News Release

CISCO SYSTEMS REPORTS FOURTH QUARTER AND YEAR-END EARNINGS AND THREE-FOR-TWO STOCK SPLIT

SAN JOSE, California -- August 4, 1998 -- Cisco Systems,
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SAN JOSE, California -- August 4, 1998 -- Cisco Systems, Inc., the worldwide leader in networking for the Internet, today reported its fourth quarter and annual results for the period which ended on July 25, 1998. Cisco closed its fiscal year with revenue of $8,459 million, an increase of 31% over the previous year.

Net sales for the fourth quarter were $2,390 million, compared with $1,765 million for the same period last year, an increase of 35%. Pro forma net income, which excludes the write-off of purchased in-process R&D discussed below, was $523 million or $0.48 per share, compared with pro forma net income of $383 million or $0.37 per share for the fourth quarter of 1997, increases of 36% and 30% respectively.

During the fourth quarter of fiscal 1998, Cisco completed the acquisition of CLASS Data Systems for approximately $51 million and took a one-time charge of $48 million, or $0.03 per share on an after-tax basis, as a write-off of purchased in-process R&D.

Actual net income for the fourth quarter, including the above-mentioned write-off of purchased in-process R&D, was $492 million or $0.45 per share, compared with $151 million or $0.14 per share in the same period last year.

Net sales for fiscal 1998 were $8,459 million, compared with $6,440 million for the same period last year, an increase of 31%. Pro forma net income was $1,879 million or $1.75 per share, compared with pro forma net income of $1,414 million or $1.37 per share during fiscal 1997, increases of 33% and 28% respectively.

Actual net income for fiscal 1998 was $1,350 million or $1.26 per share, versus actual net income of $1,049 million or $1.01 per share for the same period last year. All earnings per share amounts represent diluted earnings per share as defined within Statement of Financial Accounting Standards No. 128 (FAS 128).

The company's board of directors authorized the splitting of Cisco's common stock on a three-for-two basis for shareholders of record on August 14, 1998. Shares resulting from the split are expected to be distributed by the transfer agent on September 15, 1998. This action will be the seventh time that Cisco's common stock has been split since the company's initial public offering in February 1990. Two-for-one stock splits occurred in 1991, 1992, 1993, 1994, and 1996; and a three-for-two split occurred in 1997.

"We are pleased to report our 34th consecutive quarter of revenue and earnings growth. We were especially pleased, considering the challenges in the Asian market, with our 31% increase in revenue over the last fiscal year. This year we gained more market share and momentum, compared with our traditional competitors, than in any previous year in the company's history," said John Chambers, president and CEO of Cisco Systems.

Cisco continues to advance its end-to-end Internet solutions for each of its key markets-enterprise, small/medium business and service provider-through internal development, strategic alliances, minority investments and acquisitions.

In the enterprise marketplace, Cisco continues to gain both market share leadership and acceptance of its end-to-end Internet solutions. Highlights of the quarter include the introduction of the company's next generation of multiservice routers, the Catalyst. 8500 family. The Catalyst 8510 and Catalyst 8540 will help customers manage data, voice and video applications over a single network. At the same time, the Catalyst 5500 high-end switch surpassed the $1 billion revenue milestone within one year of its initial shipment.

In the small and medium business market, Cisco introduced an alliance with IBM to deliver electronic commerce solutions to small businesses. The pact will help small and growing businesses improve their internal networks and deliver faster access to the Internet. With more than $1 billion in channel revenue, Cisco also became the market leader in two-tier distribution of network systems.

In the service provider space, Cisco continues to see increasing market acceptance that public voice networks will convert into data networks in the future. Sprint's decision to align with Cisco to build out its future data, voice and video networks signaled a key shift away from Old World, circuit-based networks toward a packet-based infrastructure. Other milestones in the quarter include Cisco's delivery of New World technologies such as broadband access to the home in the form of comprehensive xDSL solutions, cable, voice-over-IP switching, carrier-class provisioning systems and new, open standards-based network management solutions.

"Over the past 12 months, we have seen a dramatic shift in how the Internet is viewed. Once seen as a tool used primarily by technologists, the Internet is now the catalyst driving change in the new economy. The Internet is being recognized among business, government and individuals worldwide as the strategic element for competitive advantage. Cisco is well positioned to play a key role in the new Internet Economy. I want to thank our employees, shareholders and partners for their support throughout Q4 and fiscal '98. And I'd especially like to thank our customers for their continued commitment and confidence," concluded Chambers.

Cisco Systems

Cisco Systems, Inc. (NASDAQ: CSCO) is the worldwide leader in networking for the Internet. at http://www.cisco.com.

Catalyst, Cisco, Cisco IOS, Cisco Systems and the Cisco Systems logo are registered trademarks of Cisco Systems, Inc. in the U.S. and certain other countries. All other trademarks mentioned in this document are the property of their respective owners.

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This release may contain forward-looking statements that involve risks and uncertainties. These statements may differ materially from actual future events or results. Readers are referred to the documents filed by Cisco with the SEC, specifically the most recent reports on Forms 10-K and 10-Q, which identify important risk factors that could cause actual results to differ from those contained in the forward-looking statements, including potential fluctuations in quarterly results, dependence on new product development, rapid technological and market change, acquisition strategy, manufacturing risks, risks associated with the Internet infrastructure, volatility of stock price, financial risk management and future growth subject to risks.

Cisco Systems, Inc.

PRO FORMA STATEMENTS OF OPERATIONS
Excluding Purchased R&D and Realized Gain
(In thousands, except per-share amounts)

1,149,057 2,063,102 31,254 608,312 $ 383,237 1,038,669 1,093,150
Quarter Ended
July 25,
1998
Quarter Ended
July 26,
1997
Year Ended
July 25,
1998
Year Ended
July 26,
1997
(Unaudited) (Unaudited) (Unaudited)
Net sales $2,389,989 $ 1,765,097 $8,458,777 $ 6,440,171
Cost of sales 818,935 616,040 2,917,617 2,241,378
Gross margin 1,571,054 5,541,160 4,198,793
Operating expenses:
Research and development 294,375 202,095 1,020,446 698,172
Sales and marketing 455,353 313,479 1,564,419 1,160,269
General and administrative 76,835 56,425 258,246 204,661
Total operating expenses 826,563 571,999 2,843,111
Operating income 744,491 577,058 2,698,049 2,135,691
Interest and other income, net 59,780 192,701 108,889
Income before provision for income taxes 804,271 2,890,750 2,244,580
Provision for income taxes 281,494 225,075 1,011,762 830,687
Net income $522,777 $1,878,988 $ 1,413,893
Net income per share--basic* $ .50 $ .38 $1.84 $1.43
Net income per share--diluted* $ .48 $ .37 $1.75 $1.37
Shares used in per-share calculation--basic* 999,943 1,022,580 990,657
Shares used in per-share calculation--diluted* 1,043,214 1,072,115 1,034,026
PRO FORMA ONLY

The above pro-forma amounts for the quarter and twelve months ended 7/25/98 have been adjusted to eliminate the Q4 $47.8 million and the fiscal 1998 $593.7 million charges for the write-off of purchased in-process R&D, and the fiscal 1998 $5.4 million gain from the sale of a minority stock investment, net of income tax benefit of $16.7 million and $59.4 million for Q4 and fiscal 1998, respectively.

The above pro-forma amounts for the quarter and twelve months ended 7/26/97 have been adjusted to eliminate the Q4 $290.6 million and the fiscal 1997 $508.4 million charges for the write-off of purchased in-process R&D, and the Q4 $18.0 million and the fiscal 1997 $152.7 million gain from the sale of a minority stock investment, net of income tax benefit (expense) of $40.3 million and ($9.5) million for Q4 and fiscal 1997, respectively.

Cisco is now required under FAS 128 to report two separate earnings per share numbers, basic EPS and diluted EPS. Diluted EPS approximates the amount Cisco has previously been reporting as earnings per share and includes the dilutive impact of employee stock options.

* Does not reflect the effect of the three-for-two stock split to be effective September 15, 1998.

Cisco Systems, Inc.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (In thousands, except per-share amounts)

4,198,793 593,695


17,994 31,254 335,701 $ .15 1,038,669 1,093,150
Quarter Ended July 25,
1998
Quarter Ended July 26,
1997
Year Ended
July 25,
1998
Year Ended
July 26,
1997
(Unaudited) (Unaudited) (Unaudited)
Net sales $2,389,989 $ 1,765,097 $8,458,777 $ 6,440,171
Cost of sales 818,935 616,040 2,917,617 2,241,378
Gross margin 1,571,054 1,149,057 5,541,160
Operating expenses:
Research and development 294,375 202,095 1,020,446 698,172
Sales and marketing 455,353 313,479 1,564,419 1,160,269
General and administrative 76,835 56,425 258,246 204,661
Purchased
R & D
47,845 290,605 508,397
Total operating expenses 874,408 862,604 3,436,806 2,571,499
Operating income 696,646 286,453 2,104,354 1,627,294
Realized gain on sale of investment 5,411 152,689
Interest and other income, net 59,780 192,701 108,889
Income before provision for income taxes 756,426 2,302,466 1,888,872
Provision for income taxes 264,749 184,744 952,394 840,193
Net income $491,677 $ 150,957 $1,350,072 $1,048,679
Net income per share--basic* $ .47 $ 1.32 $1.06
Net income per share--diluted* $ .45 $ .14 $ 1.26 $1.01
Shares used in per-share calculation--basic* 999,943 1,022,580 990,657
Shares used in per-share calculation--diluted* 1,043,214 1,072,115 1,034,026

Cisco is now required under FAS 128 to report two separate earnings per share numbers, basic EPS and diluted EPS. Diluted EPS approximates the amount Cisco has previously been reporting as earnings per share and includes the dilutive impact of employee stock options.

* Does not reflect the effect of the three-for-two stock split to be effective September 15, 1998.

Cisco Systems, Inc.

CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)



$ 5,451,984

July 25, 1998 July 26, 1997
(unaudited)
Assets
Current Assets:
Cash and equivalents $534,652 $269,608
Short-term investments 1,156,849 1,005,977
Accounts receivable, net 1,297,867 1,170,401
Inventories, net 361,986 254,677
Deferred income taxes 344,905 312,132
Other current assets 65,665 88,471
Total current assets 3,761,924 3,101,266
Investments 3,463,279 1,267,174
Restricted investments 553,780 363,216
Property and equipment, net 595,349 466,352
Other assets 542,373 253,976
Total assets $8,916,705
Liabilities and Shareholders' Equity:
Current Liabilities:
Accounts payable and other accrued expenses $1,356,617 $ 863,885
Income taxes payable 410,363 256,224
Total current liabilities 1,766,980 1,120,109
Minority interest 43,107 42,253
Shareholders' equity 7,106,618 4,289,622
Total liabilities and shareholders' equity $8,916,705 $ 5,451,984

Cisco Systems

Cisco Systems, Inc. (NASDAQ:CSCO) is the worldwide leader in networking for the Internet. News and information areavailable at http://www.cisco.com.

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