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To: Johnny_Blaze_420 who wrote (33358)	6/14/2001 6:26:39 PM
From: James Calladine	Respond to of 42804

OFF TOPIC--CSCO (interesting post from the CSCO thread) To:Mucho Maas who wrote (53641) From: John Shannon Thursday, Jun 14, 2001 12:58 PM View Replies (1) \| Respond to of 53652 Mucho - >>plunging stock price may help CSCO's cash flow in the near term if lots of those options are exercised while they are still in the money<< Yes, I was trying to figure that out myself. Very few people understand how important stock option exercise has been to Cisco's business model. Cash flow impact shows up in two places (a) under operating activities in the form of tax benefit, and (b) under financing activities in the form of stock issuance. To reference the importance, in FY 2000 these two line items contributed 4,059 B$ to CSCO's cash flow, or more than all other operating activities combined. That's important!!! Indeed if options are excluded, CSCO's cash flow in 2000 would have been negative! Now, to answer your question it is not easy. CSCO does not break down cash flow by quarters. Only provided the 9 month view in Q3. But we have the 3 month view from Q1, the 6 month view from Q2 and the 9 month view from Q3. So we can de-construct the cash flow. You will be surprised with what I discovered. First, cash flow contribution from option exercise itself. That is increasing. 3 months ending Q1: 338 M 6 months ending Q2: 698 M 9 months ending Q3: 1,106 M Gives 338, 360 and 408 M$ in Q's 1 through 3 respectively. So as you indicated, cash flow contribution seems to be increasing. However, this may be due to an increase in strike price rather than an increase in option volume. We won't know until the 10K is published. But check out the tax benefit: 3 months ending Q1: 985 M 6 months ending Q2: 1,662 M 9 months ending Q3: 705 M This gives the surprising result of 985, 677 and (957) M$ cash contribution in Q's 1 through 3 respectively!!! Yes, that's right. A rapidly declining and even negative tax benefit! I hazard a guess this is due to (a) a declining difference between strike price and market price which reduces employee benefit, and (b) an increase in ratio of ISO options versus NQ options (the big kahuna dudes are cashing out!). When you add the stock option cash contribution together you get: 1,323 ; 1,037 and (549) net cash contribution in Q's 1 through 3 respectively. Basicly, the option-go-round looks like it is beginning to spin in reverse. John.