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Sisyphus 12/5/2012 | 1:20:28 AM
re: Cisco Renews Options Parade ...aren't these options part of the war-chest for M&A, too? Is this increase over last year an indication of Cisco's intent to again grow through aquisition? Worked pre-2000.. :-)

Never been to sure how these stock option pools work for M&A - I just assume they're used for those aquisitons where it's stated it's "in stock". The 160M options represent roughly $3B. That would result in *very* generous grants to employees if it really is all used for that purpose... so the math does not quite pan out in my book, but perhaps I am underestimating how quickly they go away if one considers the usual multipliers from Sr Director upwards, and Cisco sure has a lot of VPs these days!
DoTheMath 12/5/2012 | 1:20:22 AM
re: Cisco Renews Options Parade Sisyphus wrote>Never been to sure how these stock option pools work for M&A - I just assume they're used for those aquisitons where it's stated it's "in stock". The 160M options represent roughly $3B. That would result in *very* generous grants to employees if it really is all used for that purpose... so the math does not quite pan out in my book, but perhaps I am underestimating how quickly they go away if one considers the usual multipliers from Sr Director upwards, and Cisco sure has a lot of VPs these days!
-------------------

I don't believe these represent the war-chest for M&A. That is not (mostly) from the *option* pool, that is just straight stock, though employees of acquired companies may get some options exchanged.

So the 160M options don't mean $3 billion to employees, because the employees only have the *option* to purchase it at current prices (approx. $20) - they still have to come up with the $20/share. Still, there is definite value transferred here. I estimate that these options are worth at least $4-5 per option, so as of grant date, but almost all of it is the "time value" of having such an option. If they were to expense it as they should (there is value transferred to employees from the shareholders), it would wipe out a substantial portion of one quarter's profits.

Cisco is defiantly bucking the trend towards options expensing. They seem to think this issue will blow over; I believe the next stock market downturn will put paid to such hopes.

jim_smith 12/5/2012 | 1:20:18 AM
re: Cisco Renews Options Parade Cisco is defiantly bucking the trend towards options expensing.

I keep hearing conflicting remarks about the options expensing thingy.

So, is the new options expensing law going into effect Jan 1, 2005 or not?
particle_man 12/5/2012 | 1:20:16 AM
re: Cisco Renews Options Parade It suddenly struck me that if Cisco expensed options that they would write off the expense. I wonder what the tax difference is for the Feds if Cisco's FASB income drops from $3B to $2.1B? At a 20% tax rate you are talking about $180M. If the entire F500 did this you are into multiple billions!

Expensing options will not influence cash flow, so I wonder why more corporations don't support it just for the tax angle?

Maybe one of the financial guys lurking on this board can weigh in.
green 12/5/2012 | 1:20:15 AM
re: Cisco Renews Options Parade hi,

I doubt if any of the tech companies pay taxes. it is perfectly legal to report earning under GAAP for investors but report zero income to the IRS using different accounting rules. I don't blame them. anything you give to the government goes down the black hole and you will never see even 1 cent of benefit. politicans either want to spend on war or social programs.
beowulf888 12/5/2012 | 1:20:15 AM
re: Cisco Renews Options Parade If the options do not get exercised before they expire (and sizeable percentage expire without being exercised), does the company have to count those expired options as income?

Curious minds want to know...
--Beo
startup_shutup 12/5/2012 | 1:20:07 AM
re: Cisco Renews Options Parade I hope this does -- this "right to print money"
got to stop. Not expensing option is a huge
loophole.....
Stevery 12/5/2012 | 1:20:06 AM
re: Cisco Renews Options Parade It suddenly struck me that if Cisco expensed options that they would write off the expense.

I seem to remember that options are expensed for the purposes of taxes, just not for for the purpose of reporting to the investors.

It's really pretty silly that companies aren't required to report the IRS-income as the bottom line, because it provides a natural check and balance. Chambers can inflate the earnings all he wants, and the CFO can then point out that a huge chunk of change then needs to be paid to the taxman.

Several reporting problems would then take care of themselves, unless there's a burning desire on the part of executive leadership to contribute $$ for high payback ventures such as Iraq.

steve 12/5/2012 | 1:20:03 AM
re: Cisco Renews Options Parade This is the problem with the idea of expensing stock options. Research analysts, when doing there eps projections, include all options in the denominator (perhaps using the treasury stock method to net out the effect of money received for the exercise of stock options). So they are already reducing earnings by showing up in the denominator. The proposal to expense options would put in a (relatively arbitrary) cash charge, reducing net income, now reducing the numerator. This is why expensing is so stupid - you are double counting option expense by reducing the numerator (net income) and increasing the denominator (shares). If you had some kind of economically rational vehicle to value them, sure go ahead. But Black Scholes and other methods are ridiculous, particularly when applied to a technology stock.
lightbay 12/5/2012 | 1:20:02 AM
re: Cisco Renews Options Parade Are these options counted in the total outstanding shares that is used when Cisco reports next quarter ? Are they counted

- only when vested ?
- only when vested and not underwater ?
- always counted in the total # of shares ?
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