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: Lizzie Tudor who wrote (63683)	4/21/2003 10:01:43 PM
From: Stock Farmer	Read Replies (1) \| Respond to of 77398

Fair enough Lizzie, I figure you don't have the time (or more likely inclination) to review the facts behind your assertions. It does make me wonder how you manage to convince yourself that you are right, but that's a different story. Your analogy about a sink with a drain in the bottom with a faucet flowing water in at the top is very good. Although in the case of stock options it's more like a cup that turned into a sink that expands into a bathtub and then a swimming pool. Shareholder wealth is like the waterline, and as the diameter of the pond goes up it takes more water to keep the depth the same. In Cisco's case, the last two years the water level has dropped down a little bit. Mostly, it appears, by evaporation, or some other mysterious mechanism, 'cause everybody keeps pointing to the flow of water in and nobody is mentioning a hole in the porcelain. Maybe it's just magic? If you get a moment to reflect, perhaps you can come up with a theory, 'cause even with one 2 Billion quarter and one 1 Billion quarter, they've only spent 3 Billion on stock buyback... so that would mean a few zero quarters. Like five. And I don't seem to recall any quarters where cash flow from operations was zero! Now, about stock options. I don't "claim" that the company only earned shareholders 7 Billions. The actual number (according to Cisco) is 7.346 Billions as of January 25, 2003. I know this for a fact because Cisco publishes it. If you want to "dispute" this, that is your choice. I have the 10-Q right in front of me, what data are you using to base your claim in opposition? And as far as where the rest of Cisco's assets came from, I did not claim they all came from stock options. I claimed that they came from assets purchased by shareholders, and that stock options are a major contributor to the phantom-cash machine. If you are going to dispute what I claim, then at least do yourself a favor and do your homework and assemble the facts. And if you did you could also figure out that the pile of cash can only have come from two sources: (a) liquidating assets purchased by shareholders (could be shares, or companies purchased with shares), and (b) "profits". The company publishes (b) and (a) + (b), so (a) is pretty easy to figure out by straight subtraction. The actual value of (b) is 7.346 B$ as of January 25, 2003. And if you dispute this number, you'd better phone Investor Relations and tell them 'cause if you're right then Mr. Chambers and Mr. Carter are gonna be in seriously deep doo-doo with the SEC!! Now, if (a) + (b) is about 21 B$, then if we subtract about 7 B$ well, we're going to get about 14 B$ left over that had to flow into the company somehow. In fact, it's worse. 'Cause I didn't chock up another 8 B$ worth of equity that the company has accumulated that isn't cash and cash equivalents. In actual fact, the total amount that Cisco has accumulated that didn't come as a consequence of operating profits is a cool 21.109 B$. The company even reports the attribution of these assets. 0.295 B$ comes from unrealized gains from investment income, and 20.814 B$ comes from the proceeds of disposition of share capital. And if you spent the time you could actually piece together the price that shareholders paid for the share capital Cisco disposed of to garner these proceeds. Although that's a lot harder and you have to triangulate on it from various points. But you could get close. Maybe call this amount (x). One day when you get the time you should do the math. It's not hard, just tedious. It probably will come as a shock to your faith, but not only is (a) very much larger than (b), but (x) is very much larger than (a) and even (a) + (b)! John

To: Lizzie Tudor who wrote (63683)	4/21/2003 11:00:07 PM
From: Stock Farmer	Read Replies (2) \| Respond to of 77398

Lizzie - you wrote I dispute this, I don't think you can get 14 billion from options exercising even on 16K employees (too much $$) Firstly, I didn't say that it all came from exercise of options. But let's figure out what DID come from options. You might be surprised. Here are the FACTS. Actual Actual Implied Implied Exercise Tax After Employee Value Benefit Tax Cost Compensation FY O2 378 61 113 174 FY 01 988 1,755 3,259 5,014 FY 00 1,012 3,077 5,714 8,791 FY 99 649 837 1,554 2,391 FY 98 393 422 783 1,205 FY 97 221 274 508 782 FY 96 84 198 367 566 Total 3,725 6,624 12,298 18,923 \| \| .______+______. \| 10,348 So the direct benefit to Cisco was about 10,348 in actual cash (proceeds of exercise + tax benefit), while the actual benefit to employees (financed by shareholders) was about 18,923. Option exercise contribution of 10.348 B$ is about half of the 20.814 B$ proceeds from equity financing. The other half came from proceeds of acquisition (equity financing). In the past 10 years, those 16,000 employees took away 18.923 Billion dollars, or a bit more than a million bucks per employee. About twice what the company earned for shareholders, by the way. As I said before, nice job if you can get it. As another note, weren't you the one suggesting that option expense be the actual amount of benefit received by employees? If so then Cisco's earnings after option expense would be 7,346 - 18,923 = (11,577)... deeply in the hole. Much easier to get 100% of the market share if you can sell products at below cost 'cause your shareholders are footing the bill. John P.S. For those who like to know where these numbers come from, the actual exercise value is determined by multiplying the reported number of options exercised by the reported average exercise price. The actual tax benefit is as reported. Implied after-tax cost is the net-of-tax cash cost avoided by the company by not paying the Implied Employee Compensation which is equal to the taxable benefit to the employees giving rise to the actual tax benefit. Assumed tax rate is 35%.