Hi GV, RE: "net effect to shareholders."
The impact is dilution to shareholders.
RE: "If the two scenarios resulted in different outcomes to the shareholders, then dilution alone does not completely account for the option award."
If you are given 25% of a pie, shareholders have been diluted. The impact is a dilution. The only impact is dilution to shareholders. Btw, since public companies grant at fair market value, there is no different outcome.
RE: "And those two scenarios do indeed result in different rewards to shareholders. And that is because options do entail a cost to the company, a compensation cost."
When we issued options, I'm absolutely positive I didn't have to run down to the bank and withdraw cash in order to issue options. Nor did our accountant have to write out a check. There was absolutely no cost.
There was no change in our company's bank balance.
There was no cost to the company. Only one thing happened: dilution. Dilution is represented in the financial statements.
RE: "look at Dell, one of the poster boys of options abuse."
Salary can be abused too. Should we stop giving out salaries?
RE: "To prevent dilution"
You are no longer discussing options.
Options dilute the stock. Pure and simple.
RE: "Dell was net naked a put."
That's their problem if their investment strategy was funky.
Has nothing to do with issuing options. There's no cash cost in issuing options.
RE: "Dell would sell a put and buy a call"
That's a really bullish investment strategy - did other companies do such a bullish investment strategy? If Dell's investment strategies are in question, let's focus on that topic.
RE: "Dell has reported a decent sized net income and yet hasn't put any cash in their pocket."... "sell a put and buy a call"
Where do funky investment strategies go? Cash and investments go on Assets (Balance Sheet)? A change in value of investments goes onto the Income Statement, I assume. How was the sale of the puts & buy of calls registered? Any other high-tech companies do this type of investment strategy? Did Intel? Microsoft or Cisco?
RE: "the expense that was incurred when they granted options."
When we issue options, I'm absolutely positive our accountant didn't have to cut a check and I didn't withdraw any cash. There was no cost to the company and our bank balance never changed, so there was no expense when we issued options.
The only thing that got hit, was our stock table. In this stock table, the employee's name gets entered and the amount of options. Issuing options only impacts shareholder dilution.
RE: "none of this information ever appeared on the income statement, even though Dell has clearly made less money than they reported according to GAAP. Over the past 2 years, the book value of Dell has declined from $6.462 billion to $4.648 billion."
Sound like the book value did register the hit to Dell's funky investment strategies.
RE: "Dell was paying out stock options"
Having issued options myself, I'm absolutely positive companies don't cut checks nor withdraw cash in order to issue options. There's no cost to the company. No bank balance change. The impact is shareholder dilution.
I think you're incorrectly merging two separate things.
RE: "If those options were recorded as a compensation expense, as they rightly should, then the decline in Dell's book value would make a lot more sense."
The issue isn't granting options. There is no cost to granting an option, outside of shareholder dilution.
Regards,
Amy J |
