Jealousy? I think not. More like trying to force something from the shadows into the light of day.
All in all, options are poorly understood. Part of the very mysterious and quite misunderstood equity financing toolkit.
Here are a few facts from Cisco to sink your teeth into.
First, stock options exercised in the last four fiscal years. Source, Cisco 10-K annual reports, except for Market Price calculated as the average weekly closing price of Cisco during the FY.
FY Exercised Strike Mkt Price Mkt Value
(Millions) (Wtd Avg) (Wtd Avg) ($M)
*
2001 133 $7.43 $36.68 $4,878
2000 176 $5.75 $53.66 $9,444
1999 210 $3.09 $23.46 $4,927
1998 168 $2.40 $10.87 $1,826
---- -------
Total 687 $4.44 $30.68 $21,075
What this shows is that Cisco employees exercised options worth $21 Billion over the last four years. Somewhere along the line, shareholders parted with $21 Billion of cash value.
In return, what did they receive? Well, you'll hear a lot about happy, loyal and motivated employees.
You'll also see direct financial benefits, as tabulated. "Cash" is the actual cash received from employee exercise (equals weighted average strike price * number of options), "Tax Benefit" is the stock option tax benefit that the IRS give the company (taken directly from 10-K)
FY Cash Tax Benefit Total
2000 $ 988 $ 1,755 $ 2,743
2000 $ 1,012 $ 3,077 $ 4,089
1999 $ 649 $ 837 $ 1,486
1998 $ 403 $ 422 $ 825
----- ----- -----
Total $ 3,052 $ 6,091 $ 9,143
So in summary, it's rather simple really
Shareholder Outlay $ (21,075)
Company Equity Gain $ 9,143
----------
Shareholders Net $ (11,932)
Employees (pre-tax) $ 11,932
----------
Economic Value $ -
Or in other words, shareholders parted with 21 billions, 9 of which stayed in the company (on which shareholders keep a claim) and the other 12 went to the pockets of employees.
Twelve billion makes for a lot of wealthy employees. To say nothing of happy and loyal.
But was this cost worth the benefit? The following shows Cisco's dilution, revenue and earnings for the same period
Revenue Earnings
1998 $ 8,489 $ 1,331
1999 $ 12,173 $ 2,023
2000 $ 18,928 $ 2,668
2001 $ 22,293 $ (1,014)
Total $ 61,883 $ 5,008 Benefit to Shareholders
Options $(11,932) Cost to Shareholders
---------
Net $( 6,924) Cost to Shareholders
Cisco's shareholders paid employees 12 billions over and above their salaries. During a period where the employees' hard work returned five billions to shareholders.
Give twelve, get five.
This is not exactly a sustainable recipe for 'get rich quick'.
Unless one is referring to the employee perspective.
See also my response to original author Message 17078966
John |
