Hi rudedog; I looked through some DELL's latest 10K,
sec.gov
but couldn't find any references to "non-convertible options".
Could you kindly give a link to something about it?
My understanding is that the majority of corporations don't
have to buy stock to issue for employee stock options. I've
talked this over with CFOs at two companies where I got
employee stock options on Nasdaq stocks over the years,
and thought I understood it pretty well.
Some thoughts...
There is no doubt that a company doesn't record any
profits or losses (other than for tax purposes) on execution
of employee stock options, or, for that matter, stock options
that the company gave away or sold to any other third
party. This statement, and the following, do not apply
to debt. I think they also don't apply to preferred stock,
which carries a liquidation value, and so directly alter
shareholder's equity.
It is also clear that a company doesn't record any profits
or losses on purchasing its common stock on the open
market.
It is also clear that a company does not carry its treasury
stock on its balance sheet, except, perhaps, at par value
of $0.01 per share or whatever.
It is also clear that a company does not put paper profits
or actual profits from trading its treasury stock onto its income
sheet.
I think all these facts are self evident. It doesn't cost DELL
anything to issue DELL stock.
Purchasing shares is not a related transaction, nor is it one
that must happen at the same time. In fact, the above
10K gives how many shares are available to grant to
future employees, it never seems to talk about having
to buy shares according to how many employees exercised
stock options. But its a long document, maybe I missed
something. If so, please post a copy of the relevant text.
The number of options available has decreased over the
last few years, but to increase it, all DELL has to do is
go back to the directors and shareholders and voila,
more shares available to option.
If DELL gave its employees options to buy MSFT stock,
all the above facts would not apply. But DELL
stock is free to DELL, just like hundred dollar bills are
free to the Federal Reserve, etc.
No, if a company gives away its own stock, there is
no change to the balance sheet or income sheet, other
than the number of shares outstanding and the dilution
effect to the per share values. So no profit or loss per
share, just dilution.
Amusingly enough, if a company sells its own stock, there
is no change to the income sheet, other than the share
size and dilution effect. But the balance sheet will show
the increase in cash and a corresponding increase in
"paid in capital", or some similar line, as well as
"shareholders equity", and the dilution effect.
Of course the above statements have nothing to do with
whether it is a good or bad idea to give stock away or
sell it, but this is the way accounting works.
We could imagine a different way of doing accounting, one
where a company would carry its treasury stock as an asset.
Hmm... If DELL did this, and had a modest amount of stock
(say 10%) of what it initially offered as treasury stock, then
the company would have been able to show a paper profit
many times larger than it actually earned last year..... This,
by the way, is a form of a Ponzi pyramid, and is why
accounting doesn't work that way.
From the above example, I hope it is clear why treasury
stock is not an asset, and therefore, changes to the amount
of it do not create profits or losses. (Though they do change
the book value per share.)
All this seems paradoxical, but accounting is not
completely an obvious subject. Those who understand
the above accounting stuff may appreciate the following
ancient accountant's joke:
Three men try to impress the same girl at a bar.
The first lights his cigarette with a $10 bill. The
second tops him by using a $100 bill for the same
purpose. The third, pulls out his check book, writes
a check in the amount of $1000 to "cash", and
then uses that to light his cigarette.
I think the girl went out with the third guy, but of course
I'd be more inclined to light up the check. Then
again, my luck in bars has never been equal to that
of my companions...
-- Carl |
