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Technology Stocks : Dell Technologies Inc. -- Ignore unavailable to you. Want to Upgrade?

To: Sr K who wrote (170382)	7/24/2002 8:36:18 AM
From: Elroy	Read Replies (1) \| Respond to of 176387

Imagine that you own the whole company, and you grant the 10 million options to your managers/employees. Exercise price $1.00, term 10 years. The business improves, and the company (stock) grows to be valued at $7.00 per share. The employees exercise some or all of the options at $7.00, recording (and paying payroll and income taxes on) the gain of $60,000,000 and the company takes a tax deduction of the same $60 million. Well, I think you are saying imagine I own all 100 million shares, and I give employees option to buy an additional 10 million shares at $1 each (lets say that's the current share price) and like usual these options vest over the next four years. There are now, say, 105 million fully diluted shares outstanding. I don't know if the exact number is 105 million, but there is some accounting calculation to add option grants into fully diluted share - I assume it has to do with where the option strike is versus the actual stock - the point is the option issuance increases fully diluted share by some standard accounting rule. If this company earns $100 million in the next year, then the company has made about 96 cents per share. If the options had not been granted, the company would have earned $1 per share because there would only have been the original 100 million shares outstanding. The options are not free. Agreed. Their affect is dilution of existing shareholders. That affect already appears in the fully diluted share count from the moment the options are issed, right? I still don't see how it makes any sense to expense the options and count them in the fully diluted share count. It's double counting on the income statement. If someone can explain why increasing the fully diluted sharecount is insufficient accounting for options, I would greatly appreciate it. Elroy