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Technology Stocks : Cisco Systems, Inc. (CSCO) -- Ignore unavailable to you. Want to Upgrade?

To: bambs who wrote (41288)	10/23/2000 9:23:52 AM
From: The Phoenix	Read Replies (2) \| Respond to of 77397

Like I said Bambs, CSCO IR would likely not want to add any credibility to the Parrish piece. In these cases the proper response is to say nothing. The piece was a poor piece of work and your continued desire to discuss it is keeping it alive - when most have dis-credited the piece. Hey, I mean, he called JDSU a competitor. He obviously doesn't know what he's talking about.

To: bambs who wrote (41288)	10/23/2000 11:04:13 AM
From: GVTucker	Respond to of 77397

Well, I have been meaning to get around to the CSCO 10-K in a little detail. This has given me a good excuse to nose around. First, the shares outstanding. As of 22 September 2000, these were a total of 7,041,991,896 shares outstanding. The total number of shares related to employee stock options as of 29 July 2000 is 971 million shares. Thus, the total potentially outstanding is at most 8.013 billion shares. The actual number is undoubtedly less, depending on how many employees exercised and purchased shares between 29 July and 22 Sep this year. Note that the number of employee options that are actually exercisable in the next year is 418 million shares, not 971 million, so that 8+ billion number is purely theoretical for at least the next year, unless Cisco's steps up its already ambitious acquisition pace. Here's how I think Parish came up with his flawed number: First he probably took the diluted shares from the balance sheet, which is 7,438mm. Then, he probably added the total number of employee options of 971mm, which gets you to 8,409mm. Most likely he rounded the number up to 8,500mm just for publicity effect. Alternatively, he might have used the 123mm shares in the employee stock purchase plan to add to his number, getting a total theoretical shares of 8,532mm. (Employees under this plan can purchase Cisco shares at 85% of market price.) The main place that Parish most probably erred is in adding the 971mm number to the 7,438mm number. In the 7,438mm number already is the dilutive portion of employee options, namely 521mm shares, thus leaving only 450mm shares left that would be additionally diluted. This alone gets you pretty close to the 8 billion share number, which is still pretty aggressive and probably not the most accurate. Additionally, if he used the 123mm in the employee stock purchase plan, note that last year, only 14mm shares were purchased through that plan, meaning that using the whole 123mm as potentially dilutive would be way off the mark. As I noted before, however, he probably just rounded up to 8.5 billion shares instead. Next, while Parish is basically right in the option exposure to shareholders (and in fact this number has grown even bigger in the past year, so he actually understates it), I think that it is inaccurate to label it option debt, given that this is not a cash outflow, only a dilutive issuance of shares, which in my mind is different. Note also that Parish is using an old number from the 1999 10-K to get his estimate. Since then, the employee options exposure has gotten notable larger. According to the SFAS 123 pro forma disclosure, which I think is where Parish got his original number, the weighted average estimate of employee stock options in FY 1999 came ot $8.40 per share. In FY 2000, that number grew to $19.44. He's gonna go nuts when he sees that number. Get ready for the headline, "CISCO'S OPTIONS EXPOSURE EXPLODES!!!"