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Cisco: Options would weigh on earnings

The company's first-quarter earnings would have been lower by more than half if it had expensed stock options, according to a regulatory filing.

Cisco Systems' first-quarter earnings would have been 60 percent lower if it had expensed stock options, the company reported Thursday.

In a regulatory filing with the Securities and Exchange Commission, Cisco said stock option expenses would have shaved $368 million from its fiscal first-quarter results, resulting in net income of $250 million, or 3 cents a share. Earlier this month, Cisco was cheered for reporting first-quarter earnings of $618 million, or 8 cents a share.

With the expensing of stock options almost inevitable, many technology companies are detailing their results with such charges. This filing was the first time Cisco has detailed what its results would look like if it expensed options. Technology companies have lobbied against such accounting.

For its first quarter, Cisco reported revenue of $4.8 billion, in line with what analysts were expecting. The company also took a charge of $412 million to write down previous investments. Excluding that charge and other items, Cisco reported pro forma earnings of $1 billion, or 14 cents a share.

On its first-quarter earnings call, Cisco predicted that its second-quarter sales would be flat to down 4 percent. Nevertheless, analysts say, Cisco is thriving at the expense of its rivals.

Cisco said results that include options expenses count the value of options issued over the past four to five years that are eligible to be exercised.

Cisco, which filed its quarterly report just days after announcing its results, provides various calculations to account for stock options.

Meanwhile, the filing lacked details about order backlog, a key indicator of future demand. Cisco typically provides a backlog snapshot in its annual report.

Speaking at an investment conference on Nov. 12, Cisco CEO John Chambers said backlog was above the $1.4 billion reported on Sept. 9. That backlog total was down from $2 billion a year earlier, prompting many analysts to speculate that future sales were weak.

On its earnings conference call on Nov. 6, Cisco said backlog is rising. The backlog news boosted shares, but a few analysts noted that they wanted more specifics. Backlog includes orders for products to be shipped within 90 days.