Cisco : Q2 Press Release

Cisco Reports Second Quarter Earnings

Dividend Increased 6 Percent, Additional $15 Billion Authorized for Stock Repurchase

Q2 Results:

Revenue: $12.4 billion

Growth of 7% year over year (normalized to exclude the divested SPVSS business for Q2 FY 2018)

Earnings per Share: GAAP: $0.63; Non-GAAP: $0.73

Non-GAAP EPS increased 16% year over year

Q3 Guidance (normalized to exclude the divested SPVSS business for Q3 FY 2018):

Revenue: 4% to 6% growth year over year

Earnings per Share: GAAP: $0.63 to $0.68; Non-GAAP: $0.76 to $0.78

SAN JOSE, Calif., Feb. 13, 2019 /PRNewswire/ -- Cisco today reported second quarter results for the period ended January 26, 2019. Cisco reported second quarter revenue of $12.4 billion, net income on a generally accepted accounting principles (GAAP) basis of $2.8 billion or $0.63 per share, and non-GAAP net income of $3.3 billion or $0.73 per share.

As previously disclosed, Cisco completed the divestiture of the Service Provider Video Software Solutions (SPVSS) business in the second quarter of fiscal 2019 on October 28, 2018. Revenue, non-GAAP financial information, and Q3 FY 2019 guidance have been normalized to exclude the SPVSS business from prior periods for comparative purposes.

"We are very pleased with our strong performance in the quarter," said Chuck Robbins, chairman and CEO of Cisco. "Our teams are executing incredibly well, aggressively transitioning to a software model and accelerating our pace of innovation. We are redefining and connecting every domain of the networking infrastructure to deliver the agility, operational efficiency and security our customers require to embrace multicloud, edge computing and digital transformation."

GAAP Results

Q2 FY 2019	Q2 FY 2018	Vs. Q2 FY 2018
Revenue (including SPVSS business for all periods)	$	12.4 billion	$	11.9 billion	5%
Revenue (excluding SPVSS business for all periods)	$	12.4 billion	$	11.7 billion	7%
Net Income (Loss)	$	2.8 billion	$	(8.8) billion	NM
Earnings (Loss) per Share	$	0.63	$	(1.78)	NM
NM - Not meaningful

GAAP results for the second quarter of fiscal 2018 include a $11.1 billion charge related to the enactment of the Tax Cuts and Jobs Act.

Non-GAAP Results

Q2 FY 2019	Q2 FY 2018	Vs. Q2 FY 2018
Net Income (excluding SPVSS business for all periods)	$	3.3 billion	$	3.1 billion	6%
Diluted Earnings per Share (EPS) (excluding SPVSS business for all periods)	$	0.73	$	0.63	16%

Reconciliations between net income (loss), earnings (loss) per share, and other measures on a GAAP and non-GAAP basis are provided in the tables located in the section entitled "Reconciliations of GAAP to non-GAAP Measures."

Cisco Increases Quarterly Cash Dividend; Stock Repurchase Program Authorization Increased

Cisco has declared a quarterly dividend of $0.35 per common share, a 2-cent increase or up 6% over the previous quarter's dividend, to be paid on April 24, 2019 to all shareholders of record as of the close of business on April 5, 2019. Future dividends will be subject to Board approval.

Cisco's board of directors has also approved a $15 billion increase to the authorization of the stock repurchase program. There is no fixed termination date for the repurchase program. The remaining authorized amount for stock repurchases including the additional authorization is approximately $24 billion.

"Q2 was a solid quarter with continued momentum across the business delivering revenue growth of 7% and non-GAAP EPS growth of 16%. I'm also very pleased with our revenue from software subscriptions which is now 65% of total software revenue," said Kelly Kramer, CFO of Cisco. "Our increased dividend and share repurchase authorization show confidence in the strength of our ongoing cash flows and reinforce our commitment to returning capital to our shareholders."

Financial Summary

All comparative percentages are on a year-over-year basis unless otherwise noted.

All revenue, non-GAAP, and geographic financial information in the "Q2 FY 2019 Highlights" section are presented excluding the SPVSS business for all periods as it was divested during the second quarter on October 28, 2018.

Q2 FY 2019 Highlights

Revenue -- Total revenue was $12.4 billion, up 7%, with product revenue up 9% and service revenue up 1%. Revenue by geographic segment was: Americas up 7%, EMEA up 8%, and APJC up 5%. Product revenue performance was broad based with growth in Applications, up 24%, Security, up 18%, and Infrastructure Platforms, up 6%.

Gross Margin -- On a GAAP basis, total gross margin, product gross margin, and service gross margin were 62.5%, 61.0%, and 66.6%, respectively, as compared with 63.1%, 61.5%, and 67.4%, respectively, in the second quarter of fiscal 2018.

On a non-GAAP basis, total gross margin, product gross margin, and service gross margin were 64.1%, 62.8%, and 67.7%, respectively, as compared with 65.1%, 63.8%, and 68.7%, respectively, in the second quarter of fiscal 2018.

Total gross margins by geographic segment were: 65.2% for the Americas, 64.2% for EMEA and 59.2% for APJC.

Operating Expenses -- On a GAAP basis, operating expenses were $4.6 billion, up 3%. Non-GAAP operating expenses were $4.0 billion, up 3%, and were 31.9% of revenue.

Operating Income -- GAAP operating income was $3.2 billion, up 4%, with GAAP operating margin of 25.8%. Non-GAAP operating income was $4.0 billion, up 7%, with non-GAAP operating margin flat at 32.1%.

Provision for Income Taxes -- The GAAP tax provision rate was 15.6%. The non-GAAP tax provision rate was 19.0%.

Net Income and EPS -- On a GAAP basis, net income was $2.8 billion and EPS was $0.63. On a non-GAAP basis, net income was $3.3 billion, an increase of 6%, and EPS was $0.73, an increase of 16%.

Cash Flow from Operating Activities -- $3.8 billion for the second quarter of fiscal 2019, a decrease of 7% compared with $4.1 billion for the second quarter of fiscal 2018. Operating cash flow includes the payment of $0.8 billion in relation to a transition tax payment as a result of the Tax Cuts and Jobs Act. Operating cash flow increased 12%, normalized for this payment.

Balance Sheet and Other Financial Highlights

Cash and Cash Equivalents and Investments -- $40.4 billion at the end of the second quarter of fiscal 2019, compared with $42.6 billion at the end of the first quarter of fiscal 2019, and compared with $46.5 billion at the end of fiscal 2018.

Deferred Revenue -- $17.3 billion, down 8% in total, with deferred product revenue down 23%. Deferred service revenue was up 3%.

Capital Allocation -- For the second quarter of fiscal 2019, we returned $6.5 billion to shareholders through share buybacks and dividends. We declared and paid a cash dividend of $0.33 per common share, or $1.5 billion, and repurchased approximately 111 million shares of common stock under our stock repurchase program at an average price of $45.09 per share for an aggregate purchase price of $5.0 billion.

Acquisitions

On December 18, 2018, we announced our intent to acquire Luxtera, Inc., a privately held semiconductor company. On January 30, 2019, we announced our intent to acquire Singularity Networks, a privately held network infrastructure analytics company. Both acquisitions closed in the third quarter of fiscal 2019.

Guidance for Q3 FY 2019

Cisco expects to achieve the following results for the third quarter of fiscal 2019 (normalized to exclude the divested SPVSS business):

Q3 FY 2019
Revenue	4% - 6% growth Y/Y
Non-GAAP gross margin rate	64% - 65%
Non-GAAP operating margin rate	31% - 32%
Non-GAAP tax provision rate	19%
Non-GAAP EPS	$0.76 - $0.78

Revenue for the divested SPVSS business for the third quarter of fiscal 2018 was $219 million.

Cisco estimates that GAAP EPS will be $0.63 to $0.68 in the third quarter of fiscal 2019.

A reconciliation between the Guidance for Q3 FY 2019 on a GAAP and non-GAAP basis is provided in the table entitled "GAAP to non-GAAP Guidance for Q3 FY 2019" located in the section entitled "Reconciliations of GAAP to non-GAAP Measures."

Editor's Notes:

Q2 fiscal year 2019 conference call to discuss Cisco's results along with its guidance will be held on Wednesday, February 13, 2019 at 1:30 p.m. Pacific Time. Conference call number is 1-888-848-6507 (United States) or 1-212-519-0847 (international).Conference call replay will be available from 4:00 p.m. Pacific Time, February 13, 2019 to 4:00 p.m. Pacific Time, February 20, 2019 at 1-800-391-9851 (United States) or 1-203-369-3268 (international). The replay will also be available via webcast on the Cisco

Investor Relations website athttps://investor.cisco.com.

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, February 13, 2019. 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 the GAAP to non-GAAP reconciliation information, will be available on the Cisco Investor Relations website athttps://investor.cisco.com.

CISCO SYSTEMS, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(In millions, except per-share amounts)

(Unaudited)

Three Months Ended

Six Months EndedJanuary 26, 2019

January 27, 2018

January 26, 2019

January 27, 2018

REVENUE:

Product

$

Service

9,273 3,173

$

8,709 3,178

$

19,163

$ 17,763

6,355 6,260

Total revenue COST OF SALES:

12,446

11,887

25,518

24,023

Product

Service

Total cost of sales GROSS MARGIN OPERATING EXPENSES:

3,614 1,059 4,673 7,773

3,354 1,035 4,389 7,498

7,413 6,969

2,186 2,129

9,599

9,098

15,919 14,925

Research and development

1,557

1,549

3,165 3,116

Sales and marketing

2,271

2,235

4,681 4,569

General and administrative

509

483

720 1,040

Amortization of purchased intangible assets

39

60

73 121

Restructuring and other charges

186

98

264 250

Total operating expenses OPERATING INCOME

4,562

4,425

8,903

9,096

3,211

3,073

7,016 5,829

Interest income

328

396

672 775

Interest expense

(223)

(247)

(444) (482)

Other income (loss), net

27

10

8 72

Interest and other income (loss), net INCOME BEFORE PROVISION FOR INCOME TAXES Provision for income taxes (1)

132

159

236

365

3,343

3,232

7,252 6,194

521

12,010

881 12,578

NET INCOME (LOSS)

$

2,822

$

(8,778)

$

6,371

$

(6,384)

Net income (loss) per share: Basic

Diluted

$ $

0.63 0.63

$ $

(1.78) (1.78)

$ $

1.41 1.40

$ $

(1.29) (1.29)

Shares used in per-share calculation: Basic

Diluted

4,470 4,505

4,924 4,924

4,517 4,557

4,942 4,942

The Consolidated Statements of Operations include the results of the SPVSS business prior to its divestiture during the second quarter of fiscal 2019 on October 28, 2018. Accordingly, the six months ended January 26, 2019 includes three months of financial results for this business.

(1) The provision for income taxes for the three and six months ended January 27, 2018 includes an $11.1 billion charge related to the enactment of the Tax Cuts and Jobs Act.

CISCO SYSTEMS, INC.

REVENUE BY SEGMENT

(In millions, except percentages)

January 26, 2019

Three Months Ended

Six Months EndedAmount

Y/Y %

Amount

Y/Y %Revenue:

Including SPVSS business for all periods:

Americas

$ 7,352

EMEA 3,223

APJC 1,872

Total

$

12,446

Excluding SPVSS business for all periods:

Americas

$ 7,352

EMEA 3,223

APJC 1,872

Total

$

12,446

5% 5% 3% 5% 7% 8% 5% 7%

$

15,103 5%

6,447 8%

3,968 7%

$

25,518 6%

$

15,027 6%

6,381 10%

3,944 10%

$

25,351 8%

Amounts may not sum and percentages may not recalculate due to rounding.

During the second quarter of fiscal 2019 on October 28, 2018, we completed the divestiture of the SPVSS business. SPVSS business revenue for the three months ended January 27, 2018 was $230 million and for the six months ended January 26, 2019 and January 27, 2018 was $168 million and $478 million, respectively.

CISCO SYSTEMS, INC.

GROSS MARGIN PERCENTAGE BY SEGMENT

(In percentages)

January 26, 2019

Three Months Ended	Six Months Ended
Gross Margin Percentage:
Including SPVSS business for all periods:
Americas	65.2%	65.3%
EMEA	64.2%	64.2%

APJC	59.2%	58.2%
Excluding SPVSS business for all periods (1):
Americas	65.2%	65.6%
EMEA	64.2%	64.3%
APJC	59.2%	58.4%

(1) During the second quarter of fiscal 2019 on October 28, 2018, we completed the divestiture of the SPVSS business.

CISCO SYSTEMS, INC.

REVENUE FOR GROUPS OF SIMILAR PRODUCTS AND SERVICES

(In millions, except percentages)

January 26, 2019

Three Months Ended Amount

Six Months EndedY/Y %

Amount

Y/Y %Revenue:

Including SPVSS business for all periods:

Infrastructure Platforms

$

7,128

6%

$

14,770 8%

Applications

1,465

24%

2,884 21%

Security

658

18%

1,308 15%

Other Products

22

(91)%

200 (63)%

Total Product

9,273

Services

3,173

Total

$

12,446

6% -% 5%

19,163 8%

6,355 2%

$

25,518 6%

Excluding SPVSS business for all periods:

Infrastructure Platforms

$

7,128

6%

$

14,770 8%

Applications

1,465

24%

2,884 21%

Security

658

18%

1,308 15%

Other Products

22

(59)%

54 (53)%

Total Product

9,273

9%

19,017 10%

Services

3,173

1%

6,334 2%

Total

$

12,446

7%

$

25,351 8%

Amounts may not sum and percentages may not recalculate due to rounding.

During the second quarter of fiscal 2019 on October 28, 2018, we completed the divestiture of the SPVSS business. SPVSS business revenue for the three months ended January 27, 2018 was $230 million and for the six months ended January 26, 2019 and January 27, 2018 was $168 million and $478 million, respectively.

CISCO SYSTEMS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(In millions)

(Unaudited)

January 26, 2019

July 28, 2018

ASSETS Current assets:

Cash and cash equivalents

$

9,835

$ 8,934

Investments

30,548 37,614

Accounts receivable, net of allowance for doubtful accounts of $135 at January 26, 2019 and $129 at July 28, 2018

3,745 5,554

Inventories

1,701 1,846

Financing receivables, net Other current assets

5,057 4,949

2,231 2,940

Total current assets Property and equipment, net Financing receivables, net Goodwill

53,117 61,837

2,931 3,006

4,565 4,882

33,293 31,706

Purchased intangible assets, net Deferred tax assets

2,270 2,552

4,081 3,219

Other assets

2,205 1,582

TOTAL ASSETS LIABILITIES AND EQUITY

$

102,462

$

108,784

Current liabilities:

Short-term debt Accounts payable Income taxes payable Accrued compensation Deferred revenue Other current liabilities

$

9,737

$ 5,238

1,655 1,904

1,110 1,004

2,599 2,986

9,976 11,490

4,402 4,413

Total current liabilities Long-term debt

29,479 27,035

15,893 20,331

Income taxes payable Deferred revenue Other long-term liabilities

7,760 8,585

7,285 8,195

1,256 1,434

Total liabilities Total equity

61,673 40,789

65,580 43,204

TOTAL LIABILITIES AND EQUITY

$

102,462

$

108,784

CISCO SYSTEMS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In millions)

(Unaudited)

Six Months EndedJanuary 26, 2019

January 27, 2018

Cash flows from operating activities:

Net income (loss)

$

6,371

$ (6,384)

Adjustments to reconcile net income (loss) to net cash provided by operating activities:

Depreciation, amortization, and other

952 1,112

Share-based compensation expense Provision (benefit) for receivables Deferred income taxes

792 785

30 (43)

(257) 1,021

(Gains) losses on divestitures, investments and other, net

(77) (174)

Change in operating assets and liabilities, net of effects of acquisitions and divestitures:

Accounts receivable

1,613 1,236

Inventories Financing receivables Other assets Accounts payable Income taxes, net Accrued compensation Deferred revenue Other liabilities

(203) (276)

161 (156)

(652) (15)

(296) (338)

(830) 10,246

(339) (189)

207 237

88 88

Net cash provided by operating activities

7,560

7,150

Cash flows from investing activities:

Purchases of investments Proceeds from sales of investments Proceeds from maturities of investments Acquisitions and divestitures

(677) (13,954)

3,055 9,111

6,263 7,365

(1,599) (727)

Purchases of investments in privately held companies Return of investments in privately held companies Acquisition of property and equipment

(68) (89)

43 124

(473) (379)

Proceeds from sales of property and equipment Other

10 51

(12) (17)

Net cash provided by investing activities

6,542

1,485

Cash flows from financing activities:

Issuances of common stock

312

302

Repurchases of common stock - repurchase program

(10,062) (5,457)

Shares repurchased for tax withholdings on vesting of restricted stock units

(514) (433)Short-term borrowings, original maturities of 90 days or less, net - 5,095

Issuances of debt - 6,877

Repayments of debt - (6,230)Dividends paid Other

(2,970) (2,861)

18 (22)

Net cash used in financing activities

(13,216)

(2,729)

Net increase in cash, cash equivalents, and restricted cash Cash, cash equivalents, and restricted cash, beginning of period Cash, cash equivalents, and restricted cash, end of period Supplemental cash flow information:

886 5,906

8,993 11,773

$

9,879

$

17,679

Cash paid for interest

• $ 421

  • $ 454

    Cash paid for income taxes, net

• $ 1,968

• $ 1,311

Prior period information has been retrospectively adjusted due to the adoption of ASU 2016-18, Statement of Cash Flows, Restricted Cash at the beginning of the first quarter of fiscal 2019.

CISCO SYSTEMS, INC.

DEFERRED REVENUE

(In millions)

January 26, 2019

October 27, 2018

January 27, 2018

Deferred revenue:

Service Product

Reported as:

Current Noncurrent

$	11,246	$	11,062	$	10,963
6,015	5,752	7,825
Total	$	17,261	$	16,814	$	18,788
$	9,976	$	9,637	$	11,102
7,285	7,177	7,686
Total	$	17,261	$	16,814	$	18,788

CISCO SYSTEMS, INC.

DIVIDENDS PAID AND REPURCHASES OF COMMON STOCK

(In millions, except per-share amounts)

Quarter Ended

Fiscal 2019

January 26, 2019

• $ 0.33

  October 27, 2018

• $ 0.33

  Fiscal 2018

  July 28, 2018

• $ 0.33

  April 28, 2018

• $ 0.33

  January 27, 2018

• $ 0.29

  October 28, 2017

• $ 0.29

DIVIDENDS	TOTAL
Per Share	Amount	Shares	Amount
1,470	111	$	45.09	$	5,016	$	6,486
1,500	109	$	46.01	$	5,026	$	6,526
1,535	138	$	43.58	$	6,015	$	7,550
1,572	140	$	42.83	$	6,015	$	7,587
1,425	103	$	39.07	$	4,011	$	5,436
1,436	51	$	31.80	$	1,620	$	3,056

STOCK REPURCHASE PROGRAM

Weighted-

Average Price per Share Amount

$ $ $ $ $ $

CISCO SYSTEMS, INC.

RECONCILIATIONS OF GAAP TO NON-GAAP MEASURES

GAAP NET INCOME (LOSS) TO NON-GAAP NET INCOME

(In millions, except per-share amounts)

Three Months Ended

Six Months EndedJanuary 26, 2019

January 27, 2018

January 26, 2019

January 27, 2018

GAAP net income (loss) Adjustments to cost of sales:

$

2,822

$

(8,778)

$

6,371

$

(6,384)

Share-based compensation expense

Amortization of acquisition-related intangible assets Supplier component remediation charge (adjustment), net Acquisition-related/divestiture costs

Legal and indemnification settlements

Total adjustments to GAAP cost of sales Adjustments to operating expenses:

Share-based compensation expense

Amortization of acquisition-related intangible assets Acquisition-related/divestiture costs

Legal and indemnification settlements Significant asset impairments and restructurings

Total adjustments to GAAP operating expenses Adjustments to GAAP interest and other income (loss), net:

53 141 - 3 5 202 323 39 39 - 186 587

54 144 (13)

109 111

277 283

(1) (32)

2 - 187 333 60 23 - 98 514

7 2

5 122

397

486

652 668

73 121

160 106

(395) 264 754

- 250 1,145

(Gains) and losses on equity investments

(64)

Total adjustments to GAAP income (loss) before provision for income taxes Income tax effect of non-GAAP adjustments

725

(209)

Significant tax matters (1)

(43)

Total adjustments to GAAP provision for income taxes Non-GAAP net income

(252)

- 701 (157) 11,380 11,223

(73)

1,078

(394)

- 1,631 (445)

(308)

(702)

11,380 10,935

$

3,295

$

3,146

$

6,747

$

6,182

Net income (loss) per share (2): GAAP

Non-GAAP

$ $

0.63 0.73

$ $

(1.78) 0.63

$ $

1.40 1.48

$ $

(1.29) 1.24

(1) During the second quarter of fiscal 2018, we recorded charges relating to significant tax matters that were excluded from non-GAAP net income for the second quarter and first six months of fiscal 2018. $11.1 billion of these charges were provisional amounts related to the enactment of the Tax Cuts and Jobs Act comprised of $9.0 billion related to the U.S. transition tax, $1.2 billion related to foreign withholding tax and $0.9 billion related to the re-measurement of net deferred tax assets. The amounts were provisional based on Securities and Exchange Commission Staff Accounting Bulletin No. 118. The remaining $0.3 billion was related to other significant tax matters.

(2) GAAP net loss per share for the three and six months ended January 27, 2018 was calculated using basic shares of 4,924 million and 4,942 million respectively, due to the net loss resulting from the tax charge as discussed in footnote (1). Non-GAAP net income per share for the respective periods was calculated using diluted shares of 4,966 million and 4,982 million, as we had non-GAAP net income for these periods.

CISCO SYSTEMS, INC.

RECONCILIATIONS OF GAAP TO NON-GAAP MEASURES

GROSS MARGINS, OPERATING EXPENSES, OPERATING MARGINS, INTEREST AND OTHER INCOME (LOSS), NET, AND NET INCOME (LOSS)

(In millions, except percentages)

Three Months Ended January 26, 2019

Product Gross

MarginService Gross

Margin

Total Gross MarginGAAP amount % of revenue Adjustments to GAAP amounts: Share-based compensation expense Amortization of acquisition-related intangible assets Legal and indemnification settlements Acquisition/divestiture-related costs Significant asset impairments and restructurings (Gains) and losses on equity investments Income tax effect/significant tax matters

$

5,659 61.0

%

$

2,114 66.6

%

$

7,773 62.5

22

31

53

141

-

141

5 1

-

2

- -

- -

- -

-

-

-

Non-GAAP amount % of revenue

$

5,828

$

2,147

$

7,975

62.8

%

67.7

%

64.1

Amounts may not sum and percentages may not recalculate due to rounding.

Operating ExpensesY/YOperating Income

%

$

4,562 36.7

%

3%

$

3,211 25.8

323

376 - 376

39

180 - 180

5 3

-

5 - 5

39

42 - 42

186

186 - 186

-

-

-

-

$

3,975

3%

$

4,000

%

31.9

%

32.1

During the second quarter of fiscal 2019 on October 28, 2018, we completed the divestiture of the SPVSS business. Accordingly, the non-GAAP growth rates are normalized to exclude the SPVSS business for the second quarter of fiscal 2018.

Three Months Ended

January 27, 2018

Product Gross

MarginService Gross

MarginTotal Gross

MarginGAAP amount % of revenue Adjustments to GAAP amounts: Share-based compensation expense Amortization of acquisition-related intangible assets Supplier component remediation charge (adjustment), net Acquisition/divestiture-related costs Significant asset impairments and restructurings Income tax effect/significant tax matters (1)

$

5,355

$

2,143

$

7,498

• 61.5 %

• 67.4 %

• 63.1 %

23

31

54

144

-

144

(13)

-

(13)

-

2

2

-

-

-

-

-

-

Non-GAAP amount Less: SPVSS business

$

5,509

$

2,176

$

7,685

(2)

(82)

(10)

(92)

Non-GAAP amount (excluding SPVSS business)

$

5,427

$

2,166

$

7,593

% of revenue

63.8

%

68.7

%

65.1

%

Amounts may not sum and percentages may not recalculate due to rounding.

Operating Expenses

$

4,425

• 37.2 %

333

60

-

23

98

-

$

3,911

(64)

$

3,847

33.0

• (1) Includes an $11.1 billion charge related to the enactment of the Tax Cuts and Jobs Act.

  Operating Income

  Net Income (Loss)

  $

  3,073

  $ (8,778)

  25.9 % (73.8)

  387 387

  204 204

  (13) (13)

  25 25

  98 98

  %

  -

  11,223

  $

  3,774

  $

  3,146

  (28)

  (22)

  $

  3,746

  $

  3,123

  %

  32.1

  %

  26.8

  %

• (2) Reflects three months of operations for the SPVSS business. For the SPVSS business, EPS was $0.00 for the second quarter of fiscal 2018.

CISCO SYSTEMS, INC.

RECONCILIATIONS OF GAAP TO NON-GAAP MEASURES

Interest andY/Yother income (loss), net

%

4%

$

132 1.1

%

(64) (64)

- (252)

7%

$

68

%

0.5

%

GROSS MARGINS, OPERATING EXPENSES, OPERATING MARGINS, INTEREST AND OTHER INCOME (LOSS), NET, AND NET INCOME (LOSS)

(In millions, except percentages)

Six Months Ended

January 26, 2019

Y/Y

Net Income

Y/Y

• (17)% $

  2,822 22.7

  NM

  %

• (57)% $

3,295

6%

26.5

%

Interest andProduct Gross

Margin

45

Service Gross

Margin

64

Total Gross MarginOperating ExpensesY/YOperating IncomeY/Yother income (loss), net

Y/Y

Net IncomeGAAP amount % of revenue Adjustments to GAAP amounts: Share-based compensation expense Amortization of acquisition-related intangible assets Supplier component remediation charge (adjustment), net Legal and indemnification settlements Acquisition/divestiture-related costs Significant asset impairments and restructurings (Gains) and losses on equity investments Income tax effect/significant tax matters

$

11,750 61.3

%

$

4,169 65.6

%

$

15,919 62.4

%

$

8,903 34.9

%

(2)%

$

7,016 27.5

%

20%

$

236 0.9

%

(35)%

$

6,371 25.0

109

652

761 - 761

277

-

277

73

350 - 350

(1)

-

(1)

-

(1) - (1)

5 3

-

5 7

(395)

(390) - (390)

4

160

167 - 167

- -

- -

- -

264

264 - 264

-

-

(73) (73)

-

-

-

-

-

- (702)Y/YNM

%

Non-GAAP amount % of revenue Less: SPVSS business (1) Non-GAAP amount

$

12,079 63.0

%

$

4,237 66.7

%

$

16,316 63.9

%

$

8,149 31.9

%

$

8,167 32.0

%

$

163 0.6

%

$

6,747 26.4

%

(52)

(9)

(61)

(59)

(1)

-

(1)