Cisco Systems, Inc. — FY2010 Form 10-K
Reporting period: Fiscal year ended July 31, 2010. Cisco designs, manufactures, and sells IP networking and related communications and IT products, and provides associated services. The company operates globally across five geographic segments.
Business context and strategy
Cisco’s core businesses are routing and switching, complemented by advanced technologies and services. Strategic areas include data-center virtualization and cloud, video, collaboration, wireless, security, unified communications, and consumer networking. In FY2010, Cisco acquired Tandberg, Starent Networks, and ScanSafe, and formed the Virtual Computing Environment coalition with EMC and VMware.
Financial metrics disclosed in the supplied filing text
| Metric | FY2010 | Comparison or context |
|---|---|---|
| Revenue, profit, cash flow, margins, cash and total debt | Not stated in the supplied text | Financial statements and MD&A are incorporated by reference to Cisco’s 2010 Annual Report to Shareholders; the text provided does not give clear values. |
| Research and development expense | $5.3 billion | $5.2 billion in FY2009; $5.3 billion in FY2008. Expensed as incurred. |
| Product backlog | Approximately $4.1 billion | Approximately $3.9 billion at FY2009 year-end. Backlog covers qualifying orders generally scheduled to ship within 90 days and is not necessarily indicative of future sales. |
| Share repurchases | $7.8 billion; 325 million shares retired at an average $24.02 per share | Since program inception: 3.1 billion shares retired for $65.0 billion. Approximately $7.0 billion remained authorized at July 31, 2010. |
| Senior unsecured notes | $5.0 billion issued in November 2009 | Separate issuances: $4.0 billion in February 2009 and $6.5 billion in February 2006. The 2006 notes included $3.0 billion due February 2011 and the balance due February 2016; total debt outstanding is not stated here. |
Changes, outlook, and management commentary
- Backlog increased by approximately $0.2 billion year over year. R&D expense was approximately $0.1 billion higher than FY2009.
- Cisco reported longer-than-normal lead times on several products and continuing component-supplier constraints, alongside improving demand. It increased component procurement to support customer demand, raising purchase commitments and the risk of excess or obsolete inventory if demand falls short.
- Management described investment in market adjacencies and targeted geographies, and expected to continue adding personnel and resources over the long term. The filing provides no clear quantitative earnings or revenue guidance in the supplied text.
- Management identified uncertainty in the global economy, customer IT spending, service-provider demand, competition and pricing, product mix, supply availability, acquisition integration, and the timing and market acceptance of new products as significant risks.
Contingencies and unusual items
- Brazilian tax and related claims: Authorities asserted joint liability claims for 2003–2007 of approximately $190 million in alleged import taxes, $85 million in interest, and $1.6 billion in penalties. Cisco said it believes the claims are without merit and intends to defend them, but could not determine the likelihood of an unfavorable outcome or reasonably estimate any loss. A final judicial determination was not expected for several years.
- Network-1 patent litigation: Settled during trial on terms Cisco said were not material; the case was dismissed with prejudice on August 6, 2010.
- Other ordinary-course legal matters were not expected by Cisco to have a material adverse effect on consolidated financial position, results, or cash flows.
- Debt-related risk includes $3.0 billion of 2006 notes due in February 2011. The filing also notes that sufficient cash must be available in the United States at maturity and that some cash may be held offshore.
Important facts for investors to verify
- Review the incorporated annual-report financial statements and MD&A for FY2010 revenue, net income, operating results, cash flow, margins, cash and investments, liquidity, and total debt.
- Assess the maturity schedule and funding plan for debt, particularly the February 2011 notes, and the location and availability of cash.
- Track the Brazilian claims, subsequent legal developments, and any change in Cisco’s ability to estimate or recognize a loss.
- Compare backlog and sales trends with supplier lead times, purchase commitments, inventory levels, and gross-margin performance.
- Evaluate the returns and integration progress of FY2010 acquisitions and investments in cloud, data-center, video, and other growth markets.