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Cisco Systems, Inc. 2013 Annual Report

Table of contents

  • Page 1
    Cisco Systems, Inc. 2013 Annual Report

  • Page 2

  • Page 3
    ... fiscal 2012. Another example is in mobility, where we are leading the transition to a unified access architecture and cloud, and where our Wireless product category grew 31% in revenue from the prior year. Fiscal 2013 was marked by a challenging and inconsistent global economy, the emergence of new...

  • Page 4
    ... in Data Center and Wireless revenue growth. Data Center was up 60%, with Cisco Unified Computing System (Cisco UCS) growing 63%. Wireless grew 31%, bolstered by the strength of our broad portfolio, including the successful integration of our Meraki acquisition. Additionally, Service Provider Video...

  • Page 5
    Annual Report 2013 Letter to Shareholders strategy, the pillars of which are build, buy, partner, and integrate. This strategy, combined with our architectural approach, continues to be extremely effective in terms of solving customers' business needs. During the fiscal year, we closed 13 strategic...

  • Page 6

  • Page 7
    ... Exchange Act). ' Yes È No Aggregate market value of registrant's common stock held by non-affiliates of the registrant, based upon the closing price of a share of the registrant's common stock on January 25, 2013 as reported by the NASDAQ Global Select Market on that date: $112,104,863,683 Number...

  • Page 8
    .... Directors, Executive Officers and Corporate Governance ...Executive Compensation ...Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters ...Certain Relationships and Related Transactions, and Director Independence ...Principal Accountant Fees and Services...

  • Page 9
    ...) Routing; Service Provider Video; Collaboration; Wireless; Data Center; Security; and Other Products. Network architectures, built on core routing and switching technologies, are evolving to accommodate the demands of increasing numbers of users, network applications and new network-related markets...

  • Page 10
    ... driving business agility and strategy execution. Market transitions for which we are primarily focused include those related to the increased role of virtualization/the cloud, video, collaboration, networked mobility technologies, and the transition from Internet Protocol (IP) Version 4 to Version...

  • Page 11
    ..., 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 applications to be delivered on such devices. A key term in this mobility-centered market...

  • Page 12
    ...to the Consolidated Financial Statements. Products and Services Our current offerings fall into several categories: Switching Switching is an integral networking technology used in campuses, branch offices, and data centers. Switches are used within buildings in local-area networks (LANs) and across...

  • Page 13
    ... wireline and mobile networks for mobile, data, voice, and video applications. Our NGN portfolio of hardware and software solutions consists primarily of routers and routing systems and is designed to meet the scale, reliability, and security needs of our customers. In our view, our portfolio is...

  • Page 14
    ... experiences. Collaboration Our Collaboration portfolio integrates voice, video, data, and mobile applications on fixed and mobile networks across a wide range of devices and endpoints, including mobile phones, tablets, desktop and laptop computers, and desktop virtualization clients. Key products...

  • Page 15
    ... network managed services. Our wireless solutions portfolio is enhanced with security and location-based services via our Mobility Services Engine (MSE) solution. Our offerings provide users with simplified management and mobile device troubleshooting features that are designed to reduce operational...

  • Page 16
    ... our products operate efficiently, remain available, and benefit from the most up-todate system software that we have developed. These services help customers protect their network investments and minimize downtime for systems running mission-critical applications. A key example of this is our Cisco...

  • Page 17
    ... application-based services. Service providers use a variety of our routing and switching, optical, security, video, mobility, and network management products, systems, and services for their own networks. In addition, many service providers use Cisco data center, virtualization, and collaboration...

  • Page 18
    ... deliver to customers in target markets through acquisitions, investments, and alliances. To summarize, 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...

  • Page 19
    ... the expected benefits from such alliances, and we may experience increased competition or delays in product development." Competition We compete in the networking and communications equipment markets, providing products and services for transporting data, voice, and video traffic across intranets...

  • Page 20
    ... regularly seek to introduce new products and features to address the requirements of our markets. We allocate our research and development budget among our product categories, which consist of Switching, NGN Routing, Service Provider Video, Collaboration, Wireless, Data Center, Security, and Other...

  • Page 21
    ...-party licenses." Employees Employees are summarized as follows: July 27, 2013 Employees by geography: United States ...Rest of world ...Total ...Employees by line item on the Consolidated Statements of Operations: Cost of sales (1) ...Research and development ...Sales and marketing ...General and...

  • Page 22
    ... Development Officer, Global Engineering Executive Vice President, Operations, Processes and Systems Senior Vice President, Worldwide Field Operations Mr. Calderoni joined Cisco in May 2004 as Vice President, Worldwide Sales Finance. In June 2007, he was promoted to Senior Vice President, Customer...

  • Page 23
    ...2011, he was appointed Executive Vice President and Chief Operating Officer. In October 2012, Mr. Moore was appointed to his current position. Immediately before joining Cisco, Mr. Moore served for approximately two years as chief executive officer of Netigy Corporation, a network consulting company...

  • Page 24
    ... 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 levels and purchase commitments Price and product competition in the communications...

  • Page 25
    ... 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 lower, or may develop more slowly, than...

  • Page 26
    ... 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 Increases in material, labor or other manufacturing-related costs, which could be...

  • 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
    ...Also, some of our current and potential competitors for enterprise data center business have made acquisitions, or announced new strategic alliances, designed to position them to provide end-to-end technology solutions for the enterprise data center. As a result of all of these developments, we face...

  • Page 29
    ... 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 COMPONENT...

  • Page 30
    ... Financial Statements contained in this report. WE DEPEND UPON THE DEVELOPMENT OF NEW PRODUCTS AND ENHANCEMENTS TO EXISTING PRODUCTS, AND IF WE FAIL TO PREDICT AND RESPOND TO EMERGING TECHNOLOGICAL TRENDS AND CUSTOMERS' CHANGING NEEDS, OUR OPERATING RESULTS AND MARKET SHARE MAY SUFFER The markets...

  • Page 31
    ... 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 32
    ... of key employees, customers, distributors, vendors and other business partners of the companies we acquire following and continuing after announcement of acquisition plans Acquisitions may also cause us to Issue common stock that would dilute our current shareholders' percentage ownership Use...

  • Page 33
    ... 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 34
    ... and financial condition. A portion of our sales is derived through our distributors. These distributors 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 35
    ... Sheets at fair value with unrealized gains or losses reported as a component of accumulated other comprehensive income, net of tax. Our portfolio includes fixed income securities and equity investments in publicly traded companies, the values of which are subject to market price volatility to...

  • Page 36
    ... the customer, 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 adversely affected. Our exposure to risks associated with the use of...

  • Page 37
    ... geopolitical and exchange rate risk. The loss of services of any of our key personnel; the inability to retain and attract qualified personnel in the future; or delays in hiring required personnel, particularly engineering and sales personnel, could make it difficult to meet key objectives, such as...

  • Page 38
    ... 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 39
    ... of both our debt and equity securities, as well as the terms upon which we may borrow under our commercial paper program. Item 1B. Unresolved Staff Comments Not applicable. Item 2. Properties Our corporate headquarters are located at an owned site in San Jose, California, in the United States of...

  • Page 40
    ... District of California against Cisco and certain of its officers and directors. The lawsuits were consolidated, and an amended consolidated complaint was filed on December 2, 2011. The consolidated action was purportedly brought on behalf of purchasers of Cisco's publicly traded securities between...

  • Page 41
    ... parties. Under the terms of the settlement, in exchange for a single, lump sum monetary payment to TiVo by Cisco of $294 million, Cisco received a perpetual license to the patents-in-suit, Cisco and TiVo entered into a ten year cross license applicable to the video field, and Cisco and TiVo agreed...

  • Page 42
    ... Securities (in millions, except per-share amounts): Approximate Dollar Value of Shares That May Yet Be Purchased Under the Plans or Programs Period Total Number of Shares Purchased Average Price Paid per Share Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs...

  • Page 43
    ... 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 Technology Index and the S&P 500 Index. The graph tracks the performance of a $100 investment...

  • Page 44
    ... recognized tax benefits of $184 million in fiscal 2013, of which $72 million related to fiscal 2012 R&D expenses. Net income for the year ended July 30, 2011 included restructuring and other charges of $694 million, net of tax. See Note 5 to the Consolidated Financial Statements. (2) No other...

  • Page 45
    ... Internet 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 46
    ... the Americas, India within APJC, and Russia within EMEA. From a customer markets standpoint, in fiscal 2013 we had solid revenue growth in the commercial market, as well as growth in the service provider market, due in large part to the acquisition of NDS. The enterprise and public sector customer...

  • Page 47
    ... 2012 (in millions, except days sales outstanding in accounts receivable (DSO) and annualized inventory turns): Fiscal 2013 Fiscal 2012 Cash and cash equivalents and investments ...Cash provided by operating activities ...Deferred revenue ...Repurchases of common stock-stock repurchase program...

  • Page 48
    ...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 49
    ...Both accounts receivable and financing receivables are charged off at the point when they are considered uncollectible. A reserve for future sales returns is established based on historical trends in product return rates. The reserve for future sales returns as of July 27, 2013 and July 28, 2012 was...

  • Page 50
    ... stock unit awards with market-based conditions are valued using a Monte Carlo simulation. 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 model...

  • Page 51
    ... determine the ultimate fair value of our assets and liabilities. We use such pricing data as the primary input, to which we have not made any material adjustments during fiscal 2013 and 2012, to make our assessments and determinations as to the ultimate valuation of our investment portfolio. We are...

  • Page 52
    ... circumstances for each reporting unit. The assessment of fair value for goodwill and purchased intangible assets is based on factors that market participants would use in an orderly transaction in accordance with the new accounting guidance for the fair value measurement of nonfinancial assets...

  • Page 53
    ... in tax incentives; 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 54
    ...solid performance of our Service offerings, our acquisition of NDS at the beginning of fiscal 2013, and increased demand for our Data Center and Wireless products. We conduct business globally in numerous currencies. The direct effect of foreign currency fluctuations on revenue has not been material...

  • Page 55
    ... economy as the fiscal year progressed, we continued to see weakness in southern Europe throughout fiscal 2013. For fiscal 2013, as compared with fiscal 2012, product revenue in the EMEA segment was flat, as growth in the commercial, service provider and public sector markets was offset by a decline...

  • Page 56
    ...the EMEA segment, led by growth in the commercial, enterprise and public sector markets. We experienced a slight decline in product revenue in the service provider customer market during the fiscal year driven by lower revenue from this customer market in several of the large countries in the region...

  • Page 57
    ...switching, and storage); NGN Routing (high-end routers, mid-range and low-end routers, and other NGN Routing products); Service Provider Video (connected devices, video software and solutions, cable access and NDS); Collaboration (unified communications and Cisco TelePresence); Wireless; Data Center...

  • Page 58
    ...of our Cisco Integrated Services Routers (ISR) platform. The decline in sales of other NGN Routing products was due to decreased sales of certain other routing and optical networking products. Fiscal 2012 Compared with Fiscal 2011 For fiscal 2012, as compared with fiscal 2011, product revenue in our...

  • Page 59
    ... and cloud environments, as current customers increase their data center build out, and new customer product purchases. Security Fiscal 2013 Compared with Fiscal 2012 Sales of Security products were flat as higher sales in high-end firewall products within our network security product portfolio were...

  • Page 60
    ... in our Americas segment. Renewals and technical support service contract initiations associated with product sales provided an installed base of equipment being serviced which, in concert with new service offerings, were the primary factors driving these increases. We experienced revenue growth in...

  • Page 61
    ... benefits from cost savings, particularly in certain of our Switching and NGN Routing categories in which product transitions have been taking place, and were driven by value engineering efforts, favorable component pricing, and continued operational efficiency in manufacturing operations. Value...

  • Page 62
    ...benefit were higher delivery team costs which were, in part headcount related, and higher partner delivery costs. Our revenue from advanced services may increase to a higher proportion of total service revenue due to our continued focus on providing comprehensive support to our customers' networking...

  • Page 63
    ....2% 62.8% 63.3% 61.4% The unallocated corporate items include the effects of amortization and impairments of acquisition-related intangible assets, share-based compensation expense, impacts to cost of sales from purchase accounting adjustments to inventory, charges related to asset impairments and...

  • Page 64
    ... purchases, especially relating to our router sales and sales of certain products within our Collaboration and Data Center product categories. In addition, service provider customers typically have longer implementation cycles; require a broader range of services, including network design services...

  • Page 65
    ... in the current year of $202 million of impairment charges on real estate held for sale recorded in the fourth quarter of fiscal 2012. Lower share-based compensation expense in fiscal 2013 and a recovery in the market value of property held for sale recorded during fiscal 2013 also contributed...

  • Page 66
    ... table presents share-based compensation expense (in millions): Years Ended July 27, 2013 July 28, 2012 July 30, 2011 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...

  • Page 67
    ... consumer product lines. For additional information regarding purchased intangible assets, see Note 4 to the Consolidated Financial Statements. The fair value of acquired technology and patents, as well as acquired technology under development, is determined at acquisition date primarily using the...

  • Page 68
    ...in millions): Years Ended July 27, 2013 July 28, 2012 Variance in Dollars July 28, 2012 July 30, 2011 Variance 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 69
    ... Consolidated Financial Statements. Fiscal 2012 Compared with Fiscal 2011 The provision for income taxes resulted in an effective tax rate of 20.8% for fiscal 2012, compared with 17.1% for fiscal 2011. The net 3.7 percentage point increase in the effective tax rate between fiscal years was primarily...

  • Page 70
    ... 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, excess tax benefits resulting from share-based...

  • Page 71
    ... and deferred cost of sales are related to unrecognized revenue on shipments to distributors and retail partners as well as shipments to customers. Manufactured finished goods consist primarily of build-to-order and build-to-stock products. We purchase components from a variety of suppliers and use...

  • Page 72
    ...associated with the channel partner and end-user financing arrangement in accordance with revenue recognition policies, or we record a liability for the fair value of the guarantees. In either case, the deferred revenue is recognized as revenue when the guarantee is removed. Deferred Revenue Related...

  • Page 73
    ... related to our investment in Insieme Networks, Inc. ("Insieme"). The amount of borrowings outstanding under these arrangements was $31 million and $41 million as of July 27, 2013 and July 28, 2012, respectively. Commercial Paper In fiscal 2011, we established a short-term debt financing program...

  • Page 74
    ... Insieme Networks, Inc. In the third quarter of fiscal 2012, we made an investment in Insieme, an early stage company focused on research and development in the data center market. As set forth in the agreement between Cisco and Insieme, this investment includes $100 million of funding and a license...

  • Page 75
    ...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 channel partners or end-user customers. See the previous discussion of these financing guarantees under "Financing Receivables and Guarantees." Securities...

  • Page 76
    ... 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 fair value of our fixed income investment portfolio...

  • Page 77
    ...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 78
    ...transactions related to operating expenses and service cost of sales ...Forward contracts-current assets and liabilities ...Forward contracts-net investments in foreign subsidiaries ...Forward contracts-long-term customer financings ... Up to 18 months Up to 3 months Up to 6 months Up to 2 years We...

  • Page 79
    ... Sheet Details ...Note 7: Financing Receivables and Guarantees ...Note 8: Investments ...Note 9: Fair Value ...Note 10: Borrowings ...Note 11: Derivative Instruments ...Note 12: Commitments and Contingencies ...Note 13: Shareholders' Equity ...Note 14: Employee Benefit Plans ...Note 15: Income Taxes...

  • Page 80
    ..., 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 81
    ... 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 and accuracy. Management, with oversight by Cisco's Board of Directors, has...

  • Page 82
    ... revenue ...Other current liabilities ...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...

  • Page 83
    ... per-share amounts) Years Ended July 27, 2013 July 28, 2012 July 30, 2011 REVENUE: Product ...Service ...Total revenue ...COST OF SALES: Product ...Service ...Total cost of sales ...GROSS MARGIN ...OPERATING EXPENSES: Research and development ...Sales and marketing ...General and administrative...

  • Page 84
    ...34) for fiscal 2013, 2012, and 2011, respectively ...Other comprehensive (loss) income ...Comprehensive income ...Comprehensive loss (income) attributable to noncontrolling interests ...Comprehensive income attributable to Cisco Systems, Inc...See Notes to Consolidated Financial Statements. $9,983...

  • Page 85
    ... for receivables ...44 Deferred income taxes ...(37) Excess tax benefits from share-based compensation ...(92) Net losses (gains) on investments ...9 Change in operating assets and liabilities, net of effects of acquisitions and divestitures: Accounts receivable ...(1,001) Inventories ...218...

  • Page 86
    ... of July 27, 2013, the Company's Board of Directors had authorized an aggregate repurchase of up to $82 billion of common stock under this program with no termination date. The stock repurchases since the inception of this program and the related impacts on Cisco shareholders' equity are summarized...

  • Page 87
    ... 2013, fiscal 2012, and fiscal 2011 are each 52-week fiscal years. The Consolidated Financial Statements include the accounts of Cisco and its subsidiaries. All significant intercompany accounts and transactions have been eliminated. The Company conducts business globally and is primarily managed...

  • Page 88
    ... financed service contracts, and loans, for certain qualified end-user customers to build, maintain, and upgrade their networks. Lease receivables primarily represent sales-type and direct-financing leases. Leases have on average a four-year term and are usually collateralized by a security interest...

  • Page 89
    ... 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 The Company allocates the fair value of...

  • Page 90
    ... delivery or completion of performance. The Company uses distributors that stock inventory and typically sell to systems integrators, service providers, and other resellers. The Company refers to this as its two-tier system of sales to the end customer. Revenue from distributors is recognized based...

  • Page 91
    ...: Switching, NextGeneration Network (NGN) Routing, Service Provider Video, Collaboration, Wireless, Data Center, Security, 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...

  • Page 92
    ... are used for the following, among others Revenue recognition Allowances for accounts receivable, sales returns, and financing receivables Inventory valuation and liability for purchase commitments with contract manufacturers and suppliers Warranty costs Share-based compensation expense Fair value...

  • Page 93
    ... the new standard update, the Company's unrecognized tax benefit, or a portion of an unrecognized tax benefit, should be presented in the financial statements as a reduction to a deferred tax asset for a net operating loss carryforward or a tax credit carryforward. This accounting standard update...

  • Page 94
    ... fiscal 2013. Meraki offers mid-market customers on-premise networking solutions centrally managed from the cloud. With its acquisition of Meraki, the Company intends to address the shift to cloud networking as a key part of the Company's overall strategy to accelerate the adoption of software-based...

  • Page 95
    ...global service providers by enabling a comprehensive small-cell solution that supports the transition to next-generation radio access networks. The Company has included revenue from the Ubiquisys acquisition, subsequent to the acquisition date, in its NGN Routing product category. The total purchase...

  • Page 96
    ...-based incentives to acquire Sourcefire. The acquisition is expected to close in the second half of calendar 2013 and is subject to customary closing conditions, including a regulatory review. Upon close of the acquisition, revenue from Sourcefire will be included in the Company's Security product...

  • Page 97
    (b) Purchased Intangible Assets The following tables present details of the Company's intangible assets acquired through business combinations completed during fiscal 2013 and 2012 (in millions, except years): FINITE LIVES CUSTOMER RELATIONSHIPS WeightedAverage Useful Life (in Years) Amount ...

  • Page 98
    ... fair value resulting from reductions in expected future cash flows associated with certain of the Company's technology assets. For fiscal 2011, the $164 million in impairment charges consisted of $64 million of charges to product cost of sales, $92 million of charges to amortization of purchased...

  • Page 99
    ... (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, the Company...

  • Page 100
    ...and deferred cost of sales ...Manufactured finished goods ...Total finished goods ...Service-related spares ...Demonstration systems ...Total ...Property and equipment, net: Land, buildings, and building and leasehold improvements ...Computer equipment and related software ...Production, engineering...

  • Page 101
    ...a security interest in the underlying assets. Loan receivables represent financing arrangements related to the sale of the Company's products and services, which may include additional funding for other costs associated with network installation and integration of the Company's products and services...

  • Page 102
    ...'s revenue recognition policies, and the related allowance for credit loss, if any, is included 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...

  • Page 103
    ... 31 days or more past due according to their contractual payment terms. The data in the preceding tables are presented by contract and the aging classification of each contract is based on the oldest outstanding receivable, and therefore past due amounts also include unbilled and current receivables...

  • Page 104
    ... financing extended to channel partners, consisting of revolving short-term financing, generally with payment terms ranging from 60 to 90 days. These financing arrangements facilitate the working capital requirements of the channel partners, and, in some cases, the Company guarantees a portion of...

  • Page 105
    ...the Company's available-for-sale investments (in millions): Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Fair Value July 27, 2013 Fixed income securities: U.S. government securities ...U.S. government agency securities ...Non-U.S. government and agency securities ...Corporate debt...

  • Page 106
    ... in market value. (c) Maturities of Fixed Income Securities The following table summarizes the maturities of the Company's fixed income securities at July 27, 2013 (in millions): Amortized Cost Fair Value Less than 1 year ...Due in 1 to 2 years ...Due in 2 to 5 years ...Due after 5 years ...Total...

  • Page 107
    ... quoted market prices, independent pricing vendors, or other sources, to determine the ultimate fair value of these assets and liabilities. The Company uses such pricing data as the primary input to make its assessments and determinations as to the ultimate valuation of its investment portfolio and...

  • Page 108
    ...fair value and the carrying value of the assets was recorded as an impairment charge. There was no impairment charge related to purchased intangible assets during the year ended July 27, 2013. For the years ended July 28, 2012 and July 30, 2011, such impairment charges were recorded in cost of sales...

  • Page 109
    ... Company uses the proceeds from the issuance of commercial paper notes for general corporate purposes. The Company had no commercial paper notes outstanding as of each of July 27, 2013 and July 28, 2012. Other notes and borrowings consisted of the short-term portion of secured borrowings associated...

  • Page 110
    ...45% fixed-rate notes, due 2020 ...5.90% fixed-rate notes, due 2039 ...5.50% fixed-rate notes, due 2040 ...Other long-term debt ...Total ...Unaccreted discount ...Hedge accounting fair value adjustments ...Total ...Reported as: Current portion of long-term debt ...Long-term debt ...Total ... $ 1,250...

  • Page 111
    ... 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 112
    ...) FOR THE YEARS ENDED July 27, July 28, July 30, 2013 2012 2011 Derivatives Not Designated as Hedging Instruments Line Item in Statements of Operations Foreign currency derivatives ...Other income (loss), net Total return swaps - deferred compensation ...Cost of sales - product Total return swaps...

  • Page 113
    ... in market interest rates. The fair value of the interest rate swaps was reflected in other assets. (d) Equity Price Risk The Company may hold equity securities for strategic purposes or to diversify its overall investment portfolio. The publicly traded equity securities in the Company's portfolio...

  • Page 114
    ...purchases components from a variety of suppliers 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...

  • Page 115
    ... Company's Consolidated Financial Statements. (e) Product Warranties and Guarantees The following table summarizes the activity related to product warranty liability during fiscal 2013 and 2012 (in millions): July 27, 2013 July 28, 2012 July 30, 2011 Balance at beginning of fiscal year ...Provision...

  • Page 116
    ... 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 generally covered by a warranty for periods ranging from 90 days to five years, and for some products the Company...

  • Page 117
    ... parties. Under the terms of the settlement, in exchange for a single, lump sum monetary payment to TiVo by the Company of $294 million, the Company received a perpetual license to the patents-in-suit, the Company and TiVo entered into a ten year cross license applicable to the video field, and the...

  • Page 118
    .... Issuance of common stock and the tax benefit related to employee stock incentive plans are recorded as an increase to common stock and additional paid-in capital. (c) Other Repurchases of Common Stock For the years ended July 27, 2013 and July 28, 2012, the Company repurchased approximately 16...

  • Page 119
    ... Cisco Systems, Inc. WebEx Acquisition Long-Term Incentive Plan (the "WebEx Acquisition Plan"). In addition, the Company has, in connection with the acquisitions of various companies, assumed the share-based awards granted under stock incentive plans of the acquired companies or issued share-based...

  • Page 120
    ... units granted to employees. The following table summarizes share-based compensation expense (in millions): Years Ended July 27, 2013 July 28, 2012 July 30, 2011 Cost of sales-product ...Cost of sales-service ...Share-based compensation expense in cost of sales ...Research and development ...Sales...

  • Page 121
    ... Stock and Stock Unit Awards A summary of the restricted stock and stock unit activity, which includes time-based and performance-based or market-based restricted stock units, is as follows (in millions, except per-share amounts): Restricted Stock/ Stock Units Weighted-Average Grant Date Fair Value...

  • Page 122
    ...2012 July 30, 2011 PERFORMANCE RESTRICTED STOCK UNITS July 27, 2013 July 28, 2012 Years Ended Number of shares granted (in millions) ...64 62 54 Weighted-average assumptions/inputs: Grant date fair value per share ...$18.39 $17.26 $20.59 Expected dividend yield ...3.0% 1.5% 0.3% Range of risk-free...

  • Page 123
    ... the term of the Company's employee stock purchase rights. The dividend yield assumption is based on the history and expectation of dividend payouts at the grant date. (h) Employee 401(k) Plans The Company sponsors the Cisco Systems, Inc. 401(k) Plan (the "Plan") to provide retirement benefits for...

  • Page 124
    ...During fiscal 2013, the Internal Revenue Service (IRS) and the Company settled all outstanding items related to the audit of the Company's federal income tax returns for the fiscal years ended July 27, 2002 through July 28, 2007. As a result of the settlement, the Company recognized a net benefit to...

  • Page 125
    ... in the balance of gross unrecognized tax benefits were as follows (in millions): Years Ended July 27, 2013 July 28, 2012 July 30, 2011 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 126
    ...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 loss carryforwards ...Share-based compensation expense...

  • Page 127
    ...associated with these products and their use. The Company groups its products and technologies into the following categories: Switching, NGN Routing, Service Provider Video, Collaboration, Wireless, Data Center, Security, and Other Products. These products, primarily integrated by Cisco IOS Software...

  • Page 128
    ... for groups of similar products and services (in millions): Years Ended July 27, 2013 July 28, 2012 July 30, 2011 Revenue: Switching ...NGN Routing ...Service Provider Video ...Collaboration ...Wireless ...Data Center ...Security ...Other ...Product ...Service ...Total ...(c) Additional Segment...

  • Page 129
    ..., the Company recognized tax benefits of $184 million in fiscal 2013, of which $72 million related to fiscal 2012 R&D expenses. 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...

  • Page 130
    ...Statement related to the 2013 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 131
    ... Permissible Non-Audit Services of Independent Registered Public Accounting Firm" in our Proxy Statement related to the 2013 Annual Meeting of Shareholders, and is incorporated herein by reference. PART IV Item 15. Exhibits and Financial Statement Schedules (a) 1. 2. 3. Financial Statements See the...

  • Page 132
    SCHEDULE II VALUATION AND QUALIFYING ACCOUNTS (in millions) Allowances For Financing Accounts Receivables Receivable Year ended July 30, 2011: Balance at beginning of fiscal year ...Provisions ...Write-offs, net of recoveries ...Foreign exchange and other ...Balance at end of fiscal year ...Year ...

  • Page 133
    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 10, 2013 CISCO SYSTEMS, INC. /S/ JOHN T. CHAMBERS John ...

  • Page 134
    Signature Title Date Director Michael D. Capellas /S/ LARRY R. CARTER Larry R. Carter Director September 10, 2013 /S/ BRIAN L. HALLA Brian L. Halla Director September 10, 2013 /S/ JOHN L. HENNESSY Dr. John L. Hennessy Director September 10, 2013 /S/ KRISTINA M. JOHNSON Dr. Kristina ...

  • Page 135
    ... Long-Term Incentive Plan. (amends and restates the WebEx Communications, Inc. Amended and Restated 2000 Stock Incentive Plan) (including related form agreements) Cisco Systems, Inc. Employee Stock Purchase Plan Cisco Systems, Inc. Deferred Compensation Plan, as amended Cisco Systems, Inc. Executive...

  • Page 136
    ... Paper Dealer Agreement Commercial Paper Issuing and Paying Agent Agreement dated January 31, 2011 between the Registrant and Bank of America, N.A. Subsidiaries of the Registrant Consent of Independent Registered Public Accounting Firm Power of Attorney (included on page 125 of this Annual Report on...

  • Page 137
    ... Public Accounting Firm PricewaterhouseCoopers LLP San Jose, California Notice of Annual Meeting Cisco Systems, Inc. Building 9 260 East Tasman Drive San Jose, CA 95134 Tuesday, November 19, 2013 10 a.m. Pacific Time * Lead Independent Director (1) Member of the Acquisition Committee (2) Member...

  • Page 138
    ... a portfolio as increasing our strategic position in the market; our being wellpositioned in our Next-Generation Network (NGN) Routing product category; our view that our Cisco Open Network Environment (Cisco ONE) solution is the most comprehensive framework for network programmability and software...

  • Page 139
    ... 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 are made possible due to the evolution of the network. As an innovator in the communications and...

  • Page 140
    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.