Billions in share buy backs at Cisco pave way for more stock awards
After spending $7.8 billion in fiscal 2007 buying back 297 million shares of its own stock, Cisco Systems is asking shareholders to approve more than doubling the number of shares left in its current stock incentive plan to 394 million, according to its proxy filed Wednesday.
Two years ago Cisco asked its shareholders to approve a stock incentive plan covering 350 million shares, which, along with shares left over from a previous plan, gave it a bank of 567 million shares with which to reward its workforce.
Since then the company has doled out to employees a net total of 413 million shares by way of option grants and other stock awards. The 154 million shares they have left in the plan won’t cover the estimated 185 million shares Cisco will give out in its current fiscal year, so its asking shareholders to approve adding 209 million more.
And although the company is asking its shareholders to extend the plan through fiscal 2012, it says that the new batch of stock will only last through 2009, after which it will need to seek more.
Cisco, like many other companies, is increasingly using restricted stock grants for
compensation, which maintain value even if the stock price drops after the shares are given, unlike stock options, which pay off only after share prices rise.
The company is asking shareholders to lift the 35-million-share limit for restricted stock grants the plan now imposes. In exchange, it wants each future restricted stock grant to count as the equivalent of 2.5 shares reserved under the plan.
In defending its request for more shares, the company points out that, “”Despite an expanding work force of 26.6% per year on average from fiscal 2005 to fiscal 2007, Cisco has reduced long-term equity incentive grants from 230 million in fiscal 2005 to 200 million in fiscal 2007”. It also reports that “”over 80% of all equity awards were granted to employees below the vice president level”.
Since announcing a stock repurchase program two days after the Sept. 11 terrorist attacks in 2001, Cisco has spent $43.2 billion buying back 2.2 billion shares of its own stock. On July 26, the company approved an additional $5 billion worth of purchases raising the total amount it has left with which to buy stock to $8.8 billion.
3 comments
zenjitsuman
Did you read this article.
http://www.networkworld.com/community/node/19700
Cisco has spent close to $50 billion dollars covering the cost of options in order to prevent share dilution but only retired 1.2 billion shares. More shares out there than 6 months ago because of options.
Oct 1, 2007
Rhonda Edelstein
Why Cisco doesn’t get Jnpr’s multiple. (Not rated) 1-Oct-07 02:32 pm
Here are a few reasons why Cisco ain’t getting the higher multiple that they could.
a. Growing per Chambers forcast tops 17% you ain’t a growth stock. Maybe Chambers is being conservative but it won’t help get you a multiple of 25.
b. Cisco is a large cap and has been growing 12-15 for years.
This is great but growth stocks usually are defined as having at least 25% increase in revenues per year.
C. 25 analysts follow Cisco, every meeting they scrutinize every accounting number and this has made for lowered multiple. Nobody want to be too high on the numbers.
D. Cisco beats the street every quarter by carefully understating the upcomming guidance so that it can be beat by a penny or two. The analysts know this and every conference call several analysts express doubt on the guidance being lowballed. Some push the CFO to come clean. Last meeting they asked why WEBEX and some other completed acquisitions were not included in the guidance for example.
E. When we had the tech bust Chambers was rather up beat until it was too late and analysts never forgot this and question his word.
F. The CEO of Jnpr is very persuasive, he took some analysts into his office and shared his game plan with them and convinced them Jnpr was going to have a growth spurt. Jnpr sold them on company.
G. “The stock will take care of itself”, Chambers biggest failing is making moves to boost the stock price. He talks about technology and not profitability and business expansion and investors want to hear the words. He talks to fast and even mentions things being bumpy, talk like that make new investors nervous.
H. “its not if but when”. Cisco has lost credibility after a 10 year old promiss is unfulfilled.
Last month Mcdonalds boosted its shares 15% after upping their dividend. Dividend stocks outperform those that don’t pay dividends. So they up the multiple by getting large fund buyers.
I. Options and buybacks. One third of the repurchases of shares were not retired they paved the way for new shares that were issued. Their is right now 22% more shares to be dumped on the table. $50 billion dollars is most of the past 6 years net profits and it was used to buy back and retire only less than a fifth of the 7.3 billion original shares.
The options awaiting issuance is greater than the total retired shares. The analyst don’t give you a high multiple when you run a buyback and reissues three card monte game.
Oct 3, 2007
Carl Mooney
Strange… I just stumbled on your web site by searching for ‘financial spreadbetting’ on Google. But I haven’t found any posts about that subject on here?
Nov 17, 2009