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Technology Stocks : Cisco Systems, Inc. (CSCO)
CSCO 72.10+1.4%Nov 10 3:59 PM EST
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To: RetiredNow who wrote (60792)8/7/2002 9:51:49 AM
From: hueyone  Read Replies (2) of 77397
 
hueyone, you know very well that the same people that want Cisco to use Black Sholes today will be the ones who think it is unfair to book an earnings boost, when Cisco has to adjust from a $3 billion expense to a $150 million expense.

Mindmeld, Current Black Scholes expensing does not provide any mechanism for truing up to "actual" expenses as defined by the difference between strike and market price at time of exercise, if that is what you are suggesting. Perhaps you are thinking of a suggestion that I floated awhile back that did involve truing up (which I later backed off). Regardless, there is no present circumstance nor model offered to provide for the adjustments in your scenario above. Black Scholes estimates the value at time of grant and then amortizes that expense over the vesting period of the options. If in one year, the realized value of the options exercised turns out to be much higher than the amortized Black Scholes expenses, there is no adjustment to reduce earnings based on the value of exercised options in that particular year. Conversely, if one year the realized value of stock options exercised is way less than the ongoing amortized value of Black Scholes estimates, there is also no adjustment to increase earnings in that particular year.

Best, Huey
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