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FORM 10-Q/A
AMENDMENT NO. 1
TO
FORM 10-Q
UNITED STATES
Securities and Exchange Commission
Washington, D.C. 20549
(Mark one)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended JANUARY 25, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition
period from to
------------------- -------------------
Commission file number 0-18225
CISCO SYSTEMS, INC.
(Exact name of registrant as specified in its charter)
California 77-0059951
(State or other jurisdiction (I.R.S. Employer
of Identification Number)
incorporation or
organization)
170 West Tasman Drive
San Jose, California 95134
(Address of principal executive office and zip code)
(408) 526-4000
(Registrant's telephone number, including area code)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period
that the registrant was required to file such reports), and (2) has
been subject to filing requirements for the past 90 days.
YES X NO
--------- --------
As of February 28, 1997 663,646,520 shares of the Registrant's common stock were
outstanding.
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ITEM 1. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
CISCO SYSTEMS, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands)
<TABLE>
<CAPTION>
January 25, July 28,
1997 1996
----------- -----------
(Unaudited)
ASSETS
<S> <C> <C>
Current assets:
Cash and equivalents $ 332,807 $ 279,695
Short-term investments 774,673 758,489
Accounts receivable, net of allowance for doubtful
accounts of $17,166 at January 25, 1997 and
$21,074 at July 28, 1996 1,024,942 622,859
Inventories, net 203,721 301,188
Deferred income taxes 191,268 101,827
Prepaid expenses and other current assets 91,608 95,582
----------- -----------
Total current assets 2,619,019 2,159,640
Investments 1,160,995 832,114
Restricted investments 247,649 228,644
Property and equipment, net 410,065 331,315
Other assets 132,316 78,519
----------- -----------
Total assets $ 4,570,044 $ 3,630,232
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 253,406 $ 153,683
Income taxes payable 172,744 169,894
Accrued payroll and related expenses 252,419 195,197
Other accrued liabilities 269,190 250,579
----------- -----------
Total current liabilities 947,759 769,353
Minority interest 41,192 41,257
Shareholders' equity:
Preferred stock, no par value, 5,000 shares authorized:
none issued or outstanding at January 25, 1997
and July 28, 1996
Common stock, no par value, 1,200,000 shares
authorized:
661,616 shares issued and outstanding at
January 25, 1997 and 649,284 at July 28, 1996 1,180,201 888,067
Retained earnings 2,271,002 1,777,369
Unrealized gains on marketable securities 139,147 158,848
Cumulative translation adjustments (9,257) (4,662)
----------- -----------
Total shareholders' equity 3,581,093 2,819,622
----------- -----------
Total liabilities and shareholders' equity $ 4,570,044 $ 3,630,232
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
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CISCO SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per-share amounts)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
---------------------------------- ---------------------------------
Jan. 25, Jan. 28, Jan. 25, Jan. 28,
1997 1996 1997 1996
---------------------------------- ---------------------------------
(Unaudited)
<S> <C> <C> <C> <C>
Net sales $1,592,377 $918,510 $3,027,203 $1,716,801
Cost of sales 552,519 312,315 1,053,999 580,057
---------------- ---------------- --------------- ----------------
Gross margin 1,039,858 606,195 1,973,204 1,136,744
Operating expenses:
Research and development 167,652 89,695 312,363 167,875
Sales and marketing 288,341 163,527 547,451 308,778
General and administrative 52,111 31,462 93,887 59,729
Purchased research and development 43,203 217,792
---------------- ---------------- --------------- ----------------
Total operating expenses 551,307 284,684 1,171,493 536,382
---------------- ---------------- --------------- ----------------
Operating income 488,551 321,511 801,711 600,362
Realized gain on sale of investment 47,299 102,407
Interest and other income, net 27,064 15,646 48,542 28,504
---------------- ---------------- --------------- ----------------
Income before provision for income taxes 562,914 337,157 952,660 628,866
Provision for income taxes 224,455 127,420 433,258 237,742
---------------- ---------------- --------------- ----------------
Net income $ 338,459 $209,737 $ 519,402 $ 391,124
================ ================ =============== ================
Net income per share $ .49 $ .31 $ .76 $ .59
================ ================ =============== ================
Shares used in per-share calculation 690,304 666,177 686,824 659,625
================ ================ =============== ================
</TABLE>
The accompanying notes are an integral part of these financial statements.
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CISCO SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
Six Months Ended
---------------------------------
January 25, January 28,
1997 1996
----------- -----------
(Unaudited)
<S> <C> <C>
Cash flows from operating activities:
Net income $ 519,402 $ 391,124
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization 98,541 52,798
Deferred income taxes (61,461) (22,129)
Tax benefit of disqualifying dispositions 101,546 93,704
Adjustment to conform StrataCom, Inc. fiscal year (11,020)
Purchased research and development from
Netsys Technology, Inc. acquisition 43,203
Change in operating assets and liabilities:
Accounts receivable (399,887) (124,117)
Inventories 100,013 (157,357)
Prepaid expenses and other current assets 4,150 (29,257)
Income taxes payable 2,750 33,866
Accounts payable 99,272 74,283
Accrued payroll and related expenses 56,447 30,353
Other accrued liabilities 4,315 30,537
----------- -----------
Net cash provided by operating activities 557,271 373,805
----------- -----------
Cash flows from investing activities:
Purchases of short-term investments (697,891) (337,811)
Proceeds from sales and maturities of short-term
investments 706,535 269,814
Purchases of investments (1,007,291) (319,996)
Proceeds from sales of investments 618,377 130,404
Purchases of restricted investments (133,744) (72,348)
Proceeds from sales and maturities of restricted
investments 114,071 58,165
Acquisition of property and equipment (169,372) (101,249)
Acquisition of Telebit Corporation, net of
purchased research and development (25,189)
Other (8,000) (13,652)
----------- -----------
Net cash used in investing activities (602,504) (386,673)
----------- -----------
Cash flows from financing activities:
Issuance of common stock 102,940 50,335
Repurchase of common stock (112,734)
Other (4,595) (9,424)
----------- -----------
Net cash provided by (used in)financing
activities 98,345 (71,823)
----------- -----------
Net increase (decrease) in cash and equivalents 53,112 (84,691)
Cash and equivalents, beginning of period 279,695 284,388
----------- -----------
Cash and equivalents, end of period $ 332,807 $ 199,697
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
5
<PAGE> 5
CISCO SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. DESCRIPTION OF BUSINESS
Cisco Systems Inc. ("Cisco" or "the Company") develops, manufactures, markets
and supports high-performance, multiprotocol internetworking systems that link
geographically dispersed local-area and wide-area networks (LANs and WANs,
respectively). Cisco's products include a wide range of routers, LAN and WAN
switches, dial access servers, and network management solutions. The Company
sells its products in approximately 90 countries through a combination of direct
sales and reseller and distribution channels.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Fiscal Year
The Company's fiscal year is the 52 or 53 weeks ending on the last Saturday in
July. Fiscal years 1997 and 1996 are both 52 week years. Prior to fiscal year
1997, the Company's fiscal year was the 52 or 53 weeks ending on the last Sunday
in July.
Basis of Presentation
The accompanying financial data as of January 25, 1997 and July 28, 1996 and for
the three and six month periods ended January 25, 1997 and January 28, 1996,
have been prepared by the Company, without audit, pursuant to the rules and
regulations of the Securities and Exchange Commission. Certain information and
footnote disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been condensed or
omitted pursuant to such rules and regulations. However, the Company believes
that the disclosures are adequate to make the information presented not
misleading. These consolidated financial statements should be read in
conjunction with the financial statements and the notes thereto included in the
Company's Annual Report on Form 10-K for the year ended July 28, 1996.
In July 1996, the Company acquired StrataCom, Inc.("StrataCom"), a Company that
develops, manufactures, and supports high speed LAN and WAN switching equipment.
The merger was accounted for as a pooling of interests and, accordingly, the
Company's consolidated financial statements were restated for all periods prior
to the merger to include the results of operations, financial positions, and
cash flows for StrataCom for the twelve months ended June 30, 1996. Prior to the
merger, StrataCom used a calendar year-end. In order for both companies to
operate on the same fiscal calendar for 1997, StrataCom's operations for the one
month period ended July 28, 1996, which are not material to the consolidated
companies, have been reflected as an adjustment to retained earnings in the
first quarter of fiscal 1997.
In the opinion of management, all adjustments (which include only normal
recurring adjustments) necessary to present fairly the
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financial position, results of operations, and cash flows for the three and six
month periods ended January 25, 1997 and January 28, 1996, have been made. The
results of operations for the period ended January 25, 1997 are not necessarily
indicative of the operating results for the full year.
The July 28, 1996 balance sheet was derived from audited financial statements,
but does not include all disclosures required by generally accepted accounting
principles.
Computation of Net Income Per Share
Net income per common share is computed using the weighted average number of
common and dilutive common equivalent shares outstanding during the period.
Dilutive common equivalent shares consist of stock options.
3. BUSINESS COMBINATIONS
In September 1996, the Company acquired Nashoba Networks ("Nashoba"). The
Company issued approximately 1.6 million shares of common stock for all the
outstanding stock of Nashoba in a transaction accounted for as a pooling of
interests. The Company also assumed options to purchase Nashoba stock that
remain outstanding as options to purchase approximately .1 million shares of the
Company's common stock.
Also, in September 1996, the Company acquired Granite Systems, Inc. ("Granite"),
a company established to develop, market, and sell multilayer switching and
gigabit Ethernet equipment. The Company issued approximately 2.2 million shares
of common stock for all the outstanding stock of Granite in a transaction
accounted for as a pooling of interests. The Company also assumed options to
purchase Granite stock that remain outstanding as options to purchase
approximately 1.6 million shares of the Company's common stock.
The historical operations of Nashoba and Granite are not material to the
Company's consolidated operations and financial position on either an individual
or an aggregated basis. Therefore, prior period statements have not been
restated for these acquisitions.
In October 1996, the Company acquired substantially all of the assets of Telebit
Corporation ("Telebit") and its Modem ISDN Channel Aggregation (MICA)
technologies for approximately $200 million in cash. The Company purchased
Telebit patents, MICA intellectual property and established employment contracts
with MICA personnel, and assumed certain preferred stock and notes receivable
related to a management buyout of the remaining assets of Telebit. The
transaction was accounted for as a purchase. Accordingly, the results of
operations of the acquired business and the fair values of the acquired assets
and liabilities were included in the Company's financial statements as of the
effective date. As part of this transaction, the Company recorded approximately
$174 million in purchased research and development expense in the first quarter
of fiscal 1997.
In November 1996, the Company acquired Netsys Technologies ("Netsys"), a
privately held innovator of network infrastructure
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management and performance analysis software. Under the terms of the agreement,
shares of the Company's common stock worth approximately $79 million have been
exchanged for all outstanding shares and options of Netsys in a transaction
accounted for as a purchase. The Company had held a minority equity interest in
Netsys since February 1995 and had also entered into a strategic reseller
agreement. As part of this transaction, the Company recorded approximately $43
million in purchased research and development expense and $41 million of
goodwill and other intangible assets in the second quarter of fiscal 1997.
Amounts allocated to goodwill and other intangibles will be amortized on a
straight-line basis over a five year period.
The historical operations of Telebit and Netsys are not material to the
Company's consolidated operations and financial position on either an individual
or an aggregated basis, therefore, pro forma summaries are not presented. The
amounts allocated to purchased research and development were determined through
established valuation techniques in the high technology communications industry,
and were expensed upon acquisition, because technological feasibility had not
been established and no future alternative uses existed.
4. BALANCE SHEET DETAIL
(In thousands)
<TABLE>
<CAPTION>
January 25, July 28,
Inventories: 1997 1996
-------- --------
(Unaudited)
<S> <C> <C>
Raw materials $ 85,993 $134,531
Work in process 77,127 99,723
Finished goods 18,551 51,920
Demonstration systems 22,050 15,014
-------- --------
$203,721 $301,188
======== ========
</TABLE>
5. INCOME TAXES
The Company paid income taxes of $390 million for the six months ended January
25, 1997 and $136 million for the six months ended January 28, 1996. The
Company's income taxes currently payable for both federal and state purposes
have been reduced by the tax benefit from stock option transactions. This
benefit totaled $102 million in the first six months of 1997, and was credited
directly to shareholders' equity.
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SIGNATURE
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 thereunto duly authorized.
Cisco Systems, Inc.
Date: March 17, 1997
By /s/ LARRY R. CARTER
--------------------------------
Larry R. Carter, Vice President
Finance, and Chief Financial
Officer (Principal Financial and
Accounting Officer)
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