Replies to post #59372 on Advanced Micro Devices Inc (AMD)

[wbmw]

Re: Buying back shares with your profits on one side, while giving them away without expensing on the other is just another con game.

Amazing how this FUD comes up again and again. You should know by now that stock buyback does not get totalled up as part of P&L. If a company builds a cash reserve for 20 years and then buys $5B worth of stock, that's considered negative cash flow, and the same rules apply at any frequency of stock buyback, even if the lump sum of shares are voted by the board and bought partially on a quarter by quarter basis (as in the case of Intel). You wouldn't go back and correct income statements of 20 years ago and claim a $5B loss because the profits of those years are going towards today's buyback, and the same rules apply for a company that issues a buyback and amortises it over multiple quarters (like Intel). You can make some lame analogy and claim that a quarterly amortization is equivalent to spending the profits of each current quarter, but the way the legal system sees it, stock buybacks, even on an amortized quarterly basis are still being bought by assets that were accrued many years ago. Thus, they are not put on the P&L statement.

Now... options expensing is different. The way the law currently sees this, it's a form of annual employee compensation, which is figured into P&L. The problem is that it should account for some shares that eventually expire worthless, but the accounting laws are still in a state of evolution, and someday, they may be more accurate. But for now, people have voted for a short term method that is a close approximation. Since you don't know which shares will eventually expire worthless, you will probably never have an exact method. But we'll see what transpires.