Cisco Systems Logo

Print Print page     PDF Download PDF    Add to Briefcase
« Previous Release | Next Release »



Cisco Reports Second Quarter Earnings

SAN JOSE, CA -- (MARKET WIRE) -- 02/09/11 -- Cisco (NASDAQ: CSCO)

Cisco, the worldwide leader in networking that transforms how people connect, communicate and collaborate, today reported its second quarter results for the period ended January 29, 2011. Cisco reported second quarter net sales of $10.4 billion, net income on a generally accepted accounting principles (GAAP) basis of $1.5 billion or $0.27 per share, and non-GAAP net income of $2.1 billion or $0.37 per share.

"The quarter played out as we expected. Our strategy of tightly integrating our multiple products through an architectural approach is working, and we are delivering innovation in each major product family," said John Chambers, chairman and CEO, Cisco. "As a company, we are going through a period of transition as we move aggressively in the market with our architectural strategy. We have managed these market transitions many times, positioning Cisco and our customers for success. Simply put, we are owning our evolution and the next generation of industry leadership."


                         GAAP Results



                                                     Vs. Q2

                         Q2 2011        Q2 2010      2010

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

Net Sales            $ 10.4 billion $  9.8 billion       6.0%

Net Income           $  1.5 billion $  1.9 billion     (17.9)%

Earnings per Share   $         0.27 $         0.32     (15.6)%



                       Non-GAAP Results



                                                     Vs. Q2

                         Q2 2011        Q2 2010      2010

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

Net Income           $  2.1 billion $  2.3 billion     (11.2)%

Earnings per Share   $         0.37 $         0.40      (7.5)%

Net sales for the first six months of fiscal 2011 were $21.2 billion, compared with $18.8 billion for the first six months of fiscal 2010. Net income for the first six months of fiscal 2011, on a GAAP basis, was $3.5 billion or $0.61 per share, compared with $3.6 billion or $0.62 per share for the first six months of fiscal 2010. Non-GAAP net income for the first six months of fiscal 2011 was $4.5 billion or $0.80 per share, compared with $4.5 billion or $0.76 per share for the first six 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 second 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

"With total cash generation of $2.6 billion for the quarter, and revenues of $10.4 billion, our financial strength and cash position is clearly a major competitive advantage for us," said Frank Calderoni, executive vice president and chief financial officer, Cisco. "We are focused on strong execution and moving the business forward to deliver results for our customers, our shareholders, and our employees."

Select Global Business Highlights

Cisco Innovation

Select Customer Announcements

Editor's Note:

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 statements regarding strategy, product innovation, operational execution and delivery of results) 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 November 23, 2010, 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 reports on Form 10-K and 10-Q, as each may be amended from time to time. Cisco's results of operations for the three and six months ended January 29, 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, Catalyst, Cisco Cius, Cisco StadiumVision, Cisco TelePresence, 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.


                 CONSOLIDATED STATEMENTS OF OPERATIONS

                (In millions, except per-share amounts)

                              (Unaudited)



                          Three Months Ended           Six Months Ended

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

                       January 29,  January 23,    January 29,  January 23,

                           2011         2010           2011         2010

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

NET SALES:

  Product              $     8,236  $     7,976    $    16,936  $    15,176

  Service                    2,171        1,839          4,221        3,660

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



    Total net sales         10,407        9,815         21,157       18,836

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



COST OF SALES:

  Product                    3,382        2,815          6,631        5,301

  Service                      764          668          1,510        1,315

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



    Total cost of

     sales                   4,146        3,483          8,141        6,616

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



GROSS MARGIN                 6,261        6,332         13,016       12,220



OPERATING EXPENSES:

  Research and

   development               1,478        1,247          2,909        2,471

  Sales and marketing        2,444        2,126          4,846        4,136

  General and

   administrative              452          451            910          876

  Amortization of

   purchased

   intangible assets           203          138            316          243

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



    Total operating

     expenses                4,577        3,962          8,981        7,726

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



OPERATING INCOME             1,684        2,370          4,035        4,494

  Interest income              156          155            316          323

  Interest expense            (161)        (158)          (327)        (272)

  Other income (loss),

   net                          51          (12)           131           49

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



    Interest and other

     income (loss),

     net                        46          (15)           120          100

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



INCOME BEFORE

 PROVISION FOR INCOME

 TAXES                       1,730        2,355          4,155        4,594

Provision for income

 taxes                         209          502            704          954

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



  NET INCOME           $     1,521  $     1,853    $     3,451  $     3,640

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



Net income per share:

Basic                  $      0.27  $      0.32    $      0.62  $      0.63

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



Diluted                $      0.27  $      0.32    $      0.61  $      0.62

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



Shares used in per-

 share calculation:

Basic                        5,531        5,741          5,563        5,754

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



Diluted                      5,587        5,862          5,630        5,866

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

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         Six Months Ended

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

                         January 29,  January 23,  January 29,  January 23,

                             2011         2010         2011         2010

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

GAAP net income          $     1,521  $     1,853  $     3,451  $     3,640

  Share-based

   compensation expense          430          371          837          692

  Amortization of

   acquisition-related

   intangible assets (1)         367          192          581          341

  Other acquisition-

   related costs                  64           81          109           85

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



  Total adjustments to

   GAAP income before

   provision for income

   taxes                         861          644        1,527        1,118

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



  Income tax effect             (239)        (158)        (424)        (303)

  Effect of retroactive

   tax legislation (2)           (65)          --          (65)      --

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



  Total adjustments to

   GAAP provision for

   income taxes                 (304)        (158)        (489)        (303)

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



Non-GAAP net income      $     2,078  $     2,339  $     4,489  $     4,455

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



Diluted net income per

 share:

GAAP                     $      0.27  $      0.32  $      0.61  $      0.62

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



Non-GAAP                 $      0.37  $      0.40  $      0.80  $      0.76

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



Shares used in diluted

 net income per share

 calculations                  5,587        5,862        5,630        5,866

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



(1)  Amortization of acquisition-related intangible assets for the second

     quarter and first six months of fiscal 2011 includes impairment charges

     of approximately $155 million, with $63 million recorded in product

     cost of sales and $92 million in operating expenses.



(2)  In the second quarter of fiscal 2011, the Tax Relief, Unemployment

     Insurance Reauthorization, and Job Creation Act of 2010 reinstated the

     U.S. federal R&D tax credit, retroactive to January 1, 2010. GAAP net

     income for the second quarter and first six months of fiscal 2011

     included a $65 million tax benefit related to fiscal 2010 R&D expenses.

     Non-GAAP net income for the second quarter and first six months of

     fiscal 2011 excluded the $65 million tax benefit related to fiscal 2010

     R&D expenses.

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)



                                                    January 29,    July 31,

                                                        2011         2010

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

ASSETS

Current assets:

  Cash and cash equivalents                         $     4,924  $     4,581

  Investments                                            35,305       35,280

  Accounts receivable, net of allowance for

   doubtful accounts of $205 at January 29, 2011

   and $235 at July 31, 2010                              4,620        4,929

  Inventories                                             1,602        1,327

  Deferred tax assets                                     2,054        2,126

  Other current assets                                    3,561        3,178

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



  Total current assets                                   52,066       51,421

Property and equipment, net                               4,031        3,941

Goodwill                                                 16,746       16,674

Purchased intangible assets, net                          2,799        3,274

Other assets                                              6,339        5,820

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



TOTAL ASSETS                                        $    81,981  $    81,130

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



LIABILITIES AND EQUITY

Current liabilities:

  Short-term debt                                   $     3,089  $     3,096

  Accounts payable                                          796          895

  Income taxes payable                                      163           90

  Accrued compensation                                    2,607        3,129

  Deferred revenue                                        7,878        7,664

  Other current liabilities                               3,972        4,359

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



  Total current liabilities                              18,505       19,233

Long-term debt                                           12,152       12,188

Income taxes payable                                        968        1,353

Deferred revenue                                          3,929        3,419

Other long-term liabilities                                 741          652

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



Total liabilities                                        36,295       36,845

Total equity                                             45,686       44,285

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



TOTAL LIABILITIES AND EQUITY                        $    81,981  $    81,130

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



                    CONSOLIDATED STATEMENTS OF CASH FLOWS

                                (In millions)

                                 (Unaudited)



                                                       Six Months Ended

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

                                                   January 29,  January 23,

                                                       2011         2010

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

Cash flows from operating activities:

  Net income                                       $     3,451  $     3,640

  Adjustments to reconcile net income to net cash

   provided by operating activities:

    Depreciation, amortization, and other noncash

     items                                               1,240          942

    Share-based compensation expense                       837          692

    Provision for doubtful accounts                         --           36

    Deferred income taxes                                   64         (117)

    Excess tax benefits from share-based

     compensation                                          (45)         (49)

    Net gains on investments                              (154)         (84)

    Change in operating assets and liabilities,

     net of effects of acquisitions:

      Accounts receivable                                  343         (994)

      Inventories                                         (270)         (80)

      Lease receivables, net                              (247)        (137)

      Accounts payable                                    (105)          58

      Income taxes payable                                (317)         (68)

      Accrued compensation                                (568)        (346)

      Deferred revenue                                     686          190

      Other assets                                        (393)        (202)

      Other liabilities                                   (246)         493

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



        Net cash provided by operating activities        4,276        3,974

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



Cash flows from investing activities:

  Purchases of investments                             (17,632)     (23,020)

  Proceeds from sales of investments                     9,394        6,282

  Proceeds from maturities of investments                8,357       11,278

  Acquisition of property and equipment                   (652)        (408)

  Acquisition of businesses, net of cash and cash

   equivalents acquired                                    (94)      (2,308)

  Change in investments in privately held

   companies                                               (50)         (69)

  Other                                                     28           60

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



        Net cash used in investing activities             (649)      (8,185)

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



Cash flows from financing activities:

  Issuance of common stock                               1,158        1,436

  Repurchase of common stock                            (4,550)      (3,244)

  Issuance of debt                                          --        4,944

  Short-term borrowings/(repayments), net                   23           --

  Settlements of interest rate derivatives related

   to long-term debt                                        --           23

  Excess tax benefits from share-based

   compensation                                             45           49

  Other                                                     40           (5)

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



        Net cash (used in) provided by financing

         activities                                     (3,284)       3,203

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



Net increase (decrease) in cash and cash

 equivalents                                               343       (1,008)

Cash and cash equivalents, beginning of period           4,581        5,718

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



Cash and cash equivalents, end of period           $     4,924  $     4,710

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



                      ADDITIONAL FINANCIAL INFORMATION

                                (In millions)

                                 (Unaudited)



                                                   January 29,    July 31,

                                                       2011         2010

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

CASH AND CASH EQUIVALENTS AND INVESTMENTS

Cash and cash equivalents                          $     4,924  $     4,581

Fixed income securities                                 33,784       34,029

Publicly traded equity securities                        1,521        1,251

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



Total                                              $    40,229  $    39,861

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



INVENTORIES

Raw materials                                      $       326  $       217

Work in process                                             29           50

Finished goods:

  Distributor inventory and deferred cost of sales         602          587

  Manufactured finished goods                              403          260

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



Total finished goods                                     1,005          847

Service-related spares                                     178          161

Demonstration systems                                       64           52

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



Total                                              $     1,602  $     1,327

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



PROPERTY AND EQUIPMENT, NET

Land, buildings, and building & leasehold

 improvements                                      $     4,555  $     4,470

Computer equipment and related software                  1,434        1,405

Production, engineering, and other equipment             5,016        4,702

Operating lease assets                                     261          255

Furniture and fixtures                                     481          476

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



                                                        11,747       11,308

Less accumulated depreciation and amortization          (7,716)      (7,367)

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



Total                                              $     4,031  $     3,941

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



OTHER ASSETS

Deferred tax assets                                $     2,060  $     2,079

Investments in privately held companies                    824          756

Lease receivables, net (1)                               1,343        1,176

Financed service contracts and other, net (2)            1,120          763

Loan receivables, net (3)                                  655          675

Other                                                      337          371

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



Total                                              $     6,339  $     5,820

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



DEFERRED REVENUE

Service                                            $     8,048  $     7,428

Product:

  Unrecognized revenue on product shipments and

   other deferred revenue                                2,877        2,788

  Cash receipts related to unrecognized revenue

   from two-tier distributors                              882          867

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



Total product deferred revenue                           3,759        3,655

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



Total                                              $    11,807  $    11,083

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



Reported as:

Current                                            $     7,878  $     7,664

Noncurrent                                               3,929        3,419

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



Total                                              $    11,807  $    11,083

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



Note:


(1)  The current portion of lease receivables, net, which was $937 million

     and $813 million as of January 29, 2011 and July 31, 2010,

     respectively, is recorded in other current assets.

(2)  The current portion of financed service contracts and other, net, which

     was $1,138 million and $989 million as of January 29, 2011 and July 31,

     2010, respectively, is recorded in other current assets.

(3)  The current portion of loan receivables, net, which was $555 million

     and $501 million as of January 29, 2011 and July 31, 2010,

     respectively, is recorded in other current assets.





                 SUMMARY OF SHARE-BASED COMPENSATION EXPENSE

                                (In millions)



The following table summarizes share-based compensation expense (in

 millions):



                                Three Months Ended       Six Months Ended

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

                             January 29, January 23, January 29, January 23,

                                 2011        2010        2011        2010

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

Cost of sales--product       $        16 $        15 $        31 $        27

Cost of sales--service                48          41          91          74

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



Share-based compensation

 expense in cost of sales             64          56         122         101

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



Research and development             132         110         253         207

Sales and marketing                  167         145         331         273

General and administrative            67          60         131         111

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



Share-based compensation

 expense in operating

 expenses                            366         315         715         591

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



Total share-based

 compensation expense        $       430 $       371 $       837 $       692

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



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 $119 million and $228 million for the three and six months ended January 29, 2011, respectively, and $100 million and $185 million for the three and six months ended January 23, 2010, respectively.






                     RECONCILIATION OF GAAP TO NON-GAAP

                    COST OF SALES USED IN INVENTORY TURNS

                                (In millions)



                                                Three Months Ended

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

                                      January 29,  October 30,  January 23,

                                          2011         2010         2010

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

GAAP cost of sales                    $     4,146  $     3,995  $     3,483

  Share-based compensation expense            (64)         (58)         (56)

  Amortization of acquisition-related

   intangible assets                         (164)        (101)         (54)

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



Non-GAAP cost of sales                $     3,918  $     3,836  $     3,373

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



Image Available: http://www2.marketwire.com/mw/frame_mw?attachid=1507661

Press Contact:

Robyn Jenkins-Blum

Cisco

+1 (408) 853-9848

Email Contact



Investor Relations Contact:

Laura Graves

Cisco

+1 (408) 526-6521

Email Contact



Source: Cisco

News Provided by Acquire Media

Close window | Back to top