- Q3 Net Sales: $5.6 billion (21.7% increase year over year; 4.1% increase quarter over quarter)
- Q3 Operating Cash Flows: $2.4 billion
- Q3 Earnings Per Share: $0.17 GAAP; $0.19 pro forma
SAN JOSE, Calif., May 11, 2004 - Cisco Systems, Inc., the worldwide leader in networking for the Internet, today reported its third quarter results for the period ended May 1, 2004.
Net sales for the third quarter of fiscal 2004 were $5.6 billion, compared with $4.6 billion for the third quarter of fiscal 2003, an increase of 21.7 percent, and compared with $5.4 billion for the second quarter of fiscal 2004, an increase of 4.1 percent.
Net income for the third quarter of fiscal 2004, on a generally accepted accounting principles (GAAP) basis, was $1.2 billion or $0.17 per share, compared with $987 million or $0.14 per share for the third quarter of fiscal 2003, and compared with $724 million or $0.10 per share for the second quarter of fiscal 2004. Pro forma net income for the third quarter of fiscal 2004 was $1.4 billion or $0.19 per share, compared with $1.1 billion or $0.15 per share for the third quarter of fiscal 2003, and compared with $1.3 billion or $0.18 per share for the second quarter of fiscal 2004. A reconciliation between net income on a GAAP basis and pro forma net income is provided in a table immediately following the Pro Forma Consolidated Statements of Operations.
Net sales for the first nine months of fiscal 2004 were $16.1 billion, compared with $14.2 billion for the first nine months of fiscal 2003, an increase of 13.7 percent.
Net income for the first nine months of fiscal 2004, on a GAAP basis, was $3.0 billion or $0.43 per share, compared with $2.6 billion or $0.36 per share for the first nine months of fiscal 2003. Pro forma net income for the first nine months of fiscal 2004 was $3.9 billion or $0.54 per share, compared with $3.2 billion or $0.44 per share for the first nine months of fiscal 2003.
During the third quarter of fiscal 2004, Cisco® completed the acquisition of Riverhead Networks, Inc. for a purchase price of approximately $36 million and completed the acquisition of Twingo Systems, Inc. for a purchase price of approximately $5 million.
"We are pleased to have achieved record earnings per share this quarter-marking our eighth consecutive quarter with pro forma net income exceeding $1 billion, and the strongest cash flow from operations in the company's history," said John Chambers, president and CEO, Cisco. "This momentum was achieved through sequential order growth across all major product categories and solid progress in our advanced technologies including security, wireless LAN and IP telephony." Chambers continued, "Equally important has been our continuing strength in internal innovation, our ability to form successful, mutually beneficial partnerships, and our effective integration of acquisitions to accelerate growth into existing and new markets."
Cisco will discuss third quarter 2004 results and business outlook on a conference call and Webcast at 1:30 p.m. Pacific Time (PT) today. Call information and related charts are available at http://investor.cisco.com.
Financial Highlights- Cash flows from operations were $2.4 billion for the third quarter of fiscal 2004, compared with $1.3 billion for the third quarter of fiscal 2003, and compared with $1.7 billion for the second quarter of fiscal 2004.
- Cash and cash equivalents and total investments were $18.9 billion at the end of the third quarter of fiscal 2004, compared with $20.7 billion at the end of the fourth quarter of fiscal 2003, and compared with $19.8 billion at the end of the second quarter of fiscal 2004.
- During the third quarter of fiscal 2004, Cisco repurchased 131 million shares of common stock for an aggregate purchase price of $3.0 billion.
- Days sales outstanding (DSO) in accounts receivable at the end of the third quarter of fiscal 2004 were 27 days, compared with 26 days at the end of the fourth quarter of fiscal 2003, and compared with 34 days at the end of the second quarter of fiscal 2004.
- Inventory turns were 6.3 in the third quarter of fiscal 2004, compared with 6.8 in the fourth quarter of fiscal 2003, and compared with 7.5 in the second quarter of fiscal 2004.
"We are pleased with our performance this quarter on a number of operational fronts. Our execution was strong, with solid revenue growth, gross margins, profit generation and market share gains," said Dennis Powell, CFO, Cisco. "We continue to remain focused on key financial priorities, including generating profitable growth, internal productivity and maintaining a healthy and conservative balance sheet."
Business Highlights- Cisco and Ericsson announced a strategic agreement to offer joint solutions for the wireline communications market. Together, the two companies plan to provide carrier-class IP-based solutions for operators and help speed the adoption of more efficient and profitable multiservice networks.
- Cisco and IBM announced plans to integrate technologies and products to create security solutions designed to help businesses address their security challenges and reduce costs.
- Cisco and Lucent announced plans to develop a carrier-class voice over IP and multimedia communications solution for mobile service providers using Lucent functionality and the Cisco MGX® 8000 Series Media Gateway.
- Cisco and Microsoft announced plans to collaborate on solution development and optimization, marketing and channel programs to help accelerate small and medium-sized business customer and channel partner success.
- Cisco shipped its 3-millionth IP telephone and also announced that Nestlé has selected Cisco as one of the major global suppliers of IP communications equipment for its worldwide operations.
- Cisco announced that Bell Canada selected Cisco 12000 Series routers to serve as the foundation platform for its single, converged Internet Protocol/Multiprotocol Label Switching (IP/MPLS) service delivery network.
- Telefonica de Espana plans to deploy Cisco 10000 Series routers in every point of presence throughout Spain as part of a wide-scale upgrade of its IP network.
- Cisco introduced IEEE standard-based, Power over Ethernet capabilities across its Cisco Catalyst 6500, 4500 and 3700 series of intelligent switches.
- Linksys introduced the Wireless-G Broadband Router with SpeedBooster, a new line of speed-enhanced 802.11G wireless products that provide home and small office users with more wireless throughput and enhanced network performance. Linksys also announced it will incorporate Netopia Parental Controls into its Wireless-G Broadband Router with SpeedBooster to further protect computers and users on the network.
- Q3 FY'04 conference call to discuss Cisco results along with its outlook for Q4 FY'04 to be held at 1:30 p.m. PT on Tuesday, May 11, 2004. Conference call number is 877-352-5212 (United States); 630-395-0174 (international).
- Conference call replay will be available from 4:30 p.m. PT on May 11, 2004 to 4:30 p.m. PT on May 18, 2004 at 800-310-4919 (United States); 402-220-3847 (international). The replay is also available from May 11, 2004 through July 23, 2004 on Cisco's Investor Relations Website at www.cisco.com/go/investors.
- Additional information regarding Cisco's financials and corresponding Webcast with visuals designed to guide participants through the call are also available at 1:30 p.m. PT. Prepared remarks will be available approximately 24 hours after completion of the call. The Webcast will include both the prepared remarks and the question-and-answer session. This information, along with GAAP reconciliation information, will be available on Cisco's Investor Relations Website at www.cisco.com/go/investors.
- Additional information regarding Cisco's Q3 FY'04 results will be 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 may be deemed to contain forward-looking statements, which are subject to the safe harbor provisions of the Private Litigation Reform Act of 1995. These forward-looking statements include, among other things, statements regarding new product releases, 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 due to a variety of factors, including: business and economic conditions and growth trends in the networking industry and in various geographic regions; global economic conditions and uncertainties in the geopolitical environment; 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 timing of orders and manufacturing lead times; changes in customer order patterns or customer mix; insufficient, excess or obsolete inventory; variability of component costs; increased price competition; variations in sales channels, product costs or mix of products sold; 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; manufacturing and sourcing risks; product defects and returns; litigation involving patents, intellectual property, antitrust, stockholder and other matters; the ability to recruit and retain key personnel; financial risk management; currency fluctuations and other international factors; potential volatility in operating results and other factors listed in Cisco's most recent reports on Form 10-K, 10-Q and 8-K. 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 May 1, 2004 are not necessarily indicative of Cisco's operating results for any future periods. Any projections in this release are based on limited information currently available to Cisco, which is subject to change. Although any such projections and the factors influencing them will likely change, Cisco will not necessarily update the information, since Cisco will only provide guidance at certain points during the year. Such information speaks only as of the date of this release.
Cisco provides pro forma net income and pro forma net income per share data as additional information to help investors better understand 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. Cisco believes that this presentation of pro forma net income and pro forma net income per share provides useful information to management and investors regarding certain additional financial and business trends relating to its financial condition and results of operations. Cisco believes when GAAP net income and GAAP net income per share is viewed in conjunction with pro forma net income and pro forma net income per share, investors are provided with a more meaningful understanding of Cisco's ongoing operating performance. In addition, Cisco's management uses these measures for reviewing the financial results of Cisco.
Copyright© 2004 Cisco Systems, Inc. All rights reserved. Cisco, Cisco Systems, the Cisco Systems logo, MGX and Linksys 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 Website 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 | Nine Months Ended | |||
| May 1, 2004 |
April 26, 2003 |
May 1, 2004 |
April 26, 2003 | |
| NET SALES: | ||||
| Product | $ 4,730 | $ 3,799 | $ 13,543 | $ 11,703 |
| Service | 890 | 819 | 2,576 | 2,473 |
| Total net sales | 5,620 | 4,618 | 16,119 | 14,176 |
| COST OF SALES: | ||||
| Product | 1,452 | 1,086 | 4,193 | 3,467 |
| Service | 301 | 263 | 855 | 765 |
| Total cost of sales | 1,753 | 1,349 | 5,048 | 4,232 |
| GROSS MARGIN | 3,867 | 3,269 | 11,071 | 9,944 |
| OPERATING EXPENSES: | ||||
| Research and development | 801 | 703 | 2,295 | 2,290 |
| Sales and marketing | 1,131 | 1,019 | 3,295 | 3,084 |
| General and administrative | 215 | 181 | 605 | 504 |
| Payroll tax on stock option exercises | 3 | - | 12 | - |
| Amortization of deferred stock-based compensation | 101 | 25 | 188 | 101 |
| Amortization of purchased intangible assets | 60 | 92 | 182 | 284 |
| In-process research and development | 2 | 3 | 3 | 3 |
| Total operating expenses | 2,313 | 2,023 | 6,580 | 6,266 |
| OPERATING INCOME | 1,554 | 1,246 | 4,491 | 3,678 |
| Interest Income | 127 | 161 | 388 | 514 |
| Other income (loss), net | 40 | (26) | 177 | (552) |
| Interest and other income (loss), net | 167 | 135 | 565 | (38) |
| INCOME BEFORE PROVISION FOR INCOME TAXES AND CUMULATIVE EFFECT OF ACCOUNTING CHANGE | 1,721 | 1,381 | 5,056 | 3,640 |
| Provision for income taxes | 510 | 394 | 1,468 | 1,044 |
| INCOME BEFORE CUMULATIVE EFFECT OF ACCOUNTING CHANGE | 1,211 | 987 | 3,588 | 2,596 |
| Cumulative effect of accounting change, net of tax | - | - | (567) | - |
| NET INCOME | $ 1,211 | $ 987 | $ 3,021 | $ 2,596 |
| Income per share before cumulative effect of accounting change: | ||||
| Basic | $ 0.18 | $ 0.14 | $ 0.52 | $ 0.36 |
| Diluted | $ 0.17 | $ 0.14 | $ 0.51 | $ 0.36 |
| Net income per share: | ||||
| Basic | $ 0.18 | $ 0.14 | $ 0.44 | $ 0.36 |
| Diluted | $ 0.17 | $ 0.14 | $ 0.43 | $ 0.36 |
| Shares used in per-share calculation: | ||||
| Basic | 6,816 | 7,062 | 6,872 | 7,165 |
| Diluted | 7,074 | 7,158 | 7,095 | 7,257 |
Cisco Systems, Inc.
|
PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
|
(Unaudited)
| Three Months Ended | Nine Months Ended | |||
| May 1, 2004 | April 26, 2003 | May 1, 2004 | April 26, 2003 | |
| NET SALES: | ||||
| Product | $ 4,730 | $ 3,799 | $ 13,543 | $ 11,703 |
| Service | 890 | 819 | 2,576 | 2,473 |
| Total net sales | 5,620 | 4,618 | 16,119 | 14,176 |
| COST OF SALES: | ||||
| Product | 1,452 | 1,086 | 4,193 | 3,467 |
| Service | 301 | 263 | 855 | 765 |
| Total cost of sales | 1,753 | 1,349 | 5,048 | 4,232 |
| GROSS MARGIN | 3,867 | 3,269 | 11,071 | 9,944 |
| OPERATING EXPENSES: | ||||
| Research and development | 801 | 703 | 2,295 | 2,290 |
| Sales and marketing | 1,131 | 1,019 | 3,295 | 3,084 |
| General and administrative | 215 | 181 | 605 | 504 |
| Total operating expenses (a) (b) (c) (d) | 2,147 | 1,903 | 6,195 | 5,878 |
| OPERATING INCOME (a) (b) (c) (d) | 1,720 | 1,366 | 4,876 | 4,066 |
| Interest income | 127 | 161 | 388 | 514 |
| Other income (loss), net (e) | 40 | (26) | 92 | (140) |
| Interest and other income (loss), net (e) | 167 | 135 | 480 | 374 |
| INCOME BEFORE PROVISION FOR INCOME TAXES (a) (b) (c) (d) (e) | 1,887 | 1,501 | 5,356 | 4,440 |
| Provision for income taxes (f) | 528 | 420 | 1,499 | 1,242 |
| NET INCOME | $ 1,359 | $ 1,081 | $ 3,857 | $ 3,198 |
| Net income per share: | ||||
| Basic | $ 0.20 | $ 0.15 | $ 0.56 | $0.45 |
| Diluted | $ 0.19 | $ 0.15 | $ 0.54 | $ 0.44 |
| Shares used in per-share calculation: | ||||
| Basic | 6,816 | 7,062 | 6,872 | 7,165 |
| Diluted | 7,074 | 7,158 | 7,095 | 7,257 |
| A reconciliation between net income on a GAAP basis and pro forma net income is as follows: | ||||
| GAAP net income | $ 1,211 | $ 987 | $ 3,021 | $ 2,596 |
| (a) In-process research and development | 2 | 3 | 3 | 3 |
| (b) Payroll tax on stock option exercises | 3 | - | 12 | - |
| (c) Amortization of deferred stock-based compensation | 101 | 25 | 188 | 101 |
| (d) Amortization of purchased intangible assets | 60 | 92 | 182 | 284 |
| (e) (Gain) loss on publicly traded equity securities | - | - | (85) | 412 |
| (f) Income tax effect | (18) | (26) | (31) | (198) |
| (g) Cumulative effect of accounting change, net of tax | - | - | 567 | - |
| Pro forma net income | $ 1,359 | $ 1,081 | $ 3,857 | $ 3,198 |
For the three month period ended January 24, 2004, pro forma net income and pro forma net income per share excluded the following items: in-process research and development of $1 million, payroll tax on stock option exercises of $7 million, amortization of deferred stock-based compensation of $36 million, amortization of purchased intangible assets of $60 million, gain on publicly traded equity securities of ($85) million, income tax effect of $5 million and cumulative effect of accounting change, net of tax, of $567 million.
| CONSOLIDATED BALANCE SHEETS |
(Unaudited)
| May 1, 2004 | July 26, 2003 | |
| ASSETS | ||
| Current assets: | ||
| Cash and cash equivalents | $ 3,949 | $ 3,925 |
| Short-term investments | 4,912 | 4,560 |
| Accounts receivable, net of allowance for doubtful accounts of $188 at May 1, 2004 and $183 at July 26, 2003 | 1,540 | 1,351 |
| Inventories | 1,121 | 873 |
| Deferred tax assets | 1,905 | 1,975 |
| Lease receivables, net | 65 | 49 |
| Prepaid expenses and other current assets | 581 | 624 |
| Total current assets | 14,073 | 13,357 |
| Investments | 10,085 | 12,167 |
| Property and equipment, net | 3,351 | 3,643 |
| Goodwill | 4,198 | 4,043 |
| Purchased intangible assets, net | 387 | 556 |
| Lease receivables, net | 293 | 238 |
| Other assets | 2,810 | 3,103 |
| TOTAL ASSETS | $ 35,197 | |
| LIABILITIES AND SHAREHOLDERS' EQUITY |
||
| Current liabilities: | ||
| Accounts payable | $ 604 | $ 594 |
| Income taxes payable | 848 | 739 |
| Accrued compensation | 1,432 | 1,470 |
| Deferred revenue | 3,420 | 3,034 |
| Other accrued liabilities | 1,899 | 2,162 |
| Restructuring liabilities | 71 | 295 |
| Total current liabilities | 8,274 | 8,294 |
| Deferred revenue | 937 | 774 |
| Total liabilities | 9,211 | 9,068 |
| Minority interest | 5 | 10 |
| Shareholders' equity | 25,981 | 28,029 |
| TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY | $ 35,197 | $ 37,107 |
Certain reclassifications have been made to prior year balances in order to conform to the current period's presentation.
| CONSOLIDATED STATEMENTS OF CASH FLOWS |
(Unaudited)
| Nine Months Ended | ||
| May 1, 2004 | April 26, 2003 | |
| Cash flows from operating activities: | ||
| Net income | $ 3,021 | $ 2,596 |
| Adjustments to reconcile net income to net cash provided by operating activities: | ||
| Cumulative effect of accounting change, net of tax | 567 | - |
| Depreciation and amortization | 1,133 | 1,166 |
| Provision for doubtful accounts | 19 | - |
| Provision for inventory | 124 | 26 |
| Deferred income taxes | 305 | 131 |
| Tax benefits from employee stock option plans | 454 | 19 |
| In-process research and development | 3 | 3 |
| Net (gains) losses and impairment charges on investments | (149) | 523 |
| Change in operating assets and liabilities: | ||
| Accounts receivable | (203) | (48) |
| Inventories | (371) | 89 |
| Prepaid expenses and other current assets | (13) | (79) |
| Accounts payable | 1 | 10 |
| Income taxes payable | 144 | (319) |
| Accrued compensation | (41) | (72) |
| Deferred revenue | 543 | (133) |
| Other accrued liabilities | (274) | (203) |
| Restructuring liabilities | (224) | (18) |
| Net cash provided by operating activities | 5,039 | 3,691 |
| Cash flows from investing activities: | ||
| Purchases of short-term investments | (10,008) | (6,759) |
| Proceeds from sales and maturities of short-term investments | 10,911 | 7,346 |
| Purchases of investments | (16,054) | (13,024) |
| Proceeds from sales and maturities of investments | 16,820 | 7,975 |
| Acquisition of property and equipment | (487) | (504) |
| Acquisition of businesses, net of cash and cash equivalents | (104) | 3 |
| Change in lease receivables, net | (71) | 49 |
| Change in investments in privately held companies | 20 | (141) |
| Purchase of minority interest of Cisco Systems, K.K. (Japan) | (71) | (59) |
| Other | 146 | 126 |
| Net cash provided by (used) in investing activities | 1,102 | (4,988) |
| Cash flows from financing activities: | ||
| Issuance of common stock | 930 | 279 |
| Repurchase of common stock | (7,082) | (4,549) |
| Other | 35 | 23 |
| Net cash used in financing activities | (6,117) | (4,247) |
| Net increase (decrease) in cash and cash equivalents | 24 | (5,544) |
| Cash and cash equivalents, beginning of period | 3,925 | 9,484 |
| Cash and cash equivalents, end of period | $ 3,949 | $ 3,940 |
| ADDITIONAL FINANCIAL INFORMATION |
(Unaudited)
| May 1, 2004 | July 26, 2003 | |
| CASH AND CASH EQUIVALENTS AND TOTAL INVESTMENTS | ||
| Cash and cash equivalents | $ 3,949 | $ 3,925 |
| Fixed income securities | 14,043 | 15,982 |
| Publicly traded equity securities | 954 | 745 |
| Total | $ 18,946 | $ 20,652 |
| INVENTORIES | ||
| Raw materials | $ 56 | $ 38 |
| Work in process | 422 | 291 |
| Finished goods | 611 | 515 |
| Demonstration systems | 32 | 29 |
| Total | $ 1,121 | $ 873 |
| PROPERTY AND EQUIPMENT, NET | ||
| Land, buildings, and leasehold improvements | $ 3,424 | $ 3,411 |
| Computer equipment and related software | 1,224 | 1,147 |
| Production, engineering, and other equipment | 2,676 | 2,410 |
| Operating lease assets | 98 | 356 |
| Furniture and fixtures | 356 | 350 |
| 7,778 | 7,674 | |
| Less, accumulated depreciation and amortization | (4,427) | (4,031) |
| Total | $ 3,351 | $ 3,643 |
| OTHER ASSETS | ||
| Deferred tax assets | $ 1,316 | $ 1,476 |
| Investments in privately held companies | 360 | 516 |
| Income tax receivable | 690 | 727 |
| Structured loans, net | 19 | 42 |
| Other | 425 | 342 |
| Total | $ 2,810 | $ 3,103 |
| DEFERRED REVENUE | ||
| Service | $ 2,864 | $ 2,451 |
| Product | 1,493 | 1,357 |
| Total | 4,357 | 3,808 |
| Less, current portion | (3,420) | (3,034) |
| Non-current deferred revenue | $ 937 | $ 774 |
