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Politics : Ask Michael Burke -- Ignore unavailable to you. Want to Upgrade?

To: Ilaine who wrote (64930)	7/20/1999 5:27:00 PM
From: Knighty Tin	Respond to of 132070

Coby, No, it is not an expense. It is a use of cash to retire shares, or, in this case, to reallocate shares to mgt's pocket. However, they do get to deduct the difference as a capital loss. The balance sheet is indeed fooled with, but the main thing is the effect on the income statement of 1. Lower expenses. 2. A tax deduction without an offsetting expense. The thing that makes this bad is that it inflates eps beyond what they should be. Andrew Smithers of The Economist calculated what would happen if the cos. actually had to expense the cost of options, and most high tech firms would be running at a loss. Also, this pumping up of eps is only possible during up markets. In down markets, all the benefits disappear, so it will make the downside much steeper.