Anders Bylund seems to be enamored ofCisco Systems' (NASDAQ:CSCO) strong balance sheet and "cash cow" networking business. Unfortunately, it's the shareholders who are being milked. While management neglected to include information about the company's retained earnings in the fourth-quarter earnings release, there's reason to believe it may actually be a negative number.

Here's why: From the third-quarter 10-Q filing, Cisco claimed to have $121 million in retained earnings on the balance sheet. In the fourth quarter, it claimed $1.5 billion in earnings based on generally accepted accounting principles ($1.9 billion in non-GAAP earnings that exclude stock options expenses), and that it spent $2.8 billion on share buybacks. Even giving Cisco the benefit of the doubt on the options expense, my math leaves it with a retained earnings deficit somewhere in the neighborhood of $779 million, and Cisco hasn't used any of it to reward its shareholders because it has never paid a dividend.

So what?
In plain English, having negative retained earnings means that every dollar that Cisco has ever earned -- along with money it hasn't earned yet -- has been spent. Unfortunately, there's reason to believe it has not been spent in the outside shareholders' best interests. In the same earnings release, Cisco mentioned spending $8.3 billion in the most recent fiscal year and $35.4 billion in aggregate on share buybacks. Yet its historical share count paints a scary picture:

Fiscal
Year
End		 Basic
Shares
Outstanding (*)
2006 6,158
2005 6,487
2004 6,840
2003 7,124
2002 7,301
2001 7,196
2000 6,917
1999 6,646
1998 6,312
1997 6,007
1996 5,758
(*) In millions, split-adjusted

The company, with a current market value of around $136 billion, has spent more than a fourth of that buying back its own stock. Still, it has more shares outstanding than it did a decade ago. The picture this paints is painfully clear: Someone is getting rich off of Cisco's operations, but it sure isn't the shareholders. The $400 million options expense for the most recent quarter is a big clue as to who is walking away with all the rewards.

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Think you're done with the Duel? You're not! Go back and read the other three arguments, and then vote for a winner.

At the time of publication, Fool contributor Chuck Saletta had no direct ownership stake in any of the companies mentioned in this article. The Fool has a disclosure policy.