On Wednesday, Cisco Systems reported a slightly lower quarterly profit due to the cost the company incurred from a newly regulated method of expensing stock options.
The company's net income for the fiscal first quarter of 2006 was $1.3 billion, or 20 cents per share, compared with $1.4 billion, or 21 cents a share, in the same quarter last year. Net sales for the quarter were $6.5 billion, a 9.7 percent increase year-over-year and a decrease of 0.5 percent from Q4 '05; net income was $1.3 billion, compared with $1.1 billion for Q1 '05;
The stock-options accounting change is a result of FAS 123R, a new government regulation that requires all U.S.-based GAAP companies to recognize compensation expenses for stock-based compensation awards. In a conference call with media and analysts, Cisco CFO Dennis Cooper noted that had this regulation been in effect last quarter, the company would have reported lower revenue and earnings per share numbers, but that the overall trends are encouraging.
"Whether you include or exclude this new measure, our earnings trends are positive," he said.
Cisco president and CEO John Chambers told listeners that the company is satisfied with the quarterly results despite flat spending in Asia and slightly slower spending in Europe.
"Our balanced approach to all our market sectors continues to work very well, and solid results in most categories made this a good quarter for us," he said.
Net income prior to fiscal 2006 did not include stock-based compensation expenses. Including the pro forma stock-based compensation expense previously disclosed in Cisco's financial statements footnotes, net income for the first quarter of fiscal 2005 would have been $1.1 billion, or 17 cents per share (instead of the $1.4 billion and 21 cents per share the company reported), and net income for the fourth quarter of fiscal 2005 would have been $1.3 billion, or 20 cents per share (instead of $1.5 billion and 24 cents per share).
During the quarter, Cisco also completed the acquisitions of KiSS Technology A/S, Nemo Systems and Sheer Networks.
Chambers said some of the company's overseas markets are performing erratically.
"We had our best quarter in China in two years, but the Japanese market continues to be challenging," Chambers said. "Orders were flat overall in Europe. We experienced good growth in some countries, but flat numbers in a few of the larger ones. But our overall balance allowed us to post good results."