Cisco Reports First Quarter Earnings SAN JOSE, C

SAN JOSE, CA--(Marketwired - Nov 15, 2017) - Cisco ( NASDAQ : CSCO )

• Q1 Revenue : $12.1 billion
  • Decrease of (2)% year over year
  • Recurring revenue was 32% of total revenue, up over 3 points year over year

• Q1 Earnings per Share: $0.48 GAAP; $0.61 non-GAAP
• Q2 FY 2018 Outlook:
  • Revenue: 1% to 3% growth year over year
  • Earnings per Share: GAAP $0.46 to $0.51; Non-GAAP: $0.58 to $0.60

Cisco today reported first quarter results for the period ended October 28, 2017. Cisco reported first quarter revenue of $12.1 billion, net income on a generally accepted accounting principles (GAAP) basis of $2.4 billion or $0.48 per share, and non-GAAP net income of $3.0 billion or $0.61 per share.

"Our results in Q1 demonstrate the continued progress we're making on our strategy," said Chuck Robbins, CEO of Cisco. "The network has never been more critical to business success. Cisco is delivering more insights and intelligence as we help our customers build highly secure, intelligent platforms for digital business."

		GAAP Results
		Q1 FY 2018			Q1 FY 2017			Vs. Q1 FY 2017
Revenue		$	12.1 billion		$	12.4 billion		(2)%
Net Income		$	2.4 billion		$	2.3 billion		3%
Diluted Earnings per Share (EPS)		$	0.48		$	0.46		4%

	Non-GAAP Results
		Q1 FY 2018			Q1 FY 2017			Vs. Q1 FY 2017
Net Income		$	3.0 billion		$	3.1 billion		(2)%
EPS		$	0.61		$	0.61		--%

Reconciliations between net income, EPS, 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."

"We delivered a solid Q1 and executed well as we focus on strategic priorities and maintaining rigorous discipline on profitability and cash generation," said Kelly Kramer, CFO of Cisco. "We delivered strong growth in operating and free cash flow, focused investments on long term profitable growth, and returned $3.1 billion to shareholders through repurchases and quarterly dividends."

Financial Summary

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

Q1 FY 2018 Highlights

Revenue -- Total revenue was $12.1 billion, down 2%, with product revenue down 3% and service revenue up 1%. 32% of total revenue was from recurring offers, up over 3 percentage points from the first quarter of fiscal 2017. Revenue by geographic segment was: Americas down 1%, EMEA down 3%, and APJC down 1%. Product revenue performance was led by Security and Applications, which increased by 8% and 6%, respectively. Infrastructure Platforms revenue decreased by 4%.

Gross Margin -- On a GAAP basis, total gross margin and product gross margin were 61.2% and 60.1%, respectively. The decrease in the product gross margin compared with 63.4% in the first quarter of fiscal 2017 was primarily due to pricing, legal and indemnification settlements, and lower productivity benefits.

Non-GAAP total gross margin and product gross margin were 63.7% and 63.0%, respectively. The decrease in non-GAAP product gross margin compared with 64.8% in the first quarter of fiscal 2017 was primarily due to pricing and lower productivity benefits. While productivity was positive, the benefit was lower than in the prior year as productivity improvements continued to be adversely impacted by an increase in the cost of certain memory components, consistent with our expectations.

GAAP service gross margin was 64.5% and non-GAAP service gross margin was 65.6%.

Total gross margins by geographic segment were: 64.2% for the Americas, 63.2% for EMEA and 62.1% for APJC.

Operating Expenses -- On a GAAP basis, operating expenses were $4.7 billion, down 7%. Non-GAAP operating expenses were $4.0 billion, down 3%, and were 33.3% of revenue.

Operating Income -- GAAP operating income was $2.8 billion, down 4%, with GAAP operating margin of 22.7%. Non-GAAP operating income was $3.7 billion, down 5%, with non-GAAP operating margin of 30.4%.

Provision for Income Taxes -- The GAAP tax provision rate was 19.2%. The non-GAAP tax provision rate was 22.0%.

Net Income and EPS -- On a GAAP basis, net income was $2.4 billion and EPS was $0.48. On a non-GAAP basis, net income was $3.0 billion, a decrease of 2%, and EPS was flat at $0.61.

Cash Flow from Operating Activities -- was $3.1 billion, an increase of 13% compared with $2.7 billion for the first quarter of fiscal 2017.

Balance Sheet and Other Financial Highlights

Cash and Cash Equivalents and Investments -- were $71.6 billion at the end of the first quarter of fiscal 2018, compared with $70.5 billion at the end of fiscal 2017. The total cash and cash equivalents and investments available in the United States at the end of the first quarter of fiscal 2018 were $2.5 billion.

Deferred Revenue -- was $18.6 billion, up 10% in total, with deferred product revenue up 16%, driven largely by subscription-based and software offers, and deferred service revenue was up 5%. The portion of product deferred revenue related to recurring software and subscription offers increased 37%.

Capital Allocation -- In the first quarter of fiscal 2018, Cisco declared and paid a cash dividend of $0.29 per common share, or $1.4 billion. For the first quarter of fiscal 2018, Cisco repurchased approximately 51 million shares of common stock under its stock repurchase program at an average price of $31.80 per share for an aggregate purchase price of $1.6 billion.

As of October 28, 2017, Cisco had repurchased and retired 4.8 billion shares of Cisco common stock at an average price of $21.41 per share for an aggregate purchase price of approximately $101.9 billion since the inception of the stock repurchase program. The remaining authorized amount for stock repurchases under this program is approximately $10.1 billion with no termination date.

Acquisitions In the first quarter of fiscal 2018, we announced the acquisitions of privately held Springpath, Inc. and privately held Perspica, Inc. The Springpath acquisition is designed to enhance our ability to deliver next-generation data center innovation to customers through hyperconvergence software. The Springpath acquisition closed in the first quarter of fiscal 2018. The Perspica acquisition provides machine learning and data processing technology which enables customers to analyze large amounts of application-related data, in real-time and with business context. The Perspica acquisition closed in the second quarter of fiscal 2018.

We also closed our acquisitions of Viptela, Inc., a privately held company that provides software-defined wide area networking products, and Observable Networks, Inc., a privately held company that offers cloud-native network forensics security applications delivered as a service.

On October 23, 2017, we announced a definitive agreement to acquire BroadSoft, Inc., a publicly held company that offers cloud calling and contact center solutions. The acquisition is expected to close after completion of customary regulatory reviews.

Business Outlook for Q2 FY 2018

Cisco expects to achieve the following results for the second quarter of fiscal 2018:

Q2 FY 2018
Revenue		1% to 3% growth Y/Y
Non-GAAP gross margin rate		62.5% - 63.5%
Non-GAAP operating margin rate		29.5% - 30.5%
Non-GAAP tax provision rate		22%
Non-GAAP EPS		$0.58 - $0.60

Our Q2 FY2018 business outlook does not reflect any impact from the pending acquisition of BroadSoft.

Cisco estimates that GAAP EPS will be $0.46 to $0.51 in the second quarter of fiscal 2018.

A reconciliation between the Business Outlook for Q2 FY 2018 on a GAAP and non-GAAP basis is provided in the table entitled "GAAP to non-GAAP Business Outlook for Q2 FY 2018" located in the section entitled "Reconciliations of GAAP to non-GAAP Measures."

Editor's Notes:

• Q1 fiscal year 2018 conference call to discuss Cisco's results along with its business outlook will be held on Wednesday, November 15, 2017 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, November 15, 2017 to 4:00 p.m. Pacific Time, November 22, 2017 at 1-866-421-0447 (United States) or 1-203-369-0803 (international). The replay will also be available via webcast on the Cisco Investor Relations website at http://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, November 15, 2017. 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 at http://investor.cisco.com .

CISCO SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In millions, except per-share amounts)
(Unaudited)
				Three Months Ended
				October 28, 2017				October 29, 2016
REVENUE:
	Product			$	9,054			$	9,302
	Service				3,082				3,050
		Total revenue			12,136				12,352
COST OF SALES:
	Product				3,615				3,403
	Service				1,094				1,065
		Total cost of sales			4,709				4,468
GROSS MARGIN					7,427				7,884
OPERATING EXPENSES:
	Research and development				1,567				1,545
	Sales and marketing				2,334				2,418
	General and administrative				557				555
	Amortization of purchased intangible assets				61				78
	Restructuring and other charges				152				411
		Total operating expenses			4,671				5,007
OPERATING INCOME					2,756				2,877
	Interest income				379				295
	Interest expense				(235	)			(198	)
	Other income (loss), net				62				(21	)
		Interest and other income (loss), net			206				76
INCOME BEFORE PROVISION FOR INCOME TAXES					2,962				2,953
Provision for income taxes					568				631
	NET INCOME			$	2,394			$	2,322
Net income per share:
	Basic			$	0.48			$	0.46
	Diluted			$	0.48			$	0.46
Shares used in per-share calculation:
	Basic				4,959				5,027
	Diluted				4,994				5,066
Cash dividends declared per common share				$	0.29			$	0.26

CISCO SYSTEMS, INC.
REVENUE BY SEGMENT
(In millions, except percentages)
				Three Months Ended
				October 28, 2017
				Amount			Y/Y %
Revenue:
	Americas			$	7,350		(1)%
	EMEA				2,909		(3)%
	APJC				1,877		(1)%
		Total		$	12,136		(2)%

CISCO SYSTEMS, INC.
GROSS MARGIN PERCENTAGE BY SEGMENT
(In percentages)
			Three Months Ended
			October 28, 2017
Gross Margin Percentage:
	Americas		64.2%
	EMEA		63.2%
	APJC		62.1%

CISCO SYSTEMS, INC.
REVENUE FOR GROUPS OF SIMILAR PRODUCTS AND SERVICES
(In millions, except percentages)
				Three Months Ended
				October 28, 2017
				Amount			Y/Y %
Revenue:
	Infrastructure Platforms			$	6,970		(4)%
	Applications				1,203		6%
	Security				585		8%
	Other Products				296		(16)%
		Total Product			9,054		(3)%
	Services				3,082		1%
		Total		$	12,136		(2)%

Effective Q1 FY 2018, we began reporting our product and service revenue in the following five categories: Infrastructure Platforms, Applications, Security, Other Products and Services. The change better aligns our product categories with our evolving business model. Our segments will continue to be based on geographies which consist of the Americas, EMEA, and APJC. This change only impacts how we report revenue by product category. The reclassified product category revenue by quarter is available on Cisco's Investor Relations website at investor.cisco.com/investor-relations/financial-information/Financial-Results/default.aspx .

CISCO SYSTEMS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In millions)
(Unaudited)
				October 28, 2017			July 29, 2017
ASSETS
Current assets:
	Cash and cash equivalents			$	11,043		$	11,708
	Investments				60,545			58,784
	Accounts receivable, net of allowance for doubtful accounts of $193 at October 28, 2017 and $211 at July 29, 2017				4,206			5,146
	Inventories				1,693			1,616
	Financing receivables, net				5,038			4,856
	Other current assets				1,555			1,593
		Total current assets			84,080			83,703
Property and equipment, net					3,202			3,322
Financing receivables, net					4,876			4,738
Goodwill					30,233			29,766
Purchased intangible assets, net					2,677			2,539
Deferred tax assets					4,006			4,239
Other assets					1,448			1,511
		TOTAL ASSETS		$	130,522		$	129,818
LIABILITIES AND EQUITY
Current liabilities:
	Short-term debt			$	10,239		$	7,992
	Accounts payable				1,155			1,385
	Income taxes payable				86			98
	Accrued compensation				2,684			2,895
	Deferred revenue				10,920			10,821
	Other current liabilities				4,200			4,392
		Total current liabilities			29,284			27,583
	Long-term debt				25,684			25,725
	Income taxes payable				883			1,250
	Deferred revenue				7,645			7,673
	Other long-term liabilities				1,476			1,450
		Total liabilities			64,972			63,681
Total equity					65,550			66,137
	TOTAL LIABILITIES AND EQUITY			$	130,522		$	129,818

CISCO SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In millions)
(Unaudited)
						Three Months Ended
						October 28,  2017				October 29,  2016
Cash flows from operating activities:
	Net income					$	2,394			$	2,322
	Adjustments to reconcile net income to net cash provided by operating activities:
		Depreciation, amortization, and other					566				599
		Share-based compensation expense					392				372
		Provision for receivables					(17	)			15
		Deferred income taxes					178				158
		Excess tax benefits from share-based compensation					--				(91	)
		(Gains) losses on divestitures, investments and other, net					(56	)			32
		Change in operating assets and liabilities, net of effects of acquisitions and divestitures:
			Accounts receivable				957				1,049
			Inventories				(80	)			44
			Financing receivables				(333	)			(900	)
			Other assets				8				191
			Accounts payable				(235	)			(63	)
			Income taxes, net				(419	)			(440	)
			Accrued compensation				(215	)			(333	)
			Deferred revenue				77				462
			Other liabilities				(137	)			(687	)
				Net cash provided by operating activities			3,080				2,730
Cash flows from investing activities:
	Purchases of investments						(8,275	)			(18,667	)
	Proceeds from sales of investments						2,682				11,337
	Proceeds from maturities of investments						3,929				2,449
	Acquisition of businesses, net of cash and cash equivalents acquired						(725	)			(251	)
	Purchases of investments in privately held companies						(20	)			(38	)
	Return of investments in privately held companies						81				24
	Acquisition of property and equipment						(168	)			(275	)
	Proceeds from sales of property and equipment						1				2
	Other						--				23
				Net cash used in investing activities			(2,495	)			(5,396	)
Cash flows from financing activities:
	Issuances of common stock						9				88
	Repurchases of common stock - repurchase program						(1,686	)			(1,023	)
	Shares repurchased for tax withholdings on vesting of restricted stock units						(342	)			(401	)
	Short-term borrowings, original maturities of 90 days or less, net						(2,498	)			--
	Issuances of debt						5,482				6,232
	Repayments of debt						(748	)			(1	)
	Excess tax benefits from share-based compensation						--				91
	Dividends paid						(1,436	)			(1,308	)
	Other						(31	)			(60	)
				Net cash provided by (used in) financing activities			(1,250	)			3,618
Net increase (decrease) in cash and cash equivalents							(665	)			952
Cash and cash equivalents, beginning of period							11,708				7,631
Cash and cash equivalents, end of period						$	11,043			$	8,583
Supplemental cash flow information:
Cash paid for interest						$	283			$	248
Cash paid for income taxes, net						$	810			$	913

CISCO SYSTEMS, INC.
DEFERRED REVENUE
(In millions)
					October 28, 2017			July 29, 2017			October 29, 2016
Deferred revenue:
	Service				$	10,991		$	11,302		$	10,424
	Product:
		Deferred revenue related to recurring software and subscription offers				5,213			4,971			3,801
		Other product deferred revenue				2,361			2,221			2,726
		Total product deferred revenue				7,574			7,192			6,527
			Total		$	18,565		$	18,494		$	16,951
Reported as:
	Current				$	10,920		$	10,821		$	10,215
	Noncurrent					7,645			7,673			6,736
			Total		$	18,565		$	18,494		$	16,951

CISCO SYSTEMS, INC.
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 2018
	October 28, 2017			$	0.29		$	1,436		51		$	31.80		$	1,620		$	3,056
Fiscal 2017
	July 29, 2017			$	0.29		$	1,448		38		$	31.61		$	1,201		$	2,649
	April 29, 2017				0.29			1,451		15			33.71			503			1,954
	January 28, 2017				0.26			1,304		33			30.33			1,001			2,305
	October 29, 2016				0.26			1,308		32			31.12			1,001			2,309
		Total		$	1.10		$	5,511		118		$	31.38		$	3,706		$	9,217

CISCO SYSTEMS, INC.
RECONCILIATIONS OF GAAP TO NON-GAAP MEASURES
GAAP TO NON-GAAP NET INCOME
(In millions, except per-share amounts)
				Three Months Ended
				October 28,  2017				October 29,  2016
GAAP net income				$	2,394			$	2,322
	Adjustments to cost of sales:
		Share-based compensation expense			57				54
		Amortization of acquisition-related intangible assets			139				112
		Supplier component remediation charge (adjustment), net			(19	)			--
		Legal and indemnification settlements			122				--
	Total adjustments to GAAP cost of sales				299				166
	Adjustments to operating expenses:
		Share-based compensation expense			335				315
		Amortization of acquisition-related intangible assets			61				78
		Acquisition-related/divestiture costs			83				53
		Significant asset impairments and restructurings			152				411
	Total adjustments to GAAP operating expenses				631				857
	Total adjustments to GAAP income before provision for income taxes				930				1,023
	Income tax effect of non-GAAP adjustments				(288	)			(244	)
Non-GAAP net income				$	3,036			$	3,101
Diluted net income per share:
GAAP				$	0.48			$	0.46
Non-GAAP				$	0.61			$	0.61

CISCO SYSTEMS, INC.

RECONCILIATIONS OF GAAP TO NON-GAAP MEASURES

GROSS MARGINS, OPERATING EXPENSES, OPERATING MARGINS, AND NET INCOME

(In millions, except percentages)

			Three Months Ended
			October 28, 2017
			Product Gross Margin				Service Gross Margin				Total Gross Margin				Operating Expenses				Y/Y			Operating Income				Y/Y			Net Income				Y/Y
GAAP amount			$	5,439			$	1,988			$	7,427			$	4,671			(7	)%		$	2,756			(4	)%		$	2,394			3	%
% of revenue				60.1	%			64.5	%			61.2	%			38.5	%						22.7	%						19.7	%
Adjustments to GAAP amounts:
	Share-based compensation expense			23				34				57				335							392							392
	Amortization of acquisition-related intangible assets			139				--				139				61							200							200
	Supplier component remediation charge (adjustment), net			(19	)			--				(19	)			--							(19	)						(19	)
	Legal and indemnification settlements			122				--				122				--							122							122
	Acquisition/divestiture-related costs			--				--				--				83							83							83
	Significant asset impairments and restructurings			--				--				--				152							152							152
	Income tax effect			--				--				--				--							--							(288	)
	Non-GAAP amount		$	5,704			$	2,022			$	7,726			$	4,040			(3	)%		$	3,686			(5	)%		$	3,036			(2	)%
% of revenue				63.0	%			65.6	%			63.7	%			33.3	%						30.4	%						25.0	%

			Three Months Ended
			October 29, 2016
			Product Gross Margin				Service Gross Margin				Total Gross Margin				Operating Expenses				Operating Income				Net Income
GAAP amount			$	5,899			$	1,985			$	7,884			$	5,007			$	2,877			$	2,322
% of revenue				63.4	%			65.1	%			63.8	%			40.5	%			23.3	%			18.8	%
Adjustments to GAAP amounts:
	Share-based compensation expense			21				33				54				315				369				369
	Amortization of acquisition-related intangible assets			112				--				112				78				190				190
	Acquisition/divestiture-related costs			--				--				--				53				53				53
	Significant asset impairments and restructurings			--				--				--				411				411				411
	Income tax effect			--				--				--				--				--				(244	)
Non-GAAP amount			$	6,032			$	2,018			$	8,050			$	4,150			$	3,900			$	3,101
% of revenue				64.8	%			66.2	%			65.2	%			33.6	%			31.6	%			25.1	%

CISCO SYSTEMS, INC.
RECONCILIATIONS OF GAAP TO NON-GAAP MEASURES
EFFECTIVE TAX RATE
(In percentages)
			Three Months Ended
			October 28, 2017			October 29, 2016
GAAP effective tax rate			19.2	%		21.4	%
	Total adjustments to GAAP provision for income taxes		2.8	%		0.6	%
Non-GAAP effective tax rate			22.0	%		22.0	%

GAAP TO NON-GAAP BUSINESS OUTLOOK FOR Q2 FY 2018
Q2 FY 2018		Gross Margin Rate		Operating Margin Rate		Tax Provision Rate		Earnings per Share (2)
GAAP		61.0% - 62.0%		23.0% - 24.0%		18%		$0.46 - $0.51
Estimated adjustments for:
Share-based compensation expense		0.5%		3.5%		--		$0.05 - $0.06
Amortization of purchased intangible assets and other acquisition-related/divestiture costs		1.0%		2.0%		--		$0.03 - $0.04
Restructuring and other charges (1)		--		1.0%		--		$0.01 - $0.02
Income tax effect of non-GAAP adjustments		--		--		4%
Non-GAAP		62.5% - 63.5%		29.5% - 30.5%		22%		$0.58 - $0.60

⁽¹⁾ In August 2016, we began taking action under a restructuring plan in order to reinvest in our key priority areas with estimated pretax charges of approximately $850 million. In the first quarter of fiscal 2018, we extended the restructuring plan to include an additional $150 million of estimated additional pretax charges. We have recognized pretax charges of $908 million to our GAAP financial results in relation to this restructuring plan since its inception. We expect to recognize the remaining charges under this plan primarily in the second quarter of fiscal 2018.

⁽²⁾ Estimated adjustments to GAAP earnings per share are shown after income tax effects.

Our Q2 FY2018 business outlook does not reflect any impact from the pending acquisition of BroadSoft.

Except as noted above, this business outlook does not include the effects of any future acquisitions/divestitures, asset impairments, restructurings and significant tax matters or other events, which may or may not be significant unless specifically stated.

Forward Looking Statements, Non-GAAP Information and Additional Information

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 continued execution on our strategy, the continued criticality of the network to business success, our ability to deliver more insights and intelligence as we help our customers build highly secure, intelligent platforms for digital business, and our ability to continue to execute well and return value to our shareholders) and the future financial performance of Cisco (including the business outlook for Q2 FY 2018) 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, key growth areas, and in certain geographical locations, as well as maintaining leadership in routing, switching and services; 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 market; 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; our ability to achieve the benefits of the announced restructuring and possible changes in the size and timing of the related charges; man-made problems such as cyber-attacks, data protection breaches, computer viruses or terrorism; 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 7, 2017. 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 28, 2017 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 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, 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 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.

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