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With the disappointing 2003 results and the shock of the $1.7 million in bonuses given to management, I note there have been a few negative comments on the majority stockholder, CEO and Chairman of DHB. I was curious and decided to do a background check on executive compensation through the 10K filings on Mr. Brooks. Here are my findings for the past 5 years, the numbers are in '000, except for the year.
Year 1999 2000 2001 2002 2003
CEO Salary $143 $413 $525 $643 $781
other expenses paid $5064 $3528 $2962 $2116 $1266
Total compensation $5209 $3943 $3487 $2760 $3047
Share options granted 750 750 775 775 800
Total share options 7275 8775 9575 2375 3125
Total holdings 19276 20751 22076 20469 15866
As one can see, Mr. David H. Brooks has done very well for himself. Not only has he got a multi-million dollar salary package, he's also been generously compensated in the form of 750,000 option granted every year at $1 per share. This would continue into July 2004. In 1996, Mr. Brooks was given the same generous options package of 750,000 a year with a base salary of $250,000 and a yearly increment of $25,000. In 2001 that base salary increased to $500,000 with a $50,000 increment a year. In 1999 Mr. Brooks resigned as CEO for the unsuccessful listing at NASDAQ, explaining the lower CEO salary for 1999.
With due consideration to shareholders regarding the dilution impact, what's preventing management from giving away more of the company with the same generous options package plus a raise in the base salary (maybe $1 million) for the CEO in 2005? It remains to be seen how management deals with this and how they align their interest with that of the shareholders, who I might add are the true owners' of DHB.
It's noteworthy that Mr. Brooks has exercised the majority of his "in the money" options from 2002. During 2002/2003 Mr. Brooks sold about 30% of his holdings � a significant amount for whatever reasons he deemed relevant.
So what have the shareholders received in return for the years of stewardship, the high executive compensation and generous stock options grants to the CEO? Below is a summary of the past 5 years in revenue and earnings per share that includes the cost of stock options (net of tax). Numbers are in '000 except for the year and earnings per share.
Year 1999 2000 2001 2002 2003
Revenue $35,141 $70,018 $98,015 $130,347 $230,011
Net Income -$32,121 $6,007 $10,133 $15,635 $14,812
Stock option cost* -$11,425 -$12,381 -$2,225 -$1,829 -$1,027
Diluted Shares 27,176 34,970 36,568 42,642 44,197
Earnings per share -$1.66 -$0.18 $0.22 $0.32 $0.31
I haven't been able to find the cost of stock options (net of tax) for 1999 and 2000, as management didn't disclose this in their 10K filings.
* For completeness I estimated the cost for stock options in 1999/2000 based on the average cost in 2001, 2002 and 2003. With 4.25 million given away in 2000 and the 3.8 million options given away in 1999 (this includes 3.75 million options at $1.33 that was to expire in 1999, but got extended by another 4 years for the relative of the CEO). If you believe the numbers are incorrect, I'd be willing to correspond who's knowledgeable in calculating the cost of stock options (net of tax).
As a shareholder, I am very disappointed see that the growth in revenue has not been reflected in a similar growth in earnings per share, this despite the generous compensation package given to the CEO. The dilution impact has been a major factor in the poor earnings growth.
As I've previously stated, the onus is now on management to show their interests are aligned with the shareholders and they intend to create shareholder value. Management has to do much more than simply show growth in revenues. I would be not willing to accept anything less.
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