Carolyn,
John Bain is mostly correct that the fully diluted share count includes stock options, but it does not yet include the dilution from the convertible bond offering. At the moment, and for next few years, I believe the bond offering will appear simply as debt. (Think about it. It can't be both debt and equity at the same time.) The bond debt will remain even after the stock price grows past $48.50, since a holder of the convertible bond would be foolish to convert prematurely and sacrifice interest income. Now, just in case your heart bleeds for WIND having to pay 5% to a future shareholder, you should realize that WIND can easily get more than 5% interest on the money received from the offering. In other words, the offering will be accretive to EPS prior to time when the bonds are converted.
At conversion, the debt converts to equity with an appropriate increase in share count. It will be as though WIND sold shares at $48.50, back when the stock was priced around $38 to $40, with the caveat that during the time from the sale until the stock finally converts, WIND gets to keep anything beyond 5% they can earn on the $140 million received.
I agree with John about why deferred revenue is a liability. Deferred revenue generally offsets cash (or receivables) already received (billed). Suppose someone gives you $11 million as an advance payment for work you will do in the future. Your assets go up by $11 million, but not your equity because the work hasn't been done yet. You need an offsetting entry; namely, $11 million in liability. Its a liability because you still are obligated to deliver $11 million worth of goods or services to satisfy the contract.
I would also like to comment that the elongated discussion of Reg S offerings was healthy. Clearly, the shortcut provided by SEC, which permits companies to bypass many expensive steps needed ordinarily when offering stock, has been abused particularly by companies desperate for money. The SEC has studied these abuses and, I am told, has issued guidelines for avoiding these problems, guidelines that no doubt soon will become part of future regulations.
Like QualComm and other legitimate companies, WIND has followed those guidelines, consummating in a straight-forward convertible bond offering which should not be confused with discounted offerings by desperate companies.
Keep in mind that WIND cherishes foreign investors, just like WIND cherishes foreign business. WIND is becoming one of the world's great growth companies, and needs investors from around the world if it expects to be welcomed around the world. Reg S is a primary way to provide an investment opportunity directly to foreign investors.
Perhaps it is a shame that we individual investors could not participate in the offering, but the efficiency of the offering depended on selling the bonds to extremely sophisticated investors (i.e. institutions). On the other hand, it is not obvious to me that an individual investor should prefer the convertible bond to owning the stock. If the stock does like we think it will, and continues increasing in price, then the bonds will be called at the earliest opportunity by WIND. As I recall, at the annual meeting Dick Kraber or Ron Abelmann indicated the bonds could be called at the end of three years. At that time, by receiving and re-investing, after-tax interest, you would be indifferent between paying about $45 for each share of stock, versus $40 at the initial offering date. But the conversion cost is $48.50 per share, meaning that you would have been better off simply buying the stock. Of course, if you believed the stock might trade sideways for a few years, the 5% interest would be a consolation. For this reason, the offering was well-received by conservative institutions, with demand outpacing supply by a ratio of 4 to 1.
Allen |
