CISCO SYSTEMS REPORTS SECOND QUARTER EARNINGS
SAN JOSE, Calif.--(BUSINESS WIRE)--Feb. 3, 1998--Cisco Systems, Inc., the worldwide
leader in networking for the Internet, today reported its second quarter results for the period
ending January 24, 1998.
Net sales for the second quarter were $2,016 million compared with $1,592 million for the same
period last year, an increase of 27%. Net income was $457 million or $0.43 per share, compared
with pro forma net income of $352 million or $0.34 per share for the second quarter of 1997,
increases of 30% and 26% respectively. Net sales for the first six months of 1998 were $3,885
million compared with $3,027 million for the same period last year, an increase of 28%. Pro
forma net income, which excludes the write-off of purchased in-process R&D from the
DAGAZ acquisition in the first quarter, was $873 million or $0.82 per share, compared with pro
forma net income of $673 million or $0.65 per share for the first six months of 1997, increases
of 30% and 26% respectively.
Actual net income for the first six months of 1998, including the above-mentioned write-off of
purchased in-process R&D, was $794 million or $0.75 per share, compared with actual net
income of $519 million or $0.50 per share in 1997. All earnings per share amounts represent
diluted earnings per share as defined within Statement of Financial Accounting Standards No.
128 (FAS 128).
The net income per share and number of shares used in the per-share calculation for all periods
presented reflect the three-for-two stock split that was effective December 16, 1997. "We are
pleased to report the 32nd consecutive quarter of revenue and earnings growth. A strong
Americas market, improving European market, and increasing activity in service provider
spending continue to fuel Cisco's growth," said John Chambers, president and CEO of Cisco
Systems. "Driving this growth is an increasing realization by customers that the Internet is
changing the way people work, live, play and learn."
Cisco continues to make strides in providing end-to-end solutions for customers in each of its
key markets -- service provider, enterprise, and small/medium business -- through internal
development, strategic alliances, minority investments and acquisitions. In the service provider
market, Cisco announced a strategic alliance with US West, the acquisition of LightSpeed
International's voice signaling technologies and the introduction of the Cisco 12008 gigabit switch
router. US West designated Cisco as its strategic vendor for its data network infrastructure and
for resale of customer premise equipment and intends to extensively use Cisco equipment in a
nationwide build-out of an integrated voice/data network. In addition to its strategic alliance, US
West became the 12th service provider to join the Cisco Powered Network program in the
second quarter. This increases total participation to 45 service providers since the program was
started about six months ago and underscores broad acceptance of Cisco's end-to-end network
solutions.
In the enterprise market, Cisco continued to maintain its market share leadership in LAN
switching and announced the second phase of a five-part data/voice/video integration strategy
that will ultimately encompass all elements of the enterprise and service provider markets. New
Cisco introductions include the MC3810 multiservice access concentrator and new voice
features for the Cisco StrataCom(R) IGX(TM) multiservice switch. These new multiservice
products will help enterprise customers reduce communications costs, deploy new
data/voice/video applications and improve network performance. Expanding its solutions for the
small to medium-sized business market, Cisco announced the Cisco Networked Office stack, a
suite of stackable communications products. Cisco also introduced Fast Ethernet desktop
switches as part of its new Cisco 2900XL series. The new products deliver end-to-end
switching solutions from the desktop to the centralized data centers.
"We are seeing good activity across all of our lines of business and continue to gain market
share against almost all of our key competitors," Chambers said. "1998 is shaping up as the year
of broadband technology, particularly as service providers and large enterprise customers begin
to invest in data network infrastructures and the integration of data, voice and video. Going
forward, we believe that Cisco is well positioned to empower the Internet generation, using its
Internet technologies to help create a 'new generation' of companies, people and countries."
About Cisco Systems Cisco Systems, Inc. (NASDAQ:CSCO) is the worldwide leader in
networking for the Internet. News and information are available at cisco.com.
This release may contain forward-looking statements that involve risks and uncertainties. These
statements may differ materially from actual future events or results. Readers are referred to
the documents filed by Cisco with the SEC, specifically the most recent reports on Form 10-K
and 10-Q, which identify important risk factors that could cause actual results to differ from
those contained in the forward-looking statements, including potential fluctuations in quarterly
results, dependence on new product development, rapid technological and market change,
acquisition strategy, manufacturing risks, risks associated with the Internet infrastructure,
volatility of stock price, financial risk management and future growth subject to risks.
Cisco Systems, Inc.
PRO FORMA STATEMENT OF OPERATIONS
Excluding Purchased R&D and Realized Gain
(In thousands, except per-share amounts)
Quarters Ended Six Months Ended
Jan. 24, Jan. 25, Jan. 24, Jan. 25,
1998 1997 1998 1997
(Unaudited)
Net sales $2,016,315 $1,592,377 $3,885,032 $3,027,203
Cost of sales 696,774 552,519 1,348,955 1,053,999
---------- ---------- ---------- ----------
Gross margin 1,319,541 1,039,858 2,536,077 1,973,204
Operating expenses:
Research and
development 238,772 167,652 463,007 312,363
Sales and marketing 363,408 288,341 696,825 547,451
General and
administrative 57,668 52,111 114,082 93,887
---------- ---------- ---------- ----------
Total operating
expenses 659,848 508,104 1,273,914 953,701
---------- ---------- ---------- ----------
Operating income 659,693 531,754 1,262,163 1,019,503
Interest and other
income, net 43,818 27,064 80,874 48,542
---------- ---------- ---------- ----------
Income before
provision for
income taxes 703,511 558,818 1,343,037 1,068,045
Provision for income
taxes 246,229 206,955 470,063 395,368
---------- ---------- ---------- ----------
Net income $ 457,282 $ 351,863 $ 872,974 $ 672,677
========== ========== ========== ==========
Net income per
share -- basic $ .45 $ .36 $ .86 $ .68
========== ========== ========== ==========
Net income per
share -- diluted $ .43 $ .34 $ .82 $ .65
========== ========== ========== ==========
Shares used in
per-share
calculation --
basic 1,015,347 988,109 1,011,783 983,287
========== ========== ========== ==========
Shares used in
per-share
calculation --
diluted 1,062,505 1,035,456 1,059,533 1,030,236
========== ========== ========== ==========
PRO FORMA ONLY
The above pro-forma amounts for the six months ended 1/24/98 have been
adjusted to eliminate the Q1 $127.2 million write-off of purchased
in-process R&D and the $5.4 million gain on sale of minority stock
investment, net of tax benefit of $42.6 million.
The above pro-forma amounts for the quarter and six months ended
1/25/97 have been adjusted to eliminate the Q1 $174.6 million and the
Q2 $43.2 million charges for the write-off of purchased in-process
R&D, and the Q1 $55.1 million and the Q2 $47.3 million gain from the
sale of a minority stock investment, net of income tax expense of
$20.4 million and $17.5 million respectively.
The net income per share and number of shares used in the per-share
calculation for all periods presented reflect the three-for-two stock
split that was effective December 16, 1997.
Cisco is now required under FAS 128 to report two separate
earnings per share numbers, basic EPS and diluted EPS. Diluted EPS is
the same number as Cisco has previously been reporting as earnings per
share and includes the dilutive impact of employee stock options.
Cisco Systems, Inc.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per-share amounts)
Quarters Ended Six Months Ended
Jan. 24, Jan. 25, Jan. 24, Jan. 25,
1998 1997 1998 1997
(Unaudited)
Net sales $2,016,315 $1,592,377 $3,885,032 $3,027,203
Cost of sales 696,774 552,519 1,348,955 1,053,999
---------- ---------- ---------- ----------
Gross margin 1,319,541 1,039,858 2,536,077 1,973,204
Operating expenses:
Research and
development 238,772 167,652 463,007 312,363
Sales and marketing 363,408 288,341 696,825 547,451
General and
administrative 57,668 52,111 114,082 93,887
Purchased R&D -- 43,203 127,191 217,792
---------- ---------- ---------- ----------
Total operating
expenses 659,848 551,307 1,401,105 1,171,493
---------- ---------- ---------- ----------
Operating income 659,693 488,551 1,134,972 801,711
Realized gain on sale
of investment -- 47,299 5,411 102,407
Interest and other
income, net 43,818 27,064 80,874 48,542
---------- ---------- ---------- ----------
Income before
provision for income
taxes 703,511 562,914 1,221,257 952,660
Provision for income
taxes 246,229 224,455 427,440 433,258
---------- ---------- ---------- ----------
Net income $ 457,282 $ 338,459 $ 793,817 $ 519,402
========== ========== ========== ==========
Net income per share
-- basic $ .45 $ .34 $ .78 $ .53
========== ========== ========== ==========
Net income per share
-- diluted $ .43 $ .33 $ .75 $ .50
========== ========== ========== ==========
Shares used in
per-share
calculation --
basic 1,015,347 988,109 1,011,783 983,287
========== ========== ========== ==========
Shares used in
per-share
calculation --
diluted 1,062,505 1,035,456 1,059,533 1,030,236
========== ========== ========== ==========
The net income per share and number of shares used in the per-share
calculation for all periods presented reflect the three-for-two stock
split that was effective December 16, 1997.
Cisco is now required under FAS 128 to report two separate
earnings per share numbers, basic EPS and diluted EPS. Diluted EPS is
the same number as Cisco has previously been reporting as earnings per
share and includes the dilutive impact of employee stock options.
Cisco Systems, Inc.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
Jan. 24, 1998 July 26, 1997
(unaudited)
Assets
Current Assets:
Cash and equivalents $ 476,927 $ 269,608
Short-term investments 1,136,720 1,005,977
Accounts receivable, net 1,255,996 1,170,401
Inventories, net 267,866 254,677
Deferred income taxes 360,452 312,132
Other current assets 58,331 88,471
----------- -----------
Total current assets 3,556,292 3,101,266
Investments 1,982,797 1,267,174
Restricted investments 442,956 363,216
Property and equipment, net 478,592 466,352
Other assets 361,992 253,976
----------- -----------
Total assets $ 6,822,629 $ 5,451,984
=========== ===========
Liabilities and Shareholders'
Equity
Current Liabilities:
Accounts payable and other
accrued expenses $ 1,030,688 $ 863,885
Income taxes payable 319,239 256,224
----------- -----------
Total current liabilities 1,349,927 1,120,109
Minority interest 42,301 42,253
Shareholders' equity 5,430,401 4,289,622
----------- -----------
Total liabilities and
shareholders' equity $ 6,822,629 $ 5,451,984
=========== ===========
CONTACT:
Cisco Systems, Inc., San Jose
Mary Thurber, 408/526-8893 (IR)
mthurber@cisco.com
Stacey O'Hara, 408/527-9365 (PR)
sohara@cisco.com
Randi Paikoff Feigin, 408/527-1099 (IR)
rfeigin@cisco.com
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