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

To: Boca_PETE who wrote (57663)	2/19/2002 11:01:59 AM
From: Stock Farmer	Read Replies (2) \| Respond to of 77400

To me, it makes absolutely no sense to say CISCO "shareholders parted with $21 billions" when that $21 billions ended up being received by CISCO employee shareholders who bought their shares from the company for $3,052. If you hold this view, why is it then that the company should have received $6 billions of taxpayer money? The key is in this sentence: "Because accounting should ultimately follow economics (cash flows)" to which the physicist in me agrees partially and merely responds with "across what boundary". Because in fact, stock options have precisely zero economic value. So any accounting which ends up with non-zero economic value is clearly flawed. And an accounting that always ends up with zero economic value is clearly correct. And we can draw a variety of boundaries, all of which will show perfect "zero economic value", some of which are less representative of reality than others. For example, current accounting will show that company benefits by 9 Billions, the IRS gives up 6 Billions, and employees are out by 3 billions to net all effects to zero. Which is a perfectly accurate "accounting" perspective. Not altogether representative of what is going on (neither employees nor IRS are behaving charitably), but perfect accounting nonetheless. There are other boundaries that also result in the same zero sum, and which are more representative of what is going on. For example, the one adopted by the IRS. According to the IRS the company parted with value-in-kind that has a recognized cash value of $21 Billions. Which value-in-kind was transmitted to employees, who paid 3 billions to the company and monetized the value in the open market (instead of the company). To the tune of approximately 21 billions minus that cost of 3 billions for a net benefit of 18 billions. According to employees, for example, as a sole result of stock option exercise, about 18 billions of cash or market value in equity ownership flows into their pockets, net of expenses. According to shareholders, 21 Billions worth of shares were printed, for which they received only 3 Billions in cash flow. And 18 Billion worth of highly incented employees. Overlayed on this is the tax flow, which has an imputed employment cost of 18 billions to the company (and a tax credit of 6 billions), and an imputed income of 18 billions to the employee (plus tax consequences). The sum of these effects nets out to the appropriate economic zero and therefore is also a perfectly valid accounting of the economics. One which is more representative of what is really going on. IMHO.

To: Boca_PETE who wrote (57663)	2/19/2002 1:12:57 PM
From: RetiredNow	Read Replies (2) \| Respond to of 77400

Interesting concepts Pete. My only problem with it is that the company's stock price is harmed in the long run. The net result of this transfer of cash from external to internal shareholders and the company itself is that o/s shares continue to grow at an alarming rate. That means that earnings on a per share basis continue to shrink. It's getting harder for the company to provide decent EPS because the earnings are split over a larger set of shares. That means that discounted cash flow per share suffers and ultimately the stock price suffers. So these shenanigans are cost shareholders coming and going. Coming - cash transfer to internal shareholders. Going - long term loss of share price expansion potential.