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2004฀ANNUAL฀REPORT฀฀13
JOHN฀P.฀MORGRIDGE
CHAIRMAN฀OF฀THE฀BOARD
Second,฀we฀continued฀to฀improve฀our฀productivity,฀฀
as฀measured฀in฀terms฀of฀operating฀expense฀as฀a฀per-
centage฀of฀revenue.฀During฀fiscal฀2004,฀our฀operating฀
expenses฀as฀a฀percentage฀of฀revenue฀improved฀by฀฀
approximately฀4฀percent.฀Additionally,฀we฀used฀our฀
own฀technology฀and฀process฀changes฀to฀increase฀฀
productivity฀per฀employee฀by฀approximately฀27฀฀
percent฀in฀fiscal฀2004฀to฀$690,000฀annualized฀revenue฀
per฀employee,฀compared฀to฀$545,000฀annualized฀in฀
fiscal฀2003.฀This฀tremendous฀increase฀in฀productivity฀
contributed฀to฀a฀year-over-year฀increase฀in฀net฀income฀
of฀23฀percent.฀Our฀profitability฀growth฀rate฀exceeded฀
our฀revenue฀growth฀rate,฀reflecting฀our฀successful฀
execution฀in฀driving฀productivity฀and฀operational฀฀
effectiveness฀throughout฀the฀organization.฀
Third,฀we฀maintained฀our฀healthy฀and฀conserva-
tive฀balance฀sheet,฀while฀we฀continued฀to฀be฀active฀
with฀our฀share฀repurchase฀program.฀At฀the฀end฀
of฀fiscal฀2004,฀cash฀and฀investments฀totaled฀
$19.3฀billion,฀days฀sales฀outstanding฀(DSO)฀
were฀28฀days,฀and฀annualized฀inventory฀
turns฀were฀6.4.฀During฀this฀same฀period,฀
we฀repurchased฀approximately฀$9฀billion฀
or฀408฀million฀shares฀of฀our฀stock฀at฀an฀
average฀price฀of฀$22.30.฀As฀of฀the฀end฀of฀
fiscal฀2004,฀our฀cumulative฀purchases฀
since฀the฀inception฀of฀the฀share฀repurchase฀
program฀in฀September฀2001฀were฀approxi-
mately฀$17฀billion,฀or฀956฀million฀shares,฀
at฀an฀average฀price฀of฀$17.70,฀with฀a฀remaining฀
approved฀repurchase฀amount฀of฀approximately฀
$8฀billion.฀
We฀routinely฀evaluate฀the฀most฀effective฀use฀
of฀our฀cash.฀Our฀Board฀of฀Directors฀considers฀
both฀future฀growth฀opportunities฀for฀Cisco,฀as฀well฀
as฀the฀requirement฀to฀provide฀an฀attractive฀return฀on฀
investment฀to฀our฀shareholders,฀in฀this฀evaluation.฀฀
We฀are฀beginning฀to฀see฀good฀return฀on฀the฀investments฀฀
we฀have฀made฀in฀certain฀customer฀markets,฀technolo-
gies,฀and฀geographic฀theaters,฀evidenced฀by฀our฀strong฀฀
momentum฀with฀service฀providers,฀market฀share฀
increases฀in฀Advanced฀Technologies,฀and฀growth฀in฀
emerging฀markets฀such฀as฀India฀and฀China.฀Today,฀฀
we฀believe฀a฀share฀repurchase฀program,฀along฀with฀฀
ongoing฀strategic฀investments฀and฀a฀strong฀cash฀balance,฀
to฀be฀in฀the฀best฀interest฀of฀our฀shareholders.
GROWTH฀AND฀INNOVATION
The฀strong฀growth฀Cisco฀experienced฀during฀fiscal฀
2004฀was฀balanced฀across฀all฀three฀of฀the฀growth฀
areas฀we฀outlined฀last฀year:฀core฀routing฀and฀฀
฀฀฀switching;฀the฀service฀provider฀market;฀and฀our฀
฀Advanced฀Technology฀markets.฀Combined฀with฀
this฀growth,฀our฀ability฀to฀continuously฀inno-
vate฀and฀lead฀the฀industry฀in฀many฀markets฀
in฀terms฀of฀product฀and฀system฀offerings฀
was฀a฀major฀driver฀of฀our฀success.฀Cisco฀
gained฀new฀customers฀in฀almost฀all฀of฀its฀
product฀areas฀and฀in฀each฀of฀the฀customer฀
markets฀we฀participate฀in—enterprise,฀฀
service฀provider,฀commercial,฀and฀consumer.
During฀fiscal฀2004,฀revenues฀from฀Cisco’s฀
core฀technologies฀of฀routing฀and฀switching฀
increased฀year-over-year฀by฀11฀percent฀and฀15฀
percent,฀respectively.฀In฀addition฀to฀strong฀฀
revenue฀growth,฀we฀introduced฀many฀new฀
routing฀and฀switching฀solutions,฀including฀the฀
world’s฀highest-capacity฀Internet฀router,฀the฀