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Technology Stocks : Cisco Systems, Inc. (CSCO) -- Ignore unavailable to you. Want to Upgrade?

To: Adam Nash who wrote (47592)	1/30/2001 8:59:46 PM
From: Wyätt Gwyön	Read Replies (1) \| Respond to of 77400

The question is where to account for equity issuance. It isn't a simple question I think there's another way to look at it. First, a general point: the option has value to the employee from the time that it is issued, not just whenever he/she exercises. That value was transferred from co. to the employee at issuance, so for the sake of timeliness, recognition of the value at the time it is granted (or in stages, to accomodate vesting) seems warranted. Now to the specifics: What exactly is an option worth when issued? Take a look at listed options. They all have a price, regardless of whether they're in the money or not. 10-year options are like LEAPS, but even more valuable since LEAPS only go out about 2 years and 9 months. Let's say you just got hired at Cisco and were given an option on 100 shares with a strike price of 40. What is that worth? Look at the CBOE: right now, the ask on a CSCO 2003 40-strike LEAPS call is 13 3/8. That is, $1,337.50, and that expires in just two years. So I would think 100 employee options with a 40-strike and a ten-year expiration would be worth that much. If companies were so inclined, they could hire some derivatives gurus to figure out just how much these 10-year contracts are worth. Heck, the SEC could be the sponsor! That way, a company could issue the option, write off the imputed value at issuance, or incrementally according to the vesting schedule. This is your addition, and it is pretty funny. I meant to change that back to the original ("And if an expense shouldn't count against earnings, where should it go?"), but I was having trouble with SI.