The Burlington Free Press reports Green Mountain Coffee Roasters financial outlook is looking good,even filtering in their recent earnings restatement:
Green Mountain Coffee Roasters struck an optimistic tone Thursday in its year-end conference call with financial analysts after filing restated earnings and its annual report, known as Form 10-K, with the Securities and Exchange Commission.
A check of Insider stock transactions reported by Yahoo finance shows that in the last two years GMCR board member State Sen. Hinda Miller of Burlington exercised board related stock options five times from Dec. 2008 to May 2009, purchasing 18,000 shares of GMCR for $23,669 and in eight months selling them for $830,449.
That’s realizing a profit of $806,780 in five months.
Sign me up for that kind of a sweet deal any time. Jail time a la Martha Stewart coming for Senator Miller?
Stock options don’t necessarily work the way you think. If she were involved on the board early in GMCR’s history (a fact I don’t know) they would grant options to purchase stock at the then-current price. When the company was small, and debt-laden, that price would be quite low.
Then along comes “Keurig” and all of us who now pay 50-70 cents per cup instead of 20 cents…and the stock price goes way up because the company is doing so well.
At some point, in order to convert your options to cash, you have to first exercise your options to buy the stock (triggering the “insider purchase” reports you see in Yahoo Finance if you are senior management or on the Board). You generally hold the option for a long time but only hold the stock for a short time, because you buy it right before you sell it. Don’t confuse an insider buying stock to exercise options with illegal insider trading. All shareholders who have inside information (like senior management) are held to strict standards on when they can exercise options, buy and sell stock, and it’s all reported (so that average Joe can see if all the board members are selling, for example).
In this case, if there were say 100,000 options at $.23 granted in 2005, and the stock price shot up to say, $8, I would be the first in line to cash that out. It would look like I made the profit quickly, but that would be wrong, as I have been holding those options for 5 years and the company had to do spectacularly in order for me to make that profit. (NOTE: These numbers are illustrative only, I don’t know and don’t care enough to look up the actual numbers).
In summary, there are many ways in which this could be a normal, perfectly legal transaction. It is the way almost all founders, senior management and board members make money when the company they run does well.
I’ll bet Hinda was a yes on that vote to give more tax breaks to GMCR so they wouldn’t leave Vermont for some other state. Isn’t this a conflict of interest if you are a shareholder and a representative? Too bad Hinda can’t invest in teachers and public employees. They might be getting a better shake from her then.
(I don’t know if Ms. Miller was one of many Vermonter trust-funders, but certainly now she is!)
Our current national “economy” encourages “take the money and hold”.
The leveraged buy-out craze in the 1980s began an inverted capitalism, not for the first time, but maybe for the last. Traditional capitalist theory says money exists to transfer capital and the building of businesses, and the production of good and services.
But now our best and brightest business schools turn out financial pirates that don’t (and can’t) build businesses. What they do is cleverly inflate asset valuations, inflate cash flow projections, and create byzantine “investment opportunities” so that they can churn deals, and collect underwriting and transaction fees – so now capital exists so that money can move around, and they can get paid every time it moves.
Given what’s going on in the economy right now, Ms. Miller was right to get while the getting is good. There are probably buyers on the near-term horizon for GMCR, but the short – and even the medium-term prognosis is poor, so the upward lines on the Powerpoint presentations will be harder to maintain (and fake), and, even with all the cash sitting around, it’s still a buyer’s market.
A good immediate strategy for Ms. Miller would be – a good-sized chunk in foreign currencies, accounts in Switzerland and the Caymans, short to medium -term : an investment in a good home security system, a large supply of can goods and a generator, guns, and bullets.
Gold will be hard to trade in the next “economic” phase.