UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 8-K

CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of report (Date of earliest event reported): May 8, 2007

CISCO SYSTEMS, INC.
(Exact name of registrant as specified in its charter)

California
(State or other jurisdiction of incorporation)

0-18225	 	77-0059951	
(Commission File Number)	 	(IRS Employer Identification No.)	

170 West Tasman Drive, San Jose, California	 	95134-1706	
(Address of principal executive offices)	 	(Zip Code)	
(408) 526-4000
(Registrant’s telephone number, including area code)
Not Applicable
(Former name or former address, if changed since last report)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
 
¨	Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)	
 
¨	Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)	
 
¨	Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))	
 
¨	Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))	

 
Item 2.02.	Results of Operations and Financial Condition.	
On May 8, 2007, Cisco Systems, Inc. (the “Registrant”) reported its results of operations for its fiscal third quarter ended April 28, 2007. A copy of the press release issued by the Registrant concerning the foregoing results is furnished herewith as Exhibit 99.1.
The information contained herein and in the accompanying exhibit shall not be incorporated by reference into any filing of the Registrant, whether made before or after the date hereof, regardless of any general incorporation language in such filing, unless expressly incorporated by specific reference to such filing. The information in this report, including the exhibit hereto, shall not be deemed to be “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to the liabilities of that section or Sections 11 and 12(a)(2) of the Securities Act of 1933, as amended.
The attached press release includes non-GAAP net income, non-GAAP net income per share data, non-GAAP shares used in net income per share calculation and non-GAAP inventory turns.
These non-GAAP measures are not in accordance with, or an alternative for, generally accepted accounting principles and may be different from non-GAAP measures used by other companies. In addition, these non-GAAP measures are not based on any comprehensive set of accounting rules or principles. The Registrant believes that non-GAAP measures have limitations in that they do not reflect all of the amounts associated with the Registrant’s results of operations as determined in accordance with GAAP and that these measures should only be used to evaluate the Registrant’s results of operations in conjunction with the corresponding GAAP measures.
The Registrant believes that the presentation of non-GAAP net income, non-GAAP net income per share data and non-GAAP shares used in net income per share calculation, when shown in conjunction with the corresponding GAAP measures, provides useful information to investors and management regarding financial and business trends relating to its financial condition and results of operations. In addition, the Registrant believes that the presentation of non-GAAP inventory turns provides useful information to investors and management regarding financial and business trends relating to inventory management based on the operating activities of the period presented.
For its internal budgeting process, the Registrant’s management uses financial statements that do not include share-based compensation expense related to employee stock options and employee stock purchases, impact to cost of sales from purchase accounting adjustments to inventory, payroll tax on stock option exercises, compensation expense related to acquisitions and investments, in-process research and development, amortization of purchased intangible assets, significant gains and losses on publicly traded equity securities, the income tax effects of the foregoing and significant effects of retroactive tax legislation, such as Cisco’s U.S. Federal R&D tax credit relating to fiscal year 2006 research expenses. The Registrant’s management also uses the foregoing non-GAAP measures, in addition to the corresponding GAAP measures, in reviewing the financial results of the Registrant.

As described above, the Registrant excludes the following items from one or more of its non-GAAP measures when applicable:
Employee share-based compensation expense. These expenses consist of expenses for employee stock options and employee stock purchases under SFAS123(R). The Registrant excludes employee share-based compensation expenses from its non-GAAP measures primarily because they are non-cash expenses that the Registrant does not believe are reflective of ongoing operating results. Further, as the Registrant applies SFAS 123(R), it believes that it is useful to investors to understand the impact of the application of SFAS 123(R) to its results of operations.
Impact to cost of sales from purchase accounting adjustments to inventory. This represents the amount of increase in inventory valuation resulting from the fair value adjustments required under purchase accounting for business combinations. These amounts arise from the Registrant’s prior acquisitions and have no direct correlation to the operation of the Registrant’s business.
Payroll tax on stock option exercises . This amount is dependent on the Registrant’s stock price and the timing and exercise by employees of their stock options, over which management has virtually no control, and as such do not correlate to the Registrant’s operation of the business.
Compensation expense related to acquisitions and investments . This amount arises from the Registrant’s prior acquisitions and has no direct correlation to the operation of the Registrant’s business. 
In-process research and development . The Registrant incurs in-process research and development expenses when technological feasibility for acquired technology has not been established and no future alternative use for such technology exists. These amounts arise from the Registrant’s prior acquisitions and have no direct correlation to the operation of the Registrant’s business.
Amortization of purchased intangible assets . The Registrant incurs amortization of purchased intangible assets in connection with acquisitions and investments. The Registrant excludes these items because these expenses are not reflective of ongoing operating results in the period incurred. These amounts arise from the Registrant’s prior acquisitions and have no direct correlation to the operation of the Registrant’s business.
Significant gains and losses on publicly traded equity securities . The Registrant does not actively trade public equity securities nor does it plan on these securities positions for funding of ongoing operations. The Registrant excludes significant gains and losses on publicly traded equity securities because this item is unrelated to the Registrant’s ongoing business and operating results.
Income tax effects of the foregoing . This amount is used to present each of the amounts described above on an after-tax basis consistent with the presentation of non-GAAP net income.

Significant effects of retroactive tax legislation. The Registrant is subject to changes in tax legislation which have retroactive effects. The Registrant excludes such significant effects of retroactive tax legislation because this item is unrelated to the Registrant’s current ongoing business and operating results.
The Registrant will incur share-based compensation expense related to employee stock options and employee stock purchases, payroll tax on stock option exercises, amortization of purchased intangible assets and compensation expense related to acquisitions and investments in future periods. Impact to cost of sales from purchase accounting adjustments to inventory, in-process research and development expenses, and significant gains and losses on publicly traded equity securities are each a function of underlying transactions, and the Registrant expects to engage in transactions of this nature in future periods. The Registrant may be subject to significant effects of retroactive tax legislation to the extent that any such legislation becomes effective in future periods.

SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

	 	CISCO SYSTEMS, INC.	
			
Dated: May 8, 2007	 	By:	 	/s/ Dennis Powell	
	 	Name:	 	Dennis Powell	
	 	Title:	 	Senior Vice President and Chief Financial Officer	

EXHIBIT INDEX

Exhibit
Number	 	Description of Document	
99.1	 	Press Release of Registrant, dated May 8, 2007, reporting the results of operations for the Registrant’s fiscal third quarter ended April 28, 2007.	
 
Exhibit 99.1

Press Contact:	 	Investor Relations Contact:	 		
John Noh	 	Laura Graves	 		
Cisco	 	Cisco	 		
(408) 853-8445	 	(408) 526-6521	 		
jnoh@cisco.com	 	lagraves@cisco.com	 		
CISCO REPORTS THIRD QUARTER EARNINGS
 
 	•	 	Q3 Net Sales: $8.9 billion (increase of 21% year over year)	
 
 	•	 	Q3 Net Income: $1.9 billion GAAP; $2.1 billion non-GAAP	
 
 	•	 	Q3 Earnings Per Share: $0.30 GAAP (increase of 36% year over year); $0.34 non-GAAP (increase of 17% year over year)	
SAN JOSE, Calif. – May 8, 2007 – Cisco ® , the worldwide leader in networking that transforms how people connect, communicate and collaborate, today reported its third quarter results for the period ended April 28, 2007. Cisco reported third quarter net sales of $8.9 billion, net income on a generally accepted accounting principles (GAAP) basis of $1.9 billion or $0.30 per share, and non-GAAP net income of $2.1 billion or $0.34 per share. Scientific-Atlanta, Inc., acquired on February 24, 2006, contributed net sales of $752 million during the third quarter of fiscal 2007, compared with $407 million during the third quarter of fiscal 2006.
“We are pleased with Cisco’s continued year-over-year growth based on strong execution across the company,” said John Chambers, chairman and CEO, Cisco. “Our success is based on the ability to foresee market transitions, which has enabled us to deliver the right products for today’s market opportunities and prepares us to take advantage of new opportunities in the future.
“In our view, we are in the midst of a unique market transition, where all of the action is going to the network and our vision for the network as a platform for all forms of communications and IT has become a reality,” Chambers continued. “While we are very pleased with our continued growth, our communications and collaboration technologies are enabling the second phase of the Internet, or Web 2.0, which is redefining how people, companies and countries collaborate in ways never before realized.”

GAAP Results	
 	 	Q3 2007	 	Q3 2006	 	vs. Q3 2006	
Net Sales	 	$8.9 billion	 	$7.3 billion	 	+21.1%	
Net Income	 	$1.9 billion	 	$1.4 billion	 	+33.9%	
Earnings per Share	 	$0.30	 	$0.22	 	+36.4%	
	
Non-GAAP Results	
 	 	Q3 2007	 	Q3 2006	 	vs. Q3 2006	
Net Income	 	$2.1 billion	 	$1.8 billion	 	+16.4%	
Earnings per Share	 	$0.34	 	$0.29	 	+17.2%	
Net sales for the first nine months of fiscal 2007 were $25.5 billion, compared with $20.5 billion for the first nine months of fiscal 2006. Scientific-Atlanta, Inc. contributed $2.0 billion to net sales during the first nine months of fiscal 2007, compared with $407 million during the first nine months of fiscal 2006. Net income for the first nine months of fiscal 2007, on a GAAP basis, was $5.4 billion or $0.86 per share, compared with $4.0 billion or $0.64 per share for the first nine months of fiscal 2006. Non-GAAP net income for the first nine months of fiscal 2007 was $6.1 billion or $0.98 per share, compared with $5.0 billion or $0.80 per share for the first nine months of fiscal 2006.
A reconciliation between GAAP net income and non-GAAP net income is provided in the table on page 6.
Cisco will discuss third quarter results and business outlook on a conference call and Webcast at 1:30 p.m. Pacific Time today. Call information and related charts are available at http://investor.cisco.com .
Other Financial Highlights
 
1

 	•	 	Cash flows from operations were $2.4 billion for the third quarter of fiscal 2007, compared with $2.3 billion for the third quarter of fiscal 2006, and compared with $2.7 billion for the second quarter of fiscal 2007.	
 
 	•	 	Cash and cash equivalents and investments were $22.3 billion at the end of the third quarter of fiscal 2007, compared with $17.8 billion at the end of the fourth quarter of fiscal 2006, and compared with $20.7 billion at the end of the second quarter of fiscal 2007.	
 
 	•	 	During the third quarter of fiscal 2007, Cisco repurchased 56 million shares of common stock at an average price of $26.85 per share for an aggregate purchase price of $1.5 billion. As of April 28, 2007, Cisco had repurchased and retired 2.2 billion shares of Cisco common stock at an average price of $19.20 per share for an aggregate purchase price of approximately $41.7 billion since the inception of the stock repurchase program.	
 
 	•	 	Days sales outstanding in accounts receivable (DSO) at the end of the third quarter of fiscal 2007 were 33 days, compared with 38 days at the end of the fourth quarter of fiscal 2006, and compared with 31 days at the end of the second quarter of fiscal 2007.	
 
 	•	 	Inventory turns on a GAAP basis were 8.8 in the third quarter of fiscal 2007, compared with 8.5 in the fourth quarter of fiscal 2006, and compared with 7.8 in the second quarter of fiscal 2007. Non-GAAP inventory turns were 8.6 in the third quarter of fiscal 2007, compared with 8.3 in the fourth quarter of fiscal 2006, and compared with 7.6 in the second quarter of fiscal 2007.	
“We are very pleased with our performance for the third quarter of the fiscal year,” said Dennis Powell, chief financial officer, Cisco. “The consistency of Cisco’s performance can be attributed to our balanced approach across geographies, products, services, customer segments and new markets. We believe our strategy is working, as we continue to effectively balance investing for the future, while executing in the present.”
Business Highlights
Acquisitions and Investments
 
 	•	 	Cisco announced a definitive agreement to acquire WebEx Communications, Inc., a market leader in on-demand collaboration applications. Under the terms of the agreement, Cisco also commenced its tender offer for all of the outstanding shares of WebEx.	
 
 	•	 	Cisco completed the acquisitions of Five Across, Inc., Reactivity, Inc., NeoPath Networks, Inc. and SpansLogic, Inc. Cisco also announced that it completed the purchase of select assets of Utah Street Networks, Inc., the operator of the social networking site Tribe.net.	
 
 	•	 	Cisco announced a venture capital initiative in Russia through which Cisco will pursue direct investment opportunities in technology-related start-ups as well as investments in local venture capital teams targeting the technology industry. To launch the initiative, Cisco also announced that it had made an investment in a leading Russian e-commerce site, Ozon.	
New Products
 
 	•	 	Cisco Unified Communications System 6.0 introduced capabilities that are designed to dramatically improve the productivity of mobile employees and cost effectively deliver unified communications to small and medium-sized businesses.	
 
 	•	 	Cisco extended the capabilities of Cisco TelePresence to enable virtual meetings in multiple locations at one time and to provide businesses with the freedom to organize meetings with customers or partners outside the corporate firewall.	
 
 	•	 	Cisco announced the release of Cisco IP Interoperability Collaboration System (IPICS) 2.0, which is designed to help enable personnel within the same or different agencies to communicate across previously isolated radio, IP and non-IP networks.	
 
 	•	 	Cisco introduced wireless enhancements to its integrated services routers, adding an integrated third-generation (3G) wireless connectivity option and doubling the scalability of its integrated wireless local-area network (LAN) support.	
 
2

 	•	 	Linksys introduced an 8-port analog telephone adapter for connecting multiple phones to IP networks for VoIP service.	
Major Customer Announcements
 
 	•	 	Regus Group selected Cisco technology to provide the first public TelePresence service offering that will enable Regus’ clients to book a virtual meeting at any of 50 selected locations globally.	
 
 	•	 	The Scotts Miracle-Gro Company, the world’s leading marketer of branded consumer lawn and garden products, has deployed Cisco Wide Area Application Services (WAAS) solutions to increase branch-office worker productivity by accelerating the performance of business-critical applications.	
 
 	•	 	Birmingham City Council is planning to connect 450 schools, 60 libraries and 240 council-related offices in one of the United Kingdom’s most advanced local government networks using Cisco networking technologies.	
 
 	•	 	TeliaSonera, a leading telecommunications company in the Nordic and Baltic region, is deploying the Cisco CRS-1 Carrier Routing System at the core of its Internet Protocol Next-Generation Network (IP NGN) to support multimedia and Internet traffic growth.	
 
 	•	 	The MTN Group is expected to deliver a suite of data, voice and video services over a highly available and scalable IP NGN in South Africa, the core of which is based on the Cisco CRS-1 Carrier Routing System.	
 
 	•	 	Bulgarian Telecommunications Company AD has built on its Cisco IP NGN to enhance service offerings to its enterprise clients and more than 2.5 million residential phone and Internet customers.	
 
 	•	 	Hong Kong Cyberport and Cisco announced the creation of a pioneering model at Cyberport for a citywide Wi-Fi network empowered by a Cisco wireless local-area network.	
 
 	•	 	Tohoku-Electric Power Co., Inc. has selected the Cisco wireless networking solution to build large-scale WLAN networks connecting 13,000 devices across 122 locations in order to help improve efficiency of communication and information sharing among employees.	
Key Milestone
 
 	•	 	Cisco reached a major milestone as the enterprise installed base of wireless access points shipped reached 4 million, driven by increased enterprise demand for mobility services and channel sales.	
Editor’s Note:
 
 	•	 	Q3 FY07 conference call to discuss Cisco’s results along with its business outlook to be held at 1:30 p.m. Pacific Time, Tuesday, May 8, 2007. Conference call number is 888-848-6507 (United States) or 212-519-0847 (international).	
 
 	•	 	Conference call replay will be available from 4:30 p.m. Pacific Time, May 8, 2007 to 4:30 p.m. Pacific Time, May 15, 2007 at 866-357-4205 (United States) or 203-369-0122 (international). The replay is also available from May 8, 2007 through July 20, 2007 on the Cisco Investor Relations Website at http://www.cisco.com/go/investors .	
 
 	•	 	Additional information regarding Cisco’s financials, as well as a Webcast of the conference call with visuals designed to guide participants through the call, will be available at 1:30 p.m. Pacific Time, May 8, 2007. Text of the conference call’s prepared remarks will be available within 24 hours of completion of the call. The Webcast will include both the prepared remarks and the question-and-answer session. This information, along with GAAP reconciliation information, will be available on the Cisco Investor Relations Website at http://www.cisco.com/go/investors .	
 
 	•	 	A Q&A with Cisco’s CEO and CFO about Q3 FY07 results will be available at http://newsroom.cisco.com .	
About Cisco
Cisco (NASDAQ: CSCO) is the worldwide leader in networking that transforms how people connect, communicate and collaborate. Information about Cisco can be found at http://www.cisco.com . For ongoing news, visit http://newsroom.cisco.com .
 
3

# # #
This release may be deemed to contain forward-looking statements, which are subject to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These forward-looking statements include, among other things, statements regarding future events (such as the development of our markets, the future of networking, Cisco’s strategy and positioning, and our ability to foresee market transitions) 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 due to a variety of factors, including: business and economic conditions and growth trends in the networking industry and 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 and other customer markets; the timing of orders and manufacturing and customer lead times; changes in customer order patterns or customer mix; insufficient, excess or obsolete inventory; variability of component costs; variations in sales channels, product costs or mix of products sold; our 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, including risks relating to our continued transition to a new manufacturing model; product defects and returns; litigation involving patents, intellectual property, antitrust, shareholder and other matters; natural catastrophic events; a pandemic or epidemic; achievement of the benefits anticipated from our investments in sales and engineering activities; our ability to recruit and retain key personnel; our ability to manage financial risk; currency fluctuations and other international factors; potential volatility in operating results; and other factors listed in Cisco’s most recent reports on Form 10-K and Form 10-Q. 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 nine months ended April 28, 2007 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.
This release includes non-GAAP net income, non-GAAP net income per share data, shares used in non-GAAP net income per share calculation and non-GAAP inventory turns.
These non-GAAP measures are not in accordance with, or an alternative for measures prepared in accordance with, generally accepted accounting principles and may be different from non-GAAP measures used by other companies. In addition, these non-GAAP measures are not based on any comprehensive set of accounting rules or principles. Cisco believes that non-GAAP measures have limitations in that they do not reflect all of the amounts associated with Cisco’s results of operations as determined in accordance with GAAP and that these measures should only be used to evaluate Cisco’s results of operations in conjunction with the corresponding GAAP measures.
Cisco believes that the presentation of non-GAAP net income, non-GAAP net income per share data and shares used in non-GAAP net income per share calculation, when shown in conjunction with the corresponding GAAP measures, provides useful information to investors and management regarding financial and business trends relating to its financial condition and results of operations. In addition, Cisco believes that the presentation of non-GAAP inventory turns provides useful information to investors and management regarding financial and business trends relating to inventory management based on the operating activities of the period presented.
For its internal budgeting process, Cisco’s management uses financial statements that do not include employee share-based compensation expense, impact to cost of sales from purchase accounting adjustments to inventory, payroll tax on stock option exercises, compensation expense related to acquisitions and investments, in-process research and development, amortization of purchased intangible assets, significant gains and losses on publicly traded equity securities, the income tax effects of the foregoing, and significant effects of retroactive tax legislation, such as Cisco’s U.S. federal research and development (R&D) tax credit relating to fiscal year 2006 R&D expenses. Cisco’s management also uses the foregoing non-GAAP measures, in addition to the corresponding GAAP measures, in reviewing the financial results of Cisco.
For additional information on the items excluded by Cisco from one or more of its non-GAAP financial measures we refer you to the Form 8-K regarding this release furnished today with the Securities and Exchange Commission.
Copyright © 2007 Cisco Systems, Inc. All rights reserved. Cisco, the Cisco logo, Cisco Systems and Linksys are registered trademarks or trademarks of Cisco Systems, Inc. and/or its affiliates in the United States and certain other countries. All other trademarks mentioned in this document are the property of their respective owners. The use of the word partner does not imply a partnership relationship between Cisco and any other company. This document is Cisco Public Information.
 
4

CONSOLIDATED STATEMENTS OF OPERATIONS
(In millions, except per-share amounts)
(Unaudited)

 	  	Three Months Ended	  	Nine Months Ended	
 	  	April 28,
2007	  	April 29,
2006	  	April 28,
2007	  	April 29,
2006	
NET SALES:	  			  			  			  			
Product	  	$	7,481	  	$	6,155	  	$	21,520	  	$	17,183	
Service	  	 	1,385	  	 	1,167	  	 	3,969	  	 	3,317	
	  	 	 	  	 	 	  	 	 	  	 	 	
Total net sales	  	 	8,866	  	 	7,322	  	 	25,489	  	 	20,500	
	  	 	 	  	 	 	  	 	 	  	 	 	
COST OF SALES:	  			  			  			  			
Product	  	 	2,685	  	 	2,193	  	 	7,728	  	 	5,718	
Service	  	 	534	  	 	403	  	 	1,493	  	 	1,180	
	  	 	 	  	 	 	  	 	 	  	 	 	
Total cost of sales	  	 	3,219	  	 	2,596	  	 	9,221	  	 	6,898	
	  	 	 	  	 	 	  	 	 	  	 	 	
GROSS MARGIN	  	 	5,647	  	 	4,726	  	 	16,268	  	 	13,602	
					
OPERATING EXPENSES:	  			  			  			  			
Research and development	  	 	1,144	  	 	1,041	  	 	3,321	  	 	3,003	
Sales and marketing	  	 	1,830	  	 	1,547	  	 	5,242	  	 	4,431	
General and administrative	  	 	378	  	 	298	  	 	1,082	  	 	858	
Amortization of purchased intangible assets	  	 	97	  	 	99	  	 	298	  	 	214	
In-process research and development	  	 	1	  	 	88	  	 	7	  	 	90	
	  	 	 	  	 	 	  	 	 	  	 	 	
Total operating expenses	  	 	3,450	  	 	3,073	  	 	9,950	  	 	8,596	

OPERATING INCOME	  	 	2,197	  	 	1,653	  	 	6,318	  	 	5,006	
					
Interest income, net	  	 	189	  	 	142	  	 	518	  	 	464	
Other income, net	  	 	33	  	 	17	  	 	94	  	 	17	
	  	 	 	  	 	 	  	 	 	  	 	 	
Interest and other income, net	  	 	222	  	 	159	  	 	612	  	 	481	

INCOME BEFORE PROVISION FOR INCOME TAXES	  	 	2,419	  	 	1,812	  	 	6,930	  	 	5,487	
					
Provision for income taxes	  	 	545	  	 	412	  	 	1,527	  	 	1,451	
	  	 	 	  	 	 	  	 	 	  	 	 	
NET INCOME	  	$	1,874	  	$	1,400	  	$	5,403	  	$	4,036	
	  	 	 	  	 	 	  	 	 	  	 	 	
Net income per share:	  			  			  			  			
Basic	  	$	0.31	  	$	0.23	  	$	0.89	  	$	0.65	
	  	 	 	  	 	 	  	 	 	  	 	 	
Diluted	  	$	0.30	  	$	0.22	  	$	0.86	  	$	0.64	
	  	 	 	  	 	 	  	 	 	  	 	 	
Shares used in per-share calculation:	  			  			  			  			
Basic	  	 	6,034	  	 	6,160	  	 	6,052	  	 	6,184	
	  	 	 	  	 	 	  	 	 	  	 	 	
Diluted	  	 	6,244	  	 	6,289	  	 	6,255	  	 	6,300	

5

RECONCILIATION OF GAAP TO NON-GAAP NET INCOME
(In millions, except per-share amounts)

 	  	Three Months Ended	 	 	Nine Months Ended	 	
 	  	April 28,
2007	 	 	April 29,
2006	 	 	April 28,
2007	 	 	April 29,
2006	 	
GAAP net income	  	$	1,874	 	 	$	1,400	 	 	$	5,403	 	 	$	4,036	 	
					
Employee share-based compensation expense	  	 	237	 	 	 	261	 	 	 	709	 	 	 	839	 	
Impact to cost of sales from purchase accounting adjustments to inventory	  	 	—  	 	 	 	22	 	 	 	—  	 	 	 	22	 	
Payroll tax on stock option exercises	  	 	9	 	 	 	8	 	 	 	26	 	 	 	13	 	
Compensation expense related to acquisitions and investments	  	 	16	 	 	 	32	 	 	 	64	 	 	 	102	 	
In-process research and development	  	 	1	 	 	 	88	 	 	 	7	 	 	 	90	 	
Amortization of purchased intangible assets	  	 	133	 	 	 	123	 	 	 	406	 	 	 	238	 	
	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Total adjustments to GAAP income before provision for income taxes	  	 	396	 	 	 	534	 	 	 	1,212	 	 	 	1,304	 	
					
Income tax effect (1)	  	 	(159	)	 	 	(121	)	 	 	(449	)	 	 	(326	)	
Effect of retroactive tax legislation (2)	  	 	—  	 	 	 	—  	 	 	 	(60	)	 	 	—  	 	
	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Total adjustments to GAAP provision for income taxes	  	 	(159	)	 	 	(121	)	 	 	(509	)	 	 	(326	)	
					
Non-GAAP net income	  	$	2,111	 	 	$	1,813	 	 	$	6,106	 	 	$	5,014	 	
	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Diluted net income per share:	  				 				 				 				
GAAP	  	$	0.30	 	 	$	0.22	 	 	$	0.86	 	 	$	0.64	 	
	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Non-GAAP	  	$	0.34	 	 	$	0.29	 	 	$	0.98	 	 	$	0.80	 	
	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Shares used in diluted net income per share calculation:	  				 				 				 				
GAAP	  	 	6,244	 	 	 	6,289	 	 	 	6,255	 	 	 	6,300	 	
	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Non-GAAP	  	 	6,233	 	 	 	6,291	 	 	 	6,241	 	 	 	6,287	 	

(1)	The income tax effect for the adjustments relating to GAAP income before provision for income taxes was 37.0% for the first nine months of fiscal 2007 and has been determined using the applicable tax rates in jurisdictions to which these adjustments relate.	
(2)	In the second quarter of fiscal 2007, the Tax Relief and Health Care Act of 2006 reinstated the U.S. federal R&D tax credit, retroactive to January 1, 2006. GAAP net income for the first nine months of fiscal 2007 included a benefit of $60 million related to fiscal 2006 R&D expenses, while non-GAAP net income for the first nine months of fiscal 2007 excluded this benefit.	
Additional reconciliations between GAAP and non-GAAP financial measures are provided in the tables that follow on page 10.
 
6

CONSOLIDATED BALANCE SHEETS
(In millions)
(Unaudited)

 	  	April 28,
2007	  	July 29,
2006	
ASSETS	  			  			
Current assets:	  			  			
Cash and cash equivalents	  	$	5,457	  	$	3,297	
Investments	  	 	16,879	  	 	14,517	
Accounts receivable, net of allowance for doubtful accounts of $172 at April 28, 2007 and $175 at July 29, 2006	  	 	3,238	  	 	3,303	
Inventories	  	 	1,289	  	 	1,371	
Deferred tax assets	  	 	1,755	  	 	1,604	
Prepaid expenses and other current assets	  	 	1,922	  	 	1,584	
	  	 	 	  	 	 	
Total current assets	  	 	30,540	  	 	25,676	
			
Property and equipment, net	  	 	3,695	  	 	3,440	
Goodwill	  	 	9,493	  	 	9,227	
Purchased intangible assets, net	  	 	1,909	  	 	2,161	
Other assets	  	 	3,198	  	 	2,811	
	  	 	 	  	 	 	
TOTAL ASSETS	  	$	48,835	  	$	43,315	

LIABILITIES AND SHAREHOLDERS’ EQUITY	  			  			
Current liabilities:	  			  			
Accounts payable	  	$	864	  	$	880	
Income taxes payable	  	 	1,525	  	 	1,744	
Accrued compensation	  	 	1,791	  	 	1,516	
Deferred revenue	  	 	4,854	  	 	4,408	
Other accrued liabilities	  	 	2,938	  	 	2,765	
	  	 	 	  	 	 	
Total current liabilities	  	 	11,972	  	 	11,313	
			
Long-term debt	  	 	6,478	  	 	6,332	
Deferred revenue	  	 	1,485	  	 	1,241	
Other long-term liabilities	  	 	373	  	 	511	
	  	 	 	  	 	 	
Total liabilities	  	 	20,308	  	 	19,397	
	  	 	 	  	 	 	
Minority interest	  	 	9	  	 	6	
			
Shareholders’ equity	  	 	28,518	  	 	23,912	

TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY	  	$	48,835	  	$	43,315	

7

CONSOLIDATED STATEMENTS OF CASH FLOWS
(In millions)
(Unaudited)

 	  	Nine Months Ended	 	
 	  	April 28,
2007	 	 	April 29,
2006	 	
Cash flows from operating activities:	  				 				
Net income	  	$	5,403	 	 	$	4,036	 	
Adjustments to reconcile net income to net cash provided by operating activities:	  				 				
Depreciation and amortization	  	 	1,039	 	 	 	856	 	
Employee share-based compensation expense	  	 	709	 	 	 	839	 	
Share-based compensation expense related to acquisitions and investments	  	 	27	 	 	 	75	 	
Provision for doubtful accounts	  	 	6	 	 	 	22	 	
Deferred income taxes	  	 	(302	)	 	 	(79	)	
Excess tax benefits from share-based compensation	  	 	(648	)	 	 	(385	)	
In-process research and development	  	 	7	 	 	 	90	 	
Net gains and impairment charges on investments	  	 	(154	)	 	 	(74	)	
Other	  	 	—  	 	 	 	31	 	
Change in operating assets and liabilities, net of effects of acquisitions:	  				 				
Accounts receivable	  	 	60	 	 	 	(588	)	
Inventories	  	 	82	 	 	 	179	 	
Prepaid expenses and other current assets	  	 	(355	)	 	 	(228	)	
Lease receivables, net	  	 	(131	)	 	 	(98	)	
Accounts payable	  	 	(17	)	 	 	(86	)	
Income taxes payable	  	 	535	 	 	 	273	 	
Accrued compensation	  	 	275	 	 	 	65	 	
Deferred revenue	  	 	690	 	 	 	414	 	
Other liabilities	  	 	140	 	 	 	240	 	
	  	 	 	 	 	 	 	 	
Net cash provided by operating activities	  	 	7,366	 	 	 	5,582	 	
	  	 	 	 	 	 	 	 	
Cash flows from investing activities:	  				 				
Purchases of investments	  	 	(15,342	)	 	 	(17,154	)	
Proceeds from sales and maturities of investments	  	 	13,438	 	 	 	14,539	 	
Acquisition of property and equipment	  	 	(912	)	 	 	(595	)	
Acquisition of businesses, net of cash and cash equivalents acquired	  	 	(387	)	 	 	(5,347	)	
Change in investments in privately held companies	  	 	(81	)	 	 	(158	)	
Purchase of minority interest of Cisco Systems, K.K. (Japan)	  	 	—  	 	 	 	(25	)	
Other	  	 	(87	)	 	 	(31	)	
	  	 	 	 	 	 	 	 	
Net cash used in investing activities	  	 	(3,371	)	 	 	(8,771	)	
	  	 	 	 	 	 	 	 	
Cash flows from financing activities:	  				 				
Issuance of common stock	  	 	3,719	 	 	 	1,282	 	
Repurchase of common stock	  	 	(6,281	)	 	 	(5,478	)	
Issuance of debt	  	 	—  	 	 	 	6,481	 	
Excess tax benefits from share-based compensation	  	 	648	 	 	 	385	 	
Other	  	 	79	 	 	 	14	 	
	  	 	 	 	 	 	 	 	
Net cash (used in) provided by financing activities	  	 	(1,835	)	 	 	2,684	 	
	  	 	 	 	 	 	 	 	
Net increase (decrease) in cash and cash equivalents	  	 	2,160	 	 	 	(505	)	
Cash and cash equivalents, beginning of period	  	 	3,297	 	 	 	4,742	 	
	  	 	 	 	 	 	 	 	
Cash and cash equivalents, end of period	  	$	5,457	 	 	$	4,237	 	
	  	 	 	 	 	 	 	 	
Certain reclassifications have been made to prior period amounts to conform to the current period’s presentation.
 
8

ADDITIONAL FINANCIAL INFORMATION
(In millions)
(Unaudited)

 	  	April 28,
2007	 	 	July 29,
2006	 	
CASH AND CASH EQUIVALENTS AND INVESTMENTS	  				 				
Cash and cash equivalents	  	$	5,457	 	 	$	3,297	 	
Fixed income securities	  	 	15,771	 	 	 	13,805	 	
Publicly traded equity securities	  	 	1,108	 	 	 	712	 	
	  	 	 	 	 	 	 	 	
Total	  	$	22,336	 	 	$	17,814	 	
	  	 	 	 	 	 	 	 	
INVENTORIES	  				 				
Raw materials	  	$	175	 	 	$	131	 	
Work in process	  	 	117	 	 	 	377	 	
Finished goods:	  				 				
Distributor inventory and deferred cost of sales	  	 	474	 	 	 	423	 	
Manufacturing finished goods	  	 	278	 	 	 	236	 	
	  	 	 	 	 	 	 	 	
Total finished goods	  	 	752	 	 	 	659	 	
Service-related spares	  	 	210	 	 	 	170	 	
Demonstration systems	  	 	35	 	 	 	34	 	
	  	 	 	 	 	 	 	 	
Total	  	$	1,289	 	 	$	1,371	 	
	  	 	 	 	 	 	 	 	
PROPERTY AND EQUIPMENT, NET	  				 				
Land, buildings, and leasehold improvements	  	$	3,852	 	 	$	3,647	 	
Computer equipment and related software	  	 	1,535	 	 	 	1,352	 	
Production, engineering, and other equipment	  	 	4,195	 	 	 	3,678	 	
Operating lease assets	  	 	160	 	 	 	153	 	
Furniture and fixtures	  	 	375	 	 	 	363	 	
	  	 	 	 	 	 	 	 	
	  	 	10,117	 	 	 	9,193	 	
Less accumulated depreciation and amortization	  	 	(6,422	)	 	 	(5,753	)	
	  	 	 	 	 	 	 	 	
Total	  	$	3,695	 	 	$	3,440	 	
	  	 	 	 	 	 	 	 	
LEASE RECEIVABLES, NET (1)	  				 				
Current	  	$	377	 	 	$	308	 	
Noncurrent	  	 	526	 	 	 	464	 	
	  	 	 	 	 	 	 	 	
Total	  	$	903	 	 	$	772	 	
	  	 	 	 	 	 	 	 	
OTHER ASSETS	  				 				
Deferred tax assets	  	$	1,147	 	 	$	983	 	
Investments in privately held companies	  	 	641	 	 	 	574	 	
Income tax receivable	  	 	277	 	 	 	279	 	
Lease receivables, net	  	 	526	 	 	 	464	 	
Other	  	 	607	 	 	 	511	 	
	  	 	 	 	 	 	 	 	
Total	  	$	3,198	 	 	$	2,811	 	
	  	 	 	 	 	 	 	 	
DEFERRED REVENUE	  				 				
Service	  	$	4,392	 	 	$	4,088	 	
Product	  				 				
Unrecognized revenue on product shipments and other deferred revenue	  	 	1,563	 	 	 	1,156	 	
Cash receipts related to unrecognized revenue from two-tier distributors	  	 	384	 	 	 	405	 	
	  	 	 	 	 	 	 	 	
Total product deferred revenue	  	 	1,947	 	 	 	1,561	 	
	  	 	 	 	 	 	 	 	
Total	  	$	6,339	 	 	$	5,649	 	
	  	 	 	 	 	 	 	 	
Reported as:	  				 				
Current	  	$	4,854	 	 	$	4,408	 	
Noncurrent	  	 	1,485	 	 	 	1,241	 	
	  	 	 	 	 	 	 	 	
Total	  	$	6,339	 	 	$	5,649	 	

Note:		
(1)	The current portion of lease receivables, net, is recorded in prepaid expenses and other current assets, and the noncurrent portion is recorded in other assets in the Consolidated Balance Sheets.	
 
9

SUMMARY OF EMPLOYEE SHARE-BASED COMPENSATION EXPENSE
(In millions)

 	  	Three Months Ended	  	Nine Months Ended	 	
 	  	April 28,
2007	 	 	April 29,
2006	  	April 28,
2007	 	 	April 29,
2006	 	
Cost of sales—product	  	$	10	 	 	$	11	  	$	33	 	 	$	41	 	
Cost of sales—service	  	 	25	 	 	 	28	  	 	79	 	 	 	90	 	
	  	 	 	 	 	 	 	  	 	 	 	 	 	 	 	
Employee share-based compensation expense in cost of sales	  	 	35	 	 	 	39	  	 	112	 	 	 	131	 	
	  	 	 	 	 	 	 	  	 	 	 	 	 	 	 	
Research and development	  	 	75	 	 	 	86	  	 	223	 	 	 	279	 	
Sales and marketing	  	 	101	 	 	 	107	  	 	294	 	 	 	340	 	
General and administrative	  	 	26	 	 	 	29	  	 	80	 	 	 	89	 	
	  	 	 	 	 	 	 	  	 	 	 	 	 	 	 	
Employee share-based compensation expense in operating expenses	  	 	202	 	 	 	222	  	 	597	 	 	 	708	 	
	  	 	 	 	 	 	 	  	 	 	 	 	 	 	 	
Total employee share-based compensation expense	  	$	237	 	 	$	261	  	$	709	 	 	$	839	 	

The income tax benefit for employee share-based compensation expense was $102 million and $265 million for the third quarter and first nine months of fiscal 2007, respectively, and $73 million and $235 million for the third quarter and first nine months of fiscal 2006, respectively.
 
RECONCILIATION OF SHARES USED IN THE GAAP AND NON-GAAP
DILUTED NET INCOME PER SHARE CALCULATION
(In millions)	

 

 	  	Three Months Ended	  	Nine Months Ended	 	
 	  	April 28,
2007	 	 	April 29,
2006	  	April 28,
2007	 	 	April 29,
2006	 	
Shares used in diluted net income per share calculation—GAAP	  	 	6,244	 	 	 	6,289	  	 	6,255	 	 	 	6,300	 	
Effect of SFAS 123(R)	  	 	(11	)	 	 	2	  	 	(14	)	 	 	(13	)	
	  	 	 	 	 	 	 	  	 	 	 	 	 	 	 	
Shares used in diluted net income per share calculation—Non-GAAP	  	 	6,233	 	 	 	6,291	  	 	6,241	 	 	 	6,287	 	
	  	 	 	 	 	 	 	  	 	 	 	 	 	 	 	
RECONCILIATION OF GAAP TO NON-GAAP COST OF SALES
USED IN INVENTORY TURNS
(In millions)

 	  	Three Months Ended	 	
 	  	April 28,
2007	 	 	January 27,
2007	 	 	July 29,
2006	 	
GAAP cost of sales	  	$	3,219	 	 	$	3,051	 	 	$	2,839	 	
Employee share-based compensation expense	  	 	(35	)	 	 	(42	)	 	 	(31	)	
Impact to cost of sales from purchase accounting adjustments to inventory	  	 	—  	 	 	 	—  	 	 	 	(4	)	
Amortization of purchased intangible assets	  	 	(36	)	 	 	(36	)	 	 	(36	)	
	  	 	 	 	 	 	 	 	 	 	 	 	
Non-GAAP cost of sales	  	$	3,148	 	 	$	2,973	 	 	$	2,768	 	

10