Hi, What does it mean when a company has a negative stock based compensation number ? As per Dell’s Cash Flow statement , they have a -ve stock based compensation in Q4 of FY’08. Any clues ??
It could be stock that was clawed back or didn’t vest. If you check Dell’s most recent proxy they’ll have a disclosure about compensation schemes, they may have performance shares or some other conditional element that could explain this.
could you point me to where exactly you saw the negative stock comp? the 10K?
yes. the 10K. It doesn’t explicitly break out the stock comp for Q4. But, the stock comp for the entire year FY2008 is 329. You would need to subtract the total for Q1, Q2 & Q3 from 329 to get the Q4 number. You can get the Q1 , Q2 & Q3 numbers from the respective 10Qs. This leads to a negative number for Q4 of '08.
I thought about this question and also ran the idea by one of my more senior colleagues. We agreed that the reason for “negative” stock-based compensation or some other funky result in another line item (be it D&A, capex, or whatever) is very often due to the auditing. Specifically, as you’re trying to calculate Q4 numbers based on the full year minus the sum of Q1, Q2, and Q3, you’re doing your best approximation for what Q4 should be – and intuitively it makes sense – but keep in mind that the auditing process for a 10-K is much more thorough and comprehensive than it is for the quarterly reports. Now, if the adjustment is material, there should be some notes explalining the reason for the change in accounting adjustment; however, if it isn’t material, then you just don’t know what happened. For all anyone knows, there could have been a change in accounting policy or even a change in the person leading the audit that caused the stock-based comp numbers in Q1, Q2, and Q3 to change. (On a different but related note, you’ll often see how certain expense or cash flow items can be different in a 2007 10-K versus a 2006 10-K, and this is often due to auditing as well – that’s why you should always pull the data from the most recent filings.) Basically, if I were you, I wouldn’t worry about the funky stock-based comp number too much. If you’re trying to figure things out for modeling purposes, your best bet is to keep stock based compensation relatively flat as a percentage of sales or expenses on the annual side, and just pro-rate it on a flat basis for your projected quarters. Otherwise, my colleague and I both agreed that the reason for your Q4 stock based comp looking unusual is probably due to differences or changes in auditing. Hope this helps.
a couple other reasons. it might be b/c of a true-up of the expense. maybe their stock comp expense is based on how they perform relative to budget or their peers (based on some kind of iternally-stated goals and benchmarks). they might have estimated future expense to be quite high in q1 through q4 but in q4 and at year end realized they were overly conservative/expenses were too high. for example, suppose that in q1, they think the total expense at the end of the year will be $100, so they decide to accrue $25/qtr through q3. at the end of the year, after the actual amount is determined or they have better information, they realize the total expense for the year should only be $70. to true the balance up, because they overaccrued for the first three quarters, it looks like a gain in q4. another reason might be that they accrued for several employees who left the company, forfeiting their stock comp. the need to record an expense for these employees would no longer be there, so you would get the expense back. i can’t see this being the only reason b/c normally this wouldn’t create a big change.
Thanks for all the repsonses. This is what I figured out from the Notes. The actual stock compensation expense for FY 2008 was 436. This was the amount recognized in the Income statement across the 4 quarters. However, out of this 436 , 107 was a real cash expense since DELL paid 107 million to some option holders. This was done because during FY2007 DELL had suspended excercising of their options and these option holders could not excercise their options even though they were above water. Hence , the “non-cash” stock compensation that needs to be adjusted in the cash flow statement is 436 - 107 = 329. I believe that the adjustments in Q1, Q2 & Q3 cash flow statements were made without considering the "cash"expense. However, at the end of the year , the total “non-cash” expense was recorded as 329 in the 10K cash flow statement , effectively leading to a negative number for the Q4 stock compensation. Ideally , the numbers for Q1 , Q2 and Q3 should have been lower if they had only included the “non-cash” stock compensation.