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Technology Stocks : Cisco Systems, Inc. (CSCO)

CSCO 78.18

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3:59 PM EST

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To: RetiredNow who wrote (63018)	2/7/2003 3:06:58 PM
From: rkral	Read Replies (1) of 77400

OT .. mindmeld, re "*If they ignored* expenses such as stock *options expense, they get a nice big shock when they tried to sell their ownership shares and didn't get as much back as they thought they were worth. " [Emphasis by Ron] Is equity reduced?* Well yes, but *not because options are expensed. Upon option grant, equity per share is potentially diluted by the additional option shares outstanding. And the potential dilution becomes real dilution when options are exercised. But, by expensing the stock option grant per SFAS 123, "option-based" compensation would simply move from Retained Earnings to Paid-In Capital. Stockholders' equity remains unchanged. Same sized pie either way. The business owner just owns a smaller piece of the pie. But this is due to option grant and exercise, not because options are expensed. Is cash reduced?* Of course not. Net income would be reduced, but reported Cash Flow from Operating Activities would be unchanged. The "non-cash" stock-based compensation just gets added back to Net Income. Witness the Boeing annual report. If cash *were* reduced, would it be a "non-cash" compensation expense? sec.gov So what's the big deal anyway? Where's the harm in not expensing option grants .. really? (You should have noticed I'm addressing expenses due to option grant. I haven't made explicit comments about the impact of exercise to the financial reports .. because I haven't gotten that far. Can you believe it? Been reading posts, studying other material, and posting about options off and on since Mar 2002 .. and I'm still stuck on expensing the grant. Sigh.) And the Achilles heel of my argument might be because I'm still ignoring the exercise. Regards, Ron P.S. Edited with about 3 minutes left.

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