Cisco Systems Reports Fourth Quarter and Fiscal Year 2003 Earnings

• Q4 Revenues: $4.7 Billion
• Q4 Operating Cash Flow: $1.55 Billion
• Q4 Earnings Per Share: $0.14 GAAP (40% increase year over year); $0.15 Pro Forma

SAN JOSE, Calif., August 5, 2003 - Cisco Systems, Inc., the worldwide leader in networking for the Internet, today reported its fourth quarter and fiscal year results for the periods ended July 26, 2003.

Net sales for the fourth quarter of fiscal 2003 were $4.7 billion, compared with $4.8 billion for the fourth quarter of fiscal 2002, a decrease of 2.6 percent, and compared with $4.6 billion for the third quarter of fiscal 2003.

Net income for the fourth quarter of fiscal 2003, on a generally accepted accounting principles (GAAP) basis, was $982 million or $0.14 per share, compared with $772 million or $0.10 per share for the fourth quarter of fiscal 2002, and compared with $987 million or $0.14 per share for the third quarter of fiscal 2003. Pro forma net income for the fourth quarter of fiscal 2003 was $1.1 billion or $0.15 per share, compared with pro forma net income of $1.0 billion or $0.14 per share for the fourth quarter of fiscal 2002, and compared with $1.1 billion or $0.15 per share for the third quarter of fiscal 2003. A reconciliation between net income on a GAAP basis and pro forma net income is provided in a table immediately following the Pro Forma Consolidated Statements of Operations.

Net sales for fiscal 2003 were $18.9 billion, compared with $18.9 billion for fiscal 2002.

Net income for fiscal 2003, on a GAAP basis, was $3.6 billion or $0.50 per share, compared with $1.9 billion or $0.25 per share for fiscal 2002. Pro forma net income for fiscal 2003 was $4.3 billion or $0.59 per share, compared with pro forma net income of $2.9 billion or $0.39 per share for fiscal 2002.

During the fourth quarter of fiscal 2003, Cisco® completed the acquisition of SignalWorks, Inc. for a purchase price of approximately $16 million and completed the acquisition of the business of The Linksys Group, Inc. for a purchase price of approximately $480 million.

"We are pleased to report another solid quarter in a challenging market," said John Chambers, President and CEO, Cisco Systems. "We continue to achieve some of the best financial measurements in our company's history, with solid momentum spanning net income, gross margins, profitable market share gains, focus on profit contribution, geographic balance and advanced technology results."

Chambers continued, "The investments and strategies of the past three years are paying off. This is particularly true in high-end routing and switching, where we saw solid sequential growth. Advanced technologies in total exceeded 20 percent sequential growth, with IP telephony, storage and optical growing the fastest in terms of orders."

Cisco will discuss fourth quarter and fiscal year 2003 results and business outlook on a conference call and Webcast at 1:30 p.m. PT today. Call information and related charts are available at http://investor.cisco.com.

• Cash flows from operations were $1.55 billion for the fourth quarter of fiscal 2003, compared with $1.61 billion for the fourth quarter of fiscal 2002, and compared with $1.26 billion for the third quarter of fiscal 2003. Cash flows from operations were $5.24 billion for fiscal 2003, compared with $6.59 billion for fiscal 2002.
• Cash and cash equivalents and total investments were $20.7 billion at the end of fiscal 2003, compared with $21.5 billion at the end of fiscal year 2002, and compared with $20.3 billion at the end of the third quarter of fiscal 2003.
• During the fourth quarter of fiscal 2003, Cisco repurchased 83 million shares of common stock for an aggregate purchase price of $1.4 billion. For fiscal 2003, Cisco repurchased 424 million shares of common stock for an aggregate purchase price of $6.0 billion.
• Days sales outstanding (DSO) in accounts receivable at the end of the fourth quarter of fiscal 2003 were 26 days, compared with 21 days at the end of the fourth quarter of fiscal 2002, and compared with 23 days at the end of the third quarter of fiscal 2003.
• Inventory turns were 6.8 for the fourth quarter of fiscal 2003, compared with 7.1 for the fourth quarter of fiscal 2002, and compared with 7.0 for the third quarter of fiscal 2003.

"Cisco's solid financial performance reflects our ongoing focus on operational excellence," said Dennis Powell, Chief Financial Officer, Cisco Systems. "For over a year, our quarterly pro forma net income has consistently exceeded $1 billion and profit has exceeded 20 percent of revenue. Cash flows from operations were also particularly strong and we continued to actively engage in our stock repurchase program while maintaining over $20 billion in cash and investments."

• Cisco and service provider BellSouth® expanded their relationship with an agreement to team to implement the infrastructure for BellSouth to deliver advanced voice- and data-managed services to businesses throughout BellSouth's nine-state region. BellSouth also selected the Cisco ONS 15454 SONET Multiservice Provisioning Platform (MSPP) as part of BellSouth's plans to upgrade its traditional Synchronous Optical Network (SONET) network to an advanced optical network infrastructure.
• Cisco introduced the Structured Wireless-Aware Network, an integrated secure wired and wireless framework that extends local area networking (LAN) infrastructure capabilities to the wireless LAN.
• IdleAire Technologies Corporation announced it is offering wireless Internet connectivity, based on Cisco Aironet® 1200 Series access points, to long-haul truck drivers and other business professionals along the nation's highways.
• Cisco shipped its 2 millionth Internet Protocol (IP) telephone.
• Time Warner Cable announced plans to deliver the industry's first voice-over-IP (VoIP) cable primary-line residential telephone service, based on the Cisco IP voice solution, across its existing multiservice network to customers in Portland, Maine.
• In the storage and data-center networking arena, IBM will be the first vendor to offer the Cisco MDS 9000 IP Storage Services Module. Cisco also announced new storage area networking customers AXA Technology and the IT division of Euronext.liffe.
• DACOM, one of the leading communications providers in Korea, is deploying 10-gigabits-per-second (Gbps) Cisco 12406, 12410 and 12416 routers for the expansion of its BORANet backbone network.
• Cisco introduced 14 new integrated security solutions and services, providing security management, virtual private network (VPN) technology and advanced threat protection.
• The government of Jordan, together with Cisco and other World Economic Forum member organizations, announced The Jordan Education Initiative to improve education through the use of technology and the delivery of effective e-learning to Jordan citizens.

• Q4 and FY'03 conference call to discuss Cisco results along with its outlook for Q1 FY'04 to be held at 1:30 p.m. PT on Tuesday, August 5, 2003. Conference call number is 800-779-9573 (United States); 210-234-8039 (international).
• Conference call replay available from 4:30 p.m. PT on August 5, 2003 to 4:30 p.m. PT on August 12, 2003 at 888-568-0916 (United States); 402-998-1588 (international).
• Additional information regarding Cisco's financials and corresponding Webcast with visuals designed to guide participants through the call is also available at 1:30 p.m. PT. Prepared remarks will be available approximately 24 hours after completion of the call. The Webcast will include both the prepared remarks, as well as the question-and-answer session. This information, along with GAAP reconciliation information, will be available at http://www.cisco.com under "About Cisco" in the Investor Relations section.
Additional information regarding Cisco's Q4 and FY'03 results will be available at http://newsroom.cisco.com

About Cisco Systems

This release may be deemed to contain forward-looking statements, which are subject to the safe harbor provisions of the Private Litigation Reform Act of 1995. These forward-looking statements include, among other things, statements regarding future events and the future financial performance of Cisco that involve risks and uncertainties. Readers are cautioned that these forward-looking statements are only predictions and 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 Form 10-K and 10-Q, each as it may be amended from time to time, which identify important risk factors that could cause actual results to differ from those contained in the forward-looking statements. Among the important factors or risks that could cause actual results or events to differ materially from those in the forward-looking statements in this release are: business and economic conditions and growth trends in the networking industry in various geographic regions; global economic conditions and uncertainties in the geopolitical environment; overall information technology spending; the growth of the Internet and levels of capital spending on Internet-based systems; variations in customer demand for products and services, including sales to the service provider market; the timing of orders and manufacturing lead times; changes in customer order patterns or customer mix; insufficient, excess or obsolete inventory; variability of component costs; increased price competition; variations in sales channels, product costs, or mix of products sold; the ability to successfully acquire businesses and technologies and to successfully integrate and operate these acquired businesses and technologies; increased competition in the networking industry; dependence on the introduction and market acceptance of new product offerings and standards; rapid technological and market change; manufacturing and sourcing risks; litigation involving patents, intellectual property, antitrust, stockholder and other matters; the ability to recruit and retain key personnel; financial risk management; and potential volatility in operating results, among others. The financial information contained in this release should be read in conjunction with the consolidated financial statements and notes thereto included in Cisco's most recent reports on Form 10-K and Form 10-Q, each as it may be amended from time to time. Cisco's results of operations for the three and twelve months ended July 26, 2003 are not necessarily indicative of Cisco's operating results for any future periods. Any projections in this release are based on limited information currently available to Cisco, which is subject to change. Although any such projections and the factors influencing them will likely change, Cisco will not necessarily update the information, since Cisco will only provide guidance at certain points during the year. Such information speaks only as of the date of this release.

Cisco provides pro forma net income and pro forma net income per share data as additional information for its operating results. These measures are not in accordance with, or an alternative for, generally accepted accounting principles and may be different from pro forma measures used by other companies. Cisco believes that this presentation of pro forma net income and pro forma net income per share provides useful information to management and investors regarding certain additional financial and business trends relating to its financial condition and results of operations. In addition, Cisco's management uses these measures for reviewing the financial results of Cisco and for budget planning purposes.

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