Marie, the point behind my comments was not to discuss the fine points of accounting, but in pointing out the fact that GAAP accounting is not designed to expose the costs associated with employe stock options, and the fact that it is very difficult to determine those costs has lead to massive abuse (I almost want to say fraud). You are of course correct in that stock repurchases are accounted for as treasury stock. It was my understanding that treasury stock is never reduced (unless it is cancelled), and that means it is unavailable for reissuance since it is already issued Is this interpretation incorrect? I know that some corporations repurchase stock on behalf of employes, but that these shares are not treasury shares, but go into a separate equity account.
But since you bring up stock repurchases, this too has a certain smoke and mirrors aspect to it. For example, since stock repurchases don't count as expense items a company wishing to bolster its eps may not care how much it spends to repurchase the stock. After all, it isn't viewing the purchase of stock as an investment. It is gimmickry to impress unwary investors.
You don't need to repurchase stock to make it available for merger purposes. The number of shares authorized can be increased.
Thwarting takeovers is yet another illegitimate use of stock repurchasing. After all, the shareholders are the owners (at least in theory) -- but the management acts as if the company is its own private fiefdom. Of course, management always dress this up and calls it something like a shareholders' rights plan. In reality it is management's employment contract.
TTFN,
CTC |
