SAN JOSE, California -- February 3, 1998 -- Cisco Systems, Inc., the worldwide leader in networking for the Internet, today reported its second quarter results for the period ending January 24, 1998.
Net sales for the second quarter were $2,016 million compared with $1,592 million for the same period last year, an increase of 27%. Net income was $457 million or $0.43 per share, compared with pro forma net income of $352 million or $0.34 per share for the second quarter of 1997, increases of 30% and 26% respectively.
Net sales for the first six months of 1998 were $3,885 million compared with $3,027 million for the same period last year, an increase of 28%. Pro forma net income, which excludes the write-off of purchased in-process R&D from the DAGAZ acquisition in the first quarter, was $873 million or $0.82 per share, compared with pro forma net income of $673 million or $0.65 per share for the first six months of 1997, increases of 30% and 26% respectively.
Actual net income for the first six months of 1998, including the above-mentioned write-off of purchased in-process R&D, was $794 million or $0.75 per share, compared with actual net income of $519 million or $0.50 per share in 1997.
All earnings per share amounts represent diluted earnings per share as defined within Statement of Financial Accounting Standards No. 128 (FAS 128).
The net income per share and number of shares used in the per-share calculation for all periods presented reflect the three-for-two stock split that was effective December 16, 1997.
"We are pleased to report the 32nd consecutive quarter of revenue and earnings growth. A strong Americas market, improving European market, and increasing activity in service provider spending continue to fuel Cisco's growth," said John Chambers, president and CEO of Cisco Systems. "Driving this growth is an increasing realization by customers that the Internet is changing the way people work, live, play and learn."
Cisco continues to make strides in providing end-to-end solutions for customers in each of its key markets- service provider, enterprise, and small/medium business-through internal development, strategic alliances, minority investments and acquisitions.
In the service provider market, Cisco announced a strategic alliance with US West, the acquisition of LightSpeed International's voice signaling technologies and the introduction of the Cisco 12008 gigabit switch router. US West designated Cisco as its strategic vendor for its data network infrastructure and for resale of customer premise equipment and intends to extensively use Cisco equipment in a nationwide build-out of an integrated voice/data network. In addition to its strategic alliance, US West became the 12th service provider to join the Cisco Powered Network program in the second quarter. This increases total participation to 45 service providers since the program was started about six months ago and underscores broad acceptance of Cisco's end-to-end network solutions.
In the enterprise market, Cisco continued to maintain its market share leadership in LAN switching and announced the second phase of a five-part data/voice/video integration strategy that will ultimately encompass all elements of the enterprise and service provider markets. New Cisco introductions include the MC3810 multiservice access concentrator and new voice features for the Cisco StrataCom. IGX® multiservice switch. These new multiservice products will help enterprise customers reduce communications costs, deploy new data/voice/video applications and improve network performance.
Expanding its solutions for the small to medium-sized business market, Cisco announced the Cisco Networked Office Stack, a suite of stackable communications products. Cisco also introduced Fast Ethernet desktop switches as part of its new Cisco 2900XL series. The new products deliver end-to-end switching solutions from the desktop to the centralized data centers.
"We are seeing good activity across all of our lines of business and continue to gain market share against almost all of our key competitors," Chambers said. "1998 is shaping up as the year of broadband technology, particularly as service providers and large enterprise customers begin to invest in data network infrastructures and the integration of data, voice and video. Going forward, we believe that Cisco is well positioned to empower the Internet generation, using its Internet technologies to help create a 'new generation' of companies, people and countries."
Cisco Systems, Inc. (NASDAQ: CSCO) is the worldwide leader in networking for the Internet. News and information are available at http://www.cisco.com.
This release may contain forward-looking statements that involve risks and uncertainties. These statements may differ materially from actual future events or results. Readers are referred to the documents filed by Cisco with the SEC, specifically the most recent reports on Form 10-K and 10-Q, which identify important risk factors that could cause actual results to differ from those contained in the forward-looking statements, including potential fluctuations in quarterly results, dependence on new product development, rapid technological and market change, acquisition strategy, manufacturing risks, risks associated with the Internet infrastructure, volatility of stock price, financial risk management and future growth subject to risks.
Pro Forma Statement of Operations Excluding
Purchased R&D and Realized Gain
(In thousands, except per-share amounts)
| Quarter Ended Jan. 24, 1998 |
Quarter Ended Jan. 25, 1997 |
Six Months Ended Jan. 24, 1998 |
Six Months Ended Jan. 25, 1997 |
|
| (Unaudited) | ||||
| Net sales | $ 2,016,315 | $ 1,592,377 | $ 3,885,032 | $ 3,027,203 |
| Cost of sales | 696,774 | 552,519 | 1,348,955 | 1,053,999 |
| Gross margin | 1,319,541 | 2,536,077 | 1,973,204 | |
| Operating expenses: | ||||
| Research and development | 238,772 | 167,652 | 463,007 | 312,363 |
| Sales and marketing | 363,408 | 288,341 | 696,825 | 547,451 |
| General and administrative | 57,668 | 52,111 | 114,082 | 93,887 |
| Total operating expenses | 659,848 | 508,104 | 1,273,914 | |
| Operating income | 659,693 | 531,754 | 1,262,163 | 1,019,503 |
| Interest and other income, net | 43,818 | 80,874 | 48,542 | |
| Income before provision for income taxes | 703,511 | 1,343,037 | 1,068,045 | |
| Provision for income taxes | 246,229 | 206,955 | 470,063 | 395,368 |
| Net income | $ 457,282 | $ 872,974 | $ 672,677 | |
| Net income per share--basic | $ .45 | $ .36 | $ .86 | $ .68 |
| Net income per share--diluted | $ .43 | $ .34 | $ .82 | $ .65 |
| Shares used in per-share calculation--basic | 988,109 | 1,011,783 | 983,287 | |
| Shares used in per-share calculation--diluted | 1,035,456 | 1,059,533 | 1,030,236 | |
| PRO FORMA ONLY |
The above pro-forma amounts for the six months ended 1/24/98 have been adjusted to eliminate the Q1 $127.2 million write-off of purchased in-process R&D and the $5.4 million gain on sale of minority stock investment, net of tax benefit of $42.6 million.
The above pro-forma amounts for the quarter and six months ended 1/25/97 have been adjusted to eliminate the Q1 $174.6 million and the Q2 $43.2 million charges for the write off of purchased in-process R&D, and the Q1 $55.1 million and the Q2 $47.3 million gain from the sale of a minority stock investment, net of income tax expense of $20.4 million and $17.5 million respectively.
The net income per share and number of shares used in the per-share calculation for all periods presented reflect the three-for-two stock split that was effective December 16, 1997.
Cisco is now required under FAS 128 to report two separate earnings per share numbers, basic EPS and diluted EPS. Diluted EPS is the same number as Cisco has previously been reporting as earnings per share and includes the dilutive impact of employee stock options.
Condensed Consolidated Statements of Operations
| Quarter Ended Jan. 24, 1998 |
Quarter Ended Jan. 25, 1997 Jan. 24, 1998 |
Six Months Ended Jan. 25, 1997 |
||
| (Unaudited) | ||||
| Net sales | $ 2,016,315 | $ 1,592,377 | $ 3,885,032 | $ 3,027,203 |
| Cost of sales | 696,774 | 552,519 | 1,348,955 | 1,053,999 |
| Gross margin | 1,319,541 | 1,039,858 | 2,536,077 | |
| Operating expenses: | ||||
| Research and development | 238,772 | 167,652 | 463,007 | 312,363 |
| Sales and marketing | 363,408 | 288,341 | 696,825 | 547,451 |
| General and administrative | 57,668 | 52,111 | 114,082 | 93,887 |
| Purchased R & D |
--- | 43,203 | 217,792 | |
| Total operating expenses | 659,848 | 551,307 | 1,401,105 | 1,171,493 |
| Operating income | 659,693 | 488,551 | 1,134,972 | 801,711 |
| Realized gain on sale of investment | --- | 5,411 | 102,407 | |
| Interest and other income, net | 43,818 | 80,874 | 48,542 | |
| Income before provision for income taxes | 703,511 | 1,221,257 | 952,660 | |
| Provision for income taxes | 246,229 | 224,455 | 427,440 | 433,258 |
| Net income | $ 457,282 | $ 793,817 | $ 519,402 | |
| Net income per share--basic | $ .45 | $ .78 | $ .53 | |
| Net income per share--diluted | $ .43 | $ .33 | $ .75 | $ .50 |
| Shares used in per-share calculation--basic | 988,109 | 1,011,783 | 983,287 | |
| Shares used in per-share calculation--diluted | 1,035,456 | 1,059,533 | 1,030,236 | |
The net income per share and number of shares used in the per-share calculation for all periods presented reflect the three-for-two stock split that was effective December 16, 1997.
Cisco is now required under FAS 128 to report two separate earnings per share numbers, basic EPS and diluted EPS. Diluted EPS is the same number as Cisco has previously been reporting as earnings per share and includes the dilutive impact of employee stock options.
Condensed Consolidated Balance Sheets
(In thousands)
| January 24, 1998 | July 26, 1997 | |
| (unaudited) | ||
| Assets | ||
| Current Assets: |
|
|
| Cash and equivalents | $ 476,927 | $ 269,608 |
| Short-term investments | 1,136,720 | 1,005,977 |
| Accounts receivable, net | 1,255,996 | 1,170,401 |
| Inventories, net | 267,866 | 254,677 |
| Deferred income taxes | 360,452 | 312,132 |
| Other current assets | 58,331 | 88,471 |
| Total current assets | 3,556,292 | 3,101,266 |
| Investments | 1,982,797 | 1,267,174 |
| Restricted investments | 442,956 | 363,216 |
| Property and equipment, net | 478,592 | 466,352 |
| Other assets | 361,992 | 253,976 |
| Total assets | $ 6,822,629 | |
| Liabilities and Shareholders' Equity: | ||
| Current Liabilities: | ||
| Accounts payable and other accrued expenses | $ 1,030,688 | $ 863,885 |
| Income taxes payable | 319,239 | 256,224 |
| Total current liabilities | 1,349,927 | 1,120,109 |
| Minority interest | 42,301 | 42,253 |
| Shareholders' equity | 5,430,401 | 4,289,622 |
| Total liabilities and shareholders' equity | $ 6,822,629 | $ 5,451,984 |
Cisco IOS is a trademark, and Cisco, Cisco Systems, and the Cisco Systems logo are registered trademarks of Cisco Systems, Inc. in the U.S. and certain other countries. All other trademarks mentioned in this document are the property of their respective owners.
