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

To: Lazarus_Long who wrote (67256)	3/9/2005 4:13:20 PM
From: Stock Farmer	Respond to of 77400

"There are terms in that equation which are guesswoek at best and allow management a great deal of wiggle room." Yes... and no. In the first place, Sarbanes-Oxley has some very sharp teeth, and any attempted wiggling will be subject to a lot of retrospective analysis. Perhaps while option expense was just a footnote in an obscure part of the 10-K, a few companies might have been tempted to be creative in their choice of assumptions. But anything that will be right there on the income statement... well, those assumptions had better be iron clad... or else. In the second place, it's all relative. In the end it's important to use AN estimate for the cost of stock options. Historically we have used the estimate of "0", which is the absolute maximum wiggle room possible. So any attempted wiggling will be less than the wriggling, jiggling, jiving convulsions that have been going on already.

To: Lazarus_Long who wrote (67256)	3/10/2005 9:02:45 AM
From: rkral	Read Replies (4) \| Respond to of 77400

Lazarus_Long, re "There are terms in that equation which are guesswoek at best and allow management a great deal of wiggle room." Judging by fair values of options for fiscal 2004 and 2005 YTD, I think Cisco's wiggling has already begun. For 2004, the fair value of 195MM options with a (weighted-average) exercise of $20.00 was estimated to be $8.77. For 2005 YTD, the fair value of 174MM options with a $19.34 exercise is only $6.19. How did the fair value (read expense per option share) decrease 29.4% even though the exercise decreased only 3.3%? It's primarily due to the decrease in estimated (weighted average) option life from 5.6 years to 3.3 years. IMO this change was mainly driven by Cisco's expectation that mandatory option expensing might really happen. Ron