Company Press Release

Microsoft & Cisco Systems Employee Stock Options: DOJ Analysis by Parish & Company

PORTLAND, Oct. 9 - Parish & Company Portfolio Advisors of Portland Oregon today issued an official summary of recent press releases regarding the accounting for employee stock options at Microsoft and Cisco Systems. Several news organization have done stories based upon these releases, including a lead editorial in the British newspaper the "Independent."

Based upon this analysis, Parish & Company has taken the position that the justice department case against Microsoft should be dropped. This conclusion is based upon identifying a financial pyramid in which employees are prepaying their own wages. This pyramid will clearly collapse and take away Microsoft's primary competitive weapon, the ability to issue employee shares in lieu of cash compensation, the cost of which is recognized on the internal tax books but not recorded on the externally published income statement. This unrecorded expense was $4.4 billion or $2.9 billion after tax for fiscal 1998 per a review of the recently filed 10K report. This overstates net income and even after assuming an optimistic price earnings ratio of 60 for both firms, if this commitment made to employees were accurately reflected on the financial statements, would imply a decline in both stocks of more than 60 percent.

Parish & Company takes no official position with respect to the government inquiry of Cisco Systems due to their current dialogue with the SEC over their accounting practices with respect to acquisitions. Parish & Company does however strongly encourage all investors to support the SEC's efforts to improve corporate accounting practices and thereby restore confidence to the financial markets.

The following summary is based upon the 1998 10K SEC filings made last week. A complete analysis is available in the press release issued 9/30/98.

                                                          ($Billions)
                                                   Microsoft     Cisco Systems

    Fiscal Year 1998 Net Income per SEC 10K           $ 4.5          $ 1.3
    Less After Tax Expense Taken on Tax Books
     for Employee Stock Options per 10K                 2.9             .8
    Adjusted Income                                   $ 1.6           $ .5
    Less:  After Tax Amortization of 15 percent
     of Remaining future Liability for Stock Options
     at end of Fiscal 1998
      Microsoft  ($40B x .15 x.65)
      Cisco Systems ($15B x .15 x.65)                   3.9            1.4
    Restated Earnings per Parish & Company Analysis    (2.3)           (.9)

As of 9/30/98, the stock option liability made to employees was $40 billion for Microsoft and $15 billion for Cisco Systems. In Ciscos case this represented more than 10 times annual net income even before making the above adjustments.

As knowledge of this financial pyramid becomes more widely publicized, both to external investors and employees of leading technology firms, the company stock prices will adjust accordingly. This will make hiring and retaining their primary asset, smart, highly motivated, creative and dedicated employees more difficult. As these workers pursue opportunities with greater potential rewards in newer companies able to more liberally issue stock options the economy will again be reinvigorated and a new business cycle energized.

Parish & Company is an independent Fee Based Investment Advisor committed to serving Individuals, Trusts and Retirement Plans based in Portland, Oregon. The firm produces objective financial analysis based upon accounting facts, manages individual and trust investment portfolios and advises companies on how to improve their retirement plans by providing independent oversight of the investment firm selected by utilizing an employee based benchmark system. No fees are accepted from the investment industry, either directly or indirectly and no research is sold but rather posted to the Internet for availability to all interested parties. Bill Parish can be contacted through the following web site at www.billparish.com or by phone, 503-643-6999.

SOURCE: Parish & Company