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Cisco Investors Reject Measure to Pay Dividend

Shareholders vote down the call for a payment. An item on censorship technology also fails.

November 20, 2002|From Times Staff and Bloomberg News

Cisco Systems Inc. investors on Tuesday rejected a proposal calling for the world's largest maker of computer-networking equipment to pay a cash dividend for the first time.

But Chief Executive John Chambers, speaking at the company's annual meeting in Santa Clara, Calif., said Cisco might consider paying dividends -- if federal tax policy is changed.

The proposal for a dividend was placed on the company's proxy ballot by Barry Carney, a shareholder from Woodbridge, Va. Shareholders rejected the idea by a 10-1 ratio, Chief Financial Officer Larry Carter said. The proposal wasn't for a specific dividend amount.

Major technology firms historically have paid little or no cash dividends, preferring to retain earnings for reinvestment or to use earnings in part to buy back shares in the open market.

But with the crash in tech stocks since 2000, and with the industry's growth rate slowed, some investors have argued that it's time for cash-rich giants such as Cisco and Microsoft Corp. to return some of their profit directly to shareholders in the form of dividends.

Cisco's cash and cash-equivalent holdings as of Oct. 26 totaled nearly $7 billion. The company also held $3.3 billion in other short-term investments.

Cisco had asked investors to reject Carney's measure.

"Many people want a dividend because they're worried about the growth rate of the company," Chambers told the audience of several hundred people. "If tax policy were to change or if we would hear more shareholders want to do it, we always want to listen. We don't have a religious view on dividends."

Some in Congress have proposed changes in tax law to make dividends more appealing. One idea would be to exempt from federal tax all or part of the dividends investors earn. The argument for an exemption is that dividends are effectively taxed twice -- once as corporate profit, and again when that profit is paid to shareholders.

Carney wasn't at the meeting and couldn't immediately be reached for comment.

Chambers conceded that the dividend idea is a bigger topic of conversation these days. "Most shareholders a year ago would not have talked about dividends at all. In the last six months it has started to be an issue," he said.

Shareholders also rejected a proposal, brought by investor Ann Lau of Los Angeles, to recommend that Cisco's board report on countries that use Cisco products to monitor or block citizens' Internet use. Lau singled out China as a country that "has used technology effectively to monitor their citizens," according to Cisco's proxy. Her proposal failed 25 to 1.

Cisco shares fell 25 cents to $13.66 on Nasdaq on Tuesday.

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