01—Abstract
Summary
Summary of the 10-K filed September 15, 2008. Cited figures are marked; the original filing is the authoritative source.
Cisco Systems closed fiscal 2008 (year ended July 26, 2008) with record results: net sales rose 13.2% to $39.5 billiona, net income increased 10% to $8.05 billion, and diluted EPS grew 12% to $1.31.
Growth was broad-based across all five geographic theaters and all customer markets, with Emerging Markets (+40%) and Asia Pacific (+17%) leading, while the United States and Canada grew 10% but slowed in the second half, particularly in U.S. service provider sales. Gross margin expanded to 64.5% from 64.0%, driven by lower manufacturing costs and higher volume, partly offset by price pressure, while operating expenses rose 17.5% on headcount growth, with R&D at $5.2 billionb. Advanced technologies (unified communications, video, security, wireless) grew 21% to $9.7 billion and now exceed routing as a share of product revenue.
Cash generation remained strong, with operating cash flow of $12.1 billionc and cash plus investments of $26.2 billion, though $24.4 billion of that is held offshore. Cisco repurchased 372 million shares for $10.4 billion and retained $8.4 billion of remaining buyback authorization. Backlog grew to $4.8 billion from $3.9 billion and deferred revenue rose to $8.9 billion, supporting visibility into future revenue.
Management flagged risks that bear on forward performance: uncertain U.S. market conditions that could spread internationally, a slowdown in capital spending by some service provider customers with possible broader weakness ahead, dependence on a few contract manufacturers and a single Juarez, Mexico facility, price-focused competition from Asia (especially China), and an open Brazilian import-tax investigation. The company also disclosed a $6.5 billiond senior note load, of which $6.0 billion principal is fixed rate and now exposed to interest-rate-driven fair value changes after swap terminations.
02—Key points
Key Highlights
- Record fiscal 2008: net sales of $39.5 billion (+13.2%), net income of $8.05 billion (+10%), and diluted EPS of $1.31 (+12%).
- Gross margin improved to 64.5% from 64.0%, driven by lower manufacturing costs and higher shipment volume, partly offset by sales discounts and pricing pressure.
- Advanced technologies grew 21% to $9.7 billion and now represent a larger share of product sales than routing, led by unified communications and video systems.
- Emerging Markets revenue rose 40% to $4.5 billion and Asia Pacific rose 17%, while U.S. and Canada grew 10% but slowed in the second half, especially in U.S. service provider sales.
- Operating cash flow was $12.1 billion; cash and investments totaled $26.2 billion, of which $24.4 billion was held outside the United States.
- Repurchased 372 million shares for $10.4 billion; $8.4 billion remained under the $62 billion buyback authorization.
- Backlog increased to $4.8 billion from $3.9 billion, and deferred revenue rose to $8.9 billion, supporting revenue visibility.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2008, Cisco Systems, Inc. kept $0.20.
- Revenue$39.54B100.0%
- Cost of revenue−$14.19B35.9%
- Gross profit$25.35B64.1%
- Operating costs−$15.90B40.2%
- Operating income$9.44B23.9%
- Interest, other & tax−$1.39B3.5%
- Net income$8.05B20.4%
Where FY2008 revenue went
$39.54B- Operating costs: $15.90B, 40% of revenue
- Cost of revenue: $14.19B, 36% of revenue
- Net income: $8.05B, 20% of revenue
- Interest, other & tax: $1.39B, 3.5% of revenue
Kept 20% as net income
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2008filed September 15, 2008Financial Statements
| Revenue | $39.54B |
| Cost of Revenue | $14.19B |
| Gross Profit | $25.35B |
| Operating Expenses | $15.90B |
| Operating Income | $9.44B |
| Interest Expense | $319.00M |
| Net Income | $8.05B |
| EPS (Basic) | $1.35 |
| EPS (Diluted) | $1.31 |
| Shares Outstanding (Basic) | 5.99B |
| Shares Outstanding (Diluted) | 6.16B |
05—Questions
Frequently Asked Questions
How did Cisco's revenue and profitability trend in fiscal 2008?
Net sales grew 13.2% to $39.5 billion, with product sales up 12.3% and service revenue up 18.0%. Net income rose 10% to $8.05 billion and diluted EPS rose 12% to $1.31. Operating income increased to $9.44 billion from $8.62 billion, and the effective tax rate fell to 21.5% from 22.5%.
What are the main risks management highlighted for future periods?
Management cited uncertain U.S. market conditions that could spread to other geographies, a slowdown in capital spending by some service providers with possible broader weakness ahead, price competition from Asian rivals particularly in China, reliance on contract manufacturers and a key Juarez, Mexico facility, and a Brazilian investigation into import-tax evasion. It also noted that rising operating expenses are relatively fixed, so revenue shortfalls could hurt margins.
How is Cisco's balance sheet and debt position?
Cash, cash equivalents, and investments totaled $26.2 billion against $6.9 billion of total debt, including $6.5 billion of senior notes due 2009, 2011, and 2016. Terminating $6.0 billion of interest rate swaps left fixed-rate debt exposed to market rate changes, and the company also has an undrawn $3.0 billion revolving credit facility. Total assets were $58.7 billion and shareholders' equity was $34.4 billion.
What is Cisco doing with its excess cash?
In fiscal 2008 Cisco repurchased 372 million shares for $10.4 billion at an average price of $27.80, and it has never paid cash dividends. It also invested in acquisitions, spending $398 million on businesses in fiscal 2008, including Navini Networks and Securent, and capital expenditures of $1.3 billion.
Are there any notable legal or regulatory matters?
A Telcordia patent case produced a jury verdict in 2007 with damages the company describes as not material, and Cisco is seeking to overturn it. Brazilian authorities are investigating employees of its Brazilian subsidiary and an importer over alleged import-tax evasion, and Cisco has reported the matter to U.S. authorities. Cisco has not been asserted a claim by Brazil and cannot estimate potential loss.
06—Continue