Silicon Investor (SI) -- The First Internet Community

STOCKTALK

We've detected that you're using an ad content blocking browser plug-in or feature. Ads provide a critical source of revenue to the continued operation of Silicon Investor. We ask that you disable ad blocking while on Silicon Investor in the best interests of our community. If you are not using an ad blocker but are still receiving this message, make sure your browser's tracking protection is set to the 'standard' level.

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

To: RetiredNow who wrote (57792)	2/21/2002 12:20:27 PM
From: SouthFloridaGuy	Read Replies (2) \| Respond to of 77400

Hold to $3 folks: February 21, 2002 -- Top execs profited from partnerships Enron-type questions concerning the financial records of Cisco Systems, Inc. have suddenly got louder. Latest shocker: evidence that more than 12 top officials of the one-time Internet darling may have held undisclosed stakes in a Silicon Valley partnership that benefited greatly from its ties to Cisco during the 1990s. The news comes after The Post's disclosure earlier this week that Cisco's president and CEO, John Chambers, and the company's vice chairman, Donald Valentine, held stakes in a related investment partnership that made a 600 percent profit when Cisco acquired one of its companies, Monterey Networks, Inc., in the autumn of 1999. The partnership in which Valentine and Chambers were involved - Sequoia Capital Partners VII - was created and managed by Sequoia Capital, a West Coast venture capital fund that helped finance a number of technology companies in the 1990s. Previously, Cisco officials insisted that Chambers' stake in the fund was minimal and that his total profit in the transaction equaled the equivalent of roughly $10,000, which he donated to charity. Valentine held a larger stake in the partnership and appears to have thus netted a profit of roughly $313,000 in the deal. But a Cisco spokesman said Valentine did not participate in Cisco's decision to make the Monterey investment. Yet it now turns out that Chambers and Valentine were not the only top Cisco officials who held stakes in lucrative Sequoia partnerships that did deals with Cisco. What's more, in nearly all cases, the partnerships were undisclosed in Cisco filings, raising questions as to whether the company - and its officials - were trying to hide their involvement in the deals. The new evidence has come to light via a search of financial documents filed with the Securities & Exchange Commission by various companies with which Cisco has done business over the years. The search reveals that 11 other top Cisco officials, including the company's chairman, John P. Morgridge, also held stakes in certain Sequoia partnerships. In addition to Chambers, Morgridge and Valentine, the filings show that two other board members - Carol Ann Bartz, an outside director who currently serves as chief executive of an Internet company known as Autodesk, Inc., and Larry R. Carter, Cisco's chief financial officer, likewise held stakes in the partnerships. So did seven senior and executive level vice presidents, including two direct aides to the president and CEO, Chambers. At best, Cisco filings are replete with errors and inconsistencies on a whole range of questions concerning the partnership holdings of Cisco's top officials. Last week a company spokesman acknowledged that the stakes held by Chambers and Valentine have been misstated in Cisco proxy filings since at least 1999, and that even the actual Sequoia partnerships in which the two men held stakes had been identified incorrectly. "We disclosed all required financial information about the holdings of our officers and directors," said a Cisco spokesman. Yet the company declined to list the actual holdings of the individuals involved. A September, 1999 proxy filing by Cisco lists only Chambers, Valentine and Morgridge as holding stakes in Sequoia partnerships. But weeks later, another Silicon Valley company, PMC-Sierra, Inc., filed a stock registration statement that listed the owners of a Sequoia Partnership known as Sequoia International Technology Partners VIII as including the four Cisco board members and six other top Cisco officials. Ten months later, in September of 2000, Cisco filed a proxy statement showing that only Valentine held a stake in the partnership. A search of SEC documents indicates that as many as 12 of Cisco's more than 60 merger deals in the 1990s may have been funneled through Sequoia Capital partnerships. The deals in question had a price - mostly paid for in Cisco stock - of more than $7 billion. Since then, Cisco's share price has collapsed from a split-adjusted $80 per share to less than $17, wiping out more than $450 billion of market value to investors.

To: RetiredNow who wrote (57792)	2/21/2002 1:02:42 PM
From: Stock Farmer	Read Replies (1) \| Respond to of 77400

mindmeld: you have it wrong. Five years and one quarter later, the company has retained profits of 5 billions and change. That's a billion a year. The bulk of the rest of the increase in equity has come equity financing (stock options and other similar share printing and otherwise enriching activities). Mark to market gains and losses have not come from retained earnings. They have come from "other comprehensive income". Looking at the filings, they garnered about 4B$ of this during the bubble and lost about 3.8B$ in its collapse. Easy come, easy go. Still, net of everything it's been a small gain. Actual gains and losses actually came from somewhere. Total interest income & realized gains counts for 2,403 of 5,023 M$ total profits (by adding up realized gains and interest income). And it is accretive to retained earnings to the tune of half, so I wouldn't blow it off that quickly if I were you. Equity financing has contributed 3/4 of Cisco's shareholder equity, not 1/4. Since 1997 the lifetime cumulative amounts are: 1997 Q1'02 Change M$ M$ M$ Mark-to-market & other Gains 159 278 119 Equity Financing 888 20,372 19,484 Actual Profit 1,777 6,800 5,023 ----- ------ ------ Shareholder Equity 2,824 27,450 24,626 You state "the bottom line is that this company is a powerful cash generating franchise, even when we exclude the contributions from stock options and investments.". That is a pro-forma bottom line. The GAAP bottom line is that this company is a modest cash generating franchise slightly inferior to a similarly sized pile of T-Bills. It is also a powerful cash transferring franchise, with most of the transfer coming from pockets of shareholders of the company instead of shareholders of its customers. And most of the transferred cash is going to the pockets of the folks with their hands upon the wheel!!! Because the SEC filings reveal that in actual fact, the company has generated less than $1 per share in its lifetime. Net of what it's actually spent, and holds an additional $3 per share that has come from equity financing. The interest on which accounts for half of that $1 of "generated" profit. The business model is one half Bank, one half Stuff that Powers the Internet, and eight halves Tupperware party. Perhaps before you go to the next one at $15 you could wake up and smell the coffee brewing. Or at least read the SEC filings with an intent to understand, rather than explain why it is going to be such a good investment one of these days. It's a great company. No question. A multi-billion great company. A billion times yes. But billions of great divided by billions of shares gives a single digit greatness per share. As to differences in our number crunching spreadsheets, we can narrow that gap if you comment directly to the sample I published. John