Cisco Options Pass

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No matter what yardstick you use,

Cisco

(CSCO) - Get Report

made leaps in fiscal 1998.

The top plumber of the Internet grew profits a robust 23% to $1.1 billion in the fiscal year ended July, even after counting the expense of paying employees with stock options. That compares to 29% growth excluding options expense. It's a much smaller gap than

last year, which illustrates that Cisco has tightened its cost of luring and retaining technology workers.

The numbers come from Cisco's 1998 annual report, which was recently published on its Web site. A hot-button question is how to account for the cost of paying employees with stock options, which are a valued currency in Silicon Valley. Currently, the

Financial Accounting Standards Board

only requires companies to disclose this cost in the annual report in a footnote that many investors never read. Critics say the disclosure should not be hidden in a footnote and that FASB practices still don't measure the full cost. But even using the current yardstick, Cisco fared well in fiscal 1998.

Chief executive John Chambers has displayed his managerial skills again, according to Daniel McKelvey with

Forte Capital

, an owner of Cisco shares. He is pleased that Cisco is, in effect, sharing more of its profits with its shareholders and less with its employees.

"At that level, that does not concern me," McKelvey says. It would be a problem if Cisco halved its profit growth in order to pay employees with stock. Last year was more disturbing: Cisco profits increased only 3%, a fraction of the company's reported 15% growth, because it cost so much to give employees options.

Cisco declined comment on its numbers. Shares of Cisco slipped 1 5/8 to 64 5/8 today.

For more info on institutional holders of this stock, as well as financial statements and earnings estimates, please see the

Thomson Company Reports.