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

To: jim kelley who wrote (42637)	5/16/1998 11:09:00 PM
From: Chuzzlewit	Read Replies (3) \| Respond to of 176387

Jim, there is a problem in how companies report earnings when they are issuing stock options. You see, when a company either buys its own stock or sells its stock those transactions don't run through the income statement. Instead, they are run through the equity section of the balance sheet so there is no effect on earnings. I don't believe that this is a fair accounting of what's going on for many reasons. Dell is guilty of this along with every other company that uses stock options for compensation. When a company buys its own stock in the open market it retires the stock to "treasury". Thus, you will see a credit to cash and a debit to a special account called treasury stock. Now, if the company issues a like number of shares, it will debit cash for the amount received, and credit "capital stock at par" and "stock in excess of par". Suppose a company buys 100,000 shares of its own stock at $100 per share, we will show a decrease in cash of $10MM and treasury stock will be listed at ($10MM). Now suppose that employees are given options to buy stock at 100,000 shares at $10 each. Now cash will increase by $1MM, and the sum of capital stock at par plus stock in excess of par will increase by $1MM, but "treasury stock" will remain at ($10MM). The net result of all of this is that the company gave employees $9MM in stock, and this transaction never went through the income statement. From Dell's 1998 10-K you will discover that "other" presumably "treasury stock", went from ($36MM) to ($61MM), while retained earnings decreased from $647MM to $607MM. Common stock increased from $195MM to $747MM. The net effect was that equity increased by $487MM. At the same time, they listed put options as decreasing from $279MM to 0. To follow these transactions you need to go to the statement of equity, wherein you will find that in spite of wonderful earnings last year, Dell's retained earnings decreased as a result of these shenanigans. The whole system of accounting for options stinks. It is a shareholder ripoff, because not only do the companies get to slip by significant management compensation without running through the income statement, it is the gift that keeps on giving because of dilution. Dell is not the only company to do this. Virtually all companies engage in this nonsense. Some are much worse than others. Seagate is about the worst, because not only does it issue a significant number of options to management, it "reprices" those options should the price of the stock fall, thus circumventing the entire point of the option. IMO, if you issues options as an incentive, they ought to be for restricted stock. Jim, this question has pushed one of my hot buttons. This is one of the most outrageous examples of executive greed in American capitalism. TTFN, CTC

To: jim kelley who wrote (42637)	5/16/1998 11:34:00 PM
From: Chuzzlewit	Respond to of 176387

Re: Forbes article part 2: This comes from the Dell 10-K <snip> Stock-Based Compensation The Company adopted Statement of Financial Accounting Standards No. 123, "Accounting forStock-Based Compensation," in the fiscal year ended February 2, 1997. On adoption, the Company continued to applyAccounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees," in accounting for its stock option and stock purchase plans. As a result, no expense has been recognized for options granted with an exercise price equal to market value at the date of grant or in connection with the employee stock purchase plan. For stock options that have been issued at discounted prices, the Company accrues for compensation expense over the vesting period for the difference between the exercise price and fair market value on the measurement date. Stock Repurchase Program The Board of Directors has authorized the Company to repurchase up to 250 million shares of its common stock in open market or private transactions. During fiscal 1998 and fiscal 1997, the Company repurchased 69 million and 81 million shares of its common stock, respectively, for an aggregate cost of $1.0 billion and $503 million, respectively. The Company utilizes equity instrument contracts to facilitate its repurchase of common stock. At February 1, 1998 and February 2, 1997, the Company held equity instrument contracts that relate to the purchase of 50 million and 36 million shares of common stock, respectively, at an average cost of $44 and $9 per share, respectively. Additionally, at February 1, 1998 and February 2, 1997, the Company has sold put obligations covering 55 million and 34 million shares, respectively, at an average exercise price of $39 and $8, respectively. The equity instruments are exercisable only at expiration, with the expiration dates ranging from the first quarter of fiscal 1999 through the third quarter of fiscal 2000. At February 2, 1997, certain outstanding put obligations contained net cash settlement or physical settlement terms thus resulting in a reclassification of the maximum potential repurchase obligation of $279 million from stockholders' equity to put warrants. The outstanding put obligations at February 1, 1998 permitted net-share settlement at the Company's option and, therefore, did not result in a put warrant liability on the balance sheet. The equity instruments did not have a material dilutive effect on earnings per common share for fiscal 1998 or fiscal 1997.

To: jim kelley who wrote (42637)	5/17/1998 11:03:00 AM
From: Lucretius	Read Replies (3) \| Respond to of 176387

Are you really that blind to reality? DELL and other co's have not been reporting the true impact of stock options. THAT WAS THE WHOLE POINT OF THE FRONT PAGE STORY!!!!!!!! The note that Chuz posted is FASB 123, and does not show the true impact of options. Did you even read the article? What does it take to pound it into your heads that there are serious problems out there that ARE going to surface. When they do, it will be very ugly. DELL wouldn't have made a dime in '96 if it wasn't for all the accounting funny business. Chuz, surely "you" realize the importance of this? I find it strange (on second thought, maybe I shouldn't find it so strange) that individuals on this thread are discussing a stupid earnings guess rather than this very real problem and threat to DELL. -Lucretius

To: jim kelley who wrote (42637)	5/18/1998 9:29:00 AM
From: jbn3	Read Replies (3) \| Respond to of 176387

Dell executives have profitable year, too from Austin American-Statesman, Monday, May 18 1998, page D1 Michael Dell got a 14.5 percent pay increase last year, boosting his salary to $788,462 in the company's 1998 fiscal year. On top of that, the founder and chairman of Dell Computer Corp. received a $2 million bonus -- up from $1.3 million -- in the prior year, according to the computer maker's latest proxy statement. The $2.8 million in compensation was a 40% increase for the 33-year-old chief executive. The Round Rock-based company's revenues grew 82 percent to $12.3 billion last year, while profits soared nearly 90 percent to $944 million. In comparison, Eckhard Pfeiffer, chairman and CEO of top PC seller Compaq, received $4.5 million in salary in 1997. Vice chairmen Mort Topfer and Kevin Rollins received salaries and bonuses of $2.6 million and $1.6 million respectively. Rollins, who last year was promoted to a new position as the company's second vice chairman, received a 32 percent salary increase to $450,381. That was the biggest salary hike among the company's five highest-paid executives. His bonus more than doubled to $1.1 million. Rollins' combined compensation was a 90 percent increase over the previous year's. Topfer's combined pay grew by 66 percent, including a 13.2 percent hike in salary to $616,346. his $2 million bonus was nearly twice the year-earlier bonus. Topfer and Rollins elected to take the bonus in discounted stock options rather than cash, according to the proxy. The Dell annual meeting is July 17 at the Austin Convention Center. end of article. Items of special interest: 1. Evidently the meeting has outgrown the facilities at the Four Seasons Hotel. 2. If DELL's future is gloomy, its price is bloated and headed for the basement, and if sales and earnings are slowing, then why did Mr. Rollins and Mr. Topfer choose to take their bonus in stock options? 3. Do you think that if Mr. Pfeiffer reduced his pay to what Michael is earning, perhaps his company could become profitable again? <vvvbg> DELLish, 3.