Intel Corp (INTC)

[Elmer Phud]

Dew -

Consider a simple example of a company which has a net worth of $1B, 100M diluted shares outstanding, annual earnings of $50M, and an annual expansion of 5% in the diluted share count from option exercises. The book value of this company at our starting time is the net worth divided by the diluted share count: $1B/100M = $10/sh. Under GAAP, this company would appear to be profitable during the year in question because its EPS would be $50M/1.05B = $0.048. But in reality, the sample company is adding no economic value for its shareholders and is merely treading water. Here’s why: [etc etc]

The company in question didn't give those option shares away, they sold them. What about the cash raised by the exercise of the options?