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Politics : Formerly About Advanced Micro Devices
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To: TimF who wrote (148780)7/24/2002 6:25:07 PM
From: tejek  Read Replies (1) of 1577108
 
If you have two companies A + B, that are exactly the same except that A pays employs in cash and B pays 100% of employee costs with options. Assume they start with the exact same number of shares at the exact same price, but the options B gives to its employees increase the number of outstanding shares. Then if you count options against earnings they have the same revenue and earnings, however B will have more diluted shares. The two companies with the same revenue and the same costs (counting the options as costs and assuming that the cost is the same as the cash A pays), and the same profits but B will have a lower earnings per share number because it has more outstanding shares. The EPS figures double count the cost of the options, as they are counted against earnings and against the number of shares.

Tim, so what Buffet is saying is that this dilution needs to be expensed in some way, right?

ted
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