SAN JOSE, Calif., May 7, 2002 - Cisco Systems, Inc., the worldwide leader in networking for the Internet, today reported its third quarter results for the period ending April 27, 2002.
Net sales for the third quarter of fiscal 2002 were $4.8 billion, compared to $4.7 billion in net sales for the third quarter of fiscal 2001, an increase of 2%, and compared to $4.8 billion for the second quarter of fiscal 2002. Net income on a generally accepted accounting principles (GAAP) basis for the third quarter of fiscal 2002 was $729 million or $0.10 per share, compared with a net loss of $2.7 billion or $0.37 per share for the third quarter of fiscal 2001 and net income of $660 million or $0.09 per share for the second quarter of fiscal 2002.
Pro forma net income, which excludes the effects of acquisition charges, payroll tax on employee stock option exercises, and certain nonrecurring items, was $838 million or $0.11 per share for the third quarter of fiscal 2002, compared with pro forma net income of $230 million or $0.03 per share for the third quarter of fiscal 2001 and $664 million or $0.09 per share for the second quarter of fiscal 2002.
Net sales for the first nine months of fiscal 2002 were $14.1 billion, compared with $18.0 billion for the first nine months of fiscal 2001, a decrease of 22%. Net income on a GAAP basis for the first nine months of fiscal 2002 was $1.1 billion or $0.15 per share, compared with a net loss of $1.0 billion or $0.14 per share for the first nine months of fiscal 2001. Pro forma net income was $1.8 billion or $0.25 per share for the first nine months of fiscal 2002 compared with $2.9 billion or $0.39 per share for the same period of fiscal 2001.
"We are very pleased with this quarter's performance, especially our year-to-yearprofit increase of 264% and quarter-to-quarter increase of 26%," said JohnChambers, president and CEO of Cisco Systems. "The combination of ourstrong market position and solid execution by our team produced resultsthat clearly indicate that Cisco is well positioned when the economy rebounds. Last year was a classic downturn. We took the critical steps to position ourselves for the upturn, and we are beginning to see the very positive results."
Further commenting on Cisco's execution, Chambers added, "From an operational perspective, this quarter was a home run. Our strong results led to gross margins of 63.1%, cash flows of $1.6 billion and inventory turns of 7.5 times, which exceeded our goals. We continue to take market share from our top-ten competitors, with revenue growth of 2% year-over-year versus a drop of 43% for these competitors."
Throughout the quarter, Cisco continued its emphasis on achieving profitable market-share gains, with a focus on growing ten percent faster than ten selected North American competitors. Cisco's market-share momentum included leadership in key market segments such as all areas of routing, LAN switching, security, voice over IP, IP telephony, and enterprise wireless LANs and virtual private networks (VPNs). Cisco also experienced growth in Layer 3 fixed and modular switching, where customers are transitioning wiring closets to more intelligent packet processing to enable quality of service (QoS) and higher levels of security. Cisco attributes these ongoing market-share gains to its continued focus on providing customers with networking technologies and solutions that increase both productivity and profitability, while delivering a solid return on investment.
Enterprise Segment
In the enterprise market, Cisco provides the framework for enterprise businesses to deploy networking solutions that help enable business resilience, increase employee productivity, and mitigate network security threats. Cisco enterprise customers continue to invest in core switching and routing platforms, as well as key networking technologies including IP telephony, security, and mobility.During the third quarter, Cisco introduced a new Layer 3 switching module for its Catalyst 4000 product line, which delivers a higher level of quality of service (QoS) and security. Cisco announced significant enhancements to and improved performance capabilities of its industry-leading router portfolio including the Cisco 7200, 7300, 7400, 7500 and 7600 series of midrange routers. Cisco also announced new advanced software capabilities for its industry-leading Cisco PIX® firewall family with the Cisco PIX 506E and 515 platforms. In the enterprise voice market, Cisco added new features and functions to the Cisco IP Contact Center solution including new agent and supervisor desktops.
New enterprise customers deploying Cisco's next-generation 10-Gigabit Ethernet solutions included Curtin University of Technology in Australia, Kyoto University in Japan, and Arkansas State University in the United States. Cisco also announced new enterprise voice solution customers including Research Triangle Institute (RTI) and the Village at Squaw Valley, USA. New enterprise customers deploying Cisco security solutions included Lockwood Green and Centex Mortgage.
Service Provider Segment
Cisco service provider customers remain focused on decreasing operating expenses and increasing top line revenue through the convergence of disparate networks, services and operational support systems (OSS). During the quarter, Cisco continued to work with service providers to identify and market new business network services such as VPNs, metropolitan area access, and managed IP telephony and security. For example, Case Western Reserve University signed a mult-imillion dollar agreement with Sprint, which will use Cisco infrastructure, to build one of the fastest LANs in the world.New customers that selected Multiprotocol Label Switching (MPLS) solutions based on Cisco software and hardware technologies include more than 100 leading service providers such as Bell Canada, BT Ignite, France Telecom, Equant, Infonet Services, KDDI, Japan Telecom, and NTT Communications. MPLS is key to enabling converged networking infrastructures for the delivery of new IP services. In addition, AT&T announced deployment of Cisco optical solutions for its nationwide intelligent optical network, further underscoring Cisco's leadership in the metro optical segment. Finally, Cisco experienced continued interest in its metro optical strategy with new deployments such as Grange Net in Australia, and Government of Alberta's SuperNet project and CANARIE in Canada, which adopted the Cisco ONS 15454 platform.
During the quarter, Cisco enhanced its leadership in the service provider cable marketplace. The Cisco uBR10012 Cable Modem Termination System (CMTS) and uBR7246VXR Universal Broadband Router received qualification for Data-Over-Cable Service Interface Specification (DOCSIS) 1.1, making Cisco the only company currently with multiple Layer 3 DOCSIS 1.1 qualified CMTS systems. The Cisco uBR7246VXR is also the only CMTS currently included in the advanced interoperability test network, which consists of vendors with the most advanced implementations of PacketCable specifications and is used for system interoperability testing. Cisco also introduced new Session Initiation Protocol (SIP)-enabled voice-over-IP solutions.
Commercial Segment
Cisco continued to meet the unique requirements of small and medium-sized business customers (SMBs) during the quarter with expanded programs to help educate and build demand for the value of networking technology and by delivering innovative new networking solutions including wireless access products, switches, and integrated communication systems.Cisco introduced 14 new access routers designed to extend network intelligence including security, availability, and QoS to the enterprise branch office and remote worker. Cisco also announced the Cisco Aironet® 1200 Series dual radio wireless LAN access point supporting both IEEE 802.11b and the 5-GHz IEEE 802.11a radios as they become available.
The Cisco Internet Business Roadmap initiative has been made available to thousands of resellers of Cisco products, helping them establish networking relevance for e-business applications. In addition, the Cisco Mobile Office initiative added several new customer venues offering high-speed access to their customers including Airpath Wireless (WLAN at AirTran Airways boarding gates); Minneapolis/St. Paul Airport (WLAN throughout the Lindbergh Terminal), Gaylord Entertainment (high-speed access throughout its Gaylord Palms Resort and Convention Center in Kissimmee, St. Cloud, Florida); and Lufthansa Airlines (enabling high-speed, Ethernet access to passenger seats on airplanes).
"Today's announcement of an 8.6% productivity gain for the United States in the first quarter underscores our strong belief that our customers will invest in those technologies that deliver productivity results," continued John Chambers. "We've grown our productivity by 20 percent over the last four quarters, with about half of it coming from our use of Internet business solutions, and we believe that the Internet will be a prime factor in gains of 5 to 10% a year for companies and 3 to 5% a year for countries."
Editors Note:
- Q3 conference call to be held at 1:45 p.m. PDT on Tuesday, May 7; conference call number is 800-779-9040 (domestic) and 712-257-3767 (international)
- For additional information regarding Cisco's financials and to participate in Cisco's conference call at 1:45 p.m. PDT, please visit our investor relations site at http://www.cisco.com/go/investors
- Conference call replay available from 5/7/02 at 4:30 p.m. through 5/14/02 at 800-876-4361 for domestic callers and 402-280-9920 for international callers.
- Additional information regarding Cisco's Q3 earnings is available at http://newsroom.cisco.com
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 of 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 nine months ended April 27, 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 additional information for 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.
|
CONSOLIDATED STATEMENTS OF OPERATIONS
|
(Unaudited)
| Three Months Ended | Nine Months Ended | |||
| April 27, 2002 |
April 28, 2001 |
April 27, 2002 |
April 28, 2001 | |
| NET SALES: | ||||
| Product | $ 3,993 | $ 4,007 | $ 11,671 | $ 15,982 |
| Services | 829 | 721 | 2,415 | 2,013 |
| Total net sales | 4,822 | 4,728 | 14,086 | 17,995 |
| COST OF SALES: | ||||
| Product | 1,515 | 4,131 | 4,608 | 8,563 |
| Services | 239 | 269 | 748 | 796 |
| Total cost of sales | 1,754 | 4,400 | 5,356 | 9,359 |
| GROSS MARGIN | 3,068 | 328 | 8,730 | 8,636 |
| OPERATING EXPENSES: | ||||
| Research and development | 807 | 970 | 2,504 | 2,885 |
| Sales and marketing | 1,057 | 1,333 | 3,207 | 4,102 |
| General and administrative | 163 | 191 | 459 | 578 |
| Restructuring costs and other special charges | - | 1,170 | - | 1,170 |
| Payroll tax on employee stock option exercises | 1 | 10 | 7 | 50 |
| Amortization of deferred stock-based compensation | 37 | 70 | 133 | 106 |
| Amortization of goodwill | - | 181 | - | 494 |
| Amortization of purchased intangible assets | 129 | 95 | 411 | 263 |
| In-process research and development | - | 109 | 37 | 855 |
| Total operating expenses | 2,194 | 4,129 | 6,758 | 10,503 |
| OPERATING INCOME (LOSS) | 874 | (3,801) | 1,972 | (1,867) |
| Net gains (losses) on investments | - | - | (858) | 190 |
| Interest and other income, net | 150 | 236 | 499 | 741 |
| INCOME (LOSS) BEFORE PROVISION FOR (BENEFIT FROM) INCOME TAXES | 1,024 | (3,565) | 1,613 | (936) |
| Provision for (benefit from) income taxes | 295 | (872) | 492 | 85 |
| NET INCOME (LOSS) | $ 729 | $ (2,693) | $1,121 | $ (1,021) |
| Net income (loss) per share--basic |
$ 0.10 | $ (0.37) | $ 0.15 | $ (0.14) |
| Net income (loss) per share--diluted (1) |
$ 0.10 | $ (0.37) | $ 0.15 | $ (0.14) |
| Shares used in per-share calculation--basic | 7,306 | 7,251 | 7,310 | 7,170 |
| Shares used in per-share calculation--diluted (1) | 7,454 | 7,251 | 7,473 | 7,170 |
Note 1: Diluted net loss per share for the three and nine months ended April 28, 2001 is computed using the weighted-average number of common shares outstanding during the period and excludes common-equivalent shares, as their effect is anti-dilutive.
|
PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS (See pro forma adjustments listed in table below) |
(Unaudited)
| Three Months Ended | Nine Months Ended | |||
| April 27, 2002 | April 28, 2001 | April 27, 2002 | April 28, 2001 | |
| NET SALES: | ||||
| Product | $ 3,993 | $ 4,007 | $11,671 | $ 15,982 |
| Services | 829 | 721 | 2,415 | 2,013 |
| Total net sales | 4,822 | 4,728 | 14,086 | 17,995 |
| COST OF SALES: | ||||
| Product | 1,542 | 1,882 | 5,120 | 6,314 |
| Services | 239 | 269 | 748 | 796 |
| Total cost of sales | 1,781 | 2,151 | 5,868 | 7,110 |
| GROSS MARGIN | 3,041 | 2,577 | 8,218 | 10,885 |
| OPERATING EXPENSES: | ||||
| Research and development | 807 | 970 | 2,504 | 2,885 |
| Sales and marketing | 1,057 | 1,333 | 3,207 | 4,102 |
| General and administrative | 163 | 191 | 459 | 578 |
| Total operating expenses | 2,027 | 2,494 | 6,170 | 7,565 |
| OPERATING INCOME | 1,014 | 83 | 2,048 | 3,320 |
| Interest and other income, net | 150 | 236 | 499 | 741 |
| INCOME BEFORE PROVISION FOR INCOME TAXES | 1,164 | 319 | 2,547 | 4,061 |
| Provision for income taxes | 326 | 89 | 713 | 1,138 |
| NET INCOME | $ 838 | $ 230 | $ 1,834 | $ 2,923 |
| Net income per share--basic |
$ 0.11 | $ 0.03 | $ 0.25 | $0.41 |
| Net income per share--diluted |
$ 0.11 | $ 0.03 | $ 0.25 | $ 0.39 |
| Shares used in per-share calculation--basic | 7,306 | 7,251 | 7,310 | 7,170 |
| Shares used in per-share calculation--diluted | 7,454 | 7,486 | 7,473 | 7,552 |
| The above pro forma amounts have been adjusted to exclude the following items: | ||||
| In-process research and development | $ - | $ 109 | $ 37 | $ 855 |
| Payroll tax on employee stock option exercises | 1 | 10 | 7 | 50 |
| Amortization of deferred stock-based compensation |
37 | 70 | 133 | 106 |
| Amortization of goodwill | - | 181 | - | 494 |
| Amortization of purchased intangible assets | 129 | 95 | 411 | 263 |
| Net (gains) losses on investments | - | - | 858 | (190) |
| Restructuring costs and other special charges | - | 1,170 | - | 1,170 |
| Excess inventory (benefit) charge | (27) | 2,249 | (512) | 2,249 |
| Income tax effect | (31) | (961) | (221) | (1,053) |
| $ 109 | $ 2,923 | $ 713 | $ 3,944 | |
| CONSOLIDATED BALANCE SHEETS |
(Unaudited)
| April 27, 2002 | July 28, 2001 | |
| ASSETS | ||
| Current assets: | ||
| Cash and cash equivalents | $ 6,493 | $ 4,873 |
| Short-term investments | 2,478 | 2,034 |
| Accounts receivable, net of allowance for doubtful accounts of $346 at April 27, 2002 and $288 at July 28, 2001 | 990 | 1,466 |
| Inventories, net | 869 | 1,684 |
| Deferred tax assets | 2,010 | 1,809 |
| Lease receivables, net | 272 | 405 |
| Prepaid expenses and other current assets | 498 | 564 |
| Total current assets | 13,610 | 12,835 |
| Investments | 12,090 | 10,346 |
| Restricted investments | - | 1,264 |
| Property and equipment, net | 4,002 | 2,591 |
| Goodwill | 3,350 | 3,189 |
| Purchased intangible assets, net | 1,090 | 1,470 |
| Lease receivables, net | 42 | 253 |
| Other assets | 2,942 | 3,290 |
| TOTAL ASSETS | $ 37,126 | |
| LIABILITIES AND SHAREHOLDERS' EQUITY |
||
| Current liabilities: | ||
| Accounts payable | $ 436 | $ 644 |
| Income taxes payable | 292 | 241 |
| Accrued compensation | 1,266 | 1,058 |
| Deferred revenue | 3,122 | 2,470 |
| Other accrued liabilities | 2,523 | 2,553 |
| Restructuring liabilities | 341 | 386 |
| Total current liabilities | 7,980 | 7,352 |
| Deferred revenue | 711 | 744 |
| Total liabilities | 8,691 | 8,096 |
| Minority interest | 16 | 22 |
| Shareholders' equity | 28,419 | 27,120 |
| TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY | $ 37,126 | $ 35,238 |
| CONSOLIDATED STATEMENTS OF CASH FLOWS |
(Unaudited)
| Nine Months Ended | ||
| April 27, 2002 | April 28, 2001 | |
| Cash flows from operating activities: | ||
| Net income (loss) | $ 1,121 | $ (1,021) |
| Adjustments to reconcile net income (loss) to net cash provided by operating activities: |
||
| Depreciation and amortization | 1,353 | 1,615 |
| Provision for doubtful accounts | 91 | 123 |
| Provision for inventory | 109 | 2,697 |
| Deferred income taxes | (373) | (1,431) |
| Tax benefits from employee stock option plans | 51 | 705 |
| In-process research and development | 25 | 739 |
| Net (gains) losses on investments and provision for losses | 1,076 | 43 |
| Restructuring costs and other special charges | - | 501 |
| Change in operating assets and liabilities: | ||
| Accounts receivable | 385 | 197 |
| Inventories | 665 | (1,730) |
| Prepaid expenses and other current assets | (20) | (66) |
| Accounts payable | (208) | (85) |
| Income taxes payable | 51 | 786 |
| Accrued compensation | 208 | (108) |
| Deferred revenue | 619 | 1,000 |
| Other accrued liabilities | (130) | 74 |
| Restructuring liabilities | (45) | 668 |
| Net cash provided by operating activities | 4,978 | 4,707 |
| Cash flows from investing activities: | ||
| Purchases of short-term investments | (4,166) | (2,870) |
| Proceeds from sales and maturities of short-term investments | 4,702 | 3,459 |
| Purchases of investments | (13,600) | (14,613) |
| Proceeds from sales and maturities of investments | 10,658 | 12,732 |
| Purchases of restricted investments | (291) | (758) |
| Proceeds from sales and maturities of restricted investments | 1,471 | 941 |
| Acquisition of property and equipment | (2,243) | (1,814) |
| Acquisition of businesses, net of cash and cash equivalents | 14 | (13) |
| Change in lease receivables, net | 344 | 224 |
| Purchases of investments in privately held companies | (52) | (960) |
| Lease deposits | 320 | (320) |
| Purchase of minority interest of Cisco Systems, K.K. (Japan) | (91) | (365) |
| Other | 98 | (573) |
| Net cash used in investing activities | (2,836) | (4,930) |
| Cash flows from financing activities: | ||
| Issuance of common stock | 431 | 1,106 |
| Repurchase of common stock | (952) | - |
| Other | (1) | (15) |
| Net cash (used in) provided by financing activities | (522) | 1,091 |
| Net increase in cash and cash equivalents | 1,620 | 868 |
| Cash and cash equivalents, beginning of period | 4,873 | 4,234 |
| Cash and cash equivalents, end of period | $ 6,493 | $ 5,102 |
