Cisco Systems Reports Second Quarter Earnings
SAN JOSE, Calif.--(BUSINESS WIRE)--Feb. 2, 1999--Cisco Systems, Inc., the worldwide
leader in networking for the Internet, today reported its second quarter results for the period ending
January 23, 1999.
Net sales for the second quarter were $2.83 billion, compared with $2.02 billion for the same period
last year, an increase of 40%. Pro forma net income, which excludes the write-off of purchased
in-process R&D discussed below, was $606 million or $0.36 per share, compared with net income
of $457 million or $0.29 per share for the second quarter of 1998, increases of 33% and 24%
respectively.
During the second quarter of fiscal 1999, Cisco acquired Summa Four, Inc., Clarity Wireless
Corporation, Selsius Systems, Inc., and PipeLinks, Inc. for a combined purchase price of
approximately $537 million and took a one-time charge of $349 million or $0.19 per share on an
after-tax basis as a write-off of in-process R&D.
Actual net income for the second quarter, including the above-mentioned write-off of purchased
in-process R&D, was $288 million or $0.17 per share.
Net sales for the first six months of 1999 were $5.42 billion, compared with $3.89 billion for the
same period last year, an increase of 39%. Pro forma net income, which excludes the write-off of
purchased in-process R&D from acquisitions, was $1,165 million or $0.70 per share, compared
with pro forma net income of $873 million or $0.55 per share for the first six months of 1998,
increases of 33% and 27% respectively.
Actual net income for the first six months of 1999, including the above-mentioned write-off of
purchased in-process R&D, was $806 million or $0.48 per share, compared with $794 million or
$0.50 per share in 1998.
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 September 15, 1998.
"The Internet will reshape virtually everything from personal communications to the balance of power
between companies as well as countries," said John Chambers, president and CEO of Cisco
Systems. "The Internet revolution will determine which companies survive and which get left behind.
Increasingly, the Internet is recognized as the key driver in our global economy."
Cisco continues to advance its end-to-end Internet solutions including data, voice and video
integration, in each of its key markets.
In the enterprise space, Cisco continued to gain market leadership in LAN switching while seeing
continued acceptance of its end-to-end solutions. Cisco expanded its multilayer LAN switching
portfolio with the introduction of the Catalyst(R) 6000 family, which enables data, voice and video
capabilities in the enterprise. Cisco also introduced the Catalyst 4000 series, which expands its
end-to-end gigabit portfolio. Other highlights for the quarter include a suite of new virtual private
network (VPN) solutions, which complement traditional WANs.
In the service provider marketplace, there is broad acceptance that traditional voice networks will
convert to a single, data-based network that integrates data, voice and video. Customers across all
service provider categories are beginning to deploy these open, standards-based multiservice
networks. PSINet and GTE recently announced plans to build integrated networks based on Cisco's
network architecture that will deliver enhanced telephony services such as voice and fax over IP,
Internet call waiting and unified messaging. Additionally, Sprint announced plans to align with Cisco
to extend its ION architecture by delivering digital subscriber line (DSL) services to businesses and
consumers as part of its next-generation network.
Cisco also broadened its portfolio of carrier class solutions through the acquisition of Pipelinks, Inc.,
a developer of SONET/SDH routers. Pipelinks' routers are intended to enable service providers to
transition to the New World while utilizing their existing SONET/SDH infrastructure.
In the small and medium-sized business marketplace, Cisco continues to expand its lead in the
two-tier distribution of network systems. Other highlights include the introduction of the Cisco 1400
series DSL router and the Cisco uBR924 universal broadband router, which combine new,
high-speed modems with integrated data, voice and video access routers.
Cisco extended its market presence and Internet leadership from the enterprise to the consumer
through the launch of its consumer line of business and strategy for addressing this new market. This
strategy includes accelerating broadband access to the home, partnering with service providers, and
licensing Cisco technology to consumer electronics manufacturers through the Cisco NetWorks
program. In support of this strategy, a coalition of 33 companies announced plans to partner,
collaborate or license technology from Cisco to accelerate adoption of the Internet.
"The first phase of the Internet revolution was initiated by the academic community. The next phase
was led by businesses that used this technology for competitive advantage. We are now entering the
third phase of the Internet revolution where consumers will be the driving force as everything and
everyone gets connected," concluded Chambers. 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 projections or other forward-looking statements regarding future events or
the future financial performance of the Company that involve risks and uncertainties. Readers are
cautioned that these statements are only predictions and 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 risks
associated with acquisition strategy, dependence on new product offerings, competition, patents,
intellectual property and licensing, future growth, rapid technological and market change,
manufacturing and sourcing risks, Internet infrastructure and regulation, international operations,
volatility of stock price, financial risk management and potential volatility in operating results, among
others.
Note to Editors: Cisco, Cisco Systems, and the Cisco Systems logo are registered trademarks of
Cisco Systems, Inc. in the U.S. and certain other countries. All other trademarks mentioned in this
document are the property of their respective owners.
Cisco Systems, Inc.
PRO FORMA STATEMENTS OF OPERATIONS
Excluding Purchased R&D and Realized Gain
-----------------------------------------
(In millions, except per-share amounts)
Quarters Ended Six Months Ended
--------------------- -------------------
Jan. 23, Jan. 24, Jan. 23, Jan. 24,
1999 1998 1999 1998
------- ------- ------- -------
(Unaudited)
Net sales $ 2,827 $ 2,016 $ 5,415 $ 3,885
Cost of sales 985 697 1,879 1,349
------- ------- ------- -------
Gross margin 1,842 1,319 3,536 2,536
Operating expenses:
Research and development 357 239 684 463
Sales and marketing 570 363 1,084 697
General and
administrative 90 58 174 114
------- ------- ------- -------
Total operating
expenses 1,017 660 1,942 1,274
------- ------- ------- -------
Operating income 825 659 1,594 1,262
Interest and other
income, net 80 44 145 81
------- ------- ------- -------
Income before provision
for income taxes 905 703 1,739 1,343
Provision for
income taxes 299 246 574 470
------- ------- ------- -------
Net income $ 606 $ 457 $ 1,165 $ 873
======= ======= ======= =======
Net income
per share -- basic $ .38 $ .30 $ .74 $ .57
======= ======= ======= =======
Net income
per share -- diluted $ .36 $ .29 $ .70 $ .55
======= ======= ======= =======
Shares used in per-share
calculation -- basic 1,585 1,523 1,578 1,518
======= ======= ======= =======
Shares used in per-share
calculation -- diluted 1,679 1,594 1,668 1,589
======= ======= ======= =======
PRO FORMA ONLY
The above pro forma amounts for the quarter and six months ended 1/23/99 have been adjusted to
eliminate the quarter one $41 million and the quarter two $349 million charges for the write-off of
purchased in-process R&D, net of a tax benefit of $31 million for the quarter and six months ended
1/23/99.
The above pro forma amounts for the six months ended 1/24/98 have been adjusted to eliminate the
quarter one $127 million write-off of purchased in-process R&D and the $5 million gain from the
sale of a minority stock investment, net of a tax benefit of $43 million.
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 September 15, 1998.
Cisco Systems, Inc.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
-----------------------------------------------
(In millions, except per-share amounts)
Quarters Ended Six Months Ended
------------------ -------------------
Jan. 23, Jan. 24, Jan. 23, Jan. 24,
1999 1998 1999 1998
------- ------- ------- -------
(Unaudited)
Net sales $ 2,827 $ 2,016 $ 5,415 $ 3,885
Cost of sales 985 697 1,879 1,349
------- ------- ------- -------
Gross margin 1,842 1,319 3,536 2,536
Operating expenses:
Research and development 357 239 684 463
Sales and marketing 570 363 1,084 697
General and administrative 90 58 174 114
Purchased R&D 349 -- 390 127
------- ------- ------- -------
Total operating expenses 1,366 660 2,332 1,401
------- ------- ------- -------
Operating income 476 659 1,204 1,135
Realized gain on
sale of investment -- -- -- 5
Interest and other income, net 80 44 145 81
------- ------- ------- -------
Income before provision
for income taxes 556 703 1,349 1,221
Provision for income taxes 268 246 543 427
------- ------- ------- -------
Net income $ 288 $ 457 $ 806 $ 794
======= ======= ======= =======
Net income
per share -- basic $ .18 $ .30 $ .51 $ .52
======= ======= ======= =======
Net income
per share -- diluted $ .17 $ .29 $ .48 $ .50
======= ======= ======= =======
Shares used in per-share
calculation -- basic 1,585 1,523 1,578 1,518
======= ======= ======= =======
Shares used in per-share
calculation -- diluted 1,679 1,594 1,668 1,589
======= ======= ======= =======
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 September 15, 1998.
Cisco Systems, Inc.
CONDENSED CONSOLIDATED BALANCE SHEETS
-------------------------------------
(In millions)
Jan. 23, 1999 July 25, 1998
------------- -------------
(Unaudited)
Assets
Current Assets:
Cash and equivalents $ 1,421 $ 535
Short-term investments 886 1,157
Accounts receivable, net 1,477 1,298
Inventories, net 472 362
Deferred income taxes 408 345
Other current assets 144 65
------- -------
Total current assets 4,808 3,762
Investments 4,225 3,463
Restricted investments 800 554
Property and equipment, net 679 595
Other assets 922 543
------- -------
Total assets $11,434 $ 8,917
======= =======
Liabilities and Shareholders' Equity
Current Liabilities:
Accounts payable and
other accrued expenses $ 1,772 $ 1,357
Income taxes payable 462 410
------- -------
Total current liabilities 2,234 1,767
Minority interest 44 43
Shareholders' equity 9,156 7,107
------- -------
Total liabilities and
shareholders' equity $11,434 $ 8,917
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