August 2001
Cash Earnings
Earnings
Inflow
S u pe r
C ash F low
Q ua dra nt
20,000
10,000
1 /0 1
P os itive
F ree Cas h Flow
1 /9 4
(20,000)
(10,000)
10,000
20,000
Negative
F ree Cas h Flow
E arnings
O utflow
(10,000)
(20,000)
C a sh In vestm en t
E arnings
Inflow
20
Cash Earnings
1975
F re e C a sh Fl o w
P o si ti ve
1974
1973
0
-4 0
-2 0
20
F re e C a sh F lo w
Ne g a tive
E arnings
O utflow
-2 0
-4 0
C a s h In v e s tm e n t
13
40
Cash Flow.com
2 August 2001
Super
Cash Flow
Quadrant
Earnings
Inflow
Cash Earnings
Positive
Free Cash Flow
Negative
Free Cash Flow
Earnings
Outflow
Startup
Quadrant
Investment Outflow
Investment Intflow
Cash Investment
14
Cash Flow.com
2 August 2001
Exhibit 10: Cash Economics Matrix Rolling 4Q Normalized Free Cash Flow
Dell Comuter 1994-2000
Profitable
Buildout
Quadrant
Cash Earnings
Earnings
Inflow
1,000
(2,000)
Super
Cash Flow
Quadrant
2,000
10/00
Positive
Free Cash Flow
7/94
(1,000)
1,000
Negative
Free Cash Flow
Earnings
Outflow
(1,000)
Investment Outflow
Investment Intflow
(2,000)
Cash Investment
Profitable
Buildout
Quadrant
Super
Cash Flow
Quadrant
Earnings
Inflow
Cash Earnings
Positive
Free Cash Flow
Negative
Free Cash Flow
Earnings
Outflow
Startup
Quadrant
Emerging Capital
Efficient Company
Quadrant
Investment Outflow
Investment Inflow
Cash Investment
15
2,000
Cash Flow.com
2 August 2001
Warren Buffett
Investors care about the cash economics of businesses because they determine the
magnitude, timing, and risk of future cash flows. And as Buffett notes, the value of any
stock is the present value of these cash flows.
Because knowledge companies have dramatically different cash flows than physical
companies, we would expect them to have dramatically different valuations as well. To
demonstrate this, we valued a range of companies with different cash economics.
Specifically, we assumed the companies had initial cash earnings of $100, which grew
at a constant rate of 15% for 11 years. We also assumed that each company had
different initial cash investment requirementsranging from a cash outflow of $200 to a
cash inflow of $200which also grew at a constant rate of 15% for 10 years.
We can sum the cash earnings and investments to obtain a projected stream of free
cash flows for each company. Using a cost of capital of 10%, we performed a
discounted cash flow analysis to value each hypothetical company. We then plotted the
resulting price-to-earnings ratio versus the initial cash investments for each company.
(See Exhibit 12.)
Exhibit 12: Price-to-Earnings Ratio versus Initial Cash Investment
60
50
40
30
20
10
-250
-200
-150
-100
-50
50
100
150
200
16
250
Cash Flow.com
2 August 2001
As we would expect, all things equal, the larger the cash inflow from cash investments,
the more valuable the company. Conversely, a larger cash outflow from cash
investments translates into a lower valuation. We see this pattern in the real world as
well. The companies we profiled all have significantly less investment needs than their
physical counterparts. Thus, we believe that there are solid fundamental underpinnings
behind the high valuations in the Internet sector. (See Exhibit 13.)
Exhibit 13: Valuation Metrics for Old and New Economy Companies:
Price to Sales
Ticker
Company
2001E
2002E
in millions
AMZN
BKS
Amazon
Barnes and Noble
YHOO
NYT
Yahoo!
New York Times
DELL
WMT
Dell Computer
Wal-Mart
Enterprise Value to
Price to Earnings
Sales
2001E
2002E
2001E
2002E
in millions
per share
1.8
0.4
1.5
0.4
1.8
0.6
1.5
0.5
NMF
20.7
NMF
16.0
16.4
2.1
12.9
2.0
15.8
2.2
12.4
2.1
531.2
19.9
158.2
17.2
1.9
1.1
1.7
1.0
1.8
1.2
1.6
1.0
32.6
34.3
28.0
29.9
Conclusion
As people, ideas, and networks continue to become the major sources of competitive
advantage for companies, we believe that this shift will only become more intractable.
Hence, we believe that an understanding of the different cash economics of knowledge
companies is essentialnot only for the technology investors of today, but for the
generalist investors of tomorrow.
N.B.: CREDIT SUISSE FIRST BOSTON CORPORATION may have, within the last three years, served as a manager or co-manager
of a public offering of securities for or makes a primary market in issues of any or all of the companies mentioned.
Closing prices as of April 30, 2001:
Amazon.com (AMZN, $16.89)
AOL Time Warner (AOL, $51.96)
Barnes and Noble (BKS, $32.90)
Borders Book Group (BGP, $19.69)
The New York Times (NYT, $41.28)
Wal-Mart (WMT, $53.50)
Yahoo! (YHOO, $22.31)
17
Q1/99
Q2/99
Q3/99
1999
Q1/00
Q2/00
Q3/00
Q4/00
Assets
Cash and ST Investments
Excess cash
Required cash
Inventories
Prepaid expenses and other
1,443.0
1,430.3
12.6
45.2
37.1
1,144.2
1,113.7
30.5
59.4
53.3
905.7
891.0
14.7
118.8
55.6
706.2
690.5
15.7
220.6
85.3
1,008.9
926.9
82.0
172.3
89.8
907.6
878.9
28.7
172.4
86.7
900.0
871.1
28.9
163.9
99.2
1,100.5
1,068.6
31.9
174.6
86.0
95.0
143.2
189.1
321.7
344.1
287.7
292.0
292.5
Accounts payable
Accrued advertising
Other liabilites and accrued expenses
Non-Interest Bearing Current Liabilities
133.0
16.2
45.2
194.4
166.0
22.4
79.7
268.1
236.7
24.6
83.6
344.9
463.0
55.9
150.9
669.8
255.8
160.6
416.4
286.2
188.1
474.3
304.7
195.1
499.8
485.4
341.9
827.3
(99.4)
(124.9)
(155.8)
(348.1)
(72.4)
(186.6)
(207.9)
(534.8)
Net P,P&E
Present Value of Oper Leases
60.6
105.6
156.3
106.4
221.2
107.1
317.6
107.9
334.4
171.7
344.0
235.5
352.3
299.4
366.4
363.2
Phantom goodwill
Goodwill and other purchased intangibles
Total accumulated amortization
87.8
187.2
71.2
87.8
741.9
121.7
87.8
705.9
221.2
87.8
730.1
268.6
87.8
647.2
273.4
87.8
596.8
333.7
87.8
520.5
394.1
87.8
255.3
454.4
512.3
1,214.0
1,343.2
1,512.0
1,514.4
1,597.8
1,653.9
1,527.1
412.9
1,089.2
1,187.4
1,163.9
1,442.0
1,411.2
1,446.0
992.3
Current Assets
18
Fixed Assets
Invested capital
Cash Flow.com
Exhibit 14: Amazons Accumulated Cash Investments, or Invested Capital (in millions, 1999 to present)
Source: Company SEC filings and CSFB analysis, note: invested capital excludes investments and deferred charges.
2 August 2001
Q1/99
Q2/99
Q3/99
Q4/99
Q1/00
Q2/00
Q3/00
Q4/00
19
Net Sales
293.6
314.4
355.8
676.0
573.9
577.9
637.9
972.4
Total COS
Gross income
228.9
64.8
246.8
67.5
285.3
70.5
588.2
87.8
445.8
128.1
441.8
136.1
470.6
167.3
748.1
224.3
60.7
23.5
11.2
25.3
86.6
44.6
18.5
99.5
11.8
260.9
179.9
57.3
25.9
47.4
14.2
324.8
140.1
61.2
26.0
85.0
13.7
326.0
129.8
67.1
28.5
82.9
8.2
316.4
138.3
71.2
26.2
91.0
4.1
330.8
186.2
69.8
28.2
263.3
(1.1)
546.4
120.7
85.9
34.3
14.5
50.5
4.7
190.0
Adjusted EBIT
(55.9)
(122.5)
(190.5)
(236.9)
(197.9)
(180.4)
(163.5)
(322.1)
25.3
(30.6)
50.5
(71.9)
99.5
(91.0)
47.4
(189.5)
85.0
(112.9)
82.9
(97.5)
91.0
(72.5)
263.3
(58.8)
2.5
2.5
2.5
2.5
2.6
2.6
5.0
5.0
6.9
6.9
8.8
8.8
(28.1)
(69.4)
(88.4)
+ Goodwill amortization
Adjusted EBITA
+ Interest expense of cap O L
Net Adjustment for Capitalized Expenses
Adjusted Net Operating Profit
+ Change in reserves
Change in deferred revenues
Income Equivalents
2.6
2.6
3.2
3.2
(186.9)
(109.8)
(92.5)
(65.6)
(50.1)
(19.2)
(19.2)
26.5
26.5
(10.9)
(10.9)
80.0
80.0
(28.1)
-
(69.4)
-
(88.4)
-
(186.9)
-
(29.8)
-
(111.7)
-
(39.1)
-
(61.0)
-
(28.1)
(69.4)
(88.4)
(186.9)
(29.8)
(111.7)
(39.1)
(61.0)
Cash Flow.com
Exhibit 15: Amazons Cash Earnings, or Net Operating Profit After Taxes (in millions, 1999 to present)
2 August 2001
Q1/99
Q2/99
Q3/99
Q4/99
Q1/00
Q2/00
Q3/00
Q4/00
(28.1)
(69.4)
(88.4)
(186.9)
(29.8)
(111.7)
(39.1)
(61.0)
Inventory
Prepaid expenses and other
Curent Assets
15.7
15.8
31.5
14.2
16.3
30.4
59.4
2.3
61.7
101.9
29.8
131.6
(48.4)
4.5
(43.9)
0.1
(3.2)
(3.0)
(8.5)
12.5
4.0
10.7
(13.1)
(2.5)
Accounts payable
Accrued advertising
Other liabilites and accrued expenses
Current Liabilities
19.7
3.1
10.6
33.5
33.0
6.2
10.6
73.7
70.7
2.2
17.8
76.8
226.3
31.3
52.4
324.9
(207.2)
(55.9)
18.8
(253.4)
30.4
2.1
57.9
18.5
13.2
25.5
180.7
112.6
327.4
3.0
30.9
33.9
(25.4)
96.5
71.1
(31.0)
65.7
34.7
(192.3)
97.1
(95.2)
275.8
80.6
356.4
(114.2)
73.5
(40.8)
(21.3)
72.1
50.8
(326.9)
77.9
(248.9)
(62.0)
(140.5)
(123.1)
(91.7)
(386.1)
(70.9)
(89.9)
187.9
(33.9)
(28.1)
(62.0)
(71.1)
(69.4)
(140.5)
(34.7)
(88.4)
(123.1)
95.2
(186.9)
(91.7)
(356.4)
(29.8)
(386.1)
40.8
(111.7)
(70.9)
(50.8)
(39.1)
(89.9)
248.9
(61.0)
187.9
(26.5)
(79.6)
(106.2)
(89.6)
(138.2)
(227.8)
(115.7)
(205.2)
(320.9)
(44.5)
(372.8)
(417.4)
(367.0)
(374.5)
(741.5)
(255.1)
(416.8)
(671.9)
(271.2)
(367.5)
(638.7)
(117.4)
(241.6)
(359.0)
Cash Flow.com
Exhibit 16: Summary of Amazons Cash Earnings and Investments (in millions, 1999 to present)
Quarterly Changes:
20
Source: Company SEC filings and CSFB analysis. Note: Normalized Cash Investment does not include stock or cash spent on acquisition of web technology companies with little or no cash earnings.
2 August 2001
Cash
Excess cash
Required cash
Receivables
Inventory
LIFO reserve
Prepaid expenses
Curent Assets
31.1
15.8
26.1
10.8
5.0
5.0
57.5
43.2
945.1
940.3
2.9
54.6
74.7
1,065.1 1,063.3
9.6
4.6
5.0
54.1
913.6
76.5
1,049.2
19.2
14.2
5.0
76.5
1,275.2
59.1
1,415.8
24.2
18.9
33.3
19.2
13.9
28.3
5.0
5.0
5.0
58.2
58.4
69.0
1,102.5 1,162.1 1,121.1
56.6
49.9
70.0
1,222.3 1,275.4 1,265.1
4Q01
1/30/01
36.6
31.6
5.0
88.3
1,454.9
72.6
1,620.8
26.0
21.0
5.0
84.5
1,238.6
106.1
1,434.3
Cash Flow.com
Exhibit 17: Barnes and Nobles Accumulated Cash Investments, or Invested Capital (in millions, 4Q99 to present)
4Q99
1Q00
2Q00
3Q00
4Q00
1Q01
2Q01
3Q01
1/30/99 5/2/99 7/31/99 10/30/99 1/30/00 5/2/00 7/29/00 10/28/00
Assets
21
Accounts payable
Other current liabilities
Current Liabilities
498.2
274.1
772.3
439.5
225.1
664.6
394.4
210.4
604.8
756.9
210.5
967.5
599.4
323.5
922.9
589.8
221.1
811.0
578.2
214.4
792.6
865.2
196.6
1,061.8
582.1
353.0
935.1
292.8
398.7
444.5
448.3
299.4
464.4
472.5
559.0
499.2
510.3
515.7
1,811.4 1,829.3
87.0
86.2
39.7
50.6
2,448.4 2,481.9
529.7
1,847.3
85.4
48.8
2,511.1
557.2
1,865.2
287.4
45.0
2,754.9
568.0
553.3
570.5
1,883.1 1,937.8 1,992.4
298.0
299.4
423.8
65.7
62.4
61.1
2,814.9 2,852.8 3,047.8
577.9
2,047.0
420.1
63.3
3,108.3
566.2
2,101.6
359.2
40.2
3,067.2
2,741.1 2,880.5
2,955.6
3,203.2
3,667.3
3,566.4
Net P,P&E
Present value of operating leases
Intangible assets, net
Other noncurrent assets
Fixed Assets
Invested capital
Source: Company SEC filings and CSFB analysis. *note: PV operating lease calculations for 2001 are estimates.
2 August 2001
4Q99
1/30/99
1Q00
5/2/99
2Q00
3Q00
7/31/99 10/30/99
4Q00
1/30/00
1Q01
5/2/00
2Q01
3Q01
7/29/00 10/28/00
4Q01
1/30/01
22
Net sales
Cost of sales, buying and occupancy
Gross income
990.2
670.2
320.0
718.3
526.0
192.4
727.2
527.9
199.3
715.9
515.4
200.5
1,324.6
914.5
410.2
894.3
654.2
240.1
924.3
676.3
248.1
951.8
693.0
258.9
1,605.4
1,146.3
459.1
106.5
18.9
1.9
127.3
151.9
25.8
0.8
178.5
155.7
26.6
1.5
183.8
150.5
27.8
2.1
180.4
193.0
32.2
2.3
227.5
181.3
33.0
1.5
215.8
190.7
34.6
1.8
227.1
190.9
37.0
2.8
230.7
250.1
40.2
1.6
291.9
192.7
13.8
15.5
20.1
182.7
24.3
20.9
28.2
167.2
0.6
193.3
3.8
17.6
3.8
19.2
3.8
23.8
3.8
186.5
1.9
26.2
1.9
22.8
1.9
30.1
1.9
169.1
35.7
35.7
36.2
36.2
36.6
36.6
36.9
36.9
37.3
37.3
37.7
37.7
38.8
38.8
39.8
39.8
40.9
40.9
229.0
53.8
55.8
60.8
223.8
63.9
61.6
69.9
210.0
(2.9)
(2.9)
229.0
56.7
55.8
60.8
223.8
63.9
61.6
69.9
210.0
73.7
1.9
12.5
88.1
(1.0)
1.7
12.7
13.3
16.4
1.8
12.8
4.8
26.1
2.4
2.0
12.9
(2.3)
19.6
71.9
2.9
13.1
7.5
80.5
(2.9)
3.4
13.2
(3.8)
17.4
(6.1)
4.6
13.6
1.0
11.1
(3.7)
5.3
13.9
1.3
14.3
31.7
5.4
14.3
37.4
(49.2)
138.1
140.9
43.3
29.7
41.2
143.3
46.5
50.5
55.7
72.0
Adjusted EBIT
+ Goodwill amortization
Adjusted EBITA
+ Interest expense of capitalized operating leases
Net Adjustment for Capitalized Expenses
Adjusted Net Operating Profit
Cash Flow.com
Exhibit 18: Barnes and Nobles Cash Earnings, or Net Operating Profit After Taxes (in millions, 4Q99 to present)
2 August 2001
140.9
43.3
29.7
41.2
143.3
46.5
50.5
55.7
72.0
104.7
(105.9)
(45.8)
(3.8)
148.9
(165.0)
(8.0)
(86.5)
59.8
Quarterly Changes:
Investment in net working capital
23
(8.5)
(33.5)
(29.2)
(243.8)
(60.0)
(37.9) (195.0)
(60.5)
41.1
96.1
(139.4)
(75.0)
(247.6)
88.9
(203.0) (203.0)
(147.0)
100.9
237.1
(96.1)
(45.3)
(206.5)
232.2
(156.5) (152.5)
(91.3)
172.9
(13.7)
(90.7)
(13.2)
(79.4)
(14.7)
(88.7)
(10.3)
(0.7) (15.2) (14.9)
(215.9) (154.5) (221.8) (207.5)
14.3
38.4
21.0
(30.6)
24.4
6.8
9.6
(51.8)
16.2
2.1
9.2
(75.9)
Cash Flow.com
Exhibit 19: Summary of Barnes and Nobles Cash Earnings and Investments (in millions, 4Q99 to present)
4Q99
1Q00
2Q00
3Q00
4Q00 1Q01 2Q01
3Q01
4Q01
1/30/99 5/2/99 7/31/99 10/30/99 1/30/00 5/2/00 7/29/00 10/28/00 1/30/01
Receivables
Inventory & LIFO reserve
Prepaid expenses and other current
assets
Accounts payable
Other current liabilities
Investment in net working capital
13.8
133.0
28.5
(50.8)
(1.9)
101.1
49.4
(6.7)
24.8
150.3
(3.9)
(65.8)
(11.8) (26.3)
(179.8) (136.2)
6.5
183.8
4.1
(28.0)
(13.5) (49.5)
108.3
(17.3)
(13.9)
29.5
(110.7) (199.8)
(122.1)
(134.5) (117.7)
(353.4) (252.3)
(152.8)
206.9
54.1
(186.3) (193.7)
227.7 236.6
42.9
41.4
(464.1) (452.1)
296.0 224.6
(168.1) (227.5)
2 August 2001
1 Q /9 9
3 /3 1 /9 9
C a s h a n d c a s h e q u iv a le n ts
S h o rt-te rm in v e s tm e n ts
L o n g -te r m in v e s tm e n ts
A c tu a l c a s h a n d S T in v e s tm e n ts
E xcess cash
R e q u ire d c a s h
A c c o u n ts re c e iv a b le
P re p a id e x p e n s e
C u re n t A s s e t s
2 Q /9 9
6 /3 0 /9 9
3 Q /9 9
9 /3 1 /9 9
4 Q /9 9
1 2 /3 1 /9 9
1 Q /0 0
3 /3 1 /0 0
2 Q /0 0
6 /3 0 /0 0
3 Q /0 0
9 /3 0 /0 0
4 Q /0 0
1 2 /3 1 /0 0
24
1 8 4 .5
2 5 1 .9
2 1 8 .5
6 5 4 .8
6 4 9 .8
5 .0
2 6 .9
9 .1
4 1 .0
1 8 4 .1
3 6 6 .8
2 1 9 .8
7 7 0 .8
7 6 5 .8
5 .0
3 4 .1
1 3 .0
5 2 .0
1 4 1 .5
5 3 4 .8
1 7 0 .2
8 4 6 .5
8 4 0 .8
5 .8
4 3 .9
1 4 .0
6 3 .7
2 3 4 .0
6 3 8 .5
3 3 9 .6
1 ,2 1 2 .1
1 ,2 0 4 .3
7 .8
5 4 .4
1 9 .0
8 1 .2
3 3 6 .6
6 5 5 .3
5 5 1 .9
1 ,5 4 3 .8
1 ,5 3 2 .2
1 1 .6
5 9 .7
2 0 .4
9 1 .7
4 4 4 .6
5 9 9 .6
6 0 3 .7
1 ,6 4 7 .9
1 ,6 3 6 .5
1 1 .4
6 7 .7
2 4 .7
1 0 3 .8
5 2 2 .2
7 1 5 .3
6 1 3 .1
1 ,8 5 0 .6
1 ,8 3 7 .1
1 3 .5
7 4 .5
2 7 .0
1 1 5 .0
4 8 6 .9
6 6 3 .4
6 2 6 .0
1 ,7 7 6 .2
1 ,7 6 1 .4
1 4 .8
9 0 .6
5 0 .1
1 5 5 .4
A c c o u n ts p a y a b le
A c c r u e d e x p e n s e s a n d o th e r c u rre n t lia b ilitie s
C u rre n t L ia b ilit ie s
7 .3
3 8 .1
4 5 .4
8 .3
5 4 .9
6 3 .2
1 1 .2
7 4 .1
8 5 .4
1 3 .5
8 8 .2
1 0 1 .6
1 4 .5
1 0 5 .3
1 1 9 .8
1 6 .4
1 2 7 .3
1 4 3 .8
1 9 .3
1 8 2 .2
2 0 1 .5
2 6 .0
1 6 8 .0
1 9 4 .1
N e t W o rk in g C a p ita l
(4 .4 )
(1 1 .1 )
(2 1 .7 )
(2 0 .4 )
(2 8 .1 )
(4 0 .0 )
(8 6 .5 )
(3 8 .7 )
1 9 .9
2 0 .0
3 4 .2
2 7 .7
4 4 .5
3 5 .4
5 8 .1
4 3 .1
6 4 .4
6 5 .5
7 9 .0
8 7 .9
9 8 .1
1 1 0 .3
1 0 9 .8
1 3 2 .7
8 0 .9
3 .9
9 9 .1
5 .9
1 0 6 .1
7 .8
1 2 6 .2
9 .7
2 0 4 .8
1 4 .6
2 1 8 .7
1 9 .6
2 5 9 .6
2 4 .5
2 4 2 .9
2 9 .4
2 1 .2
2 1 .2
2 1 .2
2 1 .2
2 1 .2
2 1 .2
2 1 .2
2 1 .2
6 2 .8
6 2 .8
6 2 .8
6 2 .8
6 2 .8
6 2 .8
6 2 .8
6 2 .8
2 0 .1
2 0 .1
2 0 .1
2 0 .1
2 0 .1
2 0 .1
2 0 .1
2 0 .1
2 5 .6
2 5 .6
3 ,1 4 6 .7
5 3 .6
2 5 .6
3 ,1 4 6 .7
5 3 .6
4 ,0 3 1 .9
2 5 .6
3 ,1 4 6 .7
5 3 .6
4 ,0 3 1 .9
2 5 .6
3 ,1 4 6 .7
5 3 .6
4 ,0 3 1 .9
7 5 .8
2 9 8 .6
3 ,5 4 0 .9 6
7 ,5 9 9 .7 9
7 ,6 4 3 .0 5
7 ,8 3 1 .0 6
2 5 .6
3 ,1 4 6 .7
5 3 .6
4 ,0 3 1 .9
7 5 .8
3 7 0 .2
8 ,2 5 7 .1 4
2 5 .6
3 ,1 4 6 .7
5 3 .6
4 ,0 3 1 .9
7 5 .8
3 7 0 .2
8 ,3 4 4 .5 2
2 5 .6
3 ,1 4 6 .7
5 3 .6
4 ,0 3 1 .9
7 5 .8
3 7 0 .2
8 ,3 6 6 .8 4
2 9 4 .1
3 ,5 2 9 .8
7 ,5 7 8 .1
7 ,6 2 2 .7
7 ,8 0 3 .0
8 ,2 1 7 .1
8 ,2 5 8 .0
8 ,3 2 8 .2
N e t P ,P & E
P re s e n t V a lu e o f O p e r L e a s e s
O th e r
A c c u m u la te d g o o d w ill a m o rtiz a tio n
P h a n to m g o o d w ill fr o m b u y o u t o f V is a s in te r e s t in
Y a h o o ! M a rk e tp la c e
P h a n to m g o o d w ill fr o m p o o lin g a c q u is itio n o f
F o ur11
P h a n to m g o o d w ill fr o m p o o lin g a c q u is itio n o f
W ebCal
P h a n to m g o o d w ill fr o m p o o lin g a c q u is itio n o f
Y oyodyne
G e o C itite s
O n lin e A n y w h e r e
b ro a d c a s t.c o m
A rth a s .c o m
e G ro u p s
F ix e d A s s e ts
In v e s t e d c a p it a l
Cash Flow.com
Exhibit 20: Yahoo!s Accumulated Cash Investments, or Invested Capital (in millions, 1999 to present)
2 August 2001
1Q/99
3/31/99
2Q/99
6/30/99
3Q/99
9/31/99
4Q/99
12/31/99
1Q/00
3/31/00
2Q/00
6/30/00
3Q/00
9/30/00
4Q/00
12/31/00
86.1
9.7
76.4
115.2
18.5
96.8
155.1
26.2
128.9
232.2
47.4
184.8
228.4
34.5
193.9
270.1
39.3
230.8
295.5
40.9
254.7
316.1
43.8
272.4
32.3
9.0
3.5
1.2
45.9
42.7
12.9
6.9
3.5
65.9
53.3
16.2
8.2
3.5
81.2
86.7
29.4
17.8
5.7
139.5
78.5
23.2
12.9
4.1
118.6
94.7
24.2
14.2
4.8
137.9
109.2
30.1
19.9
5.4
164.6
137.4
39.8
27.5
5.4
210.1
Adjusted EBIT
30.4
30.9
47.7
45.3
75.3
92.9
90.1
62.3
Goodwill amortization
Adjusted EBITA
1.6
32.0
3.8
34.7
3.8
51.5
6.0
51.3
4.4
79.7
5.1
98.0
5.8
95.9
5.8
68.1
0.4
0.4
0.6
0.6
0.7
0.7
0.9
0.9
1.3
1.3
1.8
1.8
2.2
2.2
2.7
2.7
7.2
18.4
8.4
18.3
24.2
10.6
26.9
(35.2)
39.6
53.7
60.7
70.5
105.2
110.4
125.0
35.5
10.5
(2.3)
0.1
0.1
8.4
(3.0)
(2.8)
0.2
0.3
(5.3)
20.2
(3.5)
0.2
0.2
17.1
13.1
(4.6)
0.3
0.3
9.1
51.9
(19.9)
0.5
0.6
33.1
43.6
(6.4)
0.6
0.8
38.6
47.7
(10.1)
0.8
0.5
38.8
44.8
48.2
0.9
(0.0)
94.0
31.2
59.0
43.6
61.4
72.0
71.8
86.2
(58.5)
25
Net revenue
Cost of revenue
Gross income
Cash Flow.com
Exhibit 21: Yahoo!s Cash Earnings, or Net Operating Profit After Taxes (in millions, 1999 to present)
Source: Company SEC filings and CSFB analysis. Note: R&D is expensed.
2 August 2001
1Q/99
3/31/99
Quarterly Cash Earnings
2Q/99
6/30/99
3Q/99
9/31/99
4Q/99
12/31/99
1Q/00
3/31/00
2Q/00
6/30/00
3Q/00
9/30/00
4Q/00
12/31/00
31.2
59.0
43.6
61.4
72.0
71.8
86.2
(58.5)
(2.4)
12.4
10.0
(6.7)
22.0
15.3
(10.5)
18.0
7.5
1.3
21.3
22.6
(7.7)
28.7
21.0
(11.9)
37.0
25.1
(46.5)
41.5
(5.0)
47.9
34.1
82.0
31.2
10.0
21.2
59.0
15.3
43.7
43.6
7.5
36.1
61.4
22.6
38.8
72.0
21.0
51.1
71.8
25.1
46.7
86.2
(5.0)
91.2
(58.5)
82.0
(140.4)
106.4
(16.5)
89.9
149.9
(28.7)
121.1
169.6
(35.7)
133.9
195.1
(55.3)
139.8
236.0
(66.3)
169.7
248.8
(76.1)
172.7
291.4
(63.7)
227.8
171.6
(123.1)
48.5
Cash Flow.com
Exhibit 22: Summary of Yahoo!s Cash Earnings and Investments (in millions, 1999 to present)
Quarterly Changes:
Investment in net working capital
Investment in fixed assets
Total Cash Investment
26
Quarterly NOPAT
Normalized Cash Investment Inflow (Outflow)
Normalized Free Cash Flow
Trailing Twelve Months:
Cash Earnings Inflow (Outflow)
Normalized Cash Investment Inflow (Outflow)
Normalized Free Cash Flow
Source: Company SEC filings and CSFB analysis. Note: Normalized Cash Investment does not include stock or cash spent on acquisition of web technology companies with little or no cash earnings.
2 August 2001
1Q99
3/31/99
2Q99
6/30/99
3Q99
9/30/99
4Q99
12/30/99
1Q00
3/31/00
2Q00
6/30/00
3Q00
9/30/00
4Q00
12/30/00
27
Cash
Excess cash
Required cash
Accounts receivable, net
Inventories
Other current assets
Curent Assets
39.8
34.8
5.0
321.4
36.8
119.1
482.4
31.9
26.9
5.0
342.5
28.0
118.0
493.5
43.6
38.6
5.0
324.2
33.9
127.5
490.7
63.9
58.9
5.0
366.8
28.7
155.6
556.0
36.1
31.1
5.0
363.5
31.2
159.2
559.0
37.5
32.5
5.0
370.6
32.3
157.0
564.9
42.9
37.9
5.0
347.7
41.3
169.2
563.1
69.0
64.0
5.0
341.9
35.1
164.8
546.7
Accounts payable
Payrolls
Accrued expenses
Current Liabilities
169.5
74.9
192.1
436.4
153.4
83.0
170.5
406.9
177.8
85.1
183.4
446.4
191.7
105.3
193.6
490.5
200.4
81.9
223.7
505.9
195.0
93.3
203.0
491.3
193.0
105.4
190.0
488.4
178.3
114.2
203.9
496.4
46.0
86.6
44.3
65.5
53.1
73.6
74.7
50.3
1,305.9
955.9
248.1
359.0
26.1
2,895.0
1,283.1
948.4
255.6
353.7
28.5
2,869.3
1,267.7
969.7
260.4
348.6
30.8
2,877.2
1,218.4
961.8
262.1
343.2
33.2
2,818.7
1,236.2
1,096.4
279.7
455.4
184.0
3,251.7
1,216.5
1,090.6
292.9
441.0
334.9
3,375.9
1,199.5
1,083.2
300.8
432.9
485.7
3,502.1
1,207.2
1,060.8
302.6
419.3
636.6
3,626.4
200.0
126.1
223.6
128.4
223.9
126.2
235.5
121.9
241.6
123.0
240.9
121.2
222.0
118.4
201.3
107.3
3,267.1
3,307.8
3,271.6
3,241.7
3,669.3
3,811.6
3,917.2
3,985.4
Invested capital
Cash Flow.com
Exhibit 23: New York Times Accumulated Cash Investments, or Invested Capital (in millions, 4Q98 to present)
2 August 2001
1Q99
3/31/99
2Q99
6/30/99
3Q99
9/30/99
4Q99
12/31/99
1Q00
3/31/00
2Q00
6/30/00
3Q00
9/30/00
4Q00
12/31/00
Total revenues
739.1
779.4
729.7
882.5
843.2
885.6
787.3
973.4
Cost of sales
329.8
337.2
313.0
398.8
359.3
365.0
353.3
380.5
Gross income
409.3
442.2
416.7
483.7
483.9
520.6
434.0
592.8
294.0
287.3
303.9
295.3
329.0
334.7
317.9
413.9
115.2
154.9
112.8
188.4
154.9
185.9
116.2
178.9
12.7
127.9
12.8
167.6
9.9
122.7
14.8
203.2
16.8
171.7
16.7
202.5
16.0
132.2
7.7
186.6
0.5
0.5
0.5
0.5
0.6
0.6
0.6
0.6
0.7
0.7
3.7
3.7
6.7
6.7
9.7
9.7
128.4
168.2
123.3
203.8
172.4
206.2
138.9
196.3
28
Adjusted EBIT
+ Goodwill amortization
Adjusted EBITA
+ Interest expense of capitalized operating leases
Net Adjustment for Capitalized Expenses
Adjusted Net Operating Profit
Change in deferred revenues
Income Equivalents
Net Operating Profit Before Taxes
4.7
4.7
133.1
46.1
4.2
0.2
(1.5)
0.1
48.9
84.2
(4.9)
(4.9)
163.3
61.8
4.5
0.2
(1.1)
11.8
53.6
109.7
2.5
2.5
125.7
44.7
4.5
0.2
(1.7)
(34.0)
81.7
44.0
(3.3)
(3.3)
200.6
75.6
4.6
0.2
(1.9)
(2.1)
80.5
120.1
7.8
7.8
180.2
60.2
5.4
0.2
(1.3)
(8.8)
73.3
106.9
(6.6)
(6.6)
199.6
72.6
5.3
1.3
(1.3)
(6.3)
84.2
115.4
5.9
5.9
Cash Flow.com
Exhibit 24: New York Times Cash Earnings, or Net Operating Profit After Taxes (in millions, 4Q98 to present)
(0.1)
(0.1)
144.8
196.2
49.8
6.1
2.3
(9.1)
(21.3)
70.5
93.0
5.6
3.4
(23.8)
1.6
76.6
74.3
119.6
2 August 2001
3Q00
9/30/00
4Q00
12/31/00
84.2
109.7
44.0
120.1
106.9
115.4
74.3
119.6
24.3
87.9
112.2
(40.6)
25.7
(14.9)
42.3
(7.9)
34.4
(21.3)
58.5
37.2
12.4
(433.0)
(420.5)
(20.6)
(124.2)
(144.8)
(1.0)
(126.2)
(127.2)
24.4
(124.3)
(99.9)
196.4
94.8
78.4
157.3
(313.6)
(29.4)
(53.0)
19.6
1.8
77.9
(19.1)
72.6
9.8
68.1
4.7
164.2
(7.1)
(356.7)
12.9
(506.6)
(30.4)
(624.9)
15.2
(807.7)
44.4
322.4
366.8
(15.2)
347.2
332.0
9.7
313.0
322.6
100.8
358.0
458.8
(402.2)
380.6
(21.5)
(503.8)
386.4
(117.4)
(645.6)
416.7
(228.9)
(743.7)
416.2
(327.5)
Cash Flow.com
Exhibit 25: Summary of New York Times Cash Earnings and Investments (in millions, 4Q98 to present)
1Q99
2Q99
3Q99
4Q99
1Q00
2Q00
3/31/99
6/30/99
9/30/99 12/31/99 3/31/00
6/30/00
Quarterly Changes:
29
2 August 2001
4Q99
1/31/99
1Q00
4/30/99
2Q00
7/31/99
3Q00
10/31/99
4Q00
1/31/00
1Q01
4/30/00
2Q01
7/31/00
3Q01
10/31/00
4Q01
1/31/01
Cash
Excess cash
Required cash
Receivables
Inventory
LIFO reserve
Prepaid expenses and other
Curent Assets
1,879
1,879
1,118
17,076
473
1,059
21,605
1,967
1,967
1,154
18,149
449
1,076
22,795
1,508
1,508
1,276
18,793
426
1,256
23,259
1,435
1,435
1,630
22,373
402
1,517
27,357
1,856
1,856
1,341
19,793
378
1,366
24,734
1,360
1,360
1,265
20,971
334
1,505
25,435
1,310
1,310
1,249
21,093
290
1,593
25,535
1,311
1,311
1,468
24,975
246
1,675
29,675
2,054
2,054
1,768
21,442
202
1,291
26,757
Accounts payable
Accrued expenses & other
Current Liabilities
10,257
5,499
15,756
11,235
6,510
17,745
12,326
7,220
19,546
14,081
8,452
22,533
13,105
7,290
20,395
13,160
9,705
22,865
12,634
8,162
20,796
15,872
9,843
25,715
15,092
7,196
22,288
5,849
5,050
3,713
4,824
4,339
2,570
4,739
3,960
4,469
31,541
3,216
2,960
820
9,837
328
48,702
32,839
3,130
3,021
632
9,392
387
49,401
33,901
3,093
3,388
664
9,604
470
51,120
34,889
3,115
3,754
893
9,265
553
52,470
36,214
3,112
4,121
1,302
8,994
636
54,380
37,617
3,317
4,488
1,582
9,059
720
56,782
53,526
53,740
53,690
57,209
58,340
61,251
Assets
30
23,674
2,299
2,777
2,891
24,310
2,440
2,838
2,927
31,641
32,515
30,933
2,381
2,899
801
9,317
269
46,600
Invested capital
37,490
37,565
50,313
Cash Flow.com
Exhibit 26: Wal-Marts Accumulated Cash Investments, or Invested Capital (in millions, 4Q99 to present)
2 August 2001
4Q99
1/31/99
1Q00
4/30/99
2Q00
7/31/99
3Q00
10/31/99
4Q00
1/31/00
1Q01
4/30/00
2Q01
7/31/00
3Q01
10/31/00
4Q01
1/31/01
Net sales
Other income, net
Total revenues
40,785
462
41,247
34,717
406
35,123
38,470
440
38,910
40,432
475
40,907
51,394
475
51,869
42,985
462
43,447
46,112
476
46,588
45,676
505
46,181
56,556
523
57,079
Cost of sales
Gross income
32,397
8,850
27,241
7,882
30,123
8,787
31,606
9,301
40,694
11,175
33,665
9,782
36,044
10,544
35,694
10,487
44,852
12,227
6,022
5,888
6,573
6,907
7,672
7,318
7,625
7,918
8,689
2,828
1,994
2,214
2,394
3,503
2,464
2,919
2,569
3,538
10
2,838
59
2,053
59
2,273
59
2,453
59
3,562
83
2,547
83
3,002
83
2,652
83
3,621
55
55
56
56
57
57
58
58
59
59
60
60
68
68
75
75
82
82
2,892
2,108
2,329
2,511
3,621
2,608
3,070
2,727
3,704
31
Adjusted EBIT
+ Goodwill amortization
Adjusted EBITA
+ Interest expense of capitalized operating leases
Net Adjustment for Capitalized Expenses
Adjusted Net Operating Profit
Change in LIFO reserve
Change in other reserves
Income Equivalents
31
31
(24)
(24)
(24)
(24)
(24)
(24)
(24)
(24)
(44)
(44)
(44)
(44)
(44)
(44)
Cash Flow.com
Exhibit 27: Wal-Marts Cash Earnings, or Net Operating Profit After Taxes (in millions, 4Q99 to present)
(44)
(44)
2,861
2,132
2,353
2,534
3,645
2,652
3,114
2,771
3,748
997
76
19
12
1,104
660
67
19
6
753
740
67
20
30
856
760
111
20
8
899
1,178
113
21
11
1,323
785
116
21
6
928
948
120
24
20
1,112
807
131
26
965
1,152
114
29
1,295
1,757
1,379
1,497
1,635
2,322
1,724
2,002
1,807
2,453
2 August 2001
4Q99
1/31/99
Quarterly Cash Earnings
1,820
1Q00
4/30/99
1,332
2Q00
7/31/99
3Q00
10/31/99
1,449
1,588
1,338
(14,085)
(12,747)
(1,111)
(2,102)
(3,213)
14,197
4,801
4Q00
1/31/00
2,240
1Q01
4/30/00
2Q01
7/31/00
3Q01
10/31/00
4Q01
1/31/01
1,636
1,914
1,719
2,365
1,769
(1,719)
50
(2,169)
(1,350)
(3,519)
779
(1,910)
(1,131)
(509)
(2,403)
(2,912)
2,454
1,586
5,433
2,850
5,277
Quarterly Changes:
Investment in net working capital
Investment in fixed assets
Total Cash Investment
Free Cash Flow
734
(1,172)
(438)
2,258
799
(874)
(75)
1,407
485
(699)
(214)
Cash Flow.com
Exhibit 28: Summary of Wal-Marts Cash Earnings and Investments (in millions, 4Q99 to present)
32
(142)
(704)
(627)
(145)
(707)
(678)
(268)
(1,191)
(828)
(229)
(1,713)
(1,029)
(223)
(2,622)
(307)
(111)
(2,707)
(429)
27
(2,165)
(337)
162
(2,446)
(158)
(427)
(1,473)
75
(1,131)
(1,306)
(1,470)
(2,250)
(2,482)
(2,993)
(2,657)
(2,499)
(2,848)
(1,791)
(1,925)
(3,195)
(308)
(942)
(1,791)
(1,391)
(1,987)
94
2,564
1,759
1,510
2,480
(1,027)
532
994
864
(130)
(2,948)
(3,471)
(16,944)
(18,233)
(17,759)
(18,604)
(5,869)
(5,677)
(7,382)
(2,416)
5,351
2,934
(2,477)
5,633
3,156
(14,380)
5,837
(8,543)
(16,474)
6,189
(10,285)
(16,249)
6,608
(9,641)
(16,124)
6,912
(9,212)
(6,896)
7,377
481
(4,814)
7,508
2,694
(7,512)
7,634
122
2 August 2001
1972
33
Cash
Excess cash
Required cash
Accounts receivable
Inventory
LIFO Reserve
Prepaid Expenses
Curent Assets
Accounts payable
Accrued liabilities
Income taxes payable
Current Liabilities
Net Working Capital
Net P,P&E
Present Value of Oper Leases
Other fixed assets
Fixed Assets
Invested capital
1973
1974
1975
2.0
2.0
0.4
18.5
0.2
21.1
2.2
0.2
2.0
1.1
29.4
0.1
32.6
2.2
0.2
2.0
1.2
41.5
0.3
45.0
3.2
1.2
2.0
1.4
50.6
4.7
0.7
59.4
6.8
1.5
1.1
9.5
8.0
2.4
1.8
12.1
13.3
3.0
1.3
17.7
14.1
4.2
1.4
19.7
11.6
20.5
27.4
39.7
7.1
10.6
0.3
18.0
13.2
13.4
0.2
26.8
14.7
16.3
0.2
31.1
19.2
29.1
0.2
48.4
29.6
47.3
58.5
88.1
Cash Flow.com
Exhibit 29: Wal-Marts Accumulated Cash Investments, or Invested Capital (in millions, 197275)
2 August 2001
1972
1973
1974
1975
78.0
0.7
0.2
78.9
$ 124.9
1.1
0.5
126.4
$ 167.6
1.4
0.4
169.4
$ 236.2
1.8
0.7
238.7
Total COS
Gross income
58.6
20.3
93.1
33.4
123.3
46.0
176.6
62.1
-S, G & A
Operating Expenses
14.3
14.3
23.8
23.8
33.0
33.0
48.1
48.1
Adjusted EBIT
+ Goodwill Amortization
Adjusted EBITA
6.0
6.0
9.5
9.5
13.0
13.0
14.0
14.0
0.9
0.9
1.1
1.1
1.3
1.3
2.4
2.4
6.9
10.6
14.3
16.4
Net sales
Rentals from leased departments
Other income, net
Total Revenues
34
Cash Flow.com
Exhibit 30: Wal-Marts Cash Earnings, or Net Operating Profit After Taxes (in millions, 197275)
4.7
4.7
6.9
5.6
2.7
0.2
0.4
3.3
10.6
8.9
4.3
0.3
0.5
0.2
4.9
14.3
11.9
5.7
0.5
0.6
0.2
6.6
21.1
12.2
5.9
0.8
1.1
0.3
7.5
3.6
5.7
7.7
13.6
2 August 2001
1973
1974
1975
35
(0.7)
(11.0)
0.1
(0.1)
(12.0)
(0.3)
(0.2)
(13.8)
(0.4)
1.2
0.8
0.6
5.3
0.7
(0.4)
0.8
1.1
0.1
(8.9)
(6.9)
(12.3)
(8.8)
(4.3)
(17.3)
(17.7)
5.7
(11.9)
(11.2)
7.7
(3.5)
(29.6)
13.6
(16.0)
Cash Flow.com
Exhibit 31: Summary of Wal-Marts Cash Earnings and Investments (in millions, 197375)
2 August 2001
Q1/00
4/30/99
Q2/00
7/30/99
Q3/00
10/29/99
Q4/00
1/28/00
Q1/01
4/28/00
Q2/01
7/28/00
Q3/01
10/27/00
4004
3745
259
2151
289
561
3260
4715
4438
277
2424
336
588
3625
5857
5550
307
2827
374
651
4159
4132
3793
339
2608
391
550
3888
3728
3388
340
2708
441
617
4106
4316
3952
364
2965
442
595
4366
4614
4231
384
3086
424
737
4631
Accounts payable
Accrued and other
Income taxes
Current Liabilities
2641
1247
0
3888
3007
1433
0
4440
3636
1688
0
5324
3538
1654
0
5192
3468
1835
0
5303
3749
1983
0
5732
3950
2141
0
6091
(628)
(815)
(1,165)
(1,304)
(1,197)
(1,366)
(1,461)
536
228
22
786
601
313
44
958
674
398
183
1255
765
483
304
1552
796
483
428
1707
882
483
228
1593
955
483
362
1800
90
248
510
227
339
36
Cash Flow.com
Exhibit 32: Dells Accumulated Cash Investments, or Invested Capital (in millions, 1999 to present)
Invested capital
158
143
Source: Company SEC filings and CSFB analysis, note: invested capital does not include long term assets
2 August 2001
Net revenue
Cost of revenue
Gross income
Q1/01
4/30/00
Q2/01
7/28/00
Q3/01
10/27/00
37
5,174
4,012
1,162
5,537
4,347
1,190
6,142
4,788
1,354
6,784
5,414
1,370
6,802
5,498
1,304
7,280
5,788
1,492
7,670
6,036
1,634
8,264
6,506
1,758
493
74
567
508
82
590
569
91
660
622
98
720
688
103
791
750
117
867
774
124
898
814
126
940
Adjusted EBIT
595
600
694
650
513
625
736
818
Goodwill Amortization
Adjusted EBITA
595
600
694
650
513
625
736
818
4
4
6
6
8
8
10
10
12
12
12
12
12
12
12
12
599
606
702
660
525
637
748
830
181
(4)
1
178
186
(7)
2
181
217
(11)
3
209
207
(14)
3
196
175
(34)
4
145
225
(44)
4
185
258
(44)
4
218
289
(51)
4
242
420
425
493
463
380
452
530
588
Cash Flow.com
Exhibit 33: Dells Cash Earnings, or Net Operating Profit After Taxes (in millions, 1999 to present)
Q4/99
Q1/00
Q2/00
Q3/00
Q4/00
1/29/99
4/30/99
7/30/99 10/29/99 1/29/00
2 August 2001
Q4/99
1/29/99
Quarterly Cash Earnings
420
Q1/00
4/30/99
Q2/00
7/30/99
Q3/00
10/29/99
Q4/00
1/28/00
Q1/01
4/28/00
Q2/01
7/28/00
Q3/01
10/27/00
425
493
463
380
452
530
588
332
(105)
227
187
(172)
15
350
(297)
53
139
(297)
(158)
(107)
(155)
(262)
169
114
283
95
(207)
(113)
Quarterly Changes:
38
(27)
(29)
(56)
364
197
478
411
538
713
246
700
(174)
(254)
(428)
231
(291)
(60)
356
(391)
(34)
841
(602)
239
1,008
(870)
137
569
(920)
(352)
551
(635)
(84)
296
(545)
(249)
Cash Flow.com
Exhibit 34: Summary of Dells Cash Earnings and Investments (in millions, 1999 to present)
1,443
1,015
1,566
1,506
1,718
1,683
1,801
2,040
1,761
1,898
1,788
1,436
1,825
1,741
1,949
1,700
2 August 2001
Cash Flow.com
2 August 2001
1
11
39
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estimates contained in this report reflect a judgement at its original date of publication by CSFB and are subject to change. The price, value of and income from any of the securities or financial instruments
mentioned in this report can fall as well as rise. The value of securities and financial instruments is subject to exchange rate fluctuation that may have a positive or adverse effect on the price or income of such
securities or financial instruments. Investors in securities such as ADRs, the values of which are influenced by currency volatility, effectively assume this risk.
Structured securities are complex instruments, typically involve a high degree of risk and are intended for sale only to sophisticated investors who are capable of understanding and assuming the risks involved.
The market value of any structured security may be affected by changes in economic, financial and political factors (including, but not limited to, spot and forward interest and exchange rates), time to maturity,
market conditions and volatility, and the credit quality of any issuer or reference issuer. Any investor interested in purchasing a structured product should conduct their own investigation and analysis of the
product and consult with their own professional advisers as to the risks involved in making such a purchase.
Some investments discussed in the research may have a high level of volatility. High volatility investments may experience sudden and large falls in their value causing losses when that investment is realised.
Those losses may equal your original investment. In the case of some investments the potential losses may exceed the amount of initial investment, in such circumstances you may be required to pay more
money to support those losses. Income yields from investments may fluctuate and in consequence initial capital paid to make the investment may be used as part of that income yield.
Some investments may not be readily realisable and it may be difficult to sell or realise those investments, similarly it may prove difficult for you to obtain reliable information about the value, or risks, to which such
an investment is exposed. The investments and services contained or referred to in this report may not be suitable for you, it is recommended you consult an independent investment advisor if you are in doubt
about those investments or investment services. Nothing in this report constitutes investment, legal, accounting or tax advice nor a representation that any investment or strategy is suitable or appropriate to your
individual circumstances. Nothing in the report constitutes a personal recommendation to you. CSFB does not advise on the tax consequences of investments. You are advised to contact an independent tax
adviser. Please note the bases and levels of taxation may change.
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and the content of the linked site does not in any way form part of this document. Following the link through this report or CSFBs website shall be at your own risk.
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by Credit Suisse First Boston (Europe) Limited, in the United States by Credit Suisse First Boston Corporation; in Switzerland by Credit Suisse First Boston; in Canada by Credit Suisse First Boston Securities
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reviewed by a registered Senior Business Person.
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Please note that this research was originally prepared and issued by CSFB for distribution to their market professional and institutional investor customers. Recipients who are not market professional or
institutional investor customers of CSFB should seek the advice of their independent financial advisor prior to taking any investment decision based on this report or for any necessary explanation of its contents.
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