- Q4 Revenues: $4.8 Billion
- Q4 Operating Cash Flow: $1.6 Billion
- Q4 Earnings Per Share: $0.10 GAAP; $0.14 Pro Forma
Net sales for the fourth quarter of fiscal 2002 were $4.8 billion, compared to $4.3 billion for the fourth quarter of fiscal 2001, an increase of 12%, and compared to $4.8 billion for the third quarter of fiscal 2002.
Net income for the fourth quarter of fiscal 2002 on a generally accepted accounting principle (GAAP) basis, was $772 million or $0.10 per share, compared with net income of $7 million or $0.00 per share for the fourth quarter of fiscal 2001, and $729 million or $0.10 per share for the third quarter of fiscal 2002. Pro forma net income for the fourth quarter of fiscal 2002, which excludes the effects of acquisition charges, payroll tax on employee stock option exercises, and certain nonrecurring items, was $1.0 billion or $0.14 per share, compared with pro forma net income of $163 million or $0.02 per share for the fourth quarter of fiscal 2001, and $838 million or $0.11 per share for the third quarter of fiscal 2002.
During the quarter, Cisco completed the acquisitions of Hammerhead Networks, Inc. and Navarro Networks, Inc. The total combined purchase price recorded during the quarter, including assumed liabilities, was approximately $260 million. In addition, Cisco took a one-time charge of $28 million, or less than $0.01 per share on an after-tax basis, as a write-off of in-process research and development.
Net sales for fiscal 2002 were $18.9 billion, compared to $22.3 billion for fiscal 2001, a decrease of 15%.
GAAP net income for fiscal 2002 was $1.9 billion or $0.25 per share, compared with a net loss of $1.0 billion or $0.14 per share for fiscal 2001. Pro forma net income for fiscal 2002 was $2.9 billion or $0.39 per share, compared with pro forma net income of $3.1 billion or $0.41 per share for fiscal 2001.
Cash and cash equivalents and total investments were $21.5 billion at fiscal year-end 2002. Cash flow from operations was $1.6 billion for the fourth quarter and $6.6 billion for the full fiscal year 2002.
"This was another solid quarter for Cisco, despite the ongoing challenges in the economy," said Cisco President and CEO John Chambers. "We continued to focus on what we can control, and the results speak for themselves. Our operational performance is on par with peak historical results, especially in the areas of gross margins and income as a percentage of revenue."
Further commenting on Cisco's performance, Chambers noted, "Throughout this challenging time, we have focused on four key areas: profits, cash generation, productivity, and profitable market-share gains. We have consistently improved quarter by quarter in each of these categories, with our fourth quarter bringing in more than $1 billion in pro forma net income, $1.6 billion in cash from operations, a 22 percent productivity increase over last year's fourth quarter and 12 percent year-over-year revenue growth compared to a 44 percent decline by our top ten competitors."
"We continue to see global leaders capturing the productivity benefits that result from Internet business solutions based on Cisco networks," said Chambers. "Cisco continues to innovate in core routing and switching technologies that serve as the foundation of our customers' productivity gains, as well as in emerging technology markets that we believe will drive the next wave of productivity, such as IP telephony, storage, security and mobility."
Stock Repurchase Program Expanded
Cisco also today announced that its board of directors has increased the company's stock repurchase program to a total of up to $8 billion through September 12, 2003. This represents an increase of $5 billion from the original $3 billion authorized in September 2001. Of the $8 billion total, approximately $2 billion has been repurchased to date.Market Segment Update
EnterpriseEnterprise customers continue to be cautious but steady in spending. Cisco's strategy is focused on providing market-leading technology solutions that help its customers extend their enterprises across traditional corporate boundaries.
Cisco continued its market-share leadership in enterprise routing, switching, security, and voice over IP, with new products introduced across all of these categories during the quarter. This momentum is a direct result of organizations seeking to maximize benefits of current IT investments while preparing for the future. Examples include the Bulgarian Ministry of Transportation and Communications, which is deploying Cisco's Internet Protocol (IP) telephony solution, and FINAMA Asset Management in France, which is implementing an IP storage area network with Cisco technology. In Canada, more than 20 schools, universities and educational boards have implemented Cisco voice solutions.
Cisco also introduced new enterprise IP storage, content switching, and network management solutions during the quarter, while reaching a major milestone by shipping its one-millionth IP telephone. The company continues to see acceptance of voice-over-IP technologies with more than eight million voice ports shipped worldwide.
Service Provider
The worldwide service provider market remained challenged as carriers searched for innovative ways to generate revenue while controlling expenses. In response to this need, Cisco continued working closely with service providers to both identify and deploy profitable services, while also helping them to reduce costs through internal productivity improvements.
Service providers are also looking to Cisco for assistance in the development and marketing of revenue-generating services that meet their enterprise customers' needs today. An example of this collaboration is the Cisco alliance with Sprint, announced earlier this fiscal year. As a result of this alliance, Sprint has gained five major customers over the past quarter, including Chico's retail stores, Coast Dental Services, Inc., Meredith College, Elon University, and Starwood Hotels and Resorts Worldwide.
Cisco introduced several new technology innovations intended to reduce service providers' total cost of ownership, allowing them to use their current assets to scale existing services and lay a foundation for future services. Among them were two new advanced multiservice switches - the Cisco MGX® 8950 and the Cisco MGX 8830 - that allowed carriers to offer new packet-based services such as IP virtual private networks (VPNs) and IP telephony on top of their existing ATM or Multiprotocol Label Switching (MPLS) infrastructure.
Additionally, Cisco introduced the industry's most comprehensive portfolio of technologies for enabling managed central services over MPLS VPNs. These new technologies, available in Cisco IOS. Software, deliver greater simplicity and functionality to Layer 3 MPLS VPN architectures, enabling service providers to move beyond providing connectivity services to offering their customers value-added services.
Commercial
The commercial market segment remains an area of healthy growth for network adoption and deployment of intelligent network solutions. The emerging markets, which include network security, mobility, and converged voice and data solutions, are of specific interest to small- and medium-sized businesses (SMBs).
Cisco took another step forward in bringing intelligent services to the midsized network edge with the introduction of enhanced security services on the Cisco Catalyst® 3550 and 2950 Series Intelligent Ethernet switches. These services deliver more secure network administration, stronger user authentication, and improved security management.
Independent research by AMI-Partners estimates that of the more than 14 million SMBs worldwide with local area networks (LANs), approximately nine million have more than one office location. According to AMI, the global number of SMBs expected to adopt wide area networks (WANs), storage area networks (SANs), or VPNs is projected to grow at annual rates of 20 to 50 percent during the next three-to-four quarters as these businesses network their distributed locations for enhanced productivity. This trending represents ongoing demand for Cisco's portfolio of networking infrastructure solutions to benefit the SMB market place.
The commercial market remains interested in the convergence of data and voice networks to reduce cost and improve productivity. The introduction of new Cisco access routers and customer premises equipment is expected to increase as small and medium businesses seek to take advantage of IP telephony as a cost-effective means to gain competitive advantage.
Editors Note:
- Q4 conference call to be held at 1:45 p.m. PDT on Tuesday, Aug. 6; conference call number is 888-790-1779 (United States), 312-470-7077 (International Callers)
- Conference call replay available from 8/6/02 at 4:30 p.m. PDT through 8/13/02 at 800-839-1151 (United States), 402-998-1598 (International Callers)
- Additional information regarding Cisco's financials, as well as corresponding Web cast with visuals designed to guide participants through the call also available at 1:45 p.m. PST, please visit our investor relations site at http://www.cisco.com/go/investors
- Additional information regarding Cisco's fiscal year 2002 and Q4 available on Cisco's news site, including:
- Cisco Technology Innovation Highlights for Fiscal Year 2002:
http://newsroom.cisco.com/dlls/hd_080602.html - Customer Highlights and Technology Innovation Fact Sheet for the Fourth Quarter:
http://newsroom.cisco.com/dlls/hd_080602b.html - A Q&A with CEO John Chambers and CFO Larry Carter will be available after the earnings conference call 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 twelve months ended July 27, 2002 are not necessarily indicative of Cisco's operating results for 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.
Catalyst, Cisco, Cisco IOS, Cisco Systems, the Cisco Systems logo, and MGX are registered trademarks or 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 | Twelve Months Ended | |||
July 27, 2002 |
July 28, 2001 |
July 27, 2002 |
July 28, 2001 |
|
NET SALES: | ||||
Product | $ 3,998 | $ 3,577 | $ 15,669 | $ 19,559 |
Service | 831 | 721 | 3,246 | 2,734 |
Total net sales | 4,829 | 4,298 | 18,915 | 22,293 |
COST OF SALES: | ||||
Product | 1,306 | 1,635 | 5,914 | 10,198 |
Service | 240 | 227 | 988 | 1,023 |
Total cost of sales | 1,546 | 1,862 | 6,902 | 11,221 |
GROSS MARGIN | 3,283 | 2,436 | 12,013 | 11,072 |
OPERATING EXPENSES: | ||||
Research and development | 797 | 893 | 3,301 | 3,778 |
Sales and marketing | 1,028 | 1,138 | 4,235 | 5,240 |
General and administrative | 152 | 190 | 611 | 768 |
Restructuring costs and other special charges | - | - | - | 1,170 |
Payroll tax on employee stock option exercises | - | 5 | 7 | 55 |
Amortization of deferred stock-based compensation |
43 | 49 | 176 | 155 |
Amortization of goodwill | - | 196 | - | 690 |
Amortization of purchased intangible assets | 288 | 102 | 699 | 365 |
In-process research and development | 28 | - | 65 | 855 |
Total operating expenses | 2,336 | 2,573 | 9,094 | 13,076 |
OPERATING INCOME (LOSS) | 947 | (137) | 2,919 | (2,004) |
Net gains (losses) on investments | - | - | (858) | 190 |
Interest and other income, net | 150 | 199 | 649 | 940 |
INCOME (LOSS) BEFORE PROVISION FOR INCOME TAXES | 1,097 | 62 | 2,710 | (874) |
Provision for income taxes | 325 | 55 | 817 | 140 |
NET INCOME (LOSS) | $ 772 | $ 7 | $ 1,893 | $ (1,014) |
Net income (loss) per share-- basic |
$ 0.11 | $ 0.00 | $ 0.26 | $ (0.14) |
Net income (loss) per share--diluted (1) |
$ 0.10 | $ 0.00 | $ 0.25 | $ (0.14) |
Shares used in per-share calculation--basic | 7,292 | 7,294 | 7,301 | 7,196 |
Shares used in per-share calculation--diluted (1) | 7,410 | 7,484 | 7,447 | 7,196 |
PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS (See pro forma adjustments listed in table below) |
(Unaudited)
Three Months Ended | Twelve Months Ended | |||
July 27, 2002 |
July 28, 2001 |
July 27, 2002 |
July 28, 2001 |
|
NET SALES: | ||||
Product | $ 3,998 | $ 3,577 | $ 15,669 | $ 19,559 |
Service | 831 | 721 | 3,246 | 2,734 |
Total net sales | 4,829 | 4,298 | 18,915 | 22,293 |
COST OF SALES: | ||||
Product | 1,319 | 1,822 | 6,439 | 8,136 |
Service | 240 | 227 | 988 | 1,023 |
Total cost of sales | 1,559 | 2,049 | 7,427 | 9,159 |
GROSS MARGIN | 3,270 | 2,249 | 11,488 | 13,134 |
OPERATING EXPENSES: | ||||
Research and development | 797 | 893 | 3,301 | 3,778 |
Sales and marketing | 1,028 | 1,138 | 4,235 | 5,240 |
General and administrative | 152 | 190 | 611 | 768 |
Total operating expenses | 1,977 | 2,221 | 8,147 | 9,786 |
OPERATING INCOME | 1,293 | 28 | 3,341 | 3,348 |
Interest and other income, net | 150 | 199 | 649 | 940 |
INCOME BEFORE PROVISION FOR INCOME TAXES | 1,443 | 227 | 3,990 | 4,288 |
Provision for income taxes | 404 | 64 | 1,117 | 1,202 |
NET INCOME | $ 1,039 | $ 163 | $ 2,873 | $ 3,086 |
Net income per share-- basic |
$ 0.14 | $ 0.02 | $ 0.39 | $ 0.43 |
Net income per share--diluted |
$ 0.14 | $ 0.02 | $ 0.39 | $ 0.41 |
Shares used in per-share calculation--basic | 7,292 | 7,294 | 7,301 | 7,196 |
Shares used in per-share calculation--diluted | 7,410 | 7,484 | 7,447 | 7,544 |
The above pro forma amounts have been adjusted to exclude the following items: | ||||
In-process research and development | $ 28 | $ - | $ 65 | $ 855 |
Payroll tax on employee stock option exercises | - | 5 | 7 | 55 |
Amortization of deferred stock-based compensation |
43 | 49 | 176 | 155 |
Amortization of goodwill | - | 196 | - | 690 |
Amortization of purchased intangible assets | 288 | 102 | 699 | 365 |
Net (gains) losses on investments | - | - | 858 | (190) |
Restructuring costs and other special charges | - | - | - | 1,170 |
Excess inventory (benefit) charge | (13) | (187) | (525) | 2,062 |
Income tax effect | (79) | (9) | (300) | (1,062) |
$ 267 | $ 156 | $ 980 | $ 4,100 |
CONSOLIDATED BALANCE SHEETS |
(Unaudited)
July 27, 2002 |
July 28, 2001 | |
ASSETS | ||
Current assets: | ||
Cash and cash equivalents | $ 9,484 | $ 4,873 |
Short-term investments | 3,172 | 2,034 |
Accounts receivable, net of allowance for doubtful accounts of $335 at July 27, 2002 and $288 at July 28, 2001 | 1,105 | 1,466 |
Inventories, net | 880 | 1,684 |
Deferred tax assets | 2,030 | 1,809 |
Lease receivables, net | 239 | 405 |
Prepaid expenses and other current assets | 523 | 564 |
Total current assets | 17,433 | 12,835 |
Investments | 8,800 | 10,346 |
Restricted investments | - | 1,264 |
Property and equipment, net | 4,102 | 2,591 |
Goodwill | 3,565 | 3,189 |
Purchased intangible assets, net | 797 | 1,470 |
Lease receivables, net | 39 | 253 |
Other assets | 3,059 | 3,290 |
TOTAL ASSETS | $ 37,795 | |
LIABILITIES AND SHAREHOLDERS' EQUITY |
||
Current liabilities: | ||
Accounts payable | $ 470 | $ 644 |
Income taxes payable | 579 | 241 |
Accrued compensation | 1,365 | 1,058 |
Deferred revenue | 3,143 | 2,470 |
Other accrued liabilities | 2,496 | 2,553 |
Restructuring liabilities | 322 | 386 |
Total current liabilities | 8,375 | 7,352 |
Deferred revenue | 749 | 744 |
Total liabilities | 9,124 | 8,096 |
Minority interest | 15 | 22 |
Shareholders' equity | 28,656 | 27,120 |
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY | $ 37,795 | $ 35,238 |
CONSOLIDATED STATEMENTS OF CASH FLOWS |
(Unaudited)
Twelve Months Ended | ||
July 27, 2002 |
July 28, 2001 | |
Cash flows from operating activities: | ||
Net income (loss) | $ 1,893 | $ (1,014) |
Adjustments to reconcile net income (loss) to net cash provided by operating activities: |
||
Depreciation and amortization | 1,957 | 2,236 |
Provision for doubtful accounts | 91 | 268 |
Provision for inventory | 149 | 2,775 |
Deferred income taxes | (573) | (924) |
Tax benefits from employee stock option plans | 61 | 1,397 |
In-process research and development | 53 | 739 |
Net (gains) losses on investments and provision for losses | 1,127 | 43 |
Restructuring costs and other special charges | - | 501 |
Change in operating assets and liabilities: | ||
Accounts receivable | 270 | 569 |
Inventories | 673 | (1,644) |
Prepaid expenses and other current assets | (28) | (25) |
Accounts payable | (174) | (105) |
Income taxes payable | 389 | (434) |
Accrued compensation | 307 | (256) |
Deferred revenue | 678 | 1,629 |
Other accrued liabilities | (222) | 251 |
Restructuring liabilities | (64) | 386 |
Net cash provided by operating activities | 6,587 | 6,392 |
Cash flows from investing activities: | ||
Purchases of short-term investments | (5,473) | (4,594) |
Proceeds from sales and maturities of short-term investments | 5,868 | 4,370 |
Purchases of investments | (15,760) | (18,306) |
Proceeds from sales and maturities of investments | 15,317 | 15,579 |
Purchases of restricted investments | (291) | (941) |
Proceeds from sales and maturities of restricted investments | 1,471 | 1,082 |
Acquisition of property and equipment | (2,641) | (2,271) |
Acquisition of businesses, net of cash and cash equivalents | 16 | (13) |
Change in lease receivables, net | 380 | 457 |
Purchases of investments in privately held companies | (58) | (1,161) |
Lease deposits | 320 | (320) |
Purchase of minority interest of Cisco Systems, K.K. (Japan) | (115) | (365) |
Other | 159 | (520) |
Net cash used in investing activities | (807) | (7,003) |
Cash flows from financing activities: | ||
Issuance of common stock | 655 | 1,262 |
Repurchase of common stock | (1,854) | - |
Other | 30 | (12) |
Net cash (used in) provided by financing activities | (1,169) | 1,250 |
Net increase in cash and cash equivalents | 4,611 | 639 |
Cash and cash equivalents, beginning of fiscal year | 4,873 | 4,234 |
Cash and cash equivalents, end of fiscal year | $ 9,484 | $ 4,873 |