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

To: hueyone who wrote (60263)	7/12/2002 9:35:33 AM
From: hueyone	Respond to of 77400

online.wsj.com; FROM THE ARCHIVES: July 10, 2002 Stock-Options Reforms Face Long Odds With Lawmakers By GREG IP Staff Reporter of THE WALL STREET JOURNAL WASHINGTON -- Though WorldCom Inc.'s earnings misstatement has galvanized efforts to overhaul accounting standards and corporate governance, it hasn't done the same for tougher accounting treatment of stock options. Several lawmakers are mulling over amendments to a Senate accounting bill that would require companies to deduct the value of stock-options grants from their income, and it is possible the current anxiety over corporate executives' behavior could propel them into law. But so far, those efforts appear to have little broad-based support in either party, and certainly not in the White House -- thanks in part to an effective lobbying campaign by the high-tech industry, an increasingly important donor to both parties in recent years. Lesser reforms, such as requiring shareholder approval for all stock-options plans, are more likely. Indeed, shareholder approval was the only measure affecting stock options that President Bush called for in his speech on corporate governance Tuesday. In the mid-1990s, the Financial Accounting Standards Board tried to mandate the expensing of options but backed down in the face of fierce industry and congressional opposition. The issue flared up again after Enron Corp.'s demise late last year. Enron executives made millions of dollars converting options to stock, which they then sold before the company collapsed. Wasteful Expenditures Many critics since have argued that generous options grants during the bull market tempted executives to bend accounting rules or commit fraud to boost their stock and enrich themselves. Federal Reserve Chairman Alan Greenspan has said that companies' ability to pay employees through options grants without deducting them as an expense overstates their profits and results in investors allocating capital to wasteful projects, hurting economic growth. Furthermore, companies appear to enjoy a double standard: though they don't have to count options grants as an expense in reports to shareholders, they are permitted to deduct them as an expense for tax purposes. Proponents argue that though options dilute shareholders' ownership, they don't result in a cash outlay by the company. Expensing them would hurt tech companies' ability to raise capital and result in the abandonment of such plans, which now benefit many lower-level employees along with executives, they argue. Earlier this year, senators Carl Levin (D., Mich.) and John McCain (R., Ariz.) introduced a bill that would require any company that treated options as an expense for tax purposes to do the same in its financial statements. Tech lobbyists swung into action. "We had a bunch of CEOs talk to a lot of senators and congressmen in both parties, and reminded them of what we talked about for years," said Rick White, head of TechNet, a Silicon Valley trade group with more than 250 technology and biotech members. Lobbyists still worried, however, that WorldCom's disclosures two weeks ago would resurrect stock-options expensing. They have spent the past week calling on senators and their staff to shore up opposition to changing the treatment of options. Mr. White said famed venture capitalist John Doerr telephoned Senate Majority Leader Tom Daschle (D., S.D.) recently to see if WorldCom had "changed people's minds ... the sense was Sen. Daschle and most members still understand that stock options are important." Mr. Doerr couldn't be reached for comment Tuesday. A Daschle spokeswoman said he hasn't taken a stance on the issue. Spokesmen for Sens. Levin and McCain said they were still considering whether to introduce their bill as an amendment to the larger accounting bill introduced by Banking Committee Chairman Paul Sarbanes (D., Md.). But such an amendment faces large obstacles. Since their bill has tax-revenue implications, it could create procedural hurdles as revenue bills generally must originate in the House. Furthermore, while supporters of the bill say they have momentum, they concede they may not have enough votes. Sen. McCain may pursue legislation later that could go even further, by requiring executives who are paid in company stock to hold onto it until after they leave the company. Possible Amendment Some senators are mulling over a compromise to require the Securities and Exchange Commission to study the issue. That was part of an accounting bill pushed earlier this year by Sens. Jon Corzine (D., N.J.) and Christopher Dodd (D., Conn.). Mr. Corzine, an advocate of options expensing, didn't press for the study to be required by the original Sarbanes bill for the sake of other priorities on auditor independence and standard setting, a spokesman said, but he may introduce it as an amendment. Sen. Mike Enzi (R., Wyo.), an opponent of expensing stock options, is also working on an amendment asking the SEC for a broad study on stock options, not just on the merits of expensing, a spokeswoman said. Proponents of tighter reins on options appear headed for one victory: shareholder approval of all stock options. Now, only some are approved by shareholders. The New York Stock Exchange has proposed requiring all plans to require shareholder approval, while the Nasdaq Stock Market has proposed that only plans that include officers and directors require it. Write to Greg Ip at greg.ip@wsj.com Updated July 10, 2002 12:57 a.m. EDT

To: hueyone who wrote (60263)	7/12/2002 10:13:37 AM
From: RetiredNow	Respond to of 77400

Hi Hueyone, I think the bill was killed too, unfortunately. However, as to how it should be calculated, I favor the calculation that most accurately reflect the actual expense the company is impacted with. My guess is that would the actual FMV less the strike price should be recorded as the expense within G&A. If you calculate it this way, then take $51 million divided by 30% marginal tax rate and you get $170 million. Divide that by $1,121 million net income and you get a 15% effect for the first 9 months of FY02 for Cisco. That's large, but still not as large at the 67% that ML calculates.