Cisco Systems Reports First Quarter Earnings

-- Q1 Net Sales: $6.5 billion (9.7% increase year over year)

-- Q1 Net Income: $1.3 billion GAAP (includes a first-time stock-based compensation expense of $228 million, net of tax) compared with $1.1 billion for Q1 FY'05, including pro forma stock-based compensation expense; $1.6 billion non-GAAP (pro forma) compared with $1.5 billion for Q1 FY'05

-- Q1 Earnings Per Share: $0.20 GAAP (includes a first-time stock-based compensation expense of $0.04) compared with $0.17 for Q1 FY'05, including pro forma stock-based compensation expense; $0.25 non-GAAP (pro forma) compared with $0.21 for Q1 FY'05

Cisco Systems, Inc., the worldwide leader in networking for theInternet, today reported its first quarter results for the periodended October 29, 2005.

Net sales for the first quarter of fiscal 2006 were $6.5 billion,compared with $6.0 billion for the first quarter of fiscal 2005, anincrease of 9.7 percent, and compared with $6.6 billion for the fourthquarter of fiscal 2005, a decrease of 0.5 percent.

Net income for the first quarter of fiscal 2006, on a generallyaccepted accounting principles (GAAP) basis, was $1.3 billion or $0.20per share which includes stock-based compensation expense of $228million, net of tax, or $0.04 per share, due to the implementation ofSFAS 123(R). Net income prior to fiscal 2006 did not includestock-based compensation expense. Including the pro forma stock-basedcompensation expense previously disclosed in Cisco's financialstatements footnotes, net income for the first quarter of fiscal 2005would have been $1.1 billion or $0.17 per share and net income for thefourth quarter of fiscal 2005 would have been $1.3 billion or $0.20per share. Please refer to the table on page 8 for aquarter-to-quarter comparison of net income including the effect ofstock-based compensation expense. Net income on a GAAP basis, whichdoes not include the effect of stock-based compensation expense, forthe first quarter of fiscal 2005 was $1.4 billion or $0.21 per shareand for the fourth quarter of fiscal 2005 was $1.5 billion or $0.24per share.

Non-GAAP (pro forma) net income for the first quarter of fiscal2006 was $1.6 billion or $0.25 per share, compared with $1.5 billionor $0.21 per share for the first quarter of fiscal 2005, and comparedwith $1.6 billion or $0.25 per share for the fourth quarter of fiscal2005. A reconciliation between net income on a GAAP basis and non-GAAP(pro forma) net income is provided in a table on page 8.

During the first quarter of fiscal 2006, Cisco completed theacquisitions of KiSS Technology A/S, Nemo Systems, Inc. and SheerNetworks, Inc.

"Q1 was a solid quarter for Cisco, with balanced execution acrossmost of our geographies, market segments and product categories," saidJohn Chambers, president and CEO, Cisco Systems, Inc. "We areespecially pleased with the improving business momentum in the U.S.and Asia Pacific, the strength of our product families and theaccelerated growth of the commercial marketplace, which has become ourfastest growing customer segment."

Chambers continued, "Cisco's long-term product architecturestrategy is taking hold. We are seeing an increased trend towardcustomers choosing integrated networking solutions that combine ourcore products with advanced technologies. By coupling routing andswitching with our advanced technologies such as security, enterpriseIP communications and wireless, Cisco's architectural approach isallowing customers to more effectively scale their IT operations.Going forward, we will continue to foster a culture of innovation,incorporating internal development, acquisitions and partnerships toanticipate the evolving needs of customers and extend our corecompetitive advantage."

Cisco will discuss first quarter 2006 results and business outlookon a conference call and Webcast at 1:30 p.m. Pacific Time today. Callinformation and related charts are available athttp://investor.cisco.com.

Financial Highlights

-- Cash flows from operations were $1.4 billion for the first quarter of fiscal 2006, compared with $1.5 billion for the first quarter of fiscal 2005, and compared with $2.4 billion for the fourth quarter of fiscal 2005.

-- Cash and cash equivalents and investments were $13.5 billion at the end of the first quarter of fiscal 2006, compared with $16.1 billion at the end of the fourth quarter of fiscal 2005.

-- During the first quarter of fiscal 2006, Cisco repurchased 194 million shares of common stock at an average price of $18.03 per share for an aggregate purchase price of $3.5 billion. As of October 29, 2005, Cisco had repurchased and retired 1.7 billion shares of Cisco common stock at an average price of $18.14 per share for an aggregate purchase price of approximately $30.7 billion since the inception of the stock repurchase program.

-- Days sales outstanding (DSO) in accounts receivable at the end of the first quarter of fiscal 2006 were 33 days, compared with 31 days at the end of the fourth quarter of fiscal 2005.

-- Inventory turns on a GAAP basis were 6.5 in the first quarter of fiscal 2006, compared with 6.6 in the fourth quarter of fiscal 2005. Non-GAAP (pro forma) inventory turns were 6.4 in the first quarter of fiscal 2006.

"Our performance this quarter demonstrated once again that ourfocus and execution on long-term financial priorities translates tosustained profitable growth and a strong competitive advantage," saidDennis Powell, chief financial officer, Cisco Systems. "Non-GAAP (proforma) quarterly earnings per share of $0.25, net income of $1.6billion, and 68.5 percent product gross margins are all strongindicators of the momentum we're achieving in our business, while wecontinue to ramp resources for continued execution throughout thefiscal year."

Business Highlights

-- Intel Corporation and Cisco expanded their existing alliance in an effort to enhance wireless LAN reliability, deliver higher-quality services and allow businesses to use computers and the network as a combined defense against security threats.

-- MCI, Inc. is expanding its managed IP Communications offerings to the business market with the launch of Managed IP PBX, which is based on Cisco technology and includes the Cisco CallManager product suite.

-- SOFTBANK BB Corporation expanded its Cisco IP Next-Generation Network (IP NGN) architecture with the Cisco Carrier Routing System (CRS-1) and Cisco Catalyst(R) 6500 Series switches to enable nationwide expansion of advanced video services, including broadband program broadcasting and video on demand (VoD).

-- Linksys, a division of Cisco Systems, and Skype teamed to launch a new cordless handset designed to enable users to place Skype Internet phone calls while sitting at home or at the office.

-- Cisco introduced the company's newest emerging technology, the Cisco Internet Protocol Interoperability and Collaboration System (IPICS), designed to integrate disparate push-to-talk radio systems with other communication resources such as voice, video and data devices.

-- Cisco announced a $40 million commitment in a multiphase, three-year education "21S Initiative" in the Gulf Coast region, which will begin in Mississippi, for reconstructing and improving schools.

-- Cisco announced its investment initiative plans for India, totaling up to US$1.1 billion. This announcement highlights the growing importance of the Indian market in the global economy.

-- Cisco reached a major milestone in the IP Communications market with the sale of its 6-millionth Internet Protocol (IP) phone worldwide.

-- Cisco introduced the Cisco Business Communications Solution, specifically designed for small to medium businesses (SMBs) and mid-market companies through voice and switching products.

-- Underscoring its focus on social responsibility, Cisco won the prestigious State Department Award for Corporate Excellence (ACE) for its education program in Jordan designed to teach young people information-technology skills. It also issued its first-ever Corporate Social Responsibility (CSR) report, a summary of the company's responsible business practices and social investment programs for fiscal years 2004 and 2005.

Editor's Note:

-- Q1 FY'06 conference call to discuss Cisco's results along with its outlook for Q2 FY'06 to be held at 1:30 p.m. Pacific Time, Wednesday, November 9, 2005. Conference call number is 888-848-6507 (United States); 212-519-0847 (international).

-- Conference call replay will be available from 4:30 p.m. Pacific Time, November 9, 2005 to 4:30 p.m. Pacific Time, November 16, 2005 at 866-357-4205 (United States); 203-369-0122 (international). The replay is also available from November 9, 2005 through January 20, 2006 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, November 9, 2005. 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 on Q1 FY'06 results will be available at http://newsroom.cisco.com.

About Cisco Systems

Cisco Systems, Inc. (NASDAQ:CSCO) is the worldwide leader innetworking for the Internet. Information about Cisco can be found athttp://www.cisco.com. For ongoing news, please go tohttp://newsroom.cisco.com.

This release may be deemed to contain forward-looking statements,which are subject to the safe harbor provisions of the PrivateSecurities Litigation Reform Act of 1995. These forward-lookingstatements include, among other things, statements regarding futureevents and the future financial performance of Cisco that involverisks and uncertainties. Readers are cautioned that theseforward-looking statements are only predictions and may differmaterially from actual future events or results due to a variety offactors, including: business and economic conditions and growth trendsin the networking industry and in various geographic regions; globaleconomic conditions and uncertainties in the geopolitical environment;overall information technology spending; the growth of the Internetand levels of capital spending on Internet-based systems; variationsin customer demand for products and services, including sales to theservice provider market; the timing of orders and manufacturing andcustomer lead times; changes in customer order patterns or customermix; insufficient, excess or obsolete inventory; variability ofcomponent costs; variations in sales channels, product costs or mix ofproducts sold; our ability to successfully acquire businesses andtechnologies and to successfully integrate and operate these acquiredbusinesses and technologies; increased competition in the networkingindustry; dependence on the introduction and market acceptance of newproduct offerings and standards; rapid technological and marketchange; manufacturing and sourcing risks; product defects and returns;litigation involving patents, intellectual property, antitrust,shareholder and other matters; natural catastrophic events;achievement of the benefits anticipated from our investments in salesand engineering activities; our ability to recruit and retain keypersonnel; our ability to manage financial risk; currency fluctuationsand other international factors; potential volatility in operatingresults and other factors listed in Cisco's most recent reports onForm 10-K, 10-Q and 8-K. The financial information contained in thisrelease should be read in conjunction with the consolidated financialstatements and notes thereto included in Cisco's most recent reportson Form 10-K and Form 10-Q, each as it may be amended from time totime. Cisco's results of operations for the three months ended October29, 2005 are not necessarily indicative of Cisco's operating resultsfor any future periods. Any projections in this release are based onlimited information currently available to Cisco, which is subject tochange. Although any such projections and the factors influencing themwill likely change, Cisco will not necessarily update the information,since Cisco will only provide guidance at certain points during theyear. Such information speaks only as of the date of this release.

This release includes non-GAAP (pro forma) net income, non-GAAP(pro forma) net income per share data, non-GAAP (pro forma) inventoryturns, non-GAAP (pro forma) gross margin, and other non-GAAP lineitems from the Consolidated Statements of Operations, including costof sales information, gross margin, operating expenses (includingresearch and development, sales and marketing, and general andadministrative expenses), other income (loss), net, and provision forincome taxes. These measures are not in accordance with, or analternative for, generally accepted accounting principles and may bedifferent from non-GAAP (pro forma) measures used by other companies.Cisco believes that the presentation of non-GAAP (pro forma) netincome, non-GAAP (pro forma) net income per share data, non-GAAP (proforma) inventory turns and non-GAAP (pro forma) gross margin, whenshown in conjunction with the corresponding GAAP measures, providesuseful information to management and investors regarding financial andbusiness trends relating to its financial condition and results ofoperations. Cisco further believes that where the adjustments used incalculating non-GAAP (pro forma) net income and non-GAAP (pro forma)net income per share are based on specific, identified charges thatimpact different line items in the statements of operations (includingcost of sales, research and development, sales and marketing, andgeneral and administrative expense), that it is useful to investors toknow how these specific line items in the statements of operations areaffected by these adjustments. In particular, as Cisco begins to applySFAS 123(R), it believes that it is useful to investors to understandhow the expenses associated with the application of SFAS 123(R) arereflected on its statements of operations. For its internal budgets,Cisco's management uses financial statements that do not includestock-based compensation expense, payroll tax on stock optionexercises, in-process research and development, compensation expenserelated to acquisitions and investments, amortization of purchasedintangible assets, gain (loss) on publicly traded equity securitiesand the income tax effects of the foregoing on cost of sales, researchand development, sales and marketing and general and administrativeexpenses, as applicable. Cisco's management also uses the foregoingnon-GAAP measures, in addition to the corresponding GAAP measures, inreviewing the financial results of Cisco.

Copyright(C) 2005 Cisco Systems, Inc. All rights reserved. Cisco,Cisco Systems, the Cisco Systems logo, Catalyst and Linksys areregistered trademarks or trademarks of Cisco Systems, Inc. and/or itsaffiliates in the U.S. and certain other countries. All othertrademarks mentioned in this document are the property of theirrespective owners. The use of the word partner does not imply apartnership relationship between Cisco and any other company.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In millions, except per-share amounts)
(Unaudited)



Three Months Ended
-----------------------
October 29, October 30,
2005 2004
----------- -----------
NET SALES:
Product $ 5,491 $ 5,033
Service 1,059 938
----------- -----------

Total net sales 6,550 5,971
----------- -----------
COST OF SALES:
Product (includes stock-based compensation
expense under SFAS 123(R) of $19 for Q1
FY'06; $0 for Q1 FY'05) 1,751 1,646
Service (includes stock-based compensation
expense under SFAS 123(R) of $34 for Q1
FY'06; $0 for Q1 FY'05) 389 310
----------- -----------

Total cost of sales (includes stock-based
compensation expense under SFAS 123(R) of $53
for Q1 FY'06; $0 for Q1 FY'05) 2,140 1,956
----------- -----------

GROSS MARGIN 4,410 4,015

OPERATING EXPENSES:
Research and development (includes stock-based
compensation expense under SFAS 123(R) of
$103 for Q1 FY'06; $0 for Q1 FY'05) 996 805
Sales and marketing (includes stock-based
compensation expense under SFAS 123(R) of
$127 for Q1 FY'06; $0 for Q1 FY'05) 1,453 1,120
General and administrative (includes stock-
based compensation expense under SFAS 123(R)
of $34 for Q1 FY'06; $0 for Q1 FY'05) 278 230
Amortization of purchased intangible assets 59 60
In-process research and development 2 12
----------- -----------

Total operating expenses (includes stock-based
compensation expense under SFAS 123(R) of
$264 for Q1 FY'06; $0 for Q1 FY'05) 2,788 2,227
----------- -----------

OPERATING INCOME 1,622 1,788

Interest income 154 130
Other income (loss), net (17) 40
----------- -----------

Interest and other income (loss), net 137 170
----------- -----------

INCOME BEFORE PROVISION FOR INCOME TAXES 1,759 1,958
Provision for income taxes (includes tax
benefit from stock based compensation expense
under SFAS 123(R) of $(89) for Q1 FY'06; $0
for Q1 FY'05) 498 562
----------- -----------

NET INCOME (see note below) $ 1,261 $ 1,396
----------- -----------

Net income per share (see note below):
Basic $ 0.20 $ 0.21
----------- -----------

Diluted $ 0.20 $ 0.21
----------- -----------

Shares used in per-share calculation:
Basic 6,245 6,635
----------- -----------

Diluted 6,340 6,773
----------- -----------

Note:
Net income for Q1 FY'06 includes stock-based compensation expense of
$228, net of tax, due to the implementation of SFAS 123(R). Net income
for the first quarter of fiscal 2005 did not include stock-based
compensation expense under SFAS 123. The table below reflects net
income and diluted net income per share for the first quarter of
fiscal 2006 compared with first quarter of fiscal 2005 including the
pro forma stock-based compensation expense as follows:


Three Months Ended
-----------------------
October 29, October 30,
2005 2004
----------- -----------

Net income - as reported for Q1 FY'05 $ 1,396
Stock-based compensation expense, net of tax
- as reported for Q1 FY'05 (276)
-----------

Net income, including the effect of stock-
based compensation expense $ 1,261 $ 1,120
-----------

Diluted net income per share - as reported for
Q1 FY'05 $ 0.21
Stock-based compensation expense, net of tax,
per share - as reported for Q1 FY'05 (0.04)
-----------

Diluted net income per share, including the
effect of stock-based compensation expense $ 0.20 $ 0.17
-----------




NON-GAAP (PRO FORMA) CONSOLIDATED STATEMENTS OF OPERATIONS
(In millions, except per-share amounts)
(Unaudited)




Three Months Ended
-----------------------
October 29, October 30,
2005 2004
----------- -----------
NET SALES:
Product $ 5,491 $ 5,033
Service 1,059 938
----------- -----------

Total net sales 6,550 5,971
----------- -----------

COST OF SALES:
Product (a) 1,732 1,646
Service (a) 355 310
----------- -----------

Total cost of sales (a) 2,087 1,956
----------- -----------

GROSS MARGIN (a) 4,463 4,015

OPERATING EXPENSES:
Research and development (a) - (c) 859 787
Sales and marketing (a) - (c) 1,320 1,102
General and administrative (a) - (c) 242 225
----------- -----------

Total operating expenses (a) - (e) 2,421 2,114
----------- -----------

OPERATING INCOME (a) - (e) 2,042 1,901

Interest income 154 130
Other income (loss), net (f) (17) (13)
----------- -----------

Interest and other income (loss), net (f) 137 117
----------- -----------

INCOME BEFORE PROVISION FOR INCOME TAXES (a) -
(f) 2,179 2,018
Provision for income taxes (g) 610 565
----------- -----------

NET INCOME (a) - (g) $ 1,569 $ 1,453
----------- -----------

Net income per share:
Basic (a) - (g) $ 0.25 $ 0.22
----------- -----------

Diluted (a) - (g) $ 0.25 $ 0.21
----------- -----------

Shares used in per-share calculation:
Basic 6,245 6,635
----------- -----------

Diluted 6,340 6,773
----------- -----------

Note:
A reconciliation between net income on a GAAP basis and non-GAAP (pro
forma) net income including items (a) - (g) is provided in a table on
page 8




RECONCILIATION OF GAAP TO NON-GAAP (PRO FORMA) NET INCOME
(In millions)



Q1 Q4 Q3 Q2 Q1
FY'06 FY'05 FY'05 FY'05 FY'05
------- ------- ------- ------- -------

GAAP net income $1,261 $1,540 $1,405 $1,400 $1,396

(a) Stock-based compensation
expense under SFAS 123 (R)
(see note below) 317 - - - -

(b) Payroll tax on stock
option exercises (see
note below) 2 5 3 3 1

(c) Compensation expense
related to acquisitions
and investments (see
note below) 40 39 47 39 40

(d) In-process research and
development 2 6 6 2 12

(e) Amortization of purchased
intangible assets 59 56 54 57 60

(f) (Gain) loss on publicly
traded equity securities - - - - (53)

(g) Income tax effect (112) (20) (19) (19) (3)

------- ------- ------- ------- -------
Non-GAAP (pro forma) net
income $1,569 $1,626 $1,496 $1,482 $1,453
------- ------- ------- ------- -------


Note:
In Q1 FY'06, stock-based compensation expense of $317 was allocated as
follows: $53 to cost of sales ($19 to product cost of sales and $34 to
service cost of sales), $103 to research and development (R&D), $127
to sales and marketing (S&M) and $34 to general and administrative
(G&A). In Q1 FY'06, payroll tax on stock option exercises of $2 and
compensation expense related to acquisitions and investments of $40
was allocated as follows: $34 to R&D, $6 to S&M and $2 to G&A. In Q1
FY'05, payroll tax on stock option exercises of $1 and compensation
expense related to acquisitions and investments of $40 was allocated
as follows: $18 to R&D, $18 to S&M and $5 to G&A. In calculating
non-GAAP (pro forma) inventory turns for the first quarter of fiscal
2006, stock-based compensation expense of $53 was excluded from cost
of sales. In calculating non-GAAP (pro forma) gross margins for the
first quarter of fiscal 2006, stock-based compensation expense of $53
was excluded from cost of sales ($19 from product cost of sales and
$34 from service cost of sales)



QUARTER-TO-QUARTER COMPARISON OF NET INCOME INCLUDING THE EFFECT OF
STOCK-BASED COMPENSATION EXPENSE UNDER SFAS 123(R) and SFAS 123
(In millions, except per-share amounts)



Q1 Q4 Q3 Q2 Q1
FY'06 FY'05 FY'05 FY'05 FY'05
------- ------- ------- ------- -------

Net income -- as reported for
prior periods (1) N/A $1,540 $1,405 $1,400 $1,396

Stock-based compensation
expense $(317) (363) (377) (428) (460)
Tax benefit $ 89 88 151 171 184
------- ------- ------- -------
Stock-based compensation
expense, net of tax (2) $(228) (275) (226) (257) (276)

------- ------- ------- -------
Net income, including the
effect of stock-based
compensation
expense (3) $1,261 $1,265 $1,179 $1,143 $1,120
------- ------- ------- -------

Diluted net income per share -
as reported for prior periods
(1) N/A $0.24 $0.21 $0.21 $0.21

Stock-based compensation
expense, net of tax, per
share (2) $(0.04) (0.04) (0.03) (0.04) (0.04)

------- ------- ------- -------
Diluted net income per share,
including the effect of
stock-based compensation
expense (3) $0.20 $0.20 $0.18 $0.17 $0.17
------- ------- ------- -------


Notes:
(1) Net income and net income per share prior to fiscal 2006 did not
include stock-based compensation expense under SFAS 123.
(2) Stock-based compensation expense and stock-based compensation
expense per share prior to fiscal 2006 is calculated based on SFAS 123
as previously disclosed in Cisco's financial statements footnotes.
(3) Net income and net income per share prior to fiscal 2006
represents pro forma information based on SFAS 123 as previously
disclosed in Cisco's financial statements footnotes.



CONSOLIDATED BALANCE SHEETS
(In millions)
(Unaudited)




October 29, July 30,
2005 2005
----------- ---------

ASSETS
Current assets:
Cash and cash equivalents $ 1,704 $ 4,742
Investments 11,786 11,313
Accounts receivable, net of allowance for
doubtful accounts of $173 at October 29, 2005
and $162 at July 30, 2005 2,342 2,216
Inventories 1,318 1,297
Deferred tax assets 1,410 1,475
Prepaid expenses and other current assets 1,193 967
----------- ---------

Total current assets 19,753 22,010

Property and equipment, net 3,335 3,320
Goodwill 5,412 5,295
Purchased intangible assets, net 548 549
Other assets 2,707 2,709
----------- ---------

TOTAL ASSETS $ 31,755 $ 33,883
----------- ---------

LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 721 $ 735
Income taxes payable 1,462 1,511
Accrued compensation 1,193 1,317
Deferred revenue 3,716 3,854
Other accrued liabilities 2,144 2,094
----------- ---------

Total current liabilities 9,236 9,511
Deferred revenue 1,078 1,188
----------- ---------

Total liabilities 10,314 10,699
----------- ---------

Minority interest 4 10

Shareholders' equity 21,437 23,174
----------- ---------

TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 31,755 $ 33,883
----------- ---------



Note:
Long-term investments and the related deferred taxes on unrealized
gains and losses on investments as of July 30, 2005 have been
reclassified to current assets in order to conform to the current
period's presentation.


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




Three Months Ended
------------------------
October 29, October 30,
2005 2004
------------ -----------
Cash flows from operating activities:
Net income $ 1,261 $ 1,396
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 258 251
Stock-based compensation due to the
implementation of SFAS 123 (R) 317 --
Stock-based compensation related to
acquisitions and investments 28 40
Provision for doubtful accounts 11 --
Provision for inventory 47 62
Deferred income taxes 125 74
Tax benefits from employee stock option plans -- 48
Excess tax benefits from stock-based
compensation (40) --
In-process research and development 2 12
Net (gains) losses and impairment charges on
investments 11 (44)
Change in operating assets and liabilities,
net of effects of acquisitions:
Accounts receivable (135) 37
Inventories (65) (63)
Prepaid expenses and other current assets (41) (10)
Lease receivables, net (26) (52)
Accounts payable (14) 16
Income taxes payable 4 188
Accrued compensation (124) (283)
Deferred revenue (248) (241)
Other accrued liabilities 31 28
------------ -----------

Net cash provided by operating activities 1,402 1,459
------------ -----------

Cash flows from investing activities:
Purchases of investments (7,973) (5,172)
Proceeds from sales and maturities of
investments 7,335 6,537
Acquisition of property and equipment (215) (159)
Acquisition of businesses, net of cash and
cash equivalents (122) (229)
Change in investments in privately held
companies (18) (48)
Purchase of minority interest of Cisco
Systems, K.K. (Japan) (25) --
Other (105) 70
------------ -----------

Net cash (used in) provided by investing
activities (1,123) 999
------------ -----------

Cash flows from financing activities:
Issuance of common stock 136 96
Repurchase of common stock (3,500) (3,001)
Excess tax benefits from stock-based
compensation 40 --
Other 7 34
------------ -----------

Net cash used in financing activities (3,317) (2,871)
------------ -----------

Net decrease in cash and cash equivalents (3,038) (413)
Cash and cash equivalents, beginning of
period 4,742 3,722
------------ -----------

Cash and cash equivalents, end of period $ 1,704 $ 3,309
------------ -----------



Note:
Net income for Q1 FY'06 includes stock-based compensation expense of
$228, net of tax, due to the implementation of SFAS 123(R). Net income
for Q1 FY'05 did not include stock-based compensation expense under
SFAS 123.
Certain reclassifications have been made to prior period balances in
order to conform to the current period's presentation.


ADDITIONAL FINANCIAL INFORMATION
(In millions)
(Unaudited)



October 29, July 30,
2005 2005
----------- ---------
CASH AND CASH EQUIVALENTS AND INVESTMENTS
Cash and cash equivalents $ 1,704 $ 4,742
Fixed income securities 10,922 10,372
Publicly traded equity securities 864 941
----------- ---------

Total $ 13,490 $ 16,055
----------- ---------

INVENTORIES
Raw materials $ 98 $ 82
Work in process 426 431
Finished goods:
Distributor inventory and deferred cost of sales 411 385
Manufacturing finished goods 171 184
----------- ---------

Total finished goods 582 569
Service-related spares 172 180
Demonstration systems 40 35
----------- ---------

Total $ 1,318 $ 1,297
----------- ---------

PROPERTY AND EQUIPMENT, NET
Land, buildings, and leasehold improvements $ 3,524 $ 3,492
Computer equipment and related software 1,289 1,244
Production, engineering, and other equipment 3,241 3,095
Operating lease assets 127 136
Furniture and fixtures 357 355
----------- ---------

8,538 8,322
Less, accumulated depreciation and amortization (5,203) (5,002)
----------- ---------

Total $ 3,335 $ 3,320
----------- ---------

LEASE RECEIVABLES, NET (a)
Current $ 261 $ 248
Noncurrent 366 353
----------- ---------

Total $ 627 $ 601
----------- ---------

OTHER ASSETS
Deferred tax assets $ 1,294 $ 1,308
Investments in privately held companies 433 421
Income tax receivable 277 277
Lease receivables, net 366 353
Other 337 350
----------- ---------

Total $ 2,707 $ 2,709
----------- ---------

DEFERRED REVENUE
Service $ 3,471 $ 3,618
Product 1,323 1,424
----------- ---------

Total $ 4,794 $ 5,042
----------- ---------

Reported as:
Current $ 3,716 $ 3,854
Noncurrent 1,078 1,188
----------- ---------

Total $ 4,794 $ 5,042
----------- ---------



Notes:
(a) 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.
(b) Certain reclassifications have been made to prior period balances
in order to conform to the current period's presentation.