Perhaps the discrepency is not in the options and buyback program, but what do you make of the shareholder's equity calculations in the earlier message in the thread?
And whether the total number of shares declines or increases, would you not expect to see the shareholder equity per share increase (less dividends) when reporting profits?
"The stock option program actually increases book value, as INTC sells shares at market, which is a bit more than book these days."
Come again?
Who sells shares at market?
(I thought it was the individual recipient of the options who sells shares at market, and pockets the profit. I.e. the whole point of granting options...)
Regarding INTC shares, as a corporation they're generating huge profits, the question is who are the beneficiaries. The analysts should be beating up management.
Accounting gurus may chime in, but stock repurchase doesn't hit income other than changing diluted eps. IIRC the repurchase in excess of issue price hits retained earnings. They also state they want to limit dilution to 2% / year.
As far as the scale of the repurchase activities, From the July '05 10-Q (Q3 isn't up yet) $4.3 B of the $6.7 B operating cash flow in 1H05 went to stock repurchase, while net income was $4.2 billion and dividends were $990 million.
From the 2004 annual report, Of the $13.1 billion in operating cash flow, about $7.5 billion went to stock repurchase. Net income for 04 was right at $7.5 billion, so the hit was significant and dividends were $1 billion . Note 4, pg 57 shows $7.5 billion spent to repurchace 301 million shares, while the shares outstanding only dropped 127 million.
If you look at the 2004 report(pg 56, note 3), you'll see that ~350 million option shares were excluded from the outstanding shares since they're underwater. P65 shows the number of options outstanding by range of exercise price. The 10-Q's don't show the same detail.
The question is the motivation, they're showing a significant drop in shares outstanding. Is this being done to keep up the appearances of being a growth stock and maintain the high P/E? Here's an interesting paper: What Drives Companies to Repurchase Their Stock?
An interesting conclusion from this paper: "We also find that executives are more likely to undertake repurchases when earnings fall short of levels necessary to sustain prior growth rates in eps".
In the days of regulated utilities (high cash flow, stable business), they could have turned themselves into "growth stocks" by repurchasing shares instead of paying dividends.
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