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Technology Stocks : Cisco Systems, Inc. (CSCO)

CSCO 71.07

-0.1%

Nov 6 3:59 PM EST

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To: GraceZ who wrote (60856)	8/9/2002 2:08:35 PM
From: Mark Adams	Read Replies (1) of 77397

Grace, A bit slow on the response, but here goes it. How would you do the accounting when those options that are previously expensed at grant time are never exercised and how would you price the worthless options underwater since I assume these would be a return of expense? Say you expense the BlackScholes valuation over the vesting period, based on the current numbers, IMO. If the vesting period is 10 years, and year 5 the options are underwater, the charge to earnings might be quite a bit smaller than year 1. But even deep out of the money options usually have some value. And if options get repriced, well then the true cost to existing shareholders would be very apparent. You do not account for options that expired worthless, as there was value (opportunity) to them at the time they were expensed, the employee received that value (potential participation in the upside) even if they failed to realize that value. IMHO. Think in terms of goodwill; this is phantom too. When goodwill is written off- then suddenly a business segment regains strength- we do not take a positive charge for increased goodwill. Only if the increased value is realized through sale, is goodwill marked up to market. On a slightly different tangent; Explain flat PPI with rising CPI and corporate margin squeeze. How is it possible to have these three simultaneously? Answer that and you have the core reason behind inflation. Increased debt service burdens would squeeze corporate margins despite higher retail prices and lower primary/intermediate good costs. None of this may make any sense, as I haven't been drinking. <g>

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