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Technology Stocks : Dell Technologies Inc.
DELL 153.57-0.7%3:35 PM EST
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To: Chuzzlewit who wrote (87051)12/27/1998 6:26:00 PM
From: Richard Tsang  Read Replies (3) of 176387
 
Chuzz,
Thanks for the insight on Dell's practice of using calls and puts to lower the cost to finance options. Do you have a link where I can get these numbers? In simple accounting methods, the net income should go to the shareholder equity when dividends are not paid. I find that that is not always the case.

Dell's data as follows:

Common equity as of end of FY 95 = 651.7 million with 1269 million share outstanding (split adjusted).
Net income for 3 years 96-98 = (377+531+944) = 1,852 million
Common equity as of end of FY 98 should be 651.7 + 1852 = 2503.7 million but the balance sheet shows only 1,293 with 1280 millions shares outstanding. Where did the 910.7 million go? Can we assume that in the 3 years, half of the net income made by Dell went to finance share buyback to offset the new shares issued under options program, since the number of shares at the period ends is similar. Based on this, I still hold the opinion that it costs us too much (half the net income, even after offsetting the gains from puts and calls activities!) to finance the options program.

While I support your call to make these accounting transparent, i do not think this options game will go away anytime soon.

Repectfully submitted.
RT

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