Cisco Reports Third Quarter Earnings

SAN JOSE, CA -- (May 11, 2011) - Cisco (NASDAQ: CSCO)

• Q3 Net Sales: $10.9 billion (increase of 5% year over year)

• Q3 Net Income: $1.8 billion GAAP; $2.3 billion non-GAAP

• Q3 Earnings per Share: $0.33 GAAP (decrease of 11% year over year); $0.42 non-GAAP (flat year over year)

Cisco, the worldwide leader in networking that transforms how people connect, communicate and collaborate, today reported its third quarter results for the period ended April 30, 2011. Cisco reported third quarter net sales of $10.9 billion, net income on a generally accepted accounting principles (GAAP) basis of $1.8 billion or $0.33 per share, and non-GAAP net income of $2.3 billion or $0.42 per share.

"This quarter played out as we expected," said John Chambers, chairman and CEO, Cisco.  "We have acknowledged our challenges. We know what we have to do. We have a clear game plan, and we are a company with a track record of market-shaping innovation.  We thank our shareholders, employees, customers and partners as we transition to the next phase of Cisco."

The third quarter of fiscal 2011 had 13 weeks compared with 14 weeks in the third quarter of fiscal 2010.

Net sales for the first nine months of fiscal 2011 were $32.0 billion, compared with $29.2 billion for the first nine months of fiscal 2010. Net income for the first nine months of fiscal 2011, on a GAAP basis, was $5.3 billion or $0.94 per share, compared with $5.8 billion or $0.99 per share for the first nine months of fiscal 2010. Non-GAAP net income for the first nine months of fiscal 2011 was $6.8 billion or $1.22 per share, compared with $6.9 billion or $1.18 per share for the first nine months of fiscal 2010.

A reconciliation between net income on a GAAP basis and non-GAAP net income is provided in the table on page 6.

Cisco will discuss third quarter results and business outlook on a conference call and webcast at 1:30 p.m. Pacific Time today. Call information and related charts are available at http://investor.cisco.com.

Other Financial Highlights

• Cash flows from operations were $3.0 billion for the third quarter of fiscal 2011, compared with $2.6 billion for the second quarter of fiscal 2011, and compared with $3.0 billion for the third quarter of fiscal 2010.

• Cash and cash equivalents and investments were $43.4 billion at the end of the third quarter of fiscal 2011, compared with $40.2 billion at the end of the second quarter of fiscal 2011, and compared with $39.9 billion at the end of fiscal 2010.

• On March 17, 2011, Cisco's Board of Directors approved the initiation of quarterly cash dividends to its shareholders. A quarterly dividend of $0.06 per common share was paid on April 20, 2011 to shareholders of record as of the close of business on March 31, 2011. Any future dividends will be subject to Board approval.

• During the third quarter of fiscal 2011, Cisco repurchased 54 million shares of common stock under the stock repurchase program at an average price of $18.39 per share for an aggregate purchase price of $1.0 billion. As of April 30, 2011, Cisco had repurchased and retired 3.4 billion shares of Cisco common stock at an average price of $20.77 per share for an aggregate purchase price of approximately $70.3 billion since the inception of the stock repurchase program. The remaining authorized amount for stock repurchases under this program is approximately $11.7 billion with no termination date.

• Days sales outstanding in accounts receivable (DSO) at the end of the third quarter of fiscal 2011 were 37 days, compared with 40 days at the end of the second quarter of fiscal 2011, and compared with 39 days at the end of the third quarter of fiscal 2010.

• Inventory turns on a GAAP basis were 11.1 in the third quarter of fiscal 2011, compared with 10.6 in the second quarter of fiscal 2011, and compared with 11.5 in the third quarter of fiscal 2010. Non-GAAP inventory turns were 10.3 in the third quarter of fiscal 2011, compared with 10.0 in the second quarter of fiscal 2011, and compared with 11.1 in the third quarter of fiscal 2010.

Select Global Business Highlights

• Cisco completed the acquisition of privately held newScale Inc., a leading provider of software that delivers a service catalog and self-service portal for information technology organizations to select and quickly deploy cloud services within their businesses.
• Cisco completed the acquisition of privately held Inlet Technologies, Inc., a leading provider of Adaptive Bit Rate digital media processing platforms.
• Cisco completed the acquisition of privately held Pari Networks, Inc., a leading provider of network configuration and change management (NCCM) and compliance management solutions that will complement Cisco's smart service capabilities.

Cisco Innovation

• Cisco announced that one year after it was introduced, the Cisco CRS-3 Carrier Routing System is being adopted faster than was the original CRS-1 platform with 80 customers in more than 30 countries, including AT&T and Comcast. Cisco also introduced new capabilities on the CRS-3 platform designed to expand its addressable market while reducing the cost for service providers to deliver packet-transport services.
• Cisco introduced new security, management, and video solutions to its Borderless Networks portfolio to help information technology departments more efficiently manage the proliferation of mobile devices, ongoing changes in workforce habits, and the impact of video on the network.
• Cisco introduced technology innovations across its Data Center Business Advantage portfolio, including the Cisco Nexus® 7000 family and Nexus 5000 Series, the new ultra-low latency platform Cisco Nexus 3000, Cisco® MDS storage switches, the Cisco Unified Computing System™, the Cisco Data Center Network Manager, and Cisco NX-OS, a comprehensive data center operating system that spans the Cisco data center portfolio.

Select Customer Announcements

• AEG Digital Media, a leading provider of complete webcast management and digital media services for live video-streaming events, has expanded its existing deployment of Cisco technology to enable the delivery of live streaming video to devices over Internet Protocol (IP) networks. AEG Digital Media's innovative use of Cisco's digital media processing technology, a foundational part of the Cisco Videoscape™ portfolio, has helped AEG Digital Media fuel its business, and grow its applications and customer base.
• Gloucestershire Constabulary, a police force covering six districts across southwest England, became the 500th customer of the Cisco Unified Computing System in Europe.
• The Kuwait National Petroleum Company chose to deploy Cisco Unified Communications technology solutions at its headquarters, refineries and marketing offices in Kuwait, where nearly 8,500 staff are employed.
• Cisco, EllisDon Corp. and FlexITy Solutions, a Cisco Gold Certified and Master Unified Communications Specialized Partner, announced the completion of one of the most advanced digital health care facilities in Canada at Sault Area Hospital. The hospital infrastructure will run on a Cisco Medical-Grade Network.
• Euronet Worldwide, a provider of highly secure electronic financial transaction solutions, deployed the Cisco Unified Computing System at its central data center in Budapest, Hungary. The solution's cloud architecture is enabling Euronet to provide hybrid cloud services, serving both its internal information technology department as well as customers.

Editor's Note:

• Q3 FY 2011 conference call to discuss Cisco's results along with its business outlook will be held at 1:30 p.m. Pacific Time, Wednesday, May 11, 2011. Conference call number is 888-848-6507 (United States) or 212-519-0847 (international).

• Conference call replay will be available from 4:30 p.m. Pacific Time, May 11, 2011 to 4:30 p.m. Pacific Time, May 18, 2011 at 866-357-4205 (United States) or 203-369-0122 (international). The replay also will be available via webcast from May 11, 2011 through July 22, 2011 on the Cisco Investor Relations website at http://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, May 11, 2011. 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 GAAP reconciliation information, will be available on the Cisco Investor Relations website at http://investor.cisco.com.

About Cisco

Cisco (NASDAQ: CSCO) is the worldwide leader in networking that transforms how people connect, communicate and collaborate. Information about Cisco can be found at http://www.cisco.com. For ongoing news, please go to http://newsroom.cisco.com.

This release may be deemed to contain forward-looking statements, which are subject to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These forward-looking statements include, among other things, statements regarding future events (such as [WILL INSERT ONCE WE HAVE QUOTES]) 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, our customer markets and various geographic regions; global economic conditions and uncertainties in the geopolitical environment; overall information technology spending; the growth and evolution 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 and other customer markets; the return on our investments in certain market adjacencies and geographical locations; the timing of orders and manufacturing and customer lead times; changes in customer order patterns or customer mix; insufficient, excess or obsolete inventory; variability of component costs; variations in sales channels, product costs or mix of products sold; our ability to successfully acquire businesses and technologies and to successfully integrate and operate these acquired businesses and technologies; increased competition in our product and service markets, including the data center; 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, shareholder and other matters, and governmental investigations; natural catastrophic events; a pandemic or epidemic; our ability to achieve the benefits anticipated from our investments in sales and engineering activities; our ability to recruit and retain key personnel; our ability to manage financial risk, and to manage expenses during economic downturns; risks related to the global nature of our operations, including our operations in emerging markets; currency fluctuations and other international factors; changes in provision for income taxes, including changes in tax laws and regulations or adverse outcomes resulting from examinations of our income tax returns; potential volatility in operating results; and other factors listed in Cisco's most recent reports on Form 10-K and 10-Q, filed on September 21, 2010 and February 23, 2011, respectively. 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 report on Form 10-Q and report on Form 8-K filed on March 9, 2011, as each may be amended from time to time. Cisco's results of operations for the three and nine months ended April 30, 2011 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.

This release includes non-GAAP net income, non-GAAP net income per share data and non-GAAP inventory turns.

These non-GAAP measures are not in accordance with, or an alternative for, measures prepared in accordance with generally accepted accounting principles and may be different from non-GAAP measures used by other companies. In addition, these non-GAAP measures are not based on any comprehensive set of accounting rules or principles. Cisco believes that non-GAAP measures have limitations in that they do not reflect all of the amounts associated with Cisco's results of operations as determined in accordance with GAAP and that these measures should only be used to evaluate Cisco's results of operations in conjunction with the corresponding GAAP measures.

Cisco believes that the presentation of non-GAAP net income and non-GAAP net income per share data when shown in conjunction with the corresponding GAAP measures, provides useful information to investors and management regarding financial and business trends relating to its financial condition and results of operations. In addition, Cisco believes that the presentation of non-GAAP inventory turns provides useful information to investors and management regarding financial and business trends relating to inventory management based on the operating activities of the period presented.

For its internal budgeting process, Cisco's management uses financial statements that do not include, when applicable, share-based compensation expense, amortization of acquisition-related intangible assets, other acquisition-related costs, significant asset impairments and restructurings, the income tax effects of the foregoing, significant effects of retroactive tax legislation, and significant transfer pricing adjustments related to share-based compensation. Cisco's management also uses the foregoing non-GAAP measures, in addition to the corresponding GAAP measures, in reviewing the financial results of Cisco. In prior periods, Cisco has excluded other items that it no longer excludes for purposes of its non-GAAP financial measures. From time to time in the future, there may be other items that Cisco may exclude for purposes of its internal budgeting process and in reviewing its financial results.

For additional information on the items excluded by Cisco from one or more of its non-GAAP financial measures, refer to the Form 8-K regarding this release furnished today to the Securities and Exchange Commission.

Copyright © 2011 Cisco Systems, Inc. and or its affiliates. All rights reserved. Cisco, the Cisco logo, Cisco Systems, Cisco Nexus, Cisco TelePresence, Cisco ūmi, Cisco Unified Computing System, and Cisco Videoscape are registered trademarks or trademarks of Cisco and/or its affiliates in the United States and other countries. Third party trademarks mentioned in this document 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. This document is Cisco Public Information.

Certain reclassifications have been made to prior period amounts to conform to the current period's presentation.

Additional reconciliations between GAAP and non-GAAP financial measures are provided in the tables that follow on page 10.

Note:

The following table summarizes share-based compensation expense (in millions):

Certain reclassifications have been made to prior period amounts to conform to the current period's presentation.

The income tax benefit for share-based compensation expense was $107 million and $335 million for the three and nine months ended April 30, 2011, respectively, and $118 million and $304 million for the three and nine months ended May 1, 2010, respectively.