SAN JOSE, CALIF. -- Cisco (NASDAQ: CSCO) recently reported fourth quarter and fiscal year results for the period ended July 30, 2016. Cisco reported fourth quarter revenue of $12.6 billion, net income on a generally accepted accounting principles (GAAP) basis of $2.8 billion or $0.56 per share, and non-GAAP net income of $3.2 billion or $0.63 per share.
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"We had another strong quarter, wrapping up a great year. I am particularly pleased with our performance in priority areas including security, data center switching, collaboration, services as well as our overall performance, with revenues up 2% in Q4 excluding the SP Video CPE business," said Chuck Robbins, CEO of Cisco. "We continue to execute well in a challenging macro environment. Despite slowing in our Service Provider business and Emerging Markets after three consecutive quarters of growth, the balance of the business was healthy with 5% order growth. This growth and balance demonstrates the strength of our diverse portfolio. Our product deferred revenue from software and subscriptions grew 33% showing the continued momentum of our business model transformation."
| Q4 GAAP Results | ||||||||||||
| Q4 FY 2016 | Q4 FY 2015 | Vs. Q4 FY 2015 | ||||||||||
| Revenue (including SP Video CPE Business for all periods) | $ | 12.6 | billion | $ | 12.8 | billion | (2)% | |||||
| Revenue (excluding SP Video CPE Business for all periods) | $ | 12.6 | billion | $ | 12.4 | billion | 2% | |||||
| Net Income | $ | 2.8 | billion | $ | 2.3 | billion | 21% | |||||
| Diluted Earnings per Share (EPS) | $ | 0.56 | $ | 0.45 | 24% | |||||||
| Q4 Non-GAAP Results | ||||||||||||
| Q4 FY 2016 | Q4 FY 2015 | Vs. Q4 FY 2015 | ||||||||||
| Net Income (excluding SP Video CPE Business for all periods) | $ | 3.2 | billion | $ | 3.0 | billion | 7% | |||||
| EPS (excluding SP Video CPE Business for all periods) | $ | 0.63 | $ | 0.58 | 9% | |||||||
| Fiscal Year GAAP Results | ||||||||||||
| FY 2016 | FY 2015 | Vs. FY 2015 | ||||||||||
| Revenue (including SP Video CPE Business for all periods) | $ | 49.2 | billion | $ | 49.2 | billion | --% | |||||
| Revenue (excluding SP Video CPE Business for all periods) | $ | 48.7 | billion | $ | 47.3 | billion | 3% | |||||
| Net Income | $ | 10.7 | billion | $ | 9.0 | billion | 20% | |||||
| EPS | $ | 2.11 | $ | 1.75 | 21% | |||||||
| Fiscal Year Non-GAAP Results | ||||||||||||
| FY 2016 | FY 2015 | Vs. FY 2015 | ||||||||||
| Net Income (excluding SP Video CPE Business for all periods) | $ | 12.0 | billion | $ | 11.2 | billion | 7% | |||||
| EPS (excluding SP Video CPE Business for all periods) | $ | 2.36 | $ | 2.18 | 8% | |||||||
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 another solid quarter and a good fiscal year, expanding both our gross margins and operating margins," said Kelly Kramer, Cisco executive vice president and chief financial officer. "Our strong operational discipline has enabled us to drive growth and margin improvement as we continue to invest in key priority areas such as security, IoT, collaboration, next generation data center and cloud, while also delivering shareholder value."
Restructuring Plan
Today's market requires Cisco and our customers to be decisive, move with greater speed and drive more innovation than we've seen in our history. Today, we announced a restructuring enabling us to optimize our cost base in lower growth areas of our portfolio and further invest in key priority areas such as security, IoT, collaboration, next generation data center and cloud. We expect to reinvest substantially all of the cost savings from these actions back into these businesses and will continue to aggressively invest to focus on our areas of future growth. The restructuring will eliminate up to 5,500 positions, representing approximately 7 percent of our global workforce, and we will take action under this plan beginning in the first quarter of fiscal 2017.
Financial Summary
All comparative percentages are on a year-over-year basis unless otherwise noted.
All revenue, non-GAAP, and geographic financial information in the "Q4 FY 2016 Highlights" and "FY 2016 Highlights" sections are presented excluding the SP Video CPE Business for prior periods as it was divested during the second quarter of fiscal 2016 on November 20, 2015.
Q4 FY 2016 Highlights
Revenue -- Total revenue was $12.6 billion, up 2%, with product revenue up 1% and service revenue up 5%. Revenue by geographic segment was: Americas up 3%, EMEA up 3%, and APJC down 2%. Product revenue growth was led by Security at 16%. Collaboration, Wireless and Switching product revenue increased by 6%, 5%, and 2%, respectively. Service Provider Video, NGN Routing and Data Center product revenue decreased by 12%, 6%, and 1%, respectively.
Gross Margin -- On a GAAP basis, total gross margin and product gross margin were 63.1% and 62.2%, respectively. The increase in the product gross margin compared with 59.0% in the fourth quarter of fiscal 2015 was primarily due to continued productivity improvements, the divestiture of the SP Video CPE Business, and to a lesser extent product mix, partially offset by pricing.
Non-GAAP total gross margin and product gross margin were 64.6% and 63.9%, respectively. The increase in non-GAAP product gross margin compared with 63.2% in the fourth quarter of fiscal 2015 was primarily due to continued productivity improvement and to a lesser extent product mix, partially offset by pricing.
GAAP service margin was 66.0% and non-GAAP service gross margin was 67.0%.
Total gross margins by geographic segment were: 64.9% for the Americas, 65.2% for EMEA and 62.5% for APJC.
Operating Expenses -- On a GAAP basis, operating expenses were $4.7 billion, down 4%. Non-GAAP operating expenses were $4.2 billion, up 1%, and were 33.2% of revenue. Headcount compared with the end of the third quarter of fiscal 2016 increased by 607 to 73,711, driven by additional headcount from investments in key growth areas.
Operating Income -- GAAP operating income was $3.3 billion, up 15%, with GAAP operating margin of 26.1%. Non-GAAP operating income was $4.0 billion, up 7%, with non-GAAP operating margin at 31.4%.
Provision for Income Taxes -- The GAAP tax provision rate was 17.1%, reflecting certain tax benefits related to prior-year periods. The non-GAAP tax provision rate was 21.4% which excludes these tax benefits related to prior-year periods.
Net Income and EPS -- On a GAAP basis, net income was $2.8 billion and EPS was $0.56. On a non-GAAP basis, net income was $3.2 billion, an increase of 7%, and EPS was $0.63, an increase of 9%.
Cash Flow from Operating Activities -- was $3.8 billion for the fourth quarter of fiscal 2016, compared with $3.1 billion for the third quarter of fiscal 2016, and compared with $4.1 billion for the fourth quarter of fiscal 2015.
FY 2016 Highlights
Revenue -- Total revenue was $48.7 billion, an increase of 3%.
Net Income and EPS -- On a GAAP basis, net income was $10.7 billion and EPS was $2.11. On a non-GAAP basis, net income was $12.0 billion, an increase of 7%, and EPS was $2.36, an increase of 8%.
Cash Flow from Operating Activities -- was $13.6 billion for fiscal 2016, compared with $12.6 billion for fiscal 2015.
Balance Sheet and Other Financial Highlights
Cash and Cash Equivalents and Investments -- were $65.8 billion at the end of the fourth quarter of fiscal 2016, compared with $63.5 billion at the end of the third quarter of fiscal 2016, and compared with $60.4 billion at the end of fiscal 2015. The total cash and cash equivalents and investments available in the United States at the end of the fourth quarter of fiscal 2016 were $5.9 billion.
Deferred Revenue -- was $16.5 billion, up 8% in total, with deferred product revenue up 8%, driven largely by subscription-based and software offerings, and deferred service revenue was up 9%. Cisco continued to build a greater mix of recurring revenue as reflected in the increase in deferred revenue.
Product Backlog -- was approximately $4.6 billion at the end of fiscal 2016, an increase of 1% compared with the balance at the end of fiscal 2015 (excluding the SP Video CPE Business).
Days Sales Outstanding in Accounts Receivable (DSO) -- was 42 days at the end of the fourth quarter of fiscal 2016, compared with 38 days at the end of the fourth quarter of fiscal 2015.
Capital Allocation -- In the fourth quarter of fiscal 2016, Cisco declared and paid a cash dividend of $0.26 per common share, or $1.3 billion. For the full fiscal year, Cisco declared and paid cash dividends of $0.94 per common share, or $4.8 billion.
For the fourth quarter of fiscal 2016, Cisco repurchased approximately 28 million shares of common stock under its stock repurchase program at an average price of $28.70 per share for an aggregate purchase price of $800 million. For the full fiscal year, Cisco repurchased approximately 148 million shares of common stock under its stock repurchase program at an average price of $26.45 per share for an aggregate purchase price of $3.9 billion. As of July 30, 2016, Cisco had repurchased and retired 4.6 billion shares of Cisco common stock at an average price of $21.04 per share for an aggregate purchase price of approximately $96.6 billion since the inception of the stock repurchase program. The remaining authorized amount for stock repurchases under this program is approximately $15.4 billion with no termination date.
For the full fiscal year, Cisco returned $8.7 billion to shareholders through share buybacks and dividends, which represented approximately 70% of free cash flow.
Acquisitions -- In Q4 FY 2016, we announced our intent to acquire CloudLock Inc., which closed in early Q1 FY 2017. The CloudLock acquisition will further enhance Cisco's security portfolio and build on Cisco's Security Everywhere strategy, designed to provide protection from the cloud to the network to the endpoint and also aligns with our strategy to deliver more cloud based subscription services.
Business Outlook for Q1 FY 2017
On November 20, 2015, during the second quarter of fiscal 2016, Cisco completed its divestiture of the SP Video CPE Business. In order to provide a clear view of Cisco's continuing expected financial performance, the revenue outlook for the first quarter of fiscal 2017 is normalized to exclude the SP Video CPE Business for the first quarter of fiscal 2016. The corresponding revenue in the first quarter of fiscal 2016 for the SP Video CPE Business was $411 million.
Cisco expects to achieve the following results for the first quarter of fiscal 2017:
| Q1 FY 2017 | ||
| Revenue (normalized to exclude SP Video CPE Business for Q1 FY2016) | -1% to 1% growth Y/Y | |
| Non-GAAP gross margin rate | 63% - 64% | |
| Non-GAAP operating margin rate | 29% - 30% | |
| Non-GAAP tax provision rate | 22% | |
| Non-GAAP EPS | $0.58 - $0.60 |
Cisco estimates that GAAP EPS will be $0.42 to $0.47 which is lower than non-GAAP EPS by $0.13 to $0.16 per share in the first quarter of fiscal 2017.
A reconciliation between the Business Outlook for Q1 FY 2017 on a GAAP and non-GAAP basis is provided in the table entitled "GAAP to non-GAAP Business Outlook for Q1 FY 2017" located in the section entitled "Reconciliations of GAAP to non-GAAP Measures."
Editor's Notes:
- Q4 fiscal year 2016 conference call to discuss Cisco's results along with its business outlook will be held on Wednesday, August 17, 2016 at 1:30 p.m. Pacific Time. Conference call number is 1-888-848-6507 (United States) or 1-212-519-0847 (international).
- Conference call replay will be available from 4:00 p.m. Pacific Time, August 17, 2016 to 4:00 p.m. Pacific Time, August 24, 2016 at 1-866-566-0452 (United States) or 1-203-369-3048 (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, August 17, 2016. Text of the conference call's prepared remarks will be available within 24 hours of completion of the call. The webcast will include both the prepared remarks and the question-and-answer session. This information, along with the GAAP to non-GAAP reconciliation information, will be available on the Cisco Investor Relations website at http://investor.cisco.com.
| CISCO SYSTEMS, INC. | ||||||||||||||||||
| CONSOLIDATED STATEMENTS OF OPERATIONS | ||||||||||||||||||
| (In millions, except per-share amounts) | ||||||||||||||||||
| (Unaudited) | ||||||||||||||||||
| Three Months Ended | Fiscal Year Ended | |||||||||||||||||
| July 30, 2016 | July 25, 2015 | July 30, 2016 | July 25, 2015 | |||||||||||||||
| REVENUE: | ||||||||||||||||||
| Product | $ | 9,552 | $ | 9,911 | $ | 37,254 | $ | 37,750 | ||||||||||
| Service | 3,086 | 2,932 | 11,993 | 11,411 | ||||||||||||||
| Total revenue | 12,638 | 12,843 | 49,247 | 49,161 | ||||||||||||||
| COST OF SALES: | ||||||||||||||||||
| Product | 3,614 | 4,068 | 14,161 | 15,377 | ||||||||||||||
| Service | 1,049 | 1,042 | 4,126 | 4,103 | ||||||||||||||
| Total cost of sales | 4,663 | 5,110 | 18,287 | 19,480 | ||||||||||||||
| GROSS MARGIN | 7,975 | 7,733 | 30,960 | 29,681 | ||||||||||||||
| OPERATING EXPENSES: | ||||||||||||||||||
| Research and development | 1,601 | 1,548 | 6,296 | 6,207 | ||||||||||||||
| Sales and marketing | 2,443 | 2,549 | 9,619 | 9,821 | ||||||||||||||
| General and administrative | 533 | 536 | 1,814 | 2,040 | ||||||||||||||
| Amortization of purchased intangible assets | 82 | 146 | 303 | 359 | ||||||||||||||
| Restructuring and other charges | 13 | 73 | 268 | 484 | ||||||||||||||
| Total operating expenses | 4,672 | 4,852 | 18,300 | 18,911 | ||||||||||||||
| OPERATING INCOME | 3,303 | 2,881 | 12,660 | 10,770 | ||||||||||||||
| Interest income | 273 | 211 | 1,005 | 769 | ||||||||||||||
| Interest expense | (180 | ) | (149 | ) | (676 | ) | (566 | ) | ||||||||||
| Other income (loss), net | (2 | ) | (10 | ) | (69 | ) | 228 | |||||||||||
| Interest and other income (loss), net | 91 | 52 | 260 | 431 | ||||||||||||||
| INCOME BEFORE PROVISION FOR INCOME TAXES | 3,394 | 2,933 | 12,920 | 11,201 | ||||||||||||||
| Provision for income taxes | 581 | 614 | 2,181 | 2,220 | ||||||||||||||
| NET INCOME | $ | 2,813 | $ | 2,319 | $ | 10,739 | $ | 8,981 | ||||||||||
| Net income per share: | ||||||||||||||||||
| Basic | $ | 0.56 | $ | 0.46 | $ | 2.13 | $ | 1.76 | ||||||||||
| Diluted | $ | 0.56 | $ | 0.45 | $ | 2.11 | $ | 1.75 | ||||||||||
| Shares used in per-share calculation: | ||||||||||||||||||
| Basic | 5,031 | 5,086 | 5,053 | 5,104 | ||||||||||||||
| Diluted | 5,067 | 5,131 | 5,088 | 5,146 | ||||||||||||||
| Cash dividends declared per common share | $ | 0.26 | $ | 0.21 | $ | 0.94 | $ | 0.80 | ||||||||||
The Consolidated Statements of Operations include the results of the SP Video CPE Business prior to its divestiture during the second quarter of fiscal 2016 on November 20, 2015. Accordingly, the fiscal year ended July 30, 2016 includes four months of financial results for this business.
| CISCO SYSTEMS, INC. | |||||||||||||||||
| REVENUE BY SEGMENT | |||||||||||||||||
| (In millions, except percentages) | |||||||||||||||||
| July 30, 2016 | |||||||||||||||||
| Three Months Ended | Fiscal Year Ended | ||||||||||||||||
| Amount | Y/Y % | Amount | Y/Y % | ||||||||||||||
| Revenue: | |||||||||||||||||
| Including SP Video CPE Business for all periods: | |||||||||||||||||
| Americas | $ | 7,638 | (2 | )% | $ | 29,411 | (1 | )% | |||||||||
| EMEA | 3,105 | -- | % | 12,281 | -- | % | |||||||||||
| APJC | 1,895 | (2 | )% | 7,555 | 5 | % | |||||||||||
| Total | $ | 12,638 | (2 | )% | $ | 49,247 | -- | % | |||||||||
| Excluding SP Video CPE Business for all periods: | |||||||||||||||||
| Americas | $ | 7,638 | 3 | % | $ | 29,033 | 3 | % | |||||||||
| EMEA | 3,105 | 3 | % | 12,173 | 1 | % | |||||||||||
| APJC | 1,895 | (2 | )% | 7,537 | 6 | % | |||||||||||
| Total | $ | 12,638 | 2 | % | $ | 48,743 | 3 | % | |||||||||
During the second quarter of fiscal 2016 on November 20, 2015, Cisco completed its divestiture of the SP Video CPE Business. SP Video CPE Business revenue for the three months ended July 25, 2015 was $487 million and for fiscal 2016 and 2015 was $504 million and $1,846 million, respectively.
| CISCO SYSTEMS, INC. | ||||||
| GROSS MARGIN PERCENTAGE BY SEGMENT | ||||||
| (In percentages) | ||||||
| July 30, 2016 | ||||||
| Three Months Ended | Fiscal Year Ended | |||||
| Gross Margin Percentage: | ||||||
| Including SP Video CPE Business for all periods: | ||||||
| Americas | 64.9% | 64.6% | ||||
| EMEA | 65.2% | 64.9% | ||||
| APJC | 62.5% | 61.2% | ||||
| Excluding SP Video CPE Business for all periods(1): | ||||||
| Americas | 64.9% | 65.3% | ||||
| EMEA | 65.2% | 65.4% | ||||
| APJC | 62.5% | 61.3% | ||||
(1) During the second quarter of fiscal 2016 on November 20, 2015, Cisco completed its divestiture of the SP Video CPE Business. SP Video CPE Business gross profit for fiscal 2016 was $41 million and $15 million for the Americas and EMEA, respectively.
| CISCO SYSTEMS, INC. | |||||||||||||||||
| REVENUE FOR GROUPS OF SIMILAR PRODUCTS AND SERVICES | |||||||||||||||||
| (In millions, except percentages) | |||||||||||||||||
| July 30, 2016 | |||||||||||||||||
| Three Months Ended | Fiscal Year Ended | ||||||||||||||||
| Amount | Y/Y % | Amount | Y/Y % | ||||||||||||||
| Revenue: | |||||||||||||||||
| Switching | $ | 3,794 | 2 | % | $ | 14,746 | -- | % | |||||||||
| NGN Routing | 1,876 | (6 | )% | 7,408 | (4 | )% | |||||||||||
| Collaboration | 1,149 | 6 | % | 4,352 | 9 | % | |||||||||||
| Data Center | 873 | (1 | )% | 3,365 | 5 | % | |||||||||||
| Wireless | 752 | 5 | % | 2,625 | 3 | % | |||||||||||
| Security | 540 | 16 | % | 1,969 | 13 | % | |||||||||||
| Service Provider Video(1) | 444 | (12 | )% | 1,920 | 12 | % | |||||||||||
| Other | 124 | 114 | % | 365 | 53 | % | |||||||||||
| Product -- excluding SP Video CPE Business | 9,552 | 1 | % | 36,750 | 2 | % | |||||||||||
| Service | 3,086 | 5 | % | 11,993 | 5 | % | |||||||||||
| Total -- excluding SP Video CPE Business | 12,638 | 2 | % | 48,743 | 3 | % | |||||||||||
| SP Video CPE Business(2) | -- | 504 | |||||||||||||||
| Total | $ | 12,638 | (2 | )% | $ | 49,247 | -- | % | |||||||||
(1) Excludes SP Video CPE Business revenue for all periods presented as it was divested during the second quarter of fiscal 2016 on November 20, 2015. SP Video CPE Business revenue for the three months ended July 25, 2015 was $487 million and for fiscal 2016 and fiscal 2015 was $504 million and $1,846 million, respectively.
(2) Includes SP Video CPE Business revenue through the date of divestiture of November 20, 2015.
(2) Includes SP Video CPE Business revenue through the date of divestiture of November 20, 2015.
| CISCO SYSTEMS, INC. | |||||||||
| CONDENSED CONSOLIDATED BALANCE SHEETS | |||||||||
| (In millions) | |||||||||
| (Unaudited) | |||||||||
| July 30, 2016 | July 25, 2015 | ||||||||
| ASSETS | |||||||||
| Current assets: | |||||||||
| Cash and cash equivalents | $ | 7,631 | $ | 6,877 | |||||
| Investments | 58,125 | 53,539 | |||||||
| Accounts receivable, net of allowance for doubtful accounts of $249 at July 30, 2016 and $302 at July 25, 2015 | 5,847 | 5,344 | |||||||
| Inventories | 1,217 | 1,627 | |||||||
| Financing receivables, net | 4,272 | 4,491 | |||||||
| Other current assets | 1,627 | 1,490 | |||||||
| Total current assets | 78,719 | 73,368 | |||||||
| Property and equipment, net | 3,506 | 3,332 | |||||||
| Financing receivables, net | 4,158 | 3,858 | |||||||
| Goodwill | 26,625 | 24,469 | |||||||
| Purchased intangible assets, net | 2,501 | 2,376 | |||||||
| Deferred tax assets | 4,299 | 4,454 | |||||||
| Other assets | 1,844 | 1,516 | |||||||
| TOTAL ASSETS | $ | 121,652 | $ | 113,373 | |||||
| LIABILITIES AND EQUITY | |||||||||
| Current liabilities: | |||||||||
| Short-term debt | $ | 4,160 | $ | 3,897 | |||||
| Accounts payable | 1,056 | 1,104 | |||||||
| Income taxes payable | 517 | 62 | |||||||
| Accrued compensation | 2,951 | 3,049 | |||||||
| Deferred revenue | 10,155 | 9,824 | |||||||
| Other current liabilities | 6,072 | 5,476 | |||||||
| Total current liabilities | 24,911 | 23,412 | |||||||
| Long-term debt | 24,483 | 21,457 | |||||||
| Income taxes payable | 925 | 1,876 | |||||||
| Deferred revenue | 6,317 | 5,359 | |||||||
| Other long-term liabilities | 1,431 | 1,562 | |||||||
| Total liabilities | 58,067 | 53,666 | |||||||
| Total equity | 63,585 | 59,707 | |||||||
| TOTAL LIABILITIES AND EQUITY | $ | 121,652 | $ | 113,373 | |||||
Certain reclassifications have been made to prior year amounts to conform to the current year's presentation.
| CISCO SYSTEMS, INC. | ||||||||||||
| CONSOLIDATED STATEMENTS OF CASH FLOWS | ||||||||||||
| (In millions) | ||||||||||||
| (Unaudited) | ||||||||||||
| Fiscal Year Ended | ||||||||||||
| July 30, 2016 | July 25, 2015 | |||||||||||
| Cash flows from operating activities: | ||||||||||||
| Net income | $ | 10,739 | $ | 8,981 | ||||||||
| Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||||||
| Depreciation, amortization, and other | 2,150 | 2,442 | ||||||||||
| Share-based compensation expense | 1,458 | 1,440 | ||||||||||
| Provision for receivables | (9 | ) | 134 | |||||||||
| Deferred income taxes | (194 | ) | (23 | ) | ||||||||
| Excess tax benefits from share-based compensation | (129 | ) | (128 | ) | ||||||||
| (Gains) losses on investments and other, net | (317 | ) | (258 | ) | ||||||||
| Change in operating assets and liabilities, net of effects of acquisitions and divestitures: | ||||||||||||
| Accounts receivable | (404 | ) | (413 | ) | ||||||||
| Inventories | 315 | (116 | ) | |||||||||
| Financing receivables | (150 | ) | (634 | ) | ||||||||
| Other assets | (37 | ) | (370 | ) | ||||||||
| Accounts payable | (65 | ) | 87 | |||||||||
| Income taxes, net | (300 | ) | 53 | |||||||||
| Accrued compensation | (101 | ) | 7 | |||||||||
| Deferred revenue | 1,219 | 1,275 | ||||||||||
| Other liabilities | (605 | ) | 75 | |||||||||
| Net cash provided by operating activities | 13,570 | 12,552 | ||||||||||
| Cash flows from investing activities: | ||||||||||||
| Purchases of investments | (46,760 | ) | (43,975 | ) | ||||||||
| Proceeds from sales of investments | 28,778 | 20,237 | ||||||||||
| Proceeds from maturities of investments | 14,115 | 15,293 | ||||||||||
| Acquisition of businesses, net of cash and cash equivalents acquired | (3,161 | ) | (326 | ) | ||||||||
| Proceeds from business divestiture | 372 | -- | ||||||||||
| Purchases of investments in privately held companies | (256 | ) | (222 | ) | ||||||||
| Return of investments in privately held companies | 91 | 288 | ||||||||||
| Acquisition of property and equipment | (1,146 | ) | (1,227 | ) | ||||||||
| Proceeds from sales of property and equipment | 41 | 22 | ||||||||||
| Other | (191 | ) | (178 | ) | ||||||||
| Net cash used in investing activities | (8,117 | ) | (10,088 | ) | ||||||||
| Cash flows from financing activities: | ||||||||||||
| Issuances of common stock | 1,127 | 2,016 | ||||||||||
| Repurchases of common stock - repurchase program | (3,909 | ) | (4,324 | ) | ||||||||
| Shares repurchased for tax withholdings on vesting of restricted stock units | (557 | ) | (502 | ) | ||||||||
| Short-term borrowings, original maturities less than 90 days, net | (4 | ) | (4 | ) | ||||||||
| Issuances of debt | 6,978 | 4,981 | ||||||||||
| Repayments of debt | (3,863 | ) | (508 | ) | ||||||||
| Excess tax benefits from share-based compensation | 129 | 128 | ||||||||||
| Dividends paid | (4,750 | ) | (4,086 | ) | ||||||||
| Other | 150 | (14 | ) | |||||||||
| Net cash used in financing activities | (4,699 | ) | (2,313 | ) | ||||||||
| Net increase (decrease) in cash and cash equivalents | 754 | 151 | ||||||||||
| Cash and cash equivalents, beginning of fiscal year | 6,877 | 6,726 | ||||||||||
| Cash and cash equivalents, end of fiscal year | $ | 7,631 | $ | 6,877 | ||||||||
| Supplemental cash flow information: | ||||||||||||
| Cash paid for interest | $ | 859 | $ | 760 | ||||||||
| Cash paid for income taxes, net | $ | 2,675 | $ | 2,190 | ||||||||
| CISCO SYSTEMS, INC. | ||||||||||||||
| DEFERRED REVENUE | ||||||||||||||
| (In millions) | ||||||||||||||
| July 30, 2016 | April 30, 2016 | July 25, 2015 | ||||||||||||
| Deferred revenue: | ||||||||||||||
| Service | $ | 10,621 | $ | 9,866 | $ | 9,757 | ||||||||
| Product: | ||||||||||||||
| Unrecognized revenue on product shipments and other deferred revenue | 5,474 | 4,987 | 4,766 | |||||||||||
| Deferred revenue related to two-tier distributors | 377 | 419 | 660 | |||||||||||
| Total product deferred revenue | 5,851 | 5,406 | 5,426 | |||||||||||
| Total | $ | 16,472 | $ | 15,272 | $ | 15,183 | ||||||||
| Reported as: | ||||||||||||||
| Current | $ | 10,155 | $ | 9,662 | $ | 9,824 | ||||||||
| Noncurrent | 6,317 | 5,610 | 5,359 | |||||||||||
| Total | $ | 16,472 | $ | 15,272 | $ | 15,183 | ||||||||
| 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 2016 | |||||||||||||||||||||||||
| July 30, 2016 | $ | 0.26 | $ | 1,309 | 28 | $ | 28.70 | $ | 800 | $ | 2,109 | ||||||||||||||
| April 30, 2016 | 0.26 | 1,308 | 27 | 24.08 | 649 | 1,957 | |||||||||||||||||||
| January 23, 2016 | 0.21 | 1,065 | 48 | 26.12 | 1,262 | 2,327 | |||||||||||||||||||
| October 24, 2015 | 0.21 | 1,068 | 45 | 26.83 | 1,207 | 2,275 | |||||||||||||||||||
| $ | 0.94 | $ | 4,750 | 148 | $ | 26.45 | $ | 3,918 | $ | 8,668 | |||||||||||||||
| Fiscal 2015 | |||||||||||||||||||||||||
| July 25, 2015 | $ | 0.21 | $ | 1,069 | 35 | $ | 28.62 | $ | 1,005 | $ | 2,074 | ||||||||||||||
| April 25, 2015 | 0.21 | 1,070 | 35 | 28.39 | 1,008 | 2,078 | |||||||||||||||||||
| January 24, 2015 | 0.19 | 974 | 44 | 27.63 | 1,208 | 2,182 | |||||||||||||||||||
| October 25, 2014 | 0.19 | 973 | 41 | 24.58 | 1,013 | 1,986 | |||||||||||||||||||
| Total | $ | 0.80 | $ | 4,086 | 155 | $ | 27.22 | $ | 4,234 | $ | 8,320 | ||||||||||||||
| 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 | Fiscal Year Ended | ||||||||||||||||
| July 30, 2016 | July 25, 2015 | July 30, 2016 | July 25, 2015 | ||||||||||||||
| GAAP net income | $ | 2,813 | $ | 2,319 | $ | 10,739 | $ | 8,981 | |||||||||
| Adjustments to cost of sales: | |||||||||||||||||
| Share-based compensation expense | 52 | 58 | 212 | 207 | |||||||||||||
| Amortization of acquisition-related intangible assets | 141 | 179 | 507 | 765 | |||||||||||||
| Supplier component remediation adjustment | -- | -- | (74 | ) | (164 | ) | |||||||||||
| Rockstar patent portfolio charge | -- | -- | -- | 188 | |||||||||||||
| Acquisition-related/divestiture costs | -- | -- | 1 | -- | |||||||||||||
| Significant asset impairments and restructurings | -- | 5 | (2 | ) | 5 | ||||||||||||
| Total adjustments to GAAP cost of sales | 193 | 242 | 644 | 1,001 | |||||||||||||
| Adjustments to operating expenses: | |||||||||||||||||
| Share-based compensation expense | 293 | 338 | 1,220 | 1,235 | |||||||||||||
| Amortization of acquisition-related intangible assets | 82 | 146 | 303 | 359 | |||||||||||||
| Acquisition-related/divestiture costs (1) | 82 | 79 | 27 | 351 | |||||||||||||
| Significant asset impairments and restructurings | 13 | 73 | 268 | 484 | |||||||||||||
| Total adjustments to GAAP operating expenses | 470 | 636 | 1,818 | 2,429 | |||||||||||||
| Adjustments to other income (loss), net: | |||||||||||||||||
| Gain on VCE reorganization | -- | -- | -- | (126 | ) | ||||||||||||
| Total adjustments to GAAP income before provision for income taxes | 663 | 878 | 2,462 | 3,304 | |||||||||||||
| Income tax effect of non-GAAP adjustments | (196 | ) | (185 | ) | (623 | ) | (731 | ) | |||||||||
| Significant tax matters (2) | (91 | ) | -- | (556 | ) | (200 | ) | ||||||||||
| Total adjustments to GAAP provision for income taxes | (287 | ) | (185 | ) | (1,179 | ) | (931 | ) | |||||||||
| Non-GAAP net income | $ | 3,189 | $ | 3,012 | $ | 12,022 | $ | 11,354 | |||||||||
| Diluted net income per share: | |||||||||||||||||
| GAAP | $ | 0.56 | $ | 0.45 | $ | 2.11 | $ | 1.75 | |||||||||
| Non-GAAP | $ | 0.63 | $ | 0.59 | $ | 2.36 | $ | 2.21 | |||||||||
(1) During the second quarter of fiscal 2016 on November 20, 2015, Cisco completed its divestiture of the SP Video CPE Business. This sale resulted in a pre-tax gain of $253 million, net of certain transaction costs incurred to date. The gain on this transaction was excluded from non-GAAP net income for fiscal 2016.
(2) Cisco recorded certain net tax benefits totaling $556 million related to prior-year periods that were excluded from non-GAAP net income for fiscal 2016.
(2) Cisco recorded certain net tax benefits totaling $556 million related to prior-year periods that were excluded from non-GAAP net income for fiscal 2016.
| 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 | ||||||||||||||||||||||||||||||
| July 30, 2016 | ||||||||||||||||||||||||||||||
| Product Gross Margin | Service Gross Margin | Total Gross Margin | Operating Expenses | Y/Y | Operating Income | Y/Y | Net Income | Y/Y | ||||||||||||||||||||||
| GAAP amount | $ | 5,938 | $ | 2,037 | $ | 7,975 | $ | 4,672 | (4)% | $ | 3,303 | 15% | $ | 2,813 | 21% | |||||||||||||||
| % of revenue | 62.2 | % | 66.0 | % | 63.1 | % | 37.0 | % | 26.1 | % | 22.3 | % | ||||||||||||||||||
| Adjustments to GAAP amounts: | ||||||||||||||||||||||||||||||
| Share-based compensation expense | 20 | 32 | 52 | 293 | 345 | 345 | ||||||||||||||||||||||||
| Amortization of acquisition-related intangible assets | 141 | -- | 141 | 82 | 223 | 223 | ||||||||||||||||||||||||
| Acquisition/divestiture-related costs | -- | -- | -- | 82 | 82 | 82 | ||||||||||||||||||||||||
| Significant asset impairments and restructurings | -- | -- | -- | 13 | 13 | 13 | ||||||||||||||||||||||||
| Income tax/significant tax matters | -- | -- | -- | -- | -- | (287 | ) | |||||||||||||||||||||||
| Non-GAAP amount | $ | 6,099 | $ | 2,069 | $ | 8,168 | $ | 4,202 | 1% | $ | 3,966 | 7% | $ | 3,189 | 7% | |||||||||||||||
| % of revenue | 63.9 | % | 67.0 | % | 64.6 | % | 33.2 | % | 31.4 | % | 25.2 | % | ||||||||||||||||||
On November 20, 2015, during the second quarter of fiscal 2016, Cisco completed its divestiture of the SP Video CPE Business. Accordingly, the non-GAAP growth rates above are normalized to exclude the SP Video CPE Business for the fourth quarter of fiscal 2015 as detailed in the table below.
| Three Months Ended | ||||||||||||||||||||||||
| July 25, 2015 | ||||||||||||||||||||||||
| Product Gross Margin | Service Gross Margin | Total Gross Margin | Operating Expenses | Operating Income | Net Income | |||||||||||||||||||
| GAAP amount | $ | 5,843 | $ | 1,890 | $ | 7,733 | $ | 4,852 | $ | 2,881 | $ | 2,319 | ||||||||||||
| % of revenue | 59.0 | % | 64.5 | % | 60.2 | % | 37.8 | % | 22.4 | % | 18.1 | % | ||||||||||||
| Adjustments to GAAP amounts: | ||||||||||||||||||||||||
| Share-based compensation expense | 16 | 42 | 58 | 338 | 396 | 396 | ||||||||||||||||||
| Amortization of acquisition-related intangible assets | 179 | -- | 179 | 146 | 325 | 325 | ||||||||||||||||||
| Acquisition/divestiture-related costs | -- | -- | -- | 79 | 79 | 79 | ||||||||||||||||||
| Significant asset impairments and restructurings | 5 | -- | 5 | 73 | 78 | 78 | ||||||||||||||||||
| Income tax/significant tax matters | -- | -- | -- | -- | -- | (185 | ) | |||||||||||||||||
| Non-GAAP amount | $ | 6,043 | $ | 1,932 | $ | 7,975 | $ | 4,216 | $ | 3,759 | $ | 3,012 | ||||||||||||
| Less: SP Video CPE Business | (83 | ) | -- | (83 | ) | (37 | ) | (46 | ) | (37 | ) | |||||||||||||
| Non-GAAP amount (excluding SP Video CPE Business) | $ | 5,960 | $ | 1,932 | $ | 7,892 | $ | 4,179 | $ | 3,713 | $ | 2,975 | ||||||||||||
| % of revenue | 63.2 | % | 65.9 | % | 63.9 | % | 33.8 | % | 30.1 | % | 24.1 | % | ||||||||||||
For the SP Video CPE Business, EPS was $0.01 for the fourth quarter of fiscal 2015. Net income for the SP Video CPE Business was $10 million and $142 million for fiscal 2016 and fiscal 2015, respectively, and EPS for fiscal 2016 and 2015 was $0.00 and $0.03, respectively.
| CISCO SYSTEMS, INC. | ||||||||||||
| RECONCILIATIONS OF GAAP TO NON-GAAP MEASURES | ||||||||||||
| EFFECTIVE TAX RATE | ||||||||||||
| (In percentages) | ||||||||||||
| Three Months Ended | Fiscal Year Ended | |||||||||||
| July 30, 2016 | July 25, 2015 | July 30, 2016 | July 25, 2015 | |||||||||
| GAAP effective tax rate | 17.1 | % | 20.9 | % | 16.9 | % | 19.8 | % | ||||
| Total adjustments to GAAP provision for income taxes | 4.3 | % | 0.1 | % | 4.9 | % | 1.9 | % | ||||
| Non-GAAP effective tax rate | 21.4 | % | 21.0 | % | 21.8 | % | 21.7 | % | ||||
| FREE CASH FLOW | |||||||||||||||
| (In millions) | |||||||||||||||
| Three Months Ended | Fiscal Year Ended | ||||||||||||||
| July 30, 2016 | July 25, 2015 | July 30, 2016 | July 25, 2015 | ||||||||||||
| Net cash provided by operating activities | $ | 3,818 | $ | 4,138 | $ | 13,570 | $ | 12,552 | |||||||
| Acquisition of property and equipment | (266 | ) | (320 | ) | (1,146 | ) | (1,227 | ) | |||||||
| Free cash flow | $ | 3,552 | $ | 3,818 | $ | 12,424 | $ | 11,325 | |||||||
| GAAP TO NON-GAAP BUSINESS OUTLOOK FOR Q1 FY 2017 | |||||||
| Q1 FY 2017 | Gross Margin Rate | Operating Margin Rate | Tax Provision Rate | Earnings per Share (2) | |||
| GAAP | 61.5% - 62.5% | 21% - 22% | 21% | $0.42 - $0.47 | |||
| Estimated adjustments for: | |||||||
| Share-based compensation expense | 0.5% | 3% | -- | $0.05 - $0.06 | |||
| Amortization of purchased intangible assets and other acquisition-related/divestiture costs | 1% | 2% | -- | $0.03 - $0.04 | |||
| Restructuring and other charges (1) | -- | 3% | -- | $0.05 - $0.06 | |||
| Income tax effect of non-GAAP adjustments | -- | -- | 1% | ||||
| Non-GAAP | 63% - 64% | 29% - 30% | 22% | $0.58 - $0.60 | |||
(1) In relation to the restructuring plan, Cisco currently estimates that it will recognize pre-tax charges to its GAAP financial results in an amount of up to $700 million consisting of severance and other one-time termination benefits, and other associated costs. These charges are primarily cash-based. Cisco expects that approximately $325 million to $400 million of these charges will be recognized during the first quarter of fiscal 2017 with the remaining amount to be recognized during the rest of the fiscal year.
(2) Estimated adjustments to GAAP earnings per share are shown after income tax effects.
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.
About Cisco
Cisco (NASDAQ: CSCO) is the worldwide technology leader that has been making the Internet work since 1984. Our people, products and partners help society securely connect and seize tomorrow's digital opportunity today. Discover more at thenetwork.cisco.com and follow us on Twitter at @Cisco.
David Menzies | 919-274-6862 | Writer and Public Relations Consultant
