To show the other side of the coin, MSN Money's Michael Brush worked with Albert Meyer to highlight high-quality companies that don't rely on stock options. Michael writes:

Meyer favors companies where options represent less than 5% of the shares outstanding. "It's a good signal that you are dealing with a management team that respects shareholders," he says. He finds this information in companies' annual reports in a table that summarizes stock options outstanding.

The full article can be read HERE.

Letter published in Barron's 10/23/06 issue

To the Editor:

For those contemplating an investment in Cisco ("Cisco's Bundles of Joy," Oct. 9), bear in mind that Cisco spent the bulk of its profits the past 12 years to buy back 1.5 billion shares issued to employees in lieu of cash compensation.

Stock-option exercises dilute shareholders. Rather than shrink the share count, as Cisco's CFO claims, Cisco's buybacks merely stemmed the tide of dilution. Stock repurchases that combat dilution are a roundabout way of paying compensation.

Cisco employees hold another 1.4 billion stock options. A 22% ownership dilution threatens-not counting any future option grants-unless the company spends the next decade's profits on share repurchases. Cisco shareholders are on a treadmill to nowhere.

Albert J. Meyer

Michael Brush of MSN Money is at it again working with Albert Meyer to show how company profits are not quite what they seem when stock options are involved. Michael writes:

Look at semiconductor maker Broadcom. Its reported options expense fell by more than $200 million between 2004 and 2005, even though the company issued 36.1 million stock options last year compared with 19.9 million in 2004. A big reason for the expense drop: The company changed assumptions for how volatile its stock price would be and for how long those options would be in force.

The full article can be read HERE.

Michael Brush of MSN Money discussed stock options using Albert Meyer as a source. The article points out the following amazing fact:

From 1998 to 2005, Broadcom generated $725 million in free cash flow (essentially the cash thrown off by the company's operations, minus capital expenditures such as the cost of office buildings). But selling stock to options holders -- who have to buy stock at a strike price when they exercise options -- brought in $1.1 billion.

The full article can be read HERE.