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A lot of Sirius XM Radio (NASDAQ:SIRI) stockholders have been hoping to hear that the company will use their newly acquired cash flow to return money to shareholders. This could be in the form of a share buyback, or as a dividend. When CEO Mel Karmazin was asked about this on last week's conference call he answered:

On anything about returning capital to shareholders, it's something that our board will discuss. We think that it will be a 2012 discussion. We introduced the subject already as we talked about these financial metrics accelerating. And I don't think that there is anymore specifics that I want to talk about what our plans are until our board finalizes and decides what we want to do with that -- in that regard.

Something that is not evident in the above answer is the tone of his voice. I listened to the call, and my impression was that it isn't going to happen. This doesn't mean that the board won't later be pressured into doing something to appease shareholders. However after careful thought, returning capital may not be the best answer. When asked about using the money for acquisitions his voice was much more upbeat:

In order for us to make an acquisition, it has to have a very -- passed a very high threshold. So first of all, it would have to be in our core competency. It would have to be a business that is growing. It would have to be a business that is going to be accretive to us on a free cash flow basis. So if -- you sort of look at those things and you say, "What won't it be?" It's pretty obvious, right? I mean, it's not going to be any of these other radio competitors, as an example, because of the fact that's not -- they're not going to be growing rapidly or they're not going to be free cash flow positive. So it's very difficult for a potential acquisition to be there. We look at lots of things, all of the bankers visit us regularly to show us everything that's on the market or conceivably to be on the market. We'd like to make an acquisition if in fact it meets those criteria. And when we find one, we'll let you know.

There is a very good reason that acquisitions would trump stock buybacks - Taxes, The shareholders would gain much more capital if the money was used to buy a company that generated a large net income. All of the income would be totally tax free for years. This of course assumes that the acquisition is prudent.

Disclosure: I am long SIRI.