- Q1 Revenues: $4.8 Billion
- Q1 Operating Cash Flow: $1.1 Billion
- Q1 Earnings Per Share: $0.08 GAAP; $0.14 Pro Forma
Net sales for the first quarter of fiscal 2003 were $4.8 billion, compared with $4.4 billion for the first quarter of fiscal 2002, an increase of 9%, and compared with $4.8 billion for the fourth quarter of fiscal 2002.
Net income for the first quarter of fiscal 2003 on a generally accepted accounting principle (GAAP) basis, was $618 million or $0.08 per share, compared with net loss of $268 million or $0.04 per share for the first quarter of fiscal 2002, and $772 million or $0.10 per share for the fourth quarter of fiscal 2002. Pro forma net income for the first quarter of fiscal 2003, which excludes the effects of acquisition charges, payroll tax on employee stock option exercises, loss on public equity investments and certain nonrecurring items, was $1.0 billion or $0.14 per share, compared with pro forma net income of $332 million or $0.04 per share for the first quarter of fiscal 2002, and compared with $1.0 billion or $0.14 per share for the fourth quarter of fiscal 2002.
During the first quarter of fiscal 2003, Cisco recorded a non-cash $412 million impairment charge on certain publicly held equity securities in its investments portfolio. Cisco has excluded the impairment charge, and the related tax benefit, from pro forma earnings. This treatment is similar to the reporting of a non-cash $858 million impairment charge on certain publicly held equity securities recorded during the first quarter of fiscal 2002. Cisco reflects publicly held equity securities at current market value on its balance sheet and the accounting rules require that once a decline in value is judged to be other than temporary, the company must record a charge to earnings.
During the first quarter of fiscal 2003, Cisco completed the acquisition of AYR Networks, Inc. The purchase price recorded during the quarter, including assumed liabilities, was approximately $97 million.
Cash flows from operations were $1.1 billion for the first quarter of fiscal 2003 compared with $1.6 billion for the fourth quarter of fiscal 2002. Cash and cash equivalents and total investments were $21.2 billion at the end of the first quarter of fiscal 2003 compared with $21.5 billion at fiscal year-end 2002.
"Despite the challenging market, we continued to execute ahead of our competitors, resulting in another solid quarter for Cisco," said John Chambers, CEO of Cisco Systems. "By focusing on what we can control and influence, we saw dramatic year-over-year improvements in net income, gross margins and profitable market share gains as well as solid revenue growth, which is reflected in another quarter of cash flow from operations in excess of a billion dollars. We are well positioned for an upturn, regardless of when it occurs."
Chambers continued, "I spent the last month traveling to eight countries and 17 cities and I visited with thousands of customers and government leaders, whose message is clear-the network is a long-term strategic investment for driving productivity. As business turns around, spending will return. Cisco is well positioned in both traditional and new growth markets such as network storage, security, wireless LAN and IP telephony."
Market Segment Update:
Enterprise
Global enterprise customers continue to cautiously deploy solutions that provide ways to boost productivity and enhance business resilience. In switching, Cisco introduced additions to the Catalyst. series of switches, including the Catalyst 4500 Series and new options for the Catalyst 6500 Series. These included new price/performance points, a new three-slot chassis, integrated security, VPN and content networking services modules.
In potential growth areas such as security, voice and storage, Cisco made several product announcements. In addition to new security hardware modules, Cisco announced new integrated software security functionality. Cisco also announced its intent to acquire Psionic Software Inc., a security company with technology that is designed to reduce the number of false alarms in intrusion detection systems. In the voice market, Cisco announced Ernst & Young LLP's decision to deploy a 4,300 IP phone installation at its headquarter site in New York City. In the storage networking market, Cisco announced its intent to acquire Andiamo Systems and launched the Cisco MDS 9000 family of multilayer directors and fabric switches.
Commercial
During the quarter, Cisco launched an initiative with the objective of providing SMB customers with technology, solutions and expertise to assist them to better utilize their networks. Included in the SMB outreach effort are networking solutions in the areas of security, mobility and IP telephony, along with the addition of 11 new industry components to Cisco's Web-based, reseller resource program and the Cisco Internet Business Roadmap. This commitment will better enable Cisco and its partners to meet the business needs of SMBs, who, on a global basis, will spend an estimated $14 billion on networking hardware in 2002 according to AMI-Partners. Competitive intelligence firm Current Analysis rated the initiative as positive and of high importance to SMBs and the industry.
Cisco announced two enhancements to its mobility offerings, the Cisco Mobile Access Router (Cisco 3200) and Cisco Aironet. 1100 Series. SMB customers continue to adopt VPN technology through Cisco access router platforms, which include Cisco 1700, 2600, 3600 and 3700 series routers. This demonstrates the growing importance of VPN for connectivity, and customer desire for simplified, branch-office installations that include integrated, multi-function router offerings.
Service Provider
Sales in the service provider marketplace continue to be challenging due to capital expenditure reductions. In response to the capital spending challenges, Cisco is seeking to help its service provider customers drive toward profitability by:
- Creating, testing and assisting new service development, utilizing their installed equipment to provide new revenue streams
- Helping them improve internal and operational productivity
- Generating demand for their services from Cisco's enterprise and SMB contacts through its established service acceleration worldwide programs
- Continuing Cisco's technology innovation to help drive down operational costs by providing new means of maximizing their current infrastructures through incremental investments and/or taking advantage of new architectural efficiencies. As an example, Cisco announced the Cisco ONS 15600 Multiservice Switching Platform, aiming to reduce first costs and provisioning time.
During the quarter, Cisco announced several new customer agreements, including Telecom Italia's deployment of Cisco's voice solution to enable voice calls over a converged "voice over IP/MPLS" network, China Telecom's purchase of Cisco 12000 Series routers and Cisco 7000 routers for its northern ChinaNet IP backbone network expansion, and Charter Communications' decision to deploy a Cisco end-to-end cable network. Additionally, during the quarter, Cisco introduced a new Multiprotocol Label Switching (MPLS) bandwidth protection solution that provides a cost-effective alternative to SONET/SDH protection. This solution is designed to help service providers maximize bandwidth protection at a network-wide level for increased network resiliency, and offer cost-effective global bandwidth protection services for "carrier-class" service-level agreements (SLAs) for increased revenue opportunities.
Editors Note:
- Q1 FY03 conference call to be held at 1:30 p.m. PT on Wednesday, November 6, 2002. Conference call number is 800-369-1742 (United States); 312-470-7224 (international)
- Conference call replay available from 4:30 p.m. PT on November 6, 2002 to November 13, 2002 at 888-568-0124 (United States); 402-530-7791 (international)
- Additional information regarding Cisco's financials, as well as corresponding Webcast with visuals designed to guide participants through the call are also available at 1:30 p.m. PT. Please visit our investor relations site at http://www.cisco.com/go/investors
- Additional information regarding Cisco's Q1 FY03 available on Cisco's news site, including:
- Customer Highlights and Technology Innovation Fact Sheet: First Quarter, Fiscal Year 2003 will be available at http://newsroom.cisco.com/dlls/hd_110602b.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 months ended October 26, 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.
Copyright ) 2002 Cisco Systems, Inc. All rights reserved. Catalyst, Cisco, Cisco IOS, Cisco Systems, the Cisco Systems logo, and Aironet 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.
|
CONSOLIDATED STATEMENTS OF OPERATIONS
|
(Unaudited)
| Three Months Ended | |||
| October 26, 2002 |
October 27, 2001 |
||
| NET SALES: | |||
| Product | $ 4,013 | $ 3,656 | |
| Services | 832 | 792 | |
| Total net sales | 4,845 | 4,448 | |
| COST OF SALES: | |||
| Product | 1,237 | 1,500 | |
| Services | 250 | 256 | |
| Total cost of sales | 1,487 | 1,756 | |
| GROSS MARGIN | 3,358 | 2,692 | |
| OPERATING EXPENSES: | |||
| Research and development | 789 | 875 | |
| Sales and marketing | 1,093 | 1,086 | |
| General and administrative | 151 | 150 | |
| Payroll tax on stock option exercises | - | 3 | |
| Amortization of deferred stock-based compensation | 43 | 50 | |
| Amortization of purchased intangible assets | 114 | 146 | |
| In-process research and development | - | 37 | |
| Total operating expenses | 2,190 | 2,347 | |
| OPERATING INCOME | 1,168 | 345 | |
| Loss on public equity investments | (412) | (858) | |
| Interest income | 179 | 234 | |
| Other income/(loss), net | (63) | (64) | |
| INCOME (LOSS) BEFORE PROVISION FOR (BENEFIT FROM) INCOME TAXES | 872 | (343) | |
| Provision for (benefit from) income taxes | 254 | (75) | |
| NET INCOME (LOSS) | $ 618 | (268) | |
| Net income (loss) per share--basic | $ 0.09 | $ (0.04) | |
| Net income (loss) per share--diluted (1) | $ 0.08 | $ (0.04) | |
| Shares used in per-share calculation--basic | 7,249 | 7,307 | |
| Shares used in per-share calculation--diluted (1) | 7,327 | 7,307 | |
Note 1: Diluted net income per share is computed using the weighted-average number of common shares and dilutive potential common shares outstanding during the period. Diluted net loss per share is computed using the weighted-average number of common shares and excludes dilutive potential common shares, as their effect is antidilutive. The weighted-average dilutive potential common shares which were antidilutive for the three months ended October 27, 2001 amounted to 159 million shares.
| PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS (See pro forma adjustments listed in table below) |
(Unaudited)
| Three Months Ended | |||
| October 26, 2002 |
October 27, 2001 |
||
| NET SALES: | |||
| Product | $ 4,013 | $ 3,656 | |
| Services | 832 | 792 | |
| Total net sales | 4,845 | 4,448 | |
| COST OF SALES: | |||
| Product | 1,237 | 1,790 | |
| Services | 250 | 256 | |
| Total cost of sales | 1,487 | 2,046 | |
| GROSS MARGIN | 3,358 | 2,402 | |
| OPERATING EXPENSES: | |||
| Research and development | 789 | 875 | |
| Sales and marketing | 1,093 | 1,086 | |
| General and administrative | 151 | 150 | |
| Total operating expenses | 2,033 | 2,111 | |
| OPERATING INCOME | 1,325 | 291 | |
| Interest income | 179 | 234 | |
| Other income/(loss), net | (63) | (64) | |
| INCOME BEFORE PROVISION FOR INCOME TAXES | 1,441 | 461 | |
| Provision for income taxes | 403 | 129 | |
| NET INCOME | $ 1,038 | $ 332 | |
| Net income per share--basic | $ 0.14 | $ 0.05 | |
| Net income per share--diluted | $ 0.14 | $ 0.04 | |
| Shares used in per-share calculation--basic | 7,249 | 7,307 | |
| Shares used in per-share calculation--diluted | 7,327 | 7,466 | |
| The above pro forma amounts have been adjusted to exclude the following items: | |||
| In-process research and development | $ - | $ 37 | |
| Payroll tax on stock option exercises | - | 3 | |
| Amortization of deferred stock-based compensation | 43 | 50 | |
| Amortization of purchased intangible assets | 114 | 146 | |
| Loss on public equity investments | 412 | 858 | |
| Excess inventory benefit | - | (290) | |
| Income tax effect | (149) | (204) | |
| $ 420 | $ 600 | ||
|
CONSOLIDATED BALANCE SHEETS
|
(Unaudited)
| October 26, 2002 |
July 27, 2002 |
|
| ASSETS | ||
| Current assets: | ||
| Cash and cash equivalents | $ 6,986 | $ 9,484 |
| Short-term investments | 3,325 | 3,172 |
| Accounts receivable, net of allowance for doubtful accounts of $346 at October 26, 2002 and $335 at July 27, 2002 | 1,109 | 1,105 |
| Inventories, net | 828 | 880 |
| Deferred tax assets | 2,106 | 2,030 |
| Lease receivables, net | 194 | 239 |
| Prepaid expenses and other current assets | 548 | 523 |
| Total current assets | 15,096 | 17,433 |
| Investments | 10,877 | 8,800 |
| Property and equipment, net | 3,921 | 4,102 |
| Goodwill | 3,709 | 3,565 |
| Purchased intangible assets, net | 682 | 797 |
| Lease receivables, net | 41 | 39 |
| Other assets | 2,872 | 3,059 |
| TOTAL ASSETS | $ 37,198 | |
| LIABILITIES AND SHAREHOLDERS' EQUITY | ||
| Current liabilities: | ||
| Accounts payable | $ 540 | $ 470 |
| Income taxes payable | 508 | 579 |
| Accrued compensation | 1,083 | 1,365 |
| Deferred revenue | 2,980 | 3,143 |
| Other accrued liabilites | 2,424 | 2,496 |
| Restructuring liabilities | 336 | 322 |
| Total current liabilities | 7,871 | 8,375 |
| Deferred revenue | 771 | 749 |
| Total liabilities | 8,642 | 9,124 |
| Minority interest | 10 | 15 |
| Shareholders' equity | 28,546 | 28,656 |
| TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY |
$ 37,198 | $ 37,795 |
| CONSOLIDATED STATEMENTS OF CASH FLOWS |
(Unaudited)
| Three Months Ended | ||
| October 26, 2002 |
October 27, 2001 | |
| Cash flows from operating activities: | ||
| Net income (loss) | $ 618 | $ (268) |
| Adjustments to reconcile net income (loss) to net cash provided by operating activities: | ||
| Depreciation and amortization | 410 | 459 |
| Provision for doubtful accounts | 47 | 26 |
| Provision for (benefit from) inventory | 7 | (29) |
| Deferred income taxes | (27) | (540) |
| Tax benefits from employee stock option plans | 3 | 43 |
| In-process research and development | - | 25 |
| Net (gains) losses on investments and provision for losses | 474 | 971 |
| Change in operating assets and liabilities: | ||
| Accounts receivable | (51) | 259 |
| Inventories | 49 | 229 |
| Prepaid expenses and other current assets | (36) | 70 |
| Accounts payable | 70 | (185) |
| Income taxes payable | (70) | 34 |
| Accrued compensation | (282) | 122 |
| Deferred revenue | (141) | 321 |
| Other accrued liabilities | (18) | (83) |
| Restructuring liabilities | 14 | (70) |
| Net cash provided by operating activities | 1,067 | 1,384 |
| Cash flows from investing activities: | ||
| Purchases of short-term investments | (1,671) | (2,327) |
| Proceeds from sales and maturities of short-term investments | 1,941 | 1,724 |
| Purchases of investments | (4,981) | (2,790) |
| Proceeds from sales and maturities of investments | 2,251 | 2,040 |
| Purchases of restricted investments | - | (19) |
| Proceeds from sales and maturities of restricted investments | - | 161 |
| Acquisition of property and equipment | (122) | (292) |
| Acquisition of businesses, net of cash and cash equivalents | 2 | 14 |
| Change in lease receivables, net | 43 | 165 |
| Purchases of investments in privately held companies | (12) | (19) |
| Lease deposits | - | (73) |
| Purchase of minority interest of Cisco Systems, K.K. (Japan) | (59) | (37) |
| Other | 91 | (138) |
| Net cash used in investing activities | (2,517) | (1,591) |
| Cash flows from financing activities: | ||
| Issuance of common stock | 41 | 171 |
| Repurchase of common stock | (1,077) | (350) |
| Other | (12) | - |
| Net cash used in financing activities | (1,048) | (179) |
| Net decrease in cash and cash equivalents | (2,498) | (386) |
| Cash and cash equivalents, beginning of period | 9,484 | 4,873 |
| Cash and cash equivalents, end of period | $ 6,986 | $ 4,487 |
