Umbro, Regarding MSFT employee stock options.
<<What is the "tax benefit" mentioned above?>>
The tax benefit is provided to MSFT whenever an employee exercises an option. The gain to the employee is taxable to the employee, but MSFT receives a credit(reduction) to its tax liability. This credit lowers MSFT's cash usage, hence, it contributes to the cost of buying Treasury stock through its repurchase program.
<<Is there an actual expense, amounting to the current market price minus the strike price that has to be paid at some point in time?>>
No, currently there is no expense to companies awarding stock options to employees, unless they manipulate the grant price to a price lower than the market price at the time of the grant.
<<Also with 72B outstanding isn't it reasonable to assume that the one half or more of that amount would be the amount that the current price is above the strike? >>
Yes, probably much more than half of the 72b outstanding, since the life span of the option is 10 years from the grant date.
<<And, isn't it odd to be floating stock (admittedly at a higher basis), in convertible preferred, to fund the repurchase of stock?>>
Using preferred stock to fund stock repurchases is odd indeed. However other companies such as Dell and IBM use debt to finance their repurchases.
Stock options are widely used by corporate America. The benefits to the company are primarily used to keep a lid on compensation costs and to entice future employees. The danger, however, is that it creates a huge future liability.
Regards, |
