Cisco Systems Reports Second Quarter Earnings.SAN JOSE San Jose, city, United States San Jose (sănəzā`, săn hōzā`), city (1990 pop. 782,248), seat of Santa Clara co., W central Calif.; founded 1777, inc. 1850. , Calif. -- Cisco Systems “Cisco” redirects here. For other uses, see Cisco (disambiguation). Cisco System,Inc. (NASDAQ: CSCO, HKSE: 4333 ) is an American multinational corporation with 54,000 employees and annual revenue of US $28.48 billion as of 2006. , Inc. (Nasdaq:CSCO CSCO Cisco Systems Incorporated (stock symbol) CSCO Chief Supply Chain Officer ): --Q2 Net Sales Net Sales The amount a seller receives from the buyer after costs associated with the sale are deducted. Notes: This amount is calculated by subtracting the following items from gross sales: merchandise returned for credit, allowances for damaged or missing goods, freight : $6.6 billion (9.3% increase year over year) --Q2 Net Income: $1.4 billion GAAP GAAP See: Generally Accepted Accounting Principles GAAP See generally accepted accounting principles (GAAP). (includes stock-based compensation expense of $188 million, net of tax) compared with $1.1 billion for Q2 FY'05, including pro forma As a matter of form or for the sake of form. Used to describe accounting, financial, and other statements or conclusions based upon assumed or anticipated facts. The phrase pro forma stock-based compensation expense; $1.6 billion non-GAAP (pro forma) compared with $1.5 billion for Q2 FY'05 --Q2 Earnings Per Share: $0.22 GAAP (includes stock-based compensation expense of $0.03) compared with $0.17 for Q2 FY'05, including pro forma stock-based compensation expense; $0.26 non-GAAP (pro forma) compared with $0.22 for Q2 FY'05 Cisco Systems, Inc., the worldwide leader in networking for the Internet Internet Publicly accessible computer network connecting many smaller networks from around the world. It grew out of a U.S. Defense Department program called ARPANET (Advanced Research Projects Agency Network), established in 1969 with connections between computers at the , today reported its second quarter results for the period ended January January: see month. 28, 2006. Net sales for the second quarter of fiscal 2006 were $6.6 billion, compared with $6.1 billion for the second quarter of fiscal 2005, an increase of 9.3 percent, and compared with $6.5 billion for the first quarter of fiscal 2006, an increase of 1.2 percent. Net income for the second quarter of fiscal 2006, on a generally accepted accounting principles The standard accounting rules, regulations, and procedures used by companies in maintaining their financial records. Generally accepted accounting principles (GAAP) provide companies and accountants with a consistent set of guidelines that cover both broad accounting (GAAP) basis, was $1.4 billion or $0.22 per share, which includes stock-based compensation expense related to employee stock options and employee stock purchases of $188 million, net of tax, or $0.03 per share. Net income prior to fiscal 2006 did not include stock-based compensation expense related to employee stock options and employee stock purchases. Including the pro forma stock-based compensation expense previously disclosed dis·close tr.v. dis·closed, dis·clos·ing, dis·clos·es 1. To expose to view, as by removing a cover; uncover. 2. To make known (something heretofore kept secret). in Cisco's financial statements footnotes, net income for the second quarter of fiscal 2005 was $1.1 billion or $0.17 per share. Net income for the first quarter of fiscal 2006, on a GAAP basis, was $1.3 billion or $0.20 per share, which includes stock-based compensation expense related to employee stock options and employee stock purchases of $228 million, net of tax, or $0.04 per share. Please refer to the table on page 7 for a comparison of net income, including the effect of stock-based compensation expense. Net income on a GAAP basis, which does not include the effect of stock-based compensation expense, for the second quarter of fiscal 2005 was $1.4 billion or $0.21 per share. Non-GAAP (pro forma) net income for the second quarter of fiscal 2006 was $1.6 billion or $0.26 per share, compared with $1.5 billion or $0.22 per share for the second quarter of fiscal 2005, and compared with $1.6 billion or $0.25 per share for the first quarter of fiscal 2006. A reconciliation between net income on a GAAP basis and non-GAAP (pro forma) net income is provided in a table on page 7. Net sales for the first six months of fiscal 2006 were $13.2 billion, compared with $12.0 billion for the first six months of fiscal 2005, an increase of 9.5 percent. Net income for the first six months of fiscal 2006, on a GAAP basis, was $2.6 billion or $0.42 per share, which includes stock-based compensation related to employee stock options and employee stock purchases of $416 million, net of tax, or $0.07 per share. Including the pro forma stock-based compensation expense previously disclosed in Cisco's financial statements footnotes, net income for the first six months of fiscal 2005 was $2.3 billion or $0.34 per share. Net income on a GAAP basis, which does not include the effect of stock-based compensation expense, for the first six months of fiscal 2005 was $2.8 billion or $0.42 per share. Non-GAAP (pro forma) net income for the first six months of fiscal 2006 was $3.2 billion or $0.51 per share, compared with $2.9 billion or $0.44 per share for the first six months of fiscal 2005. During the second quarter of fiscal 2006, Cisco completed the purchase of Cybertrust's Intellishield Alert Manager and the purchase of selected assets of Digital Fairway Corporation. "We're we're Contraction of we are. we're we are pleased with the solid revenue and earnings per share results Cisco delivered during its second quarter, but also especially pleased with our strong order momentum," said John Chambers John Chambers could be any of the following people:
Mathematical property of infinite series, integrals on unbounded regions, and certain sequences of numbers. An infinite series is convergent if the sum of its terms is finite. of voice, video and data along with our balanced approach to our customer segments, core and advanced technologies, business and technology architecture and key geographic geographic /geo·graph·ic/ (je?o-graf´ik) in pathology, of or referring to a pattern that is well demarcated, resembling outlines on a map. geographic pertaining to geography. theaters." "The network is enabling the next generation of IT," Chambers continued. "As all forms of communications are migrating into the network, it is transforming the way our customers create business models and design new forms of communication-based services for their customers, employees and citizens. Cisco anticipated the need for intelligence throughout the network five years ago and today those dividends are beginning to pay off." Cisco will discuss second quarter 2006 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. Financial Highlights --Cash flows from operations were $1.9 billion for the second quarter of fiscal 2006, compared with $1.8 billion for the second quarter of fiscal 2005, and compared with $1.4 billion for the first quarter of fiscal 2006. --Cash and cash equivalents and investments were $15.0 billion at the end of the second quarter of fiscal 2006, compared with $16.1 billion at the end of the fourth quarter of fiscal 2005, and compared with $13.5 billion at the end of the first quarter of fiscal 2006. --During the second quarter of fiscal 2006, Cisco repurchased 42 million shares of common stock at an average price of $17.87 per share for an aggregate purchase price of $748 million. As of January 28, 2006, Cisco had repurchased and retired 1.7 billion shares of Cisco common stock at an average price of $18.13 per share for an aggregate purchase price of approximately ap·prox·i·mate adj. 1. Almost exact or correct: the approximate time of the accident. 2. $31.4 billion since the inception INCEPTION. The commencement; the beginning. In making a will, for example, the writing is its inception. 3 Co. 31 b; Plowd. 343. Vide Consummation; Progression. of the stock repurchase Stock repurchase A firm's repurchase of outstanding shares of its common stock. program. --Days sales outstanding (DSO See CSO. ) in accounts receivable accounts receivable n. the amounts of money due or owed to a business or professional by customers or clients. Generally, accounts receivable refers to the total amount due and is considered in calculating the value of a business or the business' problems in paying at the end of the second quarter of fiscal 2006 were 35 days, compared with 31 days at the end of the fourth quarter of fiscal 2005, and compared with 33 days at the end of the first quarter of fiscal 2006. --Inventory turns on a GAAP basis were 6.5 in the second quarter of fiscal 2006, compared with 6.6 in the fourth quarter of fiscal 2005, and compared with 6.5 in the first quarter of fiscal 2006. Non-GAAP (pro-forma) inventory turns were 6.4 in the second quarter of fiscal 2006, compared with 6.4 in the first quarter of fiscal 2006. "Our second quarter results demonstrate solid financial execution and profitable growth," said Dennis Powell Dennis Clay Powell (born August 13, 1963 in Moultrie, Georgia) is a former pitcher in Major League Baseball. He pitched from 1985-1993 for the Los Angeles Dodgers and Seattle Mariners. As a hitter, he had three hits in his career; all were doubles. , Cisco chief financial officer. "As we manage the business for the long term, we have seen strength in many aspects of our business, particularly cash flow from operations Cash flow from operations A firm's net cash inflow resulting directly from its regular operations (disregarding extraordinary items such as the sale of fixed assets or transaction costs associated with issuing securities), calculated as the sum of net income plus noncash expenses of $1.9 billion, non-GAAP (pro forma) net income of $1.6 billion and an 18 percent year-over-year increase in non-GAAP (pro forma) earnings per share to $0.26." Business Highlights --Cisco announced a definitive agreement to acquire Scientific-Atlanta Scientific Atlanta Inc, a Cisco company, is a Georgia-based manufacturer of cable television, telecommunications, and broadband equipment. Both Scientific Atlanta and Cisco can trace their roots to academia. , Inc. --Comcast selected the Cisco CRS-1 Carrier Routing System for its integrated national delivery platform for broadband broadband Term describing the radiation from a source that produces a broad, continuous spectrum of frequencies (contrasted with a laser, which produces a single frequency or very narrow range of frequencies). , communications, video entertainment and future cross-platform (software, hardware) cross-platform - A term that describes a language, software application or hardware device that works on more than one system platform (e.g. Unix, Microsoft Windows, Macintosh). E.g. Netscape Navigator, Java. services. --Shanghai Telecom is expected to become the first telecommunications Communicating information, including data, text, pictures, voice and video over long distance. See communications. carrier in China to deploy the Cisco CRS-1 as part of its Cisco Internet Protocol See Internet and TCP/IP. (networking) Internet Protocol - (IP) The network layer for the TCP/IP protocol suite widely used on Ethernet networks, defined in STD 5, RFC 791. IP is a connectionless, best-effort packet switching protocol. Next-Generation Network (IP NGN IP NGN IP Next Generation Network (Cisco) ). --Telstra, one of Australia's principal telecommunications companies See telecom company. , selected the Cisco CRS-1 to provide a carrier-class foundation for a converged "triple play" network. --Both Virgin Entertainment Group and Hannaford Hannaford may refer to more than one thing.
BROS Benefits and Retirement Operations Section (King County, Washington) BROS Barnes and Richmond Operatic Society (London, UK) . Co. selected the Cisco Intelligent Retail Network to increase store-level productivity and simplify operations. --The U.S. Department of Health and Human Services Noun 1. Department of Health and Human Services - the United States federal department that administers all federal programs dealing with health and welfare; created in 1979 Health and Human Services, HHS selected Cisco to work with other technology firms to develop prototypes for a Nationwide Health Information Network (NHIN NHIN Nationwide Health Information Network NHIN National Health Information Network ) architecture. --Northrop Grumman Corporation teamed with Cisco to provide IP-based rich-media communications to the U.S. Department of Defense through the Defense Information Systems Agency (DISA 1. (body) DISA - Defense Information Systems Agency. 2. (standard) DISA - Data Interchange Standards Association. ). --During the second quarter, Cisco announced three planned additions to the advanced technology portfolio: 1) hosted small business systems, or Linksys Linksys is a division of Cisco Systems that sells products for home and small office networks. Originally founded in 1988, Linksys was acquired by Cisco in 2003[1]. One; 2) application networking services for enterprise customers; and 3) digital video, representing a significant amount of the company's planned acquisition of Scientific Atlanta Atlanta (ətlăn`tə, ăt–), city (1990 pop. 394,017), state capital and seat of Fulton co., NW Ga., on the Chattahoochee R. and Peachtree Creek, near the Appalachian foothills; inc. 1847. for the consumer and service provider market segments. The first two are included in Cisco's Advanced Technologies revenue category this quarter. Editor's Note Editor's Note (foaled in 1993 in Kentucky) is an American thoroughbred Stallion racehorse. He was sired by 1992 U.S. Champion 2 YO Colt Forty Niner, who in turn was a son of Champion sire Mr. Prospector and out of the mare, Beware Of The Cat. Trained by D. : --Q2 FY'06 conference call to discuss Cisco's results along with its business outlook to be held at 1:30 p.m. Pacific Time, Tuesday Tuesday: see week. , February February: see month. 7, 2006. Conference call number is 888-848-6507 (United States United States, officially United States of America, republic (2005 est. pop. 295,734,000), 3,539,227 sq mi (9,166,598 sq km), North America. The United States is the world's third largest country in population and the fourth largest country in area. ); 212-519-0847 (international). --Conference call replay will be available from 4:30 p.m. Pacific Time, February 7, 2006 to 4:30 p.m. Pacific Time, February 14, 2006 at 866-357-4205 (United States); 203-369-0122 (international). The replay is also available from February 7, 2006 through April 21, 2006 on the Cisco Investor Relations Investor relations The process by which the corporation communicates with its investors. Website at http://www.cisco.com/go/investors. --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, February 7, 2006. 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://www.cisco.com/go/investors. --A Q&A with Cisco's CEO and CFO See Chief Financial Officer. on Q2 FY'06 results will be available at http://newsroom.cisco.com. About Cisco Systems Cisco Systems, Inc. (Nasdaq:CSCO) is the worldwide leader in networking for the Internet. Information about Cisco can be found at http://www.cisco.com. For ongoing news, visit http://newsroom.cisco.com. This release may be deemed to contain forward-looking statements forward-looking statement A projected financial statement based on management expectations. A forward-looking statement involves risks with regard to the accuracy of assumptions underlying the projections. , which are subject to the safe harbor Safe Harbor 1. A legal provision to reduce or eliminate liability as long as good faith is demonstrated. 2. A form of shark repellent implemented by a target company acquiring a business that is so poorly regulated that the target itself is less attractive. provisions of the Private Securities Litigation Reform Act The Private Securities Litigation Reform Act of 1995 (PSLRA) implemented several significant substantive changes affecting certain cases brought under the federal securities laws, including changes related to pleading, discovery, liability, class representation and awards fees and of 1995. These forward-looking statements include, among other things, statements regarding future events 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 and in various geographic regions; global economic conditions and uncertainties in the geopolitical ge·o·pol·i·tics n. (used with a sing. verb) 1. The study of the relationship among politics and geography, demography, and economics, especially with respect to the foreign policy of a nation. 2. a. environment; overall information technology spending; the growth of the Internet and levels of capital spending capital spending Spending for long-term assets such as factories, equipment, machinery, and buildings that permits the production of more goods and services in future years. on Internet-based systems; variations in customer demand for products and services, including sales to the service provider market; the timing of orders and manufacturing and customer lead times; changes in customer order patterns or customer mix; insufficient in·suf·fi·cient adj. 1. Not sufficient. 2. Incapable of proper functioning. , excess or obsolete inventory Obsolete Inventory Term that refers to inventory that is at the end of its product life cycle and has not seen any sales or usage for a set period of time usually determined by the industry. This type of inventory has to be written down and can cause large losses for a company. ; 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 including the businesses and technologies of Scientific-Atlanta, Inc.; increased competition in the networking industry; dependence on the introduction and market acceptance of new product offerings and standards; rapid technological and market change; manufacturing and sourcing risks, including risks relating to relating to relate prep → concernant relating to relate prep → bezüglich +gen, mit Bezug auf +acc our transition to a new manufacturing model; product defects and returns; litigation An action brought in court to enforce a particular right. The act or process of bringing a lawsuit in and of itself; a judicial contest; any dispute. When a person begins a civil lawsuit, the person enters into a process called litigation. involving patents, intellectual property, antitrust Antitrust The antitrust laws apply to virtually all industries and to every level of business, including manufacturing, transportation, distribution, and marketing. They prohibit a variety of practices that restrain trade. , shareholder and other matters; natural catastrophic events; achievement of the benefits anticipated from our investments in sales and engineering activities; our ability to recruit RECRUIT. A newly made soldier. and retain key personnel; our ability to manage financial risk; currency fluctuations and other international factors; potential volatility Volatility 1. A statistical measure of the tendency of a market or security to rise or fall sharply within a period of time. 2. A variable in option pricing formulas that denotes the extent to which the return of the underlying asset will fluctuate between now and the in operating results and other factors listed in Cisco's most recent reports on Form 10-K Form 10-K A report required by the SEC from exchange-listed companies that provides for annual disclosure of certain financial information. Form 10-K See 10-K. , 10-Q and 8-K. The financial information contained in this release should be read in conjunction conjunction, in astronomy conjunction, in astronomy, alignment of two celestial bodies as seen from the earth. Conjunction of the moon and the planets is often determined by reference to the sun. with the consolidated financial statements Consolidated Financial Statements The combined financial statements of a parent company and its subsidiaries. Notes: Because consolidated financial statements present an aggregated look at the financial position of a parent and its subsidiaries, they enable you to gauge and notes thereto there·to adv. 1. To that, this, or it. 2. Archaic In addition to that; furthermore. thereto Adverb Formal 1. to that or it 2. included in Cisco's most recent reports on Form 10-K and Form 10-Q Form 10-Q See 10-Q. , each as it may be amended a·mend v. a·mend·ed, a·mend·ing, a·mends v.tr. 1. To change for the better; improve: amended the earlier proposal so as to make it more comprehensive. 2. from time to time. Cisco's results of operations for the three and six months ended January 28, 2006 are not necessarily indicative indicative: see mood. 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 (pro forma) net income, non-GAAP (pro forma) net income per share data, non-GAAP (pro forma) shares used in net income per share calculation, non-GAAP (pro forma) inventory turns, non-GAAP (pro forma) gross margin, and other non-GAAP line items from the Consolidated con·sol·i·date v. con·sol·i·dat·ed, con·sol·i·dat·ing, con·sol·i·dates v.tr. 1. To unite into one system or whole; combine: Statements of Operations, including cost of sales information, gross margin, operating expenses Operating expenses The amount paid for asset maintenance or the cost of doing business, excluding depreciation. Earnings are distributed after operating expenses are deducted. (including research and development, sales and marketing, and general and administrative expenses), other income (loss), net, and provision for income taxes. These measures are not in accordance Accordance is Bible Study Software for Macintosh developed by OakTree Software, Inc.[] As well as a standalone program, it is the base software packaged by Zondervan in their Bible Study suites for Macintosh. with, or an alternative for, generally accepted accounting principles and may be different from non-GAAP (pro forma) measures used by other companies. Cisco believes that the presentation of non-GAAP (pro forma) net income, non-GAAP (pro forma) net income per share data, non-GAAP (pro forma) shares used in net income per share calculation, non-GAAP (pro forma) inventory turns and non-GAAP (pro forma) gross margin, when shown in conjunction with the corresponding GAAP measures, provides useful information to management and investors regarding financial and business trends relating to its financial condition and results of operations. Cisco further believes that where the adjustments used in calculating non-GAAP (pro forma) net income and non-GAAP (pro forma) net income per share are based on specific, identified charges that impact different line items in the statements of operations (including cost of sales, research and development, sales and marketing, and general and administrative expense), that it is useful to investors to know how these specific line items in the statements of operations are affected by these adjustments. In particular, as Cisco begins to apply SFAS SFAS Statement of Financial Accounting Standards SFAS Special Forces Assessment and Selection SFAS Student Financial Aid Services SFAS Sport Fishing Association of Singapore SFAS Safety Features Actuation System SFAS Statewide Fixed Assets System 123(R), it believes that it is useful to investors to understand how the expenses associated with the application of SFAS 123(R) are reflected on its statements of operations. For its internal budgets, Cisco's management uses financial statements that do not include stock-based compensation expense related to employee stock options and employee stock purchases, payroll tax Payroll Tax Tax an employer withholds and/or pays on behalf of their employees based on the wage or salary of the employee. In most countries, including the U.S., both state and federal authorities collect some form of payroll tax. on stock option exercises, in-process research and development, compensation expense related to acquisitions and investments, amortization of purchased intangible assets Intangible Asset An asset that is not physical in nature. Notes: Examples are things like copyrights, patents, intellectual property, and goodwill. These are the opposite of tangible assets. , gain (loss) on publicly traded equity securities and the income tax effects of the foregoing on cost of sales, research and development, sales and marketing and general and administrative expenses, as applicable. Cisco's management also uses the foregoing non-GAAP measures, in addition to the corresponding GAAP measures, in reviewing the financial results of Cisco. Copyright(C) 2006 Cisco Systems, Inc. All rights reserved. Cisco, Cisco Systems, the Cisco Systems logo, and Linksys are registered trademarks or trademarks of Cisco Systems, Inc. and/or and/or conj. Used to indicate that either or both of the items connected by it are involved. Usage Note: And/or is widely used in legal and business writing. its affiliates in the U.S. and certain other countries. All other 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.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In millions, except per-share amounts)
(Unaudited)
Three Months Ended Six Months Ended
------------------ -----------------
Jan. 28, Jan. 29, Jan. 28, Jan. 29,
2006 2005 2006 2005
-------- --------- -------- --------
NET SALES:
Product $ 5,537 $ 5,106 $11,028 $10,139
Service 1,091 956 2,150 1,894
-------- --------- -------- --------
Total net sales 6,628 6,062 13,178 12,033
-------- --------- -------- --------
COST OF SALES:
Product 1,774 1,669 3,525 3,315
Service 388 340 777 650
-------- --------- -------- --------
Total cost of sales 2,162 2,009 4,302 3,965
-------- --------- -------- --------
GROSS MARGIN 4,466 4,053 8,876 8,068
OPERATING EXPENSES:
Research and development 966 811 1,962 1,616
Sales and marketing 1,431 1,142 2,884 2,262
General and administrative 282 228 560 458
Amortization of purchased
intangible assets 56 57 115 117
In-process research and
development -- 2 2 14
-------- --------- -------- --------
Total operating expenses 2,735 2,240 5,523 4,467
-------- --------- -------- --------
OPERATING INCOME 1,731 1,813 3,353 3,601
Interest income 168 127 322 257
Other income, net 17 17 -- 57
-------- --------- -------- --------
Interest and other income, net 185 144 322 314
-------- --------- -------- --------
INCOME BEFORE PROVISION FOR
INCOME TAXES 1,916 1,957 3,675 3,915
Provision for income taxes 541 557 1,039 1,119
-------- --------- -------- --------
NET INCOME $ 1,375 $ 1,400 $ 2,636 $ 2,796
-------- --------- -------- --------
Net income per share:
Basic $ 0.22 $ 0.21 $ 0.43 $ 0.43
-------- --------- -------- --------
Diluted $ 0.22 $ 0.21 $ 0.42 $ 0.42
-------- --------- -------- --------
Shares used in per-share
calculation:
Basic 6,146 6,521 6,195 6,577
-------- --------- -------- --------
Diluted 6,248 6,652 6,301 6,713
-------- --------- -------- --------
Net income for the second quarter and the first six months of fiscal
2006 included stock-based compensation expense related to employee
stock options and employee stock purchases, net of tax, of $188 and
$416, respectively, under SFAS 123(R). There was no stock-based
compensation expense related to employee stock options and employee
stock purchases under SFAS 123 in fiscal 2005 because the Company did
not adopt the recognition provisions of SFAS 123.
ALLOCATION OF STOCK-BASED COMPENSATION EXPENSE RELATED TO EMPLOYEE
STOCK OPTIONS AND EMPLOYEE STOCK PURCHASES
The following table summarizes stock-based compensation expense
related to employee stock options and employee stock purchases which
was allocated as follows (in millions):
Three Months Ended Six Months Ended
------------------ -----------------
Jan. 28, Jan. 29, Jan. 28, Jan. 29,
2006 2005 2006 2005
-------- --------- -------- --------
Cost of sales - product $ 11 $ -- $ 30 $ --
Cost of sales - service 28 -- 62 --
-------- --------- -------- --------
Stock-based compensation expense
included in cost of sales 39 -- 92 --
Research and development 90 -- 193 --
Sales and marketing 106 -- 233 --
General and administrative 26 -- 60 --
-------- --------- -------- --------
Stock-based compensation expense
included in operating expenses 222 -- 486 --
Total stock-based compensation
expense related to employee
stock options and employee stock
purchases 261 -- 578 --
Tax benefit (73) -- (162) --
-------- --------- -------- --------
Stock-based compensation expense
related to employee stock
options and employee stock
purchases, net of tax $ 188 -- $ 416 --
-------- --------- -------- --------
Net income including pro forma stock-based compensation expense as
previously disclosed in Cisco's financial statements footnotes for the
second quarter and the first six months of fiscal 2005 was $1.1
billion or $0.17 per diluted share and $2.3 billion or $0.34 per
diluted share, respectively. Please refer to the table on page 7 for a
comparison of net income including the effect of stock-based
compensation expense.
NON-GAAP (PRO FORMA) CONSOLIDATED STATEMENTS OF OPERATIONS
(In millions, except per-share amounts)
(Unaudited)
Three Months Ended Six Months Ended
------------------- ------------------
Jan. 28, Jan. 29, Jan. 28, Jan. 29,
2006 2005 2006 2005
--------- --------- --------- --------
NET SALES:
Product $ 5,537 $ 5,106 $11,028 $10,139
Service 1,091 956 2,150 1,894
--------- --------- --------- --------
Total net sales 6,628 6,062 13,178 12,033
--------- --------- --------- --------
COST OF SALES:
Product (a) 1,763 1,669 3,495 3,315
Service (a) 360 340 715 650
--------- --------- --------- --------
Total cost of sales (a) 2,123 2,009 4,210 3,965
--------- --------- --------- --------
GROSS MARGIN (a) 4,505 4,053 8,968 8,068
OPERATING EXPENSES:
Research and development (a)-(c) 850 785 1,709 1,572
Sales and marketing (a)-(c) 1,319 1,132 2,639 2,234
General and administrative
(a)-(c) 255 222 497 447
--------- --------- --------- --------
Total operating expenses
(a)-(e) 2,424 2,139 4,845 4,253
--------- --------- --------- --------
OPERATING INCOME (a)-(e) 2,081 1,914 4,123 3,815
Interest income 168 127 322 257
Other income, net (f) 17 17 -- 4
--------- --------- --------- --------
Interest and other income, net
(f) 185 144 322 261
--------- --------- --------- --------
INCOME BEFORE PROVISION FOR
INCOME TAXES (a)-(f) 2,266 2,058 4,445 4,076
Provision for income taxes (g) 634 576 1,244 1,141
--------- --------- --------- --------
NET INCOME (a)-(g) $ 1,632 $ 1,482 $ 3,201 $ 2,935
--------- --------- --------- --------
Net income per share:
Basic (a)-(g) $ 0.27 $ 0.23 $ 0.52 $ 0.45
--------- --------- --------- --------
Diluted (a)-(g) $ 0.26 $ 0.22 $ 0.51 $ 0.44
--------- --------- --------- --------
Shares used in per-share
calculation:
Basic 6,146 6,521 6,195 6,577
--------- --------- --------- --------
Diluted 6,233 6,652 6,286 6,713
--------- --------- --------- --------
A reconciliation between net income on a GAAP basis and non-GAAP (pro
forma) net income including items (a) - (g) is provided in a table on
page 7.
RECONCILIATION OF GAAP TO NON-GAAP (PRO FORMA) NET INCOME
(In millions)
Three Months Ended Six Months Ended
------------------ -----------------
Jan. 28, Jan. 29, Jan. 28, Jan. 29,
2006 2005 2006 2005
-------- --------- -------- ---------
GAAP net income $1,375 $ 1,400 $2,636 $ 2,796
(a) Stock-based compensation
expense related to employee
stock options and employee
stock purchases(1) 261 -- 578 --
(b) Payroll tax on stock option
exercises(1) 3 3 5 4
(c) Compensation expense related
to acquisitions and
investments(1) 30 39 70 79
(d) In-process research and
development -- 2 2 14
(e) Amortization of purchased
intangible assets 56 57 115 117
(f) (Gain) loss on publicly
traded equity securities -- -- -- (53)
(g) Income tax effect (93) (19) (205) (22)
-------- --------- -------- ---------
Non-GAAP (pro forma) net income $1,632 $ 1,482 $3,201 $ 2,935
-------- --------- -------- ---------
Note:
(1) In Q2 FY'06, stock-based compensation expense of $261 was
allocated as follows: $39 to cost of sales ($11 to product cost of
sales and $28 to service cost of sales), $90 to R&D, $106 to S&M
and $26 to G&A. In Q2 FY'06, payroll tax on stock option exercises
of $3 and compensation expense related to acquisitions and
investments of $30 was allocated as follows: $26 to R&D, $6 to S&M
and $1 to G&A. In Q2 FY'05, payroll tax on stock option exercises
of $3 and compensation expense related to acquisitions and
investments of $39 was allocated as follows: $26 to R&D, $10 to
S&M and $6 to G&A. In the first six months of FY'06, stock-based
compensation expense of $578 was allocated as follows: $92 to cost
of sales ($30 to product cost of sales and $62 to service cost of
sales), $193 to R&D, $233 to S&M and $60 to G&A. In the first six
months of FY'06, payroll tax on stock option exercises of $5 and
compensation expense related to acquisitions and investments of
$70 was allocated as follows: $60 to R&D, $12 to S&M and $3 to
G&A. In the first six months of FY'05, payroll tax on stock option
exercises of $4 and compensation expense related to acquisitions
and investments of $79 was allocated as follows: $44 to R&D, $28
to S&M and $11 to G&A.
In calculating non-GAAP (pro forma) inventory turns for the second
quarter of fiscal 2006, stock-based compensation expense of $39
was excluded from cost of sales. In calculating non-GAAP (pro
forma) inventory turns for the first quarter of fiscal 2006,
stock-based compensation expense of $53 was excluded from cost of
sales. In calculating non-GAAP (pro forma) gross margins for the
second quarter of fiscal 2006, stock-based compensation expense of
$39 was excluded from cost of sales ($11 from product cost of
sales and $28 from service cost of sales). In calculating non-GAAP
(pro forma) gross margins for the first six months of fiscal 2006,
stock-based compensation expense of $92 was excluded from cost of
sales ($30 from product cost of sales and $62 from service cost of
sales).
RECONCILIATION OF SHARES USED IN THE CALCULATION OF GAAP TO
NON-GAAP (PRO FORMA) DILUTED NET INCOME PER SHARE
(In millions)
Three Months Ended Six Months Ended
------------------ ------------------
Jan. 28, Jan. 29, Jan. 28, Jan. 29,
2006 2005 2006 2005
-------- --------- -------- ---------
Diluted shares used in per-share
calculation - GAAP 6,248 6,652 6,301 6,713
Effect of SFAS 123(R) (15) -- (15) --
-------- --------- -------- ---------
Diluted shares used in per-share
calculation -- Non-GAAP (Pro
Forma) 6,233 6,652 6,286 6,713
-------- --------- -------- ---------
COMPARISON OF NET INCOME INCLUDING THE EFFECT OF STOCK-BASED
COMPENSATION EXPENSE RELATED TO EMPLOYEE STOCK OPTIONS AND
EMPLOYEE STOCK PURCHASES UNDER SFAS 123(R) and SFAS 123
(In millions, except per-share amounts)
Three Months Ended Six Months Ended
----------------- -----------------
Jan. 28, Jan. 29, Jan. 28, Jan. 29,
2006 2005 2006 2005
-------- -------- -------- --------
Net income - as reported for
prior periods (1) N/A $ 1,400 N/A $ 2,796
Stock-based compensation expense
related to employee stock
options and employee stock
purchases $ (261) (428) $ (578) (888)
Tax benefit $ 73 171 $ 162 355
--------- ---------
Stock-based compensation expense
related to employee stock
options and employee stock
purchases, net of tax (2) $ (188) (257) (416) (533)
--------- ---------
Net income, including the effect
of stock-based compensation
expense (3) $ 1,375 1,143 $ 2,636 2,263
--------- ---------
Diluted net income per share -
as reported for prior periods
(1) N/A $ 0.21 N/A $ 0.42
Stock-based compensation expense
related to employee stock
options and employee stock
purchases, net of tax, per
share (2) $ (0.03) $ (0.04) $ (0.07) $ (0.08)
--------- ---------
Diluted net income per share,
including the effect of stock-
based compensation expense (3) $ 0.22 $ 0.17 $ 0.42 $ 0.34
--------- ---------
Notes:
(1) Net income and net income per share prior to fiscal 2006 did not
include stock-based compensation expense related to employee stock
options and employee stock purchases under SFAS 123 because Cisco
did not adopt the recognition provisions of SFAS 123.
(2) Stock-based compensation expense and stock-based compensation
expense per share prior to fiscal 2006 is calculated based on the
pro forma application of SFAS 123 as previously disclosed in
Cisco's financial statements footnotes.
(3) Net income and net income per share prior to fiscal 2006
represents pro forma information based on SFAS 123 as previously
disclosed in Cisco's financial statements footnotes.
CONSOLIDATED BALANCE SHEETS
(In millions)
(Unaudited)
Jan. 28, July 30,
2006 2005
-------- --------
ASSETS
Current assets:
Cash and cash equivalents $ 5,151 $ 4,742
Investments 9,838 11,313
Accounts receivable, net of allowance for doubtful
accounts of $171 at January 28, 2006 and $162 at
July 30, 2005 2,537 2,216
Inventories 1,345 1,297
Deferred tax assets 1,476 1,475
Prepaid expenses and other current assets 1,264 967
-------- --------
Total current assets 21,611 22,010
Property and equipment, net 3,316 3,320
Goodwill 5,422 5,295
Purchased intangible assets, net 510 549
Other assets 2,793 2,709
-------- --------
TOTAL ASSETS $33,652 $33,883
-------- --------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 684 $ 735
Income taxes payable 1,437 1,511
Accrued compensation 1,220 1,317
Deferred revenue 3,937 3,854
Other accrued liabilities 2,243 2,094
-------- --------
Total current liabilities 9,521 9,511
Deferred revenue 1,163 1,188
-------- --------
Total liabilities 10,684 10,699
-------- --------
Minority interest 4 10
Shareholders' equity 22,964 23,174
-------- --------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $33,652 $33,883
-------- --------
Note:
Long-term investments and the related deferred taxes on unrealized
gains and losses on investments as of July 30, 2005 have been
reclassified to current assets in order to conform to the current
period's presentation.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In millions)
(Unaudited)
Six Months Ended
---------------------
Jan. 28, Jan. 29,
2006 2005
---------- ----------
Cash flows from operating activities:
Net income $ 2,636 $ 2,796
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 512 508
Stock-based compensation expense related to
employee stock options and employee stock
purchases 578 --
Stock-based compensation expense related to
acquisitions and investments 52 79
Provision for doubtful accounts 10 --
Provision for inventory 70 111
Deferred income taxes 1 (41)
Tax benefits from employee stock option plans -- 126
Excess tax benefits from stock-based
compensation (125) --
In-process research and development 2 14
Net (gains) losses and impairment charges on
investments (21) (74)
Change in operating assets and liabilities, net
of effects of acquisitions:
Accounts receivable (329) (446)
Inventories (115) (157)
Prepaid expenses and other current assets (47) 73
Lease receivables, net (60) (60)
Accounts payable (51) 8
Income taxes payable 63 424
Accrued compensation (97) (252)
Deferred revenue 59 146
Other accrued liabilities 129 (7)
---------- ----------
Net cash provided by operating activities 3,267 3,248
---------- ----------
Cash flows from investing activities:
Purchases of investments (10,467) (10,366)
Proceeds from sales and maturities of
investments 11,886 11,957
Acquisition of property and equipment (394) (290)
Acquisition of businesses, net of cash and cash
equivalents (150) (553)
Change in investments in privately held
companies (90) (110)
Purchase of minority interest of Cisco Systems,
K.K. (Japan) (25) --
Other (84) 93
---------- ----------
Net cash provided by investing activities 676 731
---------- ----------
Cash flows from financing activities:
Issuance of common stock 563 433
Repurchase of common stock (4,248) (5,706)
Excess tax benefits from stock-based
compensation 125 --
Other 26 45
---------- ----------
Net cash used in financing activities (3,534) (5,228)
---------- ----------
Net increase (decrease) in cash and cash
equivalents 409 (1,249)
Cash and cash equivalents, beginning of period 4,742 3,722
---------- ----------
Cash and cash equivalents, end of period $ 5,151 $ 2,473
---------- ----------
Note:
Certain reclassifications have been made to prior period balances in
order to conform to the current period's presentation.
ADDITIONAL FINANCIAL INFORMATION
(In millions)
(Unaudited)
Jan. 28, July 30,
2006 2005
--------- ---------
CASH AND CASH EQUIVALENTS AND INVESTMENTS
Cash and cash equivalents $ 5,151 $ 4,742
Fixed income securities 8,917 10,372
Publicly traded equity securities 921 941
--------- ---------
Total $14,989 $16,055
--------- ---------
INVENTORIES
Raw materials $ 96 $ 82
Work in process 477 431
Finished goods:
Distributor inventory and deferred cost of sales 419 385
Manufacturing finished goods 145 184
--------- ---------
Total finished goods 564 569
Service-related spares 171 180
Demonstration systems 37 35
--------- ---------
Total $ 1,345 $ 1,297
--------- ---------
PROPERTY AND EQUIPMENT, NET
Land, buildings, and leasehold improvements $ 3,538 $ 3,492
Computer equipment and related software 1,307 1,244
Production, engineering, and other equipment 3,377 3,095
Operating lease assets 139 136
Furniture and fixtures 359 355
--------- ---------
8,720 8,322
Less, accumulated depreciation and amortization (5,404) (5,002)
--------- ---------
Total $ 3,316 $ 3,320
--------- ---------
LEASE RECEIVABLES, NET (a)
Current $ 282 $ 248
Noncurrent 379 353
--------- ---------
Total $ 661 $ 601
--------- ---------
OTHER ASSETS
Deferred tax assets $ 1,329 $ 1,308
Investments in privately held companies 452 421
Income tax receivable 277 277
Lease receivables, net 379 353
Other 356 350
--------- ---------
Total $ 2,793 $ 2,709
--------- ---------
DEFERRED REVENUE
Service $ 3,765 $ 3,618
Product
Unrecognized revenue on product shipments and
other deferred revenue 1,079 1,201
Cash receipts related to unrecognized revenue
from two-tier distributors 256 223
--------- ---------
1,335 1,424
--------- ---------
Total $ 5,100 $ 5,042
--------- ---------
Reported as:
Current $ 3,937 $ 3,854
Noncurrent 1,163 1,188
--------- ---------
Total $ 5,100 $ 5,042
--------- ---------
Notes:
(a) The current portion of lease receivables, net, is recorded in
prepaid expenses and other current assets, and the noncurrent
portion is recorded in other assets in the Consolidated Balance
Sheets.
(b) Certain reclassifications have been made to prior period balances
in order to conform to the current period's presentation.
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