DGAP-News: Cisco Reports Fourth Quarter and Fiscal Year 2017 Earnings
DGAP-News: Cisco / Key word(s): Interim Report
Cisco Reports Fourth Quarter and Fiscal Year 2017 Earnings
16.08.2017 / 22:05
The issuer is solely responsible for the content of this announcement.
SAN JOSE, CA -- (Marketwired) -- 08/16/17 -- Cisco (NASDAQ: CSCO)-- 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 $0.61Cisco today reported fourth quarter and fiscal year results for theperiod ended July 29, 2017. Cisco reported fourth quarter revenue of$12.1 billion, net income on a generally accepted accountingprinciples (GAAP) basis of $2.4 billion or $0.48 per share, andnon-GAAP net income of $3.1 billion or $0.61 per share.'We had another strong quarter and a transformative year. We madetremendous progress transitioning our business to more software andrecurring revenue and delivered on our commitment to accelerateinnovation in our core and across the portfolio,' said Chuck Robbins,CEO, Cisco. 'The network has never been more critical to businesssuccess 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)% 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 GAAPand non-GAAP basis are provided in the tables located in the sectionentitled 'Reconciliations of GAAP to non-GAAP Measures.''We delivered another solid quarter and fiscal year. We executedwell, drove solid profitability, strong cash flow, and we continuedto deliver on our strategic growth priorities,' said Kelly Kramer,CFO, Cisco. 'We will continue to focus on making the right bets tooffer the most innovative technologies to our customers in the waythey want to consume it and deliver value to our shareholders.'Financial SummaryAll comparative percentages are on a year-over-year basis unlessotherwise noted.Q4 FY 2017 HighlightsRevenue -- Total revenue was $12.1 billion, down 4%, with productrevenue down 5% and service revenue up 1%. 31% of total revenue wasfrom recurring offers, up 4 percentage points from the fourth quarterof fiscal 2016. Revenue by geographic segment was: Americas down 6%,EMEA down 6%, and APJC up 6%. Product revenue performance was led byWireless and Security which increased 5% and 3%, respectively. NGNRouting and Switching revenue each decreased 9%. Service ProviderVideo, Data Center, and Collaboration revenue decreased 10%, 4%, and3%, respectively.Gross Margin -- On a GAAP basis, total gross margin and product grossmargin were 62.2% and 60.3%, respectively. The decrease in theproduct gross margin compared with 62.2% in the fourth quarter offiscal 2016 was primarily due to pricing, partially offset byproductivity improvements and to a lesser extent product mix.Non-GAAP total gross margin and product gross margin were 63.7% and61.9%, respectively. The decrease in non-GAAP product gross margincompared with 63.9% in the fourth quarter of fiscal 2016 was alsoprimarily due to pricing, partially offset by continued productivityimprovements and to a lesser extent product mix.GAAP service gross margin was 67.8% and non-GAAP service gross marginwas 68.8%.Total gross margins by geographic segment were: 64.0% for theAmericas, 63.8% for EMEA and 62.1% for APJC. Operating Expenses -- On a GAAP basis, operating expenses were $4.5billion, down 3%. Non-GAAP operating expenses were $3.9 billion, down7%, 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 billionand 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 thefourth quarter of fiscal 2017, an increase of 5% compared with $3.8billion for the fourth quarter of fiscal 2016. FY 2017 HighlightsThe revenue and non-GAAP information in this section is presentedexcluding the SP Video CPE Business for fiscal 2016 as it wasdivested 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 billionand 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 fiscal2017, compared with $13.6 billion for fiscal 2016, an increase of 2%.Balance Sheet and Other Financial HighlightsCash and Cash Equivalents and Investments -- were $70.5 billion atthe end of the fourth quarter of fiscal 2017, compared with $68.0billion at the end of the third quarter of fiscal 2017, and comparedwith $65.8 billion at the end of fiscal 2016. The total cash and cashequivalents and investments available in the United States at the endof the fourth quarter of fiscal 2017 were $3.0 billion.Deferred Revenue -- was $18.5 billion, up 12% in total, with deferredproduct revenue up 23%, driven largely by subscription-based andsoftware offerings, and deferred service revenue was up 6%. Theportion of product deferred revenue related to recurring software andsubscription offers increased 50%. Product Backlog -- was approximately $4.8 billion at the end offiscal 2017, an increase of 3% compared with the balance at the endof fiscal 2016.Capital Allocation -- In the fourth quarter of fiscal 2017, Ciscodeclared and paid a cash dividend of $0.29 per common share, or $1.4billion. For the full fiscal year, Cisco declared and paid cashdividends of $1.10 per common share, or $5.5 billion. For the fourth quarter of fiscal 2017, Cisco repurchasedapproximately 38 million shares of common stock under its stockrepurchase program at an average price of $31.61 per share for anaggregate purchase price of $1.2 billion. For the full fiscal year,Cisco repurchased approximately 118 million shares of common stockunder its stock repurchase program at an average price of $31.38 pershare for an aggregate purchase price of $3.7 billion. As of July 29,2017, Cisco had repurchased and retired 4.7 billion shares of Ciscocommon stock at an average price of $21.30 per share for an aggregatepurchase price of approximately $100.3 billion since the inception ofthe stock repurchase program. The remaining authorized amount forstock repurchases under this program is approximately $11.7 billionwith no termination date. For the full fiscal year, Cisco returned $9.2 billion to shareholdersthrough share buybacks and dividends.Acquisitions -- In the fourth quarter of fiscal 2017, we closed theacquisition of MindMeld, Inc. and the acquisition of the advancedanalytics team and associated intellectual property developed bySaggezza. We also announced our intent to acquire Viptela, Inc., aprivately held company that provides software-defined wide areanetworking products, and Observable Networks, Inc., a privately heldcompany that offers cloud-native network forensics securityapplications delivered as a service. Both acquisitions closed in thefirst quarter of fiscal 2018.Business Outlook for Q1 FY 2018Cisco expects to achieve the following results for the first quarterof fiscal 2018:Q1 FY 2018 Revenue (3)% to (1)% decline Y/YNon-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 lowerthan non-GAAP EPS by $0.08 to $0.11 per share in the first quarter offiscal 2018.A reconciliation between the Business Outlook for Q1 FY 2018 on aGAAP and non-GAAP basis is provided in the table entitled 'GAAP tonon-GAAP Business Outlook for Q1 FY 2018' located in the sectionentitled '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. CISCO SYSTEMS, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (In millions, except per-share amounts) (Unaudited) Three Months Ended Fiscal Year Ended -------------------- -------------------- July 29, July 30, July 29, July 30, 2017 2016 2017 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 ========= ========= ========= ========= CISCO SYSTEMS, INC. REVENUE BY SEGMENT (In millions, except percentages) July 29, 2017 ---------------------------------------------------------- Three Months Ended Fiscal Year Ended --------------------- ------------------------------------ Excluding SP Including SP Video CPE Video CPE Business 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, Ciscocompleted its divestiture of the SP Video CPE Business. SP Video CPEBusiness 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% 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. SPVideo CPE Business revenue for fiscal 2016 was $504 million. CISCO SYSTEMS, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (In millions) (Unaudited) July 29, July 30, 2017 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 78,719Property and equipment, net 3,322 3,506Financing receivables, net 4,738 4,158Goodwill 29,766 26,625Purchased intangible assets, net 2,539 2,501Deferred tax assets 4,239 4,299Other 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 24,911Long-term debt 25,725 24,483Income taxes payable 1,250 925Deferred revenue 7,673 6,317Other long-term liabilities 1,450 1,431 ----------- ----------- Total liabilities 63,681 58,067Total equity 66,137 63,585 ----------- ----------- TOTAL LIABILITIES AND EQUITY $ 129,818 $ 121,652 =========== =========== CISCO SYSTEMS, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (In millions) (Unaudited) Fiscal Year Ended ------------------------ July 29, July 30, 2017 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 CISCO SYSTEMS, INC. DEFERRED REVENUE (In millions) July 29, April 29, July 30, 2017 2017 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 ----------------- --------------------------- -------- Weighted- Average Per Price per Quarter Ended Share Amount Shares 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 ======== ======== ======= ======== ======== 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, July 30, July 29, July 30, 2017 2016 2017 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. Thissale resulted in a pre-tax gain of $253 million, net of certaintransaction costs incurred. The gain on this transaction was excludedfrom non-GAAP net income for fiscal 2016. 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 Service Total Gross Gross Gross Operating Margin Margin Margin Expenses ------- ------- ------ --------- GAAP amount $ 5,441 $ 2,105 $7,546 $ 4,512 % of revenue 60.3% 67.8% 62.2% 37.2%Adjustments to GAAP amounts: Share-based compensation expense 23 33 56 344 Amortization of acquisition-related intangible assets 140 -- 140 58 Supplier component remediation charge (adjustment), net (18) -- (18) -- Acquisition/divestiture-related costs -- -- -- 62 Significant asset impairments and restructurings -- -- -- 142 Income tax/significant tax matters -- -- -- -- ------- ------- ------ --------- Non-GAAP amount $ 5,586 $ 2,138 $7,724 $ 3,906 ======= ======= ====== ========= % of revenue 61.9% 68.8% 63.7% 32.2% Three Months Ended July 29, 2017 -------------------------------------- Operating Net Y/Y Income Y/Y Income Y/Y --- --------- --- ------- --- GAAP amount (3)% $ 3,034 (8)% $ 2,424 (14)%% of revenue 25.0% 20.0% Adjustments to GAAP amounts: Share-based compensation expense 400 400 Amortization of acquisition-related intangible assets 198 198 Supplier component remediation charge (adjustment), net (18) (18) Acquisition/divestiture-related costs 62 62 Significant asset impairments and restructurings 142 142 Income tax/significant tax matters -- (127) --------- ------- Non-GAAP amount (7)% $ 3,818 (4)% $ 3,081 (3)% ========= ======= % of revenue 31.5% 25.4% Three Months Ended July 30, 2016 ------------------------------------------------------- Product Service Total Gross Gross Gross Operating Operating Net Margin Margin Margin Expenses Income 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/divesti ture-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% 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 Service Total Gross Gross Gross Operating Margin Margin Margin Expenses ------- ------- ------ --------- 30,22 GAAP amount $22,006 $ 8,218 $ 4 $ 18,251 % of revenue 61.6% 66.8% 63.0% 38.0%Adjustments to GAAP amounts: Share-based compensation expense 85 134 219 1,307 Amortization of acquisition-related intangible assets 483 -- 483 259 Supplier component remediation charge (adjustment), net (47) -- (47) -- Acquisition/divestiture-related costs -- 1 1 219 Significant asset impairments and restructurings -- -- -- 756 Income tax/significant tax matters -- -- -- -- ------- ------- ------ --------- 30,88 Non-GAAP amount $22,527 $ 8,353 $ 0 $ 15,710 ======= ======= ====== ========= % of revenue 63.1% 67.9% 64.3% 32.7% Fiscal Year Ended July 29, 2017 -------------------------------------- Operating Net Y/Y Income Y/Y Income Y/Y --- --------- --- ------- --- GAAP amount --% $ 11,973 (5)% $ 9,609 (11)%% of revenue 24.9% 20.0% Adjustments to GAAP amounts: Share-based compensation expense 1,526 1,526 Amortization of acquisition-related intangible assets 742 742 Supplier component remediation charge (adjustment), net (47) (47) Acquisition/divestiture-related costs 220 220 Significant asset impairments and restructurings 756 756 Income tax/significant tax matters -- (739) --------- ------- Non-GAAP amount (4)% $ 15,170 --% $12,067 --% ========= ======= % of revenue 31.6% 25.1% During the second quarter of fiscal 2016 on November 20, 2015, Ciscocompleted its divestiture of the SP Video CPE Business. Accordingly,the non-GAAP growth rates above are normalized to exclude the SPVideo CPE Business. Fiscal Year Ended July 30, 2016 --------------------------------------- Product Service Gross Gross Total Gross Margin Margin Margin ----------- ----------- ----------- GAAP amount $ 23,093 $ 7,867 $ 30,960 % of revenue 62.0% 65.6% 62.9% Adjustments to GAAP amounts: Share-based compensation expense 70 142 212 Amortization of acquisition-related intangible assets 507 -- 507 Supplier component remediation charge (adjustment), net (74) -- (74) Acquisition/divestiture-related costs -- 1 1 Significant asset impairments and restructurings (2) -- (2) Income tax/significant tax matters -- -- -- ----------- ----------- ----------- Non-GAAP amount $ 23,594 $ 8,010 $ 31,604 Less: SP Video CPE Business (1) (56) -- (56) ----------- ----------- ----------- Non-GAAP amount (excluding SP Video CPE Business) $ 23,538 $ 8,010 $ 31,548 =========== =========== =========== % of revenue 64.0% 66.8% 64.7% Fiscal Year Ended July 30, 2016 ---------------------------------------- Operating Operating Net Expenses Income Income ------------ ------------ ----------- GAAP amount $ 18,300 $ 12,660 $ 10,739 % of revenue 37.2% 25.7% 21.8%Adjustments to GAAP amounts: Share-based compensation expense 1,220 1,432 1,432 Amortization of acquisition-related intangible assets 303 810 810 Supplier component remediation charge (adjustment), net -- (74) (74) Acquisition/divestiture-related costs 27 28 28 Significant asset impairments and restructurings 268 266 266 Income tax/significant tax matters -- -- (1,179) ------------ ------------ ----------- Non-GAAP amount $ 16,482 $ 15,122 $ 12,022 Less: SP Video CPE Business (1) (43) (13) (10) ------------ ------------ ----------- Non-GAAP amount (excluding SP Video CPE Business) $ 16,439 $ 15,109 $ 12,012 ============ ============ =========== % of revenue 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 onNovember 20, 2015. CISCO SYSTEMS, INC. RECONCILIATIONS OF GAAP TO NON-GAAP MEASURES EFFECTIVE TAX RATE (In percentages) Three Months Ended Fiscal Year Ended ----------------------- ---------------------- July 29, July 30, July 29, July 30, 2017 2016 2017 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 Operating Tax Gross Margin Margin Provision Earnings perQ1 FY 2018 Rate Rate Rate Share (2) ------------------------ ------------ ------------ ------------ ------------GAAP 61.5% - 23.5% - $0.48 - 62.5% 24.5% 18% $0.53Estimated adjustments for: Share-based compensation $0.04 - expense 0.5% 3.0% $0.05Amortization of purchased intangible assets and other acquisition- related/divestiture $0.03 - costs 1.0% 2.0% $0.04Restructuring and other $0.01 - charges (1) -- 1.0% $0.02Income tax effect of non-GAAP adjustments -- -- 4% ------------ ------------ ------------ ------------Non-GAAP 29.5% - $0.59 - 63% - 64% 30.5% 22% $0.61 ============ ============ ============ ============(1) In August 2016, we began taking action under a restructuring planin order to reinvest in our key priority areas in which up to 6,600employees would be impacted, with estimated pretax charges ofapproximately $850 million. During fiscal 2017, we have recognizedpretax charges of $756 million to our GAAP financial results inrelation to this restructuring plan. We expect this plan to besubstantially completed by the end of the first quarter of fiscal2018.(2) Estimated adjustments to GAAP earnings per share are shown afterincome tax effects.Except as noted above, this business outlook does not include theeffects of any future acquisitions/divestitures, asset impairments,restructurings and significant tax matters or other events, which mayor may not be significant unless specifically stated.Forward Looking Statements, Non-GAAP Information and AdditionalInformationThis release may be deemed to contain forward-looking statements,which are subject to the safe harbor provisions of the PrivateSecurities Litigation Reform Act of 1995. These forward-lookingstatements include, among other things, statements regarding futureevents (such as our progress transitioning our business to moresoftware and recurring revenue, our ability to accelerate innovationin our core and across the portfolio and to build the network of thefuture, our ability to deliver on our strategic growth priorities,our ability to offer the most innovative technologies to ourcustomers in the way they want to consume it, and our continuedability to deliver value to our shareholders) and the futurefinancial performance of Cisco (including the business outlook for Q1FY 2018) that involve risks and uncertainties. Readers are cautionedthat these forward-looking statements are only predictions and maydiffer materially from actual future events or results due to avariety of factors, including: business and economic conditions andgrowth trends in the networking industry, our customer markets andvarious geographic regions; global economic conditions anduncertainties in the geopolitical environment; overall informationtechnology spending; the growth and evolution of the Internet andlevels of capital spending on Internet-based systems; variations incustomer demand for products and services, including sales to theservice provider market and other customer markets; the return on ourinvestments in certain priorities, key growth areas, and in certaingeographical locations, as well as maintaining leadership in routing,switching and services; the timing of orders and manufacturing andcustomer lead times; changes in customer order patterns or customermix; insufficient, excess or obsolete inventory; variability ofcomponent costs; variations in sales channels, product costs or mixof products sold; our ability to successfully acquire businesses andtechnologies and to successfully integrate and operate these acquiredbusinesses and technologies; our ability to achieve expected benefitsof our partnerships; increased competition in our product and servicemarkets, including the data center market; dependence on theintroduction and market acceptance of new product offerings andstandards; rapid technological and market change; manufacturing andsourcing risks; product defects and returns; litigation involvingpatents, intellectual property, antitrust, shareholder and othermatters, and governmental investigations; our ability to achieve thebenefits of the announced restructuring and possible changes in thesize and timing of the related charges; man-made problems such ascyber-attacks, data protection breaches, computer viruses orterrorism; natural catastrophic events; a pandemic or epidemic; ourability to achieve the benefits anticipated from our investments insales, engineering, service, marketing and manufacturing activities;our ability to recruit and retain key personnel; our ability tomanage financial risk, and to manage expenses during economicdownturns; risks related to the global nature of our operations,including our operations in emerging markets; currency fluctuationsand other international factors; changes in provision for incometaxes, including changes in tax laws and regulations or adverseoutcomes resulting from examinations of our income tax returns;potential volatility in operating results; and other factors listedin Cisco's most recent reports on Forms 10-Q and 10-K filed on May23, 2017 and September 8, 2016, respectively. The financialinformation contained in this release should be read in conjunctionwith the consolidated financial statements and notes thereto includedin Cisco's most recent reports on Forms 10-Q and 10-K as each may beamended from time to time. Cisco's results of operations for thethree months and the year ended July 29, 2017 are not necessarilyindicative of Cisco's operating results for any future periods. Anyprojections in this release are based on limited informationcurrently available to Cisco, which is subject to change. Althoughany such projections and the factors influencing them will likelychange, Cisco will not necessarily update the information, sinceCisco 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 datafor the periods presented. It also includes future estimated rangesfor gross margin, operating margin, tax provision rate and EPS on anon-GAAP basis.These non-GAAP measures are not in accordance with, or an alternativefor, measures prepared in accordance with generally acceptedaccounting principles and may be different from non-GAAP measuresused by other companies. In addition, these non-GAAP measures are notbased on any comprehensive set of accounting rules or principles.Cisco believes that non-GAAP measures have limitations in that theydo not reflect all of the amounts associated with Cisco's results ofoperations as determined in accordance with GAAP and that thesemeasures should only be used to evaluate Cisco's results ofoperations in conjunction with the corresponding GAAP measures.Cisco believes that the presentation of non-GAAP measures when shownin conjunction with the corresponding GAAP measures, provides usefulinformation to investors and management regarding financial andbusiness trends relating to its financial condition and itshistorical and projected results of operations.For its internal budgeting process, Cisco's management uses financialstatements that do not include, when applicable, share-basedcompensation expense, amortization of acquisition-related intangibleassets, acquisition-related/divestiture costs, significant assetimpairments and restructurings, significant litigation and othercontingencies, significant gains and losses on investments, theincome tax effects of the foregoing and significant tax matters.Cisco's management also uses the foregoing non-GAAP measures, inaddition to the corresponding GAAP measures, in reviewing thefinancial results of Cisco. In prior periods, Cisco has excludedother items that it no longer excludes for purposes of its non-GAAPfinancial measures. From time to time in the future there may beother items that Cisco may exclude for purposes of its internalbudgeting process and in reviewing its financial results. Foradditional information on the items excluded by Cisco from one ormore of its non-GAAP financial measures, refer to the Form 8-Kregarding this release furnished today to the Securities and ExchangeCommission.Cisco divested the Customer Premises Equipment portion of the ServiceProvider Video Connected Devices business ('SP Video CPE Business')during the second quarter of fiscal 2016 on November 20, 2015. Thisrelease includes, where indicated, financial measures that excludethe SP Video CPE Business. Cisco believes that the presentation ofthese measures provides useful information to investors andmanagement regarding financial and business trends relating to itsfinancial condition and its historical and projected results ofoperations because the SP Video CPE Business is no longer part ofCisco and will not be part of Cisco on a go forward basis. Cisco'smanagement also uses the financial measures excluding the SP VideoCPE Business in reviewing the financial results of Cisco.About CiscoCisco (NASDAQ: CSCO) is the worldwide technology leader that has beenmaking the Internet work since 1984. Our people, products andpartners help society securely connect and seize tomorrow's digitalopportunity today. Discover more at thenetwork.cisco.com and followus on Twitter at @Cisco.Copyright Copyright 2017 Cisco and/or its affiliates. All rightsreserved. Cisco and the Cisco logo are trademarks or registeredtrademarks of Cisco and/or its affiliates in the U.S. and othercountries. To view a list of Cisco trademarks, go to:www.cisco.com/go/trademarks. Third-party trademarks mentioned in thisdocument are the property of their respective owners. The use of theword partner does not imply a partnership relationship between Ciscoand any other company. This document is Cisco Public Information.
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