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Technology Stocks : Cisco Systems, Inc. (CSCO)

CSCO 75.19

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To: Hagar who wrote (19662)	12/4/1998 1:30:00 PM
From: Tulvio Durand	Read Replies (1) of 77400

Here is one more article on expensing purchased R&D that has gotten scrutiny from the SEC: fnews.yahoo.com Note in particular, the reference made to Cisco's doing same. ... Capitalizing the R&D is the superior method to use to accurately reflect earnings. Not only does it portray a more realistic picture of the economic earnings of the company, but it also shows on the balance sheet the real amount of invested capital a company uses. Take Cisco Systems (Nasdaq:CSCO - news) for example. Over the last three fiscal years, the company has expensed over $1 billion in purchased R&D. $700 million of that was immediate write-offs and about $300 million looks like amortization. If you add back those immediate write-offs to invested capital, invested capital at the end of fiscal 1998 would be about 10% higher. If you look at the world through the lens of return on invested capital (ROIC), then Cisco's ROIC would be a little bit lower, though still stellar. ... Tulvio

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