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Cisco Systems, Inc. 2012 Annual Report

Table of contents

  • Page 1
    Cisco Systems, Inc. 2012 Annual Report

  • Page 2

  • Page 3
    ...both Cisco and the network are at the heart of the major market transitions underway. We believe that our long-term strategy, which is focused on delivering intelligent networks and technology and business architectures built on integrated products, services, and software platforms, is the right one...

  • Page 4
    ... drive consistent experience, policy, security, and mobility. In our view, this market transition plays directly to our expertise: Cisco pioneered network virtualization in 2009 with the introduction of the Nexus 1000V Series, the first virtualized switch that today has more than 6,000 production...

  • Page 5
    ... growth at a faster pace, as NDS will help accelerate the delivery of Cisco's Videoscape platform and broaden our opportunities in new service provider markets. During the year, we continued to execute on our strategy of build, buy, partner, and integrate. From an acquisition Cisco Systems...

  • Page 6
    ... of our shareholders, customers, and partners. We are focused on the goal of gaining market share across all of our key product categories, including those in which we already lead. We continue to strive to deliver profitable growth and generate long-term shareholder value. We also plan to continue...

  • Page 7
    ... NASDAQ Global Select Market on that date: $105,101,493,544 Number of shares of the registrant's common stock outstanding as of September 5, 2012: 5,290,061,557 Act. DOCUMENTS INCORPORATED BY REFERENCE Portions of the registrant's Proxy Statement relating to the registrant's 2012 Annual Meeting of...

  • Page 8
    ... Business ...General ...Strategy and Focus Areas ...Products and Services ...Customers and Markets ...Sales Overview ...Financing Arrangements ...Product Backlog ...Acquisitions, Investments, and Alliances ...Competition ...Research and Development ...Manufacturing ...Patents, Intellectual Property...

  • 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
    ... in order to simplify our operating model, drive faster innovation, 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 virtualization and...

  • Page 11
    ..., where growth of IP traffic on handheld devices is driving the need for more robust architectures, equipment and services in order to accommodate not only an increasing number of worldwide mobile device users, but also increased user demand for broadband-quality business network and consumer web...

  • Page 12
    ...with hardware and software elements together to meet customers' total cost of ownership, quality, security, scalability and experience requirements. In our view, there is no single architecture that supports all customer requirements in this area. Our strategy is targeted to address a broad range of...

  • Page 13
    ... 2012, we introduced what we believe to be the industry's most advanced and versatile portfolio of modular, fixed-configuration, blade, and virtual LAN switches for campus, branch, and data center deployments. Individually, these switches are designed to offer the performance and features required...

  • Page 14
    ..., EMTA, and Gateways) Cable Modem Termination Systems Products Videoscape Software Products Headend Equipment (Encoders, Decoders, and Transcoders) On July 30, 2012, we acquired NDS Group Limited ("NDS"), a leading provider of video content security and software solutions designed to enable users to...

  • Page 15
    ... to solve business problems, uniting high-performance wireless access across campus, branch, remote and outdoor environments. Our offerings include wireless access points (including the Cisco Aironet product family), controllers, antennas, and integrated management. Our offerings provide users with...

  • Page 16
    ... • Cisco UCS Fabric Interconnects Server Access Virtualization The UCS platform unites computing, network, storage access, and virtualization into a centrally managed and automated system. During fiscal 2012 we made significant expansions to the computing and high-performance virtual switching...

  • Page 17
    ..., other resellers, distributors, and retail partners. Systems integrators and service providers typically sell directly to end users and often provide system installation, technical support, professional services, and other support services in addition to network equipment sales. Systems integrators...

  • Page 18
    ... by them. These distributors and retail partners are generally given business terms that allow them to return a portion of inventory, receive credits for changes in selling prices, and participate in various cooperative marketing programs. For information regarding risks related to our channels...

  • Page 19
    ... 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 services Developing new technologies and products internally Acquiring all or parts of other companies Entering...

  • Page 20
    ...and sales positions in those markets. We also sometimes face competition from resellers and distributors of our products. Companies with which we have strategic alliances in some areas may be competitors in other areas, and in our view this trend may increase. For example, the enterprise data center...

  • Page 21
    ... to set-top boxes to a contract manufacturer located in Juarez, Mexico, in furtherance of our strategic objective to simplify our operating model. We presently use a variety of independent third-party companies to provide services related to printed-circuit board assembly, in-circuit test, product...

  • Page 22
    ... to establish and maintain our proprietary rights in our technology and products through the use of patents, copyrights, trademarks, and trade secret laws. We have a program to file applications for and obtain patents, copyrights, and trademarks in the United States and in selected foreign countries...

  • Page 23
    ...: Cost of sales (1) ...Research and development ...Sales and marketing ...General and administrative ...Total ...(1) 36,052 30,587 66,639 14,125 21,568 24,507 6,439 66,639 Cost of sales includes manufacturing support, services, and training. We consider the relationships with our employees to be...

  • Page 24
    ... of Cisco Services in Europe. In November 2000 he was promoted to Senior Vice President, Cisco Services and took over global responsibility for the function, relocating to San Jose, California. Mr. Elfrink was appointed Chief Globalisation Officer in December 2006 and moved to Bangalore India to...

  • Page 25
    ... service providers and Internet businesses, in part due to changes in the global economic environment Changes in sales and implementation cycles for our products and reduced visibility into our customers' spending plans and associated revenue Our ability to maintain appropriate inventory...

  • Page 26
    ... certain priorities, such as leadership in our core routing, switching and services, including security and mobility solutions; collaboration; data center virtualization and cloud; video; and architectures for business transformation. However, the return on our investments in such priorities may be...

  • Page 27
    ... mix of configurations within each product group Introduction 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...

  • Page 28
    ... in sales of our traditional cable set-top boxes in our then United States and Canada segment. Such slowdowns may continue or recur in future periods. Orders from this industry could decline for many reasons other than the competitiveness of our products and services within their respective markets...

  • Page 29
    ..., 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 30
    ... and sales positions in those markets. We also sometimes face competition from resellers and distributors of our products. Companies with whom we have strategic alliances in some areas may be competitors in other areas, and in our view this trend may increase. For example, the enterprise data center...

  • Page 31
    ... components in order to meet customer expectations. If we ultimately determine that we have excess inventory, we may have to reduce our prices and write down inventory, which in turn could result in lower gross margins. SUPPLY CHAIN ISSUES, INCLUDING FINANCIAL PROBLEMS OF CONTRACT MANUFACTURERS OR...

  • Page 32
    ... components from a variety of suppliers and use several contract manufacturers to provide manufacturing services for our products. During the normal course of business, in order to improve manufacturing lead-time performance and to help ensure adequate component supply, we enter into agreements with...

  • Page 33
    ... to product planning and timing, technical hurdles that we fail to overcome in a timely fashion, or a lack of appropriate resources. This could result in competitors, some of which may also be our strategic alliance partners, providing those solutions before we do and loss of market share, net sales...

  • Page 34
    ..., 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; and architectures for business...

  • Page 35
    ... limited direct prior experience and 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...

  • Page 36
    ... 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 newer products categories such as data center and collaboration, emerging...

  • Page 37
    ... OUR OPERATING RESULTS AND FINANCIAL CONDITION We conduct significant sales and customer support operations in countries outside of the United States and also depend on non-U.S. operations of our contract manufacturers, component suppliers and distribution partners. Although sales in several of our...

  • Page 38
    ... our sales is derived through our distributors and retail partners. These distributors and retail partners are generally given business terms that allow them to return a portion of inventory, receive credits for changes in selling prices, and participate in various cooperative marketing programs. We...

  • Page 39
    ...non-infringing technology or license the proprietary rights on commercially reasonable terms and conditions, our business, operating results, and financial condition could be materially and adversely affected. Our exposure to risks associated with the use of intellectual property may be increased as...

  • Page 40
    ...in the future; or delays in hiring required personnel, particularly engineering and sales personnel, could make it difficult to meet key objectives, such as timely and effective product introductions. In addition, companies in our industry whose employees accept positions with competitors frequently...

  • Page 41
    ... 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...

  • Page 42
    ... OR DELAYS IN PRODUCT DEVELOPMENT We have several strategic alliances with large and complex organizations and other companies with which we work to offer complementary products and services and have established a joint venture to market services associated with our Cisco Unified Computing System...

  • Page 43
    ...in 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...

  • Page 44
    ... on April 8, 2011, a number of purported shareholder derivative lawsuits were filed in both the United States District Court for the 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. The federal...

  • Page 45
    ... 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 during fiscal 2012 and 2011 may be found...

  • Page 46
    ... indicative of future shareholder returns. Comparison of 5-Year Cumulative Total Return Among Cisco Systems, Inc., the S&P Information Technology Index and the S&P 500 Index $140 $120 $100 $80 $60 $40 $20 $0 July 2007 July 2008 July 2009 July 2010 July 2011 July 2012 Cisco Systems, Inc. S&P 500...

  • Page 47
    ...Ended July 28, 2012 (in millions, except per-share amounts) Years Ended July 28, 2012 July 30, 2011 (1) July 31, 2010 July 25, 2009 July 26, 2008 Net sales ...Net income ...Net income per share-basic ...Net income per share-diluted ...Shares used in per-share calculation-basic ...Shares used in per...

  • Page 48
    ... Protocol ("IP") based networking and other products related to the communications and information technology ("IT") industry and provide services associated with these products and their use. We provide a broad line of products for transporting data, voice, and video within buildings, across...

  • Page 49
    Fiscal 2012 Compared with Fiscal 2011-Financial Performance Net sales increased 7%, with net product sales increasing 5% and service revenue increasing 12%. Total gross margin decreased by 0.2 percentage points primarily as a result of higher sales discounts and unfavorable product pricing as well ...

  • Page 50
    ... in order to simplify our operating model, drive faster innovation, 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 virtualization and...

  • 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
    .... Financing arrangements may include sales-type, directfinancing, and operating leases, loans, and guarantees of third-party financing. Our deferred revenue for products was $3.7 billion as of each July 28, 2012 and July 30, 2011. Technical support services revenue is deferred and recognized ratably...

  • Page 53
    ... of sales based on associated material costs, technical support labor costs, and associated overhead. Material cost is estimated based primarily upon historical trends in the volume of product returns within the warranty period and the cost to repair or replace the equipment. Technical support labor...

  • Page 54
    ...March 17, 2011, we used an annualized dividend yield based on the per share dividends declared by our Board of Directors as of the grant date. 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...

  • Page 55
    ... any anticipated recovery in market value. Impairment charges on our investments in publicly traded equity securities were not material in fiscal 2012, 2011, and 2010. There were no impairment charges on investments in fixed income securities in fiscal 2012, 2011, and 2010. Our ongoing consideration...

  • Page 56
    ... impact of state taxes, foreign operations, research and development ("R&D") tax credits, tax audit settlements, nondeductible compensation, international realignments, and transfer pricing adjustments. Our effective tax rate was 20.8%, 17.1%, and 17.5% in fiscal 2012, 2011, and 2010, respectively...

  • Page 57
    ... other intellectual property claim made against us by any third party is successful, or if we fail to develop non-infringing technology or license the proprietary rights on commercially reasonable terms and conditions, our business, operating results, and financial condition could be materially and...

  • Page 58
    ... revenue totals reflect sales growth across each of our geographic segments. The sales increase was primarily due to: the strong performance of our Service offerings; new product transitions taking place in Switching; and increased demand for our Data Center, Service Provider Video, and Wireless...

  • Page 59
    ... product and service revenue totals each reflected sales growth across each of our geographic segments. The sales increase was due to customer acceptance of the new product transitions taking place in our core switching and routing businesses, sales growth in our Collaboration, Data Center, Wireless...

  • Page 60
    ... switching, and storage); NGN Routing (high-end routers, mid-range and low-end routers, and optical); Collaboration (unified communications and Cisco TelePresence); Service Provider Video (cable and cable modem, video systems); Wireless; Security; Data Center; and Other Products. The Other Products...

  • Page 61
    ... growth in the first and fourth quarters of fiscal 2012. Sales of modular switches decreased primarily due to lower sales of Cisco Catalyst 6500 and 4500 Series Switches, partially offset by increased sales of Cisco Nexus 7000 Series Switches. Fiscal 2011 Compared with Fiscal 2010 Net product sales...

  • Page 62
    ... our Cisco TelePresence systems product line following our fiscal 2010 third quarter acquisition of Tandberg, and a 6% increase in sales of unified communications products, primarily IP phones and collaborative web-based offerings. Service Provider Video Fiscal 2012 Compared with Fiscal 2011 For...

  • Page 63
    ... 2010 Sales of Service Provider Video products increased by 6%, or $189 million, due to increased sales of cable and cable modem products of 20% due to strong customer market demand, and increased sales of video systems products of 1%. Wireless Fiscal 2012 Compared with Fiscal 2011 For fiscal 2012...

  • Page 64
    ...revenue growth. Technical support services revenue grew across all of our geographic segments, with strong revenue growth in our EMEA and APJC segments. Renewals and technical support service contract initiations associated with recent product sales have resulted in a new installed base of equipment...

  • Page 65
    ... in manufacturing operations. Value engineering is the process by which production costs are reduced through component redesign, board configuration, test processes, and transformation processes. Our future gross margins could be impacted by our product mix and by further growth in sales of products...

  • Page 66
    ... percentage points for fiscal 2012, as compared with fiscal 2011. The increase was primarily due to higher sales volume for both technical support services and advanced services. The benefit to gross margin of increased volume was partially offset by increased headcount-related and partner delivery...

  • Page 67
    ... of service revenue in fiscal 2011 and due to increased service delivery costs. Gross margin in technical support services increased primarily as a result of increased sales volume and lower headcount-related cost impacts. These benefits were partially offset by increased support service delivery...

  • Page 68
    ... IT-related capital spending in our enterprise, service provider, public sector, and commercial markets; changes in the geopolitical environment and global economic conditions; competition, including price-focused competitors from Asia, especially from China; new product introductions; sales cycles...

  • Page 69
    ... 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 70
    ... 2010, was primarily due to higher headcount-related expenses, higher contracted services, and increased depreciation and equipment expenditures. The increase in depreciation expense was partially acquisition related. Sales and Marketing Expenses Fiscal 2012 Compared with Fiscal 2011 For fiscal 2012...

  • Page 71
    ... 28, 2012 July 30, 2011 July 31, 2010 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 compensation expense in operating expenses ...Total share-based...

  • Page 72
    ...-based compensation expense. In fiscal 2011, as compared with fiscal 2010, operating income as a percentage of revenue decreased by 5.1 percentage points. The decrease was primarily the result of the following: a 2.6 percentage point decrease in gross margin; higher total R&D, sales and marketing...

  • Page 73
    ...The decrease in total net gains on available-for-sale investments in fiscal 2012 compared with fiscal 2011 was attributable to lower gains on fixed income and publicly traded equity securities in fiscal 2012 as a result of market conditions and the timing of sales of these securities. See Note 8 to...

  • Page 74
    ...in total net gains on available-for-sale investments in fiscal 2011 compared with fiscal 2010 was primarily attributable to higher gains on publicly traded equity securities, partially offset by lower gains on fixed income securities in fiscal 2011. These changes were the result of market conditions...

  • 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
    ...order and build-to-stock products. We purchase components from a variety of suppliers and use several contract manufacturers to provide manufacturing services for our products. During the normal course of business, in order to manage manufacturing lead times and help ensure adequate component supply...

  • Page 77
    ... sales-type and direct-financing leases. We also provide certain qualified customers financing for long-term service contracts, which primarily relate to technical support services and advanced services. Our loan financing arrangements may include not only financing the acquisition of our products...

  • Page 78
    ... Guarantees The majority of the deferred revenue in the preceding table is related to financed service contracts. The majority of the revenue related to financed service contracts, which primarily relates to technical support services, is deferred as the revenue related to financed service contracts...

  • Page 79
    Deferred Revenue The following table presents the breakdown of deferred revenue (in millions): July 28, 2012 July 30, 2011 Increase (Decrease) Service ...Product ...Total ...Reported as: Current ...Noncurrent ...Total ... $ 9,173 3,707 $12,880 $ 8,852 4,028 $12,880 $ 8,521 3,686 $12,207 $ 8,025 4,...

  • Page 80
    ... the ordinary course of business, other than operating leases and commitments with contract manufacturers and suppliers, for which we have not received the goods or services. Purchase orders are not included in the preceding table as they typically represent our authorization to purchase rather than...

  • Page 81
    ... customers. We could be called upon to make payments under these guarantees in the event of nonpayment by the channel partners or end-user customers. See the previous discussion of these financing guarantees under "Financing Receivables and Guarantees." Securities Lending We periodically engage in...

  • Page 82
    ... July 27, 2011 April 20, 2011 On August 14, 2012 our Board of Directors declared a quarterly dividend of $0.14 per common share, a six-cent increase over the previous quarter's dividend, to be paid on October 24, 2012 to all shareholders of record as of the close of business on October 4, 2012. Any...

  • Page 83
    ... of various holdings, types, and maturities. Our primary objective for holding fixed income securities is to achieve an appropriate investment return consistent with preserving principal and managing risk. At any time, a sharp rise in market interest rates could have a material adverse impact on the...

  • Page 84
    ... 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 the Standard...

  • Page 85
    ... 2011 compared with fiscal 2010. To reduce variability in operating expenses and service cost of sales caused by non-U.S.-dollar denominated operating expenses and costs, we hedge certain forecasted foreign currency transactions with currency options and forward contracts. These hedging programs...

  • Page 86
    ...Report of Independent Registered Public Accounting Firm ...Management's Report on Internal Control over Financial Reporting...: Shareholders' Equity ...Note 14: Employee Benefit Plans ...Note 15: Income Taxes ...Note 16: Segment Information and Major Customers ...Note 17: Net Income per Share ......

  • Page 87
    ... Registered Public Accounting Firm To the Board of Directors and Shareholders of Cisco Systems, Inc.: In our opinion, the consolidated balance sheets and the related consolidated statements of operations, of cash flows and of equity listed in the accompanying index present fairly, in all material...

  • Page 88
    ... Financial Statements, prepared in accordance with accounting principles generally accepted in the United States of America, and has full responsibility for their integrity and accuracy. Management, with oversight by Cisco's Board of Directors, has established and maintains a strong ethical...

  • Page 89
    ...: Cisco shareholders' equity: Preferred stock, no par value: 5 shares authorized; none issued and outstanding ...Common stock and additional paid-in capital, $0.001 par value: 20,000 shares authorized; 5,298 and 5,435 shares issued and outstanding at July 28, 2012 and July 30, 2011, respectively...

  • Page 90
    ..., except per-share amounts) Years Ended July 28, 2012 July 30, 2011 July 31, 2010 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...

  • Page 91
    ...103 Acquisition of property and equipment ...(1,126) Acquisition of businesses, net of cash and cash equivalents acquired ...(375) Purchases of investments in privately held companies ...(380) Return of investments in privately held companies ...242 Other ...166 Net cash used in investing activities...

  • Page 92
    ... termination date. For additional information regarding stock repurchases, see Note 13 to the Consolidated Financial Statements. The stock repurchases since the inception of this program and the related impacts on Cisco shareholders' equity are summarized in the following table (in millions): Shares...

  • Page 93
    ...Company classifies its investments in both fixed income securities and publicly traded equity securities as available-for-sale investments. Fixed income securities primarily consist of U.S. government securities, U.S. government agency securities, non-U.S. government and agency securities, corporate...

  • Page 94
    ... usually collateralized by a security interest in the underlying assets, while loan receivables generally have terms of up to three years. Financed service contracts typically have terms of one to three years and primarily relate to technical support services. The Company determines the adequacy of...

  • Page 95
    ... transfers qualify as true sales, and the Company receives a payment for the receivables from the third party based on the Company's standard payment terms. These financing arrangements facilitate the working capital requirements of the channel partners, and, in some cases, the Company guarantees...

  • Page 96
    ... 2012, 2011 and 2010, respectively. Depreciation and amortization are computed using the straight-line method, generally over the following periods: Asset category Period Buildings Building improvements Furniture and fixtures Leasehold improvements Computer equipment and related software Production...

  • Page 97
    ...upon delivery or completion of performance. 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...

  • Page 98
    ... Video, Wireless, Security, Data Center, and Other Products. The Company also provides technical support and advanced services. The Company has a broad customer base that encompasses virtually all types of public and private entities, including enterprise businesses, service providers, commercial...

  • Page 99
    ... fiscal 2012, 2011, and 2010, 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, stock grants, stock units, and employee stock purchases related...

  • Page 100
    ... entity will be included in the Company's Consolidated Financial Statements. (u) Use of Estimates The preparation of financial statements and related disclosures in conformity with accounting principles generally accepted in the United States requires management to make estimates and judgments that...

  • Page 101
    ...or cash consideration along with vested share-based awards assumed. The total cash and cash equivalents acquired from these business combinations were immaterial. Total transaction costs related to the Company's business combination activities during fiscal 2012, 2011, and 2010 were $15 million, $10...

  • Page 102
    ... July 30, 2012, the Company completed its acquisition of NDS Group Limited ("NDS"), a leading provider of video software and content security solutions that enable service providers and media companies to securely deliver and monetize new video entertainment experiences. NDS uses the combination of...

  • Page 103
    ... table, the column entitled "Other" primarily includes foreign currency translation and purchase accounting adjustments. In fiscal 2011, "Other" also includes a goodwill reduction of $63 million related to the sale of the Company's manufacturing operations in Juarez, Mexico and an adjustment related...

  • Page 104
    ... assets acquired through business combinations as well as through direct purchases or licenses. All IPR&D projects outstanding at the end of fiscal 2011 were completed during fiscal 2012 and reclassified to technology purchased intangible assets with finite lives. The following table presents...

  • Page 105
    ... core business (routing, switching, and associated services), which includes comprehensive security and mobility solutions; collaboration; data center virtualization and cloud; video; and architectures for business transformation. Pursuant to the restructuring that the Company announced in July 2011...

  • Page 106
    ...): July 28, 2012 July 30, 2011 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: Land...

  • Page 107
    ...receivables, loan receivables, and financed service contracts and other. Lease receivables represent sales-type and direct-financing leases resulting from the sale of the Company's and complementary third-party products and are typically collateralized by a security interest in the underlying assets...

  • Page 108
    ...risk rating as of July 28, 2012 and July 30, 2011 are summarized as follows (in millions): INTERNAL CREDIT RISK RATING Residual Value Gross Receivables, Net of Unearned Income July 28, 2012 1 to 4 5 to 6 7 and Higher Total Lease receivables ...Loan receivables ...Financed service contracts and...

  • Page 109
    ... in deferred revenue. The Company also records deferred revenue associated with financing receivables when there are remaining performance obligations, as it does for financed service contracts. Total allowances for credit loss and deferred revenue as of July 28, 2012 and July 30, 2011 were $2,387...

  • Page 110
    ... Lease Loan Financed Service Receivables Receivables Contracts and Other Total Allowance for credit loss as of July 31, 2010 ...$ 207 Provisions ...31 Write-offs net of recoveries ...(13) Foreign exchange and other ...12 Allowance for credit loss as of July 30, 2011 ...$ 237 Gross receivables...

  • Page 111
    ... 28, 2012 July 30, 2011 Maximum potential future payments relating to financing guarantees: Channel partner ...End user ...Total ...Deferred revenue associated with financing guarantees: Channel partner ...End user ...Total ...Maximum potential future payments relating to financing guarantees, net...

  • Page 112
    ... table presents the realized net gains (losses) related to the Company's available-for-sale investments (in millions): Years Ended July 28, 2012 July 30, 2011 July 31, 2010 Net gains on investments in publicly traded equity securities ...Net gains on investments in fixed income securities ...Total...

  • Page 113
    ... 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 following table summarizes the maturities of the Company's fixed income securities at July 28, 2012 (in millions...

  • Page 114
    ... of July 28, 2012 and July 30, 2011, the Company had no outstanding securities lending transactions. 9. Fair Value Fair value is defined as the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement...

  • Page 115
    ... JULY 28, 2012 FAIR VALUE MEASUREMENTS Total Level 1 Level 2 Level 3 Balance JULY 30, 2011 FAIR VALUE MEASUREMENTS Total Level 1 Level 2 Level 3 Balance Assets Cash equivalents: Money market funds ...$2,506 $ - $ - $ 2,506 U.S. government agency securities ...- - - - Available-for-sale investments...

  • Page 116
    ... private and public companies, financial condition and near-term prospects of the investees, recent financing activities of the investee, and the investee's capital structure as well as other economic variables, reflected the assumptions market participants would use in pricing these assets...

  • Page 117
    ... for sale was primarily related to a reduction in goodwill related to the sale of the Company's set-top box manufacturing operations in Juarez, Mexico. See Note 5. This goodwill reduction represents the difference between the carrying value and the implied fair value of the goodwill associated with...

  • Page 118
    ... ...5.50% fixed-rate notes, due 2016 ...3.15% fixed-rate notes, due 2017 ...4.95% fixed-rate notes, due 2019 ...4.45% fixed-rate notes, due 2020 ...5.90% fixed-rate notes, due 2039 ...5.50% fixed-rate notes, due 2040 ...Total ...Other long-term debt ...Unaccreted discount ...Hedge accounting fair...

  • Page 119
    ... of America's "prime rate" as announced from time to time, or one-month LIBOR plus 1.00%, or (ii) LIBOR plus a margin that is based on the Company's senior debt credit ratings as published by Standard & Poor's Financial Services, LLC and Moody's Investors Service, Inc. The credit agreement requires...

  • Page 120
    ... 2011 2010 Derivatives Not Designated as Hedging Instruments Line Item in Statements of Operations Foreign currency derivatives ...Total return swaps - deferred compensation ...Total return swaps - deferred compensation ...Equity derivatives ...Total ... Other income, net Cost of sales - product...

  • Page 121
    ... July 28, 2012 and July 30, 2011, 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...

  • Page 122
    ... States, larger leased sites include sites in Australia, Belgium, China, Germany, India, Israel, Italy, Japan, Norway, and the United Kingdom. Rent expense for office space and equipment totaled $404 million, $428 million, and $364 million in fiscal 2012, 2011, and 2010, respectively. The Company...

  • Page 123
    ... and uses several contract manufacturers to 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...

  • Page 124
    ... ...Payments ...Balance at end of fiscal year ... $ 342 661 (588) $ 415 $ 360 456 (474) $ 342 The Company accrues for warranty 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...

  • Page 125
    ... April 8, 2011, a number of purported shareholder derivative lawsuits were filed in both the United States District Court for the Northern 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. The...

  • Page 126
    ...$658 million, on the Company's outstanding common stock. On August 14, 2012, the Company's Board of Directors declared a quarterly dividend of $0.14 per common share to be paid on October 24, 2012 to all shareholders of record as of the close of business on October 4, 2012. Any future dividends will...

  • Page 127
    ...the Board of Directors may determine the rights, preferences, and terms of the Company's authorized but unissued shares of preferred stock. (e) Comprehensive Income The components of comprehensive income, net of tax, are as follows (in millions): Years Ended July 28, 2012 July 30, 2011 July 31, 2010...

  • Page 128
    .... The 2005 Plan permits the granting of stock options, restricted stock, restricted stock units ("RSU"), the vesting of which may be performance-based or market-based along with the requisite service requirement, and stock appreciation rights to employees (including employee directors and officers...

  • Page 129
    ..., and restricted stock units granted to employees. The following table summarizes share-based compensation expense (in millions): Years Ended July 28, 2012 July 30, 2011 July 31, 2010 Cost of sales-product ...Cost of sales-service ...Share-based compensation expense in cost of sales ...Research and...

  • Page 130
    ... Restricted Stock/ Stock Units Weighted-Average Grant Date Fair Value per Share Aggregated Fair Market Value BALANCE AT JULY 25, 2009 ...Granted and assumed ...Vested ...Canceled/forfeited ...BALANCE AT JULY 31, 2010 ...Granted and assumed ...Vested ...Canceled/forfeited ...BALANCE AT JULY 30, 2011...

  • Page 131
    ... value in the preceding table represents the total pretax intrinsic value, based on the Company's closing stock price of $15.69 as of July 27, 2012, which would have been received by the option holders had those option holders exercised their stock options as of that date. The total number of in-the...

  • Page 132
    ... table to determine the grant date fair value of restricted stock units with performance metrics conditions. The valuation of employee stock purchase rights and the underlying assumptions being used are summarized as follows: EMPLOYEE STOCK PURCHASE RIGHTS July 28, July 30, July 31, 2012 2011 2010...

  • Page 133
    ... stock options are expected to remain outstanding. (h) Employee 401(k) Plans The Company sponsors the Cisco Systems, Inc. 401(k) Plan (the "Plan") to provide retirement benefits for its employees. As allowed under Section 401(k) of the Internal Revenue Code, the Plan provides for tax-deferred salary...

  • Page 134
    ... 28, 2012 July 30, 2011 July 31, 2010 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 sharebased compensation ...Nondeductible compensation ...Other, net ...Total ...126...

  • Page 135
    ...Unemployment Insurance Reauthorization, and Job Creation Act of 2010 reinstated the U.S. federal R&D tax credit through December 31, 2011, retroactive to January 1, 2010. As a result, the tax provision in fiscal 2011 includes a tax benefit of $65 million related to the R&D tax credit for fiscal 2010...

  • Page 136
    ...$3,879 July 28, 2012 July 30, 2011 ASSETS Allowance for doubtful accounts and returns ...Sales-type and direct-financing leases ...Inventory write-downs and capitalization ...Investment provisions ...IPR&D, goodwill, and purchased intangible assets ...Deferred revenue ...Credits and net operating...

  • Page 137
    ...2012, 2011, and 2010, based on the Company's internal management system and as utilized by the Company's Chief Operating Decision Maker ("CODM"), is as follows (in millions): Years Ended July 28, 2012 July 30, 2011 July 31, 2010 Net sales: Americas ...EMEA ...APJC ...Total ...Gross margin: Americas...

  • Page 138
    ... table presents net sales for groups of similar products and services (in millions): Years Ended July 28, 2012 July 30, 2011 July 31, 2010 Net sales: Switching ...NGN Routing ...Collaboration ...Service Provider Video ...Wireless ...Security ...Data Center ...Other ...Product ...Service ...Total...

  • Page 139
    ... 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 recognized, and the...

  • Page 140
    ...tax. The Company first declared a quarterly cash dividend on March 17, 2011. Stock Market Information Cisco common stock is traded on the NASDAQ Global Select Market under the symbol CSCO. The following table lists the high and low sales prices for each period indicated: Fiscal FISCAL 2012 High Low...

  • Page 141
    ...Statement related to the 2012 Annual Meeting of Shareholders and is incorporated herein by reference. We have adopted a code of ethics that applies to our principal executive officer and all members of our finance department, including the principal financial officer and principal accounting officer...

  • Page 142
    ... caption "Proposal No. 1: Election of Directors-Independent Directors," in each case in our Proxy Statement related to the 2012 Annual Meeting of Shareholders, and is incorporated herein by reference. Item 14. Principal Accountant Fees and Services The information required by this item is included...

  • Page 143
    ... Receivables Allowances For Loan Receivables Accounts Receivable Year ended July 31, 2010: Balance at beginning of fiscal year ...Provisions ...Write-offs net of recoveries ...Foreign exchange and other ...Balance at end of fiscal year ...Year ended July 30, 2011: Balance at beginning of fiscal...

  • Page 144
    SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this Report on Form 10-K to be signed on its behalf by the undersigned, thereunto duly authorized. September 12, 2012 CISCO SYSTEMS, INC. /S/ JOHN T. CHAMBERS John ...

  • Page 145
    ... Kovacevich Director September 12, 2012 /S/ RODERICK C. MCGEARY Roderick C. McGeary Director September 12, 2012 /S/ ARUN SARIN Arun Sarin Director September 12, 2012 /S/ STEVEN M. WEST Steven M. West Director September 12, 2012 /S/ JERRY YANG Jerry Yang Director September 12, 2012...

  • Page 146
    ... registrant's 2.90% Senior Notes due 2014, 4.45% Senior Notes due 2020, and 5.50% Senior Notes due 2040 Forms of Global Note for the Company's Floating Rate Notes due 2014, 1.625% Senior Notes due 2014 and 3.150% Senior Notes due 2017 Cisco Systems, Inc. 2005 Stock Incentive Plan (including related...

  • Page 147
    ..., 2012, by and among Cisco Systems, Inc. and Lenders party thereto, and Bank of America, N.A., as administration agent, swing line lender and an L/C issuer Form of Commercial Paper Dealer Agreement Commercial Paper Issuing and Paying Agent Agreement dated January 31, 2011 between the Registrant and...

  • Page 148
    Exhibit Number Exhibit Description Form File No. Exhibit Filing Date Filed Herewith 101.INS 101.SCH XBRL Instance Document XBRL Taxonomy Extension Schema Document ....PRE * XBRL Taxonomy Extension Presentation Linkbase Document Indicates a management contract or compensatory plan or arrangement.

  • Page 149
    ...: Investor Relations Cisco Systems, Inc. 170 West Tasman Drive San Jose, CA 95134-1706 408 227-CSCO (2726) http://investor.cisco.com Cisco's stock trades on the NASDAQ Global Select Market under the ticker symbol CSCO. Transfer Agent and Registrar Computershare Investor Services P.O. Box 43078...

  • Page 150
    ...achieve the benefits anticipated from our investments in sales, engineering, service, marketing and manufacturing activities; our ability to recruit and retain key personnel; our ability to manage financial risk, and to manage expenses during economic downturns; risks related to the global nature of...

  • Page 151
    ...the development of Internet Protocol (IP)-based networking technologies. This tradition continues with the development of routing, switching, and other networking-based technologies such as collaboration, data center, security, service provider video products, and wireless. All of these technologies...

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