Elbit Systems (Nasdaq:ESLT) was a great investment in 2001. Its stock gained 45% from $12.75 to $18.5 at year-end, to the joy of investors and employees holding stock options.

For the company, however, success exacts a toll in the form of a net outlay of $7 million, most of which will be booked in the fourth quarter of 2001.

The cost is due to the accounting mechanism by which the options were handed out, as "phantom" options allocated during 2000.

The stock options plan is a variable one. The higher the company's stock price rises by the end of each quarter - the greater the chances are that workers will exercise their options.

Under American accounting rules, the company has to post a loss on this item, as the chances are growing of workers exercising options at relatively low prices.

In short, on nothing more than its climbing stock price, Elbit Systems has to post a $7 million charge because of its stock options plan.

When publishing its third-quarter statement, the company had warned that its rising share price would probably impact on its financials later on, as long as phantom stock options remain to be exercised.

The number of phantom options handed out in November 2000 stood at 2.5 million. The options are exercisable after two years from the end of lock-up, until six years from their date of issue. Company CEO Joseph Ackerman alone holds 10% of the phantom options.