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

To: Lizzie Tudor who wrote (63638)	4/19/2003 10:30:19 PM
From: Stock Farmer	Read Replies (1) \| Respond to of 77399

Lizzie, There are two ways to generate cash flow: liquidate assets, or earn profit. Cash flow by liquidating assets already on the balance sheet doesn't make shareholders any wealthier. It just increases the cash balance. You have to ask yourself how the assets got on the balance sheet in order to be liquidated. Furthermore, the company can turn around and take this cash and turn it into assets which it can then liquidate. Looking only at cash flow from operations and ignoring cash flow from financing and cash flows from investing is what makes this merry-go-round possible. If indeed the company is generating 2 B$ per quarter in cash and has done so for the last year, then clearly we would be expecting it to be piling up in the corners somewhere. But it isn't. According to the latest 10Q, here are some year on year comparators 2003 2002 Change Cash & Equiv: 21,197 21,456 (259) - 1.2% Shareholder Equity 28,455 28,656 (201) - 0.7% Shares 7,217 7,309 (93) - 1.3% Sorry Lizzie, but there's no evidence of 2 B$ per quarter in value generation going on. If we use your suggestion and account for stock options as actual expenditures, and go back over the last ten years, you might find that the actual expenditures of the company is about 9 B$ more than they've made in total. Which is where I came up with my "never made money lifetime" quip. It appears you are looking at the part of the picture that the Silicon Valley spin-doctors want you to look at: cash flow from operations. If cash is flowing out the back door as fast as it's flowing in the front door, it's kinda naive to be salivating over all the cash flowing in the front door. It's not like you'll get to spend it. John

To: Lizzie Tudor who wrote (63638)	4/20/2003 11:06:58 AM
From: rkral	Read Replies (1) \| Respond to of 77399

OT ... Lizzie, re "I definitely accept the fact that some of Cisco's cash on hand comes from options exercises. No doubt that is true, except that most of that benefit happened long ago, 98/99 timeframe." Here are some options numbers (in millions) from FY '98/'99 versus since '99. 98/99 Since Paid-in capital from exercise prices $946 $2,532 Tax benefit from stock option exercise $1,259 $5,894 John Shannon's actual exp.(incl. benefit) $3,597 $16,840 After-tax SFAS 123 grant expense $777 $5,663 Before-tax SFAS 123 grant expense (35% tax) $1,196 $8,680 Before-tax SFAS 123 grant exp. incurred $8,264 $35,018 So since '99, if Cisco had no options program, it would not have received $2.5B in exercise prices and it would not have had a tax benefit of $5.9B. That is a total of $8.4B since 99 -- compared to $2.2B for 98/99. All* the numbers since 1999 are significantly larger than the totals for 98/99. I see nothing to support your statement that "most of [rkral edit: the option exercise] benefit happened long ago, 98/99 timeframe". Was that a WAG? The most alarming data points, IMHO? Since FY '99, while Cisco incurred $35B of option grant expense per SFAS 123, it amortized less than $9B. That means *there is approx. $25B option expense left to be amortized -- even if Cisco totally stopped granting options today.* (The $25B is only an estimate, due to the amortization schedule.) Sure most of those options are underwater, but probably none expire before FY '10 either. Regards, Ron