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To: xstuckey who wrote (39104)	11/6/1997 1:47:00 AM
From: pt	Read Replies (1) \| Respond to of 186894

X and Lee, stock buyback is usually for multiple reasons, including 1) offset shares issued to employees under incentive comp programs, thereby keeping the number of shares o/s at a relatively constant level; otherwise, EPS is negatively impacted. 2) Distribute excess cash to shareholders, in lieu of, or supplemental to, regular dividends. You say you don't get cash from the buyback? True, but by increasing demand for stock and controlling supply, it helps stock price go up instead. Dividends are paid from Retained Earnings, and not charged against EPS, so to extent stock buyback is in lieu of (more) dividends, it is not really a charge against profits. To extent it is employee compensation, yes it should be looked at as earnings offset...and it probably already is. Here's how it works for tax purposes: 5 years ago company gave Whiz Kid engineer option to buy stock at $50. Today stock is $150, and WKE exercises option. Company gets $50 for stock. This is not income to the company. WKE gets stock worth $150 for $50, and has to pay tax to IRS on the $100 difference (for current year). Also, Company takes a tax deduction for the same $100. Company spends $150 to buy back the stock in the market. I'm not current on financial accounting rules for incentive stock options, but you might find discussion in footnotes to the financials. In any event, it doesn't matter because market knows what is happening. If the accounting rules changed, the market would change the P/E it was willing to pay, and stock price would not be affected. If the tax rules change, that's a different story because cash flow is affected. Hope this helps. Paul

To: xstuckey who wrote (39104)	11/6/1997 5:12:00 AM
From: Lee Penick	Respond to of 186894

X, Re - "Why don't we be honest and just call them wages and salaries? They should be expensed, but then the P/E would approach 40." Oh my friend, THAT is NOT what I wanted to hear! But thank you still for the information. Lee

To: xstuckey who wrote (39104)	11/6/1997 6:00:00 AM
From: Joe NYC	Read Replies (1) \| Respond to of 186894

X, It is my understanding that the funds used for stock buybacks come from retained earnings Do you know the amount spent on stock buybacks that is used for to cover stock options for employees? Joe