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Technology Stocks : How high will Microsoft fly? -- Ignore unavailable to you. Want to Upgrade?

To: Just_Observing who wrote (21570)	4/25/1999 4:50:00 PM
From: t2	Read Replies (1) \| Respond to of 74651

Just Observing, Microsoft never had equity puts excercised. Therefore all they are doing is "pocketing" the premium---which only shows up in the balance sheet. It never enters into Net Income. It is in MSFT's interest to have a steady rise in the stock so that these puts never get excercised. The stock buy backs are actually happening on the markets. When they comment that the equity puts are for stock buybacks, they really mean that the cash from these premiums can be used to buy the shares on the market. This paragraph from the March earnings release. As you can see the stock has to drop significantly for these puts to be excercised. If they thought it would drop, I don't believe they would have issued the equity puts. microsoft.com To enhance its stock repurchase program, Microsoft sells equity put warrants. These put warrants entitle the purchasers to sell shares of Microsoft common stock to the Company on certain dates at specified prices. On March 31, 1999, 163 million warrants were outstanding with strike prices ranging from $59 to $65 per share. These put warrant contracts permit a net-share settlement at the Company's option. As you can see, the stock has to drop significantly for MSFT to be forced to buy the shares. I believe their stategy is that if the stock does drop in a big market downturn, these are good prices for the buybacks anyways. In addition, there was a letter to the New York times by Maffei in response to a New York Times article which alleged that some companies are reporting this premium in the income statement. In that same letter, CFO Maffei stated that the puts have never been excercised against them. I am sorry that story does not appear at the MSFT web site(i can't find it)---you would have to search for it there.

To: Just_Observing who wrote (21570)	4/25/1999 5:17:00 PM
From: blankmind	Read Replies (1) \| Respond to of 74651

- actually, per the 1998 10K, Microsoft received $538 mill for issuing put options - which is about $130 mill/qtr - 1 put option obligates MSFT to buy one share of stock from the buyer - at say $75 a share for 2 years - if the share drops to $50, then MSFT would have to pay $75. That's how MSFT could lose - however, if MSFT shares goes to $75.01, and never drops below $75.01, then why would the option holder want to sell the share to MSFT for $75? He wouldn't. Instead, he'd call up his broker at Merrill Lynch & get $80, 90, or $100