Expensing Options Would Cut Cisco's 1st-Quarter Net by 60%
Thursday November 21, 8:25 am ET
By Scott Thurm, Staff Reporter of The Wall Street Journal
biz.yahoo.com
SAN FRANCISCO -- Fiscal first-quarter net income at Cisco Systems Inc. (NasdaqNM:CSCO - News) would have been reduced by 60% had the company treated stock options as an expense, according to Cisco's quarterly report to the Securities and Exchange Commission.
The report, posted Thursday on Cisco's Web site, marked the first time that the San Jose, Calif., maker of computer-networking equipment has detailed quarterly stock-option expense. The company previously disclosed its stock- option expense in a footnote in its annual report. Cisco executives had pledged more frequent reporting to help forestall accounting-rule changes that would require companies to consider options as an expense in their income statements.
In the filing, Cisco estimated the expense of stock options in the three months ended Oct. 26 at $368 million. That would have reduced Cisco's net income to $250 million, or 3 cents a share, from the $618 million, or 8 cents a share, that the company reported on Nov. 6.
The $368 million figure, derived using the Black-Scholes model for valuing options, is not the value of options Cisco issued in the first quarter. Rather, it is a portion of the value of all the options Cisco issued over the past four to five years, as employees become eligible to exercise those options.
In the filing, Cisco offered investors other ways to evaluate the cost of options. For example, the company said it granted 83 million options in the first quarter and cancelled 13 million. The additional 70 million options, if converted into shares, would increase Cisco's 7.2 billion shares outstanding by roughly 1%. Cisco executives have said that they consider detailing the dilutive effects of options a better way to demonstrate the costs than estimating an expense.
Cisco filed the report unusually quickly, less than four weeks after the quarter ended. Companies now have 45 days to file quarterly reports to the SEC, although the requirement will be shortened to 35 days over the next few years.
-Scott Thurm, The Wall Street Journal; 415-765-6104 |
