Form 8-K CISCO SYSTEMS, INC. For: Nov 12

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

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FORM 8-K

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CURRENT REPORT

Pursuant to Section�13 or 15(d)

of the Securities Exchange Act of 1934

Date of report (Date of earliest event reported): November�12, 2014

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CISCO SYSTEMS, INC.

(Exact name of registrant as specified in its charter)

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California

(State or other jurisdiction of incorporation)

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

(408) 526-4000

(Registrant�s telephone number, including area code)

Not Applicable

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

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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):

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

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

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

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

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Item�2.02.

Results of Operations and Financial Condition.

On November�12, 2014, Cisco Systems, Inc. (the �Registrant�) reported its results of operations for its fiscal first quarter 2015 ended October�25, 2014. A copy of the press release issued by the Registrant concerning the foregoing results is furnished herewith as Exhibit�99.1.

The information contained herein and in the accompanying exhibits shall not be incorporated by reference into any filing of the Registrant, 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 exhibits 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 exhibits include non-GAAP net income, non-GAAP effective tax rates, non-GAAP net income per share data, non-GAAP inventory turns, and free cash flow.

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. The Registrant believes that non-GAAP measures have limitations in that they do not reflect all of the amounts associated with the Registrant�s results of operations as determined in accordance with GAAP and that these measures should only be used to evaluate the Registrant�s results of operations in conjunction with the corresponding GAAP measures.

The Registrant believes that the presentation of non-GAAP net income, non-GAAP effective tax rates, and non-GAAP net income per share data 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 results of operations. In addition, the Registrant believes that the presentation of non-GAAP inventory turns provides useful information to investors and management regarding financial and business trends relating to inventory management based on the operating activities of the periods presented. The Registrant believes that the presentation of free cash flow, which it defines as the net cash provided by operating activities less cash used to acquire property and equipment, to be a liquidity measure that provides useful information to management and investors because of the Registrant�s intent to return a stated percentage of free cash flow to shareholders in the form of dividends and stock repurchases. The Registrant further regards free cash flow as a useful measure because it reflects cash that can be used to, among other things, invest in its business, make strategic acquisitions, repurchase common stock, and pay dividends on its common stock, after deducting capital investments.

For its internal budgeting process, the Registrant�s management uses financial statements that do not include, when applicable, share-based compensation expense, amortization of acquisition-related intangible assets, impact to cost of sales from purchase accounting adjustments to inventory, acquisition-related/divestiture costs, significant asset impairments and restructurings, significant litigation and other contingencies, the income tax effects of the foregoing, and significant tax matters. The Registrant�s management also uses the foregoing non-GAAP measures, in addition to the corresponding GAAP measures, in reviewing the financial results of the Registrant. In prior periods, the Registrant 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 the Registrant may exclude for purposes of its internal budgeting process and in reviewing its financial results.

As described above, the Registrant 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. The Registrant excludes share-based compensation expense from its non-GAAP measures primarily because they are non-cash expenses that the Registrant does not believe are reflective of ongoing operating results. Further, the Registrant 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. The Registrant incurs amortization of intangible assets (which may include impairment charges from the write-downs of purchased intangible assets) in connection with acquisitions. The Registrant excludes these items because the Registrant does not believe these expenses are reflective of ongoing operating results in the period incurred. These amounts arise from the Registrant�s prior acquisitions and have no direct correlation to the operation of the Registrant�s business.

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Impact to cost of sales from purchase accounting adjustments to inventory. This represents the amount of increase in inventory valuation resulting from the fair value adjustments required under purchase accounting for business combinations. These amounts arise from the Registrant�s prior acquisitions and have no direct correlation to the operation of the Registrant�s business.

Acquisition-related/divestiture costs. In connection with its business combinations, the Registrant 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 the Registrant enters into foreign currency transactions related to pending acquisitions, and may incur gains or losses on such transactions. The Registrant 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. The Registrant 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 the Registrant�s business.

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

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

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

Significant tax matters. The Registrant may incur tax charges or benefits in the current period that relate to one or more prior fiscal years as a result of events such as changes in tax legislation, court decisions, and/or tax settlements. The Registrant 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 the Registrant may exclude if it believes that doing so is consistent with the goal of providing useful information to investors and management.

The Registrant will incur share-based compensation expense, amortization of acquisition-related intangible assets, impacts to cost of sales from purchase accounting adjustments to inventory, and acquisition-related costs, in future periods. Significant asset impairments, restructurings, significant litigation and other contingencies, and divestiture costs could occur in future periods. The Registrant could also be impacted by significant tax matters in future periods.

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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.

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�	�	�	�	�	�	CISCO SYSTEMS, INC.
Dated: November 12, 2014	�		�	By:	�	/s/ Frank A. Calderoni
	�		�	Name:	�	Frank A. Calderoni
	�		�	Title:	�	Executive Vice President and Chief Financial Officer

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EXHIBIT INDEX

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Exhibit�Number	��	Description of Document
99.1	��	Press Release of Registrant, dated November�12, 2014, reporting the results of operations for the Registrant�s fiscal first quarter ended October�25, 2014.

Exhibit 99.1

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Press Contact:	�		��	Investor Relations Contact:
Robyn Jenkins-Blum	�		��	Marilyn Mora
Cisco	�		��	Cisco
1 (408) 853-9848	�		��	1 (408) 527-7452
[email protected]	�		��	[email protected]

CISCO REPORTS FIRST QUARTER EARNINGS

Return to Growth, Strongest Q1 Revenue in History

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Q1 Revenue: $12.2 billion (increase of 1% year over year)

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Q1 Earnings per Share: $0.35 GAAP; $0.54 non-GAAP

SAN JOSE, Calif. � November�12, 2014 � Cisco, the worldwide leader in networking that transforms how people connect, communicate and collaborate, today reported its first quarter results for the period ended October�25, 2014. Cisco reported first quarter revenue of $12.2 billion, net income on a generally accepted accounting principles (GAAP) basis of $1.8 billion or $0.35 per share, and non-GAAP net income of $2.8 billion or $0.54 per share.

�We are pleased with our results and are very comfortable in our strategy to deliver innovative solutions which enable the next generation of IT and the Internet of Everything. This was our strongest Q1 ever in terms of revenue, non-GAAP operating income, and non-GAAP EPS,� stated Cisco chairman and CEO John Chambers. �We continue to make progress towards becoming the #1 IT company in the world. We are still in a tough environment, but seeing encouraging trends as cities, businesses, governments and schools are becoming more digitized. Our solutions continue to drive positive outcomes and enable productivity through the combination of collaboration, mobility, security and efficiency across our customers� businesses.�

GAAP Results

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Q1�2015

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Q1�2014

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Vs.�Q1�2014

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Revenue

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$

12.2�billion

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$

12.1�billion

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1.3

%�

Net Income

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$

1.8�billion

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$

2.0�billion

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(8.4

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Earnings per Share

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$

0.35

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$

0.37

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(5.4

)%�

Non-GAAP Results

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Q1 2015

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Q1 2014

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Vs.�Q1�2014

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Net Income

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$

2.8�billion

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$

2.9�billion

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(2.3

)%�

Earnings per Share

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$

0.54

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$

0.53

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1.9

%�

A reconciliation between net income on a GAAP basis and non-GAAP net income is provided in the table following the Consolidated Statements of Operations.

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

CFO Transition

Frank Calderoni recently notified Cisco of his decision to step down as executive vice president and chief financial officer of Cisco, effective January 1, 2015. Cisco plans to appoint Kelly A. Kramer to succeed Mr. Calderoni. She is currently senior vice president, Business Technology and Operations Finance of Cisco.

Cash and Cash Equivalents and Investments

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Cash flows from operations were $2.5 billion for the first quarter of fiscal 2015, compared with $3.6 billion for the fourth quarter of fiscal 2014, and compared with $2.6 billion for the first quarter of fiscal 2014.

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Cash and cash equivalents and investments were $52.1 billion at the end of the first quarter of fiscal 2015, compared with $52.1 billion at the end of the fourth quarter of fiscal 2014, and compared with $48.2 billion at the end of the first quarter of fiscal 2014.

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Dividends and Stock Repurchase Program

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During the first quarter of fiscal 2015, Cisco paid a cash dividend of $0.19 per common share, or $973 million.

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Cisco repurchased approximately 41�million shares of common stock under the stock repurchase program at an average price of $24.58 per share for an aggregate purchase price of $1.0 billion during the first quarter of fiscal 2015. As of October�25, 2014, Cisco had repurchased and retired 4.3 billion shares of Cisco common stock at an average price of $20.66 per share for an aggregate purchase price of approximately $89.5 billion since the inception of the stock repurchase program. The remaining authorized amount for stock repurchases under this program is approximately $7.5 billion with no termination date.

�We had a solid quarter delivering�results for Q1 consistent with our�expectations,� stated Frank Calderoni, Cisco executive vice president and chief financial officer. �Our strong cash flow, balance sheet, and ongoing commitment to return capital to shareholders demonstrates the strength of our strategy.�

Internet of Everything

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Cisco unveiled new Cisco� Connected Transportation Solutions designed to offer a safer and more productive commuter experience via the Internet of Everything (IoE).

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Cisco and the City of Berlin announced an IoE Innovation Center, to be located in Berlin, which will focus on manufacturing, transport and logistics.

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Marking the next phase of its expansion in India, Cisco unveiled the �Cisco Smart City� as a blueprint for the future of smart and connected communities in India.

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Cisco announced new Connected Safety and Security solutions that add intelligence and analytics from the core to the edge to help protect cities and businesses.

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Cisco outlined an expansion of its fog computing strategy with the second phase of its IOx platform for industrial scale Internet of Things (IoT) deployments.

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Addressing the growing demand for IoE skills, the Cisco Networking Academy announced the first global IoE curriculum.

Fast IT

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Cisco broadened its storage networking portfolio to address the massive data growth across small-to cloud-scale storage networks.

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Cisco introduced innovations to its Unified Computing System� business, delivering a broader and more powerful portfolio of technologies to help customers capitalize on rapidly changing landscapes in business and IT.

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Cisco introduced ASA with FirePOWER � the industry�s first threat-focused next-generation firewall.

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Cisco announced that it has added the support of more than 30 additional companies to its Intercloud ecosystem, expanding the reach of the global Intercloud by 250 additional data centers in 50 countries.

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Cisco announced that Shell has deployed the Cisco Secure Ops Solution to increase security maturity level by improving its cyber security and risk management while lowering costs of delivery and operations.

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Cisco expanded its Videoscape� Virtualized Video Processing solution, the industry�s first fully orchestrated and virtualized solution, to enable faster, cost-effective scaling for multi-screen video workers.

Innovation

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Cisco and Red Hat announced a new integrated infrastructure solution for OpenStack-based cloud deployments.

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Cisco completed the acquisition of Metacloud, Inc. Metacloud�s OpenStack-based cloud platform is expected to help accelerate Cisco�s strategy to build the world�s largest global Intercloud.

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Cisco completed the acquisition of Memoir Systems enabling the proliferation of affordable, fast memory for existing Cisco switch ASICs and helping advance Cisco�s ASIC innovations necessary to meet next-generation IT requirements.

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Editor�s Notes:

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Q1 fiscal year 2015 conference call to discuss Cisco�s results along with its business outlook will be held on Wednesday, November�12, 2014 at 1:30 p.m. Pacific Time. Conference call number is 1-888-848-6507 (United States) or 1-212-519-0847 (international).

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Conference call replay will be available from 4:00 p.m. Pacific Time, November�12, 2014 to 11:59 p.m. Pacific Time, on November�19, 2014 at 1-800-835-3804 (United States) or 1-402-280-1654 (international). The replay will also be available via webcast from November�12, 2014 through January�16, 2015 on the Cisco Investor Relations website at http://investor.cisco.com.

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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, November�12, 2014. 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 GAAP reconciliation information, will be available on the Cisco Investor Relations website at http://investor.cisco.com.

About Cisco

Cisco (NASDAQ: CSCO) is the worldwide leader in IT that helps companies seize the opportunities of tomorrow by proving that amazing things can happen when you connect the previously unconnected. For ongoing news, please go to http://thenetwork.cisco.com.

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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 our strategy, our goal to become the #1 IT company, return of capital to shareholders and the ability of our solutions to drive positive outcomes and enable productivity in our customers� businesses) and the future financial performance of Cisco that involve risks and uncertainties. Readers are cautioned that these forward-looking statements are only predictions and may differ materially from actual future events or results due to a variety of factors, including: business and economic conditions and growth trends in the networking industry, our customer markets and various geographic regions; global economic conditions and uncertainties in the geopolitical environment; overall information technology spending; the growth and evolution of the Internet and levels of capital spending on Internet-based systems; variations in customer demand for products and services, including sales to the service provider market and other customer markets; the return on our investments in certain priorities, including our foundational priorities, and in certain geographical locations; 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; 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; natural catastrophic events; a pandemic or epidemic; our ability to achieve the benefits anticipated from our investments in sales, engineering, service, marketing and manufacturing activities; our ability to recruit and retain key personnel; our ability to manage financial risk, and to manage expenses during economic downturns; risks related to the global nature of our operations, including our operations in emerging markets; currency fluctuations and other international factors; changes in provision for income taxes, including changes in tax laws and regulations or adverse outcomes resulting from examinations of our income tax returns; potential volatility in operating results; and other factors listed in Cisco�s most recent report on Form 10-K filed on September�9, 2014. 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 report on Form 10-K as it may be amended from time to time. Cisco�s results of operations for the three months ended October�25, 2014 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 effective tax rates, non-GAAP net income per share data, non-GAAP inventory turns and free cash flow.

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-

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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 net income, non-GAAP effective tax rates, and non-GAAP net income per share data, 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 results of operations. In addition, Cisco believes that the presentation of non-GAAP inventory turns provides useful information to investors and management regarding financial and business trends relating to inventory management based on the operating activities of the periods presented. Cisco believes that the presentation of free cash flow, which it defines as the net cash provided by operating activities less cash used to acquire property and equipment, to be a liquidity measure that provides useful information to management and investors because of its intent to return a stated percentage of free cash flow to shareholders in the form of dividends and stock repurchases. Cisco further regards free cash flow as a useful measure because it reflects cash that can be used to, among other things, invest in its business, make strategic acquisitions, repurchase common stock, and pay dividends on its common stock, after deducting capital investments.

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, impact to cost of sales from purchase accounting adjustments to inventory, acquisition-related/divestiture costs, significant asset impairments and restructurings, significant litigation and other contingencies, 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.

Copyright ^� 2014 Cisco and/or its affiliates. All rights reserved. Cisco, the Cisco logo, Unified Computing System, and Videoscape are trademarks or registered trademarks of Cisco and/or its affiliates in the U.S. and other countries. To view a list of Cisco trademarks, go to: www.cisco.com/go/trademarks. Third-party trademarks mentioned in this document are the property of their respective owners. The use of the word partner does not imply a partnership relationship between Cisco and any other company. This document is Cisco Public Information.

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CONSOLIDATED STATEMENTS OF OPERATIONS

(In millions, except per-share amounts)

(Unaudited)

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�	��	Three Months Ended						�
�	��	October�25, 2014		�	�	October�26, 2013		�
REVENUE:	��
Product	��	$	9,435	��	�	$	9,397	��
Service	��	�	2,810	��	�	�	2,688	��
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Total revenue	��	�	12,245	��	�	�	12,085	��
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COST OF SALES:	��
Product	��	�	3,919	��	�	�	3,747	��
Service	��	�	993	��	�	�	931	��
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Total cost of sales	��	�	4,912	��	�	�	4,678	��
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GROSS MARGIN	��	�	7,333	��	�	�	7,407	��
OPERATING EXPENSES:	��
Research and development	��	�	1,583	��	�	�	1,724	��
Sales and marketing	��	�	2,515	��	�	�	2,411	��
General and administrative	��	�	504	��	�	�	515	��
Amortization of purchased intangible assets	��	�	71	��	�	�	65	��
Restructuring and other charges	��	�	318	��	�	�	237	��
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Total operating expenses	��	�	4,991	��	�	�	4,952	��
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OPERATING INCOME	��	�	2,342	��	�	�	2,455	��
Interest income	��	�	179	��	�	�	169	��
Interest expense	��	�	(139	)�	�	�	(140	)�
Other income (loss), net	��	�	(22	)�	�	�	56	��
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Interest and other income (loss), net	��	�	18	��	�	�	85	��
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INCOME BEFORE PROVISION FOR INCOME TAXES	��	�	2,360	��	�	�	2,540	��
Provision for income taxes	��	�	532	��	�	�	544	��
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NET INCOME	��	$	1,828	��	�	$	1,996	��
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Net income per share:	��
Basic	��	$	0.36	��	�	$	0.37	��
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Diluted	��	$	0.35	��	�	$	0.37	��
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Shares used in per-share calculation:	��
Basic	��	�	5,112	��	�	�	5,378	��
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Diluted	��	�	5,156	��	�	�	5,430	��
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Cash dividends declared per common share	��	$	0.19	��	�	$	0.17	��
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RECONCILIATION OF GAAP TO NON-GAAP NET INCOME

(In millions, except per-share amounts)

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�	��	Three Months Ended						�
�	��	October�25, 2014		�	�	October�26, 2013		�
GAAP net income	��	$	1,828	��	�	$	1,996	��
Adjustments to cost of sales:	��
Share-based compensation expense	��	�	48	��	�	�	43	��
Amortization of acquisition-related intangible assets	��	�	181	��	�	�	167	��
Patent portfolio charge	��	�	188	��	�	�	���	��
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Total adjustments to GAAP cost of sales	��	�	417	��	�	�	210	��
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Adjustments to operating expenses:	��
Share-based compensation expense	��	�	325	��	�	�	269	��
Amortization of acquisition-related intangible assets	��	�	71	��	�	�	65	��
Acquisition-related/divestiture costs	��	�	101	��	�	�	308	��
Significant asset impairments and restructurings	��	�	318	��	�	�	237	��
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Total adjustments to GAAP operating expenses	��	�	815	��	�	�	879	��
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Total adjustments to GAAP income before provision for income taxes	��	�	1,232	��	�	�	1,089	��
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Income tax effect of non-GAAP adjustments	��	�	(258	)�	�	�	(218	)�
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Non-GAAP net income	��	$	2,802	��	�	$	2,867	��
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Diluted net income per share:	��
GAAP	��	$	0.35	��	�	$	0.37	��
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Non-GAAP	��	$	0.54	��	�	$	0.53	��
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RECONCILIATION OF GAAP TO NON-GAAP EFFECTIVE TAX RATE

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�	��	Three Months Ended						�
�	��	October�25, 2014		�	�	October�26, 2013		�
GAAP effective tax rate	��	�	22.5	%�	�	�	21.4	%�
Tax effect of non-GAAP adjustments to net income	��	�	(0.5	)%�	�	�	(0.4	)%�
	��	�	�	�	�	�	�	�
Non-GAAP effective tax rate	��	�	22.0	%�	�	�	21.0	%�
	��	�	�	�	�	�	�	�

�

6

---

CONDENSED CONSOLIDATED BALANCE SHEETS

(In millions)

(Unaudited)

�

�	��	October�25, 2014		�	��	July�26, 2014		�
ASSETS	��
Current assets:	��
Cash and cash equivalents	��	$	4,387	��	��	$	6,726	��
Investments	��	�	47,720	��	��	�	45,348	��
Accounts receivable, net of allowance for doubtful accounts of $276 at October�25, 2014 and $265 at�July�26, 2014	��	�	4,375	��	��	�	5,157	��
Inventories	��	�	1,676	��	��	�	1,591	��
Financing receivables, net	��	�	4,265	��	��	�	4,153	��
Deferred tax assets	��	�	2,689	��	��	�	2,808	��
Other current assets	��	�	1,284	��	��	�	1,331	��
	��	�	�	�	��	�	�	�
Total current assets	��	�	66,396	��	��	�	67,114	��
Property and equipment, net	��	�	3,233	��	��	�	3,252	��
Financing receivables, net	��	�	3,691	��	��	�	3,918	��
Goodwill	��	�	24,364	��	��	�	24,239	��
Purchased intangible assets, net	��	�	3,066	��	��	�	3,280	��
Other assets	��	�	3,228	��	��	�	3,331	��
	��	�	�	�	��	�	�	�
TOTAL ASSETS	��	$	103,978	��	��	$	105,134	��
	��	�	�	�	��	�	�	�
LIABILITIES AND EQUITY	��
Current liabilities:	��
Short-term debt	��	$	1,357	��	��	$	508	��
Accounts payable	��	�	1,022	��	��	�	1,032	��
Income taxes payable	��	�	94	��	��	�	159	��
Accrued compensation	��	�	2,638	��	��	�	3,181	��
Deferred revenue	��	�	9,449	��	��	�	9,478	��
Other current liabilities	��	�	5,496	��	��	�	5,451	��
	��	�	�	�	��	�	�	�
Total current liabilities	��	�	20,056	��	��	�	19,809	��
Long-term debt	��	�	19,615	��	��	�	20,401	��
Income taxes payable	��	�	1,504	��	��	�	1,851	��
Deferred revenue	��	�	4,295	��	��	�	4,664	��
Other long-term liabilities	��	�	1,793	��	��	�	1,748	��
	��	�	�	�	��	�	�	�
Total liabilities	��	�	47,263	��	��	�	48,473	��
Total equity	��	�	56,715	��	��	�	56,661	��
	��	�	�	�	��	�	�	�
TOTAL LIABILITIES AND EQUITY	��	$	103,978	��	��	$	105,134	��
	��	�	�	�	��	�	�	�

�

7

---

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In millions)

(Unaudited)

�

�	��	Three Months Ended						�
�	��	October�25, 2014		�	�	October�26, 2013		�
Cash flows from operating activities:	��
Net income	��	$	1,828	��	�	$	1,996	��
Adjustments to reconcile net income to net cash provided by operating activities:	��
Depreciation, amortization, and other	��	�	596	��	�	�	591	��
Share-based compensation expense	��	�	369	��	�	�	309	��
Provision for receivables	��	�	43	��	�	�	23	��
Deferred income taxes	��	�	236	��	�	�	130	��
Excess tax benefits from share-based compensation	��	�	(71	)�	�	�	(55	)�
(Gains) losses on investments and other, net	��	�	29	��	�	�	(108	)�
Change in operating assets and liabilities, net of effects of acquisitions and divestitures:	��
Accounts receivable	��	�	723	��	�	�	361	��
Inventories	��	�	(107	)�	�	�	22	��
Financing receivables	��	�	(2	)�	�	�	(37	)�
Other assets	��	�	5	��	�	�	28	��
Accounts payable	��	�	(5	)�	�	�	(29	)�
Income taxes, net	��	�	(398	)�	�	�	(389	)�
Accrued compensation	��	�	(495	)�	�	�	(460	)�
Deferred revenue	��	�	(328	)�	�	�	(307	)�
Other liabilities	��	�	68	��	�	�	574	��
	��	�	�	�	�	�	�	�
Net cash provided by operating activities	��	�	2,491	��	�	�	2,649	��
	��	�	�	�	�	�	�	�
Cash flows from investing activities:	��
Purchases of investments	��	�	(9,761	)�	�	�	(8,835	)�
Proceeds from sales of investments	��	�	3,450	��	�	�	4,733	��
Proceeds from maturities of investments	��	�	3,906	��	�	�	4,058	��
Acquisition of businesses, net of cash and cash equivalents acquired	��	�	(184	)�	�	�	(2,447	)�
Purchases of investments in privately held companies	��	�	(50	)�	�	�	(134	)�
Return of investments in privately held companies	��	�	42	��	�	�	33	��
Acquisition of property and equipment	��	�	(285	)�	�	�	(315	)�
Proceeds from sales of property and equipment	��	�	3	��	�	�	156	��
Other	��	�	2	��	�	�	(4	)�
	��	�	�	�	�	�	�	�
Net cash used in investing activities	��	�	(2,877	)�	�	�	(2,755	)�
	��	�	�	�	�	�	�	�
Cash flows from financing activities:	��
Issuances of common stock	��	�	353	��	�	�	444	��
Repurchases of common stock - repurchase program	��	�	(1,088	)�	�	�	(1,898	)�
Shares repurchased for tax withholdings on vesting of restricted stock units	��	�	(342	)�	�	�	(286	)�
Short-term borrowings, original maturities less than 90 days, net	��	�	(4	)�	�	�	(2	)�
Issuances of debt	��	�	���	��	�	�	4	��
Repayments of debt	��	�	(3	)�	�	�	���	��
Excess tax benefits from share-based compensation	��	�	71	��	�	�	55	��
Dividends paid	��	�	(973	)�	�	�	(914	)�
Other	��	�	33	��	�	�	32	��
	��	�	�	�	�	�	�	�
Net cash used in financing activities	��	�	(1,953	)�	�	�	(2,565	)�
	��	�	�	�	�	�	�	�
Net decrease in cash and cash equivalents	��	�	(2,339	)�	�	�	(2,671	)�
Cash and cash equivalents, beginning of period	��	�	6,726	��	�	�	7,925	��
	��	�	�	�	�	�	�	�
Cash and cash equivalents, end of period	��	$	4,387	��	�	$	5,254	��
	��	�	�	�	�	�	�	�
Supplemental cash flow information:	��
Cash paid for interest	��	$	263	��	�	$	221	��
Cash paid for income taxes, net	��	$	694	��	�	$	803	��

�

8

---

CASH AND CASH EQUIVALENTS AND INVESTMENTS

(In millions)

�

�	��	October�25, 2014		�	��	July�26, 2014		�
Cash and cash equivalents and investments:	��
Cash and cash equivalents	��	$	4,387	��	��	$	6,726	��
Fixed income securities	��	�	45,923	��	��	�	43,396	��
Publicly traded equity securities	��	�	1,797	��	��	�	1,952	��
	��	�	�	�	��	�	�	�
Total	��	$	52,107	��	��	$	52,074	��
	��	�	�	�	��	�	�	�

RECONCILIATION OF NET CASH PROVIDED BY OPERATING ACTIVITIES

TO FREE CASH FLOW (NON-GAAP)

(In millions)

�

�

��

Three Months Ended

�

�

��

October�25, 2014

�

�

July�26, 2014

�

�

October�26, 2013

�

Net cash provided by operating activities

��

$

2,491

��

�

$

3,612

��

�

$

2,649

��

Acquisition of property and equipment

��

�

(285

)�

�

�

(325

)�

�

�

(315

)�

��

�

�

�

�

�

�

�

�

�

�

�

Free cash flow

��

$

2,206

��

�

$

3,287

��

�

$

2,334

��

��

�

�

�

�

�

�

�

�

�

�

�

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 2015

��

��

��

October�25, 2014

��

$

0.19

��

��

$

973

��

��

�

41

��

��

$

24.58

��

��

$

1,013

��

��

$

1,986

��

Fiscal 2014

��

��

��

July�26, 2014

��

$

0.19

��

��

$

974

��

��

�

61

��

��

$

25.11

��

��

$

1,514

��

��

$

2,488

��

April�26, 2014

��

�

0.19

��

��

�

974

��

��

�

90

��

��

$

22.24

��

��

�

2,005

��

��

�

2,979

��

January�25, 2014

��

�

0.17

��

��

�

896

��

��

�

185

��

��

$

21.73

��

��

�

4,020

��

��

�

4,916

��

October�26, 2013

��

�

0.17

��

��

�

914

��

��

�

84

��

��

$

23.65

��

��

�

2,000

��

��

�

2,914

��

��

�

�

�

��

�

�

�

��

�

�

�

��

��

�

�

�

��

�

�

�

Total

��

$

0.72

��

��

$

3,758

��

��

�

420

��

��

$

22.71

��

��

$

9,539

��

��

$

13,297

��

��

�

�

�

��

�

�

�

��

�

�

�

��

��

�

�

�

��

�

�

�

ACCOUNTS RECEIVABLE AND DSO

(In millions, except DSO)

�

�

��

October�25, 2014

�

��

July�26, 2014

�

��

October�26, 2013

�

Accounts receivable, net

��

$

4,375

��

��

$

5,157

��

��

$

5,188

��

Days sales outstanding in accounts receivable (DSO)

��

�

33

��

��

�

38

��

��

�

39

��

�

9

---

INVENTORIES

(In millions)

�

�

��

October�25, 2014

�

��

July�26, 2014

�

��

October�26, 2013

�

Inventories:

��

Raw materials

��

$

173

��

��

$

77

��

��

$

80

��

Work in process

��

�

3

��

��

�

5

��

��

�

7

��

Finished goods:

��

Distributor inventory and deferred cost of sales

��

�

654

��

��

�

595

��

��

�

619

��

Manufactured finished goods

��

�

535

��

��

�

606

��

��

�

464

��

��

�

�

�

��

�

�

�

��

�

�

�

Total finished goods

��

�

1,189

��

��

�

1,201

��

��

�

1,083

��

Service-related spares

��

�

275

��

��

�

273

��

��

�

257

��

Demonstration systems

��

�

36

��

��

�

35

��

��

�

39

��

��

�

�

�

��

�

�

�

��

�

�

�

Total

��

$

1,676

��

��

$

1,591

��

��

$

1,466

��

��

�

�

�

��

�

�

�

��

�

�

�

INVENTORY TURNS AND RECONCILIATION OF GAAP TO NON-GAAP

COST OF SALES USED IN INVENTORY TURNS

(In millions, except annualized inventory turns)

�

�

��

Three Months Ended

�

�

��

October�25, 2014

�

�

July�26, 2014

�

�

October�26, 2013

�

Annualized inventory turns - GAAP

��

�

12.0

��

�

�

12.7

��

�

�

12.7

��

Cost of sales adjustments

��

�

(1.0

)�

�

�

(0.6

)�

�

�

(0.6

)�

��

�

�

�

�

�

�

�

�

�

�

�

Annualized inventory turns - non-GAAP

��

�

11.0

��

�

�

12.1

��

�

�

12.1

��

GAAP cost of sales

��

$

4,912

��

�

$

4,952

��

�

$

4,678

��

Cost of sales adjustments:

��

�

Share-based compensation expense

��

�

(48

)�

�

�

(49

)�

�

�

(43

)�

Amortization of acquisition-related intangible assets

��

�

(181

)�

�

�

(180

)�

�

�

(167

)�

Acquisition-related/divestiture costs

��

�

���

��

�

�

(1

)�

�

�

���

��

Patent portfolio charge

��

�

(188

)�

�

�

���

��

�

�

���

��

��

�

�

�

�

�

�

�

�

�

�

�

Non-GAAP cost of sales

��

$

4,495

��

�

$

4,722

��

�

$

4,468

��

��

�

�

�

�

�

�

�

�

�

�

�

�

10

---

DEFERRED REVENUE

(In millions)

�

�

��

October�25, 2014

�

��

July�26, 2014

�

��

October�26, 2013

�

Deferred revenue:

��

Service

��

$

9,029

��

��

$

9,640

��

��

$

8,896

��

Product:

��

Unrecognized revenue on product shipments and other deferred revenue

��

�

4,056

��

��

�

3,924

��

��

�

3,628

��

Cash receipts related to unrecognized revenue from two-tier distributors

��

�

659

��

��

�

578

��

��

�

683

��

��

�

�

�

��

�

�

�

��

�

�

�

Total product deferred revenue

��

�

4,715

��

��

�

4,502

��

��

�

4,311

��

��

�

�

�

��

�

�

�

��

�

�

�

Total

��

$

13,744

��

��

$

14,142

��

��

$

13,207

��

��

�

�

�

��

�

�

�

��

�

�

�

Reported as:

��

Current

��

$

9,449

��

��

$

9,478

��

��

$

9,212

��

Noncurrent

��

�

4,295

��

��

�

4,664

��

��

�

3,995

��

��

�

�

�

��

�

�

�

��

�

�

�

Total

��

$

13,744

��

��

$

14,142

��

��

$

13,207

��

��

�

�

�

��

�

�

�

��

�

�

�

SUMMARY OF SHARE-BASED COMPENSATION EXPENSE

(In millions)

�

�	��	Three Months Ended						�
�	��	October�25, 2014		�	�	October�26, 2013		�
Cost of sales - product	��	$	11	��	�	$	10	��
Cost of sales - service	��	�	37	��	�	�	33	��
	��	�	�	�	�	�	�	�
Share-based compensation expense in cost of sales	��	�	48	��	�	�	43	��
	��	�	�	�	�	�	�	�
Research and development	��	�	119	��	�	�	92	��
Sales and marketing	��	�	147	��	�	�	123	��
General and administrative	��	�	59	��	�	�	54	��
Restructuring and other charges	��	�	(4	)�	�	�	(3	)�
	��	�	�	�	�	�	�	�
Share-based compensation expense in operating expenses	��	�	321	��	�	�	266	��
	��	�	�	�	�	�	�	�
Total share-based compensation expense	��	$	369	��	�	$	309	��
	��	�	�	�	�	�	�	�
Income tax benefit for share-based compensation	��	$	94	��	�	$	78	��
	��	�	�	�	�	�	�	�

�

11

---

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