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Technology Stocks : Intel Corporation (INTC) -- Ignore unavailable to you. Want to Upgrade?

To: Elmer Phud who wrote (178400)	6/25/2004 10:33:43 AM
From: TimF	Read Replies (1) \| Respond to of 186894

Huh? They buy 2X shares and they have 2X. They didn't part with the shares. It costs money to buy the 2X shares. One half of those 2X shares have to be bought back as a direct result of the employee option grants. Look at it this way. In 2003 "ABC corp." pays its employees with A dollars and X share options which immediately vest and are exercised. It buys back 2X shares. "DEF corp." pays its employees 2 A dollars and no share options. It buys back X shares. Both companies are otherwise the same in every way. They have the same number of shares, the same market cap, the same revenue, the same profit ect. before 2003. After 2003 even though DEF corp has bought back only X shares it has the same number of shares outstanding as ABC corp. Or to put it another way ABC corp could have spent half the amount on buying back shares and had the same number of shares outstanding in the end if it didn't grant options. The cost to ABC corp of buying back the additional X shares is real. Of course the cost to DEF corp of paying the additional A dollars is also real. If X shares cost A dollars then the cost to both companies are the same. Under current accounting rules ABC corp would show a higher profit but it really didn't make any more money then DEF. Both enter the year with the same amount of assets and liabilities and end the year with the same amount of assets and liabilities. Both companies have the same number of shares outstanding at the beginning and the end of the year. Both companies have the same revenue and the same cash flow. Neither company was more successful then the other, their business where identical, but ABC reports a higher profit. Why should this be so? Edit - In the real world its more complex because option grants are exercised at the same time as they are issued but the principle should be the same. Tim