OK. I see this discussion has gone on too long. So, let me make a note of your posting. It's #22122. We will revisit this one later. And let's see what kind of contortions you will come up with at that time (of course, if you don't have the time to respond at that time, I can understand! <g>)
In parting, let me provide one more nugget of information. It may be lost on you, but let me put it here all the same :
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Standard options practice. . .
In April's edition of Bloomberg Magazine, Loren Steffi wrote an
article entitled "The Option Charade." It puts Cisco under the
microscope to discuss how much option issuance has helped the
company's bottom line. I've talked about this before, but folks
need to remember that a company's employee expenses are reduced
when employees get paid in options, but the company also gets a
tax break to increase its profits.
Believe it or not, U.S. tax law allows companies to deduct as a
corporate expense the capital gains paid by their employees when
they exercise their options. It's completely absurd, but it is
what it is, and this is another reason why tech earnings are
overstated. Last year, for example, Cisco got a boost of $837
million to its July 1999 fiscal year using that tax benefit,
which represented 40 percent of its $2.1 billion net income. Of
course, that wasn't in the earnings announcement - you had to go
to the cash flow table in the 10k to find that out.
Safety in numbers. . .
In this case we're using Cisco as an example - in other cases
we've used Microsoft - and this is not to pick on either of
those, but this is going on all over corporate America,
especially in technology. These behemoth tech stock earnings are
dramatically overstated, while at the same time their valuations
are completely absurd, which is why they're going to have so far
to fall. I know some folks don't like to read about this stuff,
but I continue to believe that being forewarned is better than
not knowing.
Author : fleckenstein@go2net.com
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