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Cisco Reports Fourth Quarter and Fiscal Year 2013 Earnings

SAN JOSE, CA -- (Marketwired) -- 08/14/13 -- Cisco (NASDAQ: CSCO)

Cisco, the worldwide leader in networking that transforms how people connect, communicate and collaborate, today reported its fourth quarter and fiscal year results for the period ended July 27, 2013. Cisco reported fourth quarter revenue of $12.4 billion, net income on a generally accepted accounting principles (GAAP) basis of $2.3 billion or $0.42 per share, and non-GAAP net income of $2.8 billion or $0.52 per share.

"My confidence in our ability to be the #1 IT Company is increasing. Our fourth quarter was a record on many fronts, with record revenue, and record non-GAAP operating income, non-GAAP net income, and non-GAAP earnings per share. In every case, we exceeded the midpoint of our guidance. We also generated $4 billion in operating cash flow in the quarter, another record," stated Cisco Chairman and CEO John Chambers.

"Now, more than ever, our customers and our partners want Cisco's help navigating the inconsistent global landscape successfully. They recognize the benefit of a partner who is not only the leader in their product categories, but can bring technologies and solutions together in an architecture to lower operating costs, reduce time to results, and future proof their investments."

Q4 GAAP Results
Q4 2013 Q4 2012 Vs. Q4 2012
Revenue $ 12.4 billion $ 11.7 billion 6.2 %
Net Income $ 2.3 billion $ 1.9 billion 18.4 %
Earnings per Share $ 0.42 $ 0.36 16.7 %
Q4 Non-GAAP Results
Q4 2013 Q4 2012 Vs. Q4 2012
Net Income $ 2.8 billion $ 2.5 billion 12.7 %
Earnings per Share $ 0.52 $ 0.47 10.6 %
Fiscal Year GAAP Results
FY 2013 FY 2012 Vs. FY 2012
Revenue $ 48.6 billion $ 46.1 billion 5.5 %
Net Income $ 10.0 billion $ 8.0 billion 24.2 %
Earnings per Share $ 1.86 $ 1.49 24.8 %
Fiscal Year Non-GAAP Results
FY 2013 FY 2012 Vs. FY 2012
Net Income $ 10.9 billion $ 10.0 billion 8.5 %
Earnings per Share $ 2.02 $ 1.85 9.2 %

GAAP net income and GAAP earnings per share for the fourth quarter and fiscal year ended July 27, 2013 include the previously disclosed charge of $0.03 per share for the TiVo, Inc. ("TiVo") patent litigation settlement. This charge was excluded from non-GAAP earnings per share. A reconciliation between net income on a GAAP basis and non-GAAP net income is provided in the table below.

Cisco will discuss fourth quarter and fiscal year 2013 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.

Cash and Cash Equivalents and Investments

Dividends and Stock Repurchase Program

"Our financial strategy is working as our profits grew faster than revenue for the full fiscal year," stated Frank Calderoni, executive vice president and chief financial officer. "Our fourth quarter also delivered solid financial results as we continued to deliver profitable growth to maximize shareholder value for the long-term."

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Editor's Note:

About Cisco
Cisco (NASDAQ: CSCO) is the worldwide leader in IT that helps companies seize the opportunities of tomorrow by proving that amazing things can happen when you connect the previously unconnected. For ongoing news, please go to http://thenetwork.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 our ability to be the #1 IT company; the desire of our customers and partners for Cisco's help to successfully navigate the inconsistent global landscape; the benefits to our customers of our leadership in their product categories and our ability to bring technologies and solutions together in an architecture to lower operating costs and accomplish other business objectives; our financial strategy and our ability to continue profitable growth to maximize shareholder value for the long term; and the expectation that the Internet of Everything (IoE) will enable global private-sector businesses to generate profits) 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 priorities, including our foundational priorities, and in certain 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; our ability to achieve expected benefits of our partnerships; 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, engineering, service, marketing and manufacturing 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 Forms 10-K and 10-Q filed on September 12, 2012 and May 21, 2013, 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 Forms 10-K and 10-Q as each may be amended from time to time. Cisco's results of operations for the three months and the year ended July 27, 2013 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 effective tax rates, 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, non-GAAP effective tax rates, 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, impact to cost of sales from purchase accounting adjustments to inventory, other acquisition-related/divestiture costs, significant asset impairments and restructurings, significant litigation settlements (such as the patent litigation settlement with TiVo in the fourth quarter of fiscal 2013), the income tax effects of the foregoing, and significant tax matters. 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, such as significant gains or losses from contingencies 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 © 2013 Cisco and/or its affiliates. All rights reserved. Cisco, the Cisco logo, Catalyst, Cisco StadiumVision, and Cisco Videoscape are trademarks or registered trademarks of Cisco and/or its affiliates in the U.S. and other countries. To view a list of Cisco trademarks, go to: www.cisco.com/go/trademarks. 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 Fiscal Year Ended
July 27,
2013
July 28,
2012
July 27,
2013
July 28,
2012
REVENUE:
Product $ 9,736 $ 9,150 $ 38,029 $ 36,326
Service 2,681 2,540 10,578 9,735
Total revenue 12,417 11,690 48,607 46,061
COST OF SALES:
Product 4,154 3,729 15,541 14,505
Service 916 876 3,626 3,347
Total cost of sales 5,070 4,605 19,167 17,852
GROSS MARGIN 7,347 7,085 29,440 28,209
OPERATING EXPENSES:
Research and development 1,517 1,416 5,942 5,488
Sales and marketing 2,360 2,417 9,538 9,647
General and administrative 590 711 2,264 2,322
Amortization of purchased intangible assets 66 91 395 383
Restructuring and other charges -- 79 105 304
Total operating expenses 4,533 4,714 18,244 18,144
OPERATING INCOME 2,814 2,371 11,196 10,065
Interest income 171 167 654 650
Interest expense (143 ) (147 ) (583 ) (596 )
Other income (loss), net 29 (5 ) (40 ) 40
Interest and other income, net 57 15 31 94
INCOME BEFORE PROVISION FOR INCOME TAXES 2,871 2,386 11,227 10,159
Provision for income taxes 601 469 1,244 2,118
NET INCOME $ 2,270 $ 1,917 $ 9,983 $ 8,041
Net income per share:
Basic $ 0.42 $ 0.36 $ 1.87 $ 1.50
Diluted $ 0.42 $ 0.36 $ 1.86 $ 1.49
Shares used in per-share calculation
Basic 5,367 5,332 5,329 5,370
Diluted 5,437 5,354 5,380 5,404
Cash dividends declared per common share $ 0.17 $ 0.08 $ 0.62 $ 0.28
RECONCILIATION OF GAAP TO NON-GAAP NET INCOME
(In millions, except per-share amounts)
Three Months Ended Fiscal Year Ended
July 27,
2013
July 28,
2012
July 27,
2013
July 28,
2012
GAAP net income $ 2,270 $ 1,917 $ 9,983 $ 8,041
Adjustments to cost of sales:
Share-based compensation expense 42 54 178 209
Amortization of acquisition-related intangible assets 153 100 569 376
Impact to cost of sales from purchase accounting adjustments to inventory -- -- 40 --
TiVo patent litigation settlement (1) 172 -- 172 --
Other acquisition-related/divestiture costs 1 -- 1 --
Significant asset impairments and restructurings -- (5 ) -- (31 )
Total adjustments to GAAP cost of sales 368 149 960 554
Adjustments to operating expenses:
Share-based compensation expense 198 313 947 1,192
Amortization of acquisition-related intangible assets 66 91 395 383
Other acquisition-related/divestiture costs 59 7 129 36
Significant asset impairments and restructurings -- 281 55 506
Total adjustments to GAAP operating expenses 323 692 1,526 2,117
Total adjustments to GAAP income before provision for income taxes 691 841 2,486 2,671
Income tax effect of non-GAAP adjustments (114 ) (231 ) (620 ) (695 )
Significant tax matters (2) -- -- (983 ) --
Total adjustments to GAAP provision for income taxes (114 ) (231 ) (1,603 ) (695 )
Non-GAAP net income $ 2,847 $ 2,527 $ 10,866 $ 10,017
Diluted net income per share:
GAAP $ 0.42 $ 0.36 $ 1.86 $ 1.49
Non-GAAP $ 0.52 $ 0.47 $ 2.02 $ 1.85
(1) Pursuant to the terms of the previously disclosed settlement and patent license agreement, Cisco paid TiVo a single lump sum of $294 million. During the fourth quarter of fiscal 2013, Cisco recorded a charge of $172 million in connection with this agreement. Non-GAAP net income for the fourth quarter and fiscal year ended July 27, 2013 excluded this charge.
(2) For the fiscal year ended July 27, 2013, Cisco recorded a net tax benefit of $983 million. This net tax benefit is comprised of an Internal Revenue Service settlement of $794 million, the retroactive reinstatement of the U.S. federal R&D tax credit of $72 million and a tax benefit of $117 million related to prior fiscal years. Non-GAAP net income excluded this net tax benefit of $983 million.
RECONCILIATION OF GAAP TO NON-GAAP EFFECTIVE TAX RATE
Three Months Ended Fiscal Year Ended
July 27,
2013
July 28,
2012
July 27,
2013
July 28,
2012
GAAP effective tax rate 20.9 % 19.7 % 11.1 % 20.8 %
Tax effect of non-GAAP adjustments to net income (0.8 )% 2.0 % 9.7 % 1.1 %
Non-GAAP effective tax rate 20.1 % 21.7 % 20.8 % 21.9 %
CONDENSED CONSOLIDATED BALANCE SHEETS
(In millions)
(Unaudited)
July 27,
2013
July 28,
2012
ASSETS
Current assets:
Cash and cash equivalents $ 7,925 $ 9,799
Investments 42,685 38,917
Accounts receivable, net of allowance for doubtful accounts of $228 at July 27, 2013 and $207 at July 28, 2012 5,470 4,369
Inventories 1,476 1,663
Financing receivables, net 4,037 3,661
Deferred tax assets 2,616 2,294
Other current assets 1,312 1,230
Total current assets 65,521 61,933
Property and equipment, net 3,322 3,402
Financing receivables, net 3,911 3,585
Goodwill 21,919 16,998
Purchased intangible assets, net 3,403 1,959
Other assets 3,115 3,882
TOTAL ASSETS $ 101,191 $ 91,759
LIABILITIES AND EQUITY
Current liabilities:
Short-term debt $ 3,283 $ 31
Accounts payable 1,029 859
Income taxes payable 192 276
Accrued compensation 3,378 2,928
Deferred revenue 9,262 8,852
Other current liabilities 5,048 4,785
Total current liabilities 22,192 17,731
Long-term debt 12,928 16,297
Income taxes payable 1,748 1,844
Deferred revenue 4,161 4,028
Other long-term liabilities 1,034 558
Total liabilities 42,063 40,458
Total equity 59,128 51,301
TOTAL LIABILITIES AND EQUITY $ 101,191 $ 91,759
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In millions)
(Unaudited)
Fiscal Year Ended
July 27,
2013
July 28,
2012
Cash flows from operating activities:
Net income $ 9,983 $ 8,041
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation, amortization, and other 2,351 2,602
Share-based compensation expense 1,120 1,401
Provision for receivables 44 50
Deferred income taxes (37 ) (314 )
Excess tax benefits from share-based compensation (92 ) (60 )
Net losses (gains) on investments 9 (31 )
Change in operating assets and liabilities, net of effects of acquisitions and divestitures:
Accounts receivable (1,001 ) 272
Inventories 218 (287 )
Financing receivables (723 ) (846 )
Other assets (27 ) (674 )
Accounts payable 164 (7 )
Income taxes, net (239 ) 418
Accrued compensation 330 (101 )
Deferred revenue 598 727
Other liabilities 196 300
Net cash provided by operating activities 12,894 11,491
Cash flows from investing activities:
Purchases of investments (36,608 ) (41,810 )
Proceeds from sales of investments 14,799 27,365
Proceeds from maturities of investments 17,909 12,103
Acquisition of property and equipment (1,160 ) (1,126 )
Acquisition of businesses, net of cash and cash equivalents acquired (6,766 ) (375 )
Purchases of investments in privately held companies (225 ) (380 )
Return of investments in privately held companies 209 242
Other 74 166
Net cash used in investing activities (11,768 ) (3,815 )
Cash flows from financing activities:
Issuances of common stock 3,338 1,372
Repurchases of common stock - repurchase program (2,773 ) (4,560 )
Shares repurchased for tax withholdings on vesting of restricted stock units (330 ) (200 )
Short-term borrowings, maturities less than 90 days, net (20 ) (557 )
Issuances of debt, maturities greater than 90 days 24 --
Repayments of debt, maturities greater than 90 days (16 ) --
Excess tax benefits from share-based compensation 92 60
Dividends paid (3,310 ) (1,501 )
Other (5 ) (153 )
Net cash used in financing activities (3,000 ) (5,539 )
Net (decrease) increase in cash and cash equivalents (1,874 ) 2,137
Cash and cash equivalents, beginning of fiscal year 9,799 7,662
Cash and cash equivalents, end of fiscal year $ 7,925 $ 9,799
Cash paid for:
Interest $ 682 $ 681
Income taxes, net $ 1,519 $ 2,014
ADDITIONAL FINANCIAL INFORMATION
(In millions)
(Unaudited)
July 27,
2013
July 28,
2012
Cash and Cash Equivalents and Investments:
Cash and cash equivalents $ 7,925 $ 9,799
Fixed income securities 39,888 37,297
Publicly traded equity securities 2,797 1,620
Total $ 50,610 $ 48,716
Inventories:
Raw materials $ 105 $ 127
Work in process 24 35
Finished goods:
Distributor inventory and deferred cost of sales 572 630
Manufactured finished goods 480 597
Total finished goods 1,052 1,227
Service-related spares 256 213
Demonstration systems 39 61
Total $ 1,476 $ 1,663
Property and equipment, net:
Land, buildings, and building and leasehold improvements $ 4,426 $ 4,363
Computer equipment and related software 1,416 1,469
Production, engineering, and other equipment 5,721 5,364
Operating lease assets 326 300
Furniture and fixtures 497 487
12,386 11,983
Less accumulated depreciation and amortization (9,064 ) (8,581 )
Total $ 3,322 $ 3,402
Other assets:
Deferred tax assets $ 1,539 $ 2,270
Investments in privately held companies 833 858
Other 743 754
Total $ 3,115 $ 3,882
Deferred revenue:
Service $ 9,403 $ 9,173
Product:
Unrecognized revenue on product shipments and other deferred revenue 3,340 2,975
Cash receipts related to unrecognized revenue from two-tier distributors 680 732
Total product deferred revenue 4,020 3,707
Total $ 13,423 $ 12,880
Reported as:
Current $ 9,262 $ 8,852
Noncurrent 4,161 4,028
Total $ 13,423 $ 12,880
SUMMARY OF SHARE-BASED COMPENSATION EXPENSE
(In millions)
Three Months Ended Fiscal Year Ended
July 27,
2013
July 28,
2012
July 27,
2013
July 28,
2012
Cost of sales - product $ 9 $ 14 $ 40 $ 53
Cost of sales - service 33 40 138 156
Share-based compensation expense in cost of sales 42 54 178 209
Research and development 58 104 286 401
Sales and marketing 101 159 484 588
General and administrative 39 50 175 203
Restructuring and other charges -- 2 (3 ) --
Share-based compensation expense in operating expenses 198 315 942 1,192
Total share-based compensation expense $ 240 $ 369 $ 1,120 $ 1,401
Income tax benefit for share-based compensation $ 53 $ 64 $ 285 $ 335
ACCOUNTS RECEIVABLE AND DSO
(In millions, except DSO)
July 27,
2013
April 27,
2013
July 28,
2012
Accounts receivable, net $ 5,470 $ 4,942 $ 4,369
Days sales outstanding in accounts receivable (DSO) 40 37 34
INVENTORY TURNS AND RECONCILIATION OF GAAP TO NON-GAAP
COST OF SALES USED IN INVENTORY TURNS
(In millions, except annualized inventory turns)
Three Months Ended
July 27,
2013
April 27,
2013
July 28,
2012
Annualized inventory turns - GAAP 13.8 12.4 11.7
Cost of sales adjustments (1.0 ) (0.5 ) (0.4 )
Annualized inventory turns - non-GAAP 12.8 11.9 11.3
GAAP cost of sales $ 5,070 $ 4,705 $ 4,605
Cost of sales adjustments:
Share-based compensation expense (42 ) (44 ) (54 )
Amortization of acquisition-related intangible assets (153 ) (146 ) (100 )
TiVo patent litigation settlement (172 ) -- --
Other acquisition-related/divestiture costs (1 ) -- --
Significant asset impairments and restructurings -- -- 5
Non-GAAP cost of sales $ 4,702 $ 4,515 $ 4,456
DIVIDENDS PAID AND REPURCHASE OF COMMON STOCK
(In millions, except dividends paid per common share)
Three Months Ended Fiscal Year Ended
July 27,
2013
April 27,
2013
January 26,
2013
October 27,
2012
July 27,
2013
Dividends paid $ 918 $ 905 $ 743 $ 744 $ 3,310
Repurchase of common stock under the stock repurchase program 1,160 860 500 253 2,773
Total $ 2,078 $ 1,765 $ 1,243 $ 997 $ 6,083
Dividends paid per common share $ 0.17 $ 0.17 $ 0.14 $ 0.14 $ 0.62

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