Cisco 2006 Annual Report Download - page 11

14 Cisco Systems, Inc.
Execution: Consistency, Transparency, Trust
We view execution as achieving both nancial success in a quarter or year, and also leadership from a product and
market segment perspective. Our goal is to lead in implementation from a technology point of view as Layers 1
through 7 of the OSI stack converge in a way that makes routing, switching, data center, security, wired, wireless, and
home networking come uniquely together. We expect to lead the market in implementing the quad play everywhere—
transforming how you experience entertainment, how you work, and the ways you communicate and interact throughout
your home, your business, and even your transportation.
In scal 2006, Cisco achieved outstanding nancial results. Total revenue for scal 2006 was a record $28.5 billion, an
increase of approximately 15 percent over scal 2005 revenue of $24.8 billion. We believe our revenue growth was the
result of market share gains in many product categories, as well as the addition of Scientic Atlanta. Of total revenue,
$23.9 billion was related to product revenue and $4.6 billion was related to service revenue.
To address the growth in new markets, we added approximately 11,500 employees on a net basis throughout the year,
including almost 8,000 as a result of the acquisition of Scientic Atlanta. Cisco continued its tradition of striving for
protable growth. Despite the added headcount expense, we continued to hold margins within our plan. Total gross
margin for scal 2006 was over 65 percent. Fiscal year operating margin was approximately 25 percent, making Cisco
one of the most protable companies in the technology networking sector.
Net income was $5.6 billion or approximately 20 percent of revenue. Earnings per share on a fully diluted basis for scal
2006 were $0.89. If we had included the newly required Statement of Financial Accounting Standards No. 123, or
SFAS123, expense previously disclosed in our footnotes, fiscal 2005 EPS would have been $0.71, representing a 25
percent increase over the prior year had the expense been required then. Cisco generated $7.9 billion of cash from
operations and used $8.3 billion to repurchase 435 million shares of stock.
We diversified our capital base with the issuance of $6.5 billion of long-term debt. Our inaugural debt issuance was
rated favorably by the ratings agencies and overwhelmingly received by the market. We believe this can be attributed
to the underlying strength of Cisco as a whole. Proceeds from the debt issuance were used to purchase Scientific
Atlanta and for other general corporate purposes. We believe this was a sound financing decision for Cisco.
We are proud of Cisco’s consistency and transparency in financial reporting and execution in operations. We also
continue to pursue success and trust as a corporate citizen. Cisco’s products promote collaboration and communication
of information that is used not only to power businesses, but to modernize governments, support education, and foster
economic development as well. We partner with Lawrence Berkeley National Laboratory to research innovations
in product design that enhance energy efficiency. Our product design and manufacturing teams seek ways to cut
emissions and increase the recyclable nature of our products. Global connections via the Internet remind us that we all
inhabit one world. We believe in protecting it as best we can.
John P. Morgridge, Chairman of the Board