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

To: Wyätt Gwyön who wrote (61590)	10/3/2002 12:39:33 PM
From: Stock Farmer	Read Replies (1) \| Respond to of 77400

Mucho - mindmeld and I developed the model on this thread after a lot of, achem, "spirited debate". LOL Ended up we agreed that the price should be in single digits using a 'classical' definition of free cash flow (ref: Message 17214230 ). And yes, while we did not agree on what that single digit price might be, we did include dilution. We did not fully discuss the ramifications of an important missing piece that the market is starting to wake up and realize. I hinted at it here: Message 17214807 In terms of Cisco's stock price, IMHO we are merely seeing a relentless reversion to the mean. John

To: Wyätt Gwyön who wrote (61590)	10/3/2002 6:20:43 PM
From: RetiredNow	Read Replies (1) \| Respond to of 77400

Hi Mucho, yes my model includes the options effect in two ways. First, the share growth I use includes anticipated dilution due to future stock options grants. Second, the free cash flows I use excludes cash flows from stock options exercise. So it's all accounted for. One thing to note, though, is your 80% figure comes from the Black Scholes value of the options in FY'02, which was something to the tune of $1.8B. If they were to use Black Scholes today to value their options for expensing, then the value comes to around $300m. So you have to take some of that ballyhoo around options with a grain of salt. The figure you can rely on without a doubt is the difference between the strike and the fair value on the date of exercise. That's the figure that really matters in the end, because that was the true cost of the compensation to Cisco, meaning that's the amount they gave up as a result of issuing those shares.