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

To: Stock Farmer who wrote (61596)	10/3/2002 3:45:34 PM
From: Wyätt Gwyön	Respond to of 77400

hi John, And yes, while we did not agree on what that single digit price might be, we did include dilution. the thing is, dilution does not account for all of the expense of options. the options have a real value over and above any eventual dilution. to give a simple example: imagine a company that paid all its bills by issuing new shares (or options). this is theoretically possible, and indeed there ought to be a finite number of shares (or options) that any vendor to the company would find acceptable in lieu of cash payment. what would the income and cash flow statements of this company look like? they would have 100% margins! the company could argue that they didn't need to expense the new shares with which they paid their electric bill, because EPS would be diluted. but obviously, seeing 100% margins on the income statement would tell us nothing about the economic reality of this company. similarly, while accounting for options-related dilution is needed to factor future cash flows, it does not dismiss the economic reality that options issuance is a transfer of economic value. CSCO has basically admitted, in an SEC filing as far as i know, that its income would have been reduced by 80% just by expensing options (correct me if i'm wrong but i believe CSCO issued such a filing recently).