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To: accountclosed who wrote (59857)	9/1/1999 4:54:00 PM
From: John Pitera	Read Replies (1) \| Respond to of 86076

Yikes, missed it again :( ........ Greenspan Confronts the Inflation Hawk's Nightmare: Stock Options By Bob Gabele Special to TheStreet.com 9/1/99 11:38 AM ET Wall Street is still feeling tremors from Federal Reserve Chairman Alan Greenspan's comments at the Kansas City Fed symposium in Jackson Hole, Wyo., last Friday. In that speech, he made clear that sharply declining asset prices would prompt a response from the Fed. Read: An easing of interest rates. Greenspan was less clear, however, about any Fed response to a period of rapidly rising asset prices. So we have a Greenspan-like hedge: A response wouldn't be out of the question if such asset growth yields inflationary results. We all know that simply because inflation hasn't shown up in the numbers is no reason to assume Greenspan isn't concerned about it. Indeed, he's been dropping plenty of hints that he is. No surprise, then, that Wall Street's eagle eyes have focused on the wage and employment figures as one of Greenspan's hot buttons. Attention to today's wage numbers takes us back to another time, about 20 years ago, a time of runaway inflation. For several years, the Fed seemed hesitant to rein in out-of-control growth in the money supply. But all that changed when Fed chief Paul Volcker initiated successive interest-rate hikes of 1 point each, knocking the steam out of both inflationary pressures and the stock market. Of course, the fundamental difference between then and now is that the money-supply numbers then provided a fairly accurate gauge. Not so for current wage price numbers, which tend to severely understate the true level of wage inflation in corporate America. The understatement results from the ever-increasing use of employee stock options. For many high-profile tech firms struggling to attract and retain talented employees and preserve cash, options have become the currency of the 1990s. The overall effect is huge: Since 1994, the Nasdaq 100 companies have granted options totaling 22 billion shares, which represent more than $222 billion in market value. And for the companies in the S&P 500, the practice of granting options has expanded steadily year by year: From just more than 1.6 billion options granted in 1994, the number surpassed 4.4 billion for 1998. In all, options granted between 1994 and 1998 represent just under 7% of the capitalization of the entire S&P 500. And these options, so critical to compensation, are notably absent from the wage price numbers. Our guess is that this options conundrum is definitely on Greenspan's mind. To get some metrics on the subject, we took a look at companies in the S&P 500 and the Nasdaq 100 to see just how many options have been granted to employees. Some of the numbers are absolutely staggering, especially considering the number of options granted in relation to the number of shares outstanding. Here are some of the biggest eye-openers. Company Options granted (in millions) Shares outstanding (in millions) Percent of shares outstanding Adaptec (ADPT:Nasdaq) 52.4 104.4 50% Seibel Systems (SEBL:Nasdaq) 35.3 91 39 Novell (NOVL:Nasdaq) 120.2 335 36 Adobe Systems (ADBE:Nasdaq) 20.3 61.8 33 Cambridge Technology (CATP:Nasdaq) 19.5 59.6 33 Apple Computer (AAPL:Nasdaq) 52.7 160.8 33 Applied Materials (AMAT:Nasdaq) 109 375.4 29 Parametric Technology (PMTC:Nasdaq) 78.3 270.7 29 Yahoo! (YHOO:Nasdaq) 58.7 204.4 28 Dell (DELL:Nasdaq) 720.8 2,540 28 Autodesk (ADSK:Nasdaq) 15.7 386.4 27 Cendant (CD:NYSE) 183.3 718 26 Merrill Lynch (MER:NYSE) 89.9 365.5 25 Reebok (RBK:NYSE) 12.8 56.1 23 Toys R Us (TOY:NYSE) 54.8 247.6 22 Best Buy Co. (BBY:NYSE) 44.1 203.4 22 Amazon.com (AMZN:Nasdaq) 35.8 161.6 22 Total options grants from 1994-98, adjusted for subsequent splits. Source: First Call/Thomson Financial. It's important to recognize that unexercised, unvested options are excluded from the calculation of a company's outstanding shares. Ultimately, some of these companies will have to significantly dilute shareholders in order to issue shares to cover their huge options programs. What's more, the significant stock market overhang could threaten these stocks as employees liquidate their shares. No doubt the demand for common stock to satisfy the eventual exercise of options is a driving factor behind many a much-touted corporate buyback program. What a difference a few decades make. Then the Fed's big concern was the government's propensity for printing money. Volcker provided some bitter medicine back then. The question today is, how will Greenspan react to emerging concern about the busy corporate printing presses? --------------------------------------------------------------------------------