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Diminishing returns

Despite a broad market downturn, many stocks are doing well. Result: Buybacks are down.

For corporate financial executives, stock buybacks have long been used like a trusty set of jumper cables. Buying back your own shares in the open market spurs demand, takes shares out of circulation and usually boosts the stock price for at least a little while.

It only stands to reason, then, that with the Standard & Poor's 500 index down about 20 percent over the past year, a flood of buybacks should hit the market. But according to the chief financial officers polled in this month's CFO Forum, buybacks have declined substantially: Only 31.1 percent of CFOs say their company has announced a buyback within the past 12 months. The last time we asked CFOs about this subject - in the spring of 2000, just before the tech bubble burst - 63.2 percent had announced buybacks. That was up from 44.2 percent about two years earlier, in 1998.

One reason for the change appears to be that despite a falling broader market, many companies find their shares performing surprisingly well these days: 75.6 percent of respondents say their company's stock has appreciated during the past 12 months, while 19.5 percent report a decline and 4.9 percent saw essentially no movement. (Earlier surveys did not ask this question.)

As Old Economy stocks regain favor with investors, buybacks may be on the wane. But the continuing trend toward stock-based compensation for corporate executives and even lower-level employees may provide a floor for buyback activity. Fifty percent of the companies that engaged in buybacks during the past 12 months did so in part to support the exercise of employee options.

Has your company announced a stock buyback within the past 12 months?

Yes 31.1%

No 68.9

If so, has your company completed the buyback?

Yes 12.5%

No 87.5

If your company has not completed the buyback, why not?

We withdrew it 0.0%

We ended the programafter partially completing it 7.1

We are still in the midst of the program 92.9

Other 0.0

If your company is doing or planning a buyback, how much do you think your company will spend on the program?

Less than $25 million 11.8%

$25 million to $49 million 11.8

$50 million to $99 million 5.9

$100 million to $249 million 35.3

$250 million to $499 million 17.6

$500 million to $749 million 5.9

$750 million to $999 million 0.0

$1 billion to $5 billion 11.8

$6 billion or more 0.0

How has your company's stock performed in the past 12 months?

It's up 75.6%

It's down 19.5

It's about the same 4.9

If your company's stock price is up, by how much has it risen?

Less than 5 percent 3.1%

6 to 10 percent 12.5

11 to 20 percent 18.8

21 to 30 percent 6.3

31 to 40 percent 6.3

More than 40 percent 53.1

What has been the increase in the total market capitalization of your company?

Less than $100 million 6.3%

$100 million to $249 million 15.6

$250 million to $499 million 21.9

$500 million to $999 million 12.5

$1 billion to $4.99 billion 31.3

$5 billion to $10 billion 12.5

More than $10 billion 0.0

If your company's stock price is down, by how much has it fallen?

Less than 5 percent 0.0%

6 to 10 percent 0.0

11 to 20 percent 14.3

21 to 30 percent 42.9

31 to 40 percent 0.0

More than 40 percent 42.9

What has been the decrease in the total market capitalization of your company?

Less than $100 million 16.7%

$100 million to $249 million 0.0

$250 million to $499 million 33.3

$500 million to $999 million 0.0%

$1 billion to $4.99 billion 16.7

$5 billion to $10 billion 0.0

More than $10 billion 33.3

If your company has announced a stock buyback, have you seen an increase in the price of your shares?

Yes 57.9%

No 42.1

If your company plans a stock buyback, what is the chief reason?

It is the best investment 47.1%

To best use surplus cash 17.6

To increase earnings per share 5.9

To support the company's stock price 5.9

Other 23.5

If your company is doing a buyback, is one reason to back stock options as part of executive compensation?

Yes 50.0%

No 50.0

Has your company conducted stock buybacks in the past?

Yes 94.7%

No 5.3

If so, when was the last buyback program?

Two to five years ago 90.9%

Six to ten years ago 6.1

More than ten years ago 3.0

The results of CFO Forum are based on quarterly surveys of a universe of 1,600 chief financial officers. Because of rounding, responses may not total 100 percent.

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