"We made significant progress with our restaurant development plans. The only challenge left is that we have a piece of sh*t calling himself daguynxdor posting on our Yahoo message board" Said Martin O'Dowd, President and CEO. "We have dispatched a poster called toadlicker2002 to post nasty things about him. While this isn't what toady wants to do, we feel it's worth it to get dascumbagnxdor off our board. The new restaurant openings have been great successes and we saw a dramatic increase in the number of franchise restaurants under development agreements. Perhaps daguy will move to the Kimberly Clark board so since they make disposable diapers that are more suited to the proper handling and disposal of sh*t."
<<<Dave's at year end 2001 added 906,000 common stock equivalents to common stock outstanding to arrive at the diluted figure. Meanwhile options outstanding is 1,747 at year end 2001. So they're not counting 850,000 options.>>>
I believe there were 116.667k "out-of-the-money" options included in the 1,747M options outstanding. These are not included in the fully-diluted calculation. Also, the fully-diluted shares calculated are reduced by the number of shares that "could be" acquired in the open market using the proceeds the company recieves from the excercise or strike price. I believe the purchase price used in this calculation is the average dailey price for the year but that may be wrong. And also once again, there were 140k "in-the-money" outstanding warrants which would be included as part of the fully-diluted calculation. There may be other items that I missed but bottom line it does take some serious number crunching to arrive at the final fully-diluted share number.
<<<It would be much simpler if they paid cash bonuses based on company goals. If they're cash poor, they could even sell stock at the end of the year to pay the bonuses. Sorta like options but without all the confusion over what they're worth.>>>
I'll second that.
<<<btw, when does the company get money back from the options they issue? When they're exercised or when they're sold?>>>
When they are exercised. However, because of tax reasons as discussed by lorinjoe1 they are usally exercised and sold all at once.
Dave's at year end 2001 added 906,000 common stock equivalents to common stock outstanding to arrive at the diluted figure. Meanwhile options outstanding is 1,747 at year end 2001. So they're not counting 850,000 options.
It would be much simpler if they paid cash bonuses based on company goals. If they're cash poor, they could even sell stock at the end of the year to pay the bonuses. Sorta like options but without all the confusion over what they're worth.
btw, when does the company get money back from the options they issue? When they're exercised or when they're sold?
The cost of options IMO is what it costs the company to keep the # of shares the same (via stock buybacks) minus what they recieve when management/employees sell or exercise their options. You can get a feel for this from companies like Intel and Microsoft that have a longer and more consistent operating history if you look back over the last 5 years and see how much they've spent buying back shares but see no drop in # of shares.
Good point about including all options in fully-diluted EPS.
If I may throw in my two cents; I would take it a step further and favor the calculating of non-diluted EPS #'s using "in the money options" as part of the calculation. These options are all but certain to be exercised and should be considered in non-diluted EPS calculations starting in the period they become vested. In addition "out of the money options" would be included in fully-diluted EPS as you have suggested.
Another problem with stock options is the terrific nose dive a stock price can take when it is disclosed an insider has exercised options and sold shares. The shorts come out in a mob describing the end of the company and the longs panic and sell everything. Everyone just knows something is drastically wrong with the company or the insider wouldn't be selling. Usally it's just a executive raising cash to pay his taxes, buy his wife a new washing machine, and his girlfriend a new house and car. This could have easily been accomplished with a performance bonus and without the stockholder panic and distrust that ensues.
Of course in DAVE's case the company may not have sufficiant cash reserves to pay the huge bonuses it would take to replace the rich stock option plans management currently enjoy, and according to some, so deservingly have earned.
That's very true, however large amounts of options inhibit large long-term price increases for that very reason. Management won't exercise until they're in the money. Once they are in the money, that's when they're exercised. For that reason, I've always felt the "fully-diluted" EPS figures were fundamentally flawed. They only recognize "common stock equivalents" that are "in-the-money" as dilutive. My reasoning on that is that we all buy stocks with the hope they'll go up and so ALL options need to be included in the calculation. I go so far as to look back to years even before the options were issued to undistributed earnings. Since they've been recognized as earnings but have yet to be distributed, they too are subject to dilution from yet-to-be-issued options. I hope we'll see the day (and soon) that non-qualified options are done away with. I don't know their origin or the date they first came into common usage, but as the article posted by wampum stated, the country got along for a couple of centuries just fine without their usage.
good points except who says management has to exercise their options asap? They don't. They can sit on them and owe no taxes even if the price of the stock doubles, triples, quadruples etc.
When they're ready to sell then they exercise them and sell them. The CFO wanted to dump them. Probably needed a new addition to the house or a porsche to drive.
Me too! I'm getting out as we speak...Sell position... GO ... OOOOPS! I hit the buy button by mistake and just added 25% to my position under $7. Oh well, I guess that will teach me for being careless, lol.
I wish there was a Dave's nearby so I could go drown my sorrows in a big big plate of the best ribs money can buy.
I knew that link for nonqualified stock was within the link I posted and didn't post it separately.
Didn't mean to imply you were not accurate, but
just wanted to mention there is more to the issue than that, such as the ordinary income issues as well as the new basis, etc.
Mention this because Dave's option plan allows both ISO's and nonqualified options.