August 6, 2002

Cisco has announced its Q4 and Fiscal Year 2002 financial results. John Chambers, Cisco CEO and president, and Larry Carter, Cisco CFO and senior vice president, had this to say regarding the company's performance and Cisco's market position.

John Chambers: Q4 was a very solid quarter for Cisco. We dramatically exceeded our financial and market share goals for the quarter and I continue to believe that we are well positioned when the economy recovers. I was especially pleased with our profits, productivity, cash flow and available market share gains. In a time where profits are extremely important and in the most challenging market we have faced, achieving a pro forma net income of over $1 billion - which rose to 21.5% after tax quarter-over-quarter - was the fourth best pro forma net income in our history. We also saw a productivity increase of 22% over the past five quarters.

More Information

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Q&A: Larry Carter Discusses Cisco's Q4, FY 2002 Financial Position

With investors and the market becoming increasingly critical of accounting practices, how are you reassuring investors regarding Cisco's practices? Larry Carter: Cisco's goal is to be as transparent, accurate, and timely with our financial information. I believe our revenue accounting, reserve setting, and external reporting is second-to-none in conservatism and accurately reflects the operations of the company. We also include our cash flow statement in our earnings press release, allowing investors access to this information earlier. Finally, I believe that our strong cash position of roughly $21 billion also helps increase investor's confidence. Every quarter Cisco seems to improve its cash position. What are you going to do with the cash? Larry Carter: This quarter, Cisco has $21.5 billion in cash and investments. This speaks to our financial strength and staying power, which is what our customers are looking for when they choose a company in a challenging market. Our goal is to use this position for acquisitions and in areas such as stock buy-backs, including the one we announced today. Cisco announced that it is increasing its stock repurchase program by $5 billion to a total of $8 billion. What is the benefit to shareholders? Larry Carter: In September 2001, the board approved stock repurchase program of up to $3 billion; today the board has approved an increase of $5 billion for a total of $8 billion. We have repurchased approximately $2 billion since the inception of the purchase program. We now have a remaining balance of $6 billion. We believe that this is a good use of cash and allows us to mitigate ongoing dilution from our employee stock option plan and acquisitions. Any stock repurchases will ultimately reduce the number of shares outstanding. Cisco saw a significant jump in gross margins. What do you attribute this to? Larry Carter: Our margins were over 67% - the highest they have ever been. The improvement in gross margins can be attributed to cost savings such as lower component costs and value engineering, improvements in inventory management resulting in a decrease in expenses for excess and obsolete inventory, and other factors including mix. Recently, news reports have reported that you may be considering retirement. Are you retiring? Larry Carter: My personal goal is to retire on my 60th birthday next May, although John would be happy to have me stay longer. Typical with Cisco style, the evolution of our staff occurs on a regular basis both planned and unplanned and this transition will be smooth and well planned for. I am pleased that Dennis Powell will be in a position to succeed me when I do retire.

No one would disagree that this year has been a challenging one. How do you feel the company has faired overall?

John Chambers: This year has been a tough one - but it is during the tough times when companies distinguish themselves. In the past five quarters, we made critical decisions quickly and decisively to put Cisco in a position to breakaway from our core competitors. Today, the results of our focus on four key areas - profits, cash, productivity, and profitable market share gains - are unmistakable. Cisco's revenue has increased 12% year-over-year, compared to a combined 44% decrease for our top-ten competitors. These results reflect the quality of our market position, and demonstrate how our competitive advantages are able to drive a differentiated value proposition for our customers.

Additionally, I am pleased to end the year with an extremely strong balance sheet. Cisco has $21.5 billion in cash and investments versus $18.5 billion in Q4 FY01 and no debt. I believe that this is a competitive differentiator, and is a tribute to the company's strength and ability to withstand the downturn.

Looking forward, where will Cisco be looking to grow in the coming fiscal year?

John Chambers: We continue to believe that the fundamental driver of the networking industry will be our customers' ability to achieve an unprecedented increase in productivity via network-based technologies. Looking at economic data for the first two quarters of this year, productivity gains - including increasing operational efficiencies and cutting costs - are how companies are driving profits in this challenging economy. Global leaders understand the potential of using technology to drive these productivity gains, and they look to Cisco as a trusted business advisor and partner to help them. With the breadth of products and solutions, value-added service offering and global partnerships, Cisco is ready to help customers achieve these productivity gains. We're well positioned when the economy recovers due to our financial strength, product breadth, and focus on our customers.

This time last year, Cisco outlined an aggressive reorganization. What results have you seen?

John Chambers: Our effort to centralize the company's engineering and marketing organization this time last year was geared toward fulfilling our customer's needs and responding to the changes in the current marketplace. This strategy has enabled us to focus on innovating in our core markets - IP routing and switching - and leverage resources to take advantage of new market opportunities that have a $1 billion or greater potential. As a result, we have introduced significant innovations in both our core and emerging technology markets, such as IP telephony, storage, security, and mobility.

Cisco's increased focus on key technologies has fueled our ability to gain market share from our core competitors. Our year-over-year results reflect our success in taking significant market share from our top 10 North American competitors. Over the past four quarters, on a revenue basis, our share of the available market jumped from 28% to 43% when compared to these competitors. The results speak for themselves.

Do you intend to certify Cisco's financial filings with the SEC?

John Chambers: Without hesitation. We will comply with the new law and with the SEC's order and sign accordingly. Either Larry Carter or I have signed every 10-Q and 10-K submitted by Cisco for many years. We stand behind our filings and have always approached our disclosures with the degree of seriousness and responsibility they warrant. Formalizing this process does not give us any concern. In keeping with the new law and the SEC order, Cisco plans to submit our certification when the 10K is filed in late September, well in advance of the deadlines applicable to Cisco. The 10K is due October 25, 90 days after the end of Cisco's fiscal year. That 10K filing and certification will apply to our entire fiscal year 2002.

Undoubtedly, this environment must be challenging for any CEO. Has the scrutiny upon corporate America changed your leadership philosophy?

John Chambers: Creating a culture within Cisco based on open communication, integrity, trust and empowerment with accountability at all levels is one of my top priorities as CEO. These priorities, as well as my faith in the company have never been stronger, and I remain very committed to Cisco. I believe that the public must have confidence that corporations are led by ethical leaders who play by the rules and who follow strong internal practices and policies. I work every day to lead by example under this philosophy.

In this very challenging year, I want to personally thank our partners, employees, customers, and shareholders for their trust and help in making progress towards Cisco's vision to change the way we work, live, play and learn.