Item 2.02. Results of Operations and Financial Condition.
On February 14, 2018, Cisco Systems, Inc. ("Cisco") reported its results of
operations for its fiscal second quarter 2018 ended January 27, 2018. 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, 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), significant gains and losses on 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
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
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.
Significant gains and losses on investments. Cisco does not actively trade
public equity securities and investments in privately held companies nor does it
plan on these investments for funding of ongoing operations, and investments.
Cisco excludes gains and losses on these investments, when significant, because
it does not believe they are reflective of ongoing business and operating
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 (including the Tax Cuts and Jobs Act), 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, and acquisition-related costs, in future
periods. Significant asset impairments, restructurings, significant litigation
settlements and other contingencies, significant gains and losses on
investments, and divestiture costs could occur in future periods. Cisco could
also be impacted by significant tax matters in future periods.
Item 9.01. Financial Statements and Exhibits.
Exhibit Number Description of Document
99.1 Press Release of Cisco, dated February 14, 2018, reporting
the results of operations for Cisco's fiscal second quarter
ended January 27, 2018.
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