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Cisco Reports First Quarter Earnings

SAN JOSE, CA -- (MARKET WIRE) -- 11/10/10 -- Cisco (NASDAQ: CSCO)

Cisco (NASDAQ: CSCO), the worldwide leader in networking that transforms how people connect, communicate and collaborate, today reported its first quarter results for the period ended October 30, 2010. Cisco reported first quarter net sales of $10.75 billion, net income on a generally accepted accounting principles (GAAP) basis of $1.9 billion or $0.34 per share, and non-GAAP net income of $2.4 billion or $0.42 per share.

"Cisco delivered solid financial results, during a challenging economic environment. While we have seen capital spending moderate in some areas of our business, our execution in the areas we can control and influence speak to the success and relevance of the company's strategy," said John Chambers, chairman and CEO, Cisco. "Our position in the market, including continued product innovation, market share momentum and operational excellence, positions us for growth and flexibility well into the future as we strengthen our role as a trusted business partner to our customers."


                              GAAP Results



                                Q1 2011         Q1 2010       Vs. Q1 2010

                            --------------- --------------- --------------

Net Sales                   $ 10.75 billion $  9.02 billion           19.2%

Net Income                  $   1.9 billion $   1.8 billion            8.0%

Earnings per Share          $          0.34 $          0.30           13.3%







                              Non-GAAP Results



                                Q1 2011         Q1 2010       Vs. Q1 2010

                            --------------- --------------- --------------

Net Income                  $   2.4 billion $   2.1 billion           13.9%

Earnings per Share          $          0.42 $          0.36           16.7%

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 first 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

"Our balanced results in the first quarter clearly demonstrate our ability to execute across many areas within the company," stated Frank Calderoni, executive vice president and chief financial officer, Cisco. "We delivered $10.75 billion in revenue, representing 19% year-over-year growth alongside continued investments in expanding our portfolio. We believe we have competitive advantages that provide us with the platform on which to base long-term profitable growth, and we are moving the business forward to deliver results for our customers, our shareholders, and our employees."

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Editor's Note:

About Cisco

Cisco (NASDAQ: CSCO), the worldwide leader in networking that transforms how people connect, communicate and collaborate, this year celebrates 25 years of technology innovation, operational excellence and corporate social responsibility. 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 statements regarding our growth, profitability, strategy, momentum, product innovation, operational excellence, flexibility, and relationships with our customers) 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 report on Form 10-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 report on Form 10-K filed on September 21, 2010, as it may be amended from time to time. Cisco's results of operations for the three months ended October 30, 2010 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, non-GAAP shares used in net income per share calculation, and non-GAAP inventory turns. Effective from the second quarter of fiscal 2010, Cisco no longer uses non-GAAP shares in the calculation of non-GAAP net income per share.

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, non-GAAP net income per share data and non-GAAP shares used in net income per share calculation for the periods in which such measures are presented, 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 © 2010 Cisco Systems, Inc. and or its affiliates. All rights reserved. Cisco, the Cisco logo, Cisco Systems, Cisco AnyConnect, and ūmi 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.


                 CONSOLIDATED STATEMENTS OF OPERATIONS

                (In millions, except per-share amounts)

                             (Unaudited)



                                                Three Months Ended

                                        ----------------------------------

                                        October 30, 2010  October 24, 2009

                                        ----------------  ----------------

NET SALES:



Product                                 $          8,700  $          7,200

Service                                            2,050             1,821

                                        ----------------  ----------------



Total net sales                                   10,750             9,021

                                        ----------------  ----------------





COST OF SALES:

Product                                            3,249             2,486

Service                                              746               647

                                        ----------------  ----------------



Total cost of sales                                3,995             3,133

                                        ----------------  ----------------



GROSS MARGIN                                       6,755             5,888



OPERATING EXPENSES:

Research and development                           1,431             1,224

Sales and marketing                                2,402             2,010

General and administrative                           458               425

Amortization of purchased intangible

 assets                                              113               105

                                        ----------------  ----------------



Total operating expenses                           4,404             3,764

                                        ----------------  ----------------



OPERATING INCOME                                   2,351             2,124



Interest income                                      160               168

Interest expense                                    (166)             (114)

Other income, net                                     80                61

                                        ----------------  ----------------



Interest and other income, net                        74               115

                                        ----------------  ----------------



INCOME BEFORE PROVISION FOR INCOME TAXES           2,425             2,239

Provision for income taxes                           495               452

                                        ----------------  ----------------



NET INCOME                              $          1,930  $          1,787

                                        ----------------  ----------------



Net income per share:

Basic                                   $           0.34  $           0.31

                                        ----------------  ----------------



Diluted                                 $           0.34  $           0.30

                                        ----------------  ----------------



Shares used in per-share calculation:

Basic                                              5,595             5,767

                                        ----------------  ----------------



Diluted                                            5,675             5,871

                                        ----------------  ----------------

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


               RECONCILIATION OF GAAP TO NON-GAAP NET INCOME

                  (In millions, except per-share amounts)





                                               Three Months Ended

                                        ----------------------------------

                                        October 30, 2010  October 24, 2009

                                        ----------------  ----------------

GAAP net income                         $          1,930  $          1,787

  Share-based compensation expense                   407               321

  Amortization of acquisition-related

   intangible assets                                 214               149

  Other acquisition-related costs                     45                 4

                                        ----------------  ----------------



  Total adjustments to GAAP income

   before provision for income taxes                 666               474

                                        ----------------  ----------------



  Income tax effect                                 (185)             (145)

                                        ----------------  ----------------



Non-GAAP net income                     $          2,411  $          2,116

                                        ----------------  ----------------



Diluted net income per share:

GAAP                                    $           0.34  $           0.30

                                        ----------------  ----------------



Non-GAAP                                $           0.42  $           0.36

                                        ----------------  ----------------



Shares used in diluted net income per

 share calculation:

GAAP                                               5,675             5,871

                                        ----------------  ----------------



Non-GAAP(1)                                        5,675             5,880

                                        ----------------  ----------------

(1) Effective from the second quarter of fiscal 2010, Cisco no longer uses non-GAAP shares in the calculation of non-GAAP net income per share.

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


                      CONSOLIDATED BALANCE SHEETS

                             (In millions)

                              (Unaudited)



                                          October 30, 2010   July 31, 2010

                                          ---------------- ----------------



ASSETS

Current assets:

  Cash and cash equivalents               $          3,796 $          4,581

  Investments                                       35,129           35,280

  Accounts receivable, net of allowance

   for doubtful accounts of $191 at

   October 30, 2010 and $235 at

   July 31, 2010                                     4,471            4,929

  Inventories                                        1,523            1,327

  Deferred tax assets                                1,992            2,126

  Other current assets                               3,495            3,178

                                          ---------------- ----------------



  Total current assets                              50,406           51,421



Property and equipment, net                          3,984            3,941

Goodwill                                            16,742           16,674

Purchased intangible assets, net                     3,176            3,274

Other assets                                         5,707            5,820

                                          ---------------- ----------------



TOTAL ASSETS                              $         80,015 $         81,130

                                          ---------------- ----------------





LIABILITIES AND EQUITY

Current liabilities:

  Short-term debt                         $          3,064 $          3,096

  Accounts payable                                     945              895

  Income taxes payable                                 126               90

  Accrued compensation                               2,497            3,129

  Deferred revenue                                   7,420            7,664

  Other current liabilities                          4,068            4,359

                                          ---------------- ----------------



  Total current liabilities                         18,120           19,233



Long-term debt                                      12,214           12,188

Income taxes payable                                   940            1,353

Deferred revenue                                     3,316            3,419

Other long-term liabilities                            730              652

                                          ---------------- ----------------



Total liabilities                                   35,320           36,845



Total equity                                        44,695           44,285

                                          ---------------- ----------------



TOTAL LIABILITIES AND EQUITY              $         80,015 $         81,130

                                          ---------------- ----------------











                   CONSOLIDATED STATEMENTS OF CASH FLOWS

                              (In millions)

                               (Unaudited)





                                                Three Months Ended

                                        ----------------------------------

                                        October 30, 2010  October 24, 2009

                                        ----------------  ----------------

Cash flows from operating activities:

  Net income                            $          1,930  $          1,787

Adjustments to reconcile net income to

 net cash provided by operating

 activities:

  Depreciation, amortization, and

   other noncash items                               553               429

  Share-based compensation expense                   407               321

  Provision for doubtful accounts                    (22)                4

  Deferred income taxes                              338                93

  Excess tax benefits from share-based

   compensation                                      (28)              (21)

  Net gains on investments                          (108)              (47)

Change in operating assets and

 liabilities, net of effects of

 acquisitions:

    Accounts receivable                              506                38

    Inventories                                     (193)               (8)

    Lease receivables, net                          (100)             (100)

    Accounts payable                                  45                52

    Income taxes payable                            (408)             (291)

    Accrued compensation                            (678)             (313)

    Deferred revenue                                (367)             (160)

    Other assets                                      (8)             (186)

    Other liabilities                               (200)             (110)

                                        ----------------  ----------------



Net cash provided by operating

 activities                                        1,667             1,488

                                        ----------------  ----------------



Cash flows from investing activities:

  Purchases of investments                        (9,569)           (9,537)

  Proceeds from sales of investments               6,232             2,769

  Proceeds from maturities of

   investments                                     3,574             5,664

  Acquisition of property and equipment             (326)             (160)

  Acquisition of businesses, net of

   cash and cash equivalents acquired                (69)               --

  Change in investments in privately

   held companies                                    (28)              (32)

  Other                                               19                43

                                        ----------------  ----------------



Net cash used in investing activities               (167)           (1,253)

                                        ----------------  ----------------



Cash flows from financing activities:

  Issuance of common stock                           374               634

  Repurchase of common stock                      (2,701)           (1,869)

  Short-term borrowings, net                         (16)               --

  Excess tax benefits from share-based

   compensation                                       28                21

  Other                                               30                35

                                        ----------------  ----------------



Net cash used in financing activities             (2,285)           (1,179)

                                        ----------------  ----------------



Net decrease in cash and cash

 equivalents                                        (785)             (944)

Cash and cash equivalents, beginning of

 period                                            4,581             5,718

                                        ----------------  ----------------



Cash and cash equivalents, end of

 period                                 $          3,796  $          4,774

                                        ----------------  ----------------











                     ADDITIONAL FINANCIAL INFORMATION

                               (In millions)

                                (Unaudited)



                                        October 30, 2010   July 31, 2010

                                        ----------------  ----------------



CASH AND CASH EQUIVALENTS AND

 INVESTMENTS

Cash and cash equivalents               $          3,796  $          4,581

Fixed income securities                           33,790            34,029

Publicly traded equity securities                  1,339             1,251

                                        ----------------  ----------------



Total                                   $         38,925  $         39,861

                                        ----------------  ----------------



INVENTORIES

Raw materials                           $            331  $            217

Work in process                                       54                50

Finished goods:

  Distributor inventory and deferred

   cost of sales                                     586               587

  Manufactured finished goods                        314               260

                                        ----------------  ----------------



Total finished goods                                 900               847

Service-related spares                               174               161

Demonstration systems                                 64                52

                                        ----------------  ----------------



Total                                   $          1,523  $          1,327

                                        ----------------  ----------------



PROPERTY AND EQUIPMENT, NET

Land, buildings, and building &

 leasehold improvements                 $          4,519  $          4,470

Computer equipment and related software            1,427             1,405

Production, engineering, and other

 equipment                                         4,879             4,702

Operating lease assets                               263               255

Furniture and fixtures                               479               476

                                        ----------------  ----------------



                                                  11,567            11,308

Less accumulated depreciation and

 amortization                                     (7,583)           (7,367)

                                        ----------------  ----------------



Total                                   $          3,984  $          3,941

                                        ----------------  ----------------



OTHER ASSETS

Deferred tax assets                     $          1,881  $          2,079

Investments in privately held companies              779               756

Lease receivables, net (1)                         1,265             1,176

Financed service contracts, net (2)                  767               763

Loan receivables, net (3)                            621               675

Other                                                394               371

                                        ----------------  ----------------



Total                                   $          5,707  $          5,820

                                        ----------------  ----------------



DEFERRED REVENUE

Service                                 $          7,169  $          7,428

Product:

  Unrecognized revenue on product

   shipments and other deferred

   revenue                                         2,737             2,788

  Cash receipts related to unrecognized

   revenue from two-tier distributors                830               867

                                        ----------------  ----------------



Total product deferred revenue                     3,567             3,655

                                        ----------------  ----------------



Total                                   $         10,736  $         11,083

                                        ----------------  ----------------



Reported as:

Current                                 $          7,420  $          7,664

Noncurrent                                         3,316             3,419

                                        ----------------  ----------------



Total                                   $         10,736  $         11,083

                                        ----------------  ----------------

Note:

(1) The current portion of lease receivables, net, which was $863 million and $813 million as of October 30, 2010 and July 31, 2010, respectively, is recorded in other current assets.

(2) The current portion of financed service contracts, which was $968 million and $989 million as of October 30, 2010 and July 31, 2010, respectively, is recorded in other current assets.

(3) The current portion of loan receivables, net, which was $561 million and $501 million as of October 30, 2010 and July 31, 2010, respectively, is recorded in other current assets.


                SUMMARY OF SHARE-BASED COMPENSATION EXPENSE

                              (In millions)



                                                 Three Months Ended

                                          ---------------------------------

                                          October 30, 2010 October 24, 2009

                                          ---------------- ----------------

Cost of sales -- product                  $             15 $             12

Cost of sales -- service                                43               33

                                          ---------------- ----------------



Share-based compensation expense in cost

 of sales                                               58               45

                                          ---------------- ----------------



Research and development                               121               97

Sales and marketing                                    164              128

General and administrative                              64               51

                                          ---------------- ----------------



Share-based compensation expense in

 operating expenses                                    349              276

                                          ---------------- ----------------



Total share-based compensation expense    $            407 $            321

                                          ---------------- ----------------

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 $109 million and $85 million for the first quarter of fiscal 2011 and fiscal 2010, respectively.


           RECONCILIATION OF SHARES USED IN THE GAAP AND NON-GAAP

           DILUTED NET INCOME PER SHARE CALCULATION FOR THE FIRST

                           QUARTER OF FISCAL 2010



                                 (In millions)



                                                         Three Months Ended

                                                          October 24, 2009

                                                          ----------------

Shares used in diluted net income per share

 calculation -- GAAP                                                 5,871

Effect of share-based compensation expense                               9

                                                          ----------------



Shares used in diluted net income per share

 calculation -- non-GAAP                                             5,880

                                                          ----------------

Effective from the second quarter of fiscal 2010, Cisco no longer uses non-GAAP shares in the calculation of non-GAAP net income per share.


                      RECONCILIATION OF GAAP TO NON-GAAP

                    COST OF SALES USED IN INVENTORY TURNS

                               (In millions)



                                       Three Months Ended

                      ----------------------------------------------------

                      October 30, 2010    July 31, 2010   October 24, 2009

                      ----------------  ----------------  ----------------

GAAP cost of sales    $          3,995  $          4,043  $          3,133

  Share-based

   compensation

   expense                         (58)              (57)              (45)

  Amortization of

   acquisition-related

   intangible assets              (101)              (93)              (44)

                      ----------------  ----------------  ----------------



Non-GAAP cost of

 sales                $          3,836  $          3,893  $          3,044

                      ----------------  ----------------  ----------------

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Press Contact:

Robyn Jenkins-Blum

Cisco

+1 (408) 853-9848

rojenkin@cisco.com



Investor Relations Contact:

Laura Graves

Cisco

+1 (408) 526-6521

lagraves@cisco.com



Source: Cisco

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