Cisco 2013 Annual Report Download - page 32

OUR BUSINESS SUBSTANTIALLY DEPENDS UPON THE CONTINUED GROWTH OF THE INTERNET AND
INTERNET-BASED SYSTEMS
A substantial portion of our business and revenue depends on growth and evolution of the Internet, including the continued
development of the Internet, and on the deployment of our products by customers who depend on such continued growth and
evolution. To the extent that an economic slowdown or uncertainty and related reduction in capital spending adversely affect
spending on Internet infrastructure we could experience material harm to our business, operating results, and financial
condition.
Because of the rapid introduction of new products and changing customer requirements related to matters such as cost-
effectiveness and security, we believe that there could be performance problems with Internet communications in the future,
which could receive a high degree of publicity and visibility. Because we are a large supplier of networking products, our
business, operating results, and financial condition may be materially adversely affected, regardless of whether or not these
problems are due to the performance of our own products. Such an event could also result in a material adverse effect on the
market price of our common stock independent of direct effects on our business.
WE HAVE MADE AND EXPECT TO CONTINUE TO MAKE ACQUISITIONS THAT COULD DISRUPT OUR
OPERATIONS AND HARM OUR OPERATING RESULTS
Our growth depends upon market growth, our ability to enhance our existing products, and our ability to introduce new
products on a timely basis. We intend to continue to address the need to develop new products and enhance existing products
through acquisitions of other companies, product lines, technologies, and personnel. Acquisitions involve numerous risks,
including the following:
• Difficulties in integrating the operations, systems, technologies, products, and personnel of the acquired companies,
particularly companies with large and widespread operations and/or complex products, such as Scientific-Atlanta,
WebEx, Starent, Tandberg and NDS Group Limited
• Diversion of management’s attention from normal daily operations of the business and the challenges of managing
larger and more widespread operations resulting from acquisitions
• Potential difficulties in completing projects associated with in-process research and development intangibles
• Difficulties in entering markets in which we have no or 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, 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 a substantial portion of our cash resources, or incur debt, as we did in fiscal 2006 when we issued and sold $6.5
billion in senior unsecured notes to fund our acquisition of Scientific-Atlanta
• Significantly increase our interest expense, leverage and debt service requirements if we incur additional debt to pay
for an acquisition
• Assume liabilities
• Record goodwill and nonamortizable intangible assets that are subject to impairment testing on a regular basis and
potential periodic impairment charges
• Incur amortization expenses related to certain intangible assets
• Incur tax expenses related to the effect of acquisitions on our intercompany research and development (“R&D”) cost
sharing arrangement and legal structure
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