Sorry, wrong door.
Don't get me wrong; I think the current accounting and tax standards for employee stock option plans have some glaring loopholes through which you can drive any number of trucks. However, returning cash to shareholders in the form of buybacks or dividends is not an expense, it is a financing activity. If you dislike this business decision, fine, but don't pretend it should come out of net income.
According to Itel's latest 10K (http://www.sec.gov/Archives/edgar/data/50863/0001047469-99-011450.txt), Intel granted options on 48 million shares in fiscal '98, with a weighted average Black-Scholes value based on their assumptions of $17.91 per option -- an $860 million expense not booked under current standards.
Over the same period, Intel realized a tax benefit of $415 million on employee option exercises, due to the oddities of current tax law, rather than a fair tax shield of 35%, or $145 million.
You can fairly conclude that Intel is understating its compensation expenses to the tune of nearly a billion a year, and is being subsidized by Uncle Sam for another few hundred million. However, for all its faults, the company is still making tons of money.
-mb |
