I really liked that post about vendor financing yesterday on the Wrap as well. Of course, I was immediately skeptical. Sometimes Fleck has been known to take things out of context or stretch the truth.
So I thought about it for a while and said "Nah, he's blowin' smoke. If CSCO were really giving away the equipment in return for questionable equity stakes, then their cash flow would be practically zilch." So I popped up the cash flow numbers for nine months (full year wasn't yet on EDGAR), and they were cash flow positive $2.65B, a little more than their net income. Case closed, right?
Wrong. I thought about it a little more. Wait a minute - they've got all those option exercises going on. That results in a huge cash flow into company coffers that shows up on the cash flow statement but not the income statement. Adding up the option exercises (Issuance of Common Stock)and the associated tax break (Tax Benefit from Employee Stock Option Plans), you get $1.93B. Now, backing out the BS option effects from the cash flow ($2.65B - $1.93B), you are left with a $500B company with a mere $720M positive cash flow for the nine month period. Annualize it, and you see that Sickso is trading for roughly 500 times annual cash flow.
I know, I know - what the hell is an idiot like me doing reading a cash flow statement. "We don't care PE any more." Shut up and buy. Well, at a $500B market cap, the magnitude of malinvestment going on here is large enough to take down medium sized countries. Consider that GE, CSCO, MSFT, and INTC together comprise over $2 TRILLION in market cap. If these things end up giving up over 50% of their value, the negative wealth effect is going to be impressive.
BC
Nine Months Ended
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April 29, May 1,
2000 1999
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(Unaudited)
Cash flows from operating activities:
Net income $ 1,907 $ 1,427
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 492 335
Deferred income taxes (330) (195)
Tax benefits from employee stock option plans 930 679
Adjustments to conform fiscal year ends of
pooled acquisitions (18) 1
In-process research and development 912 298
Change in operating assets and liabilities:
Accounts receivable (631) 19
Inventories (196) (266)
Prepaid expenses and other current assets (23) (26)
Income taxes payable 305 110
Accounts payable 149 100
Accrued payroll and related expenses 235 88
Other accrued liabilities 788 329
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Net cash provided by operating activities 4,520 2,899
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Cash flows from investing activities:
Purchases of short-term investments (1,431) (833)
Proceeds from sales and maturities of short-term
investments 1,428 1,179
Purchases of investments (9,797) (3,977)
Proceeds from sales and maturities of investments 8,775 1,338
Purchases of restricted investments (272) (661)
Proceeds from sales and maturities of restricted
investments 181 408
Acquisition of property and equipment (666) (385)
Acquisition of businesses, net of cash
acquired and in-process research and development 34 (19)
Increase in lease receivables (397) (175)
Other (722) (196)
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Net cash used in investing activities (2,867) (3,321)
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Cash flows from financing activities:
Issuance of common stock 1,005 675
Other (2) 5
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Net cash provided by financing activities 1,003 680
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Net increase in cash and cash equivalents 2,656 258
Cash and cash equivalents, beginning of period 886 609
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Cash and cash equivalents, end of period $ 3,542 $ 867
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