Noel, "your model may be simplistic"
Of course it is simplistic, but it is also more realistic.
For many reasons.
"These options were granted several years ago when Intel stock was presumably much lower. How do you account for that?"
I don't. There is no need to. The grant of options does
not bear any cost for the company until an employee
decides to exercise his option. Therefore the cost
to fulfill that obligation is incurred only at the moment
of option exercise, not at the moment the obligation
was assumed.
"I think it is fairer to account for stock options as an expense using Black-Sholes rather than as a stock buyback replacement."
I think it is a matter of terminological confusion,
and I hope not on my part. "Employee stock option plan"
has nothing in common with speculating with "securities
options".
"Also, the company gets to write off the taxes"...
which makes the practice of excessive stock option
compensation plans even more deceptive with regard to
such GAAP parameters like absolute "earnings" and EPS.
"Secondly, your assertion is true for the entire tech industry. Have you looked at the numbers for Microsoft, Cisco, Sun, etc.?"
Yes, Forbes Magazine compiled a list of top companies
whos actual earnings were heavily misrepresented by
this accounting malpractice. I belive the companies
you mention are in the list. But you are incorrect about
the entire industry. The whole point was about the scale
of these buybacks. If the $$$ amount of buyback does
not significantly change the earnings outcome, who cares.
However, if a $400M in "repoprted" profits is actually a
loss of $600M, as it is in the current Intel's case, the
things are quite different. Wouldn't you agree?
"They may not be buying back as much stock as Intel but the stock dilution due to options still counts."
That's the point: the stock dilution accounts for
their options, so the EPS remains a fair metrics.
Regards,
- Ali |
