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By clicking “I AGREE”, you indicate that you understand and intend these terms and conditions to be the legal equivalent of a signed, written contract and equally binding, and that you accept such terms and conditions as a condition of viewing any and all Moody’s information that becomes accessible to you (the “Information”). References herein to “Moody’s” include Moody’s Corporation. and each of its subsidiaries and affiliates..

 

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Related Issuers
Rating Action:

Moody's assigns Prime-1 short term rating to Cisco Systems

31 Jan 2011

Approximately $15 billion in debt affected

New York, January 31, 2011 -- Moody's Investors Service has assigned a first-time Prime-1 short term rating to Cisco Systems, Inc. ("Cisco" or "the Company") in relation to its newly established U.S. $3.0 billion commercial paper program. The commercial paper notes will be unsecured, ranking pari passu with all other unsecured and unsubordinated debt. Cisco's A1 senior unsecured and Prime-1 short term ratings reflect its strong and defensible market position, very strong liquidity profile, strong cash flow generating capability and low financial leverage. As of October 31, 2010, Cisco had approximately $42 billion in total available liquidity and $15 billion in total debt. The outlook remains stable.

Moody's has taken the following rating actions:

..Issuer: Cisco Systems Inc.

....Short Term Rating, P1 Assigned

The following ratings are unchanged:

....Senior Unsecured Rating, A1

.Outlook: Stable

Moody's expects that commercial paper borrowings will supplement internally generated cash and that average borrowings under the program will be modest. Alternate liquidity is provided by a $3.0 billion revolving credit facility maturing August 17, 2012. The committed bank facility has same day funding for U.S. dollar loans and is not subject to material adverse changes at each borrowing. There are no outstanding borrowings under the bank facility and Moody's does not expect any usage over the next twelve months. The revolver has one financial covenant which stipulates maximum interest coverage (EBITDA/Interest) of 3:1. We estimate that this ratio stood at 20x for the trailing twelve months ended October 30, 2010 and we expect Cisco will remain well within covenant compliance.

Cisco holds a dominant market position within the network equipment industry, due to its broad product portfolio, strong technology development capabilities and scale of operations and distribution. Its deeply entrenched position within existing networks and familiarity to end-users is a key advantage that helps the company maintain market share. Cisco spends heavily on R&D and supplements internal development with an active acquisition program. Cisco continues to extend its market reach by expanding into new product areas such as unified communications, security, collaboration and video.

Moody's anticipates that Cisco will continue to generate double digit percentage growth in revenues and cash flows for the next 2-3 years. Moody's projects leverage to remain flat at approximately 1.5x, assuming the company refinances current debt due in February. Underlying these projections is free cash flow of $9.0-9.5 billion for fiscal 2011, which will likely decline slightly in 2012 as the company's previously announced regular dividend offsets growth. However, the ratings assume that the company will reduce share repurchase to partially offset the incremental cash outflow from the dividend. (Moody's defines free cash flow as cash from operations less capital investment less dividends.) Further, the ratings anticipate that Cisco will continue to be acquisitive and that the company's overall cash balance will remain approximately flat, despite healthy top-line growth. Moody's estimates that Cisco will remain comfortably within its target range of net realizable cash of $10-15 billion over the next 2-3 years.

Cisco's very strong liquidity was comprised of $3.8 billion in cash, $35.1 billion in marketable securities and the fully available $3.0 billion revolving credit facility as of October 30, 2010. Of the total $38.9 billion in cash and marketable securities, $35.1 billion was held at foreign subsidiaries and potentially subject to U.S. tax upon repatriation. Cisco has $3.0 billion of 5.25% senior unsecured notes which mature on February 22, 2011. The majority of the remaining $12.0 billion in debt matures after 2015, with only $500 million due in 2014.

Despite its strong market position, Cisco faces competitive threats from both sophisticated peers and low-cost producers who aim to capture market share. Cisco must continue to innovate to remain the technology leader, while proving to customers that its products provide more value than cheaper competitors.

Moody's could raise Cisco's ratings if the company's strong operating performance continues and it maintains discipline regarding capital allocation. Additionally, evidence of success in sustaining or growing market share and profitability would support upward ratings movement.

Moody's could lower Cisco's ratings if the company were to experience profit margin compression which resulted in operating margins below 20% on a sustainable basis, a slowdown of top line growth or weakening of its currently robust cash flow generation capability. Additionally, if the company were to increase its share repurchases or dividend payout materially, negative ratings momentum could build.

The last rating action Moody's took on Cisco was on November 9, 2009 when Moody's assigned an A1 rating for the company's senior unsecured debt issuance. The principal methodology used in this rating was Moody's Global Communications Equipment Industry Methodology, published in June 2008.

Cisco Systems, Inc., headquartered in San Jose, California, is the worldwide leader in networking equipment with revenues of $42 billion for the twelve months ended October 2010. Cisco's products include its core routers and switches, that allow customers to move voice, video, and data traffic across their networks as well as internet protocol telephony, security, storage, home networking, and other elements used in enterprise, carrier and consumer data, voice and video networks.

REGULATORY DISCLOSURES

Information sources used to prepare the credit rating are the following: parties involved in the ratings, parties not involved in the ratings, public information, and confidential and proprietary Moody's Investors Service information.

Moody's Investors Service considers the quality of information available on the issuer or obligation satisfactory for the purposes of assigning a credit rating.

Moody's adopts all necessary measures so that the information it uses in assigning a credit rating is of sufficient quality and from sources Moody's considers to be reliable including, when appropriate, independent third-party sources. However, Moody's is not an auditor and cannot in every instance independently verify or validate information received in the rating process.

Please see ratings tab on the issuer/entity page on Moodys.com for the last rating action and the rating history.

The date on which some Credit Ratings were first released goes back to a time before Moody's Investors Service's Credit Ratings were fully digitized and accurate data may not be available. Consequently, Moody's Investors Service provides a date that it believes is the most reliable and accurate based on the information that is available to it. Please see the ratings disclosure page on our website www.moodys.com for further information.

Please see the Credit Policy page on Moodys.com for the methodologies used in determining ratings, further information on the meaning of each rating category and the definition of default and recovery.

New York
Dennis Saputo
Senior Vice President
Corporate Finance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

New York
Alexandra S. Parker
MD - Corporate Finance
Corporate Finance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Moody's Investors Service
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Moody's assigns Prime-1 short term rating to Cisco Systems
No Related Data.
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MJKK and MSFJ also maintain policies and procedures to address Japanese regulatory requirements.

​
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