Fantasyland ("fake") earnings, IMO.
Real FY earnings were $1.17.
Cisco should sell in local currencies and stop hedging for the Dollar.
Apple is doing this right as is Google. Have you noticed the various selling prices for the iPhone?
From the Cisco Annual Report, page 43:
We enter into foreign exchange forward contracts to reduce the short-term effects of foreign currency fluctuations on receivables, investments, and payables, primarily denominated in Australian, Canadian, Japanese, and several European currencies, including the euro and British pound. Our market risks associated with our foreign currency receivables, investments, and payables relate primarily to variances from our forecasted foreign currency transactions and balances.
The impact of foreign currency fluctuations on sales has not been material because our sales are primarily denominated in U.S. dollars. Approximately 75% of our operating expenses are U.S.-dollar denominated. ...
False. Of course it's been a material "impact".
And from page 77:
14. Subsequent Event
On August 17, 2007, the Company entered into a credit agreement with certain institutional lenders which provides for a $3.0 billion unsecured revolving credit facility that is scheduled to expire on August 17, 2012. Advances under the credit facility will accrue interest at rates that are equal to either (i) the higher of the Federal Funds rate plus 0.50% or Bank of America’s “prime rate” as announced from time to time, or (ii) LIBOR plus a margin that is based on the Company’s senior debt credit ratings as published by Standard & Poor’s Ratings Services and Moody’s Investors Service, Inc. In addition, the credit agreement requires that the Company maintain an interest coverage ratio as defined in the agreement. The Company may also, upon the agreement of either the then existing lenders or of additional lenders not currently parties to the agreement, increase the commitments under the credit facility up to a total of $5.0 billion, and/or extend the expiration date of the credit facility up to August 15, 2014. As of September 14, 2007, the Company had not borrowed any funds under the credit facility.
Why was Cisco hastily arranging a LOC in the midst of the panicky atmosphere of mid-August? Recall that on 8/16 CBOE options and NYSE volume were records. The put call ratio was over 1.00 for the 18th day in a row (it would hit 19 the next day and end).
The rate of provision (i) is the higher of 5.00% or 7.50%, which today is 7.50% which is about 350 bp over the comparable U.S. Treasury. I would guess that Cisco used to pay about 80 or 100 bp over.
That LOC rate is ridiculous, based on Cisco's past, and should be disregarded and cancelled and a new one negotiated. Or there's something I don't know that justifies it, for Cisco to seek it, and for Bank of America and the others to demand it.
Just to consider:
Some money market funds invested in subprime paper and lost big. Some lost 45%. Did Cisco keep its cash in U.S. Treasuries? Did Cisco have any impairment to its "cash"? I suppose they would have preannounced if they had. But maybe the net picture from a GAAP view has offsetting gains. And the quarter only ended Wednesday.
So it may not be Cisco, but somewhere, and I think multiple times, we will see major companies that lost money on their cash investments.
I don't like that LT debt rose over the course of FY 2007. Hopefully, it declined in Q1. |
