CSCO
$36.49
Cisco Systems
$.04
.11%
Earnings Details
1st Quarter October 2017
Wednesday, November 15, 2017 4:05:10 PM
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Summary

Cisco Systems Misses

Cisco Systems (CSCO) reported 1st Quarter October 2017 earnings of $0.60 per share on revenue of $12.1 billion. The consensus earnings estimate was $0.60 per share on revenue of $12.1 billion. The Earnings Whisper number was $0.61 per share. Revenue fell 1.7% compared to the same quarter a year ago.

The company said it expects second quarter earnings of $0.58 to $0.60 per share on revenue of $11.70 billion to $11.93 billion. The current consensus earnings estimate is $0.58 per share on revenue of $11.73 billion for the quarter ending January 31, 2018.

Cisco Systems Inc is engaged in designing, manufacturing and selling of Internet Protocol (IP) based networking products and services related to the communications and information technology (IT) industry.

Results
Reported Earnings
$0.60
Earnings Whisper
$0.61
Consensus Estimate
$0.60
Reported Revenue
$12.14 Bil
Revenue Estimate
$12.14 Bil
Growth
Earnings Growth
Revenue Growth
Power Rating
Grade
Earnings Release

Cisco Reports First Quarter Earnings

SAN JOSE, CA--(Marketwired - Nov 15, 2017) - Cisco (CSCO)

Q1 Revenue: $12.1 billion Decrease of (2)% year over year

Decrease of (2)% year over year

Recurring revenue was 32% of total revenue, up over 3 points year over year

Q1 Earnings per Share: $0.48 GAAP; $0.61 non-GAAP

Q2 FY 2018 Outlook: Revenue: 1% to 3% growth year over year

Revenue: 1% to 3% growth year over year

Earnings per Share: GAAP $0.46 to $0.51; Non-GAAP: $0.58 to $0.60

Cisco today reported first quarter results for the period ended October 28, 2017. Cisco reported first quarter revenue of $12.1 billion, net income on a generally accepted accounting principles (GAAP) basis of $2.4 billion or $0.48 per share, and non-GAAP net income of $3.0 billion or $0.61 per share.

"Our results in Q1 demonstrate the continued progress we’re making on our strategy," said Chuck Robbins, CEO of Cisco. "The network has never been more critical to business success. Cisco is delivering more insights and intelligence as we help our customers build highly secure, intelligent platforms for digital business."

 
 
  GAAP Results
 
  Q1 FY 2018
  Q1 FY 2017
  Vs. Q1 FY 2017
Revenue
  $
12.1 billion   $
12.4 billion   (2)%
Net Income
  $
2.4 billion
  $
2.3 billion
  3%
Diluted Earnings per Share (EPS)   $
0.48
  $
0.46
  4%
 
 
 
Non-GAAP Results
 
  Q1 FY 2018
  Q1 FY 2017
  Vs. Q1 FY 2017
Net Income   $
3.0 billion   $
3.1 billion   (2)%
EPS
  $
0.61
  $
0.61
  --%

Reconciliations between net income, EPS, and other measures on a GAAP and non-GAAP basis are provided in the tables located in the section entitled "Reconciliations of GAAP to non-GAAP Measures."

"We delivered a solid Q1 and executed well as we focus on strategic priorities and maintaining rigorous discipline on profitability and cash generation," said Kelly Kramer, CFO of Cisco. "We delivered strong growth in operating and free cash flow, focused investments on long term profitable growth, and returned $3.1 billion to shareholders through repurchases and quarterly dividends."

Financial Summary

All comparative percentages are on a year-over-year basis unless otherwise noted.

Q1 FY 2018 Highlights

Revenue -- Total revenue was $12.1 billion, down 2%, with product revenue down 3% and service revenue up 1%. 32% of total revenue was from recurring offers, up over 3 percentage points from the first quarter of fiscal 2017. Revenue by geographic segment was: Americas down 1%, EMEA down 3%, and APJC down 1%. Product revenue performance was led by Security and Applications, which increased by 8% and 6%, respectively. Infrastructure Platforms revenue decreased by 4%.

Gross Margin -- On a GAAP basis, total gross margin and product gross margin were 61.2% and 60.1%, respectively. The decrease in the product gross margin compared with 63.4% in the first quarter of fiscal 2017 was primarily due to pricing, legal and indemnification settlements, and lower productivity benefits.

Non-GAAP total gross margin and product gross margin were 63.7% and 63.0%, respectively. The decrease in non-GAAP product gross margin compared with 64.8% in the first quarter of fiscal 2017 was primarily due to pricing and lower productivity benefits. While productivity was positive, the benefit was lower than in the prior year as productivity improvements continued to be adversely impacted by an increase in the cost of certain memory components, consistent with our expectations.

GAAP service gross margin was 64.5% and non-GAAP service gross margin was 65.6%.

Total gross margins by geographic segment were: 64.2% for the Americas, 63.2% for EMEA and 62.1% for APJC.

Operating Expenses -- On a GAAP basis, operating expenses were $4.7 billion, down 7%. Non-GAAP operating expenses were $4.0 billion, down 3%, and were 33.3% of revenue.

Operating Income -- GAAP operating income was $2.8 billion, down 4%, with GAAP operating margin of 22.7%. Non-GAAP operating income was $3.7 billion, down 5%, with non-GAAP operating margin of 30.4%.

Provision for Income Taxes -- The GAAP tax provision rate was 19.2%. The non-GAAP tax provision rate was 22.0%.

Net Income and EPS -- On a GAAP basis, net income was $2.4 billion and EPS was $0.48. On a non-GAAP basis, net income was $3.0 billion, a decrease of 2%, and EPS was flat at $0.61.

Cash Flow from Operating Activities -- was $3.1 billion, an increase of 13% compared with $2.7 billion for the first quarter of fiscal 2017.

Balance Sheet and Other Financial Highlights

Cash and Cash Equivalents and Investments -- were $71.6 billion at the end of the first quarter of fiscal 2018, compared with $70.5 billion at the end of fiscal 2017. The total cash and cash equivalents and investments available in the United States at the end of the first quarter of fiscal 2018 were $2.5 billion.

Deferred Revenue -- was $18.6 billion, up 10% in total, with deferred product revenue up 16%, driven largely by subscription-based and software offers, and deferred service revenue was up 5%. The portion of product deferred revenue related to recurring software and subscription offers increased 37%.

Capital Allocation -- In the first quarter of fiscal 2018, Cisco declared and paid a cash dividend of $0.29 per common share, or $1.4 billion. For the first quarter of fiscal 2018, Cisco repurchased approximately 51 million shares of common stock under its stock repurchase program at an average price of $31.80 per share for an aggregate purchase price of $1.6 billion.

As of October 28, 2017, Cisco had repurchased and retired 4.8 billion shares of Cisco common stock at an average price of $21.41 per share for an aggregate purchase price of approximately $101.9 billion since the inception of the stock repurchase program. The remaining authorized amount for stock repurchases under this program is approximately $10.1 billion with no termination date.

Acquisitions In the first quarter of fiscal 2018, we announced the acquisitions of privately held Springpath, Inc. and privately held Perspica, Inc. The Springpath acquisition is designed to enhance our ability to deliver next-generation data center innovation to customers through hyperconvergence software. The Springpath acquisition closed in the first quarter of fiscal 2018. The Perspica acquisition provides machine learning and data processing technology which enables customers to analyze large amounts of application-related data, in real-time and with business context. The Perspica acquisition closed in the second quarter of fiscal 2018.

We also closed our acquisitions of Viptela, Inc., a privately held company that provides software-defined wide area networking products, and Observable Networks, Inc., a privately held company that offers cloud-native network forensics security applications delivered as a service.

On October 23, 2017, we announced a definitive agreement to acquire BroadSoft, Inc., a publicly held company that offers cloud calling and contact center solutions. The acquisition is expected to close after completion of customary regulatory reviews.

Business Outlook for Q2 FY 2018

Cisco expects to achieve the following results for the second quarter of fiscal 2018:

Q2 FY 2018
   
Revenue
  1% to 3% growth Y/Y
Non-GAAP gross margin rate
  62.5% - 63.5%
Non-GAAP operating margin rate   29.5% - 30.5%
Non-GAAP tax provision rate
  22%
Non-GAAP EPS
  $0.58 - $0.60

Our Q2 FY2018 business outlook does not reflect any impact from the pending acquisition of BroadSoft.

Cisco estimates that GAAP EPS will be $0.46 to $0.51 in the second quarter of fiscal 2018.

A reconciliation between the Business Outlook for Q2 FY 2018 on a GAAP and non-GAAP basis is provided in the table entitled "GAAP to non-GAAP Business Outlook for Q2 FY 2018" located in the section entitled "Reconciliations of GAAP to non-GAAP Measures."

Editor’s Notes:

Q1 fiscal year 2018 conference call to discuss Cisco’s results along with its business outlook will be held on Wednesday, November 15, 2017 at 1:30 p.m. Pacific Time. Conference call number is 1-888-848-6507 (United States) or 1-212-519-0847 (international).

Conference call replay will be available from 4:00 p.m. Pacific Time, November 15, 2017 to 4:00 p.m. Pacific Time, November 22, 2017 at 1-866-421-0447 (United States) or 1-203-369-0803 (international). The replay will also be available via webcast on the Cisco Investor Relations website at http://investor.cisco.com.

Additional information regarding Cisco’s financials, as well as a webcast of the conference call with visuals designed to guide participants through the call, will be available at 1:30 p.m. Pacific Time, November 15, 2017. 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
 
 
  October 28, 2017
    October 29, 2016
 
REVENUE:
   
 
     
 
 
 
Product
  $
9,054
    $
9,302
 
 
Service
   
3,082
     
3,050
 
 
 
Total revenue
   
12,136
     
12,352
 
COST OF SALES:
   
 
     
 
 
 
Product
   
3,615
     
3,403
 
 
Service
   
1,094
     
1,065
 
 
 
Total cost of sales
   
4,709
     
4,468
 
GROSS MARGIN
   
7,427
     
7,884
 
OPERATING EXPENSES:
   
 
     
 
 
 
Research and development
   
1,567
     
1,545
 
 
Sales and marketing
   
2,334
     
2,418
 
 
General and administrative
   
557
     
555
 
 
Amortization of purchased intangible assets
   
61
     
78
 
 
Restructuring and other charges
   
152
     
411
 
 
 
Total operating expenses
   
4,671
     
5,007
 
OPERATING INCOME
   
2,756
     
2,877
 
 
Interest income
   
379
     
295
 
 
Interest expense
   
(235
)
   
(198
)
 
Other income (loss), net
   
62
     
(21
)
 
 
Interest and other income (loss), net    
206
     
76
 
INCOME BEFORE PROVISION FOR INCOME TAXES
   
2,962
     
2,953
 
Provision for income taxes
   
568
     
631
 
 
NET INCOME
  $
2,394
    $
2,322
 
 
   
 
     
 
 
Net income per share:
   
 
     
 
 
 
Basic
  $
0.48
    $
0.46
 
 
Diluted
  $
0.48
    $
0.46
 
Shares used in per-share calculation:
   
 
     
 
 
 
Basic
   
4,959
     
5,027
 
 
Diluted
   
4,994
     
5,066
 
 
   
 
     
 
 
Cash dividends declared per common share
  $
0.29
    $
0.26
 
 
 
CISCO SYSTEMS, INC.
REVENUE BY SEGMENT
(In millions, except percentages)
 
 
  Three Months Ended
 
  October 28, 2017
 
  Amount
  Y/Y %
Revenue:
         
  Americas
  $
7,350
  (1)%
  EMEA
    2,909
  (3)%
  APJC
    1,877
  (1)%
    Total   $
12,136   (2)%
 
 
CISCO SYSTEMS, INC.
GROSS MARGIN PERCENTAGE BY SEGMENT
(In percentages)
 
 
 
Three Months Ended
 
 
October 28, 2017
Gross Margin Percentage:
 
 
 
Americas
 
64.2%
 
EMEA
 
63.2%
 
APJC
 
62.1%
 
 
CISCO SYSTEMS, INC.
REVENUE FOR GROUPS OF SIMILAR PRODUCTS AND SERVICES
(In millions, except percentages)
 
 
  Three Months Ended
 
  October 28, 2017
 
  Amount
  Y/Y %
Revenue:
         
  Infrastructure Platforms
  $
6,970
  (4)%
  Applications
    1,203
  6%
  Security
    585
  8%
  Other Products
    296
  (16)%
   
Total Product     9,054
  (3)%
  Services
    3,082
  1%
   
Total
  $
12,136   (2)%

Effective Q1 FY 2018, we began reporting our product and service revenue in the following five categories: Infrastructure Platforms, Applications, Security, Other Products and Services. The change better aligns our product categories with our evolving business model. Our segments will continue to be based on geographies which consist of the Americas, EMEA, and APJC. This change only impacts how we report revenue by product category. The reclassified product category revenue by quarter is available on Cisco’s Investor Relations website at investor.cisco.com/investor-relations/financial-information/Financial-Results/default.aspx.

 
 
CISCO SYSTEMS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In millions)
(Unaudited)
 
 
  October 28, 2017
  July 29, 2017
ASSETS
   
 
     
Current assets:
   
 
     
 
Cash and cash equivalents
  $
11,043
  $
11,708
 
Investments
   
60,545
    58,784
 
Accounts receivable, net of allowance for doubtful accounts of $193 at October 28, 2017 and $211 at July 29, 2017    
4,206
    5,146
 
Inventories
   
1,693
    1,616
 
Financing receivables, net
   
5,038
    4,856
 
Other current assets
   
1,555
    1,593
 
 
Total current assets
   
84,080
    83,703
Property and equipment, net
   
3,202
    3,322
Financing receivables, net
   
4,876
    4,738
Goodwill
   
30,233
    29,766
Purchased intangible assets, net
   
2,677
    2,539
Deferred tax assets
   
4,006
    4,239
Other assets
   
1,448
    1,511
 
 
TOTAL ASSETS
  $
130,522
  $
129,818
LIABILITIES AND EQUITY
   
 
     
Current liabilities:
   
 
     
 
Short-term debt
  $
10,239
  $
7,992
 
Accounts payable
   
1,155
    1,385
 
Income taxes payable
   
86
    98
 
Accrued compensation
   
2,684
    2,895
 
Deferred revenue
   
10,920
    10,821
 
Other current liabilities
   
4,200
    4,392
 
 
Total current liabilities
   
29,284
    27,583
 
Long-term debt
   
25,684
    25,725
 
Income taxes payable
   
883
    1,250
 
Deferred revenue
   
7,645
    7,673
 
Other long-term liabilities
   
1,476
    1,450
 
 
Total liabilities
   
64,972
    63,681
Total equity
   
65,550
    66,137
 
 TOTAL LIABILITIES AND EQUITY
  $
130,522
  $
129,818
 
 
 
 
CISCO SYSTEMS, INC.
 
CONSOLIDATED STATEMENTS OF CASH FLOWS
 
(In millions)
 
(Unaudited)
 
 
 
 
  Three Months Ended
 
 
  October 28,
    October 29,
 
 2017
 2016
Cash flows from operating activities:
             
 
 
Net income
  $
2,394
    $
2,322
 
 
Adjustments to reconcile net income to net cash provided by operating activities:
             
 
 
 
Depreciation, amortization, and other
    566
      599
 
 
 
Share-based compensation expense
    392
      372
 
 
 
Provision for receivables
    (17
)
    15
 
 
 
Deferred income taxes
    178
      158
 
 
 
Excess tax benefits from share-based compensation
    --
      (91
)
 
 
(Gains) losses on divestitures, investments and other, net
    (56
)
    32
 
 
 
Change in operating assets and liabilities, net of effects of acquisitions and divestitures:
             
 
 
 
 
Accounts receivable
    957
      1,049
 
 
 
 
Inventories
    (80
)
    44
 
 
 
 
Financing receivables
    (333
)
    (900
)
 
 
 
Other assets
    8
      191
 
 
 
 
Accounts payable
    (235
)
    (63
)
 
 
 
Income taxes, net
    (419
)
    (440
)
 
 
 
Accrued compensation
    (215
)
    (333
)
 
 
 
Deferred revenue
    77
      462
 
 
 
 
Other liabilities
    (137
)
    (687
)
 
 
 
 
Net cash provided by operating activities
    3,080
      2,730
 
Cash flows from investing activities:
             
 
 
Purchases of investments
    (8,275 )
    (18,667 )
 
Proceeds from sales of investments
    2,682
      11,337
 
 
Proceeds from maturities of investments
    3,929
      2,449
 
 
Acquisition of businesses, net of cash and cash equivalents acquired
    (725
)
    (251
)
 
Purchases of investments in privately held companies
    (20
)
    (38
)
 
Return of investments in privately held companies
    81
      24
 
 
Acquisition of property and equipment
    (168
)
    (275
)
 
Proceeds from sales of property and equipment
    1
      2
 
 
Other
    --
      23
 
 
 
 
 
Net cash used in investing activities
    (2,495 )
    (5,396
)
Cash flows from financing activities:
             
 
 
Issuances of common stock
    9
      88
 
 
Repurchases of common stock - repurchase program
    (1,686 )
    (1,023
)
 
Shares repurchased for tax withholdings on vesting of restricted stock units
    (342
)
    (401
)
 
Short-term borrowings, original maturities of 90 days or less, net
    (2,498 )
    --
 
 
Issuances of debt
    5,482
      6,232
 
 
Repayments of debt
    (748
)
    (1
)
 
Excess tax benefits from share-based compensation
    --
      91
 
 
Dividends paid
    (1,436 )
    (1,308
)
 
Other
    (31
)
    (60
)
 
 
 
 
Net cash provided by (used in) financing activities     (1,250 )
    3,618
 
Net increase (decrease) in cash and cash equivalents
    (665
)
    952
 
Cash and cash equivalents, beginning of period
    11,708       7,631
 
Cash and cash equivalents, end of period
  $
11,043     $
8,583
 
Supplemental cash flow information:
             
 
Cash paid for interest
  $
283
    $
248
 
Cash paid for income taxes, net
  $
810
    $
913
 
 
 
CISCO SYSTEMS, INC.
DEFERRED REVENUE
(In millions)
 
 
  October 28, 2017
  July 29, 2017   October 29, 2016
Deferred revenue:
   
 
         
 
  Service
  $
10,991
  $
11,302   $
10,424
  Product:
   
 
         
 
    Deferred revenue related to recurring software and subscription offers    
5,213
    4,971
   
3,801
    Other product deferred revenue
   
2,361
    2,221
   
2,726
    Total product deferred revenue
   
7,574
    7,192
   
6,527
     
Total
  $
18,565
  $
18,494   $
16,951
Reported as:
   
 
         
 
  Current
  $
10,920
  $
10,821   $
10,215
  Noncurrent
   
7,645
    7,673
   
6,736
     
Total
  $
18,565
  $
18,494   $
16,951
 
 
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 2018
                   
 
           
  October 28, 2017
  $
0.29
  $
1,436
  51
  $
31.80
  $
1,620
  $
3,056
Fiscal 2017
                   
 
           
  July 29, 2017
  $
0.29
  $
1,448
  38
  $
31.61
  $
1,201
  $
2,649
  April 29, 2017
    0.29
    1,451
  15
   
33.71
    503
    1,954
  January 28, 2017
    0.26
    1,304
  33
   
30.33
    1,001
    2,305
  October 29, 2016
    0.26
    1,308
  32
   
31.12
    1,001
    2,309
   
Total
  $
1.10
  $
5,511
  118
  $
31.38
  $
3,706
  $
9,217
 
 
 
 
CISCO SYSTEMS, INC.
 
RECONCILIATIONS OF GAAP TO NON-GAAP MEASURES
 
 
 
GAAP TO NON-GAAP NET INCOME
 
(In millions, except per-share amounts)
 
 
 
 
  Three Months Ended
 
 
  October 28,
    October 29,
 
 2017
 2016
GAAP net income
  $
2,394
    $
2,322
 
 
Adjustments to cost of sales:
               
 
 
Share-based compensation expense
    57
      54
 
 
 
Amortization of acquisition-related intangible assets
    139
      112
 
 
 
Supplier component remediation charge (adjustment), net     (19
)
    --
 
 
 
Legal and indemnification settlements
    122
      --
 
 
Total adjustments to GAAP cost of sales
    299
      166
 
 
Adjustments to operating expenses:
               
 
 
Share-based compensation expense
    335
      315
 
 
 
Amortization of acquisition-related intangible assets
    61
      78
 
 
 
Acquisition-related/divestiture costs
    83
      53
 
 
 
Significant asset impairments and restructurings
    152
      411
 
 
Total adjustments to GAAP operating expenses
    631
      857
 
 
Total adjustments to GAAP income before provision for income taxes
    930
      1,023
 
 
Income tax effect of non-GAAP adjustments
    (288
)
    (244
)
Non-GAAP net income
  $
3,036
    $
3,101
 
Diluted net income per share:
               
GAAP
  $
0.48
    $
0.46
 
Non-GAAP
  $
0.61
    $
0.61
 
 
 
CISCO SYSTEMS, INC.
RECONCILIATIONS OF GAAP TO NON-GAAP MEASURES
 
GROSS MARGINS, OPERATING EXPENSES, OPERATING MARGINS, AND NET INCOME
(In millions, except percentages)
 
 
 
  Three Months Ended
 
 
  October 28, 2017
 
 
  Product Gross Margin
    Service Gross Margin
    Total Gross Margin
    Operating Expenses
    Y/Y
    Operating Income
    Y/Y
    Net Income
    Y/Y
 
GAAP amount
  $
5,439
    $
1,988
    $
7,427
    $
4,671
    (7
)%
  $
2,756
    (4
)%
  $
2,394
    3
%
% of revenue
   
60.1
%
   
64.5
%
   
61.2
%
   
38.5
%
         
22.7
%
          19.7
%
     
Adjustments to GAAP amounts:
   
 
     
 
     
 
     
 
           
 
                     
 
Share-based compensation expense
   
23
     
34
     
57
     
335
           
392
            392
       
 
Amortization of acquisition-related intangible assets
   
139
     
--
     
139
     
61
           
200
            200
       
 
Supplier component remediation charge (adjustment), net    
(19
)
   
--
     
(19
)
   
--
           
(19
)
          (19
)
     
 
Legal and indemnification settlements
   
122
     
--
     
122
     
--
           
122
            122
       
 
Acquisition/divestiture-related costs
   
--
     
--
     
--
     
83
           
83
            83
       
 
Significant asset impairments and restructurings
   
--
     
--
     
--
     
152
           
152
            152
       
 
Income tax effect
   
--
     
--
     
--
     
--
           
--
            (288
)
     
 
Non-GAAP amount
  $
5,704
    $
2,022
    $
7,726
    $
4,040
    (3
)%
  $
3,686
    (5
)%
  $
3,036
    (2
)%
% of revenue
   
63.0
%
   
65.6
%
   
63.7
%
   
33.3
%
         
30.4
%
          25.0
%
     
 
   
 
 
   
 
 
  Three Months Ended
 
 
  October 29, 2016
 
 
  Product Gross Margin
    Service Gross Margin
    Total Gross Margin
    Operating Expenses
    Operating
    Net
 
Income
Income
GAAP amount
  $
5,899
    $
1,985
    $
7,884
    $
5,007
    $
2,877
    $
2,322
 
% of revenue
   
63.4
%
   
65.1
%
   
63.8
%
   
40.5
%
    23.3
%
    18.8
%
Adjustments to GAAP amounts:
   
 
     
 
     
 
     
 
                 
 
Share-based compensation expense
   
21
     
33
     
54
     
315
      369
      369
 
 
Amortization of acquisition-related intangible assets    
112
     
--
     
112
     
78
      190
      190
 
 
Acquisition/divestiture-related costs
   
--
     
--
     
--
     
53
      53
      53
 
 
Significant asset impairments and restructurings
   
--
     
--
     
--
     
411
      411
      411
 
 
Income tax effect
   
--
     
--
     
--
     
--
      --
      (244
)
Non-GAAP amount
  $
6,032
    $
2,018
    $
8,050
    $
4,150
    $
3,900
    $
3,101
 
% of revenue
   
64.8
%
   
66.2
%
   
65.2
%
   
33.6
%
    31.6
%
    25.1
%
 
 
 
 
CISCO SYSTEMS, INC.
 
RECONCILIATIONS OF GAAP TO NON-GAAP MEASURES
 
 
 
EFFECTIVE TAX RATE
 
(In percentages)
 
 
 
 
  Three Months Ended
 
 
  October 28, 2017     October 29, 2016  
GAAP effective tax rate
  19.2
%
  21.4
%
 
Total adjustments to GAAP provision for income taxes   2.8
%
  0.6
%
Non-GAAP effective tax rate
  22.0
%
  22.0
%
 
 
GAAP TO NON-GAAP BUSINESS OUTLOOK FOR Q2 FY 2018
Q2 FY 2018
  Gross Margin
  Operating Margin   Tax Provision   Earnings per
Rate
Rate
Rate
Share (2)
GAAP
  61.0% - 62.0%   23.0% - 24.0%
  18%
  $0.46 - $0.51
Estimated adjustments for:
   
   
   
   
Share-based compensation expense
  0.5%
  3.5%
  --
  $0.05 - $0.06
Amortization of purchased intangible assets and other acquisition-related/divestiture costs   1.0%
  2.0%
  --
  $0.03 - $0.04
Restructuring and other charges (1)
  --
  1.0%
  --
  $0.01 - $0.02
Income tax effect of non-GAAP adjustments
  --
  --
  4%
   
Non-GAAP
  62.5% - 63.5%   29.5% - 30.5%
  22%
  $0.58 - $0.60
 
   
   
   
   

(1) In August 2016, we began taking action under a restructuring plan in order to reinvest in our key priority areas with estimated pretax charges of approximately $850 million. In the first quarter of fiscal 2018, we extended the restructuring plan to include an additional $150 million of estimated additional pretax charges. We have recognized pretax charges of $908 million to our GAAP financial results in relation to this restructuring plan since its inception. We expect to recognize the remaining charges under this plan primarily in the second quarter of fiscal 2018.

(2) Estimated adjustments to GAAP earnings per share are shown after income tax effects.

Our Q2 FY2018 business outlook does not reflect any impact from the pending acquisition of BroadSoft.

Except as noted above, this business outlook does not include the effects of any future acquisitions/divestitures, asset impairments, restructurings and significant tax matters or other events, which may or may not be significant unless specifically stated.

Forward Looking Statements, Non-GAAP Information and Additional 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 continued execution on our strategy, the continued criticality of the network to business success, our ability to deliver more insights and intelligence as we help our customers build highly secure, intelligent platforms for digital business, and our ability to continue to execute well and return value to our shareholders) and the future financial performance of Cisco (including the business outlook for Q2 FY 2018) 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, key growth areas, and in certain geographical locations, as well as maintaining leadership in routing, switching and services; 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 market; 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; our ability to achieve the benefits of the announced restructuring and possible changes in the size and timing of the related charges; man-made problems such as cyber-attacks, data protection breaches, computer viruses or terrorism; natural catastrophic events; a pandemic or epidemic; our ability to achieve the benefits anticipated from our investments in sales, engineering, service, marketing and manufacturing activities; our ability to recruit and retain key personnel; our ability to manage financial risk, and to manage expenses during economic downturns; risks related to the global nature of our operations, including our operations in emerging markets; currency fluctuations and other international factors; changes in provision for income taxes, including changes in tax laws and regulations or adverse outcomes resulting from examinations of our income tax returns; potential volatility in operating results; and other factors listed in Cisco’s most recent report on Form 10-K filed on September 7, 2017. The financial information contained in this release should be read in conjunction with the consolidated financial statements and notes thereto included in Cisco’s most recent report on Form 10-K as it may be amended from time to time. Cisco’s results of operations for the three months ended October 28, 2017 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, and non-GAAP net income per share data 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.

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, acquisition-related/divestiture costs, significant asset impairments and restructurings, significant litigation settlements and other contingencies, significant gains and losses on investments, 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.

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