15 September 2009

CSCO: Financial Gauge Analysis (Update) for the July 2009 Quarter

We previously posted Cisco Systems' (NASDAQ: CSCO) preliminary Financial Gauge scores for the fourth quarter of fiscal 2009, which ended 25 July 2009.

Cisco, the proud plumber of the Internet, has a dominant (but not unassailable) position in the market for enterprise networking products and services, such as routers.  The company also sells devices intended for home use.

Data from Cisco's press release announcing earnings were used to calculate the preliminary scores.  Subsequently, on 11 September 2009, Cisco filed a 10-K with complete financial statements from the Annual Report to Shareholders

We have now reviewed the 10-K to discover whether the financial metrics that determine the GCFR scores had changed.

We can report that the final GCFR gauge scores the July 2009 quarter are unchanged from the preliminary set.

  • Overall: 36 of 100 (down from 53)

A few items from the notes to the financial statements might be interesting to GCFR readers.  This information was generally disclosed previously.

Cisco made five acquisitions in fiscal 2009 at a total cost of about $1 billion, more than double the dollar amount in fiscal 2008 but still a relatively small amount for this serial acquirer.  Four of the latest acquisitions involved technologies that directly engage consumers.  In previous years, acquisitions were more likely to involve enterprise service delivery and network management.

Cisco now identifies the following "advanced" technologies as ones on which it will focus: application networking services, home networking, security, storage area networking, unified communications, video systems, and wireless technology.

In fiscal 2009, Cisco eliminated about 2000 jobs and implemented a program to encourage early retirement.  These actions resulted in operating expenses of $125 million and $138 million, respectively.  An additional $186 million "is expected to be paid primarily in" the October 2009 quarter.

Cisco repaid $500 million of floating-rate notes that matured in February 2009.  The company issued $4 billion of new fixed-rate securities, due in 2019 and 2039.  Since Cisco had $35 billion in Cash and Short-term investments on July 2009, plus access to revolving credit facilities totaling $2.9 billion, many observers believed the company was filling its war chest with dollars for additional acquisitions.  However, Nyquist Capital argued ...

... Cisco is growing operating cash in order to serve as a lender of last resort to its distributors and customers. An expanded balance sheet will ensure adequate capital is available not just for its own operations, but also the operations of its channel partners and customers.

Cisco spent $10.35 billion to repurchase 372 million shares, for an average price per share of $27.82, in fiscal 2008.  The company spent and $3.6 billion to repurchase 202 million shares, for an average price per share of $17.82, in fiscal 2009.  (The annual report lists the average share prices as $27.80 and $17.89, so there might be some round-off errors.)  What does it mean when management repurchases more shares when the prices are high and less when the prices are low.

Full disclosure: Long CSCO at time of writing.

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