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

To: Stock Farmer who wrote (47653)	1/31/2001 4:08:08 PM
From: GVTucker	Read Replies (1) \| Respond to of 77400

The Economist has a good article on the whole stock option and pooling of interest thing. It is a pay site, so I'm pretty sure if you're not a subscriber this link won't work, but here it is nonetheless: economist.com Here's a part that specifically talks about Cisco: Cisco, that bellwether growth company, is one that sceptical accountants love to get their teeth into. There is no doubt that the company is growing. What is more doubtful, given its stock-option programme and its questionable use of pooling, is whether that growth benefits its shareholders. Abraham Briloff, a professor of accounting at Baruch College, New York, analysed the company for Barron’s, a financial weekly. In the financial year that ended in July 2000, the firm bought 12 other companies at a cost of $16 billion, all of them paid for with its shares. Five of these purchases, worth some $1.2 billion (though showing up as a cost of $1m), were not thought important enough to have to restate its previous year’s profits. The other seven, for which Cisco paid a total of $14.8 billion, were recorded as costing a mere $133m. Thus, thanks to pooling, did $16 billion-worth of acquisitions turn into $134m-worth of costs. Moreover, argues Jim Grant of Grant’s Interest Rate Observer, if the dilution for previous years had been correctly calculated, earnings per share would not have shown a rise from 29 cents to 36 cents, but, thanks partly to its prolific shares issuance, would have started and finished at 31 cents. Silicon Valley, once again, has kicked up an almighty fuss about scrapping pooling, complaining that such a move would make it too costly to do deals. This time, however, the FASB seems to be holding firm, not least because it wants the costs of a takeover to be recorded accurately. “What is it really saying, that if I have to report the price I can’t afford to do the deal?”, asks one FASB member. The effects of scrapping pooling are likely to be twofold. For a start, because pooling, like stock options, flatters reported profits, firms’ managers will have to work harder to increase their earnings per share. Second, America’s mergers-and-acquisitions boom will slow, perhaps dramatically. Shareholders should rejoice at both.