A services company, during its 2026 financial year, bought back its own shares for 7.5 billion dollars. The number of shares bought amounts to about 40 million, at an average price of 188 dollars each.
The shares bought back have not been cancelled, but are held in treasury.
In the same period, the company delivered 14 million shares to employees as compensation. Of these 14 million, only 3 million are treasury shares, while the other 11 million are newly issued.
So most of the shares bought back stay where they are and, as a direct consequence, the number of shares outstanding falls by 26 million, not 40.
| Shares, million | Change |
|---|---|
| Bought back | -40 |
| Delivered, from treasury | +3 |
| Delivered, newly issued | +11 |
| Net change in shares outstanding | -26 |
Figures rounded. The 14 million delivered to employees are 3 million from treasury and 11 million newly issued.
The transaction in the financial statements
The buyback shows up in three places: in the cash flow statement, under financing activities (cash out); in the statement of changes in equity (increase in treasury shares); in the equity note (detail of the share purchase programmes).
Of the 7.5 billion, about 6.9 is the buyback programme proper, while about 600 million is shares withheld from employees when their shares are delivered, to pay their payroll taxes (this is the really interesting detail).
The result is that, at year end, the company holds 73 million treasury shares in total, carried at a cost of about 14 billion: the cash has gone out, with equity on the other side.
All of this is governed by two accounting standards: ASC 505-30 and ASC 718.
The first requires treasury shares to be recorded at the cost actually paid, as a deduction from equity.
An interesting point is that the shares are no longer outstanding, so they also drop out of the earnings per share calculation. The buyback generates neither gains nor losses. If the shares are later reissued at a value different from cost, the difference stays in equity: additional paid-in capital and, if that is not enough, retained earnings. The income statement never sees them.
The second standard requires instead that shares promised to employees be measured at fair value on the grant date, that is, at the share price on that day: the cost goes to the income statement over the vesting period, with equity on the other side. Over the year this comes to about 2.1 billion dollars of cost. No cash leaves when the cost is recorded.
So the same phenomenon, shares going out and shares coming in, is split across two standards, two statements and two notes. The buyback does not pass through the income statement. The employee plan does.
The numbers at 30 September 2026
A month after year end the board approved another 6 billion of buyback authorisation. What was left of the previous authorisation was under 1 billion. The annual report states that the company will keep using a significant part of the cash generated by operations to buy back shares.
At year end, about 2 billion of cost was still to be charged to the income statement for shares already granted to employees and not yet vested, which will be delivered over the coming years: some will come out of treasury, some will be new.
The forms of share-based pay
Let's look at the forms of pay a company can use when it comes to shares. The main instruments are four: the stock option, the right to buy a share at a price fixed today, which is worth something only if the market price rises above that level; the RSU (Restricted Stock Unit), the promise to deliver a share on a given date if the employee is still with the company, with no price to pay; the PSU (Performance Share Unit), an RSU where the number of shares also depends on performance targets; and the employee share purchase plan, ESPP, which lets employees buy shares through payroll deductions, often at a discount.
The plan of the company analysed here allows stock options, although only RSUs are outstanding, including performance-based ones, plus the discounted purchase plan. During the year it granted about 14 million RSUs. At year end, 21 million had not yet vested.
How to read it
A results release usually gives two numbers: the cash spent and the shares bought back. The shares delivered to employees sit in another note. To read the whole transaction you need to put together the equity note and the share-based payment note, then do a division.
7.5 billion divided by 40 million shares bought back gives 188 dollars a share. 7.5 billion divided by the 26 million shares actually removed from circulation gives 288 dollars.
| Cash divided by | Cash, billion | Shares, million | Per share, dollars |
|---|---|---|---|
| Shares bought back | 7.5 | 40 | 188 |
| Shares removed from circulation | 7.5 | 26 | 288 |
Figures rounded. Cash paid for the buyback divided by the shares bought, and by the net reduction in shares outstanding.
Open questions
Is the cost of a buyback the cash paid per share bought back, or per share actually taken out of circulation?
Should the cost of an employee share plan be read in the income statement, in the cash flow statement, or in both?
Next to a buyback, which of the three numbers would you want to see: shares bought back, shares delivered, or the net reduction?