Cisco Systems Reports Third Quarter Earnings SAN JOSE, Calif. Cisco Systems, Inc. Robyn Jenkins-Blum, 408-853-9848 (Press Contact) firstname.lastname@example.org Blair Christie, 408-525-4856 (Investor Relations Contact) email@example.com Cisco Systems, Inc. -- Q3 Net Sales: $5.6 billion (21.7% increase year over year; 4.1% increase quarter over quarter) -- Q3 Operating Cash Flows: $2.4 billion -- Q3 Earnings Per Share: $0.17 GAAP; $0.19 pro forma Cisco Systems, Inc., the worldwide leader in networking for the Internet, today reported its third quarter results for the period ended May 1, 2004. Net sales for the third quarter of fiscal 2004 were $5.6 billion, compared with $4.6 billion for the third quarter of fiscal 2003, an increase of 21.7 percent, and compared with $5.4 billion for the second quarter of fiscal 2004, an increase of 4.1 percent. Net income for the third quarter of fiscal 2004, on a generally accepted accounting principles (GAAP) basis, was $1.2 billion or $0.17 per share, compared with $987 million or $0.14 per share for the third quarter of fiscal 2003, and compared with $724 million or $0.10 per share for the second quarter of fiscal 2004. Pro forma net income for the third quarter of fiscal 2004 was $1.4 billion or $0.19 per share, compared with $1.1 billion or $0.15 per share for the third quarter of fiscal 2003, and compared with $1.3 billion or $0.18 per share for the second quarter of fiscal 2004. A reconciliation between net income on a GAAP basis and pro forma net income is provided in a table immediately following the Pro Forma Consolidated Statements of Operations. Net sales for the first nine months of fiscal 2004 were $16.1 billion, compared with $14.2 billion for the first nine months of fiscal 2003, an increase of 13.7 percent. Net income for the first nine months of fiscal 2004, on a GAAP basis, was $3.0 billion or $0.43 per share, compared with $2.6 billion or $0.36 per share for the first nine months of fiscal 2003. Pro forma net income for the first nine months of fiscal 2004 was $3.9 billion or $0.54 per share, compared with $3.2 billion or $0.44 per share for the first nine months of fiscal 2003. During the third quarter of fiscal 2004, Cisco(R) completed the acquisition of Riverhead Networks, Inc. for a purchase price of approximately $36 million and completed the acquisition of Twingo Systems, Inc. for a purchase price of approximately $5 million. "We are pleased to have achieved record earnings per share this quarter -- marking our eighth consecutive quarter with pro forma net income exceeding $1 billion, and the strongest cash flow from operations in the company's history," said John Chambers, president and CEO, Cisco. "This momentum was achieved through sequential order growth across all major product categories and solid progress in our advanced technologies including security, wireless LAN and IP telephony." Chambers continued, "Equally important has been our continuing strength in internal innovation, our ability to form successful, mutually beneficial partnerships, and our effective integration of acquisitions to accelerate growth into existing and new markets." Cisco will discuss third quarter 2004 results and business outlook on a conference call and Webcast at 1:30 p.m. Pacific Time (PT) today. Call information and related charts are available at http://investor.cisco.com. Financial Highlights -- Cash flows from operations were $2.4 billion for the third quarter of fiscal 2004, compared with $1.3 billion for the third quarter of fiscal 2003, and compared with $1.7 billion for the second quarter of fiscal 2004. -- Cash and cash equivalents and total investments were $18.9 billion at the end of the third quarter of fiscal 2004, compared with $20.7 billion at the end of the fourth quarter of fiscal 2003, and compared with $19.8 billion at the end of the second quarter of fiscal 2004. -- During the third quarter of fiscal 2004, Cisco repurchased 131 million shares of common stock for an aggregate purchase price of $3.0 billion. -- Days sales outstanding (DSO) in accounts receivable at the end of the third quarter of fiscal 2004 were 27 days, compared with 26 days at the end of the fourth quarter of fiscal 2003, and compared with 34 days at the end of the second quarter of fiscal 2004. -- Inventory turns were 6.3 in the third quarter of fiscal 2004, compared with 6.8 in the fourth quarter of fiscal 2003, and compared with 7.5 in the second quarter of fiscal 2004. "We are pleased with our performance this quarter on a number of operational fronts. Our execution was strong, with solid revenue growth, gross margins, profit generation and market share gains," said Dennis Powell, CFO, Cisco. "We continue to remain focused on key financial priorities, including generating profitable growth, internal productivity and maintaining a healthy and conservative balance sheet." Business Highlights -- Cisco and Ericsson announced a strategic agreement to offer joint solutions for the wireline communications market. Together, the two companies plan to provide carrier-class IP-based solutions for operators and help speed the adoption of more efficient and profitable multiservice networks. -- Cisco and IBM announced plans to integrate technologies and products to create security solutions designed to help businesses address their security challenges and reduce costs. -- Cisco and Lucent announced plans to develop a carrier-class voice over IP and multimedia communications solution for mobile service providers using Lucent functionality and the Cisco MGX(R) 8000 Series Media Gateway. -- Cisco and Microsoft announced plans to collaborate on solution development and optimization, marketing and channel programs to help accelerate small and medium-sized business customer and channel partner success. -- Cisco shipped its 3-millionth IP telephone and also announced that Nestle has selected Cisco as one of the major global suppliers of IP communications equipment for its worldwide operations. -- Cisco announced that Bell Canada selected Cisco 12000 Series routers to serve as the foundation platform for its single, converged Internet Protocol/Multiprotocol Label Switching (IP/MPLS) service delivery network. -- Telefonica de Espana plans to deploy Cisco 10000 Series routers in every point of presence throughout Spain as part of a wide-scale upgrade of its IP network. -- Cisco introduced IEEE standard-based, Power over Ethernet capabilities across its Cisco Catalyst 6500, 4500 and 3700 series of intelligent switches. -- Linksys introduced the Wireless-G Broadband Router with SpeedBooster, a new line of speed-enhanced 802.11G wireless products that provide home and small office users with more wireless throughput and enhanced network performance. Linksys also announced it will incorporate Netopia Parental Controls into its Wireless-G Broadband Router with SpeedBooster to further protect computers and users on the network.