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Technology Stocks : DELL Bear Thread -- Ignore unavailable to you. Want to Upgrade?

To: Bilow who wrote (952)	5/31/1998 10:21:00 AM
From: rudedog	Read Replies (1) \| Respond to of 2578

Carl - Excellent post, this clears up many of the issues about the effects of options on the balance sheet, at least in my mind. I have not seen anything on the web about non-convertible options, like you my experience has been from discussions with the finance guys inside companies actually doing this. I don't think there is any real difference from a balance sheet perspective between convertible and non-convertible options. There is a difference to the employee because the income from non-convertible options are treated as ordinary income not cap gains for tax purposes. As you say (and Chuz has pointed out many times) selling or purchasing shares, and satisfying option grants are completely unrelated. I explored the question of the effect on cash of these activities with a friend who knows more about this than I do, and he agreed with you that the creation of this money by issuing treasury stock has the perverse effect of creating cash for the company. Likewise the purely paper difference between the amount of the cash generated (at the strike price) of stock which costs the company nothing, and the sale price becomes an expense which reduces income and DOES go on the balance sheet. This stuff makes my head hurt, that's why I went into engineering...

To: Bilow who wrote (952)	6/1/1998 2:06:00 AM
From: Skeeter Bug	Read Replies (1) \| Respond to of 2578

carl, i believe the options game is just that - a game. companies are transferring employee costs directly to shareholders without passing their income statement and thereby creating an illusion of more profitability than really exists - regardless of the accounting divisions between giving options and buying back stock. imagine a guy giving $15k to a charity and receiving a new corolla. he writes off the $15k as a donation and argues receiving the corolla was a different "transaction." the options game is currently legal and this charity game currently isn't. however, the underlying principle is the EXACT same, imho companies like ibm and dell are now BORROWING money to BUY BACK STOCK to FINANCE THEIR OPTIONS PROGRAM. does it cost the company money to just issue stock? if you received $10 on a $60 stock did it cost you money? it cost you $50. same with the company - regardless of accounting conventions that change with the stroke of a pen. d-day will be when the bear growls. after 2-3 years of stocks declining employees may decide they want cash instead of options. or they leave. THEN the real expense of hiring said individuals will now fall right into the income statement. when that happens, it will no longer be an exercise in accounting conventions, imho. it will be severe losses that were exaggerated very significantly by the current accounting practices. it also gives corporations an incentive toward creative accounting rather than building their business. this is not good longer term - for anybody other than those selling their options into inflated stock prices. jmntbho ;-) btw, i'll have to remember that "to cash" check trick ;-)