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Technology Stocks : America On-Line: will it survive ...?
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To: Keith A Walker who wrote (10522)6/30/1998 5:35:00 PM
From: Raymond  Read Replies (1) of 13594
 
Keith: I think I really need to explain this option stuff more carefully to you.

Every company with a stock options plan has a certain amount of shares reserved for the plan. The company can grant stock options up to the limit that is reserved. After that, a new plan will have to be approved by shareholders before any new options are granted. These shares don't count as outstanding in the calculation of EPS until they are granted and vested and are in-the-money. Note here that the options are counted even before they are exercised; i.e., before the shares actually exist. When an exercise occurs, the company does not aquire any existing share from anybody, the company simply informs its stock agent to PRINT new shares. That's why stock options grant dilutes EPS, because there are simply more shares outstanding.

Raymond
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