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To: Mike Buckley who wrote (967)	6/16/2004 8:42:57 AM
From: Exacctnt	Respond to of 2955

So, if the price of Qualcomm's stock increases, there will also be increased dilution by virtue of the fact that employee options that were previously out of the money would now be in the money and included in the fully diluted share count. Yes, in the money options are included in the fully diluted share count. However, companies use the Treasury Stock Method of calculating diluted shares. This method will understate the dilution. The calculation factors in the amount of money that will be collected from the employee upon future option exercise, this amount lowers the dilution by assuming it will be used to buyback shares. In addition, dollars saved by current tax benefits from options exercised are also assumed to buyback shares. I don't know how any proposed new accounting changes will affect the above method. Regards

To: Mike Buckley who wrote (967)	6/16/2004 8:53:49 AM
From: rkral	Read Replies (1) \| Respond to of 2955

Mike, re "Bear in mind that employee stock options that are in the money add to the dilution. It is not necessary for an employee to exercises his or her stock options for the fully diluted share count to increase." No CPA here, but I agree .. except the term "*fully* diluted shares" is outdated. Per FASB SFAS 128, "Earnings per Share", effective for financial statements issued for periods ending after Dec 15, 1997 ... The terms "Primary EPS" and "Fully Diluted EPS" were replaced with "Basic EPS" and "Diluted EPS", respectively. As you suspect, the definitions changed too. For diluted shares, the most significant change IMO was the change from including all options .. to only in-the-money options. Restatement of all prior period EPS data presented is required by SFAS 128. You probably know calculation of diluted shares uses the "treasury stock method" .. which assumes cash from both the exercise price and the tax benefit (from exercise) would be used to repurchase shares. Some might think this understates the potential dilution, but I believe it's a fair representation. Ron P.S. It occurs to me .. we are probably off-topic here. P.P.S SFAS 128 may be viewed, but not legally downloaded, at fasb.org.