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Technology Stocks : Applied Materials No-Politics Thread (AMAT)
AMAT 230.77+0.9%Nov 12 3:59 PM EST
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To: Cary Salsberg who wrote (12146)11/19/2004 11:15:44 AM
From: Kirk ©  Read Replies (2) of 25522
 
"Isn't it true that employee options exercises increase paid in capital, while share buybacks decrease it? They said they spent $500M on buybacks. Does this mean that employees exercised $350M?"

Not being an accountant, I can't tell you what "Paid in capital" means, but I know the the single event of an employee exercising an option is a POSITIVE CASH FLOW event.

If they have options at $12 from the 2002 and 2003 lows and exercised 1,000 of them when AMAT was $24, then this is my understanding of what happened.

#1 AMAT got 1,000 x ($24-$12) = $12,000 in cash for its treasury

#2 The Employee has $24,000 in AMAT stock that she can sell immediately to anyone willing to buy. Most of us (me at HPQ) did just this as we were taxed on that gain on the day of exercise so selling provided cash to pay the taxes. Some only sell enough to pay the tax... But bottom line is the employee sees $12,000 in income.

#3 Shareholders suffer dilution by 1,000 shares. They got some benefit from the extra cash which shows on "Stockholder equity" but the number of shares went up by 1,000 so the book value per share went down unless AMAT was selling at a P/B below 1.0 in which case it could go up.
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