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Technology Stocks : Cisco Systems, Inc. (CSCO)

CSCO 78.03

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Dec 24 12:59 PM EST

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To: rkral who wrote (62816)	1/30/2003 1:45:08 PM
From: RetiredNow	Read Replies (1) of 77400

Yes. Based on all the reading I've done on stock options and the various ways of accounting for them, I firmly believe that the appropriate way to account for stock options is to expense their value upon grant, adjust income upon exercise, and also account for dilution as it occurs. Whenever I think about things like this, I always try to see if it's possible to come up with a thought experiment that illustrates the problem's parameters. In this case, I the thought experiment I use is what if companies used outright grants of stock or cash instead of options? How would they account for the related compensation expense in those cases? Well, the answer is clear. A grant of stock would result in compensation expense on the income statement and a dilution of o/s shares. The cash compensation would reduce assets and result in a compensation expense. Therefore, stock options should both be counted as an expense and result in dilution. It's just common sense. Anything different is just obfuscation of the true cost of doing business.

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