Cisco Systems Reports Second Quarter Earnings

Business Wire, Feb 3, 2004

Business Editors

SAN JOSE, Calif.--(BUSINESS WIRE)--Feb. 3, 2004

Cisco Systems, Inc. (Nasdaq:CSCO):

-- Q2 Net Sales: $5.4 Billion (14.5% increase year over year;

5.8% increase quarter over quarter)

-- Q2 Operating Cash Flows: $1.7 Billion

-- Q2 Earnings Per Share: $0.18 GAAP before accounting change;

$0.10 GAAP after accounting change

Cisco Systems, Inc., the worldwide leader in networking for the Internet, today reported its second quarter results for the period ended January 24, 2004.

Net sales for the second quarter of fiscal 2004 were $5.4 billion, compared with $4.7 billion for the second quarter of fiscal 2003, an increase of 14.5 percent, and compared with $5.1 billion for the first quarter of fiscal 2004, an increase of 5.8 percent.

Net income for the second quarter of fiscal 2004, on a generally accepted accounting principles (GAAP) basis, before the non-cash cumulative effect of an accounting change, was $1.3 billion or $0.18 per share, compared with $991 million or $0.14 per share for the second quarter of fiscal 2003, and compared with $1.1 billion or $0.15 per share for the first quarter of fiscal 2004. Net income on a GAAP basis, after the non-cash cumulative effect of the accounting change, was $724 million or $0.10 per share. Pro forma net income for the second quarter of fiscal 2004 was $1.3 billion or $0.18 per share, compared with $1.1 billion or $0.15 per share for the second quarter of fiscal 2003, and compared with $1.2 billion or $0.17 per share for the first quarter of fiscal 2004. A reconciliation between net income on a GAAP basis and pro forma net income is provided in a table immediately following the Pro Forma Consolidated Statements of Operations.

Net sales for the first six months of fiscal 2004 were $10.5 billion, compared with $9.6 billion for the first six months of fiscal 2003, an increase of 9.8 percent.

Net income for the first six months of fiscal 2004, on a GAAP basis, before the non-cash cumulative effect of the accounting change, was $2.4 billion or $0.33 per share, compared with $1.6 billion or $0.22 per share for the first six months of fiscal 2003. Net income for the first six months of fiscal 2004, on a GAAP basis, after the non-cash cumulative effect of the accounting change, was $1.8 billion or $0.25 per share. Pro forma net income for the first six months of fiscal 2004 was $2.5 billion or $0.35 per share, compared with $2.1 billion or $0.29 per share for the first six months of fiscal 2003.

During the second quarter of fiscal 2004, Cisco(R) completed the acquisition of Latitude Communications, Inc. for a purchase price of approximately $86 million.

"Having just met with business and government leaders from around the world at the World Economic Forum, it is becoming increasingly clear that the global economy is improving," said John Chambers, president and CEO, Cisco Systems. "As customers feel more confident to invest, we believe that we are well positioned to provide compelling value as a strategic business adviser and technology partner. Our strong position in the core switching and routing business continues to be complemented by positive momentum in our Advanced Technologies, especially this quarter in storage, security, wireless and IP telephony. The company is also gaining significant momentum in the consumer space, driven by innovative products delivered by the Linksys division."

Cisco will discuss second quarter 2004 results and business outlook on a conference call and Webcast at 1:30 p.m. Pacific Time (PT) today. Call information and related charts are available at http://investor.cisco.com.

Financial Highlights

-- Cash flows from operations were $1.7 billion for the second

quarter of fiscal 2004, compared with $1.4 billion for the

second quarter of fiscal 2003, and compared with $1.0 billion

for the first quarter of fiscal 2004.

-- Cash and cash equivalents and total investments were $19.8

billion at the end of the second quarter of fiscal 2004,

compared with $20.7 billion at the end of the fourth quarter

of fiscal 2003, and compared with $19.7 billion at the end of

the first quarter of fiscal 2004.

-- During the second quarter of fiscal 2004, Cisco repurchased 85

million shares of common stock for an aggregate purchase price

of $2.0 billion.

-- Days sales outstanding (DSO) in accounts receivable at the end

of the second quarter of fiscal 2004 were 34 days, compared

with 26 days at the end of the fourth quarter of fiscal 2003,

and compared with 25 days at the end of the first quarter of

fiscal 2004.

-- Inventory turns were 7.5 in the second quarter of fiscal 2004,

compared with 6.8 in the fourth quarter of fiscal 2003, and

compared with 7.3 in the first quarter of fiscal 2004.

-- Cisco adopted an accounting change effective January 24, 2004

due to the implementation of Financial Accounting Standards

Board Interpretation No. 46 (R). As a result, Cisco

consolidated Andiamo Systems, Inc. and recorded a non-cash