Cisco Systems Inc By Jalal Pirzada Content l

Cisco Systems, Inc. By: Jalal Pirzada

Content l Overview of Cisco l Five Alternative Earnings Measures l Employee Stock Option Plans

Overview of Cisco l l l 1984 Industry: Computer Hardware and Telecommunications Description of the business Controls Two-thirds Global Market for Routers & Switches that links Network and Powers the internet Cisco used acquisitions more than 70 since 1993, using pooling method Investments in IP telecommunications equipment proved costly – Industry wide downturn slowed spending

Five Measures Five. Alternative Earnings Measures l GAAP Income l Comprehensive Income l Operating Cash Flows l Core Earnings l EBITDA

GAAP Income: the reported Net Income presented to users of financial information. It is the method of reporting which employs all pronouncements of the U. S. Financial Accounting Standard Board (FASB).

Comprehensive Income The change in equity (net assets) of a business enterprise during a period from transactions and other events and circumstances from non-owner sources (SFAS 130). FASB Statement 115

Comprehensive Income FASB Statement 115: accounting for investments in debt and equity securities. Cisco’s investment in securities (US gov’t notes & bonds and Corporate notes and bonds) classified as Available For Sale and recorded on the balance sheet at fair value with unrealized gains or losses reported as a separate component of Accumulated Other Comprehensive Income (loss), net of tax. Cisco’s Investment experienced $3. 81 billion, net of tax unrealized loss for the year 2001, because carrying value of securities had to be written down to its fair value.

Operating Cash Flows The reported cash flows from operating activities as presented in the Statement of Cash Flows (this is the required GAAP presentation of cash flows mandated by SFAS 95.

Core Earnings Core earnings should be a required presentation of a full business reporting model. As the Jenkins Committee stated (Core Earnings) should report separately the effects of core activities and events.

Earnings Before Interest, Taxes Depreciations and Amortization EBITDA looks at the cash flows of the company not including interest, taxes, depreciation and amortization. The aim is to determine the on-going profitability potential for the firm.

GAAP Income Base Ave 52 W: H&L Base

Employee Stock Option Plan Cisco is required under SFAS 123, Accounting for Stock-Based compensation to disclose pro forma information regarding option grants made to its employees based on specified valuation techniques that produce estimated compensation charges.