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Technology Stocks : Wind River going up, up, up!
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To: Andre Daedone who wrote (7381)3/3/2000 5:32:00 PM
From: Don Lloyd  Read Replies (1) of 10309
 
Andre -

[...He also stated that they were 1.5 cents shy on earnings because of the unexpected share price double which caused them to have more shares, something to do with the SEC...]

Let me make an approximate attempt to explain this, as it is the primary factor in the erroneous perception that WIND had a less than stellar quarter.

When a company issues employee stock option grants, each grant is for a given number of shares at a given exercise price. These are granted over time to different employees at different prices.

When the calculation is made to determine the number of diluted shares for EPS reporting, some, but not all, of the outstanding option grants are counted as if they were actually shares that had been issued from the treasury and exercised. While I don't know what the exact rule is for determining whether a given option grant is counted, it probably is something like the following:

Count a given option grant if and only if the exercise price for that grant is lower than the average price of the stock for the quarter. This rule would only count option grants that would be worth exercising at the average price.
Other factors undoubtedly come into play as well.

Since the average stock price in the last quarter was significantly higher than in the previous quarter, more option grants had exercise prices below the average stock price and thus were counted, helping increase the share count by 7.8% quarter over quarter.

To help understand how extraordinary this is, consider the following:

If this 7.8% increase in share count happened every quarter, then an dollar earnings growth rate of 35% per annum would result in completely flat EPS growth, i.e. no growth at all.

Regards, Don
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