Form 8-K
false 0000858877 0000858877 2020-08-12 2020-08-12

 

 

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): August 12, 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

Symbol(s)

  

Name of each exchange

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 August 12, 2020, Cisco Systems, Inc. (“Cisco”) reported its results of operations for its fiscal fourth quarter and fiscal year 2020 ended July 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 2.05.

Costs Associated with Exit or Disposal Activities.

On August 12, 2020, Cisco announced a restructuring plan, which includes a voluntary early retirement program. Cisco will take action under this plan beginning in the first quarter of fiscal 2021. Cisco currently estimates that it will recognize pre-tax charges to its GAAP financial results of approximately $900 million consisting of severance and other one-time termination benefits, and other costs. These charges are primarily cash-based. Cisco expects that approximately $800 million of these charges will be recognized during the first quarter of fiscal 2021 with the remaining amount to be recognized during the rest of the fiscal year.

The foregoing contains 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 the size of the restructuring and the amount and timing of the related charges. Statements regarding future events are based on Cisco’s current expectations and are necessarily subject to associated risks related to the completion of the restructuring in the manner anticipated by Cisco. 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: Cisco’s ability to achieve the benefits of the announced restructuring and possible changes in the size and timing of the related charges. For information regarding other factors that could cause Cisco’s results to vary from expectations, please see the “Risk Factors” section of Cisco’s filings with the Securities and Exchange Commission, including its most recent quarterly report on Form 10-Q. Cisco undertakes no obligation to revise or update publicly any forward-looking statements.

Item 9.01.

Financial Statements and Exhibits.

(d) Exhibits

 

Exhibit

Number

   

Description of Document

99.1    Press Release of Cisco, dated August 12, 2020, reporting the results of operations for Cisco’s fiscal fourth quarter and fiscal year 2020 ended July 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: August 12, 2020     By:  

/s/ Kelly A. Kramer

    Name:   Kelly A. Kramer
    Title:   Executive Vice President and Chief Financial Officer

Exhibit 99.1

 

LOGO

 

Press Contact:      Investor Relations Contact:
Robyn Blum      Marilyn Mora
Cisco      Cisco
1 (408) 930-8548      1 (408) 527-7452
[email protected]      [email protected]

CISCO REPORTS FOURTH QUARTER AND FISCAL YEAR 2020 EARNINGS

 

  •  

Q4 Results:

 

  •  

Revenue: $12.2 billion

 

  •  

Decrease of (9)% year over year

 

  •  

Earnings per Share: GAAP: $0.62; Non-GAAP: $0.80

 

  •  

GAAP EPS increased 22% year over year

 

  •  

Non-GAAP EPS decreased (4)% year over year

 

  •  

FY 2020 Results:

 

  •  

Revenue: $49.3 billion

 

  •  

Decrease of (5)% year over year

 

  •  

51% of revenue from software and services

 

  •  

Earnings per Share: GAAP: $2.64; Non-GAAP: $3.21

 

  •  

GAAP EPS increased 1% year over year

 

  •  

Non-GAAP EPS increased 4% year over year

 

  •  

Q1 Guidance:

 

  •  

Revenue: (9)% to (11)% decline year over year

 

  •  

Earnings per Share: GAAP: $0.41 to $0.47; Non-GAAP: $0.69 to $0.71

SAN JOSE, Calif. — August 12, 2020 — Cisco today reported fourth quarter and fiscal year results for the period ended July 25, 2020. Cisco reported fourth quarter revenue of $12.2 billion, net income on a generally accepted accounting principles (GAAP) basis of $2.6 billion or $0.62 per share, and non-GAAP net income of $3.4 billion or $0.80 per share.

As previously disclosed, Cisco completed the divestiture of the Service Provider Video Software Solutions (SPVSS) business in the second quarter of fiscal 2019 on October 28, 2018. Revenue and non-GAAP financial information have been normalized to exclude the SPVSS business from prior periods for comparative purposes.

“By the end of fiscal 2020, we achieved our goal of more than half of our revenue coming from software and services, and this strategy continues to resonate with customers as they digitize their organizations. Throughout fiscal 2020, Cisco has demonstrated operational resilience based on our strong customer relationships, solid financial foundation, and differentiated innovation,” said Chuck Robbins, chairman and CEO of Cisco. “As we focus on the future, we are rebalancing our R&D investments to focus on new areas so we can continue to offer customers the best, most relevant technology in simpler, more easily consumable ways.”

Q4 GAAP Results

 

     Q4 FY 2020      Q4 FY 2019      Vs. Q4 FY 2019  

Revenue

    $ 12.2 billion      $ 13.4 billion        (9 )% 

Net Income

    $ 2.6 billion      $ 2.2 billion        19 % 

Diluted Earnings per Share (EPS)

    $ 0.62      $ 0.51        22 % 

Q4 GAAP results for fiscal 2019 include a $0.9 billion charge related to the Tax Cuts and Jobs Act.

 

1

Q4 Non-GAAP Results

 

     Q4 FY 2020      Q4 FY 2019      Vs. Q4 FY 2019  

Net Income

    $ 3.4 billion      $ 3.6 billion        (5 )% 

EPS

    $ 0.80      $ 0.83        (4 )% 

Fiscal Year GAAP Results

 

     FY 2020      FY 2019      Vs. FY 2019  

Revenue (including SPVSS business for all periods)

    $ 49.3 billion      $ 51.9 billion        (5 )% 

Revenue (excluding SPVSS business for all periods)

    $ 49.3 billion      $ 51.7 billion        (5 )% 

Net Income

    $ 11.2 billion      $ 11.6 billion        (4 )% 

EPS

    $ 2.64      $ 2.61        1 % 

GAAP results for fiscal 2019 include charges related to the Tax Cuts and Jobs Act of $0.9 billion.

Fiscal Year Non-GAAP Results

 

     FY 2020      FY 2019      Vs. FY 2019  

Net Income (excluding SPVSS business for all periods)

    $ 13.7 billion      $ 13.8 billion        (1 )% 

EPS (excluding SPVSS business for all periods)

    $ 3.21      $ 3.10        4 % 

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 Q4, delivering strong margins despite the very challenging environment,” said Kelly Kramer, CFO of Cisco. “Software subscriptions now make up 78% of our software revenue and remaining performance obligations continued to grow strongly in the quarter, reflecting the strength of our portfolio of software and services. We are seeing the returns on our investments in innovation as we focus on delivering long term growth and shareholder value.”

 

2

Financial Summary

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

All revenue, non-GAAP, and geographic financial information in the “FY 2020 Highlights” sections are presented excluding the SPVSS business for all prior periods as it was divested during the second quarter of fiscal 2019, on October 28, 2018.

Q4 FY 2020 Highlights

Revenue — Total revenue was $12.2 billion, down 9%, with product revenue down 13% and service revenue was flat. Revenue by geographic segment was: Americas down 12%, EMEA down 6%, and APJC down 7%. Product revenue was led by growth in Security, up 10%. Infrastructure Platforms was down 16% and Applications was down 9%.

Gross Margin — On a GAAP basis, total gross margin, product gross margin, and service gross margin were 63.2%, 61.2%, and 68.7%, respectively, as compared with 63.9%, 62.9%, and 66.8%, respectively, in the fourth quarter of 2019.

On a non-GAAP basis, total gross margin, product gross margin, and service gross margin were 65.0%, 63.2%, and 69.8%, respectively, as compared with 65.5%, 64.7%, and 67.9%, respectively, in the fourth quarter of 2019.

Total gross margins by geographic segment were: 65.6% for the Americas, 64.9% for EMEA and 63.2% for APJC.

Operating Expenses — On a GAAP basis, operating expenses were $4.4 billion, down 9%, and were 36.5% of revenue. Non-GAAP operating expenses were $3.9 billion, down 12%, and were 32.0% of revenue.

Operating Income — GAAP operating income was $3.2 billion, down 12%, with GAAP operating margin of 26.7%. Non-GAAP operating income was $4.0 billion, down 8%, with non-GAAP operating margin at 33.0%.

Provision for Income Taxes — The GAAP tax provision rate was 20.3%. The non-GAAP tax provision rate was 16.7%.

Net Income and EPS — On a GAAP basis, net income was $2.6 billion, an increase of 19%, and EPS was $0.62, an increase of 22%. On a non-GAAP basis, net income was $3.4 billion, a decrease of 5%, and EPS was $0.80, a decrease of 4%.

Cash Flow from Operating Activities — $3.8 billion for the fourth quarter of fiscal 2020, a decrease of 4% compared with $3.9 billion for the fourth quarter of fiscal 2019.

FY 2020 Highlights

Revenue — Total revenue was $49.3 billion, a decrease of 5%.

Net Income and EPS — On a GAAP basis, net income was $11.2 billion, a decrease of 4%, and EPS was $2.64, an increase of 1%. On a non-GAAP basis, net income was $13.7 billion, a decrease of 1% compared to fiscal 2019, and EPS was $3.21, an increase of 4%.

Cash Flow from Operating Activities — $15.4 billion for fiscal 2020 compared with $15.8 billion for fiscal 2019, a decrease of 3%. Operating cash flow for fiscal 2019 includes the receipt of $0.4 billion related to a litigation settlement with Arista Networks. Operating cash flow was flat normalized for this item.

 

3

Balance Sheet and Other Financial Highlights

Cash and Cash Equivalents and Investments — $29.4 billion at the end of the fourth quarter of fiscal 2020, compared with $28.6 billion at the end of the third quarter of fiscal 2020, and compared with $33.4 billion at the end of fiscal 2019.

Deferred Revenue — $20.4 billion, up 11% in total, with deferred product revenue up 17%. Deferred service revenue was up 7%.

Remaining Performance Obligations — $28.4 billion at the end of fiscal 2020, up 12%.

Capital Allocation — In the fourth quarter of fiscal 2020, we declared and paid a cash dividend of $0.36 per common share, or $1.5 billion.

Acquisitions

In the first quarter of fiscal 2021, we closed the acquisition of privately held ThousandEyes, Inc. ThousandEyes’ Internet and Cloud intelligence platform delivers deep visibility and insights into the digital delivery of applications and services over the Internet.

 

4

Guidance for Q1 FY 2021

Cisco expects to achieve the following results for the first quarter of fiscal 2021:

 

Q1 FY 2021

     

Revenue

    (9)% - (11)% decline Y/Y

Non-GAAP gross margin rate

    64% - 65%

Non-GAAP operating margin rate

    30% - 31%

Non-GAAP tax provision rate

    19%

Non-GAAP EPS

    $0.69 - $0.71

Cisco estimates that GAAP EPS will be $0.41 to $0.47 in the first quarter of fiscal 2021.

A reconciliation between the Guidance for Q1 FY 2021 on a GAAP and non-GAAP basis is provided in the table entitled “GAAP to non-GAAP Guidance for Q1 FY 2021” located in the section entitled “Reconciliations of GAAP to non-GAAP Measures.”

Editor’s Notes:

 

  •  

Q4 fiscal year 2020 conference call to discuss Cisco’s results along with its guidance will be held on Wednesday, August 12, 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, August 12, 2020 to 4:00 p.m. Pacific Time, August 19, 2020 at 1-866-429-0574 (United States) or 1-203-369-0916 (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, August 12, 2020. 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.

 

5

CISCO SYSTEMS, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(In millions, except per-share amounts)

(Unaudited)

 

     Three Months Ended     Fiscal Year Ended  
     July 25,
2020		     July 27,
2019		     July 25,
2020		     July 27,
2019		  

REVENUE:

         

Product

    $ 8,832     $ 10,120     $ 35,978     $ 39,005  

Service

      3,322       3,308       13,323       12,899  
  

 

 

    

 

 

    

 

 

    

 

 

  

Total revenue

      12,154       13,428       49,301       51,904  
  

 

 

    

 

 

    

 

 

    

 

 

  

COST OF SALES:

         

Product

      3,429       3,757       13,199       14,863  

Service

      1,041       1,097       4,419       4,375  
  

 

 

    

 

 

    

 

 

    

 

 

  

Total cost of sales

      4,470       4,854       17,618       19,238  
  

 

 

    

 

 

    

 

 

    

 

 

  

GROSS MARGIN

      7,684       8,574       31,683       32,666  

OPERATING EXPENSES:

         

Research and development

      1,565       1,753       6,347       6,577  

Sales and marketing

      2,218       2,487       9,169       9,571  

General and administrative

      494       566       1,925       1,827  

Amortization of purchased intangible assets

      33       38       141       150  

Restructuring and other charges

      127       40       481       322  
  

 

 

    

 

 

    

 

 

    

 

 

  

Total operating expenses

      4,437       4,884       18,063       18,447  
  

 

 

    

 

 

    

 

 

    

 

 

  

OPERATING INCOME

      3,247       3,690       13,620       14,219  

Interest income

      187       305       920       1,308  

Interest expense

      (119 )      (204 )      (585 )      (859 ) 

Other income (loss), net

      (9 )      (87 )      15       (97 ) 
  

 

 

    

 

 

    

 

 

    

 

 

  

Interest and other income (loss), net

      59       14       350       352  
  

 

 

    

 

 

    

 

 

    

 

 

  

INCOME BEFORE PROVISION FOR INCOME TAXES

      3,306       3,704       13,970       14,571  

Provision for income taxes (1)

      670       1,498       2,756       2,950  
  

 

 

    

 

 

    

 

 

    

 

 

  

NET INCOME

    $ 2,636     $ 2,206     $ 11,214     $ 11,621  
  

 

 

    

 

 

    

 

 

    

 

 

  

Net income per share:

         

Basic

    $ 0.62     $ 0.52     $ 2.65     $ 2.63  
  

 

 

    

 

 

    

 

 

    

 

 

  

Diluted

    $ 0.62     $ 0.51     $ 2.64     $ 2.61  
  

 

 

    

 

 

    

 

 

    

 

 

  

Shares used in per-share calculation:

         

Basic

      4,227       4,269       4,236       4,419  
  

 

 

    

 

 

    

 

 

    

 

 

  

Diluted

      4,244       4,307       4,254       4,453  
  

 

 

    

 

 

    

 

 

    

 

 

  

The Consolidated Statements of Operations include the results of the SPVSS business prior to its divestiture during the second quarter of fiscal 2019 on October 28, 2018. Accordingly, the fiscal year ended July 27, 2019 includes three months of financial results for this business.

 

(1) 

The provision for income taxes included a $0.9 billion charge for the three months and fiscal year ended July 27, 2019 related to the Tax Cuts and Jobs Act.

 

6

CISCO SYSTEMS, INC.

REVENUE BY SEGMENT

(In millions, except percentages)

 

     July 25, 2020  
     Three Months Ended     Fiscal Year Ended  
                         Excluding
SPVSS
business		     Including
SPVSS
business		  
     Amount      Y/Y%     Amount      Y/Y%     Y/Y%  

Revenue:

             

Americas

    $ 7,185        (12 )%    $ 29,291        (5 )%      (5 )% 

EMEA

      3,106        (6 )%      12,659        (3 )%      (3 )% 

APJC

      1,863        (7 )%      7,352        (6 )%      (7 )% 
  

 

 

       

 

 

       

Total

    $ 12,154        (9 )%    $ 49,301        (5 )%      (5 )% 
  

 

 

       

 

 

       

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 fiscal year ended July 27, 2019 was $168 million.

CISCO SYSTEMS, INC.

GROSS MARGIN PERCENTAGE BY SEGMENT

(In percentages)

 

     July 25, 2020  
     Three Months Ended     Fiscal Year Ended  

Gross Margin Percentage:

     

Americas

      65.6 %      66.7 % 

EMEA

      64.9 %      65.6 % 

APJC

      63.2 %      63.8 % 

 

7

CISCO SYSTEMS, INC.

REVENUE FOR GROUPS OF SIMILAR PRODUCTS AND SERVICES

(In millions, except percentages)

 

     July 25, 2020  
     Three Months Ended     Fiscal Year Ended  
                         Excluding
SPVSS
business		     Including
SPVSS
business		  
     Amount      Y/Y%     Amount      Y/Y%     Y/Y%  

Revenue:

             

Infrastructure Platforms

    $ 6,626        (16 )%    $ 27,122        (10 )%      (10 )% 

Applications

      1,357        (9 )%      5,568        (4 )%      (4 )% 

Security

      814        10 %      3,154        12 %      12 % 

Other Products

      35        (17 )%      135        —   %      (52 )% 
  

 

 

       

 

 

       

Total Product

      8,832        (13 )%      35,978        (7 )%      (8 )% 

Services

      3,322        —   %      13,323        3 %      3 % 
  

 

 

       

 

 

       

Total

    $ 12,154        (9 )%    $ 49,301        (5 )%      (5 )% 
  

 

 

       

 

 

       

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 fiscal year ended July 27, 2019 was $168 million.

 

8

CISCO SYSTEMS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(In millions)

(Unaudited)

 

     July 25, 2020      July 27, 2019  

ASSETS

      

Current assets:

      

Cash and cash equivalents

    $ 11,809      $   11,750  

Investments

        17,610        21,663  

Accounts receivable, net of allowance for doubtful accounts of $143 at July 25, 2020 and $136 at July 27, 2019

      5,472        5,491  

Inventories

      1,282        1,383  

Financing receivables, net

      5,051        5,095  

Other current assets

      2,349        2,373  
  

 

 

     

 

 

  

Total current assets

      43,573        47,755  

Property and equipment, net

      2,453        2,789  

Financing receivables, net

      5,714        4,958  

Goodwill

      33,806        33,529  

Purchased intangible assets, net

      1,576        2,201  

Deferred tax assets

      3,990        4,065  

Other assets

      3,741        2,496  
  

 

 

     

 

 

  

TOTAL ASSETS

    $ 94,853      $ 97,793  
  

 

 

     

 

 

  

LIABILITIES AND EQUITY

      

Current liabilities:

      

Short-term debt

    $ 3,005      $ 10,191  

Accounts payable

      2,218        2,059  

Income taxes payable

      839        1,149  

Accrued compensation

      3,122        3,221  

Deferred revenue

      11,406        10,668  

Other current liabilities

      4,741        4,424  
  

 

 

     

 

 

  

Total current liabilities

      25,331        31,712  

Long-term debt

      11,578        14,475  

Income taxes payable

      8,837        8,927  

Deferred revenue

      9,040        7,799  

Other long-term liabilities

      2,147        1,309  
  

 

 

     

 

 

  

Total liabilities

      56,933        64,222  

Total equity

      37,920        33,571  
  

 

 

     

 

 

  

TOTAL LIABILITIES AND EQUITY

    $ 94,853      $ 97,793  
  

 

 

     

 

 

  

 

9

CISCO SYSTEMS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In millions)

(Unaudited)

 

     Fiscal Year Ended  
     July 25,
2020		     July 27,
2019		  

Cash flows from operating activities:

     

Net income

    $ 11,214     $ 11,621  

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

     

Depreciation, amortization, and other

      1,808       1,897  

Share-based compensation expense

      1,569       1,570  

Provision for receivables

      93       40  

Deferred income taxes

      (38 )      (350 ) 

(Gains) losses on divestitures, investments and other, net

      (138 )      (24 ) 

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

     

Accounts receivable

      (107 )      (84 ) 

Inventories

      84       131  

Financing receivables

      (797 )      (249 ) 

Other assets

      96       (955 ) 

Accounts payable

      141       87  

Income taxes, net

      (322 )      312  

Accrued compensation

      (78 )      277  

Deferred revenue

      2,011       1,407  

Other liabilities

      (110 )      151  
  

 

 

    

 

 

  

Net cash provided by operating activities

      15,426       15,831  
  

 

 

    

 

 

  

Cash flows from investing activities:

     

Purchases of investments

      (9,212 )      (2,416 ) 

Proceeds from sales of investments

      5,631       7,388  

Proceeds from maturities of investments

      7,975       12,928  

Acquisitions and divestitures

      (327 )      (2,175 ) 

Purchases of investments in privately held companies

      (190 )      (148 ) 

Return of investments in privately held companies

      224       159  

Acquisition of property and equipment

      (770 )      (909 ) 

Proceeds from sales of property and equipment

      179       22  

Other

      (10 )      (12 ) 
  

 

 

    

 

 

  

Net cash provided by investing activities

      3,500       14,837  
  

 

 

    

 

 

  

Cash flows from financing activities:

     

Issuances of common stock

      655       640  

Repurchases of common stock - repurchase program

      (2,659 )      (20,717 ) 

Shares repurchased for tax withholdings on vesting of restricted stock units

      (727 )      (862 ) 

Short-term borrowings, original maturities of 90 days or less, net

      (3,470 )      3,446  

Issuances of debt

      —         2,250  

Repayments of debt

      (6,720 )      (6,780 ) 

Dividends paid

      (6,016 )      (5,979 ) 

Other

      51       113  
  

 

 

    

 

 

  

Net cash used in financing activities

      (18,886 )      (27,889 ) 
  

 

 

    

 

 

  

Net increase in cash, cash equivalents, and restricted cash

      40       2,779  

Cash, cash equivalents, and restricted cash, beginning of fiscal year

      11,772       8,993  
  

 

 

    

 

 

  

Cash, cash equivalents, and restricted cash, end of fiscal year

    $ 11,812     $ 11,772  
  

 

 

    

 

 

  

Supplemental cash flow information:

     

Cash paid for interest

    $ 603     $ 892  

Cash paid for income taxes, net

    $ 3,116     $ 2,986  

 

10

CISCO SYSTEMS, INC.

DEFERRED REVENUE

(In millions)

 

     July 25,
2020		      April 25,
2020		      July 27,
2019		  

Deferred revenue:

         

Service

    $ 12,551      $ 11,423      $ 11,709  

Product

      7,895        7,225        6,758  
  

 

 

     

 

 

     

 

 

  

Total

    $ 20,446      $ 18,648      $ 18,467  
  

 

 

     

 

 

     

 

 

  

Reported as:

         

Current

    $ 11,406      $ 10,710      $ 10,668  

Noncurrent

      9,040        7,938        7,799  
  

 

 

     

 

 

     

 

 

  

Total

    $ 20,446      $ 18,648      $ 18,467  
  

 

 

     

 

 

     

 

 

  

CISCO SYSTEMS, INC.

REMAINING PERFORMANCE OBLIGATIONS

(In millions, except percentages)

 

     July 25, 2020     April 25, 2020     July 27, 2019  
     Amount      Y/Y%     Amount      Y/Y%     Amount      Y/Y%  

Product

    $ 11,261        17 %    $ 10,386        25 %    $ 9,603        N/A  

Service

      17,093        9 %      15,142        3 %      15,702        N/A  
  

 

 

       

 

 

       

 

 

     

Total

    $ 28,354        12 %    $ 25,528        11 %    $ 25,305        N/A  
  

 

 

       

 

 

       

 

 

     

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 2020

                  

July 25, 2020

    $ 0.36      $ 1,525        —        $ —        $ —        $ 1,525  

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  

The remaining authorized amount for stock repurchases under the program is $10.8 billion with no termination date.

 

11

CISCO SYSTEMS, INC.

RECONCILIATIONS OF GAAP TO NON-GAAP MEASURES

GAAP TO NON-GAAP NET INCOME

(In millions)

 

     Three Months Ended     Fiscal Year Ended  
     July 25,
2020		     July 27,
2019		     July 25,
2020		     July 27,
2019		  

GAAP net income

    $ 2,636     $ 2,206     $ 11,214     $ 11,621  

Adjustments to cost of sales:

         

Share-based compensation expense

      61       57       237       220  

Amortization of acquisition-related intangible assets

      157       144       611       562  

Supplier component remediation charge (adjustment), net

      —         17       —         16  

Acquisition-related/divestiture costs

      —         1       3       10  

Legal and indemnification settlements

      —         —         4       5  
  

 

 

    

 

 

    

 

 

    

 

 

  

Total adjustments to GAAP cost of sales

      218       219       855       813  
  

 

 

    

 

 

    

 

 

    

 

 

  

Adjustments to operating expenses:

         

Share-based compensation expense

      332       335       1,307       1,309  

Amortization of acquisition-related intangible assets

      33       38       141       150  

Acquisition-related/divestiture costs

      55       61       246       299  

Legal and indemnification settlements

      —         —         —         (396 ) 

Significant asset impairments and restructurings

      127       40       481       322  
  

 

 

    

 

 

    

 

 

    

 

 

  

Total adjustments to GAAP operating expenses

      547       474       2,175       1,684  
  

 

 

    

 

 

    

 

 

    

 

 

  

Adjustments to GAAP interest and other income (loss), net:

         
  

 

 

    

 

 

    

 

 

    

 

 

  

(Gains) and losses on equity investments

      2       20       (97 )      (57 ) 
  

 

 

    

 

 

    

 

 

    

 

 

  

Total adjustments to GAAP income before provision for income taxes

      767       713       2,933       2,440  
  

 

 

    

 

 

    

 

 

    

 

 

  

Income tax effect of non-GAAP adjustments

      (175 )      (168 )      (722 )      (722 ) 

Significant tax matters (1)

      166       835       233       448  
  

 

 

    

 

 

    

 

 

    

 

 

  

Total adjustments to GAAP provision for income taxes

      (9 )      667       (489 )      (274 ) 
  

 

 

    

 

 

    

 

 

    

 

 

  

Non-GAAP net income

    $ 3,394     $ 3,586     $ 13,658     $ 13,787  
  

 

 

    

 

 

    

 

 

    

 

 

  

 

(1)

The three months and fiscal year ended July 27, 2019 includes a $0.9 billion charge related to the Tax Cuts and Jobs Act.

 

12

CISCO SYSTEMS, INC.

RECONCILIATIONS OF GAAP TO NON-GAAP MEASURES

GAAP TO NON-GAAP EPS

 

     Three Months Ended      Fiscal Year Ended  
     July 25,
2020		      July 27,
2019		      July 25,
2020		      July 27,
2019		  

GAAP EPS

    $ 0.62      $ 0.51      $ 2.64      $ 2.61  

Adjustments to GAAP:

            

Share-based compensation expense

      0.09        0.09        0.36        0.34  

Amortization of acquisition-related intangible assets

      0.04        0.04        0.18        0.16  

Acquisition-related/divestiture costs

      0.01        0.01        0.06        0.07  

Legal and indemnification settlements

      —          —          —          (0.09 ) 

Significant asset impairments and restructurings

      0.03        0.01        0.11        0.07  

(Gains) and losses on equity investments

      —          —          (0.02 )       (0.01 ) 

Income tax effect of non-GAAP adjustments

      (0.04 )       (0.04 )       (0.17 )       (0.16 ) 

Significant tax matters

      0.04        0.19        0.05        0.10  
  

 

 

     

 

 

     

 

 

     

 

 

  

Non-GAAP EPS

    $ 0.80      $ 0.83      $ 3.21      $ 3.10  
  

 

 

     

 

 

     

 

 

     

 

 

  

Amounts may not sum due to rounding.

 

13

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  
     July 25, 2020  
     Product
Gross
Margin		     Service
Gross
Margin		     Total
Gross
Margin		     Operating
Expenses		     Y/Y     Operating
Income		     Y/Y     Interest
and
other
income
(loss),
net		     Net
Income		     Y/Y  

GAAP amount

    $ 5,403     $ 2,281     $ 7,684     $ 4,437       (9 )%    $ 3,247       (12 )%    $ 59     $ 2,636       19 % 

% of revenue

      61.2 %      68.7 %      63.2 %      36.5 %        26.7 %        0.5 %      21.7 %   

Adjustments to GAAP amounts:

                     

Share-based compensation expense

      24       37       61       332         393         —         393    

Amortization of acquisition-related intangible assets

      157       —         157       33         190         —         190    

Acquisition/divestiture-related costs

      —         —         —         55         55         —         55    

Significant asset impairments and restructurings

      —         —         —         127         127         —         127    

(Gains) and losses on equity investments

      —         —         —         —           —           2       2    

Income tax effect/significant tax matters

      —         —         —         —           —           —         (9 )   
  

 

 

    

 

 

    

 

 

    

 

 

      

 

 

      

 

 

    

 

 

    

Non-GAAP amount

    $ 5,584     $ 2,318     $ 7,902     $ 3,890       (12 )%    $ 4,012       (8 )%    $ 61     $ 3,394       (5 )% 
  

 

 

    

 

 

    

 

 

    

 

 

      

 

 

      

 

 

    

 

 

    

% of revenue

      63.2 %      69.8 %      65.0 %      32.0 %        33.0 %        0.5 %      27.9 %   

Amounts may not sum and percentages may not recalculate due to rounding.

 

     Three Months Ended  
     July 27, 2019  
     Product
Gross
Margin		     Service
Gross
Margin		     Total
Gross
Margin		     Operating
Expenses		     Operating
Income		     Interest
and other
income
(loss), net		     Net
Income		  

GAAP amount

    $ 6,363     $ 2,211     $ 8,574     $ 4,884     $ 3,690     $ 14     $ 2,206  

% of revenue

      62.9 %      66.8 %      63.9 %      36.4 %      27.5 %      0.1 %      16.4 % 

Adjustments to GAAP amounts:

               

Share-based compensation expense

      23       34       57       335       392       —         392  

Amortization of acquisition-related intangible assets

      144       —         144       38       182       —         182  

Supplier component remediation charge (adjustment), net

      17       —         17       —         17       —         17  

Acquisition/divestiture-related costs

      —         1       1       61       62       —         62  

Significant asset impairments and restructurings

      —         —         —         40       40       —         40  

(Gains) and losses on equity investments

      —         —         —         —         —       20       20  

Income tax effect/significant tax matters (1)

      —         —         —         —         —         —         667  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Non-GAAP amount

    $ 6,547     $ 2,246     $ 8,793     $ 4,410     $ 4,383     $ 34     $ 3,586  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

% of revenue

      64.7 %      67.9 %      65.5 %      32.8 %      32.6 %      0.3 %      26.7 % 

Amounts may not sum and percentages may not recalculate due to rounding.

 

(1) 

Includes a $0.9 billion charge related to the Tax Cuts and Jobs Act.

 

14

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)

 

     Fiscal Year Ended  
     July 25, 2020  
     Product
Gross
Margin		     Service
Gross
Margin		     Total
Gross
Margin		     Operating
Expenses		     Y/Y     Operating
Income		     Y/Y     Interest
and
other
income
(loss),
net		     Net
Income		     Y/Y  

GAAP amount

    $ 22,779     $ 8,904     $ 31,683     $ 18,063       (2 )%    $ 13,620       (4 )%    $ 350     $ 11,214       (4 )% 

% of revenue

      63.3 %      66.8 %      64.3 %      36.6 %        27.6 %        0.7 %      22.7 %   

Adjustments to GAAP amounts:

                     

Share-based compensation expense

      93       144       237       1,307         1,544         —         1,544    

Amortization of acquisition-related intangible assets

      611       —         611       141         752         —         752    

Legal and indemnification settlements

      4       —         4       —           4         —         4    

Acquisition/divestiture-related costs

      —         3       3       246         249         —         249    

Significant asset impairments and restructurings

      —         —         —         481         481         —         481    

(Gains) and losses on equity investments

      —         —         —         —           —           (97 )      (97 )   

Income tax effect/significant tax matters

      —         —         —         —           —           —         (489 )   
  

 

 

    

 

 

    

 

 

    

 

 

      

 

 

      

 

 

    

 

 

    

Non-GAAP amount

    $ 23,487     $ 9,051     $ 32,538     $ 15,888       (5 )%    $ 16,650       —   %    $ 253     $ 13,658       (1 )% 
  

 

 

    

 

 

    

 

 

    

 

 

      

 

 

      

 

 

    

 

 

    

% of revenue

      65.3 %      67.9 %      66.0 %      32.2 %        33.8 %        0.5 %      27.7 %   

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. Accordingly, the non-GAAP growth rates are normalized to exclude the SPVSS business for fiscal 2019.

 

15

     Fiscal Year Ended  
     July 27, 2019  
     Product
Gross
Margin		     Service
Gross
Margin		     Total
Gross
Margin		     Operating
Expenses		     Operating
Income		     Interest
and
other
income
(loss),
net		     Net
Income		  

GAAP amount

    $ 24,142     $ 8,524     $ 32,666     $ 18,447     $ 14,219     $ 352     $ 11,621  

% of revenue

      61.9 %      66.1 %      62.9 %      35.5 %      27.4 %      0.7 %      22.4 % 

Adjustments to GAAP amounts:

               

Share-based compensation expense

      90       130       220       1,309       1,529       —         1,529  

Amortization of acquisition-related intangible assets

      562       —         562       150       712       —         712  

Supplier component remediation charge (adjustment), net

      16       —         16       —         16       —         16  

Legal and indemnification settlements

      5       —         5       (396 )      (391 )      —         (391 ) 

Acquisition/divestiture-related costs

      4       6       10       299       309       —         309  

Significant asset impairments and restructurings

      —         —         —         322       322       —         322  

(Gains) and losses on equity investments

      —         —         —         —         —         (57 )      (57 ) 

Income tax effect/significant tax matters (1)

      —         —         —         —         —         —         (274 ) 
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Non-GAAP amount

    $ 24,819     $ 8,660     $ 33,479     $ 16,763     $ 16,716     $ 295     $ 13,787  

Less: SPVSS business (2)

      (51 )      (9 )      (61 )      (60 )      —         —         —    
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Non-GAAP amount (excluding SPVSS business)

    $ 24,768     $ 8,651     $ 33,418     $ 16,703     $ 16,716     $ 295     $ 13,787  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

% of revenue

      63.7 %      67.2 %      64.6 %      32.3 %      32.3 %      0.6 %      26.6 % 

Amounts may not sum and percentages may not recalculate due to rounding.

 

(1) 

Includes a $0.9 billion charge related to the Tax Cuts and Jobs Act.

(2) 

Reflects three months of operations for the SPVSS business.

 

16

CISCO SYSTEMS, INC.

RECONCILIATIONS OF GAAP TO NON-GAAP MEASURES

EFFECTIVE TAX RATE

(In percentages)

 

     Three Months Ended     Fiscal Year Ended  
     July 25,
2020		     July 27,
2019		     July 25,
2020		     July 27,
2019		  

GAAP effective tax rate (1)

      20.3 %      40.4 %      19.7 %      20.2 % 

Total adjustments to GAAP provision for income taxes

      (3.6 )%      (21.6 )%      (0.5 )%      (1.2 )% 
  

 

 

    

 

 

    

 

 

    

 

 

  

Non-GAAP effective tax rate

      16.7 %      18.8 %      19.2 %      19.0 % 
  

 

 

    

 

 

    

 

 

    

 

 

  

 

(1) 

The three months and fiscal year ended July 27, 2019 includes a $0.9 billion charge related to the Tax Cuts and Jobs Act.

GAAP TO NON-GAAP GUIDANCE FOR Q1 FY 2021

 

Q1 FY 2021

   

Gross Margin

Rate

   

Operating Margin

Rate

    Tax Provision
Rate		   Earnings per
Share (2)

GAAP

    62% - 63%    18% - 19%    19%   $0.41 - $0.47  

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 costs

    1.5%    2.0%      $0.04 - $0.05  

Significant asset impairments and restructurings (1)

    —      6.5%      $0.13 - $0.15  

Income tax effect of non-GAAP adjustments

          —    
  

 

   

 

   

 

  

 

Non-GAAP

    64% - 65%    30% - 31%    19%   $0.69 - $0.71  
  

 

   

 

   

 

  

 

 

(1) 

In the first quarter of fiscal 2021, we initiated a restructuring plan, which includes a voluntary early retirement program, in order to realign the organization and enable further investment in key priority areas with estimated pretax charges of approximately $900 million consisting of severance and other one-time termination benefits, and other costs. We expect to recognize approximately $800 million of these charges in the first quarter of fiscal 2021 with the remaining amount to be recognized during the rest of the fiscal year.

(2) 

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

Except as noted above, this 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.

 

17

Forward Looking Statements, Non-GAAP Information and Additional Information

This release may be deemed to contain forward-looking statements, which are subject to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These forward-looking statements include, among other things, statements regarding future events (such as continued execution of our strategy to shift to revenue coming from software and services, the strength of our portfolio of software and services to continue to resonate with customers as they digitize their organizations, our ability to successfully rebalance our R&D investments to focus on new areas so that we can continue to offer customer relevant technology in simpler, consumable ways, our continued ability to deliver long term growth and shareholder value, and future responses to and effects of the COVID-19 pandemic) and the future financial performance of Cisco (including the guidance for Q1 FY 2021) 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 May 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 months and the year ended July 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.

 

18

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

Cisco (Nasdaq: CSCO) is the worldwide leader in technology that powers the Internet. Cisco inspires new possibilities by reimagining your applications, securing your data, transforming your infrastructure, and empowering your teams for a global and inclusive future. Discover more at newsroom.cisco.com and follow us on Twitter at @Cisco.

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