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

To: Don Lloyd who wrote (64521)	9/14/2003 10:26:23 AM
From: PerryA	Read Replies (2) \| Respond to of 77400

It is the shareholders who actually pay stock and option compensation expenses. They can pay it in ownership dilution .... Doesn't matter. They have confused you by combining a financing activity with the compensation activity. The combination means that corporations can pay people without the use of cash and that shareholders risk dilution, but don't let that through you off. It is still an expense paid by the company. Regards, PerryA

To: Don Lloyd who wrote (64521)	9/14/2003 11:00:50 AM
From: RetiredNow	Read Replies (1) \| Respond to of 77400

Don, let's say you are the owner of a Burger King and you need buy some meat to make burgers to sell to keep the business going. When you pay cash for that meat, you record the expense, because cash came out of your bank account. But let's say you don't have enough cash. So let's say you pay your meat suppliers with stock options instead. You decide that this isn't an expense because you paid with dilution of your ownership instead of cash. You can do whatever you want on the financial statements since you are a privately owned business and are not required to publish them or get them audited. Now all of a sudden your gross margins are much higher than they used to be, because you just sold a bunch of burgers for which there was no associated cost recorded in your financial statements. You must be a genious to have made your company more profitable than it used to be. You are impressed with yourself, so you continue to give out stock options for all of your other expenses until you've given away all your shares. Then one day, your suppliers start telling you they don't like the way you are running your business and they want to make some changes. You say, hold on there. I'm the owner. No one tells me what to do with my business. They say, well not anymore. We own your business and you have no controlling interest. In fact, you find that you have steadily lost net worth as you gave away your business, until you have no net worth left. But how can that be? Your financial statements said you had very healthy margins and your cash flow was great. How is it that you who used to be the only shareholder are now broke? This is exactly what happens when companies like Cisco continue to give out stock options without recording the expense. They are giving away value to employees that really belongs to shareholders, without telling the shareholders how much it is costing them and how much they are going to get in return. The bottom line is you can lie to yourself all you want and say that giving out stock options is not an expense, but in the end it will always catch up with you. So it's much more prudent to realize it's an expense, record it as such, and then be fully aware of how much it's costing you, so that you can make sure you are really getting the return on that investment.