Osprey Flyer: Cisco Quarterly Earnings Drop on Restructuring Charge (Financial Charts) *Total revenues increase* CSCO

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Cisco Systems reported QE July 2011 financial results on Wednesday, August 10, 2011

*Charts and commentary have been updated for Cisco QE July 2011 financial results*

Cisco Quarterly Earnings Drop on Restructuring Charge: Total Revenues Increase

Cisco Summary QE July 2011 The $768 million restructuring charge, a workforce reduction, pulled down operating income, net income, and earnings per share. Total revenues reached a new high. Net income had been relatively stable, until this plunge, while total assets continue increasing. This results in a decreasing return on assets. Cisco's problem has been described as "slow moving sales" and add to that debt of almost 20% of total assets. Financial position of adequate capital with moderate debt and reasonable liquidity continues.

Cisco Income Statement QE July 2011 Cisco reported total revenues of $11.20B, net income of $1.46B, and earnings per share of $0.22. From the prior quarter QE April 2011, total revenues were up +3.03%, net income down -31.82%, and earnings per share down -33.33%. From the prior year QE July 2010, these were up +3.31%, down -36.33%, and down -33.33%, respectively. Total revenues increased, while net income and earnings per share decreased due to the $768M restructuring charge. Gross, operating, and net margins were 61.29%, 13.01%, and 11.00%, respectively. Gross margin was flat QoQ while operating margin and net margin decreased due to the restructuring charge. Cash flow from operations of $1.83 per share reached another cyclical peak and has increased 3 consecutive quarters. The average income tax rate was 16%, lower than the historical average.

Cisco Balance Sheet QE July 2011 Cisco's total assets increased +2.04% QoQ to a record $87.09 billion from the prior quarter of $85.35 billion. The capital to assets ratio (total stockholders' equity divided by total assets) of 54.26% is at the lower end of the historical range. The current ratio (current assets divided by total assets) of 65.71% is at the higher end of the historical range The return on assets is low for a technology company and is decreasing, to the current multi-quarter low +7.81%. Total debt is almost 20% of total assets.

Workforce Reduction, July 18, 2011
Cisco will layoff 6,500 employees and incur cash-based restructuring charges, consisting of severance and other one-time termination benefits, estimated at $1.3 billion over several quarters. Cisco estimates approximately $750 million of these charges will be incurred in QE July 2011, including approximately $500 million relating to the voluntary early retirement program. The remaining estimated $550 million of charges will be recognized in the subsequent 4 quarters, beginning with QE October 2011. Cisco Announces Additional Detail on Comprehensive Action Plan

Cisco Financial Performance by the Quarters (Charts)

Cisco Earnings Per Share Below is a chart of quarterly earnings per share. Current Earnings per Share of $0.22 is down -33% QoQ and down -33% YoY. The recent peaks have been the QE October 2008 and QE April 2010 at $0.37. The low has been $0.19 for QE July 2009.

Cisco Cash Flow per Share Below is a chart of cash flow from operations per share. Cisco has a very striking cash flow cycle on the chart. Current Cash Flow per Share of $1.83 is very strong and another cyclical peak. The peaks have been QE July 2009 of $1.65, QE July 2010 of $1.76, and QE 2011 of $1.83. The lows have been QE October 2009 of $0.25 and QE October 2010 of $0.25.

Cisco Total Revenues, Operating Income, and Net Income Below is a chart of quarterly total revenues, operating income, and net income. Current Total Revenues of $11.20B is a multi-year high, up +3% QoQ and +3% YoY. Total Revenues have been consistent and over $10B for 6 consecutive quarters. Current Operating Income of $1.46B is a drop and multi-year low, due to the $768M restructuring charge. Net Income of $1.23B is the same scenario as Operating Income, a drop and multi-year low, due to the restructuring charge.

Cisco Gross Margin, Operating Margin, and Net Margin Below is a chart of quarterly gross margin, operating margin, and net margin. Current Gross Margin of 61.29% is level QoQ but still continues below the historical 63% area. Current Operating Margin of 13.01% is a drop, as was Operating Income, due to the $768M restructuring charge. Current Net Margin of 11.00% is also a drop due to the restructuring charge.

Cisco Return on Assets Below is a chart of annual return on average assets per quarter. The total net income for the most recent 4 quarters is divided into average assets for the most recent 4 quarters to obtain a rolling annualized ROA, an annualized return on average assets for the 12 months (4 quarters) ended. Cisco has a historically low ROA for a technology company and the ROA is decreasing. Current Return on Assets of +7.81% is well below the QE July 2010 of 10.39% and decreased for the 5th consecutive quarter on the chart. The current sharp decrease was due to the $768M restructuring charge. The overall general decline in ROA is because net income is relatively stable while total assets is increasing.

Cisco Growth Rates Below is a chart of the quarterly (QoQ, Q/Q, quarterly change) growth rates for total revenues and earnings per share. Current Total Revenues Growth of +3% is the second consecutive quarterly increase, after 2 consecutive quarterly decreases. Total revenues have not been volatile, ranging from -3.19% to +8.80% on the chart. Current Earnings per Share Growth of -33.33% reflects the $768M restructuring charge. Earnings per share have decreased 3 of the past 4 quarters, but have been most volatile until the past 3 quarters.

Cisco Revenue Sources Below is a chart of quarterly revenue sources, as a percentage of total revenues. The overall trend is Routers are decreasing, while Switches, New Products, Other Products, and Service are increasing slightly. The current decrease in Routers has been offset by small increases in the other segments.

Cisco Geographic Revenues Below is a chart of quarterly geographic revenues, as a percentage of total revenues. For the current quarter, U.S. and Canada revenues were $5.91B and 53% of total revenues. Europe was $2.18B and 19%, Emerging Markets were $1.29B and 12%, and Asia Pacific was $1.82B and 16%. The overall trend is a decrease in U.S. and Canada, a decrease in Europe, level in Emerging Markets, and an increase in Asia Pacific.

Cisco Operating Expense Ratio Below is a chart of quarterly operating expense ratio, which is operating expenses divided by total revenues. The current Operating Expense Ratio of 48.28% is a spike upwards due to the $768M restructuring charge and a multi-year high. This indicates a decreased efficiency plus a lower proportion of revenues is reaching the bottom line, net income and earnings per share.

Cisco Reports Fourth Quarter and Fiscal Year 2011 Earnings

SAN JOSE, CA -- (MARKET WIRE) -- 08/10/11 -- Cisco (NASDAQ: CSCO)

* Q4 Net Sales: $11.2 billion

* Q4 Net Income: $1.2 billion GAAP; $2.2 billion non-GAAP

* Q4 Earnings per Share: $0.22 GAAP; $0.40 non-GAAP

Cisco (NASDAQ: CSCO), the worldwide leader in networking that transforms how people connect, communicate and collaborate, today reported its fourth quarter and fiscal year results for the period ended July 30, 2011. Cisco reported fourth quarter net sales of $11.2 billion, net income on a generally accepted accounting principles (GAAP) basis of $1.2 billion or $0.22 per share, and non-GAAP net income of $2.2 billion or $0.40 per share.

"We've made significant progress on our comprehensive action plan to position ourselves for our next stage of growth and profitability, while delivering solid financial results in Q4," said John Chambers, chairman and CEO, Cisco. "As we start our next fiscal year, you will see a very focused, agile, lean and aggressive company, that is laser focused on helping our customers use intelligent networks to transform their businesses."

About Cisco

Cisco (NASDAQ: CSCO) is the worldwide leader in networking that transforms how people connect, communicate and collaborate. Information about Cisco can be found at http://www.cisco.com. For ongoing news, please go to http://newsroom.cisco.com/.

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