RE: Share repurchases
Yes, there are times when a large share repurchase causes concern for me. This is when a share repurchase is NOT accompanied by an equivalent decline in shares outstanding. It is foolish to look at a company's share repurchases and not worry at all about it, as most of the bulls on this thread are trying to do.
The big error that both Dan3 and Ali made was compare the Shares Outstanding for the most recent quarter with the same quarter last year. And yet the share repurchase number for this year is for 9 months, not a year. The valid number to compare this with is the year end number. In addition, you need to use diluted shares, not actual shares. This takes into account potential problems with the excess issuance of employee options.
The relevant accurate numbers are:
Total spent on share repurchase: $3.0 billion
Total shares repurchased: 98.4mm shares
Diluted shares outstanding as of 31 December 2000: 6,938mm
Diluted shares outstanding as of 30 September 2001: 6,876mm
Difference: 62mm
The difference of the shares repurchased and the actual decline in shares outstanding is 36.4mm shares. In the end, I think of this as an actual cost of doing business, because it is probably due primarily to employee compensation in the form of options. To get an actual cost for those options, first you need to look at how much they cost employees. In the statement of cash flows, the "Proceeds from sale of shares through employee stock plans and other" is 653mm. Spread out over 98.4mm shares, this comes to $6.64 in proceeds per share. For the 36.4mm shares that were dilutive, that comes to $241mm in proceeds to Intel for those shares.
That's the benefit to Intel. The cost is the $30.49 per share that Intel has spent for each of those shares, or $1,110mm. The difference is what I think of as the expense to Intel of the dilutive options, or (1,110mm - 241mm), or $869mm.
To get a better picture of Intel's earnings this year, it is best to net this number out of the GAAP earnings. Depending on your preference, in the 9 months thus far Intel has either made $2,608mm (the infamous pro forma number, which is net income excluding acquisition-related costs) or $787mm (GAAP net income). Netting out the option costs, Intel's adjusted net income for the nine months this year is either $1,739mm (pro forma) or a loss of ($82mm) (GAAP). Both numbers can be justified, although I'm a little more partial to the GAAP number, because acquisitions have a true cost that needs to be accounted for, not ignored. |
