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Technology Stocks : Wind River going up, up, up! -- Ignore unavailable to you. Want to Upgrade?

To: Allen Benn who wrote (3417)	7/16/1998 12:50:00 PM
From: Allen Benn	Respond to of 10309

WIND's Historical Pattern of Granting Stock Options. WIND has granted an average of 1.2 million net (of cancellations) stock options annually since going public. The balance of total options outstanding stands at 4.4 million shares at the end of FY 1998, and has grown by 700K annually shares since going public. However, since things settled down after going public, the outstanding balance has shown average annual growth of only 495K shares. The interest (or lost opportunity) cost to finance this growth through stock repurchases would add an extra $900,000 to expenses annually at current the market price. This is less than 10% of pretax profits going forward. I have no idea if WIND will more than double its stock repurchases in order to off-load the complete cost of employee stock options to the market, but it could easily. In the final analysis, a company should never repurchase stock to counter dilution from stock options or just to pump up EPS. Nevertheless, any company that can afford the investment should repurchase stock if the stock is expected to outperform alternative investments. There simply is no other economic justification for a company to buy back stock. However, because of important accounting guidelines, significant repurchases must be regular and justified IN THE NAME OF EMPLOYEE STOCK OPTIONS. This means that WIND's stock option repurchase programs, with consequence reductions in diluted shares outstanding, has the same implications as insider buying. Ron says the stock is undervalued and is buying it back, as limited by APB Opinion 16. Allen