Silicon Investor (SI) -- The First Internet Community

STOCKTALK

We've detected that you're using an ad content blocking browser plug-in or feature. Ads provide a critical source of revenue to the continued operation of Silicon Investor. We ask that you disable ad blocking while on Silicon Investor in the best interests of our community. If you are not using an ad blocker but are still receiving this message, make sure your browser's tracking protection is set to the 'standard' level.

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

To: Chuzzlewit who wrote (52266)	7/19/1998 11:13:00 AM
From: NickSE	Read Replies (1) \| Respond to of 176387

Here's an article on the subject of options you might find interesting. Your right more investors should be aware of this. Could the stock option situation at Dell be even remotely close to this? Do CFO's Have Too Many Options? For Personal Use Only The booming stock market is good news, but it's bringing a new kind of stress to the job of CFO. Consider the plight of Microsoft's CFO Gregory B. Maffei. Twenty-one thousand of the comnpany's 24,000 employees now hold stock options. Microsoft's commitment to options for all has been widely praised. "Microsoft cares a lot about our ability to employ and retain people," says Maffei, "but this is turning into a dangerous situation. It would eat up a full year's earnings to cover our annual options exposure. Our total options overhang is downright scary: five hundred million options outstanding with a current market price of roughly $90, and an average exercise price of about $20. That is $35 billion of in-the-money value. It is a real concern over time, no question." Others outside of Microsoft share the same concern. One of the nation's most successful portfolio managers, Howard F. Ward of The Gabelli Growth Fund told the CFOs, "I for one am still trying to understand what's going to happen to the liabliity that Microsoft faces when their option runs out of steam. If anybody has that figured out," said Ward, "I'd like to know." Copyright 1998 The McGraw-Hill Co.

To: Chuzzlewit who wrote (52266)	7/19/1998 12:52:00 PM
From: Meathead	Read Replies (3) \| Respond to of 176387

Chuz, thanks for the explanation. I have more questions however. Re: Suppose a company has 100 MM shares o/s and the market value per share is $100. So the capitalized value of the company is $10,000 MM. Now suppose the company is going to issue 1 million shares to employees at a strike price of $10. That will add $10 million to the value of the company (remember, it is receiving cash from the employee in return for a newly issued share of stock). So now the total value of the company will be $10,010 million. But the number of shares has risen to 101 million. That means that the value of existing shares has decreased to $99.11 each. From what I understand, Dell issues options to top performing employees (regardless of level but you generally must be salaried.. not hourly) at certain times of the year (the biggest chunk occurs in Q2 and is distributed to ~20% of the entire workforce). The strike price is the average selling price (or price paid by Dell) during a purchase period. Example, a friend of mine who works there just received a 1200 share option grant with a strike price of $82/shr vesting over a 5 year period. When it was granted, the stock was trading in the $80s. Most all grants vest over a 5 year period which would prevent immediate sale. Based on this, your example becomes a wash. Let's assume the employee could sell immediately (which he cant in Dell's case) but the options are granted at the market price of $100/shr. The cap value of the company increases to 10.1B, shrs OS increases to 101M, the value of existing shares stands pat @ $100. So what I'm confused on is why would a company purchase shares for $100 and immediately grant them at $10? The employee would already be way in the money where the option becomes more like a gift. One of the goals is to have the employee participate in future appreciation through hard work etc. etc. So two assumptions need to be tailored in Dells case. 1. Options are granted with a strike price near market 2. Options can not be immediately sold Maybe executive management does engage in numerous gift options to themselves. It's not that way for the bulk of the workforce however. Maybe we should study the proxy to see if we can figure out if the majority of options held by executives are being granted with artificially low strike prices. You also stated that options are generally reserved for the top brass. While this is true from a weighting standpoint (the bulk of the riches are funneled here), all employees who have been with Dell for 5 years or more hold one or more options. From what I hear, most folks don't sell these things because of the lessons they've learned from those who have and have given up small fortunes. Dell issued across the board options to all employees in 92 and 93 totalling 100 shares with a strike of around $22/share (that's what it was trading for at the time) with a 12mo vestation period. 4 splits later the strike is ~$1.50 for 1600 shares with a market value of $185,000. Not bad for a $5/hour employee on the assembly line. MEATHEAD