SAN JOSE, Calif., February 6, 2002 - Cisco Systems, Inc., the worldwide leader in networking for the Internet, today reported its second quarter results for the period ending January 26, 2002.
Net sales for the second quarter of fiscal 2002 were $4.8 billion, a sequential increase of 8% from the $4.4 billion in net sales for the first quarter of fiscal 2002. This compares to $6.7 billion in net sales for the same period last year, a decrease of 29%. Pro forma net income, which excludes the effects of acquisition charges, payroll tax on stock option exercises, net gains (losses) on investments, and an excess inventory benefit, was $664 million or $0.09 per share for the second quarter of fiscal 2002, compared with pro forma net income of $332 million or $0.04 per share for the first quarter of fiscal 2002, and $1.3 billion or $0.18 per share for the second quarter of fiscal 2001.
Actual net income for the second quarter of fiscal 2002 was $660 million or $0.09 per share, compared with actual net loss of $268 million or $0.04 per share for the first quarter of fiscal 2002, and actual net income of $874 million or $0.12 per share for the same quarter last year.
Net sales for the first six months of fiscal 2002 were $9.3 billion, compared with $13.3 billion in net sales for the first six months of fiscal 2001, a decrease of 30%. Pro forma net income was $1.0 billion or $0.13 per share for the first six months of fiscal 2002, compared with pro forma net income of $2.7 billion or $0.36 per share for the first six months of fiscal 2001.
Actual net income for the first six months of fiscal 2002 was $392 million or $0.05 per share, compared with actual net income of $1.7 billion or $0.22 per share for the first six months of fiscal 2001.
"This was a very solid quarter," said John Chambers, President and CEO, Cisco Systems. "Our results reflect Cisco's unique position to help our customers with their business priorities - profits, cash flow and productivity. I was especially pleased with our profitable market share gains and strong operational performance in a very challenging market, as well as our continued improvement to an already strong balance sheet."
Cisco is focused on developing and delivering innovative networking technologies and solutions that provide customers with bottom-line impact by generating new services, increasing productivity, and reducing costs.
In the service provider market, Cisco continued to focus on its strategy of delivering carrier-class networking technologies to enable service providers to decrease costs, while building out an evolutionary capital-efficient services strategy that leads to profitability.
During the quarter, Cisco announced the Cisco Complete Optical Metro Multiservice Edge and Transport (COMET) strategy and portfolio to accelerate IP+Optical networking with service density, variety, velocity, and capacity. The Cisco COMET announcement included the introduction of the Cisco ONS 15808 Long-Haul/Extended Long-Haul DWDM System and new Cisco ONS 15540 certifications with IBM, MFN, and Compaq. Cisco also garnered numerous new customers worldwide, including China Telecom, Cox Communications, Hangzhou, TDC Tele Danmark, Tiscali, and 6Net.
Cisco continued to deliver IP innovation with the introduction of Cisco Mobile Networks and the second phase of the company's IPv6 functionality. Cisco has set another industry first when it announced that SURFnet5, the first broadband research network to deliver native IPv6 Internet services, is based on the Cisco 12416 Internet Router.
In December 2001, Cisco attained number one market share, as ranked by two independent market research firms, in the overall voice-over-IP (VoIP) market, as well as in all of the enterprise, LAN telephony, and IP phone segments. To date, Cisco has shipped more than 500,000 IP phones and more than 6,000,000 VoIP ports.
During the quarter, Cisco announced a three-year strategic relationship with Sprint to forge strong sales, joint marketing, and technology development. Cisco and Sprint are focused initially on jointly selling IP-based and broadband services, including dedicated IP, IP virtual private networking (VPN), and IP telephony to drive growth and revenue.
In the enterprise market, Cisco AVVID (Architecture for Voice, Video and Integrated Data) --continued to help enterprise customers increase productivity, improve profits and augment customer satisfaction. During the quarter, Cisco announced new security hardware and software that extended its VPN offerings, including acceleration capabilities and end-point security options for remote access. Cisco also expanded the number of its available SAFE blueprints for network security with the addition of design guidelines and best practices for securing wireless infrastructures.
In the IP telephony segment, Cisco maintained a market-leading position and continued to see significant adoption of VoIP technology in the enterprise market. Cisco also added 450 new IP telephony customers, including Ernst and Young LLP, the Village at Squaw Valley USA, and Surrey County Council in the United Kingdom. In addition, Cisco and IBM extended an existing broad-based alliance to include co-development and a reselling agreement for unified communication solutions.
Cisco also continues to lead the market with the industry's broadest portfolio of high-end switches and routers and continues to deliver these critical technologies to enterprises around the world. Cisco recently announced enhancements to the Cisco Catalyst. 4000 switching platform with the introduction of the Supervisor Engine III, bringing intelligence from the core to the wiring closet for enhanced control of data, voice, and video networks.
In the commercial market, Cisco continued to focus on helping small- and medium-sized businesses (SMBs) maximize productivity and profitability with network solutions and technologies, including wireless access products, switches and integrated communication systems. Accordingly, Cisco introduced the Cisco Internet Business Roadmap, an online tool that helps channel partners and SMBs create customized plans for the development of strategic e-business applications. The solutions selling program enables channel partners to reinforce their "trusted advisor" status, improve customer satisfaction, and increase their revenues.
Cisco also introduced the Cisco Catalyst 2950 and 3550 Series Intelligent Ethernet switches which establish intelligent Layer 3/4 services as a standard function in the wiring closet. These multilayer Ethernet switches enable mid-sized enterprises to deploy network-wide intelligent Layer 3/4 services, while maintaining the simplicity of traditional local area network (LAN) switching. In addition, Cisco achieved the number one position in the DSL customer premises equipment - voice and data router category with 36 percent market share as ranked by an independent market research firm.
Cisco also announced a new Cisco Mobile Office venue partner, Fairmont Hotels & Resorts. Fairmont Hotels will add high-speed Internet access to all of its guestrooms and numerous public areas in its North American luxury hotels and resorts. In addition, Cox Business Services Hospitality Network selected the Cisco Building Broadband solution for delivery of high-speed connectivity in more than 20,000 Park Place Entertainment hotel rooms nationwide, including rooms at Bally's, Caesars Palace, Paris, Flamingo, and Hilton casino resorts in Nevada, New Jersey, and Indiana. Cisco further strengthened its Cisco Wireless Security Suite by providing software security enhancements to the Cisco Aironet. 350 Series.
"We've managed our business and market opportunity to the breakaway strategy and six-point- plan we announced last year," said Chambers. "In almost every area of our business we've seen positive evidence of our strategy working, from market share gains and cash generation to inventory turns and gross margin improvements. While there is always room for improvement, I don't think Cisco has ever been better positioned to achieve our long-term goals."
Cisco will discuss its second quarter results for fiscal 2002 on a conference call today, beginning at 1:45 p.m. PST. A Webcast of the conference call will be available to all interested parties on the Cisco Web site at www.cisco.com under the "Investor Relations" section.
About Cisco Systems
Cisco Systems, Inc., (NASDAQ: CSCO) is the worldwide leader in networking for the Internet. News and information are available at www.cisco.com.This release contains projections and other forward-looking statements regarding future events 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. Readers are referred to the documents filed by Cisco with the SEC, specifically the most recent reports on Form 10-K, 10-Q and 8-K, each as it may be amended from time to time, which identify important risk factors that could cause actual results to differ from those contained in the forward-looking statements. In addition to these risk factors, other factors that could cause actual results to differ materially include the following: business and economic conditions and growth trends in the networking industry in various geographic regions; global economic conditions; overall information technology spending; the growth 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; the ability to successfully restructure existing businesses; the timing of orders and manufacturing lead times; changes in customer order patterns; insufficient, excess or obsolete inventory; variations in sales channels, product costs, or mix of products sold; the ability to successfully reduce overhead and manage expenses; the ability to successfully acquire businesses and technologies and to successfully integrate and operate these acquired businesses and technologies; increased competition in the networking industry; dependence on the introduction and market acceptance new product offerings and standards; rapid technological and market change; the trend towards sales of integrated network solutions; manufacturing and sourcing risks; Internet infrastructure problems and government regulation of the Internet; international operations; the timing and amount of employer payroll tax to be paid on employees' gains on stock options exercised; litigation involving patents, intellectual property, antitrust, stockholder and other matters; possible disruption in commercial activities occasioned by terrorist activity and armed conflict, such as changes in logistics and security arrangements, and reduced end-user purchases relative to expectations; exposure to credit risks relating to certain customers and credit exposures in weakened markets; the ability to recruit and retain key personnel; stock price volatility; financial risk management; and potential volatility in operating results, among others. 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 reports on Form 10-K and Form 10-Q, each as it may be amended from time to time. Cisco's results of operations for the three and six months ended January 26, 2002 are not necessarily indicative of Cisco's operating results for the full fiscal year or any future periods.
Cisco provides pro forma net income and pro forma net income per share data as an alternative for understanding its operating results. These measures are not in accordance with, or an alternative for, generally accepted accounting principles and may be different from pro forma measures used by other companies.
Aironet, Catalyst, Cisco, Cisco IOS, Cisco Systems, and the Cisco Systems logo are registered trademarks of Cisco Systems, Inc. and/or its affiliates in the U.S. and certain other countries. All other trademarks mentioned in this document or Web site 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. Copyright ) 2002 Cisco Systems, Inc. All rights reserved.
|
PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS (See pro forma adjustments listed in table below) |
| Three Months Ended | Six Months Ended | |||
| January 26, 2002 (Unaudited) |
January 27, 2001 (Unaudited) |
January 26, 2002 (Unaudited) |
January 27, 2001 (Unaudited) |
|
| NET SALES: | ||||
| Product | $ 4,022 | $ 6,064 | $ 7,678 | $ 11,975 |
| Services | 794 | 684 | 1,586 | 1,292 |
| Total net sales | 4,816 | 6,748 | 9,264 | 13,267 |
| COST OF SALES: | ||||
| Product | 1,788 | 2,310 | 3,578 | 4,432 |
| Services | 253 | 271 | 509 | 527 |
| Total cost of sales | 2,041 | 2,581 | 4,087 | 4,959 |
| GROSS MARGIN | 2,775 | 4,167 | 5,177 | 8,308 |
| OPERATING EXPENSES: | ||||
| Research and development | 822 | 981 | 1,697 | 1,915 |
| Sales and marketing | 1,064 | 1,419 | 2,150 | 2,769 |
| General and administrative | 146 | 194 | 296 | 387 |
| Total operating expenses | 2,032 | 2,594 | 4,143 | 5,071 |
| OPERATING INCOME | 743 | 1,573 | 1,034 | 3,237 |
| Interest and other income, net | 179 | 275 | 349 | 505 |
| INCOME BEFORE PROVISION FOR INCOME TAXES | 922 | 1,848 | 1,383 | 3,742 |
| Provision for income taxes | 258 | 518 | 387 | 1,049 |
| NET INCOME | $ 664 | $ 1,330 | $ 996 | $ 2,693 |
| Net income per share--basic |
$ 0.09 | $ 0.19 | $ 0.14 | $0.38 |
| Net income per share--diluted |
$ 0.09 | $ 0.18 | $ 0.13 | $ 0.36 |
| Shares used in per-share calculation--basic | 7,311 | 7,144 | 7,309 | 7,121 |
| Shares used in per-share calculation--diluted | 7,496 | 7,556 | 7,480 | 7,567 |
| The above pro forma amounts have been adjusted to exclude the following items: | ||||
| In-process research and development | $ - | $ 237 | $ 37 | $ 746 |
| Payroll tax on stock option exercises | 3 | 18 | 6 | 40 |
| Amortization of deferred stock-based compensation | 46 | 30 | 96 | 36 |
| Amortization of goodwill | - | 169 | - | 313 |
| Amortization of purchased intangible assets | 136 | 87 | 282 | 168 |
| Net (gains) losses on investments | - | - | 858 | (190) |
| Excess inventory benefit | (195) | - | (485) | - |
| Income tax effect | 14 | (85) | (190) | (92) |
| $ 4 | $ 456 | $ 604 | $ 1,021 | |
|
CONSOLIDATED STATEMENTS OF OPERATIONS
|
| Three Months Ended | Six Months Ended | |||
| January 26, 2002 (Unaudited) |
January 27, 2001 (Unaudited) |
January 26, 2002 (Unaudited) |
January 27, 2001 (Unaudited) |
|
| NET SALES: | ||||
| Product | $ 4,022 | $ 6,064 | $ 7,678 | $ 11,975 |
| Services | 794 | 684 | 1,586 | 1,292 |
| Total net sales | 4,816 | 6,748 | 9,264 | 13,267 |
| COST OF SALES: | ||||
| Product | 1,593 | 2,310 | 3,093 | 4,432 |
| Services | 253 | 271 | 509 | 527 |
| Total cost of sales | 1,846 | 2,581 | 3,602 | 4,959 |
| GROSS MARGIN | 2,970 | 4,167 | 5,662 | 8,308 |
| OPERATING EXPENSES: | ||||
| Research and development | 822 | 981 | 1,697 | 1,915 |
| Sales and marketing | 1,064 | 1,419 | 2,150 | 2,769 |
| General and administrative | 146 | 194 | 296 | 387 |
| Payroll tax on stock option exercises | 3 | 18 | 6 | 40 |
| Amortization of deferred stock based compensation | 46 | 30 | 96 | 36 |
| Amortization of goodwill | - | 169 | - | 313 |
| Amortization of purchased intangible assets | 136 | 87 | 282 | 168 |
| In-process research and development | - | 237 | 37 | 746 |
| Total operating expenses | 2,217 | 3,135 | 4,564 | 6,374 |
| OPERATING INCOME | 753 | 1,032 | 1,098 | 1,934 |
| Net gains (losses) on investments | - | - | (858) | 190 |
| Interest and other income, net | 179 | 275 | 349 | 505 |
| INCOME BEFORE PROVISION FOR INCOME TAXES | 932 | 1,307 | 589 | 2,629 |
| Provision for income taxes | 272 | 433 | 197 | 957 |
| NET INCOME | $ 660 | $ 874 | $ 392 | $ 1,672 |
| Net income per share--basic |
$ 0.09 | $ 0.12 | $ 0.05 | $ 0.23 |
| Net income per share--diluted |
$ 0.09 | $ 0.12 | $ 0.05 | $ 0.22 |
| Shares used in per-share calculation--basic | 7,311 | 7,144 | 7,309 | 7,121 |
| Shares used in per-share calculation--diluted | 7,496 | 7,556 | 7,480 | 7,567 |
| CONSOLIDATED BALANCE SHEETS |
| January 26, 2002 (Unaudited) |
July 28, 2001 | |
| ASSETS | ||
| Current assets: | ||
| Cash and cash equivalents | $ 5,337 | $ 4,873 |
| Short-term investments | 2,211 | 2,034 |
| Accounts receivable, net of allowance for doubtful accounts of $336 at January 26, 2002 and $288 at July 28, 2001 | 1,150 | 1,466 |
| Inventories, net | 1,023 | 1,684 |
| Deferred tax assets | 2,085 | 1,809 |
| Lease receivables, net | 389 | 405 |
| Prepaid expenses and other current assets | 570 | 564 |
| Total current assets | 12,765 | 12,835 |
| Investments | 12,299 | 10,346 |
| Restricted investments | 1,161 | 1,264 |
| Property and equipment, net | 2,504 | 2,591 |
| Goodwill | 3,326 | 3,189 |
| Purchased intangible assets, net | 1,224 | 1,470 |
| Lease receivables, net | 67 | 253 |
| Other assets | 3,358 | 3,290 |
| TOTAL ASSETS | $ 36,704 | |
| LIABILITIES AND SHAREHOLDERS' EQUITY |
||
| Current liabilities: | ||
| Accounts payable | $ 371 | $ 644 |
| Income taxes payable | 277 | 241 |
| Accrued compensation | 1,414 | 1,058 |
| Deferred revenue | 3,047 | 2,470 |
| Other accrued liabilities | 2,366 | 2,553 |
| Restructuring liabilities | 278 | 386 |
| Total current liabilities | 7,753 | 7,352 |
| Deferred revenue | 790 | 744 |
| Total liabilities | 8,543 | 8,096 |
| Minority interest | 18 | 22 |
| Shareholders' equity | 28,143 | 27,120 |
| TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY | $ 36,704 | $ 35,238 |
