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Exhibit 99.1

 

LOGO

 

Press Contact:     Investor Relations Contact:
Andrea Duffy     Marilyn Mora
Cisco     Cisco
1 (646) 295-5241     1 (408) 527-7452
anduffy@cisco.com     marilmor@cisco.com

CISCO REPORTS FOURTH QUARTER AND FISCAL YEAR 2017 EARNINGS

 

    Q4 Revenue: $12.1 billion

 

    Decrease of (4)% year over year

 

    Recurring revenue was 31% of total revenue, up 4 pts year over year

 

    Q4 Earnings per Share: $0.48 GAAP; $0.61 non-GAAP

 

    FY 2017 Earnings per Share: $1.90 GAAP; $2.39 non-GAAP

 

    Q1 FY 2018 Outlook:

 

    Revenue: (3)% to (1)% decline year over year

 

    Earnings per Share: GAAP: $0.48 to $0.53; Non-GAAP: $0.59 to $0.61

SAN JOSE, Calif. — August 16, 2017 — Cisco today reported fourth quarter and fiscal year results for the period ended July 29, 2017. Cisco reported fourth quarter revenue of $12.1 billion, net income on a generally accepted accounting principles (GAAP) basis of $2.4 billion or $0.48 per share, and non-GAAP net income of $3.1 billion or $0.61 per share.

“We had another strong quarter and a transformative year. We made tremendous progress transitioning our business to more software and recurring revenue and delivered on our commitment to accelerate innovation in our core and across the portfolio,” said Chuck Robbins, CEO, Cisco. “The network has never been more critical to business success and we are building the network of the future.”

Q4 GAAP Results

 

     Q4 FY 2017      Q4 FY 2016      Vs. Q4 FY 2016  

Revenue

   $   12.1 billion      $   12.6 billion        (4 )% 

Net Income

   $ 2.4 billion      $ 2.8 billion        (14 )% 

Diluted Earnings per Share (EPS)

   $ 0.48      $ 0.56        (14 )% 

Q4 Non-GAAP Results

 

     Q4 FY 2017      Q4 FY 2016      Vs. Q4 FY 2016  

Net Income

   $   3.1 billion      $   3.2 billion        (3 )% 

EPS

   $ 0.61      $ 0.63        (3 )% 

 

1


Fiscal Year GAAP Results

 

     FY 2017      FY 2016      Vs. FY 2016  

Revenue (excluding SP Video CPE Business for all periods)

   $   48.0 billion      $   48.7 billion        (2 )% 

Revenue (including SP Video CPE Business for all periods)

   $ 48.0 billion      $ 49.2 billion        (3 )% 

Net Income

   $ 9.6 billion      $ 10.7 billion        (11 )% 

EPS

   $ 1.90      $ 2.11        (10 )% 

Fiscal Year Non-GAAP Results

 

     FY 2017      FY 2016      Vs. FY 2016  

Net Income (excluding SP Video CPE Business for all periods)

   $   12.1 billion      $   12.0 billion       

EPS (excluding SP Video CPE Business for all periods)

   $ 2.39      $ 2.36        1

Reconciliations between net income, EPS, and other measures on a GAAP and non-GAAP basis are provided in the tables located in the section entitled “Reconciliations of GAAP to non-GAAP Measures.”

“We delivered another solid quarter and fiscal year. We executed well, drove solid profitability, strong cash flow, and we continued to deliver on our strategic growth priorities,” said Kelly Kramer, CFO, Cisco. “We will continue to focus on making the right bets to offer the most innovative technologies to our customers in the way they want to consume it and deliver value to our shareholders.”

 

2


Financial Summary

All comparative percentages are on a year-over-year basis unless otherwise noted.

Q4 FY 2017 Highlights

Revenue — Total revenue was $12.1 billion, down 4%, with product revenue down 5% and service revenue up 1%. 31% of total revenue was from recurring offers, up 4 percentage points from the fourth quarter of fiscal 2016. Revenue by geographic segment was: Americas down 6%, EMEA down 6%, and APJC up 6%. Product revenue performance was led by Wireless and Security which increased 5% and 3%, respectively. NGN Routing and Switching revenue each decreased 9%. Service Provider Video, Data Center, and Collaboration revenue decreased 10%, 4%, and 3%, respectively.

Gross Margin — On a GAAP basis, total gross margin and product gross margin were 62.2% and 60.3%, respectively. The decrease in the product gross margin compared with 62.2% in the fourth quarter of fiscal 2016 was primarily due to pricing, partially offset by productivity improvements and to a lesser extent product mix.

Non-GAAP total gross margin and product gross margin were 63.7% and 61.9%, respectively. The decrease in non-GAAP product gross margin compared with 63.9% in the fourth quarter of fiscal 2016 was also primarily due to pricing, partially offset by continued productivity improvements and to a lesser extent product mix.

GAAP service gross margin was 67.8% and non-GAAP service gross margin was 68.8%.

Total gross margins by geographic segment were: 64.0% for the Americas, 63.8% for EMEA and 62.1% for APJC.

Operating Expenses — On a GAAP basis, operating expenses were $4.5 billion, down 3%. Non-GAAP operating expenses were $3.9 billion, down 7%, and were 32.2% of revenue.

Operating Income — GAAP operating income was $3.0 billion, down 8%, with GAAP operating margin of 25.0%. Non-GAAP operating income was $3.8 billion, down 4%, with non-GAAP operating margin at 31.5%.

Provision for Income Taxes — The GAAP tax provision rate was 23.8%. The non-GAAP tax provision rate was 22.3%.

Net Income and EPS — On a GAAP basis, net income was $2.4 billion and EPS was $0.48. On a non-GAAP basis, net income was $3.1 billion, a decrease of 3%, and EPS was $0.61, a decrease of 3%.

Cash Flow from Operating Activities — was $4.0 billion for the fourth quarter of fiscal 2017, an increase of 5% compared with $3.8 billion for the fourth quarter of fiscal 2016.

FY 2017 Highlights

The revenue and non-GAAP information in this section is presented excluding the SP Video CPE Business for fiscal 2016 as it was divested during the second quarter of fiscal 2016 on November 20, 2015.

Revenue — Total revenue was $48.0 billion, a decrease of 2%.

Net Income and EPS — On a GAAP basis, net income was $9.6 billion and EPS was $1.90. On a non-GAAP basis, net income was $12.1 billion, flat compared to fiscal 2016, and EPS was $2.39, an increase of 1%.

Cash Flow from Operating Activities — was $13.9 billion for fiscal 2017, compared with $13.6 billion for fiscal 2016, an increase of 2%.

 

3


Balance Sheet and Other Financial Highlights

Cash and Cash Equivalents and Investments — were $70.5 billion at the end of the fourth quarter of fiscal 2017, compared with $68.0 billion at the end of the third quarter of fiscal 2017, and compared with $65.8 billion at the end of fiscal 2016. The total cash and cash equivalents and investments available in the United States at the end of the fourth quarter of fiscal 2017 were $3.0 billion.

Deferred Revenue — was $18.5 billion, up 12% in total, with deferred product revenue up 23%, driven largely by subscription-based and software offerings, and deferred service revenue was up 6%. The portion of product deferred revenue related to recurring software and subscription offers increased 50%.

Product Backlog was approximately $4.8 billion at the end of fiscal 2017, an increase of 3% compared with the balance at the end of fiscal 2016.

Capital Allocation — In the fourth quarter of fiscal 2017, Cisco declared and paid a cash dividend of $0.29 per common share, or $1.4 billion. For the full fiscal year, Cisco declared and paid cash dividends of $1.10 per common share, or $5.5 billion.

For the fourth quarter of fiscal 2017, Cisco repurchased approximately 38 million shares of common stock under its stock repurchase program at an average price of $31.61 per share for an aggregate purchase price of $1.2 billion. For the full fiscal year, Cisco repurchased approximately 118 million shares of common stock under its stock repurchase program at an average price of $31.38 per share for an aggregate purchase price of $3.7 billion. As of July 29, 2017, Cisco had repurchased and retired 4.7 billion shares of Cisco common stock at an average price of $21.30 per share for an aggregate purchase price of approximately $100.3 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.

For the full fiscal year, Cisco returned $9.2 billion to shareholders through share buybacks and dividends.

Acquisitions — In the fourth quarter of fiscal 2017, we closed the acquisition of MindMeld, Inc. and the acquisition of the advanced analytics team and associated intellectual property developed by Saggezza. We also announced our intent to acquire Viptela, Inc., a privately held company that provides software-defined wide area networking products, and Observable Networks, Inc., a privately held company that offers cloud-native network forensics security applications delivered as a service. Both acquisitions closed in the first quarter of fiscal 2018.

 

4


Business Outlook for Q1 FY 2018

Cisco expects to achieve the following results for the first quarter of fiscal 2018:

 

Q1 FY 2018

    

Revenue

   (3)% to (1)% decline Y/Y

Non-GAAP gross margin rate

   63% - 64%

Non-GAAP operating margin rate

   29.5% - 30.5%

Non-GAAP tax provision rate

   22%

Non-GAAP EPS

   $0.59 - $0.61  

Cisco estimates that GAAP EPS will be $0.48 to $0.53 which is lower than non-GAAP EPS by $0.08 to $0.11 per share in the first quarter of fiscal 2018.

A reconciliation between the Business Outlook for Q1 FY 2018 on a GAAP and non-GAAP basis is provided in the table entitled “GAAP to non-GAAP Business Outlook for Q1 FY 2018” located in the section entitled “Reconciliations of GAAP to non-GAAP Measures.”

Editor’s Notes:

 

    Q4 fiscal year 2017 conference call to discuss Cisco’s results along with its business outlook will be held on Wednesday, August 16, 2017 at 1:30 p.m. Pacific Time. Conference call number is 1-888-848-6507 (United States) or 1-212-519-0847 (international).

 

    Conference call replay will be available from 4:00 p.m. Pacific Time, August 16, 2017 to 4:00 p.m. Pacific Time, August 23, 2017 at 1-800-391-9851 (United States) or 1-203-369-3268 (international). The replay will also be available via webcast 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, August 16, 2017. 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 the GAAP to non-GAAP reconciliation information, will be available on the Cisco Investor Relations website at http://investor.cisco.com.

 

5


CISCO SYSTEMS, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(In millions, except per-share amounts)

(Unaudited)

 

     Three Months Ended     Fiscal Year Ended  
     July 29,
2017
    July 30,
2016
    July 29,
2017
    July 30,
2016
 

REVENUE:

        

Product

   $ 9,027     $ 9,552     $ 35,705     $ 37,254  

Service

     3,106       3,086       12,300       11,993  
  

 

 

   

 

 

   

 

 

   

 

 

 

Total revenue

     12,133       12,638       48,005       49,247  
  

 

 

   

 

 

   

 

 

   

 

 

 

COST OF SALES:

        

Product

     3,586       3,614       13,699       14,161  

Service

     1,001       1,049       4,082       4,126  
  

 

 

   

 

 

   

 

 

   

 

 

 

Total cost of sales

     4,587       4,663       17,781       18,287  
  

 

 

   

 

 

   

 

 

   

 

 

 

GROSS MARGIN

     7,546       7,975       30,224       30,960  

OPERATING EXPENSES:

        

Research and development

     1,499       1,601       6,059       6,296  

Sales and marketing

     2,318       2,443       9,184       9,619  

General and administrative

     495       533       1,993       1,814  

Amortization of purchased intangible assets

     58       82       259       303  

Restructuring and other charges

     142       13       756       268  
  

 

 

   

 

 

   

 

 

   

 

 

 

Total operating expenses

     4,512       4,672       18,251       18,300  
  

 

 

   

 

 

   

 

 

   

 

 

 

OPERATING INCOME

     3,034       3,303       11,973       12,660  

Interest income

     360       273       1,338       1,005  

Interest expense

     (222     (180     (861     (676

Other income (loss), net

     8       (2     (163     (69
  

 

 

   

 

 

   

 

 

   

 

 

 

Interest and other income (loss), net

     146       91       314       260  
  

 

 

   

 

 

   

 

 

   

 

 

 

INCOME BEFORE PROVISION FOR INCOME TAXES

     3,180       3,394       12,287       12,920  

Provision for income taxes

     756       581       2,678       2,181  
  

 

 

   

 

 

   

 

 

   

 

 

 

NET INCOME

   $ 2,424     $ 2,813     $ 9,609     $ 10,739  
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income per share:

        

Basic

   $ 0.49     $ 0.56     $ 1.92     $ 2.13  
  

 

 

   

 

 

   

 

 

   

 

 

 

Diluted

   $ 0.48     $ 0.56     $ 1.90     $ 2.11  
  

 

 

   

 

 

   

 

 

   

 

 

 

Shares used in per-share calculation:

        

Basic

     4,993       5,031       5,010       5,053  
  

 

 

   

 

 

   

 

 

   

 

 

 

Diluted

     5,027       5,067       5,049       5,088  
  

 

 

   

 

 

   

 

 

   

 

 

 

Cash dividends declared per common share

   $ 0.29     $ 0.26     $ 1.10     $ 0.94  
  

 

 

   

 

 

   

 

 

   

 

 

 

 

6


CISCO SYSTEMS, INC.

REVENUE BY SEGMENT

(In millions, except percentages)

 

     July 29, 2017  
     Three Months Ended      Fiscal Year Ended  
                          Excluding SP
Video CPE
Business
     Including SP
Video CPE
Business
 
     Amount      Y/Y%      Amount      Y/Y%      Y/Y%  

Revenue:

              

Americas

   $ 7,202        (6)%      $ 28,351        (2)%        (4)%  

EMEA

     2,927        (6)%        12,004        (2)%        (2)%  

APJC

     2,004        6%        7,650        2%        1%  
  

 

 

       

 

 

       

Total

   $ 12,133        (4)%      $ 48,005        (2)%        (3)%  
  

 

 

       

 

 

       

During the second quarter of fiscal 2016 on November 20, 2015, Cisco completed its divestiture of the SP Video CPE Business. SP Video CPE Business revenue for fiscal 2016 was $504 million.

CISCO SYSTEMS, INC.

GROSS MARGIN PERCENTAGE BY SEGMENT

(In percentages)

 

     July 29, 2017  
     Three Months Ended     Fiscal Year Ended  

Gross Margin Percentage:

    

Americas

     64.0%       64.5%  

EMEA

     63.8%       65.4%  

APJC

     62.1%       62.0%  

 

7


CISCO SYSTEMS, INC.

REVENUE FOR GROUPS OF SIMILAR PRODUCTS AND SERVICES

(In millions, except percentages)

 

     July 29, 2017  
     Three Months Ended      Fiscal Year Ended  
     Amount      Y/Y%      Amount      Y/Y %(1)  

Revenue:

           

Switching

   $ 3,439        (9)%      $ 13,949        (5)%  

NGN Routing

     1,893        (9)%        7,831        (4)%  

Collaboration

     1,113        (3)%        4,278        (2)%  

Data Center

     837        (4)%        3,228        (4)%  

Wireless

     799        5%        2,766        5%  

Security

     558        3%        2,153        9%  

Service Provider Video

     227        (10)%        946        (23)%  

Other

     161        31%        554        53%  
  

 

 

       

 

 

    

Product

     9,027        (5)%        35,705        (3)%  

Service

     3,106        1%        12,300        3%  
  

 

 

       

 

 

    

Total

   $ 12,133        (4)%      $ 48,005        (2)%  
  

 

 

       

 

 

    

(1) During the second quarter of fiscal 2016 on November 20, 2015, Cisco completed its divestiture of the SP Video CPE Business. SP Video CPE Business revenue for fiscal 2016 was $504 million.

 

8


CISCO SYSTEMS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(In millions)

(Unaudited)

 

     July 29,
2017
     July 30,
2016
 

ASSETS

     

Current assets:

     

Cash and cash equivalents

   $ 11,708      $ 7,631  

Investments

     58,784        58,125  

Accounts receivable, net of allowance for doubtful accounts of $211 at July 29, 2017 and $249 at July 30, 2016

     5,146        5,847  

Inventories

     1,616        1,217  

Financing receivables, net

     4,856        4,272  

Other current assets

     1,593        1,627  
  

 

 

    

 

 

 

Total current assets

     83,703        78,719  

Property and equipment, net

     3,322        3,506  

Financing receivables, net

     4,738        4,158  

Goodwill

     29,766        26,625  

Purchased intangible assets, net

     2,539        2,501  

Deferred tax assets

     4,239        4,299  

Other assets

     1,511        1,844  
  

 

 

    

 

 

 

TOTAL ASSETS

   $ 129,818      $ 121,652  
  

 

 

    

 

 

 

LIABILITIES AND EQUITY

     

Current liabilities:

     

Short-term debt

   $ 7,992      $ 4,160  

Accounts payable

     1,385        1,056  

Income taxes payable

     98        517  

Accrued compensation

     2,895        2,951  

Deferred revenue

     10,821        10,155  

Other current liabilities

     4,392        6,072  
  

 

 

    

 

 

 

Total current liabilities

     27,583        24,911  

Long-term debt

     25,725        24,483  

Income taxes payable

     1,250        925  

Deferred revenue

     7,673        6,317  

Other long-term liabilities

     1,450        1,431  
  

 

 

    

 

 

 

Total liabilities

     63,681        58,067  

Total equity

     66,137        63,585  
  

 

 

    

 

 

 

TOTAL LIABILITIES AND EQUITY

   $ 129,818      $ 121,652  
  

 

 

    

 

 

 

 

9


CISCO SYSTEMS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In millions)

(Unaudited)

 

     Fiscal Year Ended  
     July 29,
2017
    July 30,
2016
 

Cash flows from operating activities:

    

Net income

   $ 9,609     $ 10,739  

Adjustments to reconcile net income to net cash provided by operating activities:

    

Depreciation, amortization, and other

     2,286       2,150  

Share-based compensation expense

     1,526       1,458  

Provision for receivables

     (8     (9

Deferred income taxes

     (124     (194

Excess tax benefits from share-based compensation

     (153     (129

(Gains) losses on divestitures, investments and other, net

     154       (317

Change in operating assets and liabilities, net of effects of acquisitions and divestitures:

    

Accounts receivable

     756       (404

Inventories

     (394     315  

Financing receivables

     (1,038     (150

Other assets

     15       (37

Accounts payable

     311       (65

Income taxes, net

     60       (300

Accrued compensation

     (110     (101

Deferred revenue

     1,683       1,219  

Other liabilities

     (697     (605
  

 

 

   

 

 

 

Net cash provided by operating activities

     13,876       13,570  
  

 

 

   

 

 

 

Cash flows from investing activities:

    

Purchases of investments

     (42,702     (46,760

Proceeds from sales of investments

     28,827       28,778  

Proceeds from maturities of investments

     12,143       14,115  

Acquisition of businesses, net of cash and cash equivalents acquired

     (3,324     (3,161

Proceeds from business divestiture

     —         372  

Purchases of investments in privately held companies

     (222     (256

Return of investments in privately held companies

     203       91  

Acquisition of property and equipment

     (964     (1,146

Proceeds from sales of property and equipment

     7       41  

Other

     39       (191
  

 

 

   

 

 

 

Net cash used in investing activities

     (5,993     (8,117
  

 

 

   

 

 

 

Cash flows from financing activities:

    

Issuances of common stock

     708       1,127  

Repurchases of common stock—repurchase program

     (3,685     (3,909

Shares repurchased for tax withholdings on vesting of restricted stock units

     (619     (557

Short-term borrowings, original maturities less than 90 days, net

     2,497       (4

Issuances of debt

     6,980       6,978  

Repayments of debt

     (4,151     (3,863

Excess tax benefits from share-based compensation

     153       129  

Dividends paid

     (5,511     (4,750

Other

     (178     150  
  

 

 

   

 

 

 

Net cash used in financing activities

     (3,806     (4,699
  

 

 

   

 

 

 

Net increase in cash and cash equivalents

     4,077       754  

Cash and cash equivalents, beginning of fiscal year

     7,631       6,877  
  

 

 

   

 

 

 

Cash and cash equivalents, end of fiscal year

   $ 11,708     $ 7,631  
  

 

 

   

 

 

 

Supplemental cash flow information:

    

Cash paid for interest

   $ 897     $ 859  

Cash paid for income taxes, net

   $ 2,742     $ 2,675  

 

10


CISCO SYSTEMS, INC.

DEFERRED REVENUE

(In millions)

 

     July 29,
2017
     April 29,
2017
     July 30,
2016
 

Deferred revenue:

        

Service

   $ 11,302      $ 10,532      $ 10,621  

Product:

        

Deferred revenue related to recurring software and subscription businesses

     4,971        4,352        3,308  

Other product deferred revenue

     2,221        2,438        2,543  
  

 

 

    

 

 

    

 

 

 

Total product deferred revenue

     7,192        6,790        5,851  
  

 

 

    

 

 

    

 

 

 

Total

   $ 18,494      $ 17,322      $ 16,472  
  

 

 

    

 

 

    

 

 

 

Reported as:

        

Current

   $ 10,821      $ 10,344      $ 10,155  

Noncurrent

     7,673        6,978        6,317  
  

 

 

    

 

 

    

 

 

 

Total

   $ 18,494      $ 17,322      $ 16,472  
  

 

 

    

 

 

    

 

 

 

CISCO SYSTEMS, INC.

DIVIDENDS PAID AND REPURCHASES OF COMMON STOCK

(In millions, except per-share amounts)

 

     DIVIDENDS      STOCK REPURCHASE PROGRAM      TOTAL  

Quarter Ended

   Per Share      Amount      Shares      Weighted-
Average Price
per Share
     Amount      Amount  

Fiscal 2017

                 

July 29, 2017

   $ 0.29      $ 1,448        38      $ 31.61      $ 1,201      $ 2,649  

April 29, 2017

     0.29        1,451        15        33.71        503        1,954  

January 28, 2017

     0.26        1,304        33        30.33        1,001        2,305  

October 29, 2016

     0.26        1,308        32        31.12        1,001        2,309  
  

 

 

    

 

 

    

 

 

       

 

 

    

 

 

 
   $ 1.10      $ 5,511        118      $ 31.38      $ 3,706      $ 9,217  
  

 

 

    

 

 

    

 

 

       

 

 

    

 

 

 

Fiscal 2016

                 

July 30, 2016

   $ 0.26      $ 1,309        28      $ 28.70      $ 800      $ 2,109  

April 30, 2016

     0.26        1,308        27        24.08        649        1,957  

January 23, 2016

     0.21        1,065        48        26.12        1,262        2,327  

October 24, 2015

     0.21        1,068        45        26.83        1,207        2,275  
  

 

 

    

 

 

    

 

 

       

 

 

    

 

 

 

Total

   $ 0.94      $ 4,750        148      $ 26.45      $ 3,918      $ 8,668  
  

 

 

    

 

 

    

 

 

       

 

 

    

 

 

 

 

11


CISCO SYSTEMS, INC.

RECONCILIATIONS OF GAAP TO NON-GAAP MEASURES

GAAP TO NON-GAAP NET INCOME

(In millions, except per-share amounts)

 

     Three Months Ended     Fiscal Year Ended  
     July 29,
2017
    July 30,
2016
    July 29,
2017
    July 30,
2016
 

GAAP net income

   $ 2,424     $ 2,813     $ 9,609     $ 10,739  

Adjustments to cost of sales:

        

Share-based compensation expense

     56       52       219       212  

Amortization of acquisition-related intangible assets

     140       141       483       507  

Supplier component remediation charge (adjustment), net

     (18     —         (47     (74

Acquisition-related/divestiture costs

     —         —         1       1  

Significant asset impairments and restructurings

     —         —         —         (2
  

 

 

   

 

 

   

 

 

   

 

 

 

Total adjustments to GAAP cost of sales

     178       193       656       644  
  

 

 

   

 

 

   

 

 

   

 

 

 

Adjustments to operating expenses:

        

Share-based compensation expense

     344       293       1,307       1,220  

Amortization of acquisition-related intangible assets

     58       82       259       303  

Acquisition-related/divestiture costs (1)

     62       82       219       27  

Significant asset impairments and restructurings

     142       13       756       268  
  

 

 

   

 

 

   

 

 

   

 

 

 

Total adjustments to GAAP operating expenses

     606       470       2,541       1,818  
  

 

 

   

 

 

   

 

 

   

 

 

 

Total adjustments to GAAP income before provision for income taxes

     784       663       3,197       2,462  
  

 

 

   

 

 

   

 

 

   

 

 

 

Income tax effect of non-GAAP adjustments

     (235     (196     (847     (623

Significant tax matters

     108       (91     108       (556
  

 

 

   

 

 

   

 

 

   

 

 

 

Total adjustments to GAAP provision for income taxes

     (127     (287     (739     (1,179
  

 

 

   

 

 

   

 

 

   

 

 

 

Non-GAAP net income

   $ 3,081     $ 3,189     $ 12,067     $ 12,022  
  

 

 

   

 

 

   

 

 

   

 

 

 

Diluted net income per share:

        

GAAP

   $ 0.48     $ 0.56     $ 1.90     $ 2.11  
  

 

 

   

 

 

   

 

 

   

 

 

 

Non-GAAP

   $ 0.61     $ 0.63     $ 2.39     $ 2.36  
  

 

 

   

 

 

   

 

 

   

 

 

 

(1) During the second quarter of fiscal 2016 on November 20, 2015, Cisco completed its divestiture of the SP Video CPE Business. This sale resulted in a pre-tax gain of $253 million, net of certain transaction costs incurred. The gain on this transaction was excluded from non-GAAP net income for fiscal 2016.

 

12


CISCO SYSTEMS, INC.

RECONCILIATIONS OF GAAP TO NON-GAAP MEASURES

GROSS MARGINS, OPERATING EXPENSES, OPERATING MARGINS, AND NET INCOME

(In millions, except percentages)

 

     Three Months Ended
July 29, 2017
 
     Product
Gross
Margin
    Service
Gross
Margin
    Total
Gross
Margin
    Operating
Expenses
    Y/Y     Operating
Income
    Y/Y     Net
Income
    Y/Y  

GAAP amount

   $ 5,441     $ 2,105     $ 7,546     $ 4,512       (3 )%    $ 3,034       (8 )%    $ 2,424       (14)%  

% of revenue

     60.3     67.8     62.2     37.2       25.0       20.0  

Adjustments to GAAP amounts:

                  

Share-based compensation expense

     23       33       56       344         400         400    

Amortization of acquisition-related intangible assets

     140       —         140       58         198         198    

Supplier component remediation charge (adjustment), net

     (18     —         (18     —           (18       (18  

Acquisition/divestiture-related costs

     —         —         —         62         62         62    

Significant asset impairments and restructurings

     —         —         —         142         142         142    

Income tax/significant tax matters

     —         —         —         —           —           (127  
  

 

 

   

 

 

   

 

 

   

 

 

     

 

 

   

 

 

   

 

 

   

Non-GAAP amount

   $ 5,586     $ 2,138     $ 7,724     $ 3,906       (7 )%    $ 3,818       (4 )%    $ 3,081       (3)%  
  

 

 

   

 

 

   

 

 

   

 

 

     

 

 

   

 

 

   

 

 

   

% of revenue

     61.9     68.8     63.7     32.2       31.5       25.4  

 

     Three Months Ended
July 30, 2016
 
     Product Gross
Margin
    Service Gross
Margin
    Total Gross
Margin
    Operating
Expenses
    Operating
Income
    Net
Income
 

GAAP amount

   $ 5,938     $ 2,037     $ 7,975     $ 4,672     $ 3,303     $ 2,813  

% of revenue

     62.2     66.0     63.1     37.0     26.1     22.3%  

Adjustments to GAAP amounts:

            

Share-based compensation expense

     20       32       52       293       345       345  

Amortization of acquisition-related intangible assets

     141       —         141       82       223       223  

Acquisition/divestiture-related costs

     —         —         —         82       82       82  

Significant asset impairments and restructurings

     —         —         —         13       13       13  

Income tax/significant tax matters

     —         —         —         —         —         (287)  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Non-GAAP amount

   $ 6,099     $ 2,069     $ 8,168     $ 4,202     $ 3,966     $ 3,189  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

% of revenue

     63.9     67.0     64.6     33.2     31.4     25.2%  

 

13


CISCO SYSTEMS, INC.

RECONCILIATIONS OF GAAP TO NON-GAAP MEASURES

GROSS MARGINS, OPERATING EXPENSES, OPERATING MARGINS, AND NET INCOME

(In millions, except percentages)

 

     Fiscal Year Ended
July 29, 2017
 
     Product
Gross
Margin
    Service
Gross
Margin
    Total
Gross
Margin
    Operating
Expenses
    Y/Y     Operating
Income
    Y/Y     Net
Income
    Y/Y  

GAAP amount

   $ 22,006     $ 8,218     $ 30,224     $ 18,251       —     $ 11,973       (5 )%    $ 9,609       (11)%  

% of revenue

     61.6     66.8     63.0     38.0       24.9       20.0  

Adjustments to GAAP amounts:

                  

Share-based compensation expense

     85       134       219       1,307         1,526         1,526    

Amortization of acquisition-related intangible assets

     483       —         483       259         742         742    

Supplier component remediation charge (adjustment), net

     (47     —         (47     —           (47       (47  

Acquisition/divestiture-related costs

     —         1       1       219         220         220    

Significant asset impairments and restructurings

     —         —         —         756         756         756    

Income tax/significant tax matters

     —         —         —         —           —           (739  
  

 

 

   

 

 

   

 

 

   

 

 

     

 

 

     

 

 

   

Non-GAAP amount

   $ 22,527     $ 8,353     $ 30,880     $ 15,710       (4 )%    $ 15,170       —     $ 12,067       —  %  
  

 

 

   

 

 

   

 

 

   

 

 

     

 

 

     

 

 

   

% of revenue

     63.1     67.9     64.3     32.7       31.6       25.1  

During the second quarter of fiscal 2016 on November 20, 2015, Cisco completed its divestiture of the SP Video CPE Business. Accordingly, the non-GAAP growth rates above are normalized to exclude the SP Video CPE Business.

 

     Fiscal Year Ended
July 30, 2016
 
     Product Gross
Margin
    Service Gross
Margin
    Total Gross
Margin
    Operating
Expenses
    Operating
Income
    Net
Income
 

GAAP amount

   $ 23,093     $ 7,867     $ 30,960     $ 18,300     $ 12,660     $ 10,739  

% of revenue

     62.0     65.6     62.9     37.2     25.7     21.8%  

Adjustments to GAAP amounts:

            

Share-based compensation expense

     70       142       212       1,220       1,432       1,432  

Amortization of acquisition-related intangible assets

     507       —         507       303       810       810  

Supplier component remediation charge (adjustment), net

     (74     —         (74     —         (74     (74)  

Acquisition/divestiture-related costs

     —         1       1       27       28       28  

Significant asset impairments and restructurings

     (2     —         (2     268       266       266  

Income tax/significant tax matters

     —         —         —         —         —         (1,179)  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Non-GAAP amount

   $ 23,594     $ 8,010     $ 31,604     $ 16,482     $ 15,122     $ 12,022  

Less: SP Video CPE Business (1)

     (56     —         (56     (43     (13     (10)  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Non-GAAP amount (excluding SP Video CPE Business)

   $ 23,538     $ 8,010     $ 31,548     $ 16,439     $ 15,109     $ 12,012  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

% of revenue

     64.0     66.8     64.7     33.7     31.0     24.6%  

(1) Reflects four months of operations for the SP Video CPE Business, which was divested during the second quarter of fiscal 2016 on November 20, 2015.

 

14


CISCO SYSTEMS, INC.

RECONCILIATIONS OF GAAP TO NON-GAAP MEASURES

EFFECTIVE TAX RATE

(In percentages)

 

     Three Months Ended     Fiscal Year Ended  
     July 29,
2017
    July 30,
2016
    July 29,
2017
    July 30,
2016
 

GAAP effective tax rate

     23.8     17.1     21.8     16.9

Total adjustments to GAAP provision for income taxes

     (1.5 )%      4.3     0.3     4.9
  

 

 

   

 

 

   

 

 

   

 

 

 

Non-GAAP effective tax rate

     22.3     21.4     22.1     21.8
  

 

 

   

 

 

   

 

 

   

 

 

 

GAAP TO NON-GAAP BUSINESS OUTLOOK FOR Q1 FY 2018

 

Q1 FY 2018

   Gross Margin
Rate
   Operating Margin
Rate
   Tax Provision
Rate
   Earnings per
Share (2)

GAAP

   61.5% - 62.5%    23.5% - 24.5%    18%    $0.48 - $0.53

Estimated adjustments for:

           

Share-based compensation expense

   0.5%    3.0%       $0.04 - $0.05

Amortization of purchased intangible assets and other acquisition-related/divestiture costs

   1.0%    2.0%       $0.03 - $0.04

Restructuring and other charges (1)

   —      1.0%       $0.01 - $0.02

Income tax effect of non-GAAP adjustments

   —      —      4%   
  

 

  

 

  

 

  

 

Non-GAAP

   63% - 64%    29.5% - 30.5%    22%    $0.59 - $0.61
  

 

  

 

  

 

  

 

(1) In August 2016, we began taking action under a restructuring plan in order to reinvest in our key priority areas in which up to 6,600 employees would be impacted, with estimated pretax charges of approximately $850 million. During fiscal 2017, we have recognized pretax charges of $756 million to our GAAP financial results in relation to this restructuring plan. We expect this plan to be substantially completed by the end of the first quarter of fiscal 2018.

(2) Estimated adjustments to GAAP earnings per share are shown after income tax effects.

Except as noted above, this business outlook does not include the effects of any future acquisitions/divestitures, asset impairments, restructurings and significant tax matters or other events, which may or may not be significant unless specifically stated.

 

15


Forward Looking Statements, Non-GAAP Information and Additional Information

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 progress transitioning our business to more software and recurring revenue, our ability to accelerate innovation in our core and across the portfolio and to build the network of the future, our ability to deliver on our strategic growth priorities, our ability to offer the most innovative technologies to our customers in the way they want to consume it, and our continued ability to deliver value to our shareholders) and the future financial performance of Cisco (including the business outlook for Q1 FY 2018) 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, key growth areas, and in certain geographical locations, as well as maintaining leadership in routing, switching and services; 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 market; 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; our ability to achieve the benefits of the announced restructuring and possible changes in the size and timing of the related charges; man-made problems such as cyber-attacks, data protection breaches, computer viruses or terrorism; 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-Q and 10-K filed on May 23, 2017 and September 8, 2016, 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-Q and 10-K as each may be amended from time to time. Cisco’s results of operations for the three months and the year ended July 29, 2017 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 gross margins, non-GAAP operating expenses, non-GAAP operating income and margin, non-GAAP effective tax rates, and non-GAAP net income per share data for the periods presented. It also includes future estimated ranges for gross margin, operating margin, tax provision rate and EPS on a non-GAAP basis.

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 measures 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 its historical and projected results of operations.

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, acquisition-related/divestiture costs, significant asset impairments and restructurings, significant litigation and other contingencies, significant gains and losses on investments, 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 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.

 

16


Cisco divested the Customer Premises Equipment portion of the Service Provider Video Connected Devices business (“SP Video CPE Business”) during the second quarter of fiscal 2016 on November 20, 2015. This release includes, where indicated, financial measures that exclude the SP Video CPE Business. Cisco believes that the presentation of these measures provides useful information to investors and management regarding financial and business trends relating to its financial condition and its historical and projected results of operations because the SP Video CPE Business is no longer part of Cisco and will not be part of Cisco on a go forward basis. Cisco’s management also uses the financial measures excluding the SP Video CPE Business in reviewing the financial results of Cisco.

About Cisco

Cisco (NASDAQ: CSCO) is the worldwide technology leader that has been making the Internet work since 1984. Our people, products and partners help society securely connect and seize tomorrow’s digital opportunity today. Discover more at thenetwork.cisco.com and follow us on Twitter at @Cisco.

Copyright © 2017 Cisco and/or its affiliates. All rights reserved. Cisco and the Cisco logo 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.

 

17