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Technology Stocks : Qualcomm Incorporated (QCOM) -- Ignore unavailable to you. Want to Upgrade?

To: David E. Taylor who wrote (114717)	2/28/2002 12:58:53 PM
From: Stock Farmer	Respond to of 152472

actual costs, estimated costs and estimated actual costs. What a nightmare of who's calculating what and to whom. ...Although convertable preferreds are a type of option when you think about it...Well, from his posts, that's JS's view too, though I disagree on his estimate of the cost to the company's shareholders. I guess you can call them a "pseudo option", but if we're looking at future potential dilution due to the granting and exercise of employee stock options, they clearly need to be left out. My numbers of 7.6 Billion dollars were initially carefully quoted as from "Equity Financing such as stock options". My posts are long enough without pasting on innumerable caveats. The convertible preferred trust securities are what they were: an interest bearing, retractable call option. Although I've occasionally slipped into referring to the whole thing as stock option cost as the debate became more heated, and it's easy to infer this as meaning "employee stock option". Apologies for any confusion. Nevertheless, their conversion was a massively dilutive event which seriously cost shareholders but which had no appearance on the books. And my numbers are merely an attempt at accounting of what has actually occurred in the past. Although because the company does not provide this information, it's merely an estimate of actual cost. As opposed to an estimate of expected cost. I've posted my expectation of ongoing dilution cost to be quite significantly smaller. On the order of a billion or so over the next few years based on distribution of outstanding options and stock price. Plus a view on actual dilution in 1Q which is running at the moment at about 200 M$ per year (on the order of a billion over five years). Which two views triangulate to close proximity. Not a sum that will overwhelm earnings. But blow away a few hundred million here, a few hundred million there and sooner or later we lose sight of a lot of money. There are two ways we could track this cost. First of all, when options are granted we should look at the SFAS 123 disclosure 'cause this is the company's initial estimate of the cost. Then we could track actual costs. Dilution that actually occurred and some measure of what it actually cost. Because dilution has a cost. Unfortunately, the company does not provide us this information and so we have to do some digging and speculating. And in between we can revise our estimates. Same way as we look forward to FY03 earnings of a buck, we can look forward to FY03's share of dilutive cost of the last 10 years overhang at about $0.30 This isn't so much unlike a person writing a call option. When written it has a theoretical value. On expiration day (or earlier in the case of early exercise), the value is known precisely. In between the [estimated] value [of what it will actually be] goes up and down. And the value of those calls which expired months ago is now known precisely, serving as a ledger. And really, it's only after the fact that we can claim "we were profitable". In between, we are merely hoping to be profitable. John