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By Calpinist
October 16, 2002

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Just received my 2002 Annual Report from Cisco Systems. Nothing new there, it's been discussed here at length, by me among others. The interesting piece of material is the Proxy Statement, specifically Shareholder Proposal No. 4. It says:

Barry Carney, [address], a beneficial owner of 200 shares of the Company's Common Stock, has notified the Company that he intends to present a proposal that "a vote be given to the shareholders to declare a quarterly dividend." Mr. Carney did not submit a supporting statement for this proposal.

Followed by a rather unconvincing statement from the Board of Directors arguing that a "No" vote is necessary because, among other things, Cisco has returned value to its stockholders by (...) taking advantage of favorable stock repurchase opportunities. (...) During fiscal year 2002, the Company repurchased approximately $1.9 billion of its own stock...

Regardless of the fact that CSCO is currently trading near its 52-week low, making me wonder what those favorable stock repurchase opportunities were, in the 2002 Annual Report, page 41, Cisco mentions brazenly that its 1996 Stock Option Plan authorizes issuance of 2.5 billion shares. Cisco's current share float is 7.14 billion shares, according to Yahoo. In 2002 282 million options were granted at an average exercise price of $17.72, for a grand total of $5 billion. This $5 billion is what CSCO would have had to spend to compensate for the dilution caused by the options grants.*

Therefore, Cisco's statement that paying a dividend is not necessary because it is repurchasing shares, which will "return value to stockholders", is at best misleading, at worst an out-and-out lie. Cisco is returning value to employees, not stockholders. I recommend a "Yes" vote on this shareholder proposal.

Calpinist


* Assuming those options were granted at year-end 2001; otherwise the $ amount would be prorated according to the fraction of the year the options were held. If I'm not mistaken.


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