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Technology Stocks : Cisco Systems, Inc. (CSCO)

CSCO 77.04

-0.5%

3:59 PM EST

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To: Stock Farmer who wrote (57657)	2/19/2002 7:35:49 AM
From: Boca_PETE	Read Replies (2) of 77400

John Shannon - I complement you on the clear way you set out all of the relevant numbers from CISCO's reports. To me, it makes absolutely no sense to say CISCO "shareholders parted with $21 billions" when that $21 billions ended up being received by CISCO employee shareholders who bought their shares from the company for $3,052. IMHO, the payment of $21 billions by one group of CISCO shareholders to another group of CISCO shareholders has nothing to do with CISCO itself. Because accounting should ultimately follow economics (cash flows), this is the crux of why IMHO it makes absolutely no sense for CISCO or any other company to book stock option compensation expense. The undeniable economic reality is that this so-called stock option compensation expense is never funded by CISCO - it's funded by other existing or new shareholders of CISCO directly and it accountable in the books of the funding shareholder as CISCO share cost basis, not on the books of CISCO as an expense of CISCO. Instead, CISCO itself actually receives $3,052 cash from employees exercising their stock option which results in an expansion of raised capital and receives $6,091 in cash from the IRS in the form of reduced corporate income taxes payable which increases CISCO's net income and retained earnings. When you say "This is not exactly a sustainable recipe for 'get rich quick'", I would respond that the price of CISCO's stock and all other stock is based on supply and demand. When investors lose sight of what they are buying when they buy stock in a company (ie. the present value of future dividends and earnings), stocks get valued like tulips got valued in Holland hundreds of years ago. The blame for this overvaluation can only be laid at the steps of the investor. P

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