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

To: John Trader who wrote (63946)	9/7/1998 11:13:00 AM
From: Chuzzlewit	Read Replies (1) \| Respond to of 176387

John, thanks for your synopsis of the Barrons article on Dell. I agree with all of the points you mad in refutation. The one point that was un refuted was The stock options to executives amount to a sort of looting of the assets. As you and many other people on this thread know, I am less than thrilled at the idea of stock options granted in lieu of cash bonuses for executives for two reasons: first, it leads to continuous dilution, and second, it obscures the true cost of labor. This is a problem with virtually all technology firms. In a nutshell, since the cost of labor is partially underwritten by the granting of options, the cost of these options should be accounted for in the income statement. Unfortunately that is not the case. Therefore, earnings are overstated to the extent that labor costs are obscured by stock options. As I understand it, the way Dell funds the stock options is to sell puts and to use the cash towards repurchase of shares. I don't know how often those puts were in the money at the time of expiry, but considering the price history of Dell I would think that even if some were (perhaps in November of last year?) the tactic has worked quite well. But the bottom line is that Dell has managed to decrease the number of shares outstanding while at the same time issuing stock (through warrants) to executives. So there are two sources of cash in these transactions: the proceeds from the sale of puts, and the proceeds from the sale of stock. Offsetting these inflows is the cost of share repurchase. Unfortunately, current accounting rules do not require explication of these transactions. Thus, the costs are buried in various equity accounts and are virtually impossible to ferret out. But before I'd be willing to describe these actions as a kind of looting I'd want to know exactly what went on. Those making this charge have not provided us with sufficient data to evaluate the conclusion. Gretchen Morgenstern wrote an excellent piece for Fortune on the use of stock options. This article should be required reading for all investors. It can be found at: fortune.com Use the index to find the article (sorry, I don't have the exact URL). I hope this helps. TTFN, CTC