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

To: RetiredNow who wrote (57225)	2/7/2002 9:35:50 AM
From: James Calladine	Read Replies (1) \| Respond to of 77400

PRO FORMA MARGINS(a primer for the naive) In using Designer-based Margin Accounting(DMA) you have to be careful. Pro forma margins exceeding 100% are viewed with suspicion in the post-Enron environment! Here are some tips on how to do the job neatly and well. Start with your sales figure. Then, from it you must deduct (according to the most benign formula possible) the MINIMUM raw material costs, which will enable material asset costs to remain high. It is helpful if you write off MAJOR chip costs as redudant in one-time charges. Who is to know which ones were junked and which ones were actually used? Then deduct direct labor costs (after having moved as much of these into "one-time charges", by virtue of plant closings, redundancies, etc). Or if you are doing a lot of acquisitions, make sure you dump everything AND the kitchen sink into the to be acquired company BEFORE you acquire it). Our friends in TYC wrote the book on that one! Even better, if you have had the foresight to create an off-balance sheet development company, all of the product development costs are in there, and you can then just pay a very low royalty to that company on a per unit basis. Of course that leaves HUGE losses in the development company, but since you have funded the development company by shares, and your partners in the development company have come up with the cash, there is a little tidying up to do! No problem! Eventually the development company has to be closed down with huge losses, but with the right financial engineering you can flow much of those losses back into the company anyway! You will need them, because of the big profits you are generating through DMA! Without going on forever, it should just be stated that, with the wonders of DMA, your margins can be the highest in your industry, and then some. But because analysts LOVE to see increasing margins, you should try to give them something like a quarter point or so increase each quarter. But If you establish your rate of increase too high you can reach the dreaded 100% margin level too quickly. As always, prudent optimism is recommended. Namaste! Jim

To: RetiredNow who wrote (57225)	2/7/2002 9:44:27 AM
From: GVTucker	Read Replies (2) \| Respond to of 77400

mindmeld, RE: Every quarter, they recognize some deferred revenue. That's just a regular part of the business. So if you start pulling deferred revenue out every quarter, then you are misstating the picture. It's like saying I'm only going to give you credit for sales that you sold and booked this quarter. Sheesh, you're missing the point. Most quarters this is a contra-revenue item. It normally lowers revenues and provides some cushion to future revenues. Yes, they recognize some deferred revenue, but they usually book even more to be recognized in the future. In this quarter, this line item was a positive number, which is unusual for Cisco. That provides much less of a cushion for future revenues. This is a big reason why Chambers was reluctant to give a forward looking forecast, because his visibility is not as good as it usually is, and he doesn't have the cushion that he normally does.