Cisco Parties Like It's 1999

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Hey, Fools! Remember the Internet Bubble? Well, it's back.

At least in part. Cisco Systems (Nasdaq: CSCO) gave us a blast from its past Tuesday, reverting to its Bubble-icious habit of "beating by a penny" on its fiscal 2008 earnings report, and reporting in pro forma-ese for good measure. Sales in the final quarter of Cisco's fiscal year were up 10% year over year, and the firm earned $0.40 pro forma, or $0.33 GAAP.

Party like it's 1999
But enough about the quarterly results. This is a once-in-a-year event, you know -- Cisco's full-year earnings report. Let the mainstream press obsess over a single quarter's extra penny. Here at the Fool we're going to take the opportunity to review the whole gosh darn year.

At first glance, fiscal 2008 looked only "OK" for Cisco. Sales grew 13%, falling just shy of the $40 billion mark. Referring back to the key issue we discussed in our Foolish Forecast yesterday, we find Cisco continuing to expand its investment in new products; R&D spending rose 14.5% last year. More importantly, Cisco cracked down on its runaway selling, general & administrative budget. Up 22% through the first three quarters of the year, it's now drifted down to 19% growth.

That's still faster than revenues are growing, mind you, and a major contributor to the fact that Cisco's operating margin shed 70 basis points last year. But it's an improvement, and with the operating margin now sitting at 23.9%, Cisco still trumps Juniper (Nasdaq: JNPR), Ciena (Nasdaq: CIEN), Nortel (NYSE: NT), and Alcatel-Lucent (NYSE: ALU), in that order.

Accounting profits lag, but...
Thanks to the lower margin, and despite continued share buybacks, GAAP profits failed to keep pace with sales last year, rising 12% to $1.31 per share.

Cash profits surge
But dig a little deeper, and I think you'll like what you find on Cisco's cash flow statement. There we find free cash flow soaring not 10%, 12%, or 13% -- but 22%, to $10.8 billion. For the record, that's 34% more free cash flow that the company churned out, than it was allowed to report as net income under GAAP. (Also worth noting: Cisco confirmed yesterday that it won't be spending this cash to buy EMC (NYSE: EMC).)

Foolish takeaway
With the stock now carrying a 13 price-to-free cash flow against projected long-term profits growth of 14%, Cisco looks ready to rock and roll.

For more Foolish news and views on Cisco, read:

• Foolish Forecast: Cisco Countdown
• The Next Stocks You Should Buy
• Cisco Is Still Great
• Before the Call: Soothsaying Cisco