SAN JOSE, Calif. – November 4, 2009 – Cisco, the worldwide leader in networking that transforms how people connect, communicate and collaborate, today reported its first quarter results for the period ended October 24, 2009. Cisco reported first quarter net sales of $9.0 billion, net income on a generally accepted accounting principles (GAAP) basis of $1.8 billion or $0.30 per share, and non-GAAP net income of $2.1 billion or $0.36 per share.
Commenting on the quarter, Chairman and Chief Executive Officer John Chambers noted, "Building off what we saw as a clear tipping point in Q4, our Q1 results continued to reflect strong sequential growth trends that meet or exceed expectations during normal economic times. We view the improving economic outlook, combined with solid execution on our growth strategy, as creating unparalleled opportunity to drive more value into the core of the network. Simply said, we believe that key market transitions across collaboration, virtualization and video will drive productivity and growth in network loads for the next decade, and are evolving even faster than expected."
Chambers continued, "Our ability to launch four proposed acquisitions, the ecosystem-shifting coalition with EMC/VMware, and five new products and industry solutions into the Cisco pipeline in the past few months alone underscore this momentum. Our build – buy - partner innovation engine is clearly running on all cylinders, while our operational machine is pulling costs out of the business even as we scale new models for growth. Execution and results over time will demonstrate the long-term impact of this vision and strategy— but a new model of productivity based on collaboration is clearly emerging and we believe this may be the most profound opportunity for businesses in our 25 years as a company."
|
GAAP Results |
|||
| Q1 2010 | Q1 2009 | Vs. Q1 2009 | |
| Net Sales | $9.0 billion | $10.3 billion | -12.7% |
| Net Income | $1.8 billion | $2.2 billion | -18.8% |
| Earnings per Share | $0.30 | $0.37 | -18.9% |
|
Non-GAAP Results |
|||
| Q1 2010 | Q1 2009 | Vs. Q1 2009 | |
| Net Income | $2.1 billion | $2.5 billion | -15.3% |
| Earnings per Share | $0.36 | $0.42 | -14.3% |
In October 2009, the Financial Accounting Standards Board issued new accounting guidance related to revenue recognition. Cisco elected to adopt this accounting guidance early on a prospective basis for transactions originating or materially modified in the first quarter of fiscal 2010. Net sales for the first quarter of fiscal 2010 were approximately $50 million higher than the net sales that would have been recorded under the previous accounting guidance.
A reconciliation between net income on a GAAP basis and non-GAAP net income is provided in the table on page 6.
Cisco will discuss first quarter results and business outlook on a conference call and webcast at 1:30 p.m. Pacific Time today. Call information and related charts are available at http://www.cisco.com/go/investors. A Q&A session with Cisco's Chairman and CEO John Chambers and CFO Frank Calderoni will also be available at http://newsroom.cisco.com. To view a video of Cisco's CFO discussing first quarter results, visit http://blogs.cisco.com.
Stock Repurchase Program Expanded
Cisco headquarters in San Jose, California
Q1 FY10 Financial Results Conference Call
Cisco's Q1 FY'10 Performance: John Chambers with CNBC
Q1 FY'2010 Financial Results: CEO on Fox Business News
Cisco also announced that on November 4, 2009 its board of directors authorized up to $10 billion in additional repurchases of its common stock. Cisco's board had previously authorized up to $62 billion in stock repurchases. There is no fixed termination date for the repurchase program. The remaining authorized amount for stock repurchases under this program, including the additional authorization, is approximately $13.1 billion.
Other Financial Highlights
"Cisco's strong first quarter results represent two quarters of sequentially positive revenue growth and demonstrate our ability to execute on our innovation and operational excellence priorities," said Frank Calderoni, Cisco chief financial officer. "We delivered earnings per share on a GAAP basis of $0.30 and non-GAAP of $0.36, which were above our expectations, driven by balance across a broad portfolio and intense focus on execution. Our results validate our strategy and portfolio approach of balancing disciplined expense management with strategic investment, to drive continued profitability through varying economic environments."
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Editor's Note:
About Cisco
Cisco (NASDAQ: CSCO) is the worldwide leader in networking that transforms how people connect, communicate and collaborate. Information about Cisco can be found at http://www.cisco.com. For ongoing news, visit http://newsroom.cisco.com.
# # #
This release may be deemed to contain forward-looking statements, which are subject to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These forward-looking statements include, among other things, statements regarding future events (such as the improving economic outlook and related opportunity, market transitions across collaboration, virtualization and video driving productivity and growth in network loads for the next decade, and the emergence of a new model of productivity based on collaboration and related business opportunity) and the future financial performance of Cisco that involve risks and uncertainties. Readers are cautioned that these forward-looking statements are only predictions and may differ materially from actual future events or results due to a variety of factors, including: business and economic conditions and growth trends in the networking industry, our customer markets and various geographic regions; global economic conditions and uncertainties in the geopolitical environment; overall information technology spending; the growth and evolution of the Internet and levels of capital spending on Internet-based systems; variations in customer demand for products and services, including sales to the service provider market and other customer markets; the return on our investments in certain market adjacencies and geographical locations during the current economic downturn; the timing of orders and manufacturing and customer lead times; changes in customer order patterns or customer mix; insufficient, excess or obsolete inventory; variability of component costs; variations in sales channels, product costs or mix of products sold; our ability to successfully acquire businesses and technologies and to successfully integrate and operate these acquired businesses and technologies; increased competition in our product and service markets, including the data center; dependence on the introduction and market acceptance of new product offerings and standards; rapid technological and market change; manufacturing and sourcing risks; product defects and returns; litigation involving patents, intellectual property, antitrust, shareholder and other matters, and governmental investigations; natural catastrophic events; a pandemic or epidemic; our ability to achieve the benefits anticipated from our investments in sales and engineering activities; our ability to recruit and retain key personnel; our ability to manage financial risk, and to manage expenses during the current economic downturn; risks related to the global nature of our operations, including our operations in emerging markets; currency fluctuations and other international factors, including relating to transactions to hedge foreign currency consideration for acquisitions; changes in provision for income taxes, including changes in tax laws and regulations or adverse outcomes resulting from examinations of our income tax returns; potential volatility in operating results; and other factors listed in Cisco's most recent report on Form 10-K. The financial information contained in this release should be read in conjunction with the consolidated financial statements and notes thereto included in Cisco's most recent report on Form 10-K filed on September 11, 2009, as it may be amended from time to time. Cisco's results of operations for the three months ended October 24, 2009 are not necessarily indicative of Cisco's operating results for any future periods. Any projections in this release are based on limited information currently available to Cisco, which is subject to change. Although any such projections and the factors influencing them will likely change, Cisco will not necessarily update the information, since Cisco will only provide guidance at certain points during the year. Such information speaks only as of the date of this release.
This release includes non-GAAP net income, non-GAAP net income per share data, shares used in non-GAAP net income per share calculation, and non-GAAP inventory turns.
These non-GAAP measures are not in accordance with, or an alternative for measures prepared in accordance with, generally accepted accounting principles and may be different from non-GAAP measures used by other companies. In addition, these non-GAAP measures are not based on any comprehensive set of accounting rules or principles. Cisco believes that non-GAAP measures have limitations in that they do not reflect all of the amounts associated with Cisco's results of operations as determined in accordance with GAAP and that these measures should only be used to evaluate Cisco's results of operations in conjunction with the corresponding GAAP measures.
Cisco believes that the presentation of non-GAAP net income, non-GAAP net income per share data and shares used in non-GAAP net income per share calculation, when shown in conjunction with the corresponding GAAP measures, provides useful information to investors and management regarding financial and business trends relating to its financial condition and results of operations. In addition, Cisco believes that the presentation of non-GAAP inventory turns provides useful information to investors and management regarding financial and business trends relating to inventory management based on the operating activities of the period presented.
For its internal budgeting process, Cisco's management uses financial statements that do not include, when applicable, share-based compensation expense, amortization of acquisition-related intangible assets, other acquisition-related costs, enhanced early retirement benefits, the income tax effects of the foregoing, significant effects of retroactive tax legislation, and significant transfer pricing adjustments related to share-based compensation. Cisco's management also uses the foregoing non-GAAP measures, in addition to the corresponding GAAP measures, in reviewing the financial results of Cisco. In prior periods, Cisco has excluded other items that it no longer excludes for purposes of its non-GAAP financial measures; for example, effective in the third quarter of fiscal 2009, Cisco no longer excludes payroll tax on stock option exercises and effective beginning in fiscal 2010, Cisco no longer excludes in-process research and development as it is no longer expensed as a result of new accounting guidance. From time to time in the future, there may be other items that Cisco may exclude for purposes of its internal budgeting process and in reviewing its financial results.
For additional information on the items excluded by Cisco from one or more of its non-GAAP financial measures, refer to the Form 8-K regarding this release furnished today to the Securities and Exchange Commission.
Copyright ©2009 Cisco Systems, Inc. All rights reserved. Cisco, the Cisco logo, Cisco Systems, Cisco IronPort, Cisco StadiumVision, Cisco TelePresence, Cisco Unified Computing System, and IronPort are registered trademarks or trademarks of Cisco Systems, Inc. and/or its affiliates in the United States and certain other countries. All other trademarks mentioned in this document are the property of their respective owners. The use of the word partner does not imply a partnership relationship between Cisco and any other company. This document is Cisco Public Information.
CONSOLIDATED STATEMENTS OF OPERATIONS |
(In millions, except per-share
amounts)
(Unaudited)
| Three Months Ended | |||
| October 24, 2009 | October 25, 2008 | ||
| NET SALES: | |||
| Product | $ 7,200 | $ 8,635 | |
| Service | 1,821 | 1,696 | |
| Total net sales | 9,021 | 10,331 | |
| COST OF SALES: | |||
| Product | 2,486 | 2,981 | |
| Service | 647 | 669 | |
| Total cost of sales | 3,133 | 3,650 | |
| GROSS MARGIN | 5,888 | 6,681 | |
| OPERATING EXPENSES: | |||
| Research and development | 1,224 | 1,406 | |
| Sales and marketing | 1,995 | 2,283 | |
| General and administrative | 440 | 395 | |
| Amortization of purchased intangible assets | 105 | 112 | |
| In-process research and development | --- | 3 | |
| Total operating expenses | 3,764 | 4,199 | |
| OPERATING INCOME | 2,124 | 2,482 | |
| Interest income, net | 54 | 195 | |
| Other income (loss), net | 61 | (72) | |
| Interest and other income, net | 115 | 123 | |
| INCOME BEFORE PROVISION FOR INCOME TAXES | 2,239 | 2,605 | |
| Provision for income taxes | 452 | 404 | |
| NET INCOME | $ 1,787 | $ 2,201 | |
| Net income per share: | |||
| Basic | $ 0.31 | $ 0.37 | |
| Diluted | $ 0.30 | $ 0.37 | |
| Shares used in per-share calculation: | |||
| Basic | 5,767 | 5,881 | |
| Diluted | 5,871 | 5,972 | |
|
RECONCILIATION OF GAAP TO NON-GAAP NET INCOME |
(In millions, except per-share amounts)
| Three Months Ended | ||
| October 24, 2009 | October 25, 2008 | |
| GAAP net income | $ 1,787 | $ 2,201 |
|
321 | 304 |
|
--- | 1 |
|
--- | 3 |
|
149 | 166 |
|
4 | 122 |
|
474 | 596 |
|
(145) | (194) |
|
--- | (106) |
|
(145) | (300) |
| Non-GAAP net income | $ 2,116 | $ 2,497 |
| Diluted net income per share: | ||
| GAAP | $ 0.30 | $ 0.37 |
| Non-GAAP | $ 0.36 | $ 0.42 |
| Shares used in diluted net income per share calculation: | ||
| GAAP | 5,871 | 5,972 |
| Non-GAAP | 5,880 | 5,979 |
(1) Share-based compensation expense for the first quarter of fiscal 2010 and fiscal 2009 includes $28 million and $22 million, respectively, of share-based compensation related to acquisitions.
(2) Effective in the third quarter of fiscal 2009, Cisco no longer excludes payroll tax on stock option exercises for purposes of its non-GAAP financial measures.
(3) Effective beginning in fiscal 2010, Cisco no longer excludes in-process research and development for purposes of its non-GAAP financial measures as it is no longer expensed as a result of new accounting guidance.
(4) Other acquisition-related costs for the first quarter of fiscal 2010 includes a $42 million mark-to-market impact related to transactions to hedge a portion of the foreign currency consideration of an announced, pending business combination.
(5) In the first quarter of fiscal 2009, the Tax Extenders and Alternative Minimum Tax Relief Act of 2008 reinstated the U.S. federal R&D tax credit, retroactive to January 1, 2008. GAAP net income for the first quarter 2009 included a $106 million tax benefit related to fiscal 2008 R&D expenses. Non-GAAP net income for the first quarter of fiscal 2009 excluded the $106 million tax benefit related to fiscal 2008 R&D expenses.
Certain reclassifications have been made to prior period amounts to conform to the current period's presentation.
Additional reconciliations between GAAP and non-GAAP financial measures are provided in the tables that follow on page 10.
|
CONSOLIDATED BALANCE SHEETS |
(In millions)
(Unaudited)
| October 24, 2009 | July 25, 2009 | |
| ASSETS | ||
| Current assets: | ||
|
$ 4,774 | $ 5,718 |
|
30,591 | 29,283 |
|
3,159 | 3,177 |
|
1,089 | 1,074 |
|
2,205 | 2,320 |
|
2,879 | 2,605 |
|
44,697 | 44,177 |
| Property and equipment, net | 3,976 | 4,043 |
| Goodwill | 12,942 | 12,925 |
| Purchased intangible assets, net | 1,552 | 1,702 |
| Other assets | 5,513 | 5,281 |
| TOTAL ASSETS | $ 68,680 | $ 68,128 |
| LIABILITIES AND SHAREHOLDERS' EQUITY | ||
| Current liabilities: | ||
|
$ 729 | $ 675 |
|
97 | 166 |
|
2,263 | 2,535 |
|
6,397 | 6,438 |
|
3,676 | 3,841 |
|
13,162 | 13,655 |
| Long-term debt | 10,273 | 10,295 |
| Income taxes payable | 1,755 | 2,007 |
| Deferred revenue | 2,874 | 2,955 |
| Other long-term liabilities | 590 | 539 |
| Total liabilities | 28,654 | 29,451 |
| Shareholders' equity | 40,026 | 38,677 |
| TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY | $ 68,680 | $ 68,128 |
Certain reclassifications have been made to prior period amounts to conform to the current period's presentation.
CONSOLIDATED
STATEMENTS OF CASH FLOWS
|
(In millions)
(Unaudited)
| Three Months Ended | ||
| October 24, 2009 | October 25, 2008 | |
| Cash flows from operating activities: | ||
|
$ 1,787 | $ 2,201 |
| Adjustments to reconcile net income to net cash provided by operating activities: | ||
|
429 | 393 |
|
321 | 304 |
|
4 | 17 |
|
93 | 26 |
|
(21) | (17) |
|
--- | 3 |
|
(47) | 70 |
| Change in operating assets and liabilities, net of effects of acquisitions: | ||
|
38 | 453 |
|
(8) | 8 |
|
(100) | (65) |
|
52 | (35) |
|
(291) | (83) |
|
(313) | (197) |
|
(160) | (2) |
|
(186) | (405) |
|
(110) | 47 |
| Net cash provided by operating activities | 1,488 | 2,718 |
| Cash flows from investing activities: | ||
|
(9,537) | (12,461) |
|
2,769 | 6,833 |
|
5,664 | 3,509 |
|
(160) | (361) |
|
--- | (288) |
|
(32) | (11) |
|
43 | (60) |
| Net cash used in investing activities | (1,253) | (2,839) |
| Cash flows from financing activities: | ||
|
634 | 224 |
|
(1,869) | (1,002) |
|
21 | 17 |
|
35 | (112) |
| Net cash used in financing activities | (1,179) | (873) |
| Net decrease in cash and cash equivalents | (944) | (994) |
| Cash and cash equivalents, beginning of period | 5,718 | 5,191 |
| Cash and cash equivalents, end of period | $ 4,774 | $ 4,197 |
Certain reclassifications have been made to prior period amounts to conform to the current period's presentation.
| ADDITIONAL FINANCIAL INFORMATION |
(In millions)
(Unaudited)
| October 24, 2009 | July 25, 2009 | |
| CASH AND CASH EQUIVALENTS AND INVESTMENTS | ||
| Cash and cash equivalents | $ 4,774 | $ 5,718 |
| Fixed income securities | 29,548 | 28,355 |
| Publicly traded equity securities | 1,043 | 928 |
| Total | $ 35,365 | $ 35,001 |
| INVENTORIES | ||
| Raw materials | $ 167 | $ 165 |
| Work in process | 33 | 33 |
| Finished goods: | ||
|
403 | 382 |
|
307 | 310 |
| Total finished goods | 710 | 692 |
| Service-related spares | 147 | 151 |
| Demonstration systems | 32 | 33 |
| Total | $ 1,089 | $ 1,074 |
| PROPERTY AND EQUIPMENT, NET | ||
| Land, buildings, building improvements, and leasehold improvements | $ 4,501 | $ 4,618 |
| Computer equipment and related software | 1,569 | 1,823 |
| Production, engineering, and other equipment | 5,273 | 5,075 |
| Operating lease assets | 242 | 227 |
| Furniture and fixtures | 471 | 465 |
| 12,056 | 12,208 | |
| Less accumulated depreciation and amortization | (8,080) | (8,165) |
| Total | $ 3,976 | $ 4,043 |
| OTHER ASSETS | ||
| Deferred tax assets | $ 2,112 | $ 2,122 |
| Investments in privately held companies | 728 | 709 |
| Lease receivables, net (1) | 1,043 | 966 |
| Financed service contracts (2) | 648 | 676 |
| Loan receivables(3) | 712 | 537 |
| Other | 270 | 271 |
| Total | $ 5,513 | $ 5,281 |
| DEFERRED REVENUE | ||
| Service | $ 6,194 | $ 6,496 |
| Product | ||
|
2,551 | 2,490 |
|
526 | 407 |
| Total product deferred revenue | 3,077 | 2,897 |
| Total | $ 9,271 | $ 9,393 |
| Reported as: | ||
| Current | $ 6,397 | $ 6,438 |
| Noncurrent | 2,874 | 2,955 |
| Total | $ 9,271 | $ 9,393 |
Note:
(1) The current portion of lease receivables, net, which was $689 million and $626 million as of October 24, 2009 and July 25, 2009, respectively, is recorded in other current assets.
(2) The current portion of financed service contracts, which was $1.0 billion and $940 million as of October 24, 2009 and July 25, 2009, respectively, is recorded in other current assets. These financed service contracts primarily relate to technical support services, and the associated revenue is deferred and recognized ratably over the period during which the services are to be performed, which is typically from one to three years.
(3) The current portion of loan receivables, net, which was $328 million and $236 million as of October 24, 2009 and July 25, 2009, respectively, is recorded in other current assets.
|
SUMMARY OF SHARE-BASED COMPENSATION EXPENSE |
(In millions)
| Three Months Ended | ||
| October 24, 2009 | October 25, 2008 | |
| Cost of sales - product | $ 12 | $ 11 |
| Cost of sales - service | 33 | 31 |
| Share-based compensation expense in cost of sales | 45 | 42 |
| Research and development | 97 | 94 |
| Sales and marketing | 113 | 113 |
| General and administrative | 66 | 55 |
| Share-based compensation expense in operating expenses | 276 | 262 |
| Total share-based compensation expense | $ 321 | $ 304 |
The income tax benefit for share-based compensation expense was $85 million and $82 million for the first quarter of fiscal 2010 and fiscal 2009, respectively.
|
RECONCILIATION OF
SHARES USED IN THE GAAP AND NON-GAAP DILUTED NET INCOME PER SHARE
CALCULATION |
(In millions)
| Three Months Ended | ||
| October 24, 2009 | October 25, 2008 | |
| Shares used in diluted net income per share calculation - GAAP | 5,871 | 5,972 |
| Effect of share-based compensation expense | 9 | 7 |
| Shares used in diluted net income per share calculation - Non-GAAP | 5,880 | 5,979 |
|
RECONCILIATION OF
GAAP TO NON-GAAP COST OF SALES USED IN INVENTORY TURNS |
(In millions)
| Three Months Ended | |||
| October 24, 2009 |
July 25, 2009 | October 25, 2008 | |
| GAAP cost of sales | $ 3,133 | $ 3,074 | $ 3,650 |
| Share-based compensation expense | (45) | (47) | (42) |
| Amortization of acquisition-related intangible assets | (44) | (39) | (54) |
| Enhanced early retirement benefits | --- | (28) | --- |
| Non-GAAP cost of sales | $ 3,044 | $ 2,960 | $ 3,554 |