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FORM 10-K
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(Mark one)
[X] Annual report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the fiscal year ended July 25,1998
[ ] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from ________ to ________
Commission file number 0-18225
CISCO SYSTEMS, INC.
(Exact name of registrant as specified in its charter)
California 77-0059951
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(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
170 West Tasman Drive
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San Jose, California 95134
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (408) 526-4000
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Name of each exchange
Title of each class on which registered
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Common Stock Nasdaq National Market
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
----- -----
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained to the best
of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
As of September 23, 1998, the approximate aggregate market value of voting stock
held by non-affiliates of the registrant was $ 101,827,050,035 (based upon the
closing price for shares of the Registrant's Common Stock as reported by the
National Market System of the National Association of Securities Dealers
Automated Quotation System on that date). Shares of Common Stock held by each
officer, director, and holder of 5% or more of the outstanding Common Stock have
been excluded in that such persons may be deemed to be affiliates. This
determination of affiliate status is not necessarily a conclusive determination
for other purposes.
As of September 23, 1998, 1,569,284,000 shares of registrant's common stock were
outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
(1) Portions of Annual Report to Shareholders for fiscal year ended July 25,
1998 are incorporated by reference into Part I and Part II of this Annual
Report on Form 10-K where indicated.
(2) Portions of the Registrant's Proxy Statement related to the 1998 Annual
Meeting of Shareholders, to be held on November 12, 1998, are incorporated
by reference into Part III of this Annual Report on Form 10-K where
indicated.
The table of exhibits filed appears at page 26.
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PART I
ITEM 1. BUSINESS
GENERAL
Certain Statements contained in this Annual Report on Form 10-K, including,
without limitation, statements containing the words "believes", "anticipates",
"estimates", "expects", and words of similar import, constitute forward looking
statements within the meaning of the Private Securities Litigation Reform Act of
1995. Readers are referred to the "Financial Risk Management" and "Potential
Volatility in Operating Results" sections, of Cisco Systems, Inc.'s 1998 Annual
Report to Shareholders, which is incorporated herein by reference, as well as
the "Acquisitions, Investments and Alliances", "Backlog", "Competition",
"Research and Development", "Manufacturing", "Patents, Intellectual Property and
Licensing", "Future Growth Subject to Risks" and "Other Risk Factors" sections
contained herein, which identify important risk factors that could cause actual
results to differ from those contained in the forward looking statements.
Cisco Systems, Inc. and its subsidiaries ("Cisco", or the "Company") is the
worldwide leader in networking for the Internet. Cisco operates in one industry
segment and creates hardware and software solutions that link computer networks
so that people have easy access to information without regard to differences in
time, place or type of computer system.
Networking is a multi-billion dollar global market whose growth is spurred by
the belief that the Internet is changing the way we all work, live, play and
learn. Over the last year, there has been a key shift in the role of the
Internet and in how the Internet is perceived. What was once a fairly complex
tool used by an elite group of highly technical individuals is now a technology
driving economic change globally by creating new jobs and market opportunities.
The Company markets its products through its direct sales force, single and
two-tier distributors, value-added resellers, service providers and system
integrators. This multiple-channel approach allows customers to select the
channel that addresses their specific needs and provides the Company with broad
coverage of worldwide markets.
Cisco was incorporated in California in December 1984. The Company's executive
offices are located at 170 West Tasman Drive, San Jose, California, 95134, and
its telephone number at that location is (408) 526-4000. Cisco can also be
reached by visiting its website at www.cisco.com.
END-TO-END INTERNET SOLUTIONS
Cisco's strategy is to provide end-to-end networking solutions to help our
customers improve productivity and gain a competitive advantage in today's
global economy. Cisco helps its customers build their own network infrastructure
and gain access to their suppliers or vendors' networks. An end-to-end
networking solution provides a common technical architecture that allows network
services to be consistently provided to all users on the network.
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Cisco's product portfolio offers a broad range of end-to-end networking
solutions. Products are used individually or in combination to connect computing
devices to networks, or computer networks with each other - whether they are
within a building, across a campus or around the world. The Company's breadth of
product offerings enables it to configure hardware and software features to meet
each customer's unique requirements. Many of the Company's products are
expandable, offering customers the option to upgrade their networks as their
needs grow.
Cisco's product offerings fall into several categories:
Routing
Routing is a foundation technology for computer communications. Routers move
information from one network to another, applying intelligence in the process to
ensure that the information reaches its destination securely and in the fastest
way possible. Cisco offers a broad range of routers, including the Cisco 12000
series, or Gigabit Switch Router (GSR), the Cisco 7500 series, the Cisco 4000
series and the Cisco 8500, 3600, 2600, 2500, 1000 and 700 product families.
Switching
Switching is another important networking technology that is used in both
local-area networks (LANs) and wide-area networks (WANs). Cisco's switching
strategy is designed to help users migrate from traditional shared LANs to fully
switched networks by delivering products that support the varying levels of
flexibility and cost-effectiveness required for today's desktop, workgroup, and
backbone applications. Cisco's solutions in this area employ all widely used
switching technologies -- Ethernet, Gigabit Ethernet, Token Ring and
Asynchronous Transfer Mode (ATM). Cisco's LAN switching products include the
Catalyst(TM) families, and Cisco's WAN switching products include the IGX, BPX,
TGX and MGX families as well as the Cisco 3800 series.
Access
Today, people need to access their computers and communicate from the home, from
remote locations and while traveling. Cisco's access solutions give groups and
individuals who are remotely located similar levels of connectivity and
information access as they would have if they were located at the company's head
office. Asynchronous and ISDN remote-access routers, dial-up access servers, and
DSL technologies provide telecommuters and mobile workers with Internet access
and branch-office connectivity. The Company's access products include the AS5000
family of access servers; access routers such as the Cisco 6000, 4000, 3800,
3600, 2600, 2500, 1600, 1000 and 700 families, products, network security and
management software.
SNA/LAN
Most large organizations have existing IBM computing systems that use the System
Network Architecture (SNA) networking method, as well as LANs based on open
network architectures (such as the TCP/IP protocol). Increasingly, network
managers want to combine these two networks into a single network that leverages
existing investments. Cisco provides a broad range of products and solutions for
the IBM marketplace that maximize availability, scalability, performance,
flexibility, and management. Much of this functionality is available through
Cisco IOS software, which provides IBM networks with a clear migration path to
the
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future while protecting investments in existing equipment and applications.
Internet Services
Cisco offers end-to-end Internet services to improve a network manager's ability
to cope with a number of challenges posed by the growing popularity of the
Internet, such as network traffic volume and network address shortages. Cisco's
Internet Service Units (ISUs) drive architectural consistency across the Company
by focusing on standards-based services between clients and servers such as
end-to-end quality of service and end-to-end security. Cisco's Internet Services
products include: the PIX Firewall, which prevents unauthorized access to a
network; NetSonar, which enables a secure network environment for Internet
connectivity and commerce; NetRanger, which terminates unauthorized activity;
Cisco LocalDirector, Cisco Cache Engine, and Cisco DistributedDirector, which
balance the load between multiple servers to enable timely access and to
eliminate redundant Internet content; and the Cisco Server Suite 1000, which
consists of server applications with a graphical user interface (GUI).
Cisco IOS Software
Cisco Internetwork Operating System (Cisco IOS(TM)) is the common platform that
ties all of Cisco's products together by delivering Internet services and
enabling networked applications. Specifically, Cisco IOS software transforms a
network into a strategic asset and a competitive advantage. Cisco IOS
technologies include a wide variety of features that provide the intelligence of
the Internet and private networks. The benefit of Cisco IOS is that it allows
Cisco customers to build an infrastructure that facilitates network growth and
the deployment of new applications, which in turn enhances reliability and
interoperability, and lowers the cost of ownership.
The Cisco IOS software platform provides important network services and enables
networked applications. Cisco IOS network services fall into two categories.
Foundation Network Services are the building blocks of a robust network. They
include connectivity, security, scalability, reliability and management.
Enabling Network Services support the deployment of applications that take
advantage of the underlying network. Enabling Network Services include such
areas as multimedia, quality of service (a network management and optimization
service) and voice.
Network Management
Cisco is extending its leading Internet business practices to its network
management vision and products. For example, Cisco's Assured Network Services
(ANS) is the company's vision and strategy for enterprise network management.
This initiative combines the power of the Internet with access to Cisco's
networking expertise to deliver enterprise-wide network availability,
performance and security. ANS ties together all Cisco network management
applications, online knowledge base and enterprise network infrastructure
devices.
In order for service providers to profit from increasing new business
opportunities, services must be carefully planned, quickly provisioned,
efficiently operated, and accurately billed. The Cisco Service Management (CSM)
system is a network service and delivery management system that delivers a
modular suite of service management products
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integrated within a common and scalable infrastructure. CSM enables service
providers to effectively deploy, monitor, and manage these new network services,
while potentially increasing revenue and reducing cost.
CUSTOMERS AND MARKETS
Networking needs are influenced by a number of factors, including the size of
the organization, number and types of computer systems, geographic locations,
and the applications requiring data communications. Cisco's customer base is not
concentrated in any particular industry and in each of the past five fiscal
years no single customer has accounted for 10 percent or more of the Company's
net sales. For additional information regarding the Company's customers and
markets see Note 11, "Geographic Information and Major Customers," on page 46 of
the Company's 1998 Annual Report to Shareholders, which is incorporated by
reference herein.
Cisco's market strategy addresses three main customer profiles:
Enterprise
Enterprise customers generally are large organizations with complex networking
needs, usually spanning multiple locations and types of computer systems.
Enterprise customers include corporations, government agencies, utilities and
educational institutions.
Service Providers
These customers provide data communication services, including telecommunication
carriers, Internet Service Providers, cable companies, and wireless
communication providers.
Small/Medium Business
These customers have a need for data networks of their own, as well as
connection to the Internet and/or to business partners. However, these customers
generally have limited resources; therefore, the Company attempts to provide
products which are affordable as well as easy to install and use.
Cisco Sales Overview
The Company's worldwide direct sales organization at September 18, 1998
consisted of approximately 5,000 individuals, including managers, sales
representatives, and technical support personnel. The Company has approximately
105 field sales offices providing coverage throughout the United States.
Additionally, the Company's international sales are currently being made through
multiple channels including approximately 108 international distributors and
resellers throughout the world. These international distributors provide system
installation, technical support, and follow-up services to end-customers.
Generally, the Company's international distributors have nonexclusive,
country-wide agreements. International sales through the various channels,
including the Company's subsidiaries, accounted for approximately 40.9% of total
sales in fiscal 1998, 43.5% in fiscal 1997, and 48.2% in fiscal 1996. Sales to
international customers and distributors generally have been made in United
States dollars. Since late fiscal
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1997, substantially all European orders have been fulfilled through the European
Operations Center (EOC).
The Company has sales support subsidiaries worldwide. New subsidiaries formed in
fiscal 1998 include China, Croatia, Denmark, Finland, Hungary, Norway, Puerto
Rico, Romania, Saudi Arabia and Slovakia.
ACQUISITIONS, INVESTMENTS AND ALLIANCES
The end-to-end strategy pursued by Cisco requires a wide variety of
technologies, products and capabilities. Additionally, the pace of change in the
industry is very rapid. The combination of complexity and rapid change make it
difficult for one company, no matter how large, to develop all technological
solutions alone. Acquisitions, investments and alliances are tools used by the
Company to fill gaps in its offerings and enable it to deliver complete
solutions to its customers and prospects in target markets.
Satisfying customers' networking needs requires a constant monitoring of market
and technology trends, plus an ability to act quickly. Cisco has a four-part
approach to satisfying the need for new or enhanced networking products and
solutions. In order of preference, this approach is to: develop new technologies
and products internally; enter into joint-development efforts with other
companies; resell another company's product; and acquire all or part of another
company.
Acquisitions involve numerous risks, which are more fully discussed in the
"Future Growth Subject to Risks" section of this document.
Since 1993, the Company has acquired a number of companies. The Company expects
to make future acquisitions where it believes that it can acquire new products
and channels of distribution or otherwise rapidly enter new or emerging markets.
Mergers and acquisitions of high-technology companies are inherently risky, and
no assurance can be given that the Company's previous or future acquisitions
will be successful and will not adversely affect the Company's financial
condition or results of operations.
Each of the Company's acquisitions has furthered the Company's commitment to
providing an end-to-end solution. The Company now has a broad set of product
offerings and technologies, which include Ethernet, Gigabit Ethernet, Token
Ring, Asynchronous Transfer Mode (ATM) switching, Synchronous Optical
Network/Synchronous Digit Hierarchy (SONET/SDH), Digital Subscriber Line (xDSL),
Dial, converged data, voice and video technologies, network security and also
network management software solutions, among others.
Minority Investments
The Company makes minority investments in companies whose technologies or
expertise appear strategic to Cisco's interests and merit monitoring, but where
there is not yet a compelling need to have those capabilities in house.
Strategic Alliances
Cisco pursues strategic alliances with other industry leaders in areas where
collaboration can produce mutual benefits. The motivation for a strategic
alliance can include: technology exchange, product development, joint marketing
and sales, and new-market creation. This
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year, Cisco expanded its relationships with Microsoft, Hewlett-Packard, EDS, and
Sprint and created new alliances with KPMG, PeopleSoft, and INS. We also
extended our business alliances with Fujitsu and Japan Telecom, while announcing
strategic relationships with US West and NTT, among others.
BACKLOG
The Company's backlog on September 19, 1998 was approximately $693 million
compared with an approximate backlog of $443 million at September 20, 1997. The
Company includes in its backlog only orders confirmed with a purchase order for
products to be shipped within 120 days to customers with approved credit status.
Because of the generally short cycle between order and shipment, and occasional
customer changes in delivery schedules or cancellation of orders (which are made
without significant penalty), the Company does not believe that its backlog, as
of any particular date, is necessarily indicative of actual net sales for any
future period.
COMPETITION
Cisco competes in the telecommunications equipment market, providing solutions
for transporting data, voice and video traffic across intranets, extranets, and
the Internet. The market is characterized by rapid growth, converging
technologies, and a conversion to new solutions that offer superior advantages.
These market factors represent both an opportunity and a competitive threat to
Cisco. The Company competes with numerous vendors in each product category.
Cisco expects that the overall number of competitors providing niche product
solutions will increase due to the market's attractive growth. On the other
hand, the Company expects the number of vendors supplying end-to-end
telecommunications solutions will decrease, due to the rapid pace of
acquisitions in the industry. Ultimately the Company believes only a few large
suppliers of end-to-end telecommunication equipment solutions will become its
primary competitors.
Cisco's competitors include Lucent, Nortel, Ericsson, 3Com, Ascend, Cabletron,
Fore and IBM. Some of the Company's competitors compete across many of Cisco's
product lines, while others do not offer as wide a breadth of solutions. Several
of the Company's current and potential competitors have greater financial,
marketing and technical resources than the Company.
The principal competitive factors in the markets in which the Company presently
competes and may compete in the future are: price; performance; the ability to
provide end-to-end solutions and support; conformance to standards; the ability
to provide added value features such as security, reliability, and investment
protection; and market presence.
The Company also faces competition from customers it licenses technology to and
suppliers from whom it transfers technology. Networking's inherent nature
requires interoperability. As such, the Company must cooperate, and at the same
time compete, with these companies. The Company's inability to effectively
manage these complicated relationships with customers and suppliers could have a
material adverse effect on the Company's business, operating results, and
financial condition.
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RESEARCH AND DEVELOPMENT
The Company is engaged in research and development efforts to develop customer
solutions for each of its three primary lines of business: Enterprise, Service
Provider, and Small/Medium Business. The Company focuses its product development
activities on networking products that are responsive to customer requirements
and that provide end-to-end networking solutions. The Company's research and
development investments are made either internally or through acquisition, and
in addition, the Company makes minority equity investments in early stage
technology development entities.
The Company has recently announced several new products, including the Cisco
8500 family of multiservice routers, and the Company's 6400 Universal Access
Concentrator, which provides value-added DSL services. However, the industry in
which Cisco competes is subject to rapid technological developments, evolving
industry standards, changes in customer requirements and frequent new product
introductions and enhancements. As a result, the Company's success, in part,
depends upon its ability, on a cost-effective and timely basis, to continue to
enhance its existing solutions and to develop and introduce new solutions that
improve performance and reduce total cost of ownership. In order to achieve
these objectives, the Company's management and engineering personnel work
closely with customers, to identify and respond to customer needs, as well as
with other innovators of internetworking products, including universities,
laboratories, and corporations. The Company will also continue to make strategic
acquisitions and equity investments where appropriate. The Company intends to
remain dedicated to industry standards and to continue to support important
protocol standards as they emerge. Still, there can be no assurance that Cisco
will be able to successfully develop new products to address new customer
requirements and technological changes, or that such products will achieve
market acceptance.
In fiscal 1998, 1997, and 1996, the Company's research and development
expenditures were approximately $1,020 million, $698 million, and $399 million,
respectively. All of the Company's expenditures for research and development
costs, and purchased in process research and development of approximately $594
million in fiscal 1998 and $508 million in fiscal 1997, have been expensed as
incurred.
MANUFACTURING
The Company's manufacturing operations consist primarily of quality assurance of
materials, components and subassemblies. Additionally, the Company performs
final assembly and test. The Company presently uses a variety of independent
third-party companies to perform printed circuit board assembly, in circuit
test, and product repair. The Company and its single enterprise partners install
proprietary software on electronically programmable memory chips installed in
its systems in order to configure products to customer needs and to maintain
quality control and security. The manufacturing process enables the Company to
configure the hardware and software in unique combinations to meet a wide
variety of individual customer requirements. The Company and its single
enterprise partners also use automated testing equipment and "burn-in"
procedures, as well as comprehensive inspection, testing, and statistical
process control, to assure the quality and reliability of its products. The
Company's and its partners' manufacturing processes and procedures are ISO 9001
certified. To date, the Company has not experienced significant customer returns
of its products.
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PATENTS, INTELLECTUAL PROPERTY AND LICENSING
Cisco's success is dependent upon its proprietary technology. Cisco generally
relies upon patents, copyrights, trademarks and trade secret laws to establish
and maintain its proprietary rights in its technology and products. Cisco has a
program to file applications for and obtain patents in the United States and in
selected foreign countries where a potential market for Cisco's products exists.
Cisco has been issued a number of patents; other patent applications are
currently pending. There can be no assurance that any of these patents will not
be challenged, invalidated or circumvented, or that any rights granted
thereunder will provide competitive advantages to Cisco. In addition, there can
be no assurance that patents will be issued from pending applications, or that
claims allowed on any future patents will be sufficiently broad to protect
Cisco's technology. In addition, the laws of some foreign countries may not
permit the protection of Cisco's proprietary rights to the same extent as do the
laws of the United States. Although Cisco believes the protection afforded by
its patents, patent applications, copyrights and trademarks has value, the
rapidly changing technology in the networking industry makes Cisco's future
success dependent primarily on the innovative skills, technological expertise
and management abilities of its employees rather than on patent, copyright and
trademark protection.
Many of Cisco's products are designed to include software or other intellectual
property licensed from third parties. While it may be necessary in the future to
seek or renew licenses relating to various aspects of its products, Cisco
believes that based upon past experience and standard industry practice, such
licenses generally could be obtained on commercially reasonable terms. Because
of the existence of a large number of patents in the networking field and the
rapid rate of issuance of new patents, it is not economically practical to
determine in advance whether a product or any of its components infringe patent
rights of others. From time to time, Cisco receives notices from or is sued by
third parties regarding patent claims. If infringement is alleged, Cisco
believes that, based upon industry practice, any necessary license or rights
under such patents may be obtained on terms that would not have a material
adverse effect on Cisco's business, operating results and financial condition.
Nevertheless, there can be no assurance that the necessary licenses would be
available on acceptable terms, if at all, or that Cisco would prevail in any
such challenge. The inability to obtain certain licenses or other rights or to
obtain such licenses or rights on favorable terms, or the need to engage in
litigation could have a material adverse effect on Cisco's business, operating
results and financial condition.
FUTURE GROWTH SUBJECT TO RISKS
The Company's business and stock is subject to a number of risks. Some of those
risks are described above and certain additional risks are set forth below.
Other risks are presented in the "Financial Risk Management" and "Potential
Volatility in Operating Results" sections on pages 23-27 of the Company's Annual
Report to Shareholders for the year ended July 25, 1998, which is incorporated
herein by reference.
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Acquisitions
The networking business is highly competitive, and as such, the Company's growth
is dependent upon market growth and its ability to enhance its existing products
and introduce new products on a timely basis. One of the ways the Company has
addressed and will continue to address the need to develop new products is
through acquisitions of other companies. Acquisitions involve numerous risks,
including difficulties in integration of the operations, technologies, and
products of the acquired companies; the risk of diverting management attention
from normal daily operations of the business; risks of entering markets in which
the Company has no or limited direct prior experience and where competitors in
such markets have stronger market positions; and the potential loss of key
employees of the acquired company. The Company must also maintain its ability to
manage any such growth effectively. Failure to manage growth effectively and
successfully integrate acquisitions made by the Company could materially
adversely affect the Company's business and operating results.
Regulation of the Internet
There are currently few laws or regulations that apply directly to access or
commerce on the Internet. The Company could be materially adversely affected by
proposed regulation on voice over the Internet, encryption technology and access
charges for Internet service providers, as well as the continuing deregulation
of the telecommunication industry. The adoption of such measures could decrease
demand for the Company's products, and at the same time increase the Company's
cost of selling its products. Changes in laws or regulations governing the
Internet and Internet commerce could have a material adverse effect on the
Company's business, operating results and financial condition.
Dependence on New Product Development
The markets for the Company's products are characterized by rapidly changing
technology, evolving industry standards, frequent new product introductions, and
evolving methods of building and operating networks. There can be no assurance
that the Company will successfully identify new product opportunities and
develop and bring new products to market in a timely manner, or that products
and technologies developed by others will not render the Company's products or
technologies obsolete or noncompetitive.
Entering New or Developing Markets
As the Company focuses on new market opportunities, such as transporting data,
voice and video traffic across the same network, it will increasingly compete
with a number of large telecommunications equipment suppliers, such as Lucent,
Ericsson, and Nortel, among others, and well funded start-up companies. Many of
these companies have substantially greater financial, marketing and technical
resources than the Company. If the Company cannot successfully compete with
these and other potential competitors, it could have a material adverse effect
on the Company's business, operating results and financial condition.
Additionally, as customers in these markets complete infrastructure deployment,
they may require greater levels of service, support and financing than the
Company has experienced in the past. There can be no assurance that the Company
can provide products, service, support and financing to effectively compete for
these market
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opportunities. Further, provision of greater levels of services by the Company
may result in less favorable revenue recognition treatment than has historically
been experienced.
Availability of Product
The Company's growth and ability to meet customer demands also depend in part on
its ability to obtain timely deliveries of parts from its suppliers. The Company
has experienced component shortages in the past that have adversely affected its
operations. Although the Company works closely with its suppliers to avoid these
types of shortages, there can be no assurances that the Company will not
encounter these problems in the future.
Natural Disasters
The Company's corporate headquarters, including most of its research and
development operations and its manufacturing facilities, are located in the
Silicon Valley area of Northern California, a region known for seismic activity,
Additionally, one of the Company's manufacturing facilities is located near a
river that has experienced flooding in the past. A significant natural disaster,
such as an earthquake or a flood, could have a material adverse impact on the
Company's business, financial condition and operating results.
OTHER RISK FACTORS
Potential Fluctuations in Quarterly Results
The Company's operating results have in the past been, and may continue to be,
subject to quarterly fluctuations as a result of a number of factors. These
factors include: the introduction and market acceptance of new technologies,
including Gigabit Switch Routing and Tag Switching (currently also known as
multiprotocol label switching [MPLS]); the timing of orders and manufacturing
lead times; variations in sales channels, product costs or mix of products sold;
increased competition in the networking industry; the overall trend toward
industry consolidation; the integration of people, operations and products from
acquired businesses and technologies; and changes in general economic conditions
and specific economic conditions in the computer and networking industries, any
of which could have a material adverse impact on operations and financial
results. For example, the Company from time to time has made acquisitions that
result in purchased research and development expenses being charged in an
individual quarter. These charges may occur in any particular quarter resulting
in variability in the Company's quarterly earnings. Additionally, the dollar
amounts of large orders for the Company's products have been increasing, and
therefore the operating results for a quarter could be materially adversely
affected if a number of large orders are either not received or are delayed, due
for example, to cancellations, delays or deferrals by customers.
Dependence on New Product Development; Rapid Technological and Market Change
The Company's operating results will depend to a significant extent on its
ability to reduce the costs to produce existing products. In particular, the
Company broadened its product line by introducing network access products. Sales
of these products, which are generally lower priced and carry lower margins than
the Company's core products, have increased more
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rapidly than sales of the Company's core products. The success of these and
other new products is dependent on several factors, including proper new product
definition, product cost, timely completion and introduction of new products,
differentiation of new products from those of the Company's competitors and
market acceptance of these products. The Company has addressed the need to
develop new products through its internal development effort, joint development
with other companies and acquisitions. There can be no assurance that the
Company will successfully identify new product opportunities, develop and bring
new products to market in a timely manner, and achieve market acceptance of its
products, or that products and technologies developed by others will not render
the Company's products or technologies obsolete or noncompetitive.
Strategic Alliances
The Company has a number of strategic alliances with companies including
Microsoft, Hewlett-Packard, EDS, and Sprint, among others. These arrangements
are generally limited to specific projects, the goal of which is generally to
facilitate product compatibility and adoption of industry standards. If
successful, these relationships will be mutually beneficial and result in
industry growth. However, these alliances carry an element of risk because, in
most cases, the Company must compete in some business areas with a company with
which it has strategic alliances, and at the same time, cooperate with such
companies in other business areas. Also, if these companies fail to perform, or
if these relationships fail to materialize as expected, Cisco could suffer
delays in product development or other operational difficulties.
Industry Consolidation
There has been a trend toward industry consolidation for several years, which
has continued during fiscal 1998. In September 1998, Northern Telecom completed
its acquisition of Bay Networks. In fiscal 1997, 3Com completed its acquisition
of U.S. Robotics; and, Ascend Communications, Inc. completed its acquisition of
Cascade Communications Corporation. The Company expects this trend toward
industry consolidation to continue as companies attempt to strengthen or hold
their market positions in an evolving industry. The Company believes that
industry consolidation may provide stronger competitors that are better able to
compete as sole-source vendors for customers. This could lead to more
variability in operating results as the Company competes to be a single vendor
solution and could have a material adverse effect on the Company's business,
operating results, and financial condition.
Organizational Changes
The Company has realigned its business around three key customer groups or lines
of business. The Company believes this realignment of resources enables it to
better meet the needs of its customers. There are risks inherent in any business
realignment or reorganization, and the Company can give no assurance that these
organizational changes will meet their intended objectives.
Variability in Service Provider Sales
Although sales to the service provider market have continued to grow, this
market is characterized by large, and often sporadic purchases. Sales activity
in this industry depends upon the stage of completion of
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expanding network infrastructures, the availability of funding, and the extent
that service providers are affected by regulatory and business conditions in the
country of operations. A decline or delay in sales orders from this industry
could have a material adverse effect on the Company's business, operating
results and financial condition.
Manufacturing Risks
Although the Company generally uses standard parts and components for its
products, certain components are presently available only from a single source
or limited sources. A reduction or interruption in supply or a significant
increase in the price of one or more components would adversely affect the
Company's business, operating results and financial condition and could damage
customer relationships.
Changes in Telecommunications Laws and Tariffs
Changes in domestic and international telecommunication requirements could
affect the Company's sales of its products. In particular, the Company believes
it is possible that there may be significant changes in domestic
telecommunications regulations in the near future that could slow the expansion
of the service providers' network infrastructures and adversely affect the
Company's business, operating results and financial condition. Future changes in
tariffs by regulatory agencies or application of tariff requirements to
currently untariffed services could affect the sales of the Company's products
for certain classes of customers. Additionally, in the U.S. the Company's
products must comply with various Federal Communication Commission requirements
and regulations. In countries outside of the U.S., the Company's products must
meet various requirements of local telecommunications authorities. Changes in
tariffs, or failure by the Company to obtain timely approval of products could
have a material adverse effect on the Company's business, operating results and
financial condition.
International Operations
The Company conducts business globally. Accordingly, the Company's future
results could be adversely affected by a variety of uncontrollable and changing
factors including foreign currency exchange rates; regulatory, political or
economic conditions in a specific country or region; trade protection measures
and other regulatory requirements; government spending patterns; and natural
disasters, among other factors. In fiscal 1998, the Company experienced slower
sales growth in Japan, as well as in certain other parts of Asia. Any or all of
these factors could have a material adverse impact on the Company's future
international business in these or other countries.
Risks Associated With Internet Infrastructure
The Company's management believes that there will be performance problems with
Internet communications in the future which could receive a high degree of
publicity and visibility. As the Company is a large supplier of equipment for
the Internet infrastructure, customers' perceptions of the Company's products
and the marketplace's perception of Cisco as a supplier of networking products,
may be materially adversely affected, regardless of whether or not these
problems are due to the performance of Cisco's products. Such an event could
also result in a material adverse effect on the market price of the Company's
Common Stock and could materially adversely affect Cisco's business operating
results and financial condition.
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Volatility of Stock Price
The Company's Common Stock has experienced substantial price volatility,
particularly as a result of variations between the Company's actual or
anticipated financial results and the published expectations of analysts and as
a result of announcements by the Company and its competitors. In addition, the
stock market has experienced extreme price and volume fluctuations that have
affected the market price of many technology companies in particular and that
have often been unrelated to the operating performance of these companies. These
factors, as well as general economic and political conditions, may adversely
affect the market price of the Company's Common Stock in the future.
EMPLOYEES
As of September 18, 1998, the Company employed approximately 15,000 persons,
including 3,000 in manufacturing, service and support, 6,300 in sales and
marketing, 4,500 in engineering, and 1,200 in finance and administration.
Approximately 3,000 employees were in international locations.
None of the employees are represented by a labor union, and the Company
considers its relations with its employees to be positive. The Company has
experienced no work stoppages.
Competition for technical personnel in the Company's industry is intense. The
Company believes that its future success depends in part on its continued
ability to hire, assimilate, and retain qualified personnel. To date, the
Company believes that it has been successful in recruiting qualified employees,
but there is no assurance that it will continue to be successful in the future.
ITEM 2. PROPERTIES
The Company's principal corporate offices are located at sites in Santa Clara
and San Jose, California. The Company's main headquarters are situated on 448
acres of leased land in San Jose, California. There are 21 buildings located at
this site, one of which is a manufacturing facility. The San Jose headquarters
consist of approximately 2.6 million square feet of leased office space at the
present time. Six buildings have been completed at a site under construction
near its present corporate offices in San Jose, California. The Company expects
that construction at this site will continue through 1999, with the potential to
add approximately 2.2 million square feet of leased office space. Additionally,
two new sites have recently been leased near its present corporate offices in
San Jose, California. Construction has not yet begun at these sites. The Company
has also assumed certain operating leases for 6 buildings as part of the
StrataCom acquisition. These buildings, including an additional manufacturing
facility, are located at various sites in San Jose, California and total
approximately .5 million square feet.
In addition to the California facilities, the Company leases approximately 45
acres of land in Research Triangle Park, North Carolina, where the InterWorks
Business Unit, as well as a Technical Assistance Center, telesales, and various
other support functions, are located. There are four buildings at this site with
a total of approximately 1 million square feet of office space.
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The Company also leases various small offices throughout the U.S. and on a
worldwide basis. For additional information regarding the Company's obligations
under leases, see Note 7 "Commitments and Contingencies" on page 40 of the
Company's 1998 Annual Report to Shareholders, which is hereby incorporated by
reference.
ITEM 3. LEGAL PROCEEDINGS
In June 1998, Lucent brought suit in Federal District Court in Delaware against
the Company, alleging the Company violated eight of Lucent's patents related to
data networking. Lucent is seeking damages for infringement and an injunction
prohibiting future use of the patents.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the fourth
quarter of the fiscal year covered by this report.
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EXECUTIVE OFFICERS OF THE REGISTRANT
POSITION
NAME AGE POSITION HELD SINCE
- ----------------------- ----- -------------------------------------------------------- ----------
Larry R. Carter 55 Senior Vice President, Finance and Administration, 1997
Chief Financial Officer, and Secretary
Mr. Carter joined the Company in January 1995 as
Vice President for Finance and Administration. In July
1997, he was promoted to his present position of Senior
Vice President. From July 1992 to January
1995, he was Vice President and Corporate Controller
for Advanced Micro Devices. Prior to that, he was
with V.L.S.I. Technology, Inc. for four years where
he held the position of Vice President, Finance and
Chief Financial Officer.
John T. Chambers 49 President, Chief Executive Officer and Director 1995
Mr. Chambers has been a member of the Board of
Directors since November 1993. He joined the
Company as Senior Vice President in January 1991
and became Executive Vice President in June 1994.
Mr. Chambers became President and Chief Executive
Officer of the Company as of January 31, 1995.
Prior to his services at Cisco, he was with Wang
Laboratories for eight years, most recently as
Senior Vice President of U.S. Operations.
Gary Daichendt 48 Executive Vice President, Worldwide Operations 1998
Mr. Daichendt joined the Company in October 1994 as
Vice President for Intercontinental Operations,
Covering Asia, Pacific Rim, Canada, Central and
South America and Mexico. In October 1997,
Mr. Daichendt became Senior Vice President, Worldwide
Operations at Cisco Systems and became Executive Vice
President in August 1998. He is responsible for
managing the sales and distribution operations of
Cisco offices worldwide. Prior to his services at
Cisco, he spent eight years at Wang Laboratories,
most recently as Vice President of Central
Operations and Vice President of Worldwide
Marketing. Mr. Daichendt also spent ten years
with IBM in various sales, marketing, and management
positions.
Judith Estrin 43 Senior Vice President, Business Development, Chief 1998
Technology Officer
Ms. Estrin joined the Company in April 1998 in her
present position. Prior to joining Cisco, Ms. Estrin
was CEO of Precept Software, Inc. which she co-founded
in 1995. Precept was acquired by Cisco in March 1998.
Prior to that, she spent six years at Network Computing
Devices, most recently as President and CEO. Ms. Estrin
currently serves on the Board of Directors of Federal
Express, Rockwell International, Sun Microsystems and
the Walt Disney Company.
Edward R. Kozel 43 Senior Vice President, Corporate Development and Director 1998
Mr. Kozel has been a member of the Board of Directors
since November 1996. He joined the Company as
Director, Program Management in March 1989. In April
1992, Mr. Kozel became Director of Field Operations and
in February 1993, he became Vice President of Business
Development. In January 1996, he became
Chief Technology Officer of the Company and has been
in his current position since April 1998. Mr. Kozel
currently serves on the Board of Directors of
Centigram Communications Corporation.
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POSITION
NAME AGE POSITION HELD SINCE
- ----------------------- ----- -------------------------------------------------------- ----------
Donald J. Listwin 39 Executive Vice President, Service Provider and Consumer 1998
Lines of Business
Mr. Listwin joined the Company in 1990 as a Product
Marketing Manager. He held various positions within
the marketing department before being promoted to
Vice President of Marketing in September 1993.
Mr. Listwin was promoted to Vice President and
General Manager of the Access Business Unit in
September of 1995. He became Senior Vice President
of Cisco IOS Development and Marketing in August of
1996 and Senior Vice President of the Service Provider
Line of Business in April 1997. He became Executive
Vice President, Service Provider and Consumer Lines of
Business in May 1998. Mr. Listwin
Currently serves on the Board of Directors of
Software.com.
Mario Mazzola 51 Senior Vice President, Enterprise Line of Business 1997
Mr. Mazzola was the President and CEO of Crescendo
Communications, Inc. which he founded in 1990.
Crescendo was acquired by Cisco Systems in September
1993. At that time, Mr. Mazzola joined Cisco as the
Vice President and General Manager of the
Workgroup Business Unit. Mr. Mazzola became
Senior Vice President of the Enterprise Line of
Business in April 1997. Mr. Mazzola was
the VP of Engineering of David Systems which he
co-founded in June 1982. Mr. Mazzola holds several
patents on high-speed transmission techniques
on unshielded twisted-pair wiring.
Carl Redfield 51 Senior Vice President, Manufacturing and Logistics 1997
Mr. Redfield joined the Company in August 1993 as
Director, Supply/Demand of Manufacturing and became
Vice President of Manufacturing in September 1993. Mr.
Redfield became Senior Vice President, Manufacturing and
Logistics in February 1997. Prior to joining Cisco, he
spent eighteen years at Digital Equipment Company, most
recently as Group Manufacturing and Logistics Manager of
the PC Group.
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
(a) The information required by this Item is incorporated by reference to
page 48 of the Company's 1998 Annual Report to Shareholders.
(b) During the quarter ended July 25, 1998, the Company issued an aggregate
of 241,739 (reflective of the three-for-two stock split effective
September 1998) shares of its Common Stock in connection with the
purchase of the capital stock of C.D.S.I. Ltd., ("CDSI"). The shares
were issued pursuant to an exemption by reason of Section 4(2) of the
Securities Act of 1933. These sales were made without general
solicitation or advertising. Each purchaser was an accredited investor
or a sophisticated investor with access to all relevant information
necessary. The Company has filed a Registration Statement on Form S-3
covering the resale of such securities.
ITEM 6. SELECTED FINANCIAL DATA
The information required by this Item is incorporated by reference to page 19 of
the Company's 1998 Annual Report to Shareholders.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The information required by this Item is incorporated by reference to pages
20-27 of the Company's 1998 Annual Report to Shareholders.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The information required by this Item is incorporated by reference to pages
23-25 of the Company's 1998 Annual Report to Shareholders.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information required by this Item is incorporated by reference to pages
28-48 of the Company's 1998 Annual Report to Shareholders.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Reference is made to the information regarding Directors appearing under the
caption "Election of Directors" in the Company's proxy statement to be mailed to
Shareholders on or about September 28, 1998, which information is incorporated
herein by reference; and to the information under the heading "Executive
Officers of the Registrant" in Part I hereof.
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19
ITEM 11. EXECUTIVE COMPENSATION
The information appearing at the end of Part I and under the caption "Executive
Compensation and Related Information" in the Company's proxy statement to be
mailed to Shareholders on or about September 28, 1998, is incorporated herein by
reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information appearing under the captions "Election of Directors" and
"Ownership of Securities" in the Company's proxy statement to be mailed to
Shareholders on or about September 28, 1998, is incorporated herein by
reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information appearing under the caption "Ownership of Securities" and
"Executive Compensation and Related Information" in the Company's proxy
statement to be mailed to Shareholders on or about September 28, 1998, is
incorporated herein by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULE AND REPORTS ON FORM 8-K
(a) 1. Financial Statements
The financial statements listed in Item 14(a) are filed or incorporated
herein by reference as part of this annual report. See Index to
Financial Statements and Financial Statement Schedule on Page 23.
2. Financial Statement Schedule
The financial statement schedule listed in Item 14(a) is filed as part
of this annual report. See Index to Financial Statements and Financial
Statement Schedule on Page 23.
3. Exhibits
The exhibits listed in the accompanying Index to Exhibits on pages 26-28
are filed or incorporated by reference as part of this annual report.
(b) Reports on Form 8-K
The Company filed four reports on form 8-K during the fourth quarter
ended July 25, 1998. Information regarding the items reported on is as
follows:
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20
Date Item Reported On
- ---- ----------------
April 29, 1998 Adoption of Statement of Financial Accounting Standard (SFAS)
No. 128 "Earnings Per Share."
May 15, 1998 The March 1998 acquisition of WheelGroup Corporation, and the
April 1998 acquisitions of Precept Software, Inc. and NetSpeed,
Inc.
June 11, 1998 Adoption of Preferred Stock Rights Agreement.
July 9, 1998 Lucent patent suit.
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SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant has
duly caused this Report on Form 10-K to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of San Jose, State of
California on this 23rd day of September, 1998. Cisco Systems, Inc.
/s/ John T. Chambers
------------------------------------
(John T. Chambers, President and
Chief Executive Officer)
Pursuant to the requirements of the Securities Act of 1933, this Report on Form
10-K has been signed by the following persons in the capacities and on the dates
indicated.
Signature Title Date
- --------------------------------- ---------------------------- ------------------
President and Chief
Executive Officer
/s/ John T. Chambers (Principal Executive September 23, 1998
- --------------------------------- Officer and Director)
John T. Chambers
Senior Vice President,
Finance and Administration,
Chief Financial Officer and
/s/ Larry R. Carter Secretary September 23, 1998
- --------------------------------- (Principal Financial and
Larry R. Carter Accounting Officer)
Chairman of the
- --------------------------------- Board and Director
John P. Morgridge
/s/ Donald T. Valentine Vice Chairman of the September 23, 1998
- --------------------------------- Board and Director
Donald T. Valentine
/s/ Carol A. Bartz Director September 23, 1998
- ---------------------------------
Carol A. Bartz
/s/ Mary Cirillo Director September 23, 1998
- ---------------------------------
Mary Cirillo
/s/ Dr. James F. Gibbons Director September 23, 1998
- ---------------------------------
Dr. James F. Gibbons
/s/ Edward R. Kozel Senior Vice President, September 23, 1998
- --------------------------------- Corporate Development and Director
Edward R. Kozel
/s/ James C. Morgan Director September 23, 1998
- ---------------------------------
James C. Morgan
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22
Signature Title Date
- --------------------------------- ---------------------------- ------------------
/s/ Robert L. Puette Director September 23, 1998
- ---------------------------------
Robert L. Puette
/s/ Masayoshi Son Director September 23, 1998
- ---------------------------------
Masayoshi Son
/s/ Steven M. West Director September 23, 1998
- ---------------------------------
Steven M. West
22
23
CISCO SYSTEMS, INC.
-------------
INDEX TO FINANCIAL STATEMENTS
AND FINANCIAL STATEMENT SCHEDULE
ITEM 14(a)
Page
----------------------------
1998 Annual
Report to
Form 10-K Shareholders
Data incorporated by reference from the 1998
Annual Report to Shareholders of Cisco Systems, Inc.:
Consolidated statements of operations for each
of the three years in the period
ended July 25, 1998 ............................ 28
Consolidated balance sheets at July 25, 1998
and July 26, 1997 ............................... 29
Consolidated statements of shareholders' equity
for each of the three years in the period
ended July 25, 1998.............................. 30-31
Consolidated statements of cash flows for each of
the three years in the period ended July 25, 1998 32
Notes to consolidated financial statements.......... 33-46
Report of Independent Accountants................... 47
Supplementary financial data:
Fiscal years 1998 and 1997 by quarter (unaudited) 48
Data submitted herewith:
Financial Statement Schedule:
Report of Independent Accountants................. 24
II Valuation and qualifying accounts............ 25
All other schedules have been omitted since the required information is not
present in amounts sufficient to require submission of the schedules, or because
the information required is included in the consolidated financial statements or
notes thereto.
With the exception of the consolidated financial statements and the independent
accountants' report thereon listed in the above index, the information referred
to in Items 1, 5, 6, 7 and 7A and the supplementary quarterly financial
information referred to in Item 8, all of which is included in the Company's
Annual Report to Shareholders and incorporated by reference into this Form 10-K
Annual Report, the 1998 Annual Report to Shareholders is not to be deemed
"filed" as part of this report.
23
24
REPORT OF INDEPENDENT ACCOUNTANTS ON FINANCIAL STATEMENT SCHEDULE
Board of Directors and Shareholders
Cisco Systems, Inc.:
Our report on the consolidated financial statements of Cisco Systems, Inc. and
its subsidiaries has been incorporated by reference in this Form 10-K from Page
47 of the 1998 Annual Report to Shareholders of Cisco Systems, Inc. In
connection with our audits of such financial statements, we have also audited
the related financial statement schedule listed in the index on page 25 of this
Form 10-K.
In our opinion, the financial statement schedule referred to above, when
considered in relation to the basic financial statements taken as a whole,
presents fairly, in all material respects, the information required to be
included therein.
/s/ PricewaterhouseCoopers LLP
San Jose, California
August 4, 1998
24
25
CISCO SYSTEMS, INC.
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
(In thousands)
Balance at Balance at
Beginning Charged to End of
of Period Expenses Deductions Period
--------- -------- ---------- ------
Year ended July 28, 1996:
Allowance for doubtful accounts 18,427 18,548 15,901 21,074
Allowance for excess and obsolete
Inventory 46,242 53,025 37,481(1) 61,786
Year ended July 26, 1997:
Allowance for doubtful accounts 21,074 13,318 12,052 22,340
Allowance for excess and obsolete
Inventory 61,786 123,431 104,404(1) 80,813
Year ended July 25, 1998:
Allowance for doubtful accounts 22,340 43,463 25,961 39,842
Allowance for excess and obsolete
Inventory 80,813 160,633 97,336(1) 144,110
(1) Deductions principally relate to charges for standards changes.
25
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INDEX TO EXHIBITS
(Item 14 (a))
Exhibit
Number Exhibit Description
------ -------------------
3.1 Cisco Systems, Inc. Restated Articles of Incorporation, as currently
in effect
3.2 Cisco Systems, Inc. Amended and Restated Bylaws, as currently in
effect
10.1 Rights Agreement dated as of June 10, 1998 between Cisco Systems,
Inc. and Bank Boston, N.A.(1)
10.2 Cisco Systems, Inc. 1996 Stock Incentive Plan (including the
following:
Form of Notice of Grant
Form of Stock Option Agreement
Form of Addendum to Stock Option Agreement - Involuntary
Termination Following Corporate Transaction
Form of Addendum to Stock Option Agreement - Limited Stock
Appreciation Rights
Form of Notice of Automatic Stock Option - Initial
Form of Notice of Automatic Stock Option -- Annual
Form of Automatic Stock Option Agreement)
10.3 1997 Supplemental Stock Incentive Plan (including the following:
Stock Option Agreement in connection with the 1997 Supplemental
Stock Incentive Plan)
10.12* Senior Management Incentive Plan-Fiscal Year 1999
10.13 Cisco Systems, Inc. 1989 Employee Stock Purchase Plan(6)
10.14 Master Lease (Cisco Technology, Inc. Trust 1998), dated as of June
2, 1998 between State Street Bank and Trust Company of California,
N.A., not in its individual capacity, but solely as Certificate
Trustee, as Lessor, and Cisco Technology, Inc., as Lessee, and
General Guarantee (Cisco Technology, Inc. Trust 1998) from Cisco
Systems, Inc., dated as of June 2, 1998 and a Participant Guarantee
(Cisco Technology, Inc. Trust 1998) from Cisco Systems, Inc., dated
as of June 2, 1998.
10.23 Lease Agreement between the Company and SGA Development Partnership,
Ltd., dated February 19, 1993, for the Company's site in San Jose,
California.(3)
10.24 Lease Agreement between the Company and Sumitomo Bank Leasing and
Finance, Inc., dated May 13, 1993 for the Company's facilities in
San Jose, California(3)
10.25 Lease Agreement between the Company and SGA Development Partnership,
Ltd., dated February 19, 1993, for the Company's site in San Jose,
California(3)
10.26 Lease Agreement between the Company and the State of California
Public Employees' Retirement System dated March 11, 1993, for the
Company's facilities at 3100 Smoketree Court(3)
10.27 Lease Agreement between the Company and Sumitomo Bank Leasing and
Finance, Inc., dated July 11, 1994 for the Company's site in Wake
County, North Carolina(3)
10.28 Lease Agreement between the Company and Sumitomo Bank Leasing and
Finance, Inc., dated August 12, 1994 for the Company's facilities in
Wake County, North Carolina(3)
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27
Exhibit
Number Exhibit Description
------ -------------------
10.29 Lease (Buildings "I" and "J") by and between Sumitomo Bank of New
York Trust Company ("SBNYTC") as trustee under that certain Trust
Agreement dated May 22, 1995 between Sumitomo Bank Leasing and
Finance, Inc. and SBNYTC ("SB Trust"), as Landlord, and the Company,
as tenant, dated May 22, 1995(3)
10.30 First Amendment to Lease (Buildings "I" and "J") between SB Trust
and the Company, dated July 18, 1995(3)
10.31 Lease (Buildings "K" and "L") by and between SB Trust and the
Company, dated May 22, 1995(3)
10.32 First Amendment to Lease (Buildings "K" and "L") between SB Trust
and the Company, dated July 18, 1995(3)
10.33 Lease (Improvements Phase "C") between SB Trust and the Company,
dated May 22, 1995(3)
10.34 First Amendment to Lease (Improvements Phase "C") between SB Trust
and the Company, dated July 18, 1995(3)
10.35 Ground Lease (Parcel 2 and Lot 54) by and between Irish Leasing
Corporation ("Irish"), as Landlord, and the Company, as Tenant,
dated February 28, 1995 for the Company's site in San Jose,
California(3)
10.36 First Amendment to Lease (Parcel 2 and Lot 54) by and between Irish
and the Company dated as of May 1, 1995(3)
10.37 Second Amendment to Lease (Parcel 2 and Lot 54) by and between Irish
and the Company dated as of May 22, 1995(3)
10.38 Ground Lease (Lots 58 and 59) by and between Irish and the Company
dated February 28, 1995 for the Company's site in San Jose,
California(3)
10.39 First Amendment to Lease (Lots 58 and 59) by and between Irish and
the Company dated as of May 1, 1995(3)
10.40 Second Amendment to Lease (Lots 58 and 59) by and between Irish and
the Company dated as of May 22, 1995(3)
10.41 Ground Lease (Tasman Phase C) by and between Irish and the Company
dated April 12, 1995 for the Company's site in San Jose,
California(3)
10.42 First Amendment to Lease (Tasman Phase C) by and between Irish and
the Company dated as of May 1, 1995(3)
10.43 Second Amendment to Lease (Tasman Phase C) by and between Irish and
the Company dated as of May 22, 1995(3)
10.44 Credit Agreement between the Company, the Banks listed therein, Bank
of America National Trust and Savings Association, as Administrative
Agent, Morgan Guaranty Trust Company of New York, as Documentation
Agent and Bank of America National Trust and Savings Association, as
Issuing Bank dated as of May 22, 1995(3)
10.46 Lease Agreement between the Company and First State Realty of
America, Inc., dated February 7, 1997, for the Company's site in
Santa Clara, California.(5)
10.47 Lease Agreement between the Company and Berg & Berg Enterprises,
Inc., dated December 31, 1996, for the Company's site in Santa
Clara, California(5)
10.48 Lease (Buildings "A" and "C") by and between SBC&D Co., Inc. and the
Company, dated November 26, 1996, located in San Jose, California(5)
10.49 Lease (Buildings "B" and "D") by and between SBC&D Co., Inc. and the
Company, dated November 26, 1996, located in San Jose, California(5)
10.50 Lease agreement between the Company and Lincoln-Whitehall Realty
(West) L.L.C., dated December 12, 1996, for the Company's site in
San Jose, CA(6)
27
28
Exhibit
Number Exhibit Description
------ -------------------
10.51 Lease agreement between the Company and Lincoln-Whitehall Realty
(West) L.L.C., dated December 18, 1996, for the Company's site in
San Jose, CA(6)
10.52 Master Lease between the Company, as the Lessee, and UBS MORTGAGE
FINANCE INC. as the Lessor, dated December 27, 1996(6)
10.53 Credit Agreement dated as of July 2, 1997 among Cisco Systems, Inc.,
and Citicorp USA, Inc., as Administrative Agent, Morgan Guaranty
Trust Company of New York, as Documentation Agent, Bank of America
National Trust and Savings Association, the Chase Manhattan Bank, as
Co-Agents, and Citicorp Securities, Inc. and J.P. Morgan Securities
Inc. Arrangers(6)
10.54 Second Amendment to Lease between Cisco Systems, Inc. and Sumitomo
Bank Leasing and Finance, Inc., dated February 24, 1998
10.55 Third Amendment to Lease between SGA Development Partnership, LTD.
and Cisco Systems, Inc., dated February 24, 1998
13.01 Pages 19 through 48 of the Registrant's 1998 Annual Report to
Shareholders
21.01 Subsidiaries of the Company
23.02 Consent of Independent Accountants
27 Financial Data Schedule
- --------------------
(1) Incorporated by reference for Exhibit 4 of the Company's Form 8-K filed on
June 11, 1998.
(2) Incorporated by reference to the exhibits with the correspondence exhibit
numbers of the Company's registration statement on Form S-1 (File 33-32778).
(3) Incorporated by reference to exhibits with the correspondence exhibit
numbers of the Company's Annual Report on Form 10-K for the fiscal year
ended July 30, 1995.
(4) Incorporated by reference to exhibits with the corresponding exhibit numbers
of the Company's Quarterly Report on Form 10-Q for the fiscal quarter ended
January 25, 1997.
(5) Incorporated by reference to exhibits with the corresponding exhibit numbers
of the Company's Quarterly Report on Form 10-Q for the fiscal quarter ended
April 26, 1997.
(6) Incorporated by reference to exhibits with the corresponding exhibit numbers
of the Company's Annual Report on Form 10-K for the fiscal year ended July
26, 1997.
* Management compensatory plan or arrangement required to be filed as an
exhibit pursuant to Item 14(c) of Form 10-K.
28