Cisco Reports First Quarter Earnings

SAN JOSE, CA--(Marketwired - Nov 12, 2014) - Cisco (NASDAQ: CSCO)

• Q1 Revenue: $12.2 billion (increase of 1% year over year)
• Q1 Earnings per Share: $0.35 GAAP; $0.54 non-GAAP 

Cisco, the worldwide leader in networking that transforms how people connect, communicate and collaborate, today reported its first quarter results for the period ended October 25, 2014. Cisco reported first quarter revenue of $12.2 billion, net income on a generally accepted accounting principles (GAAP) basis of $1.8 billion or $0.35 per share, and non-GAAP net income of $2.8 billion or $0.54 per share. 

"We are pleased with our results and are very comfortable in our strategy to deliver innovative solutions which enable the next generation of IT and the Internet of Everything. This was our strongest Q1 ever in terms of revenue, non-GAAP operating income, and non-GAAP EPS," stated Cisco chairman and CEO John Chambers. "We continue to make progress towards becoming the #1 IT company in the world. We are still in a tough environment, but seeing encouraging trends as cities, businesses, governments and schools are becoming more digitized. Our solutions continue to drive positive outcomes and enable productivity through the combination of collaboration, mobility, security and efficiency across our customers' businesses."

GAAP Results
		Q1 2015			Q1 2014			Vs. Q1 2014
Revenue		$	12.2 billion		$	12.1 billion		1.3	%
Net Income		$	1.8 billion		$	2.0 billion		(8.4	)%
Earnings per Share		$	0.35		$	0.37		(5.4	)%

Non-GAAP Results
		Q1 2015			Q1 2014			Vs. Q1 2014
Net Income		$	2.8 billion		$	2.9 billion		(2.3	)%
Earnings per Share		$	0.54		$	0.53		1.9	%

A reconciliation between net income on a GAAP basis and non-GAAP net income is provided in the table following the Consolidated Statements of Operations.

Cisco will discuss first quarter results and business outlook on a conference call and webcast at 1:30 p.m. Pacific Time today. Call information and related charts are available at http://investor.cisco.com.

CFO Transition
Frank Calderoni recently notified Cisco of his decision to step down as executive vice president and chief financial officer of Cisco, effective January 1, 2015. Cisco plans to appoint Kelly A. Kramer to succeed Mr. Calderoni. She is currently senior vice president, Business Technology and Operations Finance of Cisco.

Cash and Cash Equivalents and Investments

• Cash flows from operations were $2.5 billion for the first quarter of fiscal 2015, compared with $3.6 billion for the fourth quarter of fiscal 2014, and compared with $2.6 billion for the first quarter of fiscal 2014.
• Cash and cash equivalents and investments were $52.1 billion at the end of the first quarter of fiscal 2015, compared with $52.1 billion at the end of the fourth quarter of fiscal 2014, and compared with $48.2 billion at the end of the first quarter of fiscal 2014.

Dividends and Stock Repurchase Program

• During the first quarter of fiscal 2015, Cisco paid a cash dividend of $0.19 per common share, or $973 million.
• Cisco repurchased approximately 41 million shares of common stock under the stock repurchase program at an average price of $24.58 per share for an aggregate purchase price of $1.0 billion during the first quarter of fiscal 2015. As of October 25, 2014, Cisco had repurchased and retired 4.3 billion shares of Cisco common stock at an average price of $20.66 per share for an aggregate purchase price of approximately $89.5 billion since the inception of the stock repurchase program. The remaining authorized amount for stock repurchases under this program is approximately $7.5 billion with no termination date.

"We had a solid quarter delivering results for Q1 consistent with our expectations," stated Frank Calderoni, Cisco executive vice president and chief financial officer. "Our strong cash flow, balance sheet, and ongoing commitment to return capital to shareholders demonstrates the strength of our financial strategy."

Internet of Everything

• Cisco unveiled new Cisco® Connected Transportation Solutions designed to offer a safer and more productive commuter experience via the Internet of Everything (IoE).
• Cisco and the City of Berlin announced an IoE Innovation Center, to be located in Berlin, which will focus on manufacturing, transport and logistics.
• Marking the next phase of its expansion in India, Cisco unveiled the "Cisco Smart City" as a blueprint for the future of smart and connected communities in India.
• Cisco announced new Connected Safety and Security solutions that add intelligence and analytics from the core to the edge to help protect cities and businesses.
• Cisco outlined an expansion of its fog computing strategy with the second phase of its IOx platform for industrial scale Internet of Things (IoT) deployments.
• Addressing the growing demand for IoE skills, the Cisco Networking Academy announced the first global IoE curriculum.

Fast IT

• Cisco broadened its storage networking portfolio to address the massive data growth across small-to cloud-scale storage networks.
• Cisco introduced innovations to its Unified Computing System™ business, delivering a broader and more powerful portfolio of technologies to help customers capitalize on rapidly changing landscapes in business and IT. 
• Cisco introduced ASA with FirePOWER -- the industry's first threat-focused next-generation firewall.
• Cisco announced that it has added the support of more than 30 additional companies to its Intercloud ecosystem, expanding the reach of the global Intercloud by 250 additional data centers in 50 countries.
• Cisco announced that Shell has deployed the Cisco Secure Ops Solution to increase security maturity level by improving its cyber security and risk management while lowering costs of delivery and operations.
• Cisco expanded its Videoscape™ Virtualized Video Processing solution, the industry's first fully orchestrated and virtualized solution, to enable faster, cost-effective scaling for multi-screen video workers.

Innovation

• Cisco and Red Hat announced a new integrated infrastructure solution for OpenStack-based cloud deployments.
• Cisco completed the acquisition of Metacloud, Inc. Metacloud's OpenStack-based cloud platform is expected to help accelerate Cisco's strategy to build the world's largest global Intercloud.
• Cisco completed the acquisition of Memoir Systems enabling the proliferation of affordable, fast memory for existing Cisco switch ASICs and helping advance Cisco's ASIC innovations necessary to meet next-generation IT requirements.

Editor's Notes:

• Q1 fiscal year 2015 conference call to discuss Cisco's results along with its business outlook will be held on Wednesday, November 12, 2014 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, November 12, 2014 to 11:59 p.m. Pacific Time, on November 19, 2014 at 1-800-835-3804 (United States) or 1-402-280-1654 (international). The replay will also be available via webcast from November 12, 2014 through January 16, 2015 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, November 12, 2014. 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 GAAP reconciliation information, will be available on the Cisco Investor Relations website at http://investor.cisco.com.

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 strategy, our goal to become the #1 IT company, return of capital to shareholders and the ability of our solutions to drive positive outcomes and enable productivity in our customers' businesses) 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 report on Form 10-K filed on September 9, 2014. The financial information contained in this release should be read in conjunction with the consolidated financial statements and notes thereto included in Cisco's most recent report on Form 10-K as it may be amended from time to time. Cisco's results of operations for the three months ended October 25, 2014 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, non-GAAP inventory turns and free cash flow.

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 periods presented. Cisco believes that the presentation of free cash flow, which it defines as the net cash provided by operating activities less cash used to acquire property and equipment, to be a liquidity measure that provides useful information to management and investors because of its intent to return a stated percentage of free cash flow to shareholders in the form of dividends and stock repurchases. Cisco further regards free cash flow as a useful measure because it reflects cash that can be used to, among other things, invest in its business, make strategic acquisitions, repurchase common stock, and pay dividends on its common stock, after deducting capital investments.

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

Copyright © 2014 Cisco and/or its affiliates. All rights reserved. Cisco, the Cisco logo, Unified Computing System, and 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
				October 25,  2014				October 26,  2013
REVENUE:
	Product			$	9,435			$	9,397
	Service				2,810				2,688
		Total revenue			12,245				12,085
COST OF SALES:
	Product				3,919				3,747
	Service				993				931
		Total cost of sales			4,912				4,678
GROSS MARGIN					7,333				7,407
OPERATING EXPENSES:
	Research and development				1,583				1,724
	Sales and marketing				2,515				2,411
	General and administrative				504				515
	Amortization of purchased intangible assets				71				65
	Restructuring and other charges				318				237
		Total operating expenses			4,991				4,952
OPERATING INCOME					2,342				2,455
	Interest income				179				169
	Interest expense				(139	)			(140	)
	Other income (loss), net				(22	)			56
		Interest and other income (loss), net			18				85
INCOME BEFORE PROVISION FOR INCOME TAXES					2,360				2,540
Provision for income taxes					532				544
	NET INCOME			$	1,828			$	1,996
Net income per share:
	Basic			$	0.36			$	0.37
	Diluted			$	0.35			$	0.37
Shares used in per-share calculation:
	Basic				5,112				5,378
	Diluted				5,156				5,430
Cash dividends declared per common share				$	0.19			$	0.17

RECONCILIATION OF GAAP TO NON-GAAP NET INCOME
(In millions, except per-share amounts)
				Three Months Ended
				October 25,  2014				October 26,  2013
GAAP net income				$	1,828			$	1,996
	Adjustments to cost of sales:
		Share-based compensation expense			48				43
		Amortization of acquisition-related intangible assets			181				167
		Patent portfolio charge			188				--
	Total adjustments to GAAP cost of sales				417				210
	Adjustments to operating expenses:
		Share-based compensation expense			325				269
		Amortization of acquisition-related intangible assets			71				65
		Acquisition-related/divestiture costs			101				308
		Significant asset impairments and restructurings			318				237
	Total adjustments to GAAP operating expenses				815				879
	Total adjustments to GAAP income before provision for income taxes				1,232				1,089
	Income tax effect of non-GAAP adjustments				(258	)			(218	)
Non-GAAP net income				$	2,802			$	2,867
Diluted net income per share:
GAAP				$	0.35			$	0.37
Non-GAAP				$	0.54			$	0.53

RECONCILIATION OF GAAP TO NON-GAAP EFFECTIVE TAX RATE
		Three Months Ended
		October 25,  2014			October 26,  2013
GAAP effective tax rate		22.5	%		21.4	%
Tax effect of non-GAAP adjustments to net income		(0.5	)%		(0.4	)%
Non-GAAP effective tax rate		22.0	%		21.0	%

CONDENSED CONSOLIDATED BALANCE SHEETS
(In millions)
(Unaudited)
				October 25,  2014			July 26,  2014
ASSETS
Current assets:
	Cash and cash equivalents			$	4,387		$	6,726
	Investments				47,720			45,348
	Accounts receivable, net of allowance for doubtful accounts of $276 at October 25, 2014 and $265 at July 26, 2014				4,375			5,157
	Inventories				1,676			1,591
	Financing receivables, net				4,265			4,153
	Deferred tax assets				2,689			2,808
	Other current assets				1,284			1,331
		Total current assets			66,396			67,114
Property and equipment, net					3,233			3,252
Financing receivables, net					3,691			3,918
Goodwill					24,364			24,239
Purchased intangible assets, net					3,066			3,280
Other assets					3,228			3,331
TOTAL ASSETS				$	103,978		$	105,134
LIABILITIES AND EQUITY
Current liabilities:
	Short-term debt			$	1,357		$	508
	Accounts payable				1,022			1,032
	Income taxes payable				94			159
	Accrued compensation				2,638			3,181
	Deferred revenue				9,449			9,478
	Other current liabilities				5,496			5,451
		Total current liabilities			20,056			19,809
Long-term debt					19,615			20,401
Income taxes payable					1,504			1,851
Deferred revenue					4,295			4,664
Other long-term liabilities					1,793			1,748
Total liabilities					47,263			48,473
Total equity					56,715			56,661
TOTAL LIABILITIES AND EQUITY				$	103,978		$	105,134

CONSOLIDATED STATEMENTS OF CASH FLOWS
(In millions)
(Unaudited)
						Three Months Ended
						October 25,  2014				October 26,  2013
Cash flows from operating activities:
	Net income					$	1,828			$	1,996
	Adjustments to reconcile net income to net cash provided by operating activities:
		Depreciation, amortization, and other					596				591
		Share-based compensation expense					369				309
		Provision for receivables					43				23
		Deferred income taxes					236				130
		Excess tax benefits from share-based compensation					(71	)			(55	)
		(Gains) losses on investments and other, net					29				(108	)
		Change in operating assets and liabilities, net of effects of acquisitions and divestitures:
			Accounts receivable				723				361
			Inventories				(107	)			22
			Financing receivables				(2	)			(37	)
			Other assets				5				28
			Accounts payable				(5	)			(29	)
			Income taxes, net				(398	)			(389	)
			Accrued compensation				(495	)			(460	)
			Deferred revenue				(328	)			(307	)
			Other liabilities				68				574
				Net cash provided by operating activities			2,491				2,649
Cash flows from investing activities:
	Purchases of investments						(9,761	)			(8,835	)
	Proceeds from sales of investments						3,450				4,733
	Proceeds from maturities of investments						3,906				4,058
	Acquisition of businesses, net of cash and cash equivalents acquired						(184	)			(2,447	)
	Purchases of investments in privately held companies						(50	)			(134	)
	Return of investments in privately held companies						42				33
	Acquisition of property and equipment						(285	)			(315	)
	Proceeds from sales of property and equipment						3				156
	Other						2				(4	)
				Net cash used in investing activities			(2,877	)			(2,755	)
Cash flows from financing activities:
	Issuances of common stock						353				444
	Repurchases of common stock - repurchase program						(1,088	)			(1,898	)
	Shares repurchased for tax withholdings on vesting of restricted stock units						(342	)			(286	)
	Short-term borrowings, original maturities less than 90 days, net						(4	)			(2	)
	Issuances of debt						--				4
	Repayments of debt						(3	)			--
	Excess tax benefits from share-based compensation						71				55
	Dividends paid						(973	)			(914	)
	Other						33				32
				Net cash used in financing activities			(1,953	)			(2,565	)
Net decrease in cash and cash equivalents							(2,339	)			(2,671	)
Cash and cash equivalents, beginning of period							6,726				7,925
Cash and cash equivalents, end of period						$	4,387			$	5,254
Supplemental cash flow information:
Cash paid for interest						$	263			$	221
Cash paid for income taxes, net						$	694			$	803

CASH AND CASH EQUIVALENTS AND INVESTMENTS
(In millions)
				October 25,  2014			July 26,  2014
Cash and cash equivalents and investments:
	Cash and cash equivalents			$	4,387		$	6,726
	Fixed income securities				45,923			43,396
	Publicly traded equity securities				1,797			1,952
		Total		$	52,107		$	52,074

RECONCILIATION OF NET CASH PROVIDED BY OPERATING ACTIVITIES
TO FREE CASH FLOW (NON-GAAP)
(In millions)
		Three Months Ended
		October 25,  2014				July 26,  2014				October 26,  2013
Net cash provided by operating activities		$	2,491			$	3,612			$	2,649
Acquisition of property and equipment			(285	)			(325	)			(315	)
Free cash flow		$	2,206			$	3,287			$	2,334

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 2015
	October 25, 2014		$	0.19		$	973		41		$	24.58		$	1,013		$	1,986
Fiscal 2014
	July 26, 2014		$	0.19		$	974		61		$	25.11		$	1,514		$	2,488
	April 26, 2014			0.19			974		90		$	22.24			2,005			2,979
	January 25, 2014			0.17			896		185		$	21.73			4,020			4,916
	October 26, 2013			0.17			914		84		$	23.65			2,000			2,914
Total			$	0.72		$	3,758		420		$	22.71		$	9,539		$	13,297

ACCOUNTS RECEIVABLE AND DSO
(In millions, except DSO)
		October 25,  2014			July 26,  2014			October 26,  2013
Accounts receivable, net		$	4,375		$	5,157		$	5,188
Days sales outstanding in accounts receivable (DSO)			33			38			39

INVENTORIES
(In millions)
					October 25,  2014			July 26,  2014			October 26,  2013
Inventories:
	Raw materials				$	173		$	77		$	80
	Work in process					3			5			7
	Finished goods:
		Distributor inventory and deferred cost of sales				654			595			619
		Manufactured finished goods				535			606			464
			Total finished goods			1,189			1,201			1,083
	Service-related spares					275			273			257
	Demonstration systems					36			35			39
			Total		$	1,676		$	1,591		$	1,466

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
				October 25,  2014				July 26,  2014				October 26,  2013
Annualized inventory turns - GAAP					12.0				12.7				12.7
	Cost of sales adjustments				(1.0	)			(0.6	)			(0.6	)
Annualized inventory turns - non-GAAP					11.0				12.1				12.1
GAAP cost of sales				$	4,912			$	4,952			$	4,678
	Cost of sales adjustments:
		Share-based compensation expense			(48	)			(49	)			(43	)
		Amortization of acquisition-related intangible assets			(181	)			(180	)			(167	)
		Acquisition-related/divestiture costs			--				(1	)			--
		Patent portfolio charge			(188	)			--				--
Non-GAAP cost of sales				$	4,495			$	4,722			$	4,468

DEFERRED REVENUE
(In millions)
					October 25,  2014			July 26,  2014			October 26,  2013
Deferred revenue:
	Service				$	9,029		$	9,640		$	8,896
	Product:
		Unrecognized revenue on product shipments and other deferred revenue				4,056			3,924			3,628
		Cash receipts related to unrecognized revenue from two-tier distributors				659			578			683
		Total product deferred revenue				4,715			4,502			4,311
			Total		$	13,744		$	14,142		$	13,207
Reported as:
	Current				$	9,449		$	9,478		$	9,212
	Noncurrent					4,295			4,664			3,995
			Total		$	13,744		$	14,142		$	13,207

SUMMARY OF SHARE-BASED COMPENSATION EXPENSE
(In millions)
			Three Months Ended
			October 25,  2014				October 26,  2013
Cost of sales - product			$	11			$	10
Cost of sales - service				37				33
	Share-based compensation expense in cost of sales			48				43
Research and development				119				92
Sales and marketing				147				123
General and administrative				59				54
Restructuring and other charges				(4	)			(3	)
	Share-based compensation expense in operating expenses			321				266
	Total share-based compensation expense		$	369			$	309
Income tax benefit for share-based compensation			$	94			$	78