SAN JOSE, California -- May 5, 1998 -- Cisco Systems, Inc., the worldwide leader in networking for the Internet, today reported its third quarter results for the period ending April 25, 1998.
Net sales for the third quarter were $2,184 million, compared with $1,648 million for the same period last year, an increase of 33%. Pro forma net income, which excludes the write-off of purchased in-process R&D discussed below, was $483 million or $0.45 per share, compared with pro forma net income of $358 million or $0.35 per share for the third quarter of 1997, increases of 35% and 29%, respectively.
During the third quarter of fiscal 1998, Cisco completed the acquisitions of LightSpeed International, Inc., WheelGroup Corporation and NetSpeed, Inc. for a combined purchase price of $521 million and took a one-time charge of $419 million or $0.39 per share as a write-off of in-process R&D. Additionally, the company completed its acquisition of Precept Software, Inc. for approximately $84 million in a transaction accounted for as a pooling of interests.
Actual net income for the third quarter, including the above-mentioned write-off of purchased in-process R&D, was $65 million or $0.06 per share, compared with $378 million or $0.37 per share in the same period last year.
Net sales for the first nine months of 1998 were $6,069 million compared with $4,675 million for the same period last year, an increase of 30%. Pro forma net income was $1,356 million or $1.27 per share, compared with pro forma net income of $1,031 million or $1.00 per share for the first nine months of 1997, increases of 32% and 27%, respectively.
Actual net income for the first nine months of 1998 was $858 million or $0.81 per share, compared with actual net income of $898 million or $0.87 per share in 1997.
All earnings per share amounts represent diluted earnings per share as defined within the Statement of Financial Accounting Standards No. 128 (FAS 128).
"We are pleased to report the 33rd consecutive quarter of revenue and earnings growth. We are especially pleased with the balanced growth rate across almost all countries in both Europe and the Americas. Within the U.S., there was also good balance in each of the key regions. In addition, the level of service provider activity we are seeing on a worldwide basis is also very encouraging," said John Chambers, president and CEO of Cisco Systems.
Cisco has advanced its end-to-end solutions for customers in each of its key markets--enterprise, small/medium business and service provider--through internal development, partnerships, minority investments and acquisitions.
In the enterprise market, Cisco continued its market leadership in LAN switching by announcing new Layer 3 and gigabit networking products and extending its multiphase data/voice/video strategy, as well as extending its implementation of end-to-end network services. In gigabit networking, Cisco announced its new Catalyst. 8500 series of Layer 3 gigabit routing switches. These products deliver broader functionality than competing Layer 3 products, providing better scalability and smoother migration through multiprotocol Cisco IOS. functionality. In April, Cisco introduced CiscoAssure Policy Networking, which will add to the companys expertise in end-to-end intelligent network services. Cisco also strengthened its network security offerings by acquiring San Antonio, TX-based WheelGroup. Delivering on the third phase of its data/voice/video integration strategy for the enterprise, Cisco announced new voice features for its Cisco 2600 series of access routers, lowering the price point for branch offices deploying Internet telephony.
In the service provider market, Cisco advanced its efforts in Internet telephony and broadband internetworking. In Internet telephony, Cisco announced a three-prong Internet voice strategy for service providers designed to help deliver carrier-class voice quality over lower-cost Internet infrastructures. Cisco's voice-over-IP (VoIP) solutions will help service providers scale their offerings and deliver new services to their customers. In broadband infrastructure, Cisco announced a new optical internetworking strategy to help service providers optimize their fiber-optic networks to deliver "greater-than-gigabit" speeds at much lower costs. Cisco announced the acquisition of NetSpeeds broadband-to-the-home, xDSL technologies. Cisco xDSL devices are expected to deliver always-on, Internet service up to 50 times faster than todays dial-up modems, using ordinary phone lines. In addition, Cisco announced a new cable partnership with Time-Warner, delivering broadband Internet service to cable subscribers. Cisco also expanded its Cisco Powered Network program to more than 70 service providers, adding 25 service providers in the third quarter, including Bell South, Bell Atlantic, GTE BBN and US West.
"Ciscos end-to-end strategies in the enterprise market continue to gain customer momentum and we are beginning to see expansion in the service provider market as well. Customers are developing plans to integrate data/voice/video over a single data network," said Chambers. "We believe that the convergence of data, voice and video will be a major inflection point within the networking industry, particularly as data and video traffic begin to rapidly surpass voice traffic in the future. This trend will contribute to lower voice costs and may eventually lead to voice becoming "free" over time, first in the enterprise and eventually, in the service provider market as voice becomes a smaller part of the total load on the network.
"In summary, the Internet is changing everything and as a result, people, businesses, countries and governments are being connected in ways that we are just beginning to explore. This phenomenon, that I like to refer to as the Internet Revolution, will change the way we all work, live, play and learn, regardless of our geographical location," said Chambers.
Cisco Systems
Cisco Systems, Inc. (NASDAQ: CSCO) is the worldwide leader in networking for the Internet. News and information are available at http://www.cisco.com.Catalyst, Cisco, Cisco IOS, 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.
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 Statements of Operations
Excluding Purchased R&D and RealizedGain
(In thousands, except per-share amounts)
| Quarters Ended Apr. 25, 1998 |
Quarters Ended Apr. 26, 1997 |
Nine Months Ended Apr. 25, 1998 |
Nine Months Ended Apr. 26, 1997 |
|
| (Unaudited) | ||||
| Net sales | $ 2,183,756 | $ 1,647,871 | $ 6,068,788 | $ 4,675,074 |
| Cost of sales | 749,727 | 571,339 | 2,098,682 | 1,625,338 |
| Gross margin | 1,434,029 | 3,970,106 | 3,049,736 | |
| Operating expenses: | ||||
| Research and development | 263,064 | 183,714 | 726,071 | 496,077 |
| Sales and marketing | 412,241 | 299,339 | 1,109,066 | 846,790 |
| General and administrative | 67,329 | 54,349 | 181,411 | 148,236 |
| Total operating expenses | 742,634 | 537,402 | 2,016,548 | |
| Operating income | 691,395 | 539,130 | 1,953,558 | 1,558,633 |
| Interest and other income, net | 52,047 | 132,921 | 77,635 | |
| Income before provision for income taxes | 743,442 | 2,086,479 | 1,636,268 | |
| Provision for income taxes | 260,205 | 210,243 | 730,268 | 605,612 |
| Net income | $ 483,237 | $ 1,356,211 | $ 1,030,656 | |
| Net income per share--basic | $ .47 | $ .36 | $ 1.33 | $1.04 |
| Net income per share--diluted | $ .45 | $ .35 | $ 1.27 | $1.00 |
| Shares used in per-share calculation--basic | 996,017 | 1,017,239 | 987,539 | |
| Shares used in per-share calculation--diluted | 1,032,677 | 1,065,127 | 1,030,941 | |
| PRO FORMA ONLY |
The above pro forma amounts for the quarter and nine months ended 4/25/98 have been adjusted to eliminate the Q1 $127.2 million and the Q3 $418.7 million charges for the write-off of purchased in-process R&D, and the Q1 $5.4 million gain from the sale of a minority stock investment, net of tax benefit of $42.6 million for the nine-month period.
The above pro forma amounts for the quarter and nine months ended 4/26/97 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, the Q2 $47.3 million and the Q3 $32.3 million gain from the sale of a minority stock investment, net of income tax expense of $11.9 million and $49.8 million, respectively.
Cisco is now required under FAS 128 to report two separate earnings-per-share numbers--basic EPS and diluted EPS. Diluted EPS approximates the amount Cisco has previously been reporting as earnings per share and includes the dilutive impact of employee stock options.
Condensed Consolidated Statements of Operations
| Quarters Ended Apr. 25, 1998 |
Quarters Ended Apr. 26, 1997 Apr. 25, 1998 |
Nine Months Ended Apr. 26, 1997 |
||
| (Unaudited) | ||||
| Net sales | $ 2,183,756 | $ 1,647,871 | $ 6,068,788 | $ 4,675,074 |
| Cost of sales | 749,727 | 571,339 | 2,098,682 | 1,625,338 |
| Gross margin | 1,434,029 | 1,076,532 | 3,970,106 | |
| Operating expenses: | ||||
| Research and development | 263,064 | 183,714 | 726,071 | 496,077 |
| Sales and marketing | 412,241 | 299,339 | 1,109,066 | 846,790 |
| General and administrative | 67,329 | 54,349 | 181,411 | 148,236 |
| Purchased R & D |
418,659 | --- | 217,792 | |
| Total operating expenses | 1,161,293 | 537,402 | 2,562,398 | 1,708,895 |
| Operating income | 272,736 | 539,130 | 1,407,708 | 1,340,841 |
| Realized gain on sale of investment | --- | 5,411 | 134,695 | |
| Interest and other income, net | 52,047 | 132,921 | 77,635 | |
| Income before provision for income taxes | 324,783 | 1,546,040 | 1,553,171 | |
| Provision for income taxes | 260,205 | 222,190 | 687,645 | 655,449 |
| Net income | $ 64,578 | $ 858,395 | $897,722 | |
| Net income per share--basic | $ .06 | $ .84 | $.91 | |
| Net income per share--diluted | $ .06 | $ .37 | $ .81 | $.87 |
| Shares used in per-share calculation--basic | 996,017 | 1,017,239 | 987,539 | |
| Shares used in per-share calculation--diluted | 1,032,677 | 1,065,127 | 1,030,941 | |
Cisco is now required under FAS 128 to report two separate earnings-per-share numbers--basic EPS and diluted EPS. Diluted EPS approximates the amount Cisco has previously been reporting as earnings-per-share and includes the dilutive impact of employee stock options.
Condensed Consolidated Balance Sheets
(In thousands)
| April 25, 1998 | July 26, 1997 | |
| (unaudited) | ||
| Assets | ||
| CurrentAssets: |
|
|
| Cash and equivalents | $ 1,170,585 | $269,608 |
| Short-term investments | 942,475 | 1,005,977 |
| Accounts receivable, net | 1,272,958 | 1,170,401 |
| Inventories, net | 308,276 | 254,677 |
| Deferred income taxes | 390,855 | 312,132 |
| Other current assets | 57,496 | 88,471 |
| Total current assets | 4,142,645 | 3,101,266 |
| Investments | 2,259,289 | 1,267,174 |
| Restricted investments | 486,347 | 363,216 |
| Property and equipment, net | 545,661 | 466,352 |
| Other assets | 464,195 | 253,976 |
| Total assets | $ 7,898,137 | |
| Liabilities and Shareholders' Equity: | ||
| Current Liabilities: | ||
| Accounts payable and other accrued expenses | $ 1,183,868 | $ 863,885 |
| Income taxes payable | 362,840 | 256,224 |
| Total current liabilities | 1,546,708 | 1,120,109 |
| Minority interest | 42,960 | 42,253 |
| Shareholders' equity | 6,308,469 | 4,289,622 |
| Total liabilities and shareholders' equity | $ 7,898,137 | $ 5,451,984 |
Cisco Systems
Cisco Systems, Inc. (NASDAQ:CSCO) is theworldwide leader in networking for the Internet. News and information areavailable athttp://www.cisco.com.
