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Technology Stocks : Cisco Systems, Inc. (CSCO)
CSCO 74.59+0.3%Jan 23 9:30 AM EST
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To: rkral who wrote (63052)2/10/2003 5:49:32 PM
From: Stock Farmer  Read Replies (1) of 77400
 
Hi Ron,

Yes. I assumed that any tax benefit from stock options would have arisen as a consequence of the Statutory Corporate Tax Rate applied to a pre-tax effective cost. And I assumed the origin of this effective cost was the realized proceeds.

But we can use indirect methods to triangulate on the same data points. Back in 2000 I did that for the thread. Can't find the post but it's easy to duplicate.

Look in the 10-K. In the consolidated statement of shareholder's equity you see they completed purchase acquisitions in the amount of $4,162 by issuing 78 million shares. The average price of the shares issued for acquisition was $53.36

In the notes under Stock Options they saw 176 million options exercised for average strike price of $5.75 each. I computed a pre-tax employee compensation for these 176 million options of $8,791 based on retrofitting tax rates to the tax benefit. Divide that by 176 million to get $49.94 as the average benefit, putting the average price of exercised shares at $55.69 [edit corrected]

The average daily high price of Cisco from 29 July '99 to 29 July '00 was $52.96 based on Yahoo historical quotes.

So I have three methods of arriving at average stock price through '99


Market Average          52.96   Dev  -1.04  (-2%)
Purchase Average        53.36   Dev  -0.64  (-1%)
Exercise Average        55.69   Dev  +1.69  (+3%)
Average Average         54.00   Dev   0.00
[edit: corrected]


These triangulate to within about 3% of average, which is pretty darn close for something so volatile as stock price.

You can do the same calculation for each year if you like.

As far as getting tangled up in negative effective tax rates (or effective tax rates for that matter)... not a place I am willing to go. The tax code is a tangled mess where it is possible to earn money but pay no taxes and lose money and still have to pay taxes. Bleaugh!

John
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