EX-99.1 2 dex991.htm PRESS RELEASE Press Release

Exhibit 99.1

 

Press Contact:    Investor Relations Contact:
Robyn Jenkins-Blum    Laura Graves
Cisco    Cisco
+1 (408) 853-9848    +1 (408) 526-6521
rojenkin@cisco.com    lagraves@cisco.com

CISCO REPORTS THIRD QUARTER EARNINGS

 

   

Q3 Net Sales: $10.4 billion (increase of 27% year over year)

 

   

Q3 Net Income: $2.2 billion GAAP; $2.5 billion non-GAAP

 

   

Q3 Earnings per Share: $0.37 GAAP (increase of 61% year over year); $0.42 non-GAAP (increase of 40% year over year)

 

   

Q3 Cash Flows from Operations: $3.0 billion (increase of 49% year over year)

SAN JOSE, Calif. – May 12, 2010 – Cisco, the worldwide leader in networking that transforms how people connect, communicate and collaborate, today reported its third quarter results for the period ended May 1, 2010. Cisco reported third quarter net sales of $10.4 billion, net income on a generally accepted accounting principles (GAAP) basis of $2.2 billion or $0.37 per share, and non-GAAP net income of $2.5 billion or $0.42 per share.

“Our financial results were outstanding, achieving record level revenue and earnings per share results. We witnessed a return to strong balanced growth across geographies, products and customer segments that we haven’t seen since before the global economic challenges began. We emerge from this downturn gaining market share, a larger share of the total wallet spend of our customers, dramatically improved customer relations as a trusted technology and business partner, and having next-generation products in almost every product category. It is clear that our game plan for how to handle economic downturns is hitting on all cylinders,” said John Chambers, chairman and CEO of Cisco.

Chambers continued, “Our innovation and operational engines are exceeding our expectations. This applies to products, organization structures, business models, and movements into 30+ new market adjacencies. From almost every measurement perspective – revenues, earnings per share, new products, successful acquisitions, internal startups – our results in Q3 were the proof points that our strategy is working and was probably the strongest quarter in our history.”

GAAP Results

 

     Q3 2010    Q3 2009    Vs. Q3 2009  

Net Sales

   $ 10.4 billion    $ 8.2 billion    27.0

Net Income

   $ 2.2 billion    $ 1.3 billion    62.6

Earnings per Share

   $ 0.37    $ 0.23    60.9

Non-GAAP Results

 

     Q3 2010    Q3 2009    Vs. Q3 2009  

Net Income

   $ 2.5 billion    $ 1.8 billion    41.2

Earnings per Share

   $ 0.42    $ 0.30    40.0

GAAP net income and GAAP earnings per share for the third quarter and first nine months of fiscal 2010 include a tax benefit as a reduction of the provision for income taxes of $158 million or $0.03 per share. This did not impact our non-GAAP results. A reconciliation between net income on a GAAP basis and non-GAAP net income is provided in the table on page 6.

The third quarter of fiscal 2010 had 14 weeks compared with 13 weeks in the third quarter of fiscal 2009.

Net sales for the first nine months of fiscal 2010 were $29.2 billion, compared with $27.6 billion for the first nine months of fiscal 2009. Net income for the first nine months of fiscal 2010, on a GAAP basis, was $5.8 billion or $0.99 per share, compared with $5.1 billion or $0.86 per share for the first nine months of fiscal 2009. Non-GAAP net income for the first nine months of fiscal 2010 was $6.9 billion or $1.18 per share, compared with $6.1 billion or $1.04 per share for the first nine months of fiscal 2009.

Cisco will discuss third quarter 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://www.cisco.com/go/investors. To view a video of Cisco’s CFO discussing third quarter results, visit http://blogs.cisco.com.

Other Financial Highlights

 

   

Cash flows from operations were $3.0 billion for the third quarter of fiscal 2010, compared with $2.5 billion for the second quarter of fiscal 2010, and compared with $2.0 billion for the third quarter of fiscal 2009.

 

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Cash and cash equivalents and investments were $39.1 billion at the end of the third quarter of fiscal 2010, compared with $35.0 billion at the end of fiscal 2009, and compared with $39.6 billion at the end of the second quarter of fiscal 2010.

 

   

During the third quarter of fiscal 2010, Cisco repurchased 87 million shares of common stock at an average price of $25.76 per share for an aggregate purchase price of $2.25 billion. As of May 1, 2010, Cisco had repurchased 3.0 billion shares of Cisco common stock at an average price of $20.70 per share for an aggregate purchase price of approximately $62.7 billion since the inception of the stock repurchase program. The remaining authorized repurchase amount as of May 1, 2010 was $9.3 billion with no termination date.

 

   

Days sales outstanding in accounts receivable (DSO) at the end of the third quarter of fiscal 2010 were 39 days, unchanged from the end of the second quarter of fiscal 2010, and compared with 27 days at the end of the third quarter of fiscal 2009.

 

   

Inventory turns on a GAAP basis were 11.5 in the third quarter of fiscal 2010, compared with 12.1 in the second quarter of fiscal 2010, and compared with 11.0 in the third quarter of fiscal 2009. Non-GAAP inventory turns were 11.1 in the third quarter of fiscal 2010, compared with 11.7 in the second quarter of fiscal 2010, and compared with 10.7 in the third quarter of fiscal 2009.

“We delivered outstanding results in our third fiscal quarter which builds on the strong momentum we saw coming out of our second quarter. Our net income in the quarter grew to $2.2 billion on a GAAP basis, representing solid growth of 63 percent year over year. This stability in our earnings, coupled with strong margins, is contributing to our continued strategic ability to generate cash in the business,” said Frank Calderoni, chief financial officer for Cisco. “It is clear that our focus on both operational excellence and investing in innovation is continuing to produce strong results.”

Select Global Business Highlights

 

   

Cisco completed its voluntary offer for TANDBERG, a global leader in video communications, and launched a compulsory acquisition of the rest of the outstanding issued shares of TANDBERG. Through the combined companies, the Cisco TelePresence™ business provides customers with access to a fully integrated architecture, a comprehensive network-based endpoint and infrastructure portfolio, and a suite of unique experiences, customizable applications and flexible deployment models.

 

   

Cisco and VMware launched an initiative that provides new program benefits for channel partners delivering Cisco Unified Computing System™ and VMware vSphere.

Cisco Innovation

 

   

Cisco introduced the Cisco CRS-3 Carrier Routing System, designed to serve as the foundation for the next-generation Internet and to transform the broadband and entertainment industries.

 

   

New Cisco mobile collaboration applications for the Apple iPad and BlackBerry smartphones offer millions of users access to Cisco WebEx™ online meetings.

 

   

Cisco introduced the second-generation Cisco Unified Computing System with up to four times the compute capacity compared to the first generation, designed to reduce IT infrastructure costs and complexity, provide better support for data center virtualization, and improve business agility.

 

   

Cisco introduced the Cisco ASR 5000, providing a comprehensive end-to-end Internet Protocol Next-Generation Network (IP NGN) architecture and offering mobile operators a platform specifically designed to accommodate the rapid growth of mobile Internet traffic and mobile multimedia applications.

 

   

Cisco delivered on its borderless networks vision with the introduction of a new series of fixed-switching product lines – the Cisco Catalyst® 3560/3750-X Series and 2960-S Series – that provide a comprehensive suite of new professional services offerings, flexible entry-level pricing, and an enhanced limited lifetime warranty.

 

   

Cisco announced its delivery of the borderless mobility experience with the latest new wireless innovation: CleanAir Technology designed to help accelerate the transition to the mobile workplace.

Select Customer Announcements

 

   

NTT America plans to deploy the Cisco ASR 9000 Series router to scale its Next-Generation Internet Protocol Network infrastructure.

 

   

The State of Colorado and Cisco joined forces to strengthen social, economic and environmental sustainability through Smart+Connected Communities.

 

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Bank of America and Cisco announced an agreement to deploy the largest network of Cisco TelePresence systems, with an initial 200 units being installed across the bank’s global operations by year-end.

 

   

Incheon Metropolitan City and Cisco announced a collaboration to build the Incheon Free Economic Zone (IFEZ) into a high-tech, globally competitive and environmentally sustainable smart connected city in Korea.

 

   

Australia’s Deakin University has transitioned to the Cisco Unified Computing System platform for its next-generation data center.

 

   

Cisco announced that MTN Nigeria, in collaboration with Cisco and Resourcery plc, became the first service provider in Nigeria to offer Cisco TelePresence.

 

   

BT delivered virtual fitting rooms to Tommy Hilfiger, based on BT’s Unified Communications Video solution coupled with Cisco’s TANDBERG technology, to help design teams in Amsterdam and New York collaborate more effectively with manufacturing teams in Hong Kong.

 

   

Netherlands-based telecom and ICT service provider KPN selected the Cisco CRS-3 Carrier Routing System as the foundation for its core Internet Protocol Next-Generation Network (IP NGN).

Editor’s Note

 

   

Q3 FY10 conference call to discuss Cisco’s results along with its business outlook will be held at 1:30 p.m. Pacific Time, Wednesday, May 12, 2010. Conference call number is 888-848-6507 (United States) or 212-519-0847 (international).

 

   

Conference call replay will be available from 4:30 p.m. Pacific Time, May 12, 2010 to 4:30 p.m. Pacific Time, May 19, 2010 at 866-357-4205 (United States) or 203-369-0122 (international). The replay also will be available via webcast from May 12, 2010 through July 23, 2010 on the Cisco Investor Relations 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, May 12, 2010. 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.

 

   

To view a video of Cisco’s CFO discussing Q3 FY10 results, visit Cisco’s blog site, The Platform, at blogs.cisco.com.

About Cisco

Cisco (NASDAQ: CSCO), the worldwide leader in networking that transforms how people connect, communicate and collaborate, this year celebrates 25 years of technology innovation, operational excellence and corporate social responsibility. Information about Cisco can be found at http://www.cisco.com. For ongoing news, please go to http://newsroom.cisco.com.

# # #

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 statements regarding our growth, strategy, results, share gains, and ability to generate cash) 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, 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 market adjacencies and geographical locations; 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; increased competition in our product and service markets, including the data center; 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; natural catastrophic events; a pandemic or epidemic; our ability to achieve the benefits anticipated from our investments in sales and engineering 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, including relating to transactions to hedge foreign currency consideration for acquisitions; 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 reports on Form 10-K and Form 10-Q. 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 reports on Form 10-K and Form 10-Q, as each may be amended from time to time. Cisco’s results of operations for the three and nine months ended May 1, 2010 are not necessarily indicative of Cisco’s operating results for any

 

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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 net income per share data, non-GAAP shares used in net income per share calculation, and non-GAAP inventory turns. Effective from the second quarter and for the related year-to-date periods of fiscal 2010, Cisco no longer uses non-GAAP shares in the calculation of non-GAAP net income per share.

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 net income, non-GAAP net income per share data and non-GAAP shares used in net income per share calculation for the periods in which such measures are presented, 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 results of operations. In addition, Cisco believes that the presentation of non-GAAP inventory turns provides useful information to investors and management regarding financial and business trends relating to inventory management based on the operating activities of the period presented.

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, other acquisition-related costs, enhanced early retirement benefits, the income tax effects of the foregoing, significant effects of retroactive tax legislation, and significant transfer pricing adjustments related to share-based compensation. 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; for example, effective in the third quarter of fiscal 2009, Cisco no longer excludes payroll tax on stock option exercises, and effective in fiscal 2010, Cisco no longer excludes in-process research and development upon acquisition as it is no longer expensed as a result of new accounting guidance. 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.

Copyright © 2010 Cisco Systems, Inc. All rights reserved. Cisco, the Cisco logo, Cisco Systems, Catalyst, Cisco TelePresence, Cisco Unified Computing System, and Cisco WebEx are registered trademarks or trademarks of Cisco Systems, Inc. and/or its affiliates in the United States 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. This document is Cisco Public Information.

 

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CONSOLIDATED STATEMENTS OF OPERATIONS

(In millions, except per-share amounts)

(Unaudited)

 

     Three Months Ended     Nine Months Ended  
     May 1,
2010
    April 25,
2009
    May 1,
2010
    April 25,
2009
 

NET SALES:

        

Product

   $ 8,436      $ 6,420      $ 23,612      $ 22,402   

Service

     1,932        1,742        5,592        5,180   
                                

Total net sales

     10,368        8,162        29,204        27,582   
                                

COST OF SALES:

        

Product

     3,010        2,327        8,311        8,045   

Service

     728        606        2,043        1,904   
                                

Total cost of sales

     3,738        2,933        10,354        9,949   
                                

GROSS MARGIN

     6,630        5,229        18,850        17,633   

OPERATING EXPENSES:

        

Research and development

     1,411        1,243        3,882        3,928   

Sales and marketing

     2,260        1,956        6,365        6,394   

General and administrative

     497        302        1,404        1,077   

Amortization of purchased intangible assets

     117        121        360        369   

In-process research and development

     —          —          —          3   
                                

Total operating expenses

     4,285        3,622        12,011        11,771   
                                

OPERATING INCOME

     2,345        1,607        6,839        5,862   

Interest income

     158        194        481        675   

Interest expense

     (182     (105     (454     (232

Other income (loss), net

     82        (9 )     131        (145
                                

Interest and other income, net

     58        80        158        298   
                                

INCOME BEFORE PROVISION FOR INCOME TAXES

     2,403        1,687        6,997        6,160   

Provision for income taxes

     211        339        1,165        1,107   
                                

NET INCOME

   $ 2,192      $ 1,348      $ 5,832      $ 5,053   
                                

Net income per share:

        

Basic

   $ 0.38      $ 0.23      $ 1.01      $ 0.86   
                                

Diluted

   $ 0.37      $ 0.23      $ 0.99      $ 0.86   
                                

Shares used in per-share calculation:

        

Basic

     5,731        5,805        5,746        5,844   
                                

Diluted

     5,869        5,818        5,869        5,871   
                                

Certain reclassifications have been made to prior period amounts to conform to the current period’s presentation.

 

5


RECONCILIATION OF GAAP TO NON-GAAP NET INCOME

(In millions, except per-share amounts)

 

     Three Months Ended     Nine Months Ended  
     May 1,
2010
    April 25,
2009
    May 1,
2010
    April 25,
2009
 

GAAP net income

   $ 2,192      $ 1,348      $ 5,832      $ 5,053   

Share-based compensation expense

     434        299        1,126        901   

Payroll tax on stock option exercises (1)

     —          —          —          1   

In-process research and development (2)

     —          —          —          3   

Amortization of acquisition-related intangible assets

     181        164        522        520   

Other acquisition-related costs

     43        98        128        257   
                                

Total adjustments to GAAP income before provision for income taxes

     658        561        1,776        1,682   
                                

Income tax effect

     (216     (156     (519     (512

Effect of retroactive tax legislation (3)

     —          —          —          (106

Transfer pricing adjustment related to share-based compensation (4)

     (158     —          (158     —     
                                

Total adjustments to GAAP provision for income taxes

     (374     (156     (677     (618
                                

Non-GAAP net income

   $ 2,476      $ 1,753      $ 6,931      $ 6,117   
                                

Diluted net income per share:

        

GAAP

   $ 0.37      $ 0.23      $ 0.99      $ 0.86   
                                

Non-GAAP

   $ 0.42      $ 0.30      $ 1.18      $ 1.04   
                                

Shares used in diluted net income per share calculation: (5)

        

GAAP

     5,869        5,818        5,869        5,871   
                                

Non-GAAP

     5,869        5,840        5,869        5,888   
                                

 

(1)

Effective in the third quarter of fiscal 2009, Cisco no longer excludes payroll tax on stock option exercises for purposes of its non-GAAP financial measures.

 

(2)

Effective in fiscal 2010, Cisco no longer excludes in-process research and development upon acquisition for purposes of its non-GAAP financial measures as it is no longer expensed as a result of new accounting guidance.

 

(3)

In the first quarter of fiscal 2009, the Tax Extenders and Alternative Minimum Tax Relief Act of 2008 reinstated the U.S. federal R&D tax credit, retroactive to January 1, 2008. GAAP net income for the first nine months of fiscal 2009 included a $106 million tax benefit related to fiscal 2008 R&D expenses. Non-GAAP net income for the first nine months of fiscal 2009 excluded the $106 million tax benefit related to fiscal 2008 R&D expenses.

 

(4)

In the third quarter of fiscal 2010, the U.S. Court of Appeals for the Ninth Circuit affirmed a 2005 U.S. Tax Court ruling in Xilinx, Inc. v. Commissioner. The decision affirmed the tax treatment of share-based compensation expenses for the purpose of determining intangible development costs under a company’s research and development cost sharing arrangement. While Cisco was not a party to the case, as a result of this ruling, the Company recorded a tax benefit of $158 million as a reduction to the provision for income taxes during the three months ended May 1, 2010.

 

(5)

Effective from the second quarter and for the related year-to-date periods of fiscal 2010, Cisco no longer uses non-GAAP shares in the calculation of non-GAAP net income per share.

Certain reclassifications have been made to prior period amounts to conform to the current period’s presentation.

Additional reconciliations between GAAP and non-GAAP financial measures are provided in the tables that follow on page 10.

 

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CONSOLIDATED BALANCE SHEETS

(In millions)

(Unaudited)

 

     May 1,
2010
   July 25,
2009

ASSETS

     

Current assets:

     

Cash and cash equivalents

   $ 3,961    $ 5,718

Investments

     35,145      29,283

Accounts receivable, net of allowance for doubtful accounts of $216 at May 1, 2010 and July 25, 2009

     4,078      3,177

Inventories

     1,250      1,074

Deferred tax assets

     2,277      2,320

Other current assets

     3,047      2,605
             

Total current assets

     49,758      44,177

Property and equipment, net

     3,994      4,043

Goodwill

     16,668      12,925

Purchased intangible assets, net

     3,448      1,702

Other assets

     5,424      5,281
             

TOTAL ASSETS

   $ 79,292    $ 68,128
             

LIABILITIES AND EQUITY

     

Current liabilities:

     

Short-term debt

   $ 3,127    $ —  

Accounts payable

     902      675

Income taxes payable

     167      166

Accrued compensation

     2,709      2,535

Deferred revenue

     7,154      6,438

Other current liabilities

     4,380      3,841
             

Total current liabilities

     18,439      13,655

Long-term debt

     12,119      10,295

Income taxes payable

     1,054      2,007

Deferred revenue

     3,149      2,955

Other long-term liabilities

     679      539
             

Total liabilities

     35,440      29,451

Total equity

     43,852      38,677
             

TOTAL LIABILITIES AND EQUITY

   $ 79,292    $ 68,128
             

Certain reclassifications have been made to prior period amounts to conform to the current period’s presentation.

 

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CONSOLIDATED STATEMENTS OF CASH FLOWS

(In millions)

(Unaudited)

 

     Nine Months Ended  
     May 1,
2010
    April 25,
2009
 

Cash flows from operating activities:

    

Net income

   $ 5,832      $ 5,053   

Adjustments to reconcile net income to net cash provided by operating activities:

    

Depreciation, amortization, and other noncash items

     1,415        1,244   

Share-based compensation expense

     1,126        901   

Provision for doubtful accounts

     18        36   

Deferred income taxes

     (256     (166

Excess tax benefits from share-based compensation

     (177     (25

In-process research and development

     —          3   

Net (gains) losses on investments

     (147     113   

Change in operating assets and liabilities, net of effects of acquisitions:

    

Accounts receivable

     (662     1,337   

Inventories

     (86     199   

Lease receivables, net

     (263     (127

Accounts payable

     160        (198

Income taxes payable

     (204     274   

Accrued compensation

     138        120   

Deferred revenue

     740        9   

Other assets

     (544     (618

Other liabilities

     (149     (243
                

Net cash provided by operating activities

     6,941        7,912   
                

Cash flows from investing activities:

    

Purchases of investments

     (35,263     (31,865

Proceeds from sales of investments

     12,193        17,291   

Proceeds from maturities of investments

     17,474        9,088   

Acquisition of property and equipment

     (699     (794

Acquisition of businesses, net of cash and cash equivalents acquired

     (4,950     (338

Change in investments in privately held companies

     (68     (78

Other

     80        (54
                

Net cash used in investing activities

     (11,233     (6,750
                

Cash flows from financing activities:

    

Issuance of common stock

     2,780        486   

Repurchase of common stock

     (5,440     (2,807

Issuance of long-term debt

     4,944        3,991   

Short-term borrowings, net

     62        —     

Repayment of long-term debt

     —          (500

Settlements of interest rate derivatives related to long-term debt

     23        (42

Excess tax benefits from share-based compensation

     177        25   

Other

     (11     (147
                

Net cash provided by financing activities

     2,535        1,006   
                

Net (decrease) increase in cash and cash equivalents

     (1,757     2,168   

Cash and cash equivalents, beginning of period

     5,718        5,191   
                

Cash and cash equivalents, end of period

   $ 3,961      $ 7,359   
                

Certain reclassifications have been made to prior period amounts to conform to the current period’s presentation.

 

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ADDITIONAL FINANCIAL INFORMATION

(In millions)

(Unaudited)

 

     May 1,
2010
    July 25,
2009
 

CASH AND CASH EQUIVALENTS AND INVESTMENTS

    

Cash and cash equivalents

   $ 3,961      $ 5,718   

Fixed income securities

     33,908        28,355   

Publicly traded equity securities

     1,237        928   
                

Total

   $ 39,106      $ 35,001   
                

INVENTORIES

    

Raw materials

   $ 204      $ 165   

Work in process

     43        33   

Finished goods:

    

Distributor inventory and deferred cost of sales

     530        382   

Manufactured finished goods

     280        310   
                

Total finished goods

     810        692   

Service-related spares

     143        151   

Demonstration systems

     50        33   
                

Total

   $ 1,250      $ 1,074   
                

PROPERTY AND EQUIPMENT, NET

    

Land, buildings, and building & leasehold improvements

   $ 4,527      $ 4,618   

Computer equipment and related software

     1,489        1,823   

Production, engineering, and other equipment

     4,891        5,075   

Operating lease assets

     256        227   

Furniture and fixtures

     474        465   
                
     11,637        12,208   

Less accumulated depreciation and amortization

     (7,643     (8,165
                

Total

   $ 3,994      $ 4,043   
                

OTHER ASSETS

    

Deferred tax assets

   $ 1,800      $ 2,122   

Investments in privately held companies

     763        709   

Lease receivables, net (1)

     1,126        966   

Financed service contracts, net (2)

     692        676   

Loan receivables, net (3)

     744        537   

Other

     299        271   
                

Total

   $ 5,424      $ 5,281   
                

DEFERRED REVENUE

    

Service

   $ 6,838      $ 6,496   

Product:

    

Unrecognized revenue on product shipments and other deferred revenue

     2,737        2,490   

Cash receipts related to unrecognized revenue from two-tier distributors

     728        407   
                

Total product deferred revenue

     3,465        2,897   
                

Total

   $ 10,303      $ 9,393   
                

Reported as:

    

Current

   $ 7,154      $ 6,438   

Noncurrent

     3,149        2,955   
                

Total

   $ 10,303      $ 9,393   
                

Note:

 

(1)

The current portion of lease receivables, net, which was $754 million and $626 million as of May 1, 2010 and July 25, 2009, respectively, is recorded in other current assets.

 

(2)

The current portion of financed service contracts, net, which was $965 million and $940 million as of May 1, 2010 and July 25, 2009, respectively, is recorded in other current assets.

 

(3)

The current portion of loan receivables, net, which was $423 million and $236 million as of May 1, 2010 and July 25, 2009, respectively, is recorded in other current assets.

 

9


SUMMARY OF SHARE-BASED COMPENSATION EXPENSE

(In millions)

 

     Three Months Ended    Nine Months Ended
     May 1,
2010
   April 25,
2009
   May 1,
2010
   April 25,
2009

Cost of sales—product

   $ 16    $ 12    $ 43    $ 33

Cost of sales—service

     47      31      121      94
                           

Share-based compensation expense in cost of sales

     63      43      164      127
                           

Research and development

     129      94      336      283

Sales and marketing

     153      103      395      321

General and administrative

     89      59      231      170
                           

Share-based compensation expense in operating expenses

     371      256      962      774
                           

Total share-based compensation expense

   $ 434    $ 299    $ 1,126    $ 901
                           

The income tax benefit for share-based compensation expense was $118 million and $304 million for the third quarter and first nine months of fiscal 2010, respectively, and $79 million and $238 million for the third quarter and first nine months of fiscal 2009, respectively.

RECONCILIATION OF SHARES USED IN THE GAAP AND NON-GAAP

DILUTED NET INCOME PER SHARE CALCULATION

(In millions)

 

     Three Months Ended
April 25, 2009
   Nine Months Ended
April 25, 2009

Shares used in diluted net income per share calculation—GAAP

   5,818    5,871

Effect of share-based compensation expense

   22    17
         

Shares used in diluted net income per share calculation—non-GAAP

   5,840    5,888
         

Effective from the second quarter and for the related year-to-date periods of fiscal 2010, Cisco no longer uses non-GAAP shares in the calculation of non-GAAP net income per share.

RECONCILIATION OF GAAP TO NON-GAAP COST OF

SALES USED IN INVENTORY TURNS

(In millions)

 

     Three Months Ended  
     May 1,
2010
    January 23,
2010
    April 25,
2009
 

GAAP cost of sales

   $ 3,738      $ 3,483      $ 2,933   

Share-based compensation expense

     (63     (56     (43

Amortization of acquisition-related intangible assets

     (64     (54     (43
                        

Non-GAAP cost of sales

   $ 3,611      $ 3,373      $ 2,847   
                        

 

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