Anders Bylund seems to be enamored ofCisco Systems'
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.
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:
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.
Think you're done with the Duel? You're not! Go back and read the other three arguments, and then vote for a winner.