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Cisco Systems, Inc. 2011 Annual Report

Table of contents

  • Page 1
    Cisco Systems, Inc. 2011 Annual Report

  • Page 2

  • Page 3
    ... business (routing, switching, and associated services), which includes comprehensive security and mobility solutions; collaboration, including telepresence; data center virtualization and cloud; video; and architectures for business transformation, where we address our customers' biggest technology...

  • Page 4
    ... our sales, engineering, services, and operations organization, providing clear lineof-sight accountability toward the goals of accelerating the speed of decisions, driving toward major improvements in productivity, and driving innovation at a faster pace. Fourth, we took steps to deliver more value...

  • Page 5
    ..., due primarily to the robust growth of our Cisco Unified Computing System products. In fiscal 2011, net income was $6.5 billion. Earnings per share on a fully diluted basis were $1.17. Going forward, our goal is to drive earnings faster than revenue to deliver maximum value to shareholders. We view...

  • Page 6
    ...; more focused; and, in our view, even more innovative. We'll continue to drive accountability on many levels-from revenue, gross margins, and market share to profitability and strategic direction to ensure Cisco's future success. Moving forward, we believe that we remain well positioned to capture...

  • Page 7
    ... file number 0-18225 CISCO SYSTEMS, INC. (Exact name of Registrant as specified in its charter) California (State or other jurisdiction of incorporation or organization) 77-0059951 (IRS Employer Identification No.) 170 West Tasman Drive San Jose, California (Address of principal executive offices...

  • Page 8
    ...1. Business ...General ...Products and Services ...Customers and Markets ...Sales Overview ...Product Backlog ...Acquisitions, Investments, and Alliances ...Competition ...Research and Development ...Manufacturing ...Patents, Intellectual Property, and Licensing ...Employees ...Executive Officers of...

  • Page 9
    ..., and our headquarters are in San Jose, California. The mailing address of our headquarters is 170 West Tasman Drive, San Jose, California 95134-1706, and our telephone number at that location is (408) 526-4000. Our website is www.cisco.com. Through a link on the Investor Relations section of our...

  • Page 10
    ... core technologies, Routing and Switching; New Products; and Other Products. In addition to our product offerings, we provide a broad range of service offerings, including technical support services and advanced services. Our customer base spans virtually all types of public and private agencies and...

  • Page 11
    ... addressing market opportunities in the communications and IT industry will be adaptable to other markets. An example of a market where we aim to apply this approach is mobility, where growth of IP traffic on handheld devices is driving the need for more robust architectures, equipment and services...

  • Page 12
    ... Fabric Extenders. During fiscal 2011, we continued to enhance our fixed configuration and modular switches to deliver key network services that are designed to work with Cisco routing, security, and wireless products to enable video collaboration, enterprise-wide energy management, and policy-based...

  • Page 13
    ... the household, allowing people to share Internet access, printers, storage, video, music, movies, and games throughout the home. Products include routers, adapters, gateways, switches, modems, home network management software, and other products that are designed to provide both tech-savvy and mass...

  • Page 14
    ... programming interface (API), business-relevant mobility data, voice, video, and context-aware applications to partners and end-user customers. A current key product line within our wireless technology category is the Cisco Aironet product family. Data Center Cisco Unified Computing System...

  • Page 15
    ... and content-based and application-based services. Service providers use a variety of our routing and switching, optical, security, video, connected home, mobility, and network management products, systems and services for their own networks. In addition, many service providers use Cisco data center...

  • Page 16
    ...quality, and maintenance services, including 24-hour online and telephone support through technical assistance centers. We provide financing arrangements, such as leases, financed service contracts, and loans, for certain qualified customers to build, maintain, and upgrade their networks. We believe...

  • Page 17
    ...its family of products and services. We work to broaden the range of products and services we deliver to customers in target markets through acquisitions, investments, and alliances. We employ the following strategies to address the need for new or enhanced networking and communications products and...

  • Page 18
    ... Brocade Communications Systems, Inc.; Check Point Software Technologies Ltd.; Citrix Systems, Inc.; Dell Inc.; D-Link Corporation; LM Ericsson Telephone Company; Extreme Networks, Inc.; F5 Networks, Inc.; Fortinet, Inc.; Hewlett-Packard Company; Huawei Technologies Co., Ltd.; International Business...

  • Page 19
    ... to International Organization for Standardization (ISO) 9001 or ISO 9003 standards. Our arrangements with contract manufacturers generally provide for quality, cost, and delivery requirements, as well as manufacturing process terms, such as continuity of supply; inventory management; flexibility...

  • Page 20
    capacity, quality, and cost management; oversight of manufacturing; and conditions for use of our intellectual property. We have not entered into any significant long-term contracts with any manufacturing service provider. We generally have the option to renew arrangements on an as-needed basis, ...

  • Page 21
    ... he served as General Counsel. He served as Cisco's Managing Attorney for Europe, the Middle East, and Africa from December 1996 until June 1999; as Director, Worldwide Legal Operations from June 1999 until February 2001; and was promoted to Vice President, Worldwide Legal Services in February 2001...

  • Page 22
    ...to his current position and as of August 2011 he has relocated to San Jose, California. Robert W. Lloyd ... 55 Executive Vice President, Worldwide Operations Mr. Lloyd joined Cisco in November 1994 as General Manager of Cisco Canada. In October 1998, he was promoted to Vice President, EMEA (Europe...

  • Page 23
    ...customer, channel partner, contract manufacturer or supplier financial problems Share-based compensation expense Actual events, circumstances, outcomes, and amounts differing from judgments, assumptions, and estimates used in determining the values of certain assets (including the amounts of related...

  • Page 24
    ...IT-related capital spending by our customers, particularly service providers, and other customer markets as well Increased price competition for our products, not only from our competitors but also as a consequence of customers disposing of unutilized products Risk of excess and obsolete inventories...

  • Page 25
    ... of new products, including products with price-performance advantages Our ability to reduce production costs Entry into new markets or growth in lower margin markets, including markets with different pricing and cost structures, through acquisitions or internal development Sales discounts...

  • Page 26
    ... warranty costs How well we execute on our strategy and operating plans Changes in service gross margin may result from various factors such as changes in the mix between technical support services and advanced services, as well as the timing of technical support service contract initiations...

  • Page 27
    ..., technical support, professional services, and other support services in addition to network equipment sales. Systems integrators also typically integrate our products into an overall solution, and a number of service providers are also systems integrators. Distributors stock inventory and...

  • Page 28
    ... to provide a broad range of networking and communications products and services Product performance Price The ability to introduce new products, including products with price-performance advantages The ability to reduce production costs The ability to provide value-added features such as security...

  • Page 29
    ... generally is recognized based on a sell-through method using information provided by them, and they are generally given business terms that allow them to return a portion of inventory, receive credits for changes in selling price, and participate in various cooperative marketing programs. Inventory...

  • Page 30
    ...securing supply components as we made commitments to secure our near term supply needs. Increases in our purchase commitments to shorten lead times could also lead to excess and obsolete inventory charges if the demand for our products is less than our expectations. If we fail to anticipate customer...

  • Page 31
    ...it will, or if our strategy for addressing this evolution is not successful, many of our strategic initiatives and investments may be of no or limited value. Furthermore, we may not execute successfully on that vision because of errors in product planning or timing, technical hurdles that we fail to...

  • Page 32
    ... related to our engineering, sales, service, marketing and manufacturing functions as we focus on our foundational priorities, such as leadership in our core routing, switching and services, including security and mobility solutions; collaboration; data center virtualization and cloud; video...

  • Page 33
    ...where competitors in such markets have stronger market positions Initial dependence on unfamiliar supply chains or relatively small supply partners Insufficient revenue to offset increased expenses associated with acquisitions The potential loss of key employees, customers, distributors, vendors and...

  • Page 34
    ... WILL LIKELY INCREASE DEMANDS ON OUR SERVICE AND SUPPORT OPERATIONS As we focus on new market opportunities-for example, storage; wireless; security; transporting data, voice, and video traffic across the same network; and other areas within our New Products category, emerging technologies, and our...

  • Page 35
    ... LOSSES Most of our sales are on an open credit basis, with typical payment terms of 30 days in the United States and, because of local customs or conditions, longer in some markets outside the United States. We monitor individual customer payment capability in granting such open credit arrangements...

  • Page 36
    ... inventory, receive credits for changes in selling prices, and participate in various cooperative marketing programs. We maintain estimated accruals and allowances for such business terms. However, distributors tend to have more limited financial resources than other resellers and end-user customers...

  • Page 37
    ... Internet and Internet commerce in any country where we operate. Such regulations could include matters such as voice over the Internet or using IP, encryption technology, sales taxes on Internet product sales, and access charges for Internet service providers. The adoption of regulation of the 29

  • Page 38
    ... compensation program, including our stock incentive program, resulting from the management of share dilution and share-based compensation expense or otherwise, may also adversely affect our ability to retain key employees. As a result of one or more of these factors, we may increase our hiring...

  • Page 39
    ...R&D tax credit laws; by transfer pricing adjustments, including the effect of acquisitions on our intercompany R&D cost sharing arrangement and legal structure; by tax effects of nondeductible compensation; by tax costs related to intercompany realignments; by changes in accounting principles; or by...

  • Page 40
    ... in the press or investment community about our strategic position, financial condition, results of operations, business, security of our products, or significant transactions can cause changes in our stock price. In addition, the stock market has experienced extreme price and volume fluctuations...

  • Page 41
    ...the United States, which include facilities in the surrounding areas of San Jose, California; Boston, Massachusetts; Richardson, Texas; Lawrenceville, Georgia; and Research Triangle Park, North Carolina. We also own land for expansion in some of these locations. In addition, we lease office space in...

  • Page 42
    ... Northern District of California and the California Superior Court for the County of Santa Clara against our Board of Directors and several of our officers for allowing management to make allegedly false statements during earnings calls. Our management of the stock repurchase program is also alleged...

  • Page 43
    ..., Related Stockholder Matters, and Issuer Purchases of Equity Securities (a) Cisco common stock is traded on the NASDAQ Global Select Market under the symbol CSCO. Information regarding the market prices of Cisco common stock as well as quarterly cash dividends declared on Cisco's common stock...

  • Page 44
    ... incorporates it by reference into a document filed under the Securities Act of 1933 or the Securities Exchange Act of 1934. The following graph shows a five-year comparison of the cumulative total shareholder return on Cisco common stock with the cumulative total returns of the S&P Information...

  • Page 45
    ... Ended July 30, 2011 (1) July 31, 2010 July 25, 2009 July 26, 2008 July 28, 2007 Net sales ...Net income (1) ...Net income per share-basic ...Net income per share-diluted ...Shares used in per-share calculation-basic ...Shares used in per-share calculation-diluted . . Cash dividends declared per...

  • Page 46
    ... public sector entities), service providers, commercial customers, and consumers. A summary of our results is as follows (in millions, except percentages and per-share amounts): Fiscal 2011 Fiscal 2010 Variance Net sales ...Gross margin percentage ...Research and development ...Sales and marketing...

  • Page 47
    ...") acquisition completed at the end of the third quarter of fiscal 2010) and 44% in data center, both key strategic areas for us. For fiscal 2011, service revenue increased by 14%. In addition, as we focused on and addressed the items that impacted our financial performance in the first three...

  • Page 48
    ... sales, services and engineering organizations in order to simplify our operating model and focus on our five foundational priorities Leadership in our core business (routing, switching, and associated services) which includes comprehensive security and mobility solutions Collaboration Data center...

  • Page 49
    ... largest percentage growth, in our commercial, service provider, and enterprise markets. Our consumer market experienced a large revenue decline in fiscal 2011, as compared with fiscal 2010, as we exited the Flip Video cameras business and experienced weakness in sales of our networked home products...

  • Page 50
    ... program was $10.2 billion with no termination date. We also declared and paid dividends of $658 million to our shareholders during fiscal 2011. Days sales outstanding in accounts receivable (DSO) at the end of fiscal 2011 was 38 days, compared with 41 days at the end of fiscal 2010. Our inventory...

  • Page 51
    ...arrangement. Delivery has occurred. Shipping documents and customer acceptance, when applicable, are used to verify delivery. The fee is fixed or determinable. We assess whether the fee is fixed or determinable based on the payment terms associated with the transaction and whether the sales price is...

  • Page 52
    ... delivery or completion of performance. Our deferred revenue for services was $8.5 billion and $7.4 billion as of July 30, 2011 and July 31, 2010, respectively. We make sales to distributors and retail partners and generally recognize revenue based on a sell-through method using information provided...

  • Page 53
    ... Statements. Our products are generally covered by a warranty for periods ranging from 90 days to five years, and for some products we provide a limited lifetime warranty. We accrue for warranty costs as part of our cost of sales based on associated material costs, technical support labor costs...

  • Page 54
    ... used an annualized dividend yield based on the per share dividends declared by our Board of Directors. See Note 14 to the Consolidated Financial Statements. The determination of the fair value of employee stock options and employee stock purchase rights on the date of grant using an option-pricing...

  • Page 55
    ... and timing of cash flows expected to be collected, we consider all available information, including past events, current conditions, the remaining payment terms of the security, the financial condition of the issuer, expected defaults, and the value of underlying collateral. For publicly traded...

  • Page 56
    ..., research and development (R&D) tax credits, tax audit settlements, nondeductible compensation, international realignments, and transfer pricing adjustments. Our effective tax rate was 17.1%, 17.5%, and 20.3% in fiscal 2011, 2010, and 2009, respectively. Significant judgment is required in...

  • Page 57
    ... credit laws; by transfer pricing adjustments including the effect of acquisitions on our intercompany R&D cost-sharing arrangement and legal structure; by tax effects of nondeductible compensation; by tax costs related to intercompany realignments; by changes in accounting principles; or by changes...

  • Page 58
    ...net sales between product and service revenue (in millions, except percentages): Years Ended Variance Variance Variance Variance July 30, 2011 July 31, 2010 in Dollars in Percent July 31, 2010 July 25, 2009 in Dollars in Percent Net sales: Product ...Percentage of net sales ...Service ...Percentage...

  • Page 59
    ... the service provider and enterprise markets. Net product sales in the consumer market declined during fiscal 2011 as we exited the Flip Video cameras business and experienced weakness in sales of our networked home products. Within the enterprise market, net product sales to the U.S. public sector...

  • Page 60
    ...fiscal 2010, net product sales in our Asia Pacific Markets segment increased by 10%. The increase was led by sales growth in the commercial and enterprise markets and to a lesser extent sales growth in the service provider market. Net product sales in the consumer market declined for fiscal 2011, as...

  • Page 61
    .... The New Products category consists of the following subcategories: video connected home (networked home, Pure Digital products, video systems, and cable products); collaboration (unified communications and Cisco TelePresence); security; wireless; and data center (application networking services...

  • Page 62
    ... of Tandberg sales within our Cisco TelePresence systems product line following our fiscal 2010 third quarter acquisition of Tandberg, and a 4% increase in sales of unified communications products, primarily IP phones and collaborative web-based offerings. Sales of data center products increased by...

  • Page 63
    ...and line cards related to our routers and LAN switches, partially offset by increased sales of our web and email security products. Fiscal 2010 Compared with Fiscal 2009 • Sales of video connected home products increased by approximately $359 million due to increased sales of $317 million of Flip...

  • Page 64
    ... Markets. Growth in each of our United States and Canada and our European Markets segments also contributed to the overall technical support service revenue growth. Renewals and technical support service contract initiations associated with recent product sales have resulted in a new installed base...

  • Page 65
    ... mix of our revenue or, as was the case in fiscal 2011 and 2010, by increased sales discounts, rebates, and product pricing, which may be attributable to competitive factors. Additionally, our manufacturing-related costs may be negatively impacted by constraints in our supply chain. If any of...

  • Page 66
    ... from sales discounts, rebates and product pricing was within our expected range. Service Gross Margin Fiscal 2011 Compared with Fiscal 2010 Our service gross margin percentage increased by 1.5 percentage points for fiscal 2011, as compared with fiscal 2010, with both technical support services and...

  • Page 67
    ... range. Factors That May Impact Net Sales and Gross Margin Net product sales may continue to be affected by factors, including global economic downturns and related market uncertainty, that have resulted in reduced or cautious spending in our global enterprise, service provider, and commercial...

  • Page 68
    ... our supply chain. Service gross margin may be impacted by various factors such as the change in mix between technical support services and advanced services; the timing of technical support service contract initiations and renewals; share-based compensation expense; and the timing of our strategic...

  • Page 69
    ... Both the sales expense and the marketing expense components of the category increased for fiscal 2011 due to higher headcount-related expenses, as well as higher outside services costs, higher depreciation expense, and increased share-based compensation expense. Additionally, marketing expenses for...

  • Page 70
    ...sales expense and the marketing expense components of the category increased during fiscal 2010 due to higher headcount-related expenses, including higher variable compensation expense, higher share-based compensation expense, and the impact of the extra week in fiscal 2010. G&A Expenses Fiscal 2011...

  • Page 71
    ... share-based compensation expense (in millions): Years Ended July 30, 2011 July 31, 2010 July 25, 2009 Cost of sales-product ...Cost of sales-service ...Share-based compensation expense in cost of sales ...Research and development ...Sales and marketing ...General and administrative ...Share-based...

  • Page 72
    ...in millions): Years Ended Variance Variance July 30, 2011 July 31, 2010 in Dollars July 31, 2010 July 25, 2009 in Dollars Gains (losses) on investments, net: Publicly traded equity securities ...Fixed income securities ...Total available-for-sale investments ...Privately held companies ...Net gains...

  • Page 73
    ... result of market conditions and the timing of sales of these securities. See Note 8 to the Consolidated Financial Statements for the unrealized gains and losses on investments. For fiscal 2011 as compared with fiscal 2010, the decline in net gains on investments in privately held companies was due...

  • Page 74
    ... (net of the issuance of common stock related to employee stock incentive plans) of $5.1 billion, capital expenditures of $1.2 billion, and cash dividends paid of $0.7 billion. The slight decrease in cash provided by operating activities in fiscal 2011 was primarily the result of a decrease in net...

  • Page 75
    ...number of factors, including fluctuations in our operating results, the rate at which products are shipped during the quarter (which we refer to as shipment linearity), the timing and collection of accounts receivable and financing receivables, inventory and supply chain management, deferred revenue...

  • Page 76
    ...customers improved on nearly all of our products during fiscal 2011 and as of the end of fiscal 2011 were within a normal range for nearly all of our products. We purchase components from a variety of suppliers and use several contract manufacturers to provide manufacturing services for our products...

  • Page 77
    ...related to leases are generally collateralized by a security interest in the underlying assets. Lease receivables include sales-type and directfinancing leases. We also provide certain qualified customers financing for long-term service contracts, which primarily relate to technical support services...

  • Page 78
    ... interest coverage ratio and the other covenants, and we had not borrowed any funds under the credit facility. Deferred Revenue The following table presents the breakdown of deferred revenue (in millions): July 30, 2011 July 31, 2010 Increase Service ...Product ...Total ...Reported as: Current...

  • Page 79
    ... leases with an initial term in excess of one year. Purchase Commitments with Contract Manufacturers and Suppliers We purchase components from a variety of suppliers and use several contract manufacturers to provide manufacturing services for our products. A significant portion of our reported...

  • Page 80
    ... have the ability to influence these events. We provide financing guarantees, which are generally for various third-party financing arrangements extended to our channel partners and end-user customers. We could be called upon to make payments under these guarantees in the event of nonpayment by the...

  • Page 81
    ... $10.2 billion with no termination date. The stock repurchase activity under the stock repurchase program, reported based on the trade date is summarized as follows (in millions, except per-share amounts): Shares Repurchased WeightedAverage Price per Share Amount Repurchased Cumulative balance at...

  • Page 82
    ...senior notes outstanding, which consisted of $1.25 billion floating-rate notes and $14.75 billion fixed-rate notes. The carrying amount of the senior notes was $16.2 billion, and the related fair value was $17.4 billion, which fair value is based on market prices. As of July 30, 2011, a hypothetical...

  • Page 83
    ...The fair value of our equity investments in publicly traded companies is subject to market price volatility. We may hold equity securities for strategic purposes or to diversify our overall investment portfolio. Our equity portfolio consists of securities with characteristics that most closely match...

  • Page 84
    ...service cost of sales . . Forward contracts-current assets and liabilities ...Forward contracts-net investments in foreign subsidiaries ...Forward contracts-long-term customer financings ...Forward contracts-investments ...We do not enter into foreign exchange forward or option contracts for trading...

  • Page 85
    ... Index to Consolidated Financial Statements Report of Independent Registered Public Accounting Firm ...Management's Report on Internal Control over Financial Reporting ...Consolidated Balance Sheets ...Consolidated Statements of Operations ...Consolidated Statements of Cash Flows ...Consolidated...

  • Page 86
    ..., on the financial statement schedule, and on the Company's internal control over financial reporting based on our integrated audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and...

  • Page 87
    ...provide is timely, complete, relevant, and accurate. Management is responsible for the fair presentation of Cisco's Consolidated Financial Statements, prepared in accordance with accounting principles generally accepted in the United States of America, and has full responsibility for their integrity...

  • Page 88
    ... Total current liabilities ...Long-term debt ...Income taxes payable ...Deferred revenue ...Other long-term liabilities ...Total liabilities ...Commitments and contingencies (Note 12) Equity: Cisco shareholders' equity: Preferred stock, no par value: 5 shares authorized; none issued and outstanding...

  • Page 89
    ... per-share amounts) Years Ended July 30, 2011 July 31, 2010 July 25, 2009 NET SALES: Product ...Service ...Total net sales ...COST OF SALES: Product ...Service ...Total cost of sales ...GROSS MARGIN ...OPERATING EXPENSES: Research and development ...Sales and marketing ...General and administrative...

  • Page 90
    ... of common stock ...Short-term borrowings, maturities less than 90 days, net ...Issuances of debt, maturities greater than 90 days ...Repayments of debt, maturities greater than 90 days ...Excess tax benefits from share-based compensation ...Dividends paid ...Other ...Net cash (used in) provided by...

  • Page 91
    ... and other . . Comprehensive income ...Issuance of common stock ...Repurchase of common stock ...Cash dividends declared ...Tax effects from employee stock incentive plans ...Purchase acquisitions ...Share-based compensation expense ...BALANCE AT JULY 30, 2011 ... 5,893 $33,505 $ 120 6,134 $ 728...

  • Page 92
    ... year for Cisco Systems, Inc. (the "Company" or "Cisco") is the 52 or 53 weeks ending on the last Saturday in July. Fiscal 2011 and fiscal 2009 were each 52-week fiscal years, while fiscal 2010 was a 53-week fiscal year. The Consolidated Financial Statements include the accounts of Cisco and its...

  • Page 93
    ... values if the Company determines that an impairment charge is required based primarily on the financial condition and near-term prospects of these companies. (d) Inventories Inventories are stated at the lower of cost or market. Cost is computed using standard cost, which approximates actual cost...

  • Page 94
    ... arrangements extended to end-user customers related to leases and loans, which typically have terms of up to three years. The Company could be called upon to make payments under these guarantees in the event of nonpayment by the channel partners or end-user customers. Deferred revenue relating to...

  • Page 95
    ... and related software Production, engineering, and other equipment Operating lease assets 25 years 10 years 5 years Shorter of remaining lease term or 5 years 30 to 36 months Up to 5 years Based on lease term-generally up to 3 years (h) Business Combinations Upon adoption of revised accounting...

  • Page 96
    .... The Company uses distributors that stock inventory and typically sell to systems integrators, service providers, and other resellers. In addition, certain products are sold through retail partners. The Company refers to this as its two-tier system of sales to the end customer. Revenue from...

  • Page 97
    ... For example, service provider arrangements are typically larger in scale with longer deployment schedules and involve the delivery of a variety of product technologies, including high-end routing, video and network management software, and other product technologies along with technical support and...

  • Page 98
    ...as general consulting, network management, or security advisory projects and technical support services are sold separately through renewals of annual contracts. As a result, for substantially all of the arrangements with multiple deliverables pertaining to routing and switching products and related...

  • Page 99
    ... 2011, 2010 and 2009, respectively. (p) Share-Based Compensation Expense The Company measures and recognizes the compensation expense for all share-based awards made to employees and directors including employee stock options and employee stock purchases related to the Employee Stock Purchase Plan...

  • Page 100
    ...notes. Estimates are used for the following, among others Revenue recognition Allowances for receivables and sales returns Inventory valuation and liability for purchase commitments with contract manufacturers and suppliers Warranty costs Share-based compensation expense Fair value measurements and...

  • Page 101
    ... consideration along with vested share-based awards assumed. Total cash and cash equivalents acquired from business combinations completed during fiscal 2011 were approximately $7 million. Total transaction costs related to business combination activities during fiscal 2011 and 2010 were $10 million...

  • Page 102
    ..., "Other" includes foreign currency translation and purchase accounting adjustments for both fiscal 2011 and 2010. In fiscal 2011, "Other" also includes a goodwill reduction of $63 million related to the pending sale of the Company's manufacturing operations in Juarez, Mexico, and an adjustment...

  • Page 103
    ... upon the Company's decision to exit its Flip Video cameras product line. The fair value for purchased intangible assets for which the carrying amount was not deemed to be recoverable was determined using the future discounted cash flows that the assets were expected to generate. For fiscal 2010 and...

  • Page 104
    ... employees of this manufacturing operation will be transferred to the buyer upon completion of the transaction, which is expected to occur in fiscal 2012. In connection with the restructuring of the Company's consumer business related to the exit of the Flip Video cameras product line in fiscal 2011...

  • Page 105
    ... millions): July 30, 2011 July 31, 2010 Inventories: Raw materials ...Work in process ...Finished goods: Distributor inventory and deferred cost of sales ...Manufactured finished goods ...Total finished goods ...Service-related spares ...Demonstration systems ...Total ...Property and equipment, net...

  • Page 106
    ... have terms of up to three years. The financed service contracts and other category includes financing receivables related to technical support and other services, as well as an insignificant amount of receivables related to financing of certain indirect costs associated with leases. Revenue related...

  • Page 107
    ... Company's financing receivables as of July 30, 2011 is not materially different than the credit risk profile as of July 31, 2010. In circumstances when collectability is not deemed reasonably assured, the associated revenue is deferred in accordance with the Company's revenue recognition policies...

  • Page 108
    ... the aging table excludes pending adjustments on billed tax assessment in certain international markets. The balance of either unbilled or current financing receivables included in the greater-than-90 days past due category for lease receivables, loan receivables, and financed service contracts and...

  • Page 109
    ... was $1.4 billion as of each July 30, 2011 and July 31, 2010. End-User Financing Guarantees The Company also provides financing guarantees for third-party financing arrangements extended to end-user customers related to leases and loans that typically have terms of up to three years. The volume of...

  • Page 110
    ... summarize the Company's available-for-sale investments (in millions): Gross Gross Amortized Unrealized Unrealized Cost Gains Losses Fair Value July 30, 2011 Fixed income securities: U.S. government securities ...$19,087 U.S. government agency securities (1) ...8,742 Non-U.S. government and agency...

  • Page 111
    ... Gross Unrealized Fair Value Losses July 30, 2011 Fixed income securities: U.S. government agency securities (1) ...Non-U.S. government and agency securities (2) ...Corporate debt securities ...Asset-backed securities ...Total fixed income securities ...Publicly traded equity securities ...Total...

  • Page 112
    ... than the cost basis, the financial condition and near-term prospects of the issuer, and the Company's intent and ability to hold the publicly traded equity securities for a period of time sufficient to allow for any anticipated recovery in market value. (c) Maturities of Fixed Income Securities The...

  • Page 113
    ... 31, 2010 FAIR VALUE MEASUREMENTS Total Level 1 Level 2 Level 3 Balance Assets Cash equivalents: Money market funds ...$5,852 $ - $ - $ 5,852 U.S. government securities ...- - - - U.S. government agency securities (1) ...- 1 - 1 Corporate debt securities ...- - - - Available-for-sale investments...

  • Page 114
    ... pricing models that use observable market inputs. The Company did not have any transfers between Level 1 and Level 2 fair value measurements during either fiscal 2011 or 2010. Level 3 assets include asset-backed securities and certain derivative instruments, the values of which are determined based...

  • Page 115
    ...): FAIR VALUE MEASUREMENTS USING Net Carrying Value as of July 30, 2011 Total Losses for the Year Ended July 30, 2011 Level 1 Level 2 Level 3 Investments in privately held companies ...Purchased intangible assets ...Property held for sale ...Manufacturing operations held for sale ...Total...

  • Page 116
    ... using quoted market prices for those securities. 10. Borrowings (a) Short-Term Debt The following table summarizes the Company's short-term debt (in millions, except percentages): July 30, 2011 Weighted-Average Amount Interest Rate July 31, 2010 Weighted-Average Amount Interest Rate Commercial...

  • Page 117
    ... the accretion of the discount, and, if applicable, adjustments related to hedging. Based on market prices, the fair value of the Company's long-term debt was $17.4 billion as of July 30, 2011. Interest is payable semiannually on each class of the senior fixed-rate notes and payable quarterly on the...

  • Page 118
    ...0.50% or Bank of America's "prime rate" as announced from time to time or (ii) LIBOR plus a margin that is based on the Company's senior debt credit ratings as published by Standard & Poor's Ratings Services and Moody's Investors Service, Inc. The credit agreement requires the Company to comply with...

  • Page 119
    ... July 30, July 31, July 25, Hedging Instruments 2011 2010 2009 Line Item in Statements of Operations 2011 2010 2009 Foreign currency derivatives ...$ 87 Interest rate derivatives ...Other derivatives ...- - $ 33 $(116) Operating expenses ...$ 89 Cost of sales-service ...17 23 (42) Interest expense...

  • Page 120
    ... 2010 the Company did not have any outstanding interest rate derivatives related to its fixed income securities. Interest Rate Derivatives Designated as Fair Value Hedge, Long-Term Debt In fiscal 2011, the Company entered into interest rate swaps designated as fair value hedges related to fixed-rate...

  • Page 121
    ... derivatives outstanding related to its investment portfolio at July 30, 2011 and July 31, 2010. The Company is also exposed to variability in compensation charges related to certain deferred compensation obligations to employees. Although not designated as accounting hedges, the Company utilizes...

  • Page 122
    ...provide manufacturing services for its products. During the normal course of business, in order to manage manufacturing lead times and help ensure adequate component supply, the Company enters into agreements with contract manufacturers and suppliers that either allow them to procure inventory based...

  • Page 123
    ... costs as part of its cost of sales based on associated material product costs, labor costs for technical support staff, and associated overhead. The Company's products are generally covered by a warranty for periods ranging from 90 days to five years, and for some products the Company provides...

  • Page 124
    ... District of California and the California Superior Court for the County of Santa Clara against the Company's Board of Directors and several of its officers for allowing management to make allegedly false statements during earnings calls. The Company's management of its stock repurchase program is...

  • Page 125
    ... related to employee stock incentive plans are recorded as an increase to common stock and additional paid-in capital. (b) Cash Dividends on Shares of Common Stock During fiscal 2011, cash dividends of $0.12 per share, or $658 million, were declared and paid on the Company's outstanding common stock...

  • Page 126
    ...-based awards granted under stock incentive plans of the acquired companies or issued share-based awards in replacement thereof. Share-based awards are designed to reward employees for their long-term contributions to the Company and provide incentives for them to remain with the Company. The number...

  • Page 127
    ... Company can no longer make equity awards under the 1996 Plan. The maximum number of shares issuable over the term of the 1996 Plan was 2.5 billion shares. Stock options granted under the 1996 Plan have an exercise price of at least 100% of the fair market value of the underlying stock on the grant...

  • Page 128
    ... share-based compensation expense (in millions): Years Ended July 30, 2011 July 31, 2010 July 25, 2009 Cost of sales-product ...Cost of sales-service ...Share-based compensation expense in cost of sales ...Research and development ...Sales and marketing ...General and administrative ...Share-based...

  • Page 129
    ... March 17, 2011, the Company used an annualized dividend yield based on the per-share dividends declared by its Board of Directors. (f) Stock Option Awards A summary of the stock option activity is as follows (in millions, except per-share amounts): STOCK OPTIONS OUTSTANDING Number Weighted-Average...

  • Page 130
    ...: EMPLOYEE STOCK PURCHASE RIGHTS Years Ended July 30, 2011 July 31, 2010 July 25, 2009 Weighted-average assumptions: Expected volatility ...Risk-free interest rate ...Expected dividend ...Weighted-average expected life (in years) ...Weighted-average estimated grant date fair value per share ... 28...

  • Page 131
    ... its common stock. For awards granted on or subsequent to March 17, 2011, the Company used an annualized dividend yield based on the per-share dividend declared by its Board of Directors. The lattice-binomial model is more capable of incorporating the features of the Company's employee stock options...

  • Page 132
    ...million in fiscal 2011, 2010, and 2009, respectively. The Plan allows employees who meet the age requirements and reach the Plan contribution limits to make a catch-up contribution not to exceed the lesser of 75% of their eligible compensation or the limit set forth in the Internal Revenue Code. The...

  • Page 133
    ...: Years Ended July 30, 2011 July 31, 2010 July 25, 2009 Federal statutory rate ...Effect of: State taxes, net of federal tax benefit ...Foreign income at other than U.S. rates ...Tax credits ...Transfer pricing adjustment related to share-based compensation ...Nondeductible compensation ...Other...

  • Page 134
    ... in the balance of gross unrecognized tax benefits were as follows (in millions): Years Ended July 30, 2011 July 31, 2010 July 25, 2009 Beginning balance ...Additions based on tax positions related to the current year . . Additions for tax positions of prior years ...Reductions for tax positions of...

  • Page 135
    ... Customers The Company designs, manufactures, and sells Internet Protocol (IP)-based networking and other products related to the communications and IT industry and provides services associated with these products and their use. Cisco product categories consist of Routers, Switches, New Products...

  • Page 136
    ..., share-based compensation expense, and charges related to asset impairments and restructurings. (b) Net Sales for Groups of Similar Products and Services The following table presents net sales for groups of similar products and services (in millions): Years Ended July 30, 2011 July 31, 2010 July...

  • Page 137
    ...of such equity awards is calculated based on the average share price for each fiscal period using the treasury stock method. Under the treasury stock method, the amount the employee must pay for exercising stock options, the amount of compensation cost for future service that the Company has not yet...

  • Page 138
    ...5 to the Consolidated Financial Statements. July 31, 2010 May 1, 2010 January 23, 2010 October 24, 2009 Quarters Ended Net sales ...Gross margin ...Net income ...Net income per share-basic ...Net income per share-diluted ...Cash and cash equivalents and investments ...Stock Market Information $10...

  • Page 139
    ... executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure. Internal Control over Financial Reporting Management's report on our internal control over financial reporting and the report of our independent registered public accounting...

  • Page 140
    ... of Directors-Director Compensation" and "Executive Compensation and Related Information" in our Proxy Statement related to the 2011 Annual Meeting of Shareholders is incorporated herein by reference. Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder...

  • Page 141
    ... Item 15. Exhibits and Financial Statement Schedules (a) 1. Financial Statements See the "Index to Consolidated Financial Statements" on page 77 of this report. 2. Financial Statement Schedule See "Schedule II-Valuation and Qualifying Accounts" on page 134 of this report. 3. Exhibits See the "Index...

  • Page 142
    SCHEDULE II VALUATION AND QUALIFYING ACCOUNTS (in millions) Lease Receivables Allowances For Loan Receivables Accounts Receivable Year ended July 25, 2009: Balance at beginning of fiscal year ...Provision ...Write-offs, net ...Other* ...Balance at end of fiscal year ...Year ended July 31, 2010: ...

  • Page 143
    ... Chambers Chairman, Chief Executive Officer and Director (Principal Executive Officer) Executive Vice President and Chief Financial Officer (Principal Financial Officer) Vice President and Corporate Controller (Principal Accounting Officer) Lead Independent Director September 14, 2011 /S/ FRANK...

  • Page 144
    ...L. Hennessy Director September 14, 2011 /S/ RICHARD M. KOVACEVICH Richard M. Kovacevich Director September 14, 2011 /S/ RODERICK C. MCGEARY Roderick C. McGeary Director September 14, 2011 Director Arun Sarin /S/ STEVEN M. WEST Steven M. West Director September 14, 2011 Director Jerry...

  • Page 145
    ... Bylaws of Cisco Systems, Inc., as currently in effect Indenture, dated February 22, 2006, between Cisco Systems, Inc. and Deutsche Bank Trust Company Americas, as trustee Indenture, dated February 17, 2009, between Cisco Systems, Inc. and the Bank of New York Mellon Trust Company, N.A., as trustee...

  • Page 146
    ..., Inc. Deferred Compensation Plan, as amended Cisco Systems, Inc. Executive Incentive Plan Amended and Restated International Assignment Agreement dated as of February 15, 2010 by and between Cisco Systems, Inc. and Wim Elfrink Form of Executive Officer Indemnification Agreement Form of Director...

  • Page 147
    ... Taxonomy Extension Presentation Linkbase Document Indicates a management contract or compensatory plan or arrangement. XBRL (Extensible Business Reporting Language) information is furnished and not filed herewith, is not a part of a registration statement or Prospectus for purposes of sections 11...

  • Page 148
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  • Page 149
    ... Controller and Principal Accounting Officer Resources Investor Relations For more information about Cisco, to view the Annual Report online, or to obtain other financial information without charge, contact: Investor Relations Cisco Systems, Inc. 170 West Tasman Drive San Jose, CA 95134-1706...

  • Page 150
    ...Internet and levels of capital spending on Internet-based systems; variations in customer demand for products and services, including sales to the service provider market and other customer markets; the return on our investments in certain market adjacencies and geographical locations; the timing of...

  • Page 151
    ... with the development of routing, switching, and other networking-based technologies such as application networking services, collaboration, home networking, security, storage area networking, telepresence systems, unified communications, unified computing, video systems, and wireless. All of these...

  • Page 152
    WORLDWIDE OFFICES Americas Headquarters San Jose, California, USA Asia Pacific Headquarters Singapore Europe Headquarters Amsterdam, Netherlands Cisco has more than 200 offices worldwide. Addresses, phone numbers, and fax numbers are listed on the Cisco website at www.cisco.com/go/offices.