Cisco 2015 Annual Report Download - page 33

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• 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 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
• Incur large and immediate write-offs and restructuring and other related expenses
• Become subject to intellectual property or other litigation
Mergers and acquisitions of high-technology companies are inherently risky and subject to many factors outside of our control,
and no assurance can be given that our previous or future acquisitions will be successful and will not materially adversely affect
our business, operating results, or financial condition. Failure to manage and successfully integrate acquisitions could materially
harm our business and operating results. Prior acquisitions have resulted in a wide range of outcomes, from successful
introduction of new products and technologies to a failure to do so. Even when an acquired company has already developed and
marketed products, there can be no assurance that product enhancements will be made in a timely fashion or that pre-acquisition
due diligence will have identified all possible issues that might arise with respect to such products.
From time to time, we have made acquisitions that resulted in charges in an individual quarter. These charges may occur in any
particular quarter, resulting in variability in our quarterly earnings. In addition, our effective tax rate for future periods is
uncertain and could be impacted by mergers and acquisitions. Risks related to new product development also apply to
acquisitions. See the risk factors above, including the risk factor entitled “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” for additional information.
ENTRANCE INTO NEW OR DEVELOPING MARKETS EXPOSES US TO ADDITIONAL COMPETITION AND
WILL LIKELY INCREASE DEMANDS ON OUR SERVICE AND SUPPORT OPERATIONS
As we focus on new market opportunities and key growth areas, we will increasingly compete with large telecommunications
equipment suppliers as well as startup companies. Several of our competitors may have greater resources, including technical and
engineering resources, than we do. Additionally, as customers in these markets complete infrastructure deployments, they may
require greater levels of service, support, and financing than we have provided in the past, especially in emerging countries.
Demand for these types of service, support, or financing contracts may increase in the future. There can be no assurance that we
can provide products, service, support, and financing to effectively compete for these market opportunities.
Further, provision of greater levels of services, support and financing by us may result in a delay in the timing of revenue
recognition. In addition, entry into other markets has subjected and will subject us to additional risks, particularly to those
markets, including the effects of general market conditions and reduced consumer confidence. For example, as we add direct
selling capabilities globally to meet changing customer demands, we will face increased legal and regulatory requirements.
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