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Cisco Systems, Inc.
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Dear John Letter

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By AtlantaDon
January 9, 2003

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Dear John,

Please quit suggesting that Cisco is a cash-generating machine when over half of the increase in Cisco's cash and investments over the past several years has come not from operations, but from selling stock to management and employees and the tax breaks associated with those sales. They're tax deductible but not a business expense on the Income Statement, which is pretty clever. Congratulations to your industry lobbyists or whomever it was that got Congress to buy into that sleight of hand. It's to drive job creation, isn't that right?

Is your concern about paying dividends that investors may not keep Cisco's stock price pumped up indefinitely and the cash Cisco accumulates from option exercises and the related tax deductions will dry up? Or is it that the cash requirements for paying a dividend could increase rapidly if the shares outstanding continue to grow at a 6-7% compounded rate as they've done for the last few years? Or perhaps that money paid out as dividends reduces the assets and net worth of the company and theoretically makes the company worth less, thereby hurting your chances for more big option paydays? Or that if you can't get investors to run Cisco's stock price up again that your employees will start asking for more cash compensation, which will take a bite out of your overstated earnings? Or all of the above?

Do you worry that even if Cisco liquidated all of its investments and spent all the cash on its balance sheet buying back shares that it wouldn't be nearly enough to bring the number of shares outstanding to where they were 5 years ago?

I worry about the long-term impact on public confidence in the stock market when people like you won't do the right thing for your shareholders. But you've perpetuated the scheme too long, and the bubble has burst. You can't really do anything now other than trying to keep it propped up, can you? But it's not that bad, you've cashed in enough Cisco options to be rich regardless of what happens and you haven't done anything illegal. And having a good reputation is highly overrated, don't you think?

AtlantaDon


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