Summary
Cisco Systems, Inc. (CSCO) filed an 8-K on May 29, 2009, to disclose the impact of a recent Ninth Circuit Court of Appeals decision. While Cisco was not a party to the case between Xilinx, Inc. and the IRS, the ruling affects Cisco's tax treatment of share-based compensation expenses for research and development cost sharing arrangements for years prior to fiscal 2005. Specifically, the court determined that related parties must share stock option costs, reversing a prior Tax Court decision. As a consequence, Cisco will recognize a one-time tax charge estimated between $130 million and $150 million, impacting GAAP net income by approximately $0.02 to $0.03 per share in its fiscal 2009 fourth quarter. Additionally, this will result in a reduction of $310 million to $320 million in additional paid-in capital. Importantly, there will be no impact on cash flows for the current quarter, and Cisco does not anticipate any material effect on its future operating results, cash flows, or financial position.
Key Highlights
- 1Ninth Circuit Court ruling impacts Cisco's pre-fiscal 2005 tax position on R&D cost sharing.
- 2Decision requires sharing of stock option costs for share-based compensation in R&D arrangements.
- 3Cisco to record a one-time GAAP tax charge of approximately $130M - $150M.
- 4Charge to GAAP net income estimated at $0.02 - $0.03 per share for fiscal Q4 2009.
- 5Additional paid-in capital to be reduced by approximately $310M - $320M.
- 6No cash flow impact expected for the fourth quarter of fiscal 2009.
- 7Cisco does not foresee a material impact on future operations, cash flows, or financial position.