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Google Reprices Employee Stock Options

Posted by admin in Stock Market on January 24th, 2009

Workers Cheer, Investors Jeer At Bold Move; Other Companies May Follow Google’s Lead!

(AP) Google Inc. is showing its love for its employees by giving them a second chance to profit from their wilting stock options. But the move irked shareholders still stuck with agonizing losses on their investments.

Nevertheless, Google’s willingness to reset more than 8 million stock options at lower prices is likely to spur similar gestures by companies hoping to motivate their employees during a demoralizing recession.

“There is a lot of momentum building” to reprice stock options, said Alexander Cwirko-Godycki, a research manager for executive compensation specialist Equilar. “Everyone has just been sort of waiting for a big name to do it.”

Google already has been joined by coffee chain Starbucks Corp., which unveiled a proposal to allow its employees to swap their existing stock options for new ones that will be more likely to put cash in their pockets.

But Google’s repricing program made a bigger splash because it’s far more generous to the employees — much to the dismay of the shareholders who have seen their holdings in the Internet search leader plunge by 57 percent, or a collective $130 billion, since the stock peaked at $747 per share in 2007.

Google shares surged $18.20, or nearly 6 percent, to close Friday at $324.70 as investors cheered the company’s fourth-quarter earnings report. But analysts said the rally probably would have been even more robust if not for the decision to reprice the stock options.

“A lot of people just hate it,” said Broadpoint AmTech analyst Rob Sanderson. “I had one money manager tell me, `The next time you talk to Google’s management, tell them I want all the stock I bought at $400 a few months ago to be repriced at $285.”‘

Understanding the angst triggered by option repricing requires an explanation on how the perquisites work.

Employees at thousands of companies generally receive a bundle of stock options when they are hired, and frequently receive additional grants in subsequent years.

The options are assigned what is known as an “exercise price” — the employee’s cost for cashing in the reward. This price typically equals the stock’s price at the time of the grant.

The more a company’s stock price rises above the option price, the higher the profit for employees. The idea is to inspire workers to put in longer hours and come up with better ideas — to increase the company’s value and the employees’ potential windfall.

But if a stock price plunges below the option price — a phenomenon known as being “underwater” — employees can become dejected, distracted and perhaps even tempted to entertain other job offers, especially if a large portion of the compensation comes in the form of options.

The problem of underwater options faces 72 percent of the companies in the Fortune 500, based on Equilar’s analysis of average exercise prices in mid-December.

Google’s work force is awash in underwater options: Nearly 17,000 employees are holding more than 8 million stock options with an exercise price of at least $400.

Those are the options likely to be exchanged in a program running from Jan. 29 through March 3. The new options are expected to have an exercise price tied to the market value of Google’s stock in early March.

Even though the repricing will result in $460 million in accounting charges, Google reasoned the cost is acceptable, to avoid morale and retention problems among its 20,222 workers. Since its inception in 1998, Google has given options to virtually all of its employees, turning thousands of them into multimillionaires.

“We think it’s a good deal for shareholders and for our employees as well,” Google Chief Executive Eric Schmidt said Thursday.

Even though it has been cutting back on some perks, Google is still renowned for pampering employees — a trait that isn’t widely shared. That’s why Sanderson isn’t convinced Google’s repricing will cause other companies to follow suit.

“Google gives away free lunches to employees, but that didn’t compel everyone else to do it,” he said.

Did Google even need to be so magnanimous at a time when many people are simply happy to have a job?

“While we agree with management that it is in shareholders’ interests to keep Google employees motivated and retain the company’s focus on growth, we question the necessity of the (repricing) program given the current employment environment,” ThinkEquity analyst William Morrison wrote in a research report.

On the flip side, it could still be smart business to feel make workers feel wanted — even as millions of other people are unemployed.

“The reality is that talented people will always be able to find another job in any market,” Sanderson said. “And if you lose your intellectual capital, you could be losing the future of the company.”

Hoping to hold on to its employees, Google is extending the vesting period for each swapped option by a full year. Vesting refers to the time that must lapse before an option can be exercised. So a Google employee with an underwater option that vests in June 2010 would have to wait until June 2011 to exercise a repriced option.

Sanderson and Morrison both agree that Google could have lessened the backlash against its repricing by coming up with a program that didn’t sting its shareholders as much.

Besides raising issues of fairness, Google’s program threatens to lower future earnings per share by creating the need to issue more outstanding stock when the options are cashed in.

Google could have lessened the dilution experienced by its shareholders if it required employees to exchange anywhere from four to 10 of their current options for a repriced option. Or they could have traded for a share of restricted stock that would vest over several years.

It will probably take a few years before any definitive conclusions can be made about the wisdom of Google’s repricing, said Collins Stewart analyst Sandeep Aggarwal.

“If it turns out to be good for Google in the long run,” he said, “then it will be good for shareholders too.”

SAN FRANCISCO, Jan. 23, 2009
CBS News

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Japan Stocks Drop, Extend Weekly Slump, on Sony Loss Forecast

Posted by admin in Stock Market, World News on January 24th, 2009

Jan. 23 (Bloomberg) — Japanese stocks dropped, deepening the longest weekly losing streak in more than three months, as Sony Corp.’s loss forecast and worsening economic figures stoked concern the global recession will be prolonged.

Sony, the world’s No. 2 maker of consumer electronics, sank 7 percent after projecting a loss almost four times greater than analysts estimated. Nippon Steel Corp., Asia’s largest steelmaker, slid 5 percent after waning demand pushed the company to further reduce production and an economist survey indicated China’s economic slowdown will deepen. Promise Co. plunged a record 14 percent after a court ruling raised concern the lender’s interest refunds will increase.

“After Sony’s forecast, investors are starting to ponder how terrible the next business year might get,” said Hiroshi Sato, chief investment officer of Tokyo-based GCSAM Co. “Most thought the bulk of bad news had been already priced in, but now there’s a big question mark hanging over stocks.”

The Nikkei 225 Stock Average slumped 306.49, or 3.8 percent, to close at 7,745.25 in Tokyo, the lowest since Nov. 20, while the broader Topix index fell 22.36, or 2.8 percent, to 773.55.

The Nikkei lost 5.9 percent this week and the Topix dropped 5.4 percent, capping third-straight weekly drops for both gauges, the longest since Oct. 10. This week, Royal Bank of Scotland Group Plc’s loss forecast sparked concern the global financial crisis will deepen, overshadowing the Bank of Japan’s plan to buy corporate debt in an effort to ease credit markets.

‘Deteriorating Significantly’

The Nikkei tumbled by a record 42 percent last year as the world’s biggest economies slipped into recession, and the measure has lost a further 13 percent in 2009. Japan’s economy is “deteriorating significantly,” the central bank said today, a day after forecasting the nation’s gross domestic product will decline 2 percent in the year to March 2010.

Still, the Nikkei’s members traded at 18.4 times estimated earnings for the next fiscal year, higher than 11.8 times at the Standard & Poor’s 500 Index in the U.S. and 8.5 times at Europe’s Stoxx 600 Index.

Sony yesterday joined Toyota Motor Corp. in forecasting an operating loss as the global recession worsened and a stronger yen reduced the value of repatriated overseas sales. The electronics maker expects a record 260 billion yen ($2.9 billion) operating loss for the year to March 31. Analysts had estimated a loss of 70 billion yen.

Sony shares dropped 7 percent to 1,802 yen, the lowest close since Dec. 24, while Canon Inc., the world’s biggest digital- camera maker, extended its decline to a fifth day, closing down 5.2 percent at 2,540 yen. Hitachi Maxell Ltd., a maker of audio and video tapes, plunged by its 100 yen limit to 780 yen after widening its annual loss estimate. Electronics makers contributed the most to the Topix’s drop.

Material Demand

Nippon Steel lost 5 percent to 265 yen after President Shoji Muneoka today said the company will cut production by a record 4 million metric tons for the six months to March 31, or twice as much as it expected in November, as global demand dwindles.

JFE Holdings Inc., its closest domestic rival, sank 7.9 percent to 2,150 yen. Steelmakers were the third-biggest losers among 33 industry groups on the Topix, after mining companies and consumer lenders.

China’s worst economic slowdown in seven years is set to worsen, according to a Bloomberg News survey of economists, darkening the outlook for suppliers of raw materials. The nation’s gross domestic product will grow 6.3 percent this quarter from a year earlier, the survey of nine economists said, following a government report yesterday that GDP expanded 6.8 percent in the fourth quarter.

Promise, Japan’s No. 2 consumer lender, plunged 14 percent to 1,617 yen, the sharpest decline since it listed on the bourse in 1994. Japan’s supreme court yesterday made a ruling that makes older loans subject to potential interest refunds. Larger rival Aiful Corp. slid 11 percent to 192 yen.

“This ruling will put additional pressure on consumer lenders to put aside more provisions,” said Kristine Li, a Tokyo-based analyst at KBC Securities. “Their earnings could be revised down again.”

Nikkei futures expiring in March retreated 3.7 percent to 7,730 in Osaka and slumped 3.5 percent to 7,740 in Singapore.

To contact the reporter for this story: Masaki Kondo in Tokyo at mkondo3@bloomberg.net.

Last Updated: January 23, 2009 02:41 EST

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German 10-Year Bunds Post Biggest Weekly Decline in a Decade

Posted by admin in Stock Market, World News on January 24th, 2009

By Matthew Brown and Lukanyo Mnyanda

Jan. 23 (Bloomberg) — German 10-year government bonds fell the most in more than a decade on concern planned European sales will outpace demand.

The decline pushed the difference in yield with two-year notes to the most since May 2004, and the yield on the German bund to the highest level in more than a month. Two-year German notes gained for a sixth week as stocks in Europe fell and on signs the economic slump is worsening, bolstering the case for interest-rate cuts from the European Central Bank.

“We’ve got almost two separate markets going on at the moment,” said Sean Maloney, a fixed-income strategist at Nomura International Plc in London. “The short end looks well and truly anchored by the continued barrage of disappointing economic and corporate news, while the supply story has exacerbated weaker appetite further out.”

The yield on the bund, Europe’s benchmark government bond, rose 31 basis points this week, the most since October 1998. The 3.75 percent security due January 2019 dropped 2.70, or 27 euros per 1,000-euro ($1,299) face amount, to 104.30.

The yield on the two-year note fell five basis points to 1.43 percent. Yields move inversely to bond prices.

The spread between German two- and 10-year notes widened 34 basis points to 179 basis points, the most since May 2004.

European stocks fell for a fifth day, sending the Dow Jones Stoxx 600 Index to the lowest level in two months, as concern deepened the global economic slump will erode earnings.

Shrinking Industry

The composite index of European manufacturing and service industries was at 38.5 compared with 38.2 in December, which was the lowest reading since the survey began in 1998, according to a measure based on a survey of purchasing managers by Markit Economics. The median estimate of 15 economists surveyed by Bloomberg was for a drop to 37.4. A reading below 50 indicates contraction.

Confidence among French manufacturers stayed at a record low in January, according to a separate report from Insee, the Paris- based national statistics office. The reading was the lowest since the index started in 1976.

The spread between Greek 10-year bonds and bunds widened 39 basis points to 297 basis points, its third weekly increase. The spread widened 71 basis points since Standard & Poor’s put Greece’s credit rating on “negative watch” on Jan. 9. S&P lowered the country’s rating one level to A- on Jan. 14, citing the government’s ballooning budget deficit.

S&P cut Spain’s rating one step to AA+ on Jan. 19, and Portugal’s rating was reduced to A+ from AA- on Jan. 21.

Germany is the “main beneficiary” of the downgrades as investors bet the gaps between yields of so-called peripheral European countries and those of Germany will keep widening, Wilde said. This is “pushing at an open envelope,” he said.

Italian government bonds may be hurt by “supply-induced pressure” next week as the Treasury sells as much as 8.4 billion euros of securities, Commerzbank AG analysts including Peter Mueller in Frankfurt wrote in a client note today.

To contact the reporters on this story: Matthew Brown in London at Mbrown42@bloomberg.net; Lukanyo Mnyanda in London at lmnyanda@bloomberg.net

Last Updated: January 23, 2009 14:19 EST

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Apple Beats Street in Holiday Quarter; Shares Soar

Posted by admin in Stock Market on January 23rd, 2009

Apple 1st-Quarter Profit Edges Up 2 Percent, Investors Cheer Even Though Outlook Misses Street

By JESSICA MINTZ AP Technology Writer
CUPERTINO, Calif. January 21, 2009 (AP)

Apple Inc. said Wednesday its profit in the holiday quarter edged up 2 percent and beat Wall Street’s expectations, buoyed in part by growing iPod sales outside the U.S.

The iPod and iPhone maker’s predictions for the current quarter came in lower than analysts were predicting, but investors seemed happy to focus on the results rather than the forecast. In extended trading after the report was released, Apple’s shares jumped $7.83, or 9.5 percent, to $90.66.

The first question for executives in a conference call regarded the health of Chief Executive Steve Jobs, who announced a week ago that he would take a six-month medical leave.

Apple gave no new details, but Tim Cook, the chief operating officer who is handling day-to-day operations in Jobs’ absence, attempted to assure analysts that Apple will continue to do well no matter who’s in charge.

“The values of our company are extremely well entrenched,” Cook said. “We believe that we’re on the face of the Earth to make great products, and that’s not changing.”

In the fiscal first quarter that ended Dec. 27, Apple’s earnings rose to $1.61 billion, or $1.78 per share. In the comparable period last year, profit was $1.58 billion, or $1.76 per share.

Sales improved 6 percent to $10.2 billion.

The results topped analysts’ forecast on both counts. Analysts surveyed by Thomson Reuters were looking for a profit of $1.39 per share on $9.75 billion in sales.

“This goes to show the point that the high-end consumer electronics market is not dead despite the challenging economy,” said American Technology Research analyst Brian Marshall in an interview.

Cupertino, Calif.-based Apple said it sold a record number of iPods in the quarter — about 22.7 million, beating analysts’ average expectations. In the conference call, Cook said all the growth in iPod sales came from outside the U.S. during the last week of the quarter.

“The iPod business was way better than anyone would have thought,” said Kaufman Bros. analyst Shaw Wu. “It shows the economic malaise seems to be … impacting the U.S. more.”

Wu also pointed out that Apple’s gross margin got a boost in the quarter as transportation and component costs dropped.

Macintosh computer sales grew 9 percent from the year-ago quarter and met analysts’ view, thanks to booming laptop sales.

While the rest of the PC industry is looking to netbooks — cheap, low-powered laptops meant mostly for Web surfing and checking e-mail — Apple isn’t rushing out with one of its own.

“The products in there are principally based on hardware that’s much less powerful than we think customers want, software technology that is not good, cramped keyboards, small displays, etc.,” said Cook. “We don’t think that people are going to be pleased with those type of products. But we’ll see.”

Sales of Apple’s iPhone clocked in at 4.4 million, shy of some analysts’ predictions for about 5 million.

The recession made the holiday quarter the worst for the PC market in years. But it didn’t seem to hit Apple quite as hard. At Apple’s retail stores, which are concentrated in the U.S., average sales per store dropped to $7 million from $8.5 million last year.

Looking ahead, Apple said it expects to earn 90 cents to $1 per share on $7.6 billion to $8 billion in sales in the current quarter, which ends in March. That’s lower than what analysts had been looking for — $1.13 per share of profit on $8.2 billion in revenue — but Apple is known for issuing guidance that falls well below Street estimates.

“It was better than the fears,” Wu said.

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Japan Stocks Fall Third Day on Sony, Toshiba Earnings Concerns

Posted by admin in Stock Market, World News on January 13th, 2009

By Masaki Kondo and Tomoko Yamazaki
Jan. 13 (Bloomberg) — Japanese stocks fell, capping the longest losing streak in almost two months, as a stronger yen and media reports Sony Corp. and Toshiba Corp. will post losses stoked concern other companies will have disappointing earnings.

Sony lost 8.9 percent on a newspaper report it will likely post its first operating loss in 14 years. Toshiba fell 8.6 percent after broadcaster NHK said the company will incur its first such loss in seven years. Toyota Motor Corp., which counts North America as its biggest market by unit sales, dropped 6.4 percent after the yen appreciated to the strongest level in almost a month yesterday. Mitsubishi Estate Co. sank 9.2 percent after more real-estate companies filed for bankruptcy on Jan. 9.

“Given that Sony and Toyota are coming out with gloomy outlooks, we expect more major companies to do the same,” said Mitsushige Akino, chief investment officer who oversees about $430 million at Tokyo-based Ichiyoshi Investment Management Co. “We have yet to see significant dividend cuts, but once companies do that, it will weigh heavily on markets.”

The Nikkei 225 Stock Average declined 422.89, or 4.8 percent, to close at 8,413.91 in Tokyo. The broader Topix index fell 40.90, or 4.8 percent, to 814.12. The gauges slumped for a third day, the longest losing streak since Nov. 20. Japan’s market was closed for a national holiday yesterday when the MSCI AC Asia Pacific excluding Japan Index fell 3.2 percent.

Rising bankruptcies and the dimmer outlook for company earnings damped investor confidence in equities, triggering a flight to safer government debt. Dividend yields on Topix members climbed to 2.62 percent as of Jan. 9, according to data compiled by Bloomberg, twice the returns of 10-year government bonds.

Operating Losses

Sony will likely post an operating loss of about 100 billion yen ($1.1 billion) for the year to March 31, the Nikkei newspaper reported today. The median of analyst estimates compiled by Bloomberg showed 35 billion yen in profit. Meanwhile, Toshiba’s deteriorating chip business will cause the company to post an operating loss for this fiscal year, public broadcaster NHK said today.

Sony, the world’s second-biggest maker of consumer electronics, fell 8.9 percent to 2,000 yen, the steepest decline since Nov. 6. Toshiba, Japan’s largest chipmaker, sank 8.6 percent to 385 yen, the largest drop since Oct. 24. Electronics makers contributed the most to the Topix’s slump.

Toyota, which last month forecast its first operating loss in 71 years, lost 6.4 percent to 2,875 yen. It was the most actively traded stock in Tokyo. Closest rival, Honda Motor Co., which gets more than half of its profit from North America, fell 6.8 percent to 1,938 yen. Tokai Rika Co., an auto-parts maker 31 percent owned by Toyota, sank 9.9 percent to 787 yen after reversing its full-year profit outlook to a net loss today in part because of weaker sales.

Property Stocks

The yen appreciated against the dollar to as much as 88.88 yesterday, the strongest level since Dec. 19, from 91.15 at the close of stock trading in Tokyo on Jan. 9. Sony, which forecasts the U.S. currency will trade at an average of 100 yen in the second half, said in October that every 1 yen change against the dollar alters its annual operating profit by 4 billion yen. The local currency weakened against the dollar for the first time in five days today, depreciating as much as 0.4 percent to 89.54.

Mitsubishi Estate, Japan’s second-largest developer, sank 9.2 percent to 1,291 yen, while financial service provider Orix Corp., which counts real estate as its biggest source of profit, plunged 13 percent to 4,580 yen. Tokyo Tatemono Co. plummeted 16 percent to 323 yen after Daiwa Institute of Research Ltd. cut its rating on the stock to “underperform” from “outperform.”

‘Inpex Falls’

Real-estate advisory company Creed Corp. and condominium builder Toshin Housing Co. separately filed for bankruptcy last week. Creed said the worsening of the real-estate market outpaced its efforts to reduce debt through asset sales and cutting jobs.

“This bankruptcy will push the market back into ‘flight to quality’ mode,” Yoshihiro Hashimoto, an analyst at Merrill Lynch & Co., wrote in a report titled “Creed shock.”

Tokyo Shoko Research Ltd., a Tokyo-based provider of Japanese company information, today said bankruptcies among listed companies rose to the highest level in 2008 since World War II. Three-quarters of those failures were real estate- related, according to counts by Bloomberg.

Inpex Corp., Japan’s largest oil explorer, lost 7.9 percent to 644,000 yen, and closest rival Japan Petroleum Exploration Co. dropped 4.8 percent to 4,130 yen. Crude oil for February delivery fell as much as 2.6 percent to $36.60 a barrel today, extending its six-day drop to 25 percent.

Nikkei futures expiring in March retreated 5.4 percent to 8,370 in Osaka and slumped 3.9 percent to 8,375 in Singapore.

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What’s Next for This Crazy, Mixed-up Market

Posted by admin in Stock Market on November 26th, 2008

What’s Next for This Crazy, Mixed-up Market
September 26, 2008 05:21 PM ET | Katy Marquardt | Permanent Link | Print

If lawmakers cement a bailout deal soon, the market’s likely to see a bounce on Monday. But then what?

Says Mike Avery, comanager of the Ivy Asset Strategy fund: “I think we’re in a period where global growth—including U.S. growth—is going to be very slow for a long period of time, maybe for the next couple of years.”

Avery, who runs a fund that invests in a combination of stocks, bonds, cash, precious metals, and currency, says he’ll probably use the rally to get more defensive with “more gold bullion.” He adds that “the equities we’re sticking with I’d characterize as large-cap global brands—the Nestlés, Coca-Colas, and the Yum Brands of the world; companies that have clean balance sheets and the ability to self-finance through their own cash flow.”

He says investors seeking security might look to dividend-generating investments. Stock investors in particular should consider global brands with strong balance sheets and “products and services that appeal to the middle class,” says Avery, whose fund currently has 40 percent of its assets in cash, 40 percent in stocks, 10 percent in gold bullion, and the remainder in bonds.

Avery also said he thinks the market has reached a bottom in terms of ultimate panic:

“I think September 17 was the worst. To me, what stood out was that one-month Treasury bill [yields] went to negative. In 30 years, I’ve never seen that before. That’s like somebody saying they have so little confidence in financial institutions that they’re willing to take a guaranteed small loss, just for the safety of having their money in a U.S. security. That’s the ultimate act of capitulation…. We may get a rally, but that doesn’t mean the market goes up dramatically from here.”

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