8-K
CISCO SYSTEMS, INC. (CSCO)
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 13, 2020
CISCO SYSTEMS, INC.
(Exact name of registrant as specified in its charter)
| California | 0-18225 | 77-0059951 |
|---|---|---|
| (State or other jurisdiction of incorporation) | (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)) |
| --- | --- |
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading<br> <br>Symbol(s) | Name of each exchange<br> <br>on which registered |
|---|---|---|
| Common Stock, par value $0.001 per share | CSCO | The Nasdaq Stock Market LLC |
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 13, 2020, Cisco Systems, Inc. (“Cisco”) reported its results of operations for its fiscal third quarter 2020 ended April 25, 2020. 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, non-GAAP interest and other income (loss), net, 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), gains and losses on equity 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.
Cisco divested the Service Provider Video Software Solutions (“SPVSS”) business during the second quarter of fiscal 2019 on October 28, 2018. The attached exhibit includes, where indicated, financial measures that exclude the SPVSS business. Cisco believes that the presentation of these 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 because the SPVSS business is no longer part of and will not be part of Cisco on a go forward basis. Cisco’s management also uses the financial measures excluding the SPVSS business in reviewing the financial results of Cisco.
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.
Gains and losses on equity investments. Cisco does not actively trade equity securities nor does it plan on these investments for funding of ongoing operations, and investments. Cisco excludes gains and losses on these investments 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, 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, acquisition-related costs, and gains and losses on equity investments, in future periods. Significant asset impairments, restructurings, significant litigation settlements and other contingencies, 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 <br>Number | Description of Document | |
|---|---|---|
| 99.1 | Press Release of Cisco, dated May 13, 2020, reporting the results of operations for Cisco’s fiscal third quarter ended April 25, 2020. | |
| 104 | Cover Page Interactive Data File (embedded within the Inline XBRL document). |
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 13, 2020 | 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) 930-8548 | 1 (408) 527-7452 |
| rojenkin@cisco.com | marilmor@cisco.com |
CISCO REPORTS THIRD QUARTER EARNINGS
| • | Q3 Results: |
|---|---|
| • | Revenue: $12.0 billion |
| --- | --- |
| • | Decrease of (8)% year over year |
| --- | --- |
| • | Earnings per Share: GAAP: $0.65; Non-GAAP: $0.79<br> |
| --- | --- |
| • | GAAP EPS decreased (6)% year over year |
| --- | --- |
| • | Non-GAAP EPS increased 1% year over year |
| --- | --- |
| • | Q4 Guidance: |
| --- | --- |
| • | Revenue: (8.5)% to (11.5)% decline year over year |
| --- | --- |
| • | Earnings per Share: GAAP: $0.57 to $0.62; Non-GAAP: $0.72 to $0.74<br> |
| --- | --- |
SAN JOSE, Calif. — May 13, 2020 — Cisco today reported third quarter results for the period ended April 25, 2020. Cisco reported third quarter revenue of $12.0 billion, net income on a generally accepted accounting principles (GAAP) basis of $2.8 billion or $0.65 per share, and non-GAAP net income of $3.4 billion or $0.79 per share.
“During this extraordinary time, our priority has been supporting our employees, customers, partners and communities, while positioning Cisco for the future,” said Chuck Robbins, chairman and CEO of Cisco. “The pandemic has driven organizations across the globe to digitize their operations and support remote workforces at a faster speed and greater scale than ever before. We remain focused on providing the technology and solutions our customers need to accelerate their digital organizations.”
GAAP Results
| Q3 FY 2020 | Q3 FY 2019 | Vs. Q3 FY 2019 | |||||
|---|---|---|---|---|---|---|---|
| Revenue | $ | 12.0 billion | $ | 13.0 billion | (8 | )% | |
| Net Income | $ | 2.8 billion | $ | 3.0 billion | (9 | )% | |
| Diluted Earnings per Share (EPS) | $ | 0.65 | $ | 0.69 | (6 | )% | |
| Non-GAAP Results | **** | ||||||
| Q3 FY 2020 | Q3 FY 2019 | Vs. Q3 FY 2019 | |||||
| Net Income | $ | 3.4 billion | $ | 3.5 billion | (2 | )% | |
| EPS | $ | 0.79 | $ | 0.78 | 1 | % |
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 executed well in Q3 in a very challenging environment, delivering strong margins and non-GAAP EPS growth,” said Kelly Kramer, CFO of Cisco. “The resiliency that we have been building into our business model is paying off, with software subscriptions now at 74% of our software revenue, up 9 points year over year. We are focused on driving long-term profitable growth while delivering shareholder value.”
1
COVID-19 Pandemic Response
We have been focused on helping our employees, customers, partners and communities.
Employees
| • | 95% of our global workforce working from home. |
|---|---|
| • | Seamless transition to work from home with a long-standing flexible work policy, and we build the technologies<br>that allow organizations to stay connected, secure and productive. |
| --- | --- |
| • | For the 5% who must be in the office to perform their roles, we are focused on their health and safety, and are<br>taking all of the necessary precautions. |
| --- | --- |
Customer and Partners
| • | Introduced a variety of free offers and trials for our Webex and security technologies as they dramatically<br>shifted entire workforces to be remote. |
|---|---|
| • | Announced $2.5 billion in financing with a new Business Resiliency Program through Cisco Capital to offer<br>financial flexibility and support their business continuity. This will help customers and partners access the technology they need now, invest for recovery, and defer most of the payments until early 2021. |
| --- | --- |
Communities
| • | Committed nearly $300 million to date to support both global and local pandemic response efforts.<br> |
|---|---|
| • | Providing technology and financial support for non-profits, first<br>responders, and governments. |
| --- | --- |
| • | Donating personal protective equipment to hospital workers including N95 masks and face shields 3D-printed by Cisco volunteers around the world. |
| --- | --- |
2
Financial Summary
All comparative percentages are on a year-over-year basis unless otherwise noted.
Q3 FY 2020 Highlights
Revenue — Total revenue was $12.0 billion, down 8%, with product revenue down 12% and service revenue up 5%. Revenue by geographic segment was: Americas down 8%, EMEA down 7%, and APJC down 9%. Product revenue was led by growth in Security, up 6%. Infrastructure Platforms was down 15% and Applications was down 5%.
Gross Margin — On a GAAP basis, total gross margin, product gross margin, and service gross margin were 64.9%, 63.7%, and 67.7%, respectively, as compared with 63.1%, 62.0%, and 66.3%, respectively, in the third quarter of fiscal 2019.
On a non-GAAP basis, total gross margin, product gross margin, and service gross margin were 66.6%, 65.8%, and 68.9%, respectively, as compared with 64.6%, 63.7%, and 67.3%, respectively, in the third quarter of fiscal 2019.
Total gross margins by geographic segment were: 67.8% for the Americas, 65.7% for EMEA and 63.5% for APJC.
Operating Expenses — **** On a GAAP basis, operating expenses were $4.4 billion, down 6%, and were 36.4% of revenue. Non-GAAP operating expenses were $3.8 billion, down 9%, and were 31.8% of revenue.
Operating Income — GAAP operating income was $3.4 billion, down 3%, with GAAP operating margin of 28.5%. Non-GAAP operating income was flat at $4.2 billion, with non-GAAP operating margin at 34.9%.
Provision for Income Taxes — The GAAP tax provision rate was 19.4%. The non-GAAP tax provision rate was 20.0%.
Net Income and EPS — On a GAAP basis, net income was $2.8 billion, a decrease of 9%, and EPS was $0.65, a decrease of 6%. On a non-GAAP basis, net income was $3.4 billion, a decrease of 2%, and EPS was $0.79, an increase of 1%.
Cash Flow from Operating Activities — $4.2 billion for the third quarter of fiscal 2020, a decrease of 2% compared with $4.3 billion for the third quarter of fiscal 2019.
Balance Sheet and Other Financial Highlights
Cash and Cash Equivalents and Investments — $28.6 billion at the end of the third quarter of fiscal 2020, compared with $33.4 billion at the end of fiscal 2019.
Deferred Revenue — $18.6 billion, up 7% in total, with deferred product revenue up 17%. Deferred service revenue was up 1%.
Remaining Performance Obligations — $25.5 billion at the end of the third quarter of fiscal 2020, up 11%.
Capital Allocation — In the third quarter of fiscal 2020, we returned $2.5 billion to shareholders through share buybacks and dividends. We declared and paid a cash dividend of $0.36 per common share, or $1.5 billion, and repurchased approximately 25 million shares of common stock under our stock repurchase program at an average price of $39.71 per share for an aggregate purchase price of $981 million. The remaining authorized amount for stock repurchases under the program is $10.8 billion with no termination date.
Acquisitions
In the third quarter of fiscal 2020, we closed the acquisition of Exablaze, a privately held designer and manufacturer of advanced network devices aimed at reducing latency and improving network performance.
3
Guidance for Q4 FY 2020
Cisco expects to achieve the following results for the fourth quarter of fiscal 2020:
| Q4 FY 2020 | |
|---|---|
| Revenue | (8.5)% - (11.5)% decline Y/Y |
| Non-GAAP gross margin rate | 64% - 65% |
| Non-GAAP operating margin rate | 31.5% - 32.5% |
| Non-GAAP tax provision rate | 20% |
| Non-GAAP EPS | $0.72 - $0.74 |
Cisco estimates that GAAP EPS will be $0.57 to $0.62 in the fourth quarter of fiscal 2020.
A reconciliation between the Guidance for Q4 FY 2020 on a GAAP and non-GAAP basis is provided in the table entitled “GAAP to non-GAAP Guidance for Q4 FY 2020” located in the section entitled “Reconciliations of GAAP to non-GAAP Measures.”
Editor’s Notes:
| • | Q3 fiscal year 2020 conference call to discuss Cisco’s results along with its guidance will be held on<br>Wednesday, May 13, 2020 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 13, 2020 to 4:00 p.m. Pacific<br>Time, May 20, 2020 at 1-800-391-9847 (United States) or 1-402-220-3093 (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<br>visuals designed to guide participants through the call, will be available at 1:30 p.m. Pacific Time, May 13, 2020. Text of the conference call’s prepared remarks will be available within 24 hours of completion of the call. The webcast<br>will include both the prepared remarks and the question-and-answer session. This information, along with the GAAP to non-GAAP<br>reconciliation information, will be available on the Cisco Investor Relations website at https://investor.cisco.com. |
| --- | --- |
4
CISCO SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In millions, except per-share amounts)
(Unaudited)
| Three Months Ended | Nine Months Ended | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| April 25,<br>2020 | April 27,<br>2019 | April 25,<br>2020 | April 27,<br>2019 | |||||||||
| REVENUE: | ||||||||||||
| Product | $ | 8,597 | $ | 9,722 | $ | 27,146 | $ | 28,885 | ||||
| Service | 3,386 | 3,236 | 10,001 | 9,591 | ||||||||
| Total revenue | 11,983 | 12,958 | 37,147 | 38,476 | ||||||||
| COST OF SALES: | ||||||||||||
| Product | 3,120 | 3,693 | 9,770 | 11,106 | ||||||||
| Service | 1,092 | 1,092 | 3,378 | 3,278 | ||||||||
| Total cost of sales | 4,212 | 4,785 | 13,148 | 14,384 | ||||||||
| GROSS MARGIN | 7,771 | 8,173 | 23,999 | 24,092 | ||||||||
| OPERATING EXPENSES: | ||||||||||||
| Research and development | 1,546 | 1,659 | 4,782 | 4,824 | ||||||||
| Sales and marketing | 2,192 | 2,403 | 6,951 | 7,084 | ||||||||
| General and administrative | 457 | 541 | 1,431 | 1,261 | ||||||||
| Amortization of purchased intangible assets | 34 | 39 | 108 | 112 | ||||||||
| Restructuring and other charges | 128 | 18 | 354 | 282 | ||||||||
| Total operating expenses | 4,357 | 4,660 | 13,626 | 13,563 | ||||||||
| OPERATING INCOME | 3,414 | 3,513 | 10,373 | 10,529 | ||||||||
| Interest income | 218 | 331 | 733 | 1,003 | ||||||||
| Interest expense | (130 | ) | (211 | ) | (466 | ) | (655 | ) | ||||
| Other income (loss), net | (58 | ) | (18 | ) | 24 | (10 | ) | |||||
| Interest and other income (loss), net | 30 | 102 | 291 | 338 | ||||||||
| INCOME BEFORE PROVISION FOR INCOME TAXES | 3,444 | 3,615 | 10,664 | 10,867 | ||||||||
| Provision for income taxes | 670 | 571 | 2,086 | 1,452 | ||||||||
| NET INCOME | $ | 2,774 | $ | 3,044 | $ | 8,578 | $ | 9,415 | ||||
| Net income per share: | ||||||||||||
| Basic | $ | 0.66 | $ | 0.70 | $ | 2.02 | $ | 2.11 | ||||
| Diluted | $ | 0.65 | $ | 0.69 | $ | 2.01 | $ | 2.09 | ||||
| Shares used in per-share calculation: | ||||||||||||
| Basic | 4,230 | 4,370 | 4,239 | 4,468 | ||||||||
| Diluted | 4,243 | 4,415 | 4,258 | 4,509 |
The Consolidated Statements of Operations include the results of the divested Service Provider Video Software Solutions (SPVSS) business for the nine months ended April 27, 2019.
5
CISCO SYSTEMS, INC.
REVENUE BY SEGMENT
(Inmillions, except percentages)
| April 25, 2020 | |||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Three Months Ended | Nine Months Ended | ||||||||||||
| Excluding<br>SPVSS<br>business | Including<br>SPVSS<br>business | ||||||||||||
| Amount | Y/Y% | Amount | Y/Y% | Y/Y% | |||||||||
| Revenue: | |||||||||||||
| Americas | $ | 7,116 | (8 | )% | $ | 22,106 | (3 | )% | (3 | )% | |||
| EMEA | 3,136 | (7 | )% | 9,553 | (2 | )% | (3 | )% | |||||
| APJC | 1,730 | (9 | )% | 5,489 | (6 | )% | (7 | )% | |||||
| Total | $ | 11,983 | (8 | )% | $ | 37,147 | (3 | )% | (3 | )% |
Amounts may not sum and percentages may not recalculate due to rounding.
During the second quarter of fiscal 2019 on October 28, 2018, we completed the divestiture of the SPVSS business. SPVSS business revenue for the nine months ended April 27, 2019 was $168 million.
CISCO SYSTEMS, INC.
GROSS MARGIN PERCENTAGE BY SEGMENT
(In percentages)
| April 25, 2020 | ||||||
|---|---|---|---|---|---|---|
| Three Months Ended | Nine Months Ended | |||||
| Gross Margin Percentage: | ||||||
| Americas | 67.8 | % | 67.1 | % | ||
| EMEA | 65.7 | % | 65.8 | % | ||
| APJC | 63.5 | % | 64.0 | % |
6
CISCO SYSTEMS, INC.
REVENUE FOR GROUPS OF SIMILAR PRODUCTS AND SERVICES
(In millions, except percentages)
| April 25, 2020 | |||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Three Months Ended | Nine Months Ended | ||||||||||||
| Excluding<br>SPVSS<br>business | Including<br>SPVSS<br>business | ||||||||||||
| Amount | Y/Y% | Amount | Y/Y% | Y/Y% | |||||||||
| Revenue: | |||||||||||||
| Infrastructure Platforms | $ | 6,429 | (15 | )% | $ | 20,496 | (8 | )% | (8 | )% | |||
| Applications | 1,363 | (5 | )% | 4,211 | (2 | )% | (2 | )% | |||||
| Security | 776 | 6 | % | 2,340 | 12 | % | 12 | % | |||||
| Other Products | 28 | (27 | )% | 100 | 8 | % | (58 | )% | |||||
| Total Product | 8,597 | (12 | )% | 27,146 | (6 | )% | (6 | )% | |||||
| Services | 3,386 | 5 | % | 10,001 | 5 | % | 4 | % | |||||
| Total | $ | 11,983 | (8 | )% | $ | 37,147 | (3 | )% | (3 | )% |
Amounts may not sum and percentages may not recalculate due to rounding.
During the second quarter of fiscal 2019 on October 28, 2018, we completed the divestiture of the SPVSS business. SPVSS business revenue for the nine months ended April 27, 2019 was $168 million.
7
CISCO SYSTEMS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In millions)
(Unaudited)
| July 27, 2019 | |||
|---|---|---|---|
| ASSETS | |||
| Current assets: | |||
| Cash and cash equivalents | 10,366 | $ | 11,750 |
| Investments | 18,208 | 21,663 | |
| Accounts receivable, net of allowance for doubtful accounts of 130 at April 25, 2020 and<br>136 at July 27, 2019 | 4,569 | 5,491 | |
| Inventories | 1,212 | 1,383 | |
| Financing receivables, net | 4,703 | 5,095 | |
| Other current assets | 2,249 | 2,373 | |
| Total current assets | 41,307 | 47,755 | |
| Property and equipment, net | 2,535 | 2,789 | |
| Financing receivables, net | 4,770 | 4,958 | |
| Goodwill | 33,453 | 33,529 | |
| Purchased intangible assets, net | 1,744 | 2,201 | |
| Deferred tax assets | 3,909 | 4,065 | |
| Other assets | 3,676 | 2,496 | |
| TOTAL ASSETS | 91,394 | $ | 97,793 |
| LIABILITIES AND EQUITY | |||
| Current liabilities: | |||
| Short-term debt | 4,506 | $ | 10,191 |
| Accounts payable | 2,393 | 2,059 | |
| Income taxes payable | 1,047 | 1,149 | |
| Accrued compensation | 2,940 | 3,221 | |
| Deferred revenue | 10,710 | 10,668 | |
| Other current liabilities | 4,341 | 4,424 | |
| Total current liabilities | 25,937 | 31,712 | |
| Long-term debt | 11,578 | 14,475 | |
| Income taxes payable | 8,285 | 8,927 | |
| Deferred revenue | 7,938 | 7,799 | |
| Other long-term liabilities | 1,948 | 1,309 | |
| Total liabilities | 55,686 | 64,222 | |
| Total equity | 35,708 | 33,571 | |
| TOTAL LIABILITIES AND EQUITY | 91,394 | $ | 97,793 |
All values are in US Dollars.
8
CISCO SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In millions)
(Unaudited)
| Nine Months Ended | ||||||
|---|---|---|---|---|---|---|
| April 25,<br>2020 | April 27,<br>2019 | |||||
| Cash flows from operating activities: | ||||||
| Net income | $ | 8,578 | $ | 9,415 | ||
| Adjustments to reconcile net income to net cash provided by operating activities: | ||||||
| Depreciation, amortization, and other | 1,364 | 1,433 | ||||
| Share-based compensation expense | 1,170 | 1,166 | ||||
| Provision (benefit) for receivables | 60 | 32 | ||||
| Deferred income taxes | 103 | (281 | ) | |||
| (Gains) losses on divestitures, investments and other, net | (185 | ) | (79 | ) | ||
| Change in operating assets and liabilities, net of effects of acquisitions and<br>divestitures: | ||||||
| Accounts receivable | 774 | 1,560 | ||||
| Inventories | 143 | (1 | ) | |||
| Financing receivables | 380 | (112 | ) | |||
| Other assets | 145 | (736 | ) | |||
| Accounts payable | 324 | 52 | ||||
| Income taxes, net | (700 | ) | (759 | ) | ||
| Accrued compensation | (220 | ) | (68 | ) | ||
| Deferred revenue | 333 | 421 | ||||
| Other liabilities | (645 | ) | (154 | ) | ||
| Net cash provided by operating activities | 11,624 | 11,889 | ||||
| Cash flows from investing activities: | ||||||
| Purchases of investments | (6,880 | ) | (1,176 | ) | ||
| Proceeds from sales of investments | 4,737 | 5,391 | ||||
| Proceeds from maturities of investments | 5,708 | 10,797 | ||||
| Acquisitions and divestitures | (237 | ) | (2,175 | ) | ||
| Purchases of investments in privately held companies | (143 | ) | (118 | ) | ||
| Return of investments in privately held companies | 213 | 127 | ||||
| Acquisition of property and equipment | (562 | ) | (701 | ) | ||
| Proceeds from sales of property and equipment | 175 | 15 | ||||
| Other | (10 | ) | (12 | ) | ||
| Net cash provided by investing activities | 3,001 | 12,148 | ||||
| Cash flows from financing activities: | ||||||
| Issuances of common stock | 335 | 321 | ||||
| Repurchases of common stock - repurchase program | (2,659 | ) | (16,042 | ) | ||
| Shares repurchased for tax withholdings on vesting of restricted stock units | (519 | ) | (601 | ) | ||
| Short-term borrowings, original maturities of 90 days or less, net | (3,470 | ) | 1,723 | |||
| Issuances of debt | — | 1,530 | ||||
| Repayments of debt | (5,220 | ) | (5,250 | ) | ||
| Dividends paid | (4,491 | ) | (4,489 | ) | ||
| Other | (3 | ) | 51 | |||
| Net cash used in financing activities | (16,027 | ) | (22,757 | ) | ||
| Net increase (decrease) in cash, cash equivalents, and restricted cash | (1,402 | ) | 1,280 | |||
| Cash, cash equivalents, and restricted cash, beginning of period | 11,772 | 8,993 | ||||
| Cash, cash equivalents, and restricted cash, end of period | $ | 10,370 | $ | 10,273 | ||
| Supplemental cash flow information: | ||||||
| Cash paid for interest | $ | 519 | $ | 707 | ||
| Cash paid for income taxes, net | $ | 2,683 | $ | 2,491 |
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CISCO SYSTEMS, INC.
DEFERRED REVENUE
(Inmillions)
| April 25,<br>2020 | January 25,<br>2020 | April 27,<br>2019 | ||||
|---|---|---|---|---|---|---|
| Deferred revenue: | ||||||
| Service | $ | 11,423 | $ | 11,526 | $ | 11,297 |
| Product | 7,225 | 7,160 | 6,159 | |||
| Total | $ | 18,648 | $ | 18,686 | $ | 17,456 |
| Reported as: | ||||||
| Current | $ | 10,710 | $ | 10,638 | $ | 10,117 |
| Noncurrent | 7,938 | 8,048 | 7,339 | |||
| Total | $ | 18,648 | $ | 18,686 | $ | 17,456 |
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-<br>Average Price<br>per Share | Amount | Amount | ||||||
| Fiscal 2020 | ||||||||||||
| April 25, 2020 | $ | 0.36 | $ | 1,519 | 25 | $ | 39.71 | $ | 981 | $ | 2,500 | |
| January 25, 2020 | $ | 0.35 | $ | 1,486 | 18 | $ | 46.71 | $ | 870 | $ | 2,356 | |
| October 26, 2019 | $ | 0.35 | $ | 1,486 | 16 | $ | 48.91 | $ | 768 | $ | 2,254 | |
| Fiscal 2019 | ||||||||||||
| July 27, 2019 | $ | 0.35 | $ | 1,490 | 82 | $ | 54.99 | $ | 4,515 | $ | 6,005 | |
| April 27, 2019 | $ | 0.35 | $ | 1,519 | 116 | $ | 52.14 | $ | 6,020 | $ | 7,539 | |
| January 26, 2019 | $ | 0.33 | $ | 1,470 | 111 | $ | 45.09 | $ | 5,016 | $ | 6,486 | |
| October 27, 2018 | $ | 0.33 | $ | 1,500 | 109 | $ | 46.01 | $ | 5,026 | $ | 6,526 |
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CISCO SYSTEMS, INC.
RECONCILIATIONS OF GAAP TO NON-GAAP MEASURES
GAAP TO NON-GAAP NET INCOME
(In millions)
| Three Months Ended | Nine Months Ended | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| April 25,<br>2020 | April 27,<br>2019 | April 25,<br>2020 | April 27,<br>2019 | |||||||||
| GAAP net income | $ | 2,774 | $ | 3,044 | $ | 8,578 | $ | 9,415 | ||||
| Adjustments to cost of sales: | ||||||||||||
| Share-based compensation expense | 60 | 54 | 176 | 163 | ||||||||
| Amortization of acquisition-related intangible assets | 154 | 141 | 454 | 418 | ||||||||
| Supplier component remediation charge (adjustment), net | — | — | — | (1 | ) | |||||||
| Acquisition-related/divestiture costs | 1 | 2 | 3 | 9 | ||||||||
| Legal and indemnification settlements | — | — | 4 | 5 | ||||||||
| Total adjustments to GAAP cost of sales | 215 | 197 | 637 | 594 | ||||||||
| Adjustments to operating expenses: | ||||||||||||
| Share-based compensation expense | 322 | 322 | 975 | 974 | ||||||||
| Amortization of acquisition-related intangible assets | 34 | 39 | 108 | 112 | ||||||||
| Acquisition-related/divestiture costs | 66 | 78 | 191 | 238 | ||||||||
| Legal and indemnification settlements | — | (1 | ) | — | (396 | ) | ||||||
| Significant asset impairments and restructurings | 128 | 18 | 354 | 282 | ||||||||
| Total adjustments to GAAP operating expenses | 550 | 456 | 1,628 | 1,210 | ||||||||
| Adjustments to GAAP interest and other income (loss), net: | ||||||||||||
| (Gains) and losses on equity investments | 1 | (4 | ) | (99 | ) | (77 | ) | |||||
| Total adjustments to GAAP income before provision for income taxes | 766 | 649 | 2,166 | 1,727 | ||||||||
| Income tax effect of non-GAAP adjustments | (172 | ) | (160 | ) | (547 | ) | (554 | ) | ||||
| Significant tax matters | — | (79 | ) | 67 | (387 | ) | ||||||
| Total adjustments to GAAP provision for income taxes | (172 | ) | (239 | ) | (480 | ) | (941 | ) | ||||
| Non-GAAP net income | $ | 3,368 | $ | 3,454 | $ | 10,264 | $ | 10,201 |
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CISCO SYSTEMS, INC.
RECONCILIATIONS OF GAAP TO NON-GAAP MEASURES
GAAP TO NON-GAAP EPS
| Three Months Ended | Nine Months Ended | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| April 25,<br>2020 | April 27,<br>2019 | April 25,<br>2020 | April 27,<br>2019 | |||||||||
| GAAP EPS | $ | 0.65 | $ | 0.69 | $ | 2.01 | $ | 2.09 | ||||
| Adjustments to GAAP: | ||||||||||||
| Share-based compensation expense | 0.09 | 0.09 | 0.27 | 0.25 | ||||||||
| Amortization of acquisition-related intangible assets | 0.04 | 0.04 | 0.13 | 0.12 | ||||||||
| Acquisition-related/divestiture costs | 0.02 | 0.02 | 0.05 | 0.05 | ||||||||
| Legal and indemnification settlements | — | — | — | (0.09 | ) | |||||||
| Significant asset impairments and restructurings | 0.03 | — | 0.08 | 0.06 | ||||||||
| (Gains) and losses on equity investments | — | — | (0.02 | ) | (0.02 | ) | ||||||
| Income tax effect of non-GAAP adjustments | (0.04 | ) | (0.04 | ) | (0.13 | ) | (0.12 | ) | ||||
| Significant tax matters | — | (0.02 | ) | 0.02 | (0.09 | ) | ||||||
| Non-GAAP EPS | $ | 0.79 | $ | 0.78 | $ | 2.41 | $ | 2.26 |
Amounts may not sum due to rounding.
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CISCO SYSTEMS, INC.
RECONCILIATIONS OF GAAP TO NON-GAAP MEASURES
GROSS MARGINS, OPERATING EXPENSES, OPERATING MARGINS, INTEREST AND OTHER INCOME (LOSS), NET, AND NET INCOME
(In millions, except percentages)
| Three Months Ended | |||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| April 25, 2020 | |||||||||||||||||||||||||||||||||
| Product<br>Gross<br>Margin | Service<br>Gross<br>Margin | Total<br>Gross<br>Margin | Operating<br>Expenses | Y/Y | Operating<br>Income | Y/Y | Interest<br>and<br>other<br>income<br>(loss),<br>net | Y/Y | Net<br>Income | Y/Y | |||||||||||||||||||||||
| GAAP amount | $ | 5,477 | $ | 2,294 | $ | 7,771 | $ | 4,357 | (6 | )% | $ | 3,414 | (3 | )% | $ | 30 | (71 | )% | $ | 2,774 | (9 | )% | |||||||||||
| % of revenue | 63.7 | % | 67.7 | % | 64.9 | % | 36.4 | % | 28.5 | % | 0.3 | % | 23.1 | % | |||||||||||||||||||
| Adjustments to GAAP amounts: | |||||||||||||||||||||||||||||||||
| Share-based compensation expense | 23 | 37 | 60 | 322 | 382 | — | 382 | ||||||||||||||||||||||||||
| Amortization of acquisition-related intangible assets | 154 | — | 154 | 34 | 188 | — | 188 | ||||||||||||||||||||||||||
| Acquisition/divestiture-related costs | — | 1 | 1 | 66 | 67 | — | 67 | ||||||||||||||||||||||||||
| Significant asset impairments and restructurings | — | — | — | 128 | 128 | — | 128 | ||||||||||||||||||||||||||
| (Gains) and losses on equity investments | — | — | — | — | — | 1 | 1 | ||||||||||||||||||||||||||
| Income tax effect/significant tax matters | — | — | — | — | — | — | (172 | ) | |||||||||||||||||||||||||
| Non-GAAP amount | $ | 5,654 | $ | 2,332 | $ | 7,986 | $ | 3,807 | (9 | )% | $ | 4,179 | — | % | $ | 31 | (68 | )% | $ | 3,368 | (2 | )% | |||||||||||
| % of revenue | 65.8 | % | 68.9 | % | 66.6 | % | 31.8 | % | 34.9 | % | 0.3 | % | 28.1 | % | |||||||||||||||||||
| Three Months Ended | |||||||||||||||||||||||||||||||||
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | ||||||||||||
| April 27, 2019 | |||||||||||||||||||||||||||||||||
| Product<br>Gross<br>Margin | Service<br>Gross<br>Margin | Total<br>Gross<br>Margin | Operating<br>Expenses | Operating<br>Income | Interest<br>and other<br>income<br>(loss), net | Net<br>Income | |||||||||||||||||||||||||||
| GAAP amount | $ | 6,029 | $ | 2,144 | $ | 8,173 | $ | 4,660 | $ | 3,513 | $ | 102 | $ | 3,044 | |||||||||||||||||||
| % of revenue | 62.0 | % | 66.3 | % | 63.1 | % | 36.0 | % | 27.1 | % | 0.8 | % | 23.5 | % | |||||||||||||||||||
| Adjustments to GAAP amounts: | |||||||||||||||||||||||||||||||||
| Share-based compensation expense | 22 | 32 | 54 | 322 | 376 | — | 376 | ||||||||||||||||||||||||||
| Amortization of acquisition-related intangible assets | 141 | — | 141 | 39 | 180 | — | 180 | ||||||||||||||||||||||||||
| Legal and indemnification settlements | — | — | — | (1 | ) | (1 | ) | — | (1 | ) | |||||||||||||||||||||||
| Acquisition/divestiture-related costs | 1 | 1 | 2 | 78 | 80 | — | 80 | ||||||||||||||||||||||||||
| Significant asset impairments and restructurings | — | — | — | 18 | 18 | — | 18 | ||||||||||||||||||||||||||
| (Gains) and losses on equity investments | — | — | — | — | — | (4 | ) | (4 | ) | ||||||||||||||||||||||||
| Income tax effect/significant tax matters | — | — | — | — | — | — | (239 | ) | |||||||||||||||||||||||||
| Non-GAAP amount | $ | 6,193 | $ | 2,177 | $ | 8,370 | $ | 4,204 | $ | 4,166 | $ | 98 | $ | 3,454 | |||||||||||||||||||
| % of revenue | 63.7 | % | 67.3 | % | 64.6 | % | 32.4 | % | 32.2 | % | 0.8 | % | 26.7 | % |
Amounts may not sum and percentages may not recalculate due to rounding.
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CISCO SYSTEMS, INC.
RECONCILIATIONS OF GAAP TO NON-GAAP MEASURES
EFFECTIVE TAX RATE
(Inpercentages)
| Three Months Ended | Nine Months Ended | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| April 25,<br>2020 | April 27,<br>2019 | April 25,<br>2020 | April 27,<br>2019 | |||||||||
| GAAP effective tax rate | 19.4 | % | 15.8 | % | 19.6 | % | 13.4 | % | ||||
| Total adjustments to GAAP provision for income taxes | 0.6 | % | 3.2 | % | 0.4 | % | 5.6 | % | ||||
| Non-GAAP effective tax rate | 20.0 | % | 19.0 | % | 20.0 | % | 19.0 | % |
GAAP TO NON-GAAP GUIDANCE FOR Q4 FY 2020
| Q4 FY 2020 | Gross Margin<br>Rate | Operating Margin<br>Rate | Tax Provision<br>Rate | Earnings per<br>Share ^(1)^ |
|---|---|---|---|---|
| GAAP | 62% - 63% | 25.5% - 26.5% | 19% | $0.57 - $0.62 |
| Estimated adjustments for: | ||||
| Share-based compensation expense | 0.5% | 3.5% | — | $0.07 - $0.08 |
| Amortization of acquisition-related intangible assets and acquisition/divestiture-related<br>costs | 1.5% | 2.0% | — | $0.04 - $0.05 |
| Significant asset impairments and restructurings | — | 0.5% | — | $0.01 - $0.02 |
| Income tax effect of non-GAAP adjustments | 1% | |||
| Non-GAAP | 64% - 65% | 31.5% - 32.5% | 20% | $0.72 - $0.74 |
| ^(1)^ | 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 AdditionalInformation
This release may be deemed to contain forward-looking statements, which are subject to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These forward-looking statements include, among other things, statements regarding future events (such as continued support of our employees, customers, partners and communities, while positioning Cisco for the future, global customer demand to digitize their operations and support remote workforces at a faster speeds and greater scale and our ability to provide the technology and solutions our customers need to accelerate their digital organizations, our ability to continue to build resiliency into our business model, continued growth of revenue from software subscriptions, our ability to drive long-term profitable growth while delivering shareholder value, and future responses to and effects of the COVID-19 pandemic) and the future financial performance of Cisco (including the guidance for Q4 FY 2020) 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: the impact of the COVID-19 pandemic; 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; cyber-attacks, data breaches or malware; vulnerabilities and critical security defects; terrorism; natural catastrophic events; any other 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 18, 2020 and September 5, 2019, 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 25, 2020 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, non-GAAP interest and other income (loss), net, 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, gains and losses on equity investments, the income tax effects of the foregoing and significant tax matters. Cisco’s management also uses the foregoing non-GAAP measures, in addition to the corresponding GAAP measures, in reviewing the financial results of Cisco. In prior periods, Cisco has excluded other items that it no longer excludes for purposes of its non-GAAP financial measures. From time to time in the future there may be other items that Cisco may exclude for purposes of its internal budgeting process and in reviewing its financial results. For additional information on the items excluded by Cisco from one or more of its non-GAAP financial measures, refer to the Form 8-K regarding this release furnished today to the Securities and Exchange Commission.
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Cisco divested its Service Provider Video Software Solutions business (SPVSS) during the second quarter of fiscal 2019 on October 28, 2018. This release includes, where indicated, financial measures that exclude the SPVSS business. Cisco believes that the presentation of these 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 because the SPVSS business will not be part of Cisco on a go forward basis. Cisco’s management also uses the financial measures excluding the SPVSS business in reviewing the financial results of Cisco.
About Cisco
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