2016 Annual Report About Cisco Cisco designs and sells broad lines of products, provides services, and delivers integrated solutions to develop and connect networks around the world. For over 30 years, we have helped our customers build networks and automate, orchestrate, integrate, and digitize IT-based products and services. In an increasingly connected world, Cisco is helping to transform businesses, governments, and cities worldwide. Discover more at thenetwork.cisco.com. Our Values Our values reflect our aspirations, what we believe, and how we want to behave: ● Change the world ● Win together Why Cisco? ● Make innovation happen ● Focus intensely on customers Cisco brings integrated solutions that span ● Respect and care for each other network, data center, cloud, security, ● Always do the right thing collaboration, analytics, and IoT for faster business transformation with reduced risk. Fiscal 2016 Summary Report Letter to Shareholders 2 Financial Highlights for Fiscal 2016 4 Our Strategy 6 Governance and Responsibility 9 Investor Relations 15 Transparent Reporting This year, to enhance transparency, we have refreshed the Symbols highlight the themes discussed in format of our Annual Report, adding content of interest to each section: our shareholders and other stakeholders from our Form 10-K, Proxy Statement, and Corporate Social Responsibility Report in a Summary Report for fiscal 2016. Strategy Performance Our Online Report We have also prepared an Board Oversight interactive online report, which is hosted on our Annual 2016 Annual Reports webpage. Report We hope you like the newly Executive Compensation designed report, and we welcome your feedback. Corporate Social Responsibility For more detailed information, refer to our Annual Report on Form 10-K, our Proxy Statement, and our Corporate Social Responsibility Report. Forward-Looking Statements This report contains projections and other forward-looking statements regarding future events or the future financial performance of Cisco, including future operating results. These projections and statements are only predictions. Actual events or results may differ materially from those in the projections or other forward-looking statements. See Cisco’s filings with the Securities and Exchange Commission, including its most recent filings on Forms 10-K and 10-Q, for a discussion of important risk factors that could cause actual events or results to differ materially from those in the projections or other forward-looking statements. FY 2016 SUMMARY REPORT 1 Summary Report: Letter to Shareholders We are transforming our business from products and architectures to a platform model Chuck Robbins Chief Executive Officer To Our Shareholders, Fiscal 2016 marked the start of an exciting chapter for Cisco, For example, we acquired Jasper believing that there demonstrating solid financial results and effective execution is an incredible opportunity to accelerate the IoT with on our strategy to position Cisco for the future. Customers Jasper’s cloud-based platform. In our view, capitalizing around the world are looking to embrace technology to drive on this opportunity requires a company with the depth growth, transform the buying experience, improve citizen and experience of Cisco that understands both service services, and so much more. They are turning to Cisco for providers, which host the Jasper platform on their networks, guidance as a strategic partner in their digital transformation. and enterprises, which are gaining insights and determining Many opportunities lie ahead for us, and I believe that we action from the data that the platform collects. have made the right moves over the past fiscal year to Another example is Lancope, with its Stealthwatch security enable us to deliver the products and solutions that our product in the core. We have combined this product with our customers want, at a faster pace than ever before. internally created Stealthwatch Learning Networks solution Since becoming CEO in July 2015, I have been focused on in the branch and the wide-area network so that the entire several areas: accelerating innovation, simplifying our product network becomes a sensor, driving even greater threat portfolio for customers, and shifting our business model to intelligence and value for our customers. focus on software and subscriptions. Reflecting back over It’s also very clear to us that no one company can deliver the past year, I’m pleased with what we’ve accomplished the full breadth of technology solutions that customers need and how well we have managed our business, while at the at the pace the market requires. We believe that building same time delivering consistent profitable growth. strategic partnerships will be as important in driving customer Accelerating Innovation to Drive Growth value and future growth as mergers and acquisitions have been over the past decade. In fiscal 2016, we announced There are five pillars to our innovation strategy: build, buy, three next-generation strategic partnerships with market partner, invest, and co-develop. In fiscal 2016, we invested leaders in their fields. With Inspur in China, we intend to build more than $6 billion in research and development, producing the infrastructure and solutions to power cloud, data centers, innovations across our portfolio. Our products and solutions smart cities, and big data for one of the largest economies are delivering unprecedented levels of speed, automation, in the world. With our Ericsson partnership, we are bringing and simplicity to our customers. For example, Cisco Tetration together two networking leaders, with a clear plan to use one Analytics—an open software platform that provides data another’s strengths to create the networks of the future. With center visibility at a level that has never been achieved Apple, we are aiming to create an exponentially better mobile before and at a scale never possible before—was the product enterprise collaboration experience. of internal innovation. We have also been investing in startups across the globe We acquired 12 companies during fiscal 2016 and have as we watch certain areas of technology evolve. Investing recently closed or announced our intent to acquire several in innovation communities is core to how we participate in more, enhancing our capabilities in the growth areas of driving growth in the countries in which we operate. We are security, collaboration, services, and the Internet of Things engaged with seven heads of state on country digitization (IoT) as well as in cloud, software, and silicon. These initiatives focused on using technology to grow the economy, acquisitions bring new talent and technology to Cisco and create new jobs, achieve education and healthcare objectives, are helping us to evolve our business model and drive more and foster a sustainable innovation ecosystem across recurring revenue streams. public and private sectors. We will continue to engage with We have seen many times that when we acquire and additional countries in their digitization initiatives in fiscal 2017. integrate companies, they become more successful than they would have been as standalone businesses. FY 2016 SUMMARY REPORT 2 Lastly, we are co-developing solutions with and for our web- Our balance sheet remains strong, with total assets at the scale and service provider customers. This approach has end of fiscal 2016 of $121.7 billion, representing a 7% contributed to double-digit year-over-year revenue growth in increase from the end of fiscal 2015. Cash, cash equivalents, our business with the largest web-scale service providers in and investments were $65.8 billion, and we generated fiscal 2016. $13.6 billion in operating cash flow. We returned $8.7 billion to shareholders, composed of $3.9 billion in share buybacks Moving Quickly and Positioning for the Future and $4.8 billion in dividends. We remain firmly committed Over the last year, I formed an Executive Leadership Team to returning a minimum of 50% of our free cash flow to that combines continuity in key positions, with both the shareholders annually. elevation of next-generation Cisco leaders and the addition of world-class talent from outside. In addition, to better align Focusing on Our People and Culture around the areas that are critical to our customers’ needs, The results we have been able to drive would not be possible we have simplified our Engineering organization. These without the dedication and commitment of our employees. moves have been critical in enabling us to increase the pace As a digital business, we are able to provide the tools for our at which we are innovating and to simplify our portfolio for people to be more mobile, connected, and engaged. One of our customers and how we go to market. the things about which I’m most proud is that, as a company, we consistently use our technology and expertise to tackle We have also continued to manage our portfolio by some of the world’s biggest challenges and accelerate global optimizing our cost base in lower growth areas so as to problem solving. I truly believe there has never been a better invest further in key priority areas such as security, IoT, time for us to effect positive change in the world. collaboration, next-generation data center, and cloud. These areas are delivering the most value for our customers and, Our Time Is Now we believe, will drive our future growth and create long-term We believe we have an unprecedented opportunity to chart value for our shareholders. a new course for our customers, delivering innovation across Fiscal 2016: Strong Execution Driving the network, security, collaboration, next-generation data Profitable Growth center, and the cloud, to help them solve problems and achieve their objectives. We are transforming our business We executed well despite a volatile environment in fiscal from products and architectures to a platform model, and we 2016 and produced solid financial results. Revenue for are working to make sure that everything we offer is available the year was $49.2 billion.