Cisco Reports Fourth Quarter and Fiscal Year 2015 Earnings

SAN JOSE, CA--(Marketwired - Aug 12, 2015) - Cisco (NASDAQ: CSCO)

• Q4 Revenue: $12.8 billion (increase of 4% year over year)
  
  
• Q4 Earnings per Share: $0.45 GAAP; $0.59 non-GAAP
  
  
• FY 2015 Revenue: $49.2 billion (increase of 4% year over year)
  
  
• FY 2015 Earnings per Share: $1.75 GAAP; $2.21 non-GAAP
  
  
• Q1 FY 2016 Revenue Guidance: 2% - 4% growth year over year
  
  
• Q1 FY 2016 non-GAAP Earnings per Share Guidance: $0.55 - $0.57
  
  

Cisco (NASDAQ: CSCO), the worldwide leader in networking that transforms how people connect, communicate and collaborate, today reported its fourth quarter and fiscal year results for the period ended July 25, 2015. Cisco reported fourth quarter revenue of $12.8 billion, net income on a generally accepted accounting principles (GAAP) basis of $2.3 billion or $0.45 per share, and non-GAAP net income of $3.0 billion or $0.59 per share.

"I'm stepping into the CEO role at an incredibly exciting time for Cisco. We closed out our fiscal year with record revenues and record non-GAAP EPS, for both Q4 and FY15. I'm particularly pleased with the strong growth of deferred revenue which shows we are very effectively driving our business to a more predictable software-based business model, at the same time as growing revenues and earnings," said Chuck Robbins, Cisco chief executive officer.

"These strong results show what we are capable of when we're focused, and you can expect us to continue to drive the evolution of our portfolio to maximize the value we bring to customers in today's rapidly changing market. The network's strategic role at the center of everything becoming digital -- today and in the future -- is why I strongly believe Cisco's best years are ahead of us."

Q4 GAAP Results
		Q4 2015			Q4 2014			Vs. Q4 2014
Revenue		$	12.8 billion		$	12.4 billion		3.9	%
Net Income		$	2.3 billion		$	2.2 billion		3.2	%
Diluted Earnings per Share (EPS)		$	0.45		$	0.43		4.7	%

Q4 Non-GAAP Results
		Q4 2015			Q4 2014			Vs. Q4 2014
Net Income		$	3.0 billion		$	2.8 billion		6.2	%
EPS		$	0.59		$	0.55		7.3	%

Fiscal Year GAAP Results
		FY 2015			FY 2014			Vs. FY 2014
Revenue		$	49.2 billion		$	47.1 billion		4.3	%
Net Income		$	9.0 billion		$	7.9 billion		14.4	%
EPS		$	1.75		$	1.49		17.4	%

Fiscal Year Non-GAAP Results
		FY 2015			FY 2014			Vs. FY 2014
Net Income		$	11.4 billion		$	10.9 billion		4.5	%
EPS		$	2.21		$	2.06		7.3	%

A reconciliation between net income and EPS on a GAAP and non-GAAP basis is provided in the table following the Consolidated Statements of Operations. Supplementary information related to other GAAP and non-GAAP measures is also provided in the tables below.

Financial Summary
(All comparative percentages are on a year-over-year basis unless otherwise noted)

Q4 2015 Highlights

Revenue -- Total revenue was $12.8 billion, up 4%. Product revenue and service revenue each increased 4%. In terms of total revenue by geographic segment, Americas was up 7%, while both EMEA and APJC were flat. Product revenue growth was led by Collaboration and Data Center at 14% each. Switching and NGN Routing grew by 2% and 3%, respectively.

Gross Margin -- On a non-GAAP basis, total gross margin and product gross margin were 62.1% and 61.0% respectively. The decrease in non-GAAP product gross margin as compared to the third quarter of fiscal 2015 was driven by pricing and product mix partially offset by productivity. Non-GAAP service gross margin was 65.9%. Total gross margins by geographic segment were: 62.7% for the Americas, 62.1% for EMEA, and 59.5% for APJC. On a GAAP basis, total gross margin, product gross margin, and service gross margin were at 60.2%, 59.0% and 64.5%, respectively.

Operating Expenses -- Non-GAAP operating expenses were $4.2 billion, up 1%. Headcount increased from the third quarter of fiscal 2015 by approximately 900 to 71,833 reflecting investments in key growth areas such as security, cloud and software. On a GAAP basis, operating expenses were $4.9 billion, up 3%.

Operating Income -- Non-GAAP operating income was $3.8 billion, up 9%, with non-GAAP operating margin at 29.3%. GAAP operating income was $2.9 billion, up 7%, with GAAP operating margin of 22.4%.

Provision for Income Taxes -- The non-GAAP tax provision rate was 21.0% for the fourth quarter of fiscal 2015 reflecting fiscal year end true-ups. The GAAP tax provision rate was 20.9%.

Net Income and EPS -- On a non-GAAP basis, net income was $3.0 billion, an increase of 6%, and EPS was $0.59, an increase of 7%. On a GAAP basis, net income was $2.3 billion and EPS was $0.45.

Cash Flow from Operating Activities -- was $4.1 billion for the fourth quarter of fiscal 2015, compared with $3.0 billion for the third quarter of fiscal 2015, and compared with $3.6 billion for the fourth quarter of fiscal 2014.

Fiscal 2015 Highlights

Revenue -- Total revenue was $49.2 billion, an increase of 4%.

Net Income and EPS -- On a non-GAAP basis, net income was $11.4 billion, an increase of 5%, and EPS was $2.21, an increase of 7%. On a GAAP basis, net income was $9.0 billion and EPS was $1.75.

Cash Flow from Operating Activities -- was $12.6 billion for fiscal 2015, compared with $12.3 billion for fiscal 2014.

Cash and Cash Equivalents and Investments -- were $60.4 billion at the end of the fourth quarter of fiscal 2015, compared with $54.4 billion at the end of the third quarter of fiscal 2015, and compared with $52.1 billion at the end of the fourth quarter of fiscal 2014. $7.0 billion of cash and cash equivalents and investments was available in the United States at the end of the fourth quarter of fiscal 2015.

Deferred Revenue -- was $15.2 billion, up 7% in total. Product deferred revenue grew in double-digits again in the fourth quarter of fiscal 2015 at 21%, driven largely by subscription based and software offerings, while services deferred revenue grew 1%. Cisco continued to build a greater mix of recurring revenue as reflected in deferred revenue.

Product Backlog -- was approximately $5.1 billion at the end of fiscal 2015 as compared to approximately $5.4 billion at the end of fiscal 2014.

Days Sales Outstanding in Accounts Receivable (DSO) -- was 38 days at the end of the fourth quarter of fiscal 2015 consistent with the fourth quarter of fiscal 2014.

Capital Allocation

In the fourth quarter of fiscal 2015, Cisco declared and paid a cash dividend of $0.21 per common share, or $1.1 billion. For the full fiscal year, Cisco declared and paid cash dividends of $0.80 per common share, or $4.1 billion.

For the fourth quarter of fiscal 2015, Cisco repurchased approximately 35 million shares of common stock under its stock repurchase program at an average price of $28.62 per share for an aggregate purchase price of $1.0 billion. For the full fiscal year, Cisco repurchased approximately 155 million shares of common stock under its stock repurchase program at an average price of $27.22 per share for an aggregate purchase price of $4.2 billion. As of July 25, 2015, Cisco had repurchased and retired 4.4 billion shares of Cisco common stock at an average price of $20.86 per share for an aggregate purchase price of approximately $92.7 billion since the inception of the stock repurchase program. The remaining authorized amount for stock repurchases under this program is approximately $4.3 billion with no termination date.

For the full fiscal year, Cisco returned $8.3 billion to shareholders through share buybacks and dividends, which represented 73% of free cash flow.

"We ended this year with another strong quarter. We saw good top line growth in Q4 with record revenue of $12.8 billion, a 4% increase for the quarter bringing our full year 2015 revenue to $49.2 billion -- also growth of 4%," said Kelly Kramer, Cisco executive vice president and chief financial officer. "I am pleased with our execution on our financial strategy of delivering profitable growth, managing our portfolio and strategic investments, and delivering shareholder value."

Acquisitions and Divestitures

In the fourth quarter of fiscal 2015, we announced an agreement to sell the client premises equipment portion of our Service Provider Video connected devices unit to French-based Technicolor for approximately $600 million in cash and stock, subject to certain adjustments. We will continue to refocus our investments in service provider video towards cloud and software-based services. We expect the transaction to close at the end of the second quarter of fiscal 2016 subject to regulatory approvals.

During the quarter, Cisco also announced its intent to acquire the cloud-based security company OpenDNS to enhance the security portfolio and, along with this, Cisco announced one additional acquisition and closed two acquisitions to further complement the software, collaboration and cloud offerings.

Business Outlook for the First Quarter of Fiscal Year 2016

Cisco expects to achieve the following results for the first quarter of fiscal year 2016:

Q1 2016
Revenue			2% - 4% growth Y/Y
Non-GAAP gross margin rate			61% - 62%
Non-GAAP operating margin rate			28% - 29%
Non-GAAP tax provision rate			23%
Non-GAAP EPS		$	0.55 - $0.57

Cisco estimates that GAAP EPS will be lower than non-GAAP EPS by $0.11 to $0.15 cents per share in the first quarter of fiscal 2016 as follows:

Q1 2016
Share-based compensation expense			$	0.05 - $0.06
Amortization of purchased intangible assets and other acquisition-related/divestiture costs				0.04 - 0.06
	Subtotal			0.09 - 0.12
Restructuring and other charges				0.02 - 0.03
	Total		$	0.11 - $0.15

Share-based compensation expense is expected to impact Cisco's results of operations in similar proportions as the fourth quarter of fiscal 2015. Amortization of purchased intangible assets, and other acquisition-related/divestiture costs will be reported as GAAP operating expenses, cost of sales, or other income/(loss) as applicable.

The range for restructuring and other charges includes a pretax charge of up to $200 million as a result of the restructuring that Cisco announced in August 2014. During the fourth quarter of fiscal 2015, Cisco recognized pretax restructuring charges of $78 million to the GAAP financial statements related to these actions and expects that the total charges related to these actions will be approximately $700 million for the total restructuring plan.

This guidance does not include the effects of any future acquisitions/divestitures, asset impairments, restructurings, and tax or other events, which may or may not be significant.

Editor's Notes:

• The Q4 and fiscal year 2015 conference call to discuss Cisco's results along with its business outlook will be held on Wednesday, August 12, 2015 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 12, 2015 to 4:00 p.m. Pacific Time, on August 19, 2015 at 1-866-465-1308 (United States) or 1-203-369-1425 (international). The replay will also be available via webcast from August 12, 2015 through October 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, August 12, 2015. 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 25,  2015				July 26,  2014				July 25,  2015				July 26,  2014
REVENUE:
	Product			$	9,911			$	9,532			$	37,750			$	36,172
	Service				2,932				2,825				11,411				10,970
		Total revenue			12,843				12,357				49,161				47,142
COST OF SALES:
	Product				4,068				3,976				15,377				15,641
	Service				1,042				976				4,103				3,732
		Total cost of sales			5,110				4,952				19,480				19,373
GROSS MARGIN					7,733				7,405				29,681				27,769
OPERATING EXPENSES:
	Research and development				1,548				1,593				6,207				6,294
	Sales and marketing				2,549				2,473				9,821				9,503
	General and administrative				536				508				2,040				1,934
	Amortization of purchased intangible assets				146				68				359				275
	Restructuring and other charges				73				82				484				418
		Total operating expenses			4,852				4,724				18,911				18,424
OPERATING INCOME					2,881				2,681				10,770				9,345
	Interest income				211				183				769				691
	Interest expense				(149	)			(142	)			(566	)			(564	)
	Other income (loss), net				(10	)			56				228				243
		Interest and other income (loss), net			52				97				431				370
INCOME BEFORE PROVISION FOR INCOME TAXES					2,933				2,778				11,201				9,715
Provision for income taxes					614				531				2,220				1,862
NET INCOME				$	2,319			$	2,247			$	8,981			$	7,853
Net income per share:
	Basic			$	0.46			$	0.44			$	1.76			$	1.50
	Diluted			$	0.45			$	0.43			$	1.75			$	1.49
Shares used in per-share calculation:
	Basic				5,086				5,121				5,104				5,234
	Diluted				5,131				5,172				5,146				5,281
Cash dividends declared per common share				$	0.21			$	0.19			$	0.80			$	0.72

CISCO SYSTEMS, INC.
RECONCILIATION OF GAAP TO NON-GAAP NET INCOME
(In millions, except per-share amounts)
				Three Months Ended								Fiscal Year Ended
				July 25,  2015				July 26,  2014				July 25,  2015				July 26,  2014
GAAP net income				$	2,319			$	2,247			$	8,981			$	7,853
	Adjustments to cost of sales:
		Share-based compensation expense			58				49				207				195
		Amortization of acquisition-related intangible assets			179				180				765				710
		Supplier component remediation charge (adjustment)			--				--				(164	)			655
		Rockstar patent portfolio charge			--				--				188				--
		Acquisition-related/divestiture costs			--				1				--				2
		Significant asset impairments and restructurings			5				--				5				--
	Total adjustments to GAAP cost of sales				242				230				1,001				1,562
	Adjustments to operating expenses:
		Share-based compensation expense			338				291				1,235				1,158
		Amortization of acquisition-related intangible assets			146				68				359				275
		Acquisition-related/divestiture costs			79				102				351				585
		Significant asset impairments and restructurings			73				82				484				418
	Total adjustments to GAAP operating expenses				636				543				2,429				2,436
Adjustments to other income (loss), net:
	Gain on VCE reorganization				--				--				(126	)			--
Total adjustments to GAAP income before provision for income taxes					878				773				3,304				3,998
Income tax effect of non-GAAP adjustments					(185	)			(185	)			(731	)			(834	)
Significant tax matters					--				--				(200	)			(154	)
Total adjustments to GAAP provision for income taxes					(185	)			(185	)			(931	)			(988	)
Non-GAAP net income				$	3,012			$	2,835			$	11,354			$	10,863
Diluted net income per share:
GAAP				$	0.45			$	0.43			$	1.75			$	1.49
Non-GAAP				$	0.59			$	0.55			$	2.21			$	2.06

CISCO SYSTEMS, INC.
REVENUE BY SEGMENT
(In millions, except percentages)
				July 25, 2015
				Three Months Ended						Fiscal Year Ended
Revenue				Amount			Y/Y %			Amount			Y/Y %
	Americas			$	7,801		7	%		$	29,655		7	%
	EMEA				3,110		--	%			12,322		3	%
	APJC				1,932		--	%			7,184		(2	)%
		Total		$	12,843		4	%		$	49,161		4	%

CISCO SYSTEMS, INC.
GROSS MARGIN PERCENTAGE BY SEGMENT
(In percentages)
			July 25, 2015
			Three Months Ended			Fiscal Year Ended
Gross Margin Percentage
	Americas		62.7	%		63.0	%
	EMEA		62.1	%		62.5	%
	APJC		59.5	%		60.0	%

CISCO SYSTEMS, INC.
REVENUE FOR GROUPS OF SIMILAR PRODUCTS AND SERVICES
(In millions, except percentages)
				July 25, 2015
				Three Months Ended						Fiscal Year Ended
Revenue:				Amount			Y/Y %			Amount			Y/Y %
Switching				$	3,719		2	%		$	14,741		5	%
NGN Routing					1,992		3	%			7,704		1	%
Collaboration					1,088		14	%			4,000		5	%
Service Provider Video					994		(7	)%			3,555		(10	)%
Data Center					880		14	%			3,220		22	%
Wireless					715		7	%			2,542		11	%
Security					464		4	%			1,747		12	%
Other					59		(3	)%			241		(14	)%
	Product				9,911		4	%			37,750		4	%
	Service				2,932		4	%			11,411		4	%
		Total		$	12,843		4	%		$	49,161		4	%

CISCO SYSTEMS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In millions)
(Unaudited)
				July 25,  2015			July 26,  2014
ASSETS
Current assets:
	Cash and cash equivalents			$	6,877		$	6,726
	Investments				53,539			45,348
	Accounts receivable, net of allowance for doubtful accounts of $302 at July 25, 2015 and $265 at July 26, 2014				5,344			5,157
	Inventories				1,627			1,591
	Financing receivables, net				4,491			4,153
	Deferred tax assets				2,915			2,808
	Other current assets				1,490			1,331
		Total current assets			76,283			67,114
Property and equipment, net					3,332			3,252
Financing receivables, net					3,858			3,918
Goodwill					24,469			24,239
Purchased intangible assets, net					2,376			3,280
Other assets					3,163			3,267
		TOTAL ASSETS		$	113,481		$	105,070
LIABILITIES AND EQUITY
Current liabilities:
	Short-term debt			$	3,897		$	508
	Accounts payable				1,104			1,032
	Income taxes payable				62			159
	Accrued compensation				3,049			3,181
	Deferred revenue				9,824			9,478
	Other current liabilities				5,687			5,451
		Total current liabilities			23,623			19,809
Long-term debt					21,457			20,337
Income taxes payable					1,876			1,851
Deferred revenue					5,359			4,664
Other long-term liabilities					1,459			1,748
		Total liabilities			53,774			48,409
Total equity					59,707			56,661
		TOTAL LIABILITIES AND EQUITY		$	113,481		$	105,070

Certain reclassifications have been made to prior year amounts to conform to the current year's presentation.

CISCO SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In millions)
(Unaudited)
						Fiscal Year Ended
						July 25,  2015				July 26,  2014
Cash flows from operating activities:
	Net income					$	8,981			$	7,853
	Adjustments to reconcile net income to net cash provided by operating activities:
		Depreciation, amortization, and other					2,442				2,439
		Share-based compensation expense					1,440				1,348
		Provision for receivables					134				79
		Deferred income taxes					(23	)			(678	)
		Excess tax benefits from share-based compensation					(128	)			(118	)
		(Gains) losses on investments and other, net					(258	)			(299	)
		Change in operating assets and liabilities, net of effects of acquisitions and divestitures:
			Accounts receivable				(413	)			340
			Inventories				(116	)			(109	)
			Financing receivables				(634	)			(119	)
			Other assets				(370	)			26
			Accounts payable				87				(23	)
			Income taxes, net				53				191
			Accrued compensation				7				(42	)
			Deferred revenue				1,275				659
			Other liabilities				75				785
				Net cash provided by operating activities			12,552				12,332
Cash flows from investing activities:
	Purchases of investments						(43,975	)			(36,317	)
	Proceeds from sales of investments						20,237				18,193
	Proceeds from maturities of investments						15,293				15,660
	Acquisition of businesses, net of cash and cash equivalents acquired						(326	)			(2,989	)
	Purchases of investments in privately held companies						(222	)			(384	)
	Return of investments in privately held companies						288				213
	Acquisition of property and equipment						(1,227	)			(1,275	)
	Proceeds from sales of property and equipment						22				232
	Other						(178	)			24
				Net cash used in investing activities			(10,088	)			(6,643	)
Cash flows from financing activities:
	Issuances of common stock						2,016				1,907
	Repurchases of common stock - repurchase program						(4,324	)			(9,413	)
	Shares repurchased for tax withholdings on vesting of restricted stock units						(502	)			(430	)
	Short-term borrowings, original maturities less than 90 days, net						(4	)			(2	)
	Issuances of debt						4,981				7,981
	Repayments of debt						(508	)			(3,276	)
	Excess tax benefits from share-based compensation						128				118
	Dividends paid						(4,086	)			(3,758	)
	Other						(14	)			(15	)
				Net cash used in financing activities			(2,313	)			(6,888	)
Net increase (decrease) in cash and cash equivalents							151				(1,199	)
Cash and cash equivalents, beginning of fiscal year							6,726				7,925
Cash and cash equivalents, end of fiscal year						$	6,877			$	6,726
Supplemental cash flow information:
Cash paid for interest						$	760			$	682
Cash paid for income taxes, net						$	2,190			$	2,349

Certain reclassifications have been made to prior year amounts to conform to the current year's presentation.

CISCO SYSTEMS, INC.
DEFERRED REVENUE
(In millions)
					July 25,  2015			April 25,  2015			July 26,  2014
Deferred revenue:
	Service				$	9,757		$	9,236		$	9,640
	Product:
		Unrecognized revenue on product shipments and other deferred revenue				4,766			4,258			3,924
		Cash receipts related to unrecognized revenue from two-tier distributors				660			687			578
		Total product deferred revenue				5,426			4,945			4,502
			Total		$	15,183		$	14,181		$	14,142
Reported as:
	Current				$	9,824		$	9,371		$	9,478
	Noncurrent					5,359			4,810			4,664
			Total		$	15,183		$	14,181		$	14,142

CISCO SYSTEMS, INC.
INVENTORIES AND INVENTORY TURNS
(In millions, except annualized inventory turns)
					July 25,				April 25,				July 26,
					2015				2015				2014
Inventories:
	Raw materials				$	114			$	264			$	77
	Work in process					2				2				5
	Finished goods:
		Distributor inventory and deferred cost of sales				610				635				595
		Manufactured finished goods				593				547				606
			Total finished goods			1,203				1,182				1,201
	Service-related spares					258				268				273
	Demonstration systems					50				44				35
			Total		$	1,627			$	1,760			$	1,591
Annualized inventory turns - GAAP						12.1				10.1				12.7
Cost of sales adjustments						(0.6	)			(0.1	)			(0.6	)
Annualized inventory turns - non-GAAP						11.5				10.0				12.1

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 2015
	July 25, 2015			$	0.21		$	1,069		35		$	28.62		$	1,005		$	2,074
	April 25, 2015				0.21			1,070		35			28.39			1,008			2,078
	January 24, 2015				0.19			974		44			27.63			1,208			2,182
	October 25, 2014				0.19			973		41			24.58			1,013			1,986
		Total		$	0.80		$	4,086		155		$	27.22		$	4,234		$	8,320
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

CISCO SYSTEMS, INC.
FREE CASH FLOW
(In millions)
		Three Months Ended								Fiscal Year Ended
		July 25, 2015				July 26, 2014				July 25, 2015				July 26, 2014
Net cash provided by operating activities	$	4,138			$	3,612			$	12,552			$	12,332
Acquisition of property and equipment		(320	)			(325	)			(1,227	)			(1,275	)
Free cash flow	$	3,818			$	3,287			$	11,325			$	11,057

CISCO SYSTEMS, INC.
SUPPLEMENTARY INFORMATION - RECONCILIATIONS OF GAAP TO NON-GAAP MEASURES
GROSS MARGINS, OPERATING EXPENSES, AND OPERATING MARGINS
(In millions, except percentages)
		Three Months Ended
		July 25, 2015
		Product Gross Margin				Service Gross Margin				Total Gross Margin				Operating Expenses				Y/Y			Operating Income				Y/Y
GAAP amount		$	5,843			$	1,890			$	7,733			$	4,852			3	%		$	2,881			7	%
GAAP (% of revenue)			59.0	%			64.5	%			60.2	%			37.8	%						22.4	%
Adjustments to GAAP amounts:
	Share-based compensation expense		16				42				58				338							396
	Amortization of acquisition-related intangible assets		179				--				179				146							325
	Acquisition-related/ divestiture costs		--				--				--				79							79
	Significant asset impairments and restructurings		5				--				5				73							78
Non-GAAP amount		$	6,043			$	1,932			$	7,975			$	4,216			1	%		$	3,759			9	%
Non-GAAP (% of revenue)			61.0	%			65.9	%			62.1	%			32.8	%						29.3	%

EFFECTIVE TAX RATE
(In percentages)
	Three Months Ended						Fiscal Year Ended
	July 25, 2015			July 26, 2014			July 25, 2015			July 26, 2014
GAAP effective tax rate	20.9	%		19.1	%		19.8	%		19.2	%
Tax effect of non-GAAP adjustments to net income	0.1	%		1.1	%		1.9	%		1.6	%
Non-GAAP effective tax rate	21.0	%		20.2	%		21.7	%		20.8	%

COST OF SALES USED IN INVENTORY TURNS
(In millions)
				Three Months Ended
				July 25, 2015				April 25, 2015				July 26, 2014
GAAP cost of sales				$	5,110			$	4,612			$	4,952
	Cost of sales adjustments:
			Share-based compensation expense		(58	)			(56	)			(49	)
			Amortization of acquisition-related intangible assets		(179	)			(172	)			(180	)
			Supplier component remediation adjustment		--				164				--
			Acquisition-related/divestiture costs		--				--				(1	)
		Significant asset impairments and restructurings			(5	)			--				--
Non-GAAP cost of sales				$	4,868			$	4,548			$	4,722

Forward Looking Statements and Non-GAAP 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 digitization strategy and execution, financial strength and financial guidance, our strategy to transition our business to a more software-based business model and recurring revenue streams, and our ability to deliver profitable growth, manage our portfolio and strategic investments, and return shareholder value) and the future financial performance of Cisco that involve risks and uncertainties. Readers are cautioned that these forward-looking statements are only predictions and may differ materially from actual future events or results due to a variety of factors, including: business and economic conditions and growth trends in the networking industry, our customer markets and various geographic regions; global economic conditions and uncertainties in the geopolitical environment; overall information technology spending; the growth and evolution of the Internet and levels of capital spending on Internet-based systems; variations in customer demand for products and services, including sales to the service provider market and other customer markets; the return on our investments in certain priorities, including our foundational priorities, and in certain geographical locations; the timing of orders and manufacturing and customer lead times; changes in customer order patterns or customer mix; insufficient, excess or obsolete inventory; variability of component costs; variations in sales channels, product costs or mix of products sold; our ability to successfully acquire businesses and technologies and to successfully integrate and operate these acquired businesses and technologies; our ability to achieve expected benefits of our partnerships; increased competition in our product and service markets, including the data center; dependence on the introduction and market acceptance of new product offerings and standards; rapid technological and market change; manufacturing and sourcing risks; product defects and returns; litigation involving patents, intellectual property, antitrust, shareholder and other matters, and governmental investigations; natural catastrophic events; a pandemic or epidemic; our ability to achieve the benefits anticipated from our investments in sales, engineering, service, marketing and manufacturing activities; our ability to recruit and retain key personnel; our ability to manage financial risk, and to manage expenses during economic downturns; risks related to the global nature of our operations, including our operations in emerging markets; currency fluctuations and other international factors; changes in provision for income taxes, including changes in tax laws and regulations or adverse outcomes resulting from examinations of our income tax returns; potential volatility in operating results; and other factors listed in Cisco's most recent reports on Forms 10-Q and 10-K filed on May 20, 2015 and September 9, 2014, 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 25, 2015 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, non-GAAP net income per share data, non-GAAP inventory turns and free cash flow 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. 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.

About Cisco

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