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

To: Boca_PETE who wrote (57682)	2/19/2002 2:00:55 PM
From: willcousa	Respond to of 77400

The reason corps get a deduction for certain stock options is because the employee gets taxed on the gains.

To: Boca_PETE who wrote (57682)	2/19/2002 2:28:08 PM
From: RetiredNow	Read Replies (2) \| Respond to of 77400

Hi Pete, there is an impact to the company in the form of the dilutive effect. You'll see it as an ever increasing number of shares used to calculated fully diluted EPS. In addition, there is the impact of the cash the company gets on the stock options exercise, which increases their cash position. Lastly, you'll see it as a decrease in the companies tax obligation, which temporarily increases net income. So there are all sorts of hidden impacts to the company, not all of them good.

To: Boca_PETE who wrote (57682)	2/19/2002 3:09:52 PM
From: Stock Farmer	Read Replies (1) \| Respond to of 77400

Hi Pete, I actually do get the distinction between the shareholders and employees and the company and who is buying what and from whom. The company issued shares to employees with a net value of $21 Billion in return for consideration worth $3 Billion. And it is perfectly technically valid to account for the employee's subsequent transaction just like every other "unrelated third party sale". Consequently the tax benefit is an absurd gift and folks don't understand accounting at all. Which is the thesis you are advocating. And one that I have always maintained as perfectly technically correct. But that same kind of reasoning is precisely what Enron used to "justify" the presentation of it's "technically legal" third party transactions. The issue in dispute goes to accounting effectively for the intent beyond the mere technicalities of relationship. Which intent in the case of stock options is to compensate employees. If the intent is to compensate employees, and the accounting treatment rests on a posture that any compensation occurs after the fact and without cause, then the accounting is not fairly presenting the economics in a truthful light. Regardless of how technically correct it is. You are arguing a technicality. And I agree: you are correct. But that doesn't mean you are right. We might leave it there at some moral doorstep and agree to disagree and go on. But there is a further issue here that seems to go beyond the numbers. You can blow off the reasoning of the IRS as goofy tax stuff (you'd be in good company). But how do you address the issue in my post to Lizzie: Message 17082181 Where are we supposed to account for the difference between Company A with an apparent cost of labor of $100K/year, versus Company B with an apparent cost of labor of $300K/year. Particularly if the difference in profitability is dwarfed by the difference in apparent versus actual compensation. I submit to you that this very real economic fact is at the heart of the issue, and that most people have neither the time nor the energy nor the ability to parse through a company's financial statements to devine its actual cost of business. That's what good accounting principles are supposed to resolve for us. Not obfuscate. IMHO. John P.S. Not an accountant, obviously.