News Release

Cisco Reports Fourth Quarter And Fiscal Year 2019 Earnings

Cisco Press Release
  • Q4 Results: 1
    • Revenue: $13.4 billion
      • Growth of 6% year over year
    • Earnings per Share: GAAP: $0.51; Non-GAAP: $0.83
      • Non-GAAP EPS increased 19% year over year
  • FY 2019 Results: 1
    • Revenue: $51.7 billion
      • Growth of 7% year over year
    • Earnings per Share: GAAP: $2.61; Non-GAAP: $3.10
      • Non-GAAP EPS increased 20% year over year
  • Q1 Guidance: 1
    • Revenue: 0% to 2% growth year over year
    • Earnings per Share: GAAP: $0.64 to $0.69; Non-GAAP: $0.80 to $0.82

1 Normalized to exclude the divested SPVSS business

 

Q4FY19 Earnings Infographics

SAN JOSE, Calif., Aug. 14, 2019 -- Cisco today reported fourth quarter and fiscal year results for the period ended July 27, 2019. Cisco reported fourth quarter revenue of $13.4 billion, net income on a generally accepted accounting principles (GAAP) basis of $2.2 billion or $0.51 per share, and non-GAAP net income of $3.6 billion or $0.83 per share.

As previously disclosed, Cisco completed the divestiture of the Service Provider Video Software Solutions (SPVSS) business in the second quarter of fiscal 2019 on October 28, 2018. Revenue, non-GAAP financial information, and Q1 FY 2020 guidance have been normalized to exclude the SPVSS business from prior periods for comparative purposes.

"Our Q4 results marked a strong end to a great year.  We are executing well in a dynamic environment, delivering tremendous innovation across our portfolio and extending our market leadership," said Chuck Robbins, chairman and CEO of Cisco. "We are committed to providing our customers ongoing value through differentiated solutions, and we are well positioned to take advantage of the long-term growth opportunities ahead."

Q4 GAAP Results

 
   

Q4 FY 2019

 

Q4 FY 2018

 

Vs. Q4 FY 2018

Revenue (including SPVSS business for all periods)

 

$

13.4 billion

 

$

12.8 billion

 

5%

Revenue (excluding SPVSS business for all periods)

 

$

13.4 billion

 

$

12.6 billion

 

6%

Net Income

 

$

2.2 billion

 

$

3.8 billion

 

(42)%

Diluted Earnings per Share (EPS)

 

$

0.51

   

$

0.81

   

(37)%

Q4 GAAP results for fiscal 2019 and 2018 include a $0.9 billion charge and $0.9 billion benefit, respectively, related to the Tax Cuts and Jobs Act.

Q4 Non-GAAP Results

 
   

Q4 FY 2019

 

Q4 FY 2018

 

Vs. Q4 FY 2018

Net Income (excluding SPVSS business for all periods)

 

$

3.6 billion

 

$

3.3 billion

 

9%

EPS (excluding SPVSS business for all periods)

 

$

0.83

   

$

0.70

   

19%

 

Fiscal Year GAAP Results

 
   

FY 2019

 

FY 2018

 

Vs. FY 2018

Revenue (including SPVSS business for all periods)

 

$

51.9 billion

 

$

49.3 billion

 

5%

Revenue (excluding SPVSS business for all periods)

 

$

51.7 billion

 

$

48.4 billion

 

7%

Net Income

 

$

11.6 billion

 

$

0.1 billion

 

NM

EPS

 

$

2.61

   

$

0.02

   

NM

NM - Not meaningful

GAAP results for fiscal 2019 and 2018 include charges related to the Tax Cuts and Jobs Act of $0.9 billion and $10.4 billion, respectively.

Fiscal Year Non-GAAP Results

 
   

FY 2019

 

FY 2018

 

Vs. FY 2018

Net Income (excluding SPVSS business for all periods)

 

$

13.8 billion

 

$

12.7 billion

 

9%

EPS (excluding SPVSS business for all periods)

 

$

3.10

   

$

2.59

   

20%

Reconciliations between net income, EPS, and other measures on a GAAP and non-GAAP basis are provided in the tables located in the section entitled "Reconciliations of GAAP to non-GAAP Measures."

"We are pleased with our solid execution and performance in Q4, delivering revenue growth of 6%, non-GAAP EPS growth of 19%, and strong margins," said Kelly Kramer, CFO of Cisco. "We continue to transform our business model with software subscriptions now at 70% of our software revenue. The returns on our investments in key strategic areas position Cisco for long-term growth and shareholder value."

Financial Summary

All comparative percentages are on a year-over-year basis unless otherwise noted.

All revenue, non-GAAP, and geographic financial information in the "Q4 FY 2019 Highlights" and "FY 2019 Highlights" sections are presented excluding the SPVSS business for all periods as it was divested during the second quarter, on October 28, 2018.

Q4 FY 2019 Highlights

Revenue -- Total revenue was $13.4 billion, up 6%, with product revenue up 7% and service revenue up 4%. Revenue by geographic segment was: Americas up 9%, EMEA up 7%, and APJC down 4%. Product revenue performance was broad based with growth in Security, up 14%, Applications, up 11%, and Infrastructure Platforms, up 6%.

Gross Margin --  On a GAAP basis, total gross margin, product gross margin, and service gross margin were 63.9%, 62.9%, and 66.8%, respectively, as compared with 61.7%, 60.2%, and 66.0%, respectively, in the fourth quarter of 2018.

On a non-GAAP basis, total gross margin, product gross margin, and service gross margin were 65.5%, 64.7%, and 67.9%, respectively, as compared with 63.2%, 61.9%, and 67.2%, respectively, in the fourth quarter of 2018.

Total gross margins by geographic segment were: 66.8% for the Americas, 65.2% for EMEA and 60.8% for APJC.

Operating Expenses -- On a GAAP basis, operating expenses were $4.9 billion, up 7%. Non-GAAP operating expenses were $4.4 billion, up 9%, and were 32.8% of revenue.

Operating Income -- GAAP operating income was $3.7 billion, up 10%, with GAAP operating margin of 27.5%. Non-GAAP operating income was $4.4 billion, up 11%, with non-GAAP operating margin at 32.6%.

Provision for Income Taxes -- The GAAP tax provision rate was 40.4%, which includes a $0.9 billion charge related to the Tax Cuts and Jobs Act. The non-GAAP tax provision rate was 18.8%.

Net Income and EPS -- On a GAAP basis, net income was $2.2 billion and EPS was $0.51. On a non-GAAP basis, net income was $3.6 billion, an increase of 9%, and EPS was $0.83, an increase of 19%.

Cash Flow from Operating Activities -- $3.9 billion for the fourth quarter of fiscal 2019, a decrease of 4% compared with $4.1 billion for the fourth quarter of fiscal 2018.

FY 2019 Highlights

Revenue -- Total revenue was $51.7 billion, an increase of 7%.

Net Income and EPS -- On a GAAP basis, net income was $11.6 billion and EPS was $2.61. On a non-GAAP basis, net income was $13.8 billion, up 9% compared to fiscal 2018, and EPS was $3.10, an increase of 20%.

Cash Flow from Operating Activities -- $15.8 billion for fiscal 2019 compared with $13.7 billion for fiscal 2018, an increase of 16%. Operating cash flow for fiscal 2019 and 2018 include payments of $0.8 billion and $1.4 billion, respectively, related to the Tax Cuts and Jobs Act. Fiscal 2019 also includes the receipt of $0.4 billion related to a litigation settlement with Arista Networks. Operating cash flow increased 8%, normalized for these items.

Balance Sheet and Other Financial Highlights

Cash and Cash Equivalents and Investments -- $33.4 billion at the end of the fourth quarter of fiscal 2019, compared with $34.6 billion at the end of the third quarter of fiscal 2019, and compared with $46.5 billion at the end of fiscal 2018.

Deferred Revenue -- $18.5 billion, down 6% in total, with deferred product revenue down 18%. Deferred service revenue was up 2%.

Remaining Performance Obligations -- $25.3 billion at the end of fiscal 2019.

Capital Allocation -- In the fourth quarter of fiscal 2019, we returned $6.0 billion to shareholders through share buybacks and dividends. We declared and paid a cash dividend of $0.35 per common share, or $1.5 billion, and repurchased approximately 82 million shares of common stock under our stock repurchase program at an average price of $54.99 per share for an aggregate purchase price of $4.5 billion.

Acquisitions

On July 9, 2019, we announced our intent to acquire Acacia Communications, Inc., a publicly-traded fabless semiconductor company that develops, manufactures and sells high-speed coherent optical interconnect products that are designed to transform communications networks through improvements in performance, capacity and cost. The acquisition is expected to close during the second half of fiscal 2020, subject to customary closing conditions and regulatory approvals.

Guidance for Q1 FY 2020

Cisco expects to achieve the following results for the first quarter of fiscal 2020 (normalized to exclude the divested SPVSS business):

Q1 FY 2020

   

Revenue

 

0% to 2% growth Y/Y

Non-GAAP gross margin rate

 

64% - 65%

Non-GAAP operating margin rate

 

32% - 33%

Non-GAAP tax provision rate

 

20%

Non-GAAP EPS

 

$0.80 - $0.82

Revenue for the divested SPVSS business for the first quarter of fiscal 2019 was $168 million.

Cisco estimates that GAAP EPS will be $0.64 to $0.69 in the first quarter of fiscal 2020.

A reconciliation between the Guidance for Q1 FY 2020 on a GAAP and non-GAAP basis is provided in the table entitled "GAAP to non-GAAP Guidance for Q1 FY 2020" located in the section entitled "Reconciliations of GAAP to non-GAAP Measures."

Editor's Notes:

  • Q4 fiscal year 2019 conference call to discuss Cisco's results along with its guidance will be held on Wednesday, August 14, 2019 at 1:30 p.m. Pacific Time. Conference call number is 1-888-848-6507 (United States) or 1-212-519-0847 (international).
  • Conference call replay will be available from 4:00 p.m. Pacific Time, August 14, 2019 to 4:00 p.m. Pacific Time, August 21, 2019 at 1-866-463-4969 (United States) or 1-203-369-1404 (international). The replay will also be available via webcast on the Cisco Investor Relations website at https://investor.cisco.com.
  • Additional information regarding Cisco's financials, as well as a webcast of the conference call with visuals designed to guide participants through the call, will be available at 1:30 p.m. Pacific Time, August 14, 2019. Text of the conference call's prepared remarks will be available within 24 hours of completion of the call. The webcast will include both the prepared remarks and the question-and-answer session. This information, along with the GAAP to non-GAAP reconciliation information, will be available on the Cisco Investor Relations website at https://investor.cisco.com.

 

CISCO SYSTEMS, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(In millions, except per-share amounts)

(Unaudited)

 
 

Three Months Ended

 

Fiscal Year Ended

 

July 27,

 2019

 

July 28,

 2018

 

July 27,

 2019

 

July 28,

 2018

REVENUE:

             

Product

$

10,120

   

$

9,642

   

$

39,005

   

$

36,709

 

Service

3,308

   

3,202

   

12,899

   

12,621

 

Total revenue

13,428

   

12,844

   

51,904

   

49,330

 

COST OF SALES:

             

Product

3,757

   

3,833

   

14,863

   

14,427

 

Service

1,097

   

1,089

   

4,375

   

4,297

 

Total cost of sales

4,854

   

4,922

   

19,238

   

18,724

 

GROSS MARGIN

8,574

   

7,922

   

32,666

   

30,606

 

OPERATING EXPENSES:

             

Research and development

1,753

   

1,626

   

6,577

   

6,332

 

Sales and marketing

2,487

   

2,348

   

9,571

   

9,242

 

General and administrative

566

   

543

   

1,827

   

2,144

 

Amortization of purchased intangible assets

38

   

33

   

150

   

221

 

Restructuring and other charges

40

   

26

   

322

   

358

 

Total operating expenses

4,884

   

4,576

   

18,447

   

18,297

 

OPERATING INCOME

3,690

   

3,346

   

14,219

   

12,309

 

Interest income

305

   

353

   

1,308

   

1,508

 

Interest expense

(204)

   

(224)

   

(859)

   

(943)

 

Other income (loss), net

(87)

   

117

   

(97)

   

165

 

Interest and other income (loss), net

14

   

246

   

352

   

730

 

INCOME BEFORE PROVISION FOR (BENEFIT FROM) INCOME TAXES

3,704

   

3,592

   

14,571

   

13,039

 

Provision for (benefit from) income taxes (1)

1,498

   

(211)

   

2,950

   

12,929

 

NET INCOME

$

2,206

   

$

3,803

   

$

11,621

   

$

110

 
               

Net income per share:

             

   Basic

$

0.52

   

$

0.81

   

$

2.63

   

$

0.02

 

   Diluted

$

0.51

   

$

0.81

   

$

2.61

   

$

0.02

 

Shares used in per-share calculation:

             

   Basic

4,269

   

4,672

   

4,419

   

4,837

 

   Diluted

4,307

   

4,722

   

4,453

   

4,881

 

The Consolidated Statements of Operations include the results of the SPVSS business prior to its divestiture during the second quarter of fiscal 2019 on October 28, 2018. Accordingly, the fiscal year ended July 27, 2019 includes three months of financial results for this business.

(1) For the three months ended July 27, 2019 and July 28, 2018, the provision for (benefit from) income taxes include a $0.9 billion charge and $0.9 billion benefit, respectively, related to the Tax Cuts and Jobs Act. Fiscal 2019 and 2018 include charges related to the Tax Cuts and Jobs Act of $0.9 billion and $10.4 billion, respectively.

CISCO SYSTEMS, INC.

REVENUE BY SEGMENT

(In millions, except percentages)

 
   

July 27, 2019

   

Three Months Ended

 

Fiscal Year Ended

   

Amount

 

Y/Y %

 

Amount

 

Y/Y %

Revenue:

               

Including SPVSS business for all periods:

               

Americas

 

$

8,129

   

8%

 

$

30,927

   

6%

EMEA

 

3,297

   

4%

 

13,100

   

5%

APJC

 

2,002

   

(5)%

 

7,877

   

1%

Total

 

$

13,428

   

5%

 

$

51,904

   

5%

Excluding SPVSS business for all periods:

               

Americas

 

$

8,129

   

9%

 

$

30,850

   

8%

EMEA

 

3,297

   

7%

 

13,034

   

8%

APJC

 

2,002

   

(4)%

 

7,853

   

3%

Total

 

$

13,428

   

6%

 

$

51,737

   

7%

Amounts may not sum and percentages may not recalculate due to rounding.

During the second quarter of fiscal 2019 on October 28, 2018, we completed the divestiture of the SPVSS business. SPVSS business revenue for the three months ended July 28, 2018 was $206 million and for the fiscal years ended July 27, 2019 and July 28, 2018 was $168 million and $903 million, respectively.

CISCO SYSTEMS, INC.

GROSS MARGIN PERCENTAGE BY SEGMENT

(In percentages)

 
   

July 27, 2019

   

Three Months Ended

 

Fiscal Year Ended

Gross Margin Percentage:

       

Including SPVSS business for all periods:

       

Americas

 

66.8%

 

65.8%

EMEA

 

65.2%

 

64.6%

APJC

 

60.8%

 

59.5%

Excluding SPVSS business for all periods (1):

       

Americas

 

66.8%

 

65.9%

EMEA

 

65.2%

 

64.6%

APJC

 

60.8%

 

59.5%

(1) During the second quarter of fiscal 2019 on October 28, 2018, we completed the divestiture of the SPVSS business.

CISCO SYSTEMS, INC.

REVENUE FOR GROUPS OF SIMILAR PRODUCTS AND SERVICES

(In millions, except percentages)

 
   

July 27, 2019

   

Three Months Ended

 

Fiscal Year Ended

   

Amount

 

Y/Y %

 

Amount

 

Y/Y %

Revenue:

               

Including SPVSS business for all periods:

               

Infrastructure Platforms

 

$

7,876

   

6%

 

$

30,191

   

7%

Applications

 

1,487

   

11%

 

5,803

   

15%

Security

 

714

   

14%

 

2,730

   

16%

Other Products

 

42

   

(81)%

 

281

   

(72)%

Total Product

 

10,120

   

5%

 

39,005

   

6%

Services

 

3,308

   

3%

 

12,899

   

2%

Total

 

$

13,428

   

5%

 

$

51,904

   

5%

Excluding SPVSS business for all periods:

               

Infrastructure Platforms

 

$

7,876

   

6%

 

$

30,191

   

7%

Applications

 

1,487

   

11%

 

5,803

   

15%

Security

 

714

   

14%

 

2,730

   

16%

Other Products

 

42

   

(4)%

 

135

   

(31)%

Total Product

 

10,120

   

7%

 

38,859

   

8%

Services

 

3,308

   

4%

 

12,879

   

3%

Total

 

$

13,428

   

6%

 

$

51,737

   

7%

Amounts may not sum and percentages may not recalculate due to rounding.

During the second quarter of fiscal 2019 on October 28, 2018, we completed the divestiture of the SPVSS business. SPVSS business revenue for the three months ended July 28, 2018 was $206 million and for the fiscal years ended July 27, 2019 and July 28, 2018 was $168 million and $903 million, respectively.

CISCO SYSTEMS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(In millions)

(Unaudited)

 
 

July 27,

 2019

 

July 28,

 2018

ASSETS

     

Current assets:

     

Cash and cash equivalents

$

11,750

   

$

8,934

 

Investments

21,663

   

37,614

 

Accounts receivable, net of allowance for doubtful accounts

of $136 at July 27, 2019 and $129 at July 28, 2018

5,491

   

5,554

 

Inventories

1,383

   

1,846

 

Financing receivables, net

5,095

   

4,949

 

Other current assets

2,373

   

2,940

 

Total current assets

47,755

   

61,837

 

Property and equipment, net

2,789

   

3,006

 

Financing receivables, net

4,958

   

4,882

 

Goodwill

33,529

   

31,706

 

Purchased intangible assets, net

2,201

   

2,552

 

Deferred tax assets

4,065

   

3,219

 

Other assets

2,496

   

1,582

 

  TOTAL ASSETS

$

97,793

   

$

108,784

 

LIABILITIES AND EQUITY

     

Current liabilities:

     

Short-term debt

$

10,191

   

$

5,238

 

Accounts payable

2,059

   

1,904

 

Income taxes payable

1,149

   

1,004

 

Accrued compensation

3,221

   

2,986

 

Deferred revenue

10,668

   

11,490

 

Other current liabilities

4,424

   

4,413

 

  Total current liabilities

31,712

   

27,035

 

Long-term debt

14,475

   

20,331

 

Income taxes payable

8,927

   

8,585

 

Deferred revenue

7,799

   

8,195

 

Other long-term liabilities

1,309

   

1,434

 

  Total liabilities

64,222

   

65,580

 

Total equity

33,571

   

43,204

 

  TOTAL LIABILITIES AND EQUITY

$

97,793

   

$

108,784

 

 

CISCO SYSTEMS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In millions)

(Unaudited)

 
 

Fiscal Year Ended

 

July 27,

 2019

 

July 28,

 2018

Cash flows from operating activities:

     

Net income

$

11,621

   

$

110

 

Adjustments to reconcile net income to net cash provided by operating activities:

     

Depreciation, amortization, and other

1,897

   

2,192

 

Share-based compensation expense

1,570

   

1,576

 

Provision (benefit) for receivables

40

   

(134)

 

Deferred income taxes

(350)

   

900

 

(Gains) losses on divestitures, investments and other, net

(24)

   

(322)

 

Change in operating assets and liabilities, net of effects of acquisitions and divestitures:

     

Accounts receivable

(84)

   

(269)

 

Inventories

131

   

(244)

 

Financing receivables

(249)

   

(219)

 

Other assets

(955)

   

66

 

Accounts payable

87

   

504

 

Income taxes, net

312

   

8,118

 

Accrued compensation

277

   

100

 

Deferred revenue

1,407

   

1,205

 

Other liabilities

151

   

83

 

Net cash provided by operating activities

15,831

   

13,666

 

Cash flows from investing activities:

     

Purchases of investments

(2,416)

   

(14,285)

 

Proceeds from sales of investments

7,388

   

17,706

 

Proceeds from maturities of investments

12,928

   

15,769

 

Acquisitions and divestitures

(2,175)

   

(2,979)

 

Purchases of investments in privately held companies

(148)

   

(267)

 

Return of investments in privately held companies

159

   

168

 

Acquisition of property and equipment

(909)

   

(834)

 

Proceeds from sales of property and equipment

22

   

59

 

Other

(12)

   

(19)

 

Net cash provided by investing activities

14,837

   

15,318

 

Cash flows from financing activities:

     

Issuances of common stock

640

   

623

 

Repurchases of common stock - repurchase program

(20,717)

   

(17,547)

 

Shares repurchased for tax withholdings on vesting of restricted stock units

(862)

   

(703)

 

Short-term borrowings, original maturities of 90 days or less, net

3,446

   

(2,502)

 

Issuances of debt

2,250

   

6,877

 

Repayments of debt

(6,780)

   

(12,375)

 

Dividends paid

(5,979)

   

(5,968)

 

Other

113

   

(169)

 

Net cash used in financing activities

(27,889)

   

(31,764)

 

Net increase (decrease) in cash, cash equivalents, and restricted cash

2,779

   

(2,780)

 

Cash, cash equivalents, and restricted cash, beginning of fiscal year

8,993

   

11,773

 

Cash, cash equivalents, and restricted cash, end of fiscal year

$

11,772

   

$

8,993

 
       

Supplemental cash flow information:

     

Cash paid for interest

$

839

   

$

910

 

Cash paid for income taxes, net

$

2,986

   

$

3,911

 

Prior period information has been retrospectively adjusted due to the adoption of ASU 2016-18, Statement of Cash Flows, Restricted Cash at the beginning of the first quarter of fiscal 2019.

CISCO SYSTEMS, INC.

DEFERRED REVENUE

(In millions)

 
 

July 27,

 2019

 

April 27,

 2019

 

July 28,

 2018

Deferred revenue:

         

Service

$

11,709

   

$

11,297

   

$

11,431

 

Product

6,758

   

6,159

   

8,254

 

    Total

$

18,467

   

$

17,456

   

$

19,685

 

Reported as:

         

Current

$

10,668

   

$

10,117

   

$

11,490

 

Noncurrent

7,799

   

7,339

   

8,195

 

    Total

$

18,467

   

$

17,456

   

$

19,685

 

 

CISCO SYSTEMS, INC.

DIVIDENDS PAID AND REPURCHASES OF COMMON STOCK

(In millions, except per-share amounts)

 
   

DIVIDENDS

 

STOCK REPURCHASE PROGRAM

 

TOTAL

Quarter Ended

 

Per Share

 

Amount

 

Shares

 

Weighted-
Average Price
per Share

 

Amount

 

Amount

Fiscal 2019

                       

July 27, 2019

 

$

0.35

   

$

1,490

   

82

   

$

54.99

   

$

4,515

   

$

6,005

 

April 27, 2019

 

$

0.35

   

$

1,519

   

116

   

$

52.14

   

$

6,020

   

$

7,539

 

January 26, 2019

 

$

0.33

   

$

1,470

   

111

   

$

45.09

   

$

5,016

   

$

6,486

 

October 27, 2018

 

$

0.33

   

$

1,500

   

109

   

$

46.01

   

$

5,026

   

$

6,526

 
                         

Fiscal 2018

                       

July 28, 2018

 

$

0.33

   

$

1,535

   

138

   

$

43.58

   

$

6,015

   

$

7,550

 

April 28, 2018

 

$

0.33

   

$

1,572

   

140

   

$

42.83

   

$

6,015

   

$

7,587

 

January 27, 2018

 

$

0.29

   

$

1,425

   

103

   

$

39.07

   

$

4,011

   

$

5,436

 

October 28, 2017

 

$

0.29

   

$

1,436

   

51

   

$

31.80

   

$

1,620

   

$

3,056

 

 

CISCO SYSTEMS, INC.

RECONCILIATIONS OF GAAP TO NON-GAAP MEASURES

 

GAAP TO NON-GAAP NET INCOME

(In millions, except per-share amounts)

 
 

Three Months Ended

 

Fiscal Year Ended

 

July 27,

 2019

 

July 28,

 2018

 

July 27,

 2019

 

July 28,

 2018

GAAP net income

$

2,206

   

$

3,803

   

$

11,621

   

$

110

 

Adjustments to cost of sales:

             

Share-based compensation expense

57

   

59

   

220

   

227

 

Amortization of acquisition-related intangible assets

144

   

134

   

562

   

578

 

Supplier component remediation charge (adjustment), net

17

   

(36)

   

16

   

(77)

 

Acquisition-related/divestiture costs

1

   

3

   

10

   

7

 

Legal and indemnification settlements

   

   

5

   

122

 

Total adjustments to GAAP cost of sales

219

   

160

   

813

   

857

 

Adjustments to operating expenses:

             

Share-based compensation expense

335

   

329

   

1,309

   

1,339

 

Amortization of acquisition-related intangible assets

38

   

33

   

150

   

221

 

Acquisition-related/divestiture costs

61

   

79

   

299

   

274

 

Legal and indemnification settlements

   

   

(396)

   

 

Significant asset impairments and restructurings

40

   

26

   

322

   

358

 

Total adjustments to GAAP operating expenses

474

   

467

   

1,684

   

2,192

 

Adjustments to GAAP interest and other income (loss), net:

             

(Gains) and losses on equity investments

20

   

   

(57)

   

 

Total adjustments to GAAP income before provision for income taxes

713

   

627

   

2,440

   

3,049

 

Income tax effect of non-GAAP adjustments

(168)

   

(253)

   

(722)

   

(866)

 

Significant tax matters (1)

835

   

(851)

   

448

   

10,410

 

Total adjustments to GAAP provision for income taxes

667

   

(1,104)

   

(274)

   

9,544

 

Non-GAAP net income

$

3,586

   

$

3,326

   

$

13,787

   

$

12,703

 
               

Diluted net income per share:

             

GAAP

$

0.51

   

$

0.81

   

$

2.61

   

$

0.02

 

Non-GAAP (2)

$

0.83

   

$

0.70

   

$

3.10

   

$

2.60

 
                               

(1)  The three months ended July 27, 2019 and July 28, 2018 includes a $0.9 billion charge and $0.9 billion benefit, respectively, related to the Tax Cuts and Jobs Act. Fiscal 2019 and 2018 include charges related to the Tax Cuts and Jobs Act of $0.9 billion and $10.4 billion, respectively.

(2) Fiscal 2018 Non-GAAP EPS excluding the SPVSS business was $2.59.

CISCO SYSTEMS, INC.

RECONCILIATIONS OF GAAP TO NON-GAAP MEASURES
 

GROSS MARGINS, OPERATING EXPENSES, OPERATING MARGINS, INTEREST AND OTHER INCOME (LOSS), NET, AND NET INCOME

(In millions, except percentages)

 
 

Three Months Ended

 

July 27, 2019

 

Product
Gross
Margin

 

Service
Gross
Margin

 

Total
Gross
Margin

 

Operating
Expenses

 

Y/Y

 

Operating
Income

 

Y/Y

 

Interest
and
other
income
(loss),
net

 

Y/Y

 

Net
Income

 

Y/Y

GAAP amount

$

6,363

   

$

2,211

   

$

8,574

   

$

4,884

   

7%

 

$

3,690

   

10%

 

$

14

   

(94)%

 

$

2,206

   

(42)%

% of revenue

62.9%

   

66.8%

   

63.9%

   

36.4%

       

27.5%

       

0.1%

       

16.4%

     

Adjustments to GAAP amounts:

                                         

Share-based compensation expense

23

   

34

   

57

   

335

       

392

       

       

392

     

Amortization of acquisition-related intangible assets

144

   

   

144

   

38

       

182

       

       

182

     

Supplier component remediation charge (adjustment), net

17

   

   

17

   

       

17

       

       

17

     

Acquisition/divestiture-related costs

   

1

   

1

   

61

       

62

       

       

62

     

Significant asset impairments and restructurings

   

   

   

40

       

40

       

       

40

     

(Gains) and losses on equity investments

   

   

   

       

       

20

       

20

     

Income tax effect/significant tax matters (1)

   

   

   

       

       

       

667

     

Non-GAAP amount

$

6,547

   

$

2,246

   

$

8,793

   

$

4,410

   

9%

 

$

4,383

   

11%

 

$

34

   

(86)%

 

$

3,586

   

9%

% of revenue

64.7%

   

67.9%

   

65.5%

   

32.8%

       

32.6%

       

0.3%

       

26.7%

     

(1) Includes a $0.9 billion charge related to the Tax Cuts and Jobs Act.

Amounts may not sum and percentages may not recalculate due to rounding.

During the second quarter of fiscal 2019 on October 28, 2018, we completed the divestiture of the SPVSS business. Accordingly, the non-GAAP growth rates are normalized to exclude the SPVSS business for the fourth quarter of fiscal 2018.

 

Three Months Ended

 

July 28, 2018

 

Product
Gross
Margin

 

Service
Gross
Margin

 

Total
Gross
Margin

 

Operating
Expenses

 

Operating
Income

 

Net

Income

GAAP amount

$

5,809

   

$

2,113

   

$

7,922

   

$

4,576

   

$

3,346

   

$

3,803

 

% of revenue

60.2%

   

66.0%

   

61.7%

   

35.6%

   

26.1%

   

29.6%

 

Adjustments to GAAP amounts:

                     

Share-based compensation expense

24

   

35

   

59

   

329

   

388

   

388

 

Amortization of acquisition-related intangible assets

134

   

   

134

   

33

   

167

   

167

 

Supplier component remediation charge (adjustment), net

(36)

   

   

(36)

   

   

(36)

   

(36)

 

Acquisition/divestiture-related costs

2

   

1

   

3

   

79

   

82

   

82

 

Significant asset impairments and restructurings

   

   

   

26

   

26

   

26

 

Income tax effect/significant tax matters (1)

   

   

   

   

   

(1,104)

 

Non-GAAP amount

$

5,933

   

$

2,149

   

$

8,082

   

$

4,109

   

$

3,973

   

$

3,326

 

Less: SPVSS business (2)

(76)

   

(13)

   

(89)

   

(59)

   

(30)

   

(24)

 

Non-GAAP amount (excluding SPVSS business)

$

5,857

   

$

2,136

   

$

7,993

   

$

4,050

   

$

3,943

   

$

3,302

 

% of revenue

61.9%

   

67.2%

   

63.2%

   

32.0%

   

31.2%

   

26.1%

 

Amounts may not sum and percentages may not recalculate due to rounding.

(1) Includes a $0.9 billion benefit as related to the Tax Cuts and Jobs Act.

(2) Reflects three months of operations for the SPVSS business.

CISCO SYSTEMS, INC.

RECONCILIATIONS OF GAAP TO NON-GAAP MEASURES
 

GROSS MARGINS, OPERATING EXPENSES, OPERATING MARGINS, INTEREST AND OTHER INCOME (LOSS), NET, AND NET INCOME

(In millions, except percentages)

 
 

Fiscal Year Ended

 

July 27, 2019

 

Product
Gross
Margin

 

Service
Gross
Margin

 

Total
Gross
Margin

 

Operating
Expenses

 

Y/Y

 

Operating
Income

 

Y/Y

 

Interest
and
other
income
(loss),
net

 

Y/Y

 

Net
Income

 

Y/Y

GAAP amount

$

24,142

   

$

8,524

   

$

32,666

   

$

18,447

   

1%

 

$

14,219

   

16%

 

$

352

   

(52)

%

 

$

11,621

   

NM

% of revenue

61.9%

   

66.1%

   

62.9%

   

35.5%

       

27.4%

       

0.7%

       

22.4%

     

Adjustments to GAAP amounts:

                                         

Share-based compensation expense

90

   

130

   

220

   

1,309

       

1,529

       

       

1,529

     

Amortization of acquisition-related intangible assets

562

   

   

562

   

150

       

712

       

       

712

     

Supplier component remediation charge (adjustment), net

16

   

   

16

   

       

16

       

       

16

     

Legal and indemnification settlements

5

   

   

5

   

(396)

       

(391)

       

       

(391)

     

Acquisition/divestiture-related costs

4

   

6

   

10

   

299

       

309

       

       

309

     

Significant asset impairments and restructurings

   

   

   

322

       

322

       

       

322

     

(Gains) and losses on equity investments

   

   

   

       

       

(57)

       

(57)

     

Income tax effect/significant tax matters (1)

   

   

   

       

       

       

(274)

     

Non-GAAP amount

$

24,819

   

$

8,660

   

$

33,479

   

$

16,763

       

$

16,716

       

$

295

       

$

13,787

     

% of revenue

63.6%

   

67.1%

   

64.5%

   

32.3%

       

32.2%

       

0.6%

       

26.6%

     

Less: SPVSS business (2)

(51)

   

(9)

   

(61)

   

(60)

       

       

       

     

Non-GAAP amount (excluding SPVSS business)

$

24,768

   

$

8,651

   

$

33,418

   

$

16,703

   

5%

 

$

16,716

   

9%

 

$

295

   

(60)

%

 

$

13,787

   

9%

% of revenue

63.7%

   

67.2%

   

64.6%

   

32.3%

       

32.3%

       

0.6%

       

26.6%

     

Amounts may not sum and percentages may not recalculate due to rounding.

During the second quarter of fiscal 2019 on October 28, 2018, we completed the divestiture of the SPVSS business. Accordingly, the non-GAAP growth rates are normalized to exclude the SPVSS business for fiscal 2018.

(1) Includes a $0.9 billion charge related to the Tax Cuts and Jobs Act.

(2) Reflects three months of operations for the SPVSS business.

 

Fiscal Year Ended

 

July 28, 2018

 

Product
Gross
Margin

 

Service
Gross
Margin

 

Total
Gross
Margin

 

Operating
Expenses

 

Operating

Income

 

Net

Income

GAAP amount

$

22,282

   

$

8,324

   

$

30,606

   

$

18,297

   

$

12,309

   

$

110

 

% of revenue

60.7%

   

66.0%

   

62.0%

   

37.1%

   

25.0%

   

0.2%

 

Adjustments to GAAP amounts:

                     

Share-based compensation expense

94

   

133

   

227

   

1,339

   

1,566

   

1,566

 

Amortization of acquisition-related intangible assets

578

   

   

578

   

221

   

799

   

799

 

Supplier component remediation charge (adjustment), net

(77)

   

   

(77)

   

   

(77)

   

(77)

 

Legal and indemnification settlements

122

   

   

122

   

   

122

   

122

 

Acquisition/divestiture-related costs

3

   

4

   

7

   

274

   

281

   

281

 

Significant asset impairments and restructurings

   

   

   

358

   

358

   

358

 

Income tax effect/significant tax matters (1)

   

   

   

   

   

9,544

 

Non-GAAP amount

$

23,002

   

$

8,461

   

$

31,463

   

$

16,105

   

$

15,358

   

$

12,703

 

Less: SPVSS business (2)

(276)

   

(41)

   

(316)

   

(250)

   

(66)

   

(53)

 

Non-GAAP amount (excluding SPVSS business)

$

22,726

   

$

8,420

   

$

31,147

   

$

15,855

   

$

15,292

   

$

12,650

 

% of revenue

63.3%

   

67.3%

   

64.3%

   

32.7%

   

31.6%

   

26.1%

 

Amounts may not sum and percentages may not recalculate due to rounding.

(1) Includes a $10.4 billion charge as related to the enactment of the Tax Cuts and Jobs Act.

(2) Reflects twelve months of operations for the SPVSS business.

CISCO SYSTEMS, INC.
RECONCILIATIONS OF GAAP TO NON-GAAP MEASURES

EFFECTIVE TAX RATE
(In percentages)

       
 

Three Months Ended

 

Fiscal Year Ended

 

July 27,
2019

 

July 28,
2018

 

July 27,
2019

 

July 28,
2018