8-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 8-K

CURRENT REPORT

Pursuant to Section 13 OR 15(d)

of The Securities Exchange Act of 1934

Date of Report (Date of earliest event reported): May 16, 2018

CISCO SYSTEMS, INC.

(Exact name of registrant as specified in its charter)

California

(State or other jurisdiction of incorporation)

0-18225	77-0059951
(Commission File Number)	(IRS Employer Identification No.)
170 West Tasman Drive, San Jose, California	95134-1706
(Address of principal executive offices)	(Zip Code)

(408) 526-4000

(Registrant’s telephone number, including area code)

Not Applicable

(Former name or former address, if changed since last report.)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):

☐ Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

☐ Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

☐ Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

☐ Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§ 230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§ 240.12b-2 of this chapter).

Emerging growth company  ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  ☐

Item 2.02. Results of Operations and Financial Condition.

On May 16, 2018, Cisco Systems, Inc. (“Cisco”) reported its results of operations for its fiscal third quarter 2018 ended April 28, 2018. A copy of the press release issued by Cisco concerning the foregoing results is furnished herewith as Exhibit 99.1.

The information contained herein and in the accompanying exhibit shall not be incorporated by reference into any filing of Cisco, whether made before or after the date hereof, regardless of any general incorporation language in such filing, unless expressly incorporated by specific reference to such filing. The information in this report, including the exhibit hereto, shall not be deemed to be “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to the liabilities of that section or Sections 11 and 12(a)(2) of the Securities Act of 1933, as amended.

The attached exhibit 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 (such as legal and indemnification settlements and the supplier component remediation amounts), 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.

As described above, Cisco excludes the following items from one or more of its non-GAAP measures when applicable:

Share-based compensation expense. These expenses consist primarily of expenses for employee restricted stock and restricted stock units, employee stock options, and employee stock purchase rights, including such expenses associated with acquisitions. Cisco excludes share-based compensation expense from its non-GAAP measures primarily because they are non-cash expenses and Cisco believes that it is useful to investors to understand the impact of share-based compensation to its results of operations.

Amortization of acquisition-related intangible assets. Cisco incurs amortization of intangible assets (which may include impairment charges from the write-downs of purchased intangible assets) in connection with acquisitions. Such intangible assets may include purchased intangible assets with finite lives, capitalized in process research and development and goodwill. Cisco excludes these items because Cisco does not believe these expenses are reflective of ongoing operating results in the period incurred. These amounts arise from Cisco’s prior acquisitions and have no direct correlation to the operation of Cisco’s business.

Acquisition-related/divestiture costs. In connection with its business combinations, Cisco incurs compensation expense, changes to the fair value of contingent consideration, as well as professional fees and other direct expenses such as restructuring activities related to the acquired company. In addition, from time to time Cisco enters into foreign currency transactions related to pending acquisitions, and may incur gains or losses on such transactions. Cisco may also from time to time incur gains or losses from divestitures of a business area as well as professional fees and other direct expenses associated with such transactions. Cisco excludes such compensation expense, changes to the fair value of contingent consideration, fees, other direct expenses, and gains and losses, as they are related to acquisitions and divestitures and have no direct correlation to the operation of Cisco’s business.

Significant asset impairments and restructurings. Cisco from time to time incurs significant asset impairments, restructuring charges, and gains or losses on asset disposals. Cisco excludes these items, when significant, because it does not believe they are reflective of ongoing business and operating results.

Significant litigation settlements and other contingencies. Cisco from time to time may incur charges or benefits related to significant litigation settlements and other contingencies. Cisco excludes these charges or benefits, when significant, because it does not believe they are reflective of ongoing business and operating results.

Significant gains and losses on investments. Cisco does not actively trade public equity securities and investments in privately held companies nor does it plan on these investments for funding of ongoing operations, and investments. Cisco excludes gains and losses on these investments, when significant, because it does not believe they are reflective of ongoing business and operating results.

Income tax effects of the foregoing. This amount is used to present each of the amounts described above on an after-tax basis consistent with the presentation of non-GAAP net income.

Significant tax matters. Cisco may incur tax charges or benefits that are (i) related to prior periods or (ii) not reflective of its ongoing provision for income taxes. These tax charges or benefits may be the result of events such as changes in tax legislation (including the Tax Cuts and Jobs Act), court decisions, and/or tax settlements. Cisco excludes these charges or benefits, when significant, because it does not believe they are reflective of ongoing business and operating results.

From time to time in the future, there may be other items that Cisco may exclude if it believes that doing so is consistent with the goal of providing useful information to investors and management.

Cisco will incur share-based compensation expense, amortization of acquisition-related intangible assets, and acquisition-related costs, in future periods. Significant asset impairments, restructurings, significant litigation settlements and other contingencies, significant gains and losses on investments, and divestiture costs could occur in future periods. Cisco could also be impacted by significant tax matters in future periods.

Item 9.01. Financial Statements and Exhibits.

(d) Exhibits

Exhibit Number	Description of Document
99.1	Press Release of Cisco, dated May 16, 2018, reporting the results of operations for Cisco’s fiscal third quarter ended April 28, 2018.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

		CISCO SYSTEMS, INC.
Dated: May 16, 2018	By:	/s/ Kelly A. Kramer
	Name:	Kelly A. Kramer
	Title:	Executive Vice President and Chief Financial Officer

EX-99.1

Exhibit 99.1

Press Contact:	Investor Relations Contact:
Robyn Blum	Marilyn Mora
Cisco	Cisco
1 (408) 853-9848	1 (408) 527-7452
rojenkin@cisco.com	marilmor@cisco.com

CISCO REPORTS THIRD QUARTER EARNINGS

• Q3 Revenue: $12.5 billion

• Increase of 4% year over year

• Recurring revenue was 32% of total revenue, up 2 points year over year

• Q3 Earnings per Share: $0.56 GAAP; $0.66 non-GAAP

• Q4 FY 2018 Guidance:

• Revenue: 4% to 6% growth year over year

• Earnings per Share: GAAP: $0.55 to $0.60; Non-GAAP: $0.68 to $0.70

SAN JOSE, Calif. — May 16, 2018 — Cisco today reported third quarter results for the period ended April 28, 2018. Cisco reported third quarter revenue of $12.5 billion, net income on a generally accepted accounting principles (GAAP) basis of $2.7 billion or $0.56 per share, and non-GAAP net income of $3.2 billion or $0.66 per share.

“We are executing well against our strategy, our innovation pipeline has never been stronger, and we continue to make great progress in transforming towards more software and subscriptions,” said Chuck Robbins, Chairman and CEO, Cisco. “I am confident with our position in the industry and the impact we will continue to drive with our customers.”

GAAP Results

	Q3 FY 2018		Q3 FY 2017		Vs. Q3 FY 2017
Revenue	$	12.5 billion	$	11.9 billion		4	%
Net Income	$	2.7 billion	$	2.5 billion		7	%
Diluted Earnings per Share (EPS)	$	0.56	$	0.50		12	%
Non-GAAP Results
	Q3 FY 2018		Q3 FY 2017		Vs. Q3 FY 2017
Net Income	$	3.2 billion	$	3.0 billion		6	%
EPS	$	0.66	$	0.60		10	%

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 strong results in Q3 with solid revenue growth of 4% and non-GAAP EPS growth of 10%, said Kelly Kramer, CFO of Cisco. Our investment in innovation and continued execution are paying off. We saw broad-based strength across our portfolio, while continuing to shift our business model and deliver value for shareholders.”

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Financial Summary

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

Q3 FY 2018 Highlights

Revenue — Total revenue was $12.5 billion, up 4%, with product revenue up 5% and service revenue up 3%. 32% of total revenue was from recurring offers, up 2 percentage points from the third quarter of fiscal 2017. Revenue by geographic segment was: Americas up 2%, EMEA up 9%, and APJC up 7%. Product revenue performance was broad based with growth in Infrastructure Platforms which increased by 2%, Applications which increased by 19%, and Security which increased by 11%.

Gross Margin — On a GAAP basis, total gross margin and product gross margin were 62.3% and 61.0%, respectively. Product gross margin decreased compared with 61.7% in the third quarter of fiscal 2017.

Non-GAAP total gross margin and product gross margin were 63.9% and 62.9%, respectively. Non-GAAP product gross margin decreased compared with 63.2% in the third quarter of fiscal 2017. The decrease was primarily due to pricing and higher memory costs partially offset by improved productivity benefits.

GAAP service gross margin was 65.8% and non-GAAP service gross margin was 66.9%.

Total gross margins by geographic segment were: 64.4% for the Americas, 64.3% for EMEA and 61.7% for APJC.

Operating Expenses — On a GAAP basis, operating expenses were $4.6 billion, up 6%. Non-GAAP operating expenses were $4.0 billion, up 6%, and were 32.5% of revenue.

Operating Income — GAAP operating income was $3.1 billion, down 1%, with GAAP operating margin of 25.1%. Non-GAAP operating income was $3.9 billion, up 2%, with non-GAAP operating margin of 31.5%.

Provision for Income Taxes — The GAAP tax provision rate was 17.3%. The non-GAAP tax provision rate was 21.0%.

Net Income and EPS — On a GAAP basis, net income was $2.7 billion and EPS was $0.56. On a non-GAAP basis, net income was $3.2 billion, an increase of 6%, and EPS was $0.66, an increase of 10%.

Cash Flow from Operating Activities — was $2.4 billion, a decrease of 28% compared with $3.4 billion for the third quarter of fiscal 2017. Operating cash flow includes the payment of $1.3 billion of one-time foreign taxes as related to the Tax Cuts and Jobs Act. Operating cash flow increased 11%, normalized for these tax payments.

Balance Sheet and Other Financial Highlights

Cash and Cash Equivalents and Investments — were $54.4 billion at the end of the third quarter of fiscal 2018, compared with $73.7 billion at the end of the second quarter of fiscal 2018, and 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 third quarter of fiscal 2018 were $47.5 billion.

Deferred Revenue — was $19.0 billion, up 9% in total, with deferred product revenue up 18%, driven largely by subscription-based and software offers, and deferred service revenue was up 4%. The portion of deferred product revenue related to recurring software and subscription offers increased 29%.

Capital Allocation — In the third quarter of fiscal 2018, Cisco declared and paid a cash dividend of $0.33 per common share, or $1.6 billion. For the third quarter of fiscal 2018, Cisco repurchased approximately 140 million shares of common stock under its stock repurchase program at an average price of $42.83 per share for an aggregate purchase price of $6.0 billion. The remaining authorized amount for stock repurchases under the program is $25.1 billion with no termination date.

Acquisitions and Divestitures

On May 1, 2018, we announced our intent to acquire Accompany, a privately held company that provides an AI-driven relationship intelligence platform. The Accompany acquisition closed in the fourth quarter of fiscal 2018. We also announced an agreement to sell our Service Provider Video Software Solutions (SPVSS) business. We expect this transaction to close in the first quarter of fiscal 2019 subject to regulatory approvals and customary closing conditions.

2

In the third quarter of 2018, we closed our acquisition of BroadSoft, Inc., a publicly held company that offers cloud calling and contact center solutions. We also closed our acquisition of Skyport Systems, Inc., a privately held company providing cloud-managed, hyper-converged systems that run and protect business critical applications.

Guidance for Q4 FY 2018

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

Q4 FY 2018
Revenue	4% - 6% growth Y/Y
Non-GAAP gross margin rate	63% - 64%
Non-GAAP operating margin rate	29.5% - 30.5%
Non-GAAP tax provision rate	21%
Non-GAAP EPS	$0.68 - $0.70

Cisco estimates that GAAP EPS will be $0.55 to $0.60 in the fourth quarter of fiscal 2018.

A reconciliation between the Guidance for Q4 FY 2018 on a GAAP and non-GAAP basis is provided in the table entitled “GAAP to non-GAAP Guidance for Q4 FY 2018” located in the section entitled “Reconciliations of GAAP to non-GAAP Measures.”

Editor’s Notes:

• Q3 fiscal year 2018 conference call to discuss Cisco’s results along with its guidance will be held on Wednesday, May 16, 2018 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, May 16, 2018 to 4:00 p.m. Pacific Time, May 23, 2018 at 1-888-568-0890 (United States) or 1-402-998-1566 (international). The replay will also be available via webcast on the Cisco Investor Relations website at https://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, May 16, 2018. 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 https://investor.cisco.com.

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CISCO SYSTEMS, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(In millions, except per-share amounts)

(Unaudited)

	Three Months Ended						Nine Months Ended
	April 28, 2018			April 29, 2017			April 28, 2018			April 29, 2017
REVENUE:
Product	$	9,304		$	8,885		$	27,067		$	26,678
Service		3,159			3,055			9,419			9,194
Total revenue		12,463			11,940			36,486			35,872
COST OF SALES:
Product		3,625			3,405			10,594			10,113
Service		1,079			1,017			3,208			3,081
Total cost of sales		4,704			4,422			13,802			13,194
GROSS MARGIN		7,759			7,518			22,684			22,678
OPERATING EXPENSES:
Research and development		1,590			1,507			4,706			4,560
Sales and marketing		2,325			2,226			6,894			6,866
General and administrative		561			487			1,601			1,498
Amortization of purchased intangible assets		67			59			188			201
Restructuring and other charges		82			70			332			614
Total operating expenses		4,625			4,349			13,721			13,739
OPERATING INCOME		3,134			3,169			8,963			8,939
Interest income		380			354			1,155			978
Interest expense		(237	)		(219	)		(719	)		(639	)
Other income (loss), net		(24	)		(113	)		48			(171	)
Interest and other income (loss), net		119			22			484			168
INCOME BEFORE PROVISION FOR INCOME TAXES		3,253			3,191			9,447			9,107
Provision for income taxes (1)		562			676			13,140			1,922
NET INCOME (LOSS)	$	2,691		$	2,515		$	(3,693	)	$	7,185
Net income (loss) per share:
Basic	$	0.56		$	0.50		$	(0.76	)	$	1.43
Diluted	$	0.56		$	0.50		$	(0.76	)	$	1.42
Shares used in per-share calculation:
Basic		4,791			5,005			4,892			5,015
Diluted		4,844			5,045			4,892			5,056
Cash dividends declared per common share	$	0.33		$	0.29		$	0.91		$	0.81

⁽¹⁾  For the nine months ended April 28, 2018, the provision for income taxes includes an $11.1 billion charge as related to the enactment of the Tax Cuts and Jobs Act.

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CISCO SYSTEMS, INC.

REVENUE BY SEGMENT

(In millions, except percentages)

	April 28, 2018
	Three Months Ended					Nine Months Ended
	Amount		Y/Y%			Amount		Y/Y%
Revenue:
Americas	$	7,161		2	%	$	21,515		2	%
EMEA		3,281		9	%		9,252		2	%
APJC		2,021		7	%		5,719		1	%
Total	$	12,463		4	%	$	36,486		2	%

CISCO SYSTEMS, INC.

GROSS MARGIN PERCENTAGE BY SEGMENT

(In percentages)

	April 28, 2018
	Three Months Ended			Nine Months Ended
Gross Margin Percentage:
Americas		64.4	%		64.8	%
EMEA		64.3	%		64.0	%
APJC		61.7	%		61.3	%

CISCO SYSTEMS, INC.

REVENUE FOR GROUPS OF SIMILAR PRODUCTS AND SERVICES

(In millions, except percentages)

	April 28, 2018
	Three Months Ended					Nine Months Ended
	Amount		Y/Y%			Amount		Y/Y%
Revenue:
Infrastructure Platforms	$	7,163		2	%	$	20,827		—	%
Applications		1,309		19	%		3,696		10	%
Security		583		11	%		1,726		8	%
Other Products		249		(6	)%		818		(11	)%
Total Product		9,304		5	%		27,067		1	%
Services		3,159		3	%		9,419		2	%
Total	$	12,463		4	%	$	36,486		2	%

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CISCO SYSTEMS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(In millions)

(Unaudited)

	April 28, 2018		July 29, 2017
ASSETS
Current assets:
Cash and cash equivalents	$	6,719	$	11,708
Investments		47,712		58,784
Accounts receivable, net of allowance for doubtful accounts of $115 at April 28, 2018 and $211 at July 29, 2017		4,274		5,146
Inventories		1,900		1,616
Financing receivables, net		4,868		4,856
Other current assets		1,668		1,593
Total current assets		67,141		83,703
Property and equipment, net		3,082		3,322
Financing receivables, net		4,915		4,738
Goodwill		31,654		29,766
Purchased intangible assets, net		2,681		2,539
Deferred tax assets		3,044		4,239
Other assets		1,491		1,511
TOTAL ASSETS	$	114,008	$	129,818
LIABILITIES AND EQUITY
Current liabilities:
Short-term debt	$	7,736	$	7,992
Accounts payable		1,552		1,385
Income taxes payable		962		98
Accrued compensation		2,966		2,895
Deferred revenue		11,301		10,821
Other current liabilities		4,125		4,392
Total current liabilities		28,642		27,583
Long-term debt		20,336		25,725
Income taxes payable		9,076		1,250
Deferred revenue		7,652		7,673
Other long-term liabilities		1,641		1,450
Total liabilities		67,347		63,681
Total equity		46,661		66,137
TOTAL LIABILITIES AND EQUITY	$	114,008	$	129,818

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CISCO SYSTEMS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In millions)

(Unaudited)

	Nine Months Ended
	April 28, 2018			April 29, 2017
Cash flows from operating activities:
Net income (loss)	$	(3,693	)	$	7,185
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation, amortization, and other		1,676			1,708
Share-based compensation expense		1,184			1,124
Provision for receivables		(104	)		20
Deferred income taxes		1,013			(125	)
Excess tax benefits from share-based compensation		—			(125	)
(Gains) losses on divestitures, investments and other, net		(159	)		156
Change in operating assets and liabilities, net of effects of acquisitions and divestitures:
Accounts receivable		1,064			1,253
Inventories		(289	)		(149	)
Financing receivables		(165	)		(773	)
Other assets		(135	)		140
Accounts payable		148			149
Income taxes, net		8,795			(112	)
Accrued compensation		53			(154	)
Deferred revenue		415			592
Other liabilities		(237	)		(1,014	)
Net cash provided by operating activities		9,566			9,875
Cash flows from investing activities:
Purchases of investments		(14,132	)		(35,562	)
Proceeds from sales of investments		12,422			24,414
Proceeds from maturities of investments		12,259			8,390
Acquisition of businesses, net of cash and cash equivalents acquired		(2,789	)		(3,211	)
Proceeds from business divestitures		27			—
Purchases of investments in privately held companies		(126	)		(172	)
Return of investments in privately held companies		163			168
Acquisition of property and equipment		(620	)		(756	)
Proceeds from sales of property and equipment		54			6
Other		(3	)		35
Net cash provided by (used in) investing activities		7,255			(6,688	)
Cash flows from financing activities:
Issuances of common stock		318			418
Repurchases of common stock - repurchase program		(11,562	)		(2,516	)
Shares repurchased for tax withholdings on vesting of restricted stock units		(541	)		(497	)
Short-term borrowings, original maturities of 90 days or less, net		(2,502	)		2,000
Issuances of debt		6,877			6,232
Repayments of debt		(9,875	)		(4,151	)
Excess tax benefits from share-based compensation		—			125
Dividends paid		(4,433	)		(4,063	)
Other		(92	)		(250	)
Net cash used in financing activities		(21,810	)		(2,702	)
Net increase (decrease) in cash and cash equivalents		(4,989	)		485
Cash and cash equivalents, beginning of period		11,708			7,631
Cash and cash equivalents, end of period	$	6,719		$	8,116
Supplemental cash flow information:
Cash paid for interest	$	739		$	727
Cash paid for income taxes, net	$	3,332		$	2,159

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CISCO SYSTEMS, INC.

DEFERRED REVENUE

(In millions)

	April 28, 2018		January 27, 2018		April 29, 2017
Deferred revenue:
Service	$	10,960	$	10,963	$	10,532
Product:
Deferred revenue related to recurring software and subscription offers		5,635		5,451		4,352
Other product deferred revenue		2,358		2,374		2,438
Total product deferred revenue		7,993		7,825		6,790
Total	$	18,953	$	18,788	$	17,322
Reported as:
Current	$	11,301	$	11,102	$	10,344
Noncurrent		7,652		7,686		6,978
Total	$	18,953	$	18,788	$	17,322

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
April 28, 2018	$	0.33	$	1,572		140	$	42.83	$	6,015	$	7,587
January 27, 2018	$	0.29	$	1,425		103	$	39.07	$	4,011	$	5,436
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

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CISCO SYSTEMS, INC.

RECONCILIATIONS OF GAAP TO NON-GAAP MEASURES

GAAP NET INCOME (LOSS) TO NON-GAAP NET INCOME

(In millions, except per-share amounts)

	Three Months Ended						Nine Months Ended
	April 28, 2018			April 29, 2017			April 28, 2018			April 29, 2017
GAAP net income (loss)	$	2,691		$	2,515		$	(3,693	)	$	7,185
Adjustments to cost of sales:
Share-based compensation expense		57			56			168			163
Amortization of acquisition-related intangible assets		161			124			444			343
Supplier component remediation charge (adjustment), net		(9	)		(13	)		(41	)		(29	)
Acquisition-related/divestiture costs		2			—			4			1
Legal and indemnification settlements		—			—			122			—
Total adjustments to GAAP cost of sales		211			167			697			478
Adjustments to operating expenses:
Share-based compensation expense		342			349			1,010			963
Amortization of acquisition-related intangible assets		67			59			188			201
Acquisition-related/divestiture costs		89			43			195			157
Significant asset impairments and restructurings		82			70			332			614
Total adjustments to GAAP operating expenses		580			521			1,725			1,935
Total adjustments to GAAP income (loss) before provision for income taxes		791			688			2,422			2,413
Income tax effect of non-GAAP adjustments		(168	)		(177	)		(613	)		(612	)
Significant tax matters (1)		(119	)		—			11,261			—
Total adjustments to GAAP provision for income taxes		(287	)		(177	)		10,648			(612	)
Non-GAAP net income	$	3,195		$	3,026		$	9,377		$	8,986
Net income (loss) per share: (2)
GAAP	$	0.56		$	0.50		$	(0.76	)	$	1.42
Non-GAAP	$	0.66		$	0.60		$	1.90		$	1.78

⁽¹⁾  Cisco recorded charges relating to significant tax matters that were excluded from non-GAAP net income for the first nine months of fiscal 2018. $11.1 billion of these charges were provisional amounts related to the enactment of the Tax Cuts and Jobs Act comprised of $8.9 billion related to the U.S. transition tax, $1.2 billion related to foreign withholding tax and $1.0 billion related to the re-measurement of net deferred tax assets. The amounts are provisional based on Securities and Exchange Commission Staff Accounting Bulletin No. 118. The remaining $0.2 billion was related to other significant tax matters.

⁽²⁾ GAAP net loss per share for the nine months ended April 28, 2018 is calculated using basic shares of 4,892 million, due to the net loss resulting from the tax charge as discussed in footnote (1). Non-GAAP net income per share for the period is calculated using diluted shares of 4,936 million, as the Company had non-GAAP net income for this period.

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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
	April 28, 2018
	Product Gross Margin			Service Gross Margin			Total Gross Margin			Operating Expenses			Y/Y			Operating Income			Y/Y			Net Income			Y/Y
GAAP amount	$	5,679		$	2,080		$	7,759		$	4,625			6	%	$	3,134			(1	)%	$	2,691			7	%
% of revenue		61.0	%		65.8	%		62.3	%		37.1	%					25.1	%					21.6	%
Adjustments to GAAP amounts:
Share-based compensation expense		24			33			57			342						399						399
Amortization of acquisition-related intangible assets		161			—			161			67						228						228
Supplier component remediation charge (adjustment), net		(9	)		—			(9	)		—						(9	)					(9	)
Acquisition/divestiture-related costs		1			1			2			89						91						91
Significant asset impairments and restructurings		—			—			—			82						82						82
Income tax effect/significant tax matters		—			—			—			—						—						(287	)
Non-GAAP amount	$	5,856		$	2,114		$	7,970		$	4,045			6	%	$	3,925			2	%	$	3,195			6	%
% of revenue		62.9	%		66.9	%		63.9	%		32.5	%					31.5	%					25.6	%

	Three Months Ended
	April 29, 2017
	Product Gross Margin			Service Gross Margin			Total Gross Margin			Operating Expenses			Operating Income			Net Income
GAAP amount	$	5,480		$	2,038		$	7,518		$	4,349		$	3,169		$	2,515
% of revenue		61.7	%		66.7	%		63.0	%		36.4	%		26.5	%		21.1	%
Adjustments to GAAP amounts:
Share-based compensation expense		22			34			56			349			405			405
Amortization of acquisition-related intangible assets		124			—			124			59			183			183
Supplier component remediation charge (adjustment), net		(13	)		—			(13	)		—			(13	)		(13	)
Acquisition/divestiture-related costs		—			—			—			43			43			43
Significant asset impairments and restructurings		—			—			—			70			70			70
Income tax effect		—			—			—			—			—			(177	)
Non-GAAP amount	$	5,613		$	2,072		$	7,685		$	3,828		$	3,857		$	3,026
% of revenue		63.2	%		67.8	%		64.4	%		32.1	%		32.3	%		25.3	%

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CISCO SYSTEMS, INC.

RECONCILIATIONS OF GAAP TO NON-GAAP MEASURES

GROSS MARGINS, OPERATING EXPENSES, OPERATING MARGINS, AND NET INCOME (LOSS)

(In millions, except percentages)

	Nine Months Ended
	April 28, 2018
	Product Gross Margin			Service Gross Margin			Total Gross Margin			Operating Expenses			Y/Y			Operating Income			Y/Y			Net Income (Loss)			Y/Y
GAAP amount	$	16,473		$	6,211		$	22,684		$	13,721			—	%	$	8,963			—	%	$	(3,693	)		(151	)%
% of revenue		60.9	%		65.9	%		62.2	%		37.6	%					24.6	%					(10.1	)%
Adjustments to GAAP amounts:
Share-based compensation expense		70			98			168			1,010						1,178						1,178
Amortization of acquisition-related intangible assets		444			—			444			188						632						632
Supplier component remediation charge (adjustment), net		(41	)		—			(41	)		—						(41	)					(41	)
Legal and indemnification settlements		122			—			122			—						122						122
Acquisition/divestiture-related costs		1			3			4			195						199						199
Significant asset impairments and restructurings		—			—			—			332						332						332
Income tax effect/significant tax matters (1)		—			—			—			—						—						10,648	(1)
Non-GAAP amount	$	17,069		$	6,312		$	23,381		$	11,996			2	%	$	11,385			—	%	$	9,377			4	%
% of revenue		63.1	%		67.0	%		64.1	%		32.9	%					31.2	%					25.7	%

⁽¹⁾  Includes an $11.1 billion charge as related to the enactment of the Tax Cuts and Jobs Act.

	Nine Months Ended
	April 29, 2017
	Product Gross Margin			Service Gross Margin			Total Gross Margin			Operating Expenses			Operating Income			Net Income
GAAP amount	$	16,565		$	6,113		$	22,678		$	13,739		$	8,939		$	7,185
% of revenue		62.1	%		66.5	%		63.2	%		38.3	%		24.9	%		20.0	%
Adjustments to GAAP amounts:
Share-based compensation expense		62			101			163			963			1,126			1,126
Amortization of acquisition-related intangible assets		343			—			343			201			544			544
Supplier component remediation charge (adjustment), net		(29	)		—			(29	)		—			(29	)		(29	)
Acquisition/divestiture-related costs		—			1			1			157			158			158
Significant asset impairments and restructurings		—			—			—			614			614			614
Income tax effect		—			—			—			—			—			(612	)
Non-GAAP amount	$	16,941		$	6,215		$	23,156		$	11,804		$	11,352		$	8,986
% of revenue		63.5	%		67.6	%		64.6	%		32.9	%		31.6	%		25.1	%

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CISCO SYSTEMS, INC.

RECONCILIATIONS OF GAAP TO NON-GAAP MEASURES

EFFECTIVE TAX RATE

(In percentages)

	Three Months Ended				Nine Months Ended
	April 28, 2018		April 29, 2017		April 28, 2018		April 29, 2017
GAAP effective tax rate (1)		17.3%		21.2%		139.1%		21.1%
Total adjustments to GAAP provision for income taxes		3.7%		0.8%		(118.1)%		0.9%
Non-GAAP effective tax rate		21.0%		22.0%		21.0%		22.0%

⁽¹⁾  Includes an $11.1 billion charge as related to the enactment of the Tax Cuts and Jobs Act for the nine months ended April 28, 2018.

GAAP TO NON-GAAP GUIDANCE FOR Q4 FY 2018

Q4 FY 2018	Gross Margin Rate	Operating Margin Rate	Tax Provision Rate	Earnings per Share (2)
GAAP	61.5% - 62.5%	24% - 25%	20%	$	0.55 - $0.60
Estimated adjustments for:
Share-based compensation expense	0.5%	3.0%	—	$	0.05 - $0.06
Amortization of purchased intangible assets and other acquisition-related/divestiture costs	1.0%	2.5%	—	$	0.05 - $0.06
Restructuring and other charges (1)	—	—	—	$	0.00 - $0.01
Income tax effect of non-GAAP adjustments	—	—	1%
Non-GAAP	63% - 64%	29.5% - 30.5%	21%	$	0.68 - $0.70

⁽¹⁾ In the third quarter of fiscal 2018, Cisco initiated a restructuring plan in order to realign the organization and enable further investment in key priority areas. The total pre-tax cash charges to the GAAP financial results is estimated to be approximately $300 million consisting of severance and other one-time benefits, and other associated costs. We expect to recognize up to $50 million of these charges in the fourth quarter of fiscal 2018 with the remaining amount to be recognized through fiscal 2019.

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

Except as noted above, this guidance 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.

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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 execution on our strategy, our investment in innovation and ability to continue to build a strong innovation pipeline, continued progress in transforming our business toward more software and subscriptions, our ability to maintain our position in the industry and the impact we will continue to drive with our customers, continued broad-based strength across our portfolio, and our ability to continue to execute well, deliver profitable growth and return capital to our shareholders) and the future financial performance of Cisco (including the guidance for Q4 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 reports on Forms 10-Q and 10-K filed on February 20, 2018 and September 7, 2017, respectively. 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 Forms 10-Q and 10-K as each may be amended from time to time. Cisco’s results of operations for the three and nine months ended April 28, 2018 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.

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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.

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.

Copyright ^© 2018 Cisco and/or its affiliates. All rights reserved. Cisco and the Cisco logo are trademarks or registered trademarks of Cisco and/or its affiliates in the U.S. and other countries. To view a list of Cisco trademarks, go to: www.cisco.com/go/trademarks. Third-party 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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