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Technology Stocks : LSI Corporation

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To: The Phoenix who wrote (22129)	5/7/2000 3:06:00 PM
From: lawdog	Read Replies (1) of 25814

Gary, I just have to straighten out this mangled mess of concepts you have put into this post. <<Cisco distributes NQ's - there are no capital gains. The writer didn't do his due diligence>> He used capital gain to mean income that occurs from capital appreciation of CSCO shares. It is not "capital gain" in the tax code sense, but the author is not wrong simply because he failed to use a term of art properly. <<There is a "tax benefit" gain on the income statement however it is not included in per share earnings>> The tax benefit, which is broken out on the cash flows stmt., is a result of the way that income taxes are calculated for financial reporting as opposed to reporting to the I.R.S. Typically, companies follow a separate set of rules for financial reporting than the I.R.C. mandates. It has been a long time since I have computed deferred income taxes but I believe that you would find that the income taxes that would be due if CSCO were not allowed this extra comp. deduction are excluded from the income tax expense off the income stmt because it is a permanant differce between taxes per financial reporting and income tax reporting. If financial reporting followed the income tax reporting concepts, the additional comp expense would be taken out of income in G&A. THEN it would be reflected in the P&L. If the taxes were a timing differnce (a la depreciation) it would be reflected in the income stmt and become part of a deferred tax asset ot liability. But it's been a while so I may have this wrong. If anyone else knows, please chime in. <<The point is CSCO repurchased $323M in CSCO stock for options grants in 1998. When the grantees exercise their options there is a capital gain to CSCO. This is where that income is coming from. And... well... the law requires corporations to reflect capital gains regardless of where they come from...>> A corporation does not recognize gain or loss on the sale of its own stock. I believe the approriate section is 1032. Besides a tax benefit is not created when more income is included on a tax return, that would be a tax detriment. CSCO has a deduction in the amount of income that the employee includes in income from the option exercise. That is the tax benefit.

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