CISCO SYSTEMS, INC.d18rn0p25nwr6d.cloudfront.net/CIK-0000858877/f8a35c54-4523-4e2… · UNITED...
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Table of Contents UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 _____________________________________ FORM 10-K (Mark one) x ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended July 30, 2016 or o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ____ to ____ Commission file number 0-18225 _____________________________________ CISCO SYSTEMS, INC. (Exact name of Registrant as specified in its charter) California 77-0059951 (State or other jurisdiction of incorporation or organization) (IRS Employer Identification No.) 170 West Tasman Drive San Jose, California 95134-1706 (Address of principal executive offices) (Zip Code) Registrant’s telephone number, including area code: (408) 526-4000 Securities registered pursuant to Section 12(b) of the Act: Title of Each Class: Name of Each Exchange on which Registered Common Stock, par value $0.001 per share The NASDAQ Stock Market LLC Securities registered pursuant to Section 12(g) of the Act: None _____________________________________ Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. x Yes o No Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. o Yes x No Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. x Yes o No Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). x Yes o No Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. o Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. Large accelerated filer x Accelerated filer o Non-accelerated filer o (Do not check if a smaller reporting company) Smaller reporting company o Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). o Yes x No Aggregate market value of registrant’s common stock held by non-affiliates of the registrant, based upon the closing price of a share of the registrant’s common stock on January 22, 2016 as reported by the NASDAQ Global Select Market on that date: $117,979,166,007 Number of shares of the registrant’s common stock outstanding as of September 2, 2016 : 5,014,353,833 ____________________________________ DOCUMENTS INCORPORATED BY REFERENCE Portions of the registrant’s Proxy Statement relating to the registrant’s 2016 Annual Meeting of Shareholders, to be held on December 12 , 2016, are incorporated by reference into Part III of this Annual Report on Form 10-K where indicated.
Transcript of CISCO SYSTEMS, INC.d18rn0p25nwr6d.cloudfront.net/CIK-0000858877/f8a35c54-4523-4e2… · UNITED...
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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549 _____________________________________
FORM 10-K(Mark one)
x ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934For the fiscal year ended July 30, 2016
or
o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934For the transition period from ____ to ____
Commission file number 0-18225
_____________________________________
CISCO SYSTEMS, INC.(Exact name of Registrant as specified in its charter)
California 77-0059951(State or other jurisdiction of
incorporation or organization) (IRS Employer
Identification No.)170 West Tasman Drive
San Jose, California 95134-1706
(Address of principal executive offices) (Zip Code)Registrant’s telephone number, including area code: (408) 526-4000
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class: Name of Each Exchange on which RegisteredCommonStock,parvalue$0.001pershare TheNASDAQStockMarketLLC
Securities registered pursuant to Section 12(g) of the Act: None_____________________________________
Indicatebycheckmarkiftheregistrantisawell-knownseasonedissuer,asdefinedinRule405oftheSecuritiesAct.xYesoNoIndicatebycheckmarkiftheregistrantisnotrequiredtofilereportspursuanttoSection13orSection15(d)oftheAct.oYesxNoIndicatebycheckmarkwhethertheregistrant(1)hasfiledallreportsrequiredtobefiledbySection13or15(d)oftheSecuritiesExchangeActof1934duringthepreceding12months(orforsuchshorterperiodthattheregistrantwasrequiredtofilesuchreports),and(2)hasbeensubjecttosuchfilingrequirementsforthepast90days.xYesoNoIndicatebycheckmarkwhethertheregistranthassubmittedelectronicallyandpostedonitscorporateWebsite,ifany,everyInteractiveDataFilerequiredtobesubmittedandpostedpursuanttoRule405ofRegulationS-T(§232.405ofthischapter)duringthepreceding12months(orforsuchshorterperiodthattheregistrantwasrequiredtosubmitandpostsuchfiles).xYesoNoIndicatebycheckmarkifdisclosureofdelinquentfilerspursuanttoItem405ofRegulationS-Kisnotcontainedherein,andwillnotbecontainedtothebestofregistrant’sknowledge,indefinitiveproxyorinformationstatementsincorporatedbyreferenceinPartIIIofthisForm10-KoranyamendmenttothisForm10-K.oIndicatebycheckmarkwhethertheregistrantisalargeacceleratedfiler,anacceleratedfiler,anon-acceleratedfiler,orasmallerreportingcompany.Seedefinitionsof“largeacceleratedfiler,”“acceleratedfiler”and“smallerreportingcompany”inRule12b-2oftheExchangeAct.
Largeacceleratedfiler x Acceleratedfiler o
Non-acceleratedfiler o (Donotcheckifasmallerreportingcompany) Smallerreportingcompany o
Indicatebycheckmarkwhethertheregistrantisashellcompany(asdefinedinRule12b-2oftheExchangeAct).oYesxNoAggregatemarketvalueofregistrant’scommonstockheldbynon-affiliatesoftheregistrant,basedupontheclosingpriceofashareoftheregistrant’scommonstockonJanuary22,2016asreportedbytheNASDAQGlobalSelectMarketonthatdate:$117,979,166,007Numberofsharesoftheregistrant’scommonstockoutstandingasofSeptember2,2016:5,014,353,833
____________________________________DOCUMENTS INCORPORATED BY REFERENCE
Portionsoftheregistrant’sProxyStatementrelatingtotheregistrant’s2016AnnualMeetingofShareholders,tobeheldonDecember12,2016,areincorporatedbyreferenceintoPartIIIofthisAnnualReportonForm10-Kwhereindicated.
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PART I Item1. Business 1Item1A. RiskFactors 15Item1B. UnresolvedStaffComments 31Item2. Properties 31Item3. LegalProceedings 31Item4. MineSafetyDisclosures 32 PART II Item5. MarketforRegistrant’sCommonEquity,RelatedStockholderMatters,andIssuerPurchasesofEquitySecurities 33Item6. SelectedFinancialData 35Item7. Management’sDiscussionandAnalysisofFinancialConditionandResultsofOperations 36Item7A. QuantitativeandQualitativeDisclosuresAboutMarketRisk 64Item8. FinancialStatementsandSupplementaryData 67Item9. ChangesinandDisagreementswithAccountantsonAccountingandFinancialDisclosure 119Item9A. ControlsandProcedures 119Item9B. OtherInformation 119 PART III Item10. Directors,ExecutiveOfficersandCorporateGovernance 120Item11. ExecutiveCompensation 120Item12. SecurityOwnershipofCertainBeneficialOwnersandManagementandRelatedStockholderMatters 120Item13. CertainRelationshipsandRelatedTransactions,andDirectorIndependence 120Item14. PrincipalAccountantFeesandServices 120 PART IV Item15. ExhibitsandFinancialStatementSchedules 121 Signatures 122
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This Annual Report on Form 10-K, including the “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” contains forward-looking statements regarding future events and our future results that are subject to the safe harbors created under the Securities Act of 1933 (the “SecuritiesAct”) and the Securities Exchange Act of 1934 (the “Exchange Act”). All statements other than statements of historical facts are statements that could be deemedforward-looking statements. These statements are based on current expectations, estimates, forecasts, and projections about the industries in which we operate andthe beliefs and assumptions of our management. Words such as “expects,” “anticipates,” “targets,” “goals,” “projects,” “intends,” “plans,” “believes,”"momentum," “seeks,” “estimates,” “continues,” “endeavors,” “strives,” “may,” variations of such words, and similar expressions are intended to identify suchforward-looking statements. In addition, any statements that refer to projections of our future financial performance, our anticipated growth and trends in ourbusinesses, and other characterizations of future events or circumstances are forward-looking statements. Readers are cautioned that these forward-lookingstatements are only predictions and are subject to risks, uncertainties, and assumptions that are difficult to predict, including those identified below, under “Item1A. Risk Factors,” and elsewhere herein. Therefore, actual results may differ materially and adversely from those expressed in any forward-looking statements.We undertake no obligation to revise or update any forward-looking statements for any reason.
PART I
Item 1. Business
General
Ciscodesignsandsellsbroadlinesofproducts,providesservicesanddeliversintegratedsolutionstodevelopandconnectnetworksaroundtheworld.Forover30years,wehavehelpedourcustomersbuildnetworksandautomate,orchestrate,integrate,anddigitizeinformationtechnology(IT)–basedproductsandservices.Inanincreasinglyconnectedworld,Ciscoishelpingtotransformbusinesses,governmentsandcitiesworldwide.Overtime,wehaveexpandedtonewmarketsthatareanaturalextensionofourcorenetworkingbusiness,asthenetworkhasbecometheplatformfordeliveringanever-increasingportfolioofIT–basedproductsandservices.
Weconduct ourbusinessglobally, andmanageourbusinessbygeography. Ourbusinessis organizedintothefollowingthreegeographicsegments: Americas;Europe,MiddleEast,andAfrica(EMEA);andAsiaPacific,Japan,andChina(APJC).Forrevenueandotherinformationregardingthesesegments,seeNote17totheConsolidatedFinancialStatements.
Our products and technologies are grouped into the following categories: Switching; Next-Generation Network (NGN) Routing; Collaboration; Data Center;Wireless; Service Provider Video; Security; and Other Products. In addition to our product offerings, weprovide a broad range of service offerings, includingtechnical support services andadvancedservices. Increasingly, weare delivering our technology, andservices to our customers as solutions for their prioritiesincluding cloud, video, mobility, security, collaboration, and analytics. The network is at the center of these markets and technologies, and we are focused ondeliveringintegratedsolutionstohelpourcustomersachievetheirdesiredbusinessoutcomes.Ourcustomersincludebusinessesofall sizes, publicinstitutions,governments andservice providers. Thesecustomers lookto us as a strategic partner to helpthemuseITtoenable, differentiate or fundamentally define theirbusinessstrategyanddrivegrowth,improveproductivity,reducecosts,mitigaterisk,andgainacompetitiveadvantageinanincreasinglydigitalworld.
Wewereincorporated in California in December 1984, andour headquarters are in SanJose, California. Themailingaddress of our headquarters is 170WestTasmanDrive,SanJose,California95134-1706,andourtelephonenumberatthatlocationis(408)526-4000.Ourwebsiteiswww.cisco.com.ThroughalinkontheInvestorRelationssectionofourwebsite,wemakeavailablethefollowingfilingsassoonasreasonablypracticableaftertheyareelectronicallyfiledwithorfurnishedtotheSecuritiesandExchangeCommission(SEC):ourAnnualReportonForm10-K,QuarterlyReportsonForm10-Q,CurrentReportsonForm8-K,andanyamendmentstothosereportsfiledorfurnishedpursuanttoSection13(a)or15(d)oftheExchangeAct.Allsuchfilingsareavailablefreeofcharge.Theinformationpostedonourwebsiteisnotincorporatedintothisreport.
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Strategy and Focus Areas
We see our customers increasingly using technology and, specifically, networks to grow their businesses, drive efficiencies, and try to gain a competitiveadvantage.Inthisincreasinglydigitalworld,webelievedataisthemoststrategicassetandisincreasinglydistributedacrosseveryorganizationandecosystem,oncustomer premises, at the edge of the network, and in the cloud. The network also plays an increasingly important role enabling our customers to aggregate,automate,anddrawinsightsfromthishighlydistributeddata,wherethereisapremiumonsecurityandspeed.WebelievethisisdrivingthemtoadoptentirelynewITarchitecturesandorganizationalstructures.Weunderstandhowtechnologycandelivertheoutcomesourcustomerswanttoachieve,andourstrategyistoleadourcustomersintheirdigitaltransitionwithsolutionsincludingpervasive,industry-leadingsecuritythatintelligentlyconnectsnearlyeverythingthatcanbedigitallyconnected.
Todeliveronourstrategy,wearefocusedonprovidinghighlysecure,automatedandintelligentsolutionsbuiltoninfrastructurethatconnectshighlydistributeddatathatisgloballydispersedacrossorganizations.Togetherwithourecosystemofpartnersanddevelopers,wewillprovidetechnology,services,andsolutionswebelievewillenableourcustomerstogaininsightandadvantagefromthisdistributeddatawithscale,securityandagility.
Over the last several years, we have been transforming our business to move from selling individual products and services to selling products and servicesintegratedintoarchitecturesandsolutions.Asapartofthistransformation,wecontinuetomakechangestohowweareorganized,howwesellourproducts,andhowwebuildanddeliverourtechnology.
We have begun aggressively transitioning our portfolio to enable delivery both on premise and through the cloud in alignment with our strategy to shift to abusinessmodelbasedonmorerecurringrevenue.Weplantoexpandtheapproachwehavetakenwithourcloud-networkingplatformstoanincreasingportionofourproductandserviceportfoliotoaccelerateourshifttoamoresubscriptionandsoftware-basedmodel.
Ourapproachistocontinuetoleadthemarkettransitionsinourcoremarkets, andenternewmarketswherethenetworkisfoundational. Wecontinuetodriveproducttransitions,includingtheintroductionofnext-generationproductsthatoffer,inourview,betterprice-performanceandarchitecturaladvantagescomparedwithbothourpriorgenerationofproductsandtheproductofferingsofourcompetitors.
Wealsoplantocontinuetodeliverinnovationacrossourportfolioinordertosustainourleadership,andstrategicpositionwithcustomers.Weintendtoexecuteon this strategy through portfolio transformation, internal innovation, acquisition of strategic assets, investments in start-up companies, and co-development ofproductswithourcustomersandthebuildingofstrategicpartnerships.
Market Transitions
Weseek to capitalize on market transitions as sources of future opportunities as part of the continued transformation of our business, and we believe markettransitions in the IT industry are occurring with greater frequency. Market transitions relating to the network are becoming, in our view, more significant asintelligent networks have moved from being a cost center issue—where the focus is on reducing network operating costs and increasing network-relatedproductivity—tobecomingaplatformforrevenuegeneration,businessagility,andcompetitiveadvantage.Someexamplesofsignificantmarkettransitionsareasfollows:
Security Webelievethat securityis thetopITpriority formanyofourcustomers. Inanevolvingdynamicthreat landscape, themost effectivewaytoaddresssecuritychallengesiswithcontinuousthreatprotectionthatispervasiveandintegrated.Wefurtherbelievethatsecuritysolutionswillhelptoprotectthedigitaleconomy and will be an enabler that safeguards business interests, protects customers, and creates competitive advantage. Our security strategy is focused ondeliveringaunifiedthreat-centricsecurityarchitecturecombiningnetwork-based,cloud-basedandendpoint-basedsolutions,providingourcustomersbothmoreeffective security outcomes and a secure foundation to digitize their assets. Wehave invested in security through a build, buy, and partner strategy to providesecurityacrosstheentireattackcontinuumbefore,during,andafteracyberattack.
Digital Transformation Countries,cities,industriesandbusinessesarepursuing"digitaltransformation",whichwedefineastheapplicationoftechnologytobuildnew business models, processes, software and systems, to capitalize on new digital ways of doing business. Digital transformation is made possible by theconvergenceofpeople,businessesandthings.Webelievethesetypesoftransformationscreateopportunitiestodeliverbettercustomerexperiences,createnewrevenuestreamsthroughbusinessmodeltransformation,andoptimizeefficiencythroughworkforceinnovation.
Asourcustomersmovefromtraditionaltodigitalbusinesses,ourgoalistobeastrategicpartnerbyprovidingatechnologyfoundationfordigitaltransformation.Ourofferingsforthisopportunityincorporateaportfolioofproductsandservices,outcome-orienteddigitalsolutions,adeveloper-richenvironmentandapartnerecosystemthatintegrateconnectivity,security,automation,collaborationandanalyticsacrosscustomers'businessvalue-chains.
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Inourview,wearedeliveringthearchitecturalapproachandsolution-basedresultstohelpcustomersreducecomplexity,accelerateandgrow,andmanageriskinaworldthatisincreasinglyvirtualized,application-centric,cloud-based,analytics-driven,andmobile.Anexampleofthisisourfiscal2016acquisitionofJasperTechnologies, Inc. ("Jasper"), the developer of a cloud-based Internet of Things (IoT) services platform designed to help enterprises and service providers tolaunch,manageandmonetizeIoTservicesonaglobalscale.Software-Defined Networking Wearefocusingonamarkettransitioninvolvingthemovetowardmoreprogrammable,flexible,andvirtualnetworks,sometimescalled software-defined networking (SDN). This transition is focused on providing a virtualized network environment that is designed to enable flexible,application-driven customization of network infrastructures. We believe the successful products and solutions in this market will combine application-specificintegratedcircuits(ASICs)withhardware,andsoftwareelementstogethertomeetcustomers’totalcostofownership,quality,security,scalability,andexperiencerequirements.Inourview,thereisnosinglearchitecturethatsupportsallcustomerrequirementsinthisarea.WebelievetheopportunityofSDNistoenablemoreopen,andprogrammablenetworkinfrastructure.Weareaddressingthisopportunitywithauniquestrategy,and set of solutions designed to respond automatically to the needs of our customers' mission critical applications. We introduced and began shipping ourApplicationCentricInfrastructure(ACI),whichdeliverscentralizedapplication-drivenpolicyautomation,management,andvisibilityofbothphysicalandvirtualenvironments as a single system. ACI is comprised of our Nexus 9000 portfolio of switches, enhanced versions of our NX-OS operating system, and theApplicationPolicyInfrastructureController(APIC),whichprovidesacentralplacetoconfigure,automate,andmanageanentirenetwork,basedontheneedsofapplications.Cloud Our cloud strategy is to connect private and public clouds working across hypervisors, which are software programs used to create and manage virtualenvironments.WeutilizeOpenStack,whichisanopensourcecomputingplatform,todeliverintegratedhybrid-cloudsolutions.Webelievecloudinfrastructuresneedtobesecure, andsupportarichecosystemofnetwork-enabledapplicationstodeliverthedataandanalyticsthatsupportthedigitizationofourcustomers'environments.Aspartofourcloudstrategy,wearedeliveringinfrastructureandourcloud-basedsoftware-as-a-service(SaaS)offeringsincludingWebEx,Merakicloudnetworking,andcertainotherofourSecurityandCollaborationofferings.
We believe that customers and partners view our approach to the cloud as differentiated and unique, recognizing that we offer a solution to different cloudenvironments including private, hybrid, and public clouds that enables themto move their workloads across heterogeneous private and public clouds with thenecessarypolicy,securityandmanagementfeatures.Foradiscussionoftherisksassociatedwithourstrategy,see“Item1A.RiskFactors,”includingtheriskfactorentitled“Wedependuponthedevelopmentofnewproducts and enhancements to existing products, and if we fail to predict and respond to emerging technological trends and customers’ changing needs, ouroperatingresults andmarket share maysuffer.” For information regardingsales of our major products andservices, seeNote 17to theConsolidatedFinancialStatements.
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Products and Services
Ourcurrentofferingsfallintoseveralcategories:
Switching
Switching is an integral networking technology used in campuses, branch offices, and data centers. Switches are used within buildings in local-area networks(LANs), and across great distances in wide-area networks (WANs). Our switching products offer many forms of connectivity to end users, workstations, IPphones,wirelessaccesspoints,andserversandalsofunctionasaggregatorsonLANsandWANs.Ourswitchingsystemsemployseveralwidelyusedtechnologies,including Ethernet, Power over Ethernet (PoE), Fibre Channel over Ethernet (FCoE), Packet over Synchronous Optical Network, and Multiprotocol LabelSwitching.Manyofourswitchesaredesignedtosupportanintegratedsetofadvancedservices,allowingorganizationstobemoreefficientbyusingoneswitchformultiplenetworkingfunctionsratherthanmultipleswitchestoaccomplishthesamefunctions.
KeyproductplatformswithinourSwitchingproductcategory,inwhichwealsoincludestorageproducts,areasfollows:
Fixed-ConfigurationSwitches ModularSwitches StorageCiscoCatalystSeries: CiscoCatalystSeries: CiscoMDSSeries:•CiscoCatalyst2960-XSeries •CiscoCatalyst4500-ESeries •CiscoMDS9000•CiscoCatalyst3650Series •CiscoCatalyst6500-ESeries •CiscoCatalyst3850Series •CiscoCatalyst6800Series •CiscoCatalyst4500-XSeries
CiscoNexusSeries: CiscoNexusSeries: •CiscoNexus2000Series •CiscoNexus7000Series •CiscoNexus3000Series •CiscoNexus9000Series •CiscoNexus5000Series •CiscoNexus6000Series •CiscoNexus9000Series
Fixed-configurationswitchesaredesignedtocoverarangeofdeploymentsinbothlargeenterprisesaswellasinsmallandmedium-sizedbusinesses,providingafoundationforconvergeddata,voice,andvideoservices.Ourfixed-configurationswitchesrangefromsmall,standaloneswitchestostackablemodelsthatfunctionasasingle,scalableswitchingunit.
Modularswitchesaretypicallyusedbyenterpriseandserviceprovidercustomerswithlarge-scalenetworkneeds.Theseproductsaredesignedtooffercustomerstheflexibilityandscalabilitytodeploynumerous,aswellasadvanced,networkingserviceswithoutdegradingoverallnetworkperformance.
Fixed-configuration and modular switches also include products such as optics modules, which are shared across multiple product platforms. Our switchingportfolioalsoincludesvirtualswitchesandrelatedofferings.Theseproductsprovideswitchingfunctionalityforvirtualmachines,andaredesignedtooperateinacomplementaryfashionwithvirtualservicestooptimizesecurityandapplicationbehavior.
Infiscal2014,weintroducedwhatwecallourapplicationcentricinfrastructure(ACI)solution,whichispartofourDataCenterSwitchingportfolio.CiscoACIconsists of the Cisco Nexus 9000 Series Switches, a Cisco APICand accompanying centralized policy management capability, integrated physical and virtualinfrastructure, andanopenecosystemofnetwork,storage,management,andorchestrationvendors. Duringfiscal2016,wehaveseenstrongadoptionofCiscoACIacrossgeographiesandcustomersegments.
WeplantointegratenewtechnologieswiththeCiscoACIsolution.Asanexample,ourCloudCenterplatform,atechnologyobtainedthroughouracquisitionofCliQr Technologies, Inc. in fiscal 2016, is an application-defined platform that, together with the Cisco ACI networking solution, provides an infrastructure-agnostic way to streamline the modeling, migration, and management of applications across IT resources. Also, in fiscal 2016 we introduced our TetrationAnalyticsplatformwhichsupplementsCiscoACIofferingbydeliveringreal-timevisibilityacrossthedatacenterusinghardware,andsoftwaresensorstoprovidebehavior-basedapplicationinsightwithdeepforensic-basedanalysis.
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During fiscal 2016, we began shipping multi-gigabit-capable technology on Cisco Catalyst 4500-E, 3850 and 3560-CX switches. Cisco Catalyst multigigabittechnology can deliver speeds beyond one Gigabit on the customers’existing Category 5e cable delivery standard, thereby utilizing capabilities incustomers’existingcablinginfrastructuretomeettheirbandwidthrequirements.Multi-gigabittechnologyalsoenablesintermediatedataratesof2.5and5gigabits-per-second(Gbps)toeasethejumpbetweentraditional ratesofoneGbpsandtenGbps.ThetechnologyalsosupportsCisco’spower-over-ethernet capabilitiesknownasPoE+,andCiscoUniversalPoE(UPOE).PoEisatechnologyforwiredethernetlocalareanetworks(LANs)thatallowstheelectricalcurrentnecessaryfortheoperationofeachdevicetobecarriedbythedatacablesratherthanbypowercords,thusminimizingthenumberofwiresthatmustbeinstalledwiththenetworkandtherebyloweringcostanddowntimeandenablingeasiermaintenanceandinstallationflexibility.
During fiscal 2016, we saw continued adoption of Cisco’s Unified Access architecture based on the Unified Access Data Plane ASIC, which was first madeavailableontheCiscoCatalyst3850andthenaddedtotheCiscoCatalyst4500-EandtheCiscoCatalyst3650.TheUnifiedAccessplatformhasbeenadoptedacrossallgeographiesandcustomersegments.Duringfiscal2016,wecontinuedtoseeadoptionofourpreviouslyannouncedinfrastructureinitiativesfocusedonbringing“networkasasensor”and“networkasanenforcer”capabilitiesacrosstheportfolio.Withsecurityastopofmindformanycustomers,thesecapabilitiesprovideanalyticsandcontrolthroughthenetworkforthreatmitigationbefore,during,andafteranattack.
Ourswitchingproductsareusedbycustomersinbothdatacenterandcampusenvironments.Individually,ourswitchingsuiteofproductsisdesignedtooffertheperformance and features required for nearly any deployment, from traditional small workgroups, wiring closets, and network cores to highly virtualized andconverged corporate data centers. Working together with our wireless access solutions, these switches are, in our view, the building blocks of an integratednetworkthatdeliversscalableandadvancedfunctionalitysolutionsprotecting,optimizing,andgrowingasacustomer’sbusinessneedsevolve.
NGN Routing
Next-GenerationNetworking(NGN)RoutingtechnologyisfundamentaltothefoundationoftheInternet.Thiscategoryoftechnologiesinterconnectspublicandprivate wireline and mobile networks for mobile, data, voice, and video applications. Our NGNRouting portfolio of hardware and software solutions consistsprimarily of physical and virtual routers, and routing and optical systems. Our solutions are designed to meet the scale, reliability, and security needs of ourcustomers. In our view, our portfolio is differentiated from those of our competitors through the advanced capabilities, which we sometimes refer to as“intelligence,” that our products provide at each layer of the network infrastructure to deliver performance in the transmission of information and media-richapplications.
We offer a broad range of hardware and software solutions, fromcore network infrastructure and mobile network routing solutions for service providers, andenterprisestoaccessroutersforbranchofficesandfortelecommutersandconsumersathome.KeyproductareaswithinourNGNRoutingcategoryareasfollows:
High-EndRouters MidrangeandLow-EndRouters OtherNGNRoutingCiscoAggregationServicesRouters(ASRs): CiscoIntegratedServicesRouters(ISRs): Opticalnetworkingproducts:•CiscoASR900and920Series •Cisco800SeriesISR •CiscoNCS1000Series•CiscoASR1000Series •Cisco1900SeriesISR •CiscoNCS2000Series•CiscoASR5000and5500Series •Cisco2900SeriesISR •CiscoNCS4000Series•CiscoASR9000Series •Cisco3900SeriesISR •CiscoCloudServicesRouter1000V
•Cisco4300SeriesISR •OtherroutingproductsCiscoCarrierRoutingSystems(CRS): •Cisco4400SeriesISR •CiscoCRS-1 •CiscoCRS-3 •CiscoCRS-X
CiscoNetworkConvergenceSystem(NCS): •CiscoNCS6000Series •CiscoNCS5000Series •CiscoNCS5500Series
Cisco7600Series Cisco12000Series
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Duringfiscal2016,wesawcontinuedgrowthinthebandwidthandcapacityneedsofourcustomersastheycontinuedtheirlargedeploymentsandupgradecyclesof our high-end routing portfolio, mainly consisting of the ASR 9000, CRS and NCS 6000. The continued growth of video, the move to more data centerinterconnectandcloudtechnologies,aswellasamigrationto100GigabitEthernet(100GE)technologieswerekeyfactorsdrivingthisdemand.Wealsolaunchedand saw initial traction in a newer part of the Network Convergence System (NCS) portfolio, including two new categories of Ethernet optimized devices,consistingoftheNCS5500andNCS5000productfamiliesinthehigh-endroutingareaandtheNCS1000intheopticalnetworkingspace.Theportfolioalsoaddressesgrowingsegmentsofthemarketfocusedonweb-scalecustomers,whicharelargecloudcompaniesthatdeliveruserservicesonamassivescaleaswellasserviceprovidersthatseekmoreadvancedfeatures.Inadditiontohardwareandsystems,wealsoincreasedfocusonmodernizationofthenetworkinfrastructureand new software technologies within our IOS XR operating system designed to simplify how customers manage, operate and automate their networkinfrastructuresandtherebyreducecostsastheirnetworksgrow.ThesesolutionsareexamplesofourintenttocontinuetocombineASICs,informationsystems,andsoftwaretodevelopNGNRoutingproductsandservicesalignedwiththeneedsofourcustomers.
Collaboration
Our Collaboration portfolio integrates voice, video, data, and mobile applications on fixed and mobile networks across a wide range of devices/endpoints andrelated IT equipment such as mobile phones, tablets, desktop and laptop computers, and desktop virtualization clients. Our strategy is to create compelling,innovativecollaborationtechnologythroughthecombinedpowerofsoftware,hardware,andthenetworkwithdeliveryinthecloud,onpremises,orinahybridsolution.KeyproductareaswithinourCollaborationcategoryareasfollows:
UnifiedCommunications Conferencing CollaborationEndpoints BusinessMessaging•InternetProtocol(IP)phones •CiscoWebEx •Collaborationdeskendpoints •CiscoSpark•Callcontrol •CiscoTelePresenceServer •Collaborationroomendpoints •Callcenterandmessaging CiscoTelePresenceConductor •Immersivesystems •Software-basedinstant-messaging(IM)clients •Communicationgatewaysandunifiedcommunication
WeincludeallofourrevenuefromWebExwithintheCollaborationproductcategory.Wemadeadditionalinvestmentsduringfiscal2016inourCollaborationportfolio.Asanexample,weexpandedCiscoSparktobecomeaplatformformessaging,meetingandcallingfromthecloud.Additionally,weacquiredAcanobringingincreasedscalabilityandenhancedinteroperabilitytoon-premisesvideoconferencing.WealsoannouncedpartneringarrangementswithbothAppleandIBM.
Data Center
The Cisco Unified Computing System (UCS) combines computing, networking and storage infrastructure with management and virtualization to offer speed,simplicity and scale. Our architecture provides pools of policy-driven infrastructure, that customers can optimize for traditional workloads, data analytics andcloud-nativeapplications,allwithinacommonoperatingenvironmentwithanopenapplicationprograminterface(API)forbroadinteroperabilityandautomation.KeyproductareaswithinourDataCenterproductcategoryareasfollows:
CiscoUnifiedComputingSystem(UCS):•CiscoUCSB-SeriesBladeServers•CiscoUCSC-SeriesRackServers•CiscoUCSC3260StorageOptimizedRackServer•CiscoUCSMinibranch/remotesitecomputingsolution•CiscoUCSFabricInterconnects•CiscoUCSManagerandUCSDirectorManagementSoftware
CiscoHyperFlexSystemsPrivateandHybridCloud:•CiscoONEEnterpriseCloudSuite
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OurDataCenterproductinnovationsaredesignedtoaccelerateexecutiononourstrategy,whichistoenablecustomerstoconsolidatebothphysicalandvirtualizedworkloads, taking into account the customers’ unique application requirements, onto a single scalable, centrally managed, and automated system. We offer aportfolio of solutions designed to preserve customer choice, accelerate business initiatives, reduce risk, lower the cost of IT, and represent a comprehensivesolutionwhendeployed.
Cisco UCS C3260, our storage optimized server, brings the UCS products' architectural advantages to parallel workloads, including cloud and web-scaleapplications.Attheedgeofthenetwork,CiscoUCSMiniisanall-in-onesolutionoptimizedforbranchandremoteoffice,point-of-scaleendpointlocations,andsmallerITenvironments.Additionally,wecontinuedtoinvestindatacenterinfrastructuremanagement,andautomationsoftwarewithinourCiscoUCSManagerandUCSDirectorproductofferings.
Duringfiscal2016,weexpandedtheCiscoUCSportfoliowiththeintroductionofthenextgenerationhyperconvergedinfrastructure,theCiscoHyperFlexSystemssolution.CiscoHyperFlexrepresentshyperconvergencecombininginnovativesoftwaredefinedstorage,anddataservicessoftwarewithCiscoUCS.Inaddition,wecontinuetofurtherenhanceourCiscoONEEnterpriseCloudSuitesolutionenablingprivateandhybridcloudsforenterprisecustomers.
Wireless
Ourwirelessproductsprovideindoorandoutdoorwirelesscoveragewithseamlessroamingforvoice,video,anddataapplications.Theyincludewirelessaccesspoints;standalone,controller-based,switch-converged,andcloud-managedtechnologies;andnetworkmanagedservices.TheseproductsdeliveranoptimizeduserexperienceoverWi-Fiandleveragetheintelligenceofthenetwork.Ourwirelesssolutionsportfolioisenhancedwithsecurityandlocation-basedservicesviaourConnected Mobile Experiences (CMX) and Cisco Enterprise Mobility Services platforms. Our offerings are designed to provide users with simplifiedmanagement, andmobile devicetroubleshootingfeatures designedtoreduceoperational cost, andmaximizeflexibility andreliability. Weare alsoinvestingindevelopmentwithmerchantor"offtheshelf"silicon,andcustomizedchipsetstodeliverinnovativeproductfunctionalitytotheWi-Fimarket.OurHighDensityExperience (HDX) suite of solutions (including Cisco CleanAir proactive spectrum intelligence, ClientLink to improve battery life on mobile devices,VideoStreamforvideooptimization,andFlexibleRadioArchitecturesoftware-definedradiotechnology)areexamplesofongoinginvestmentactivityinthisarea.KeyproductareaswithinourWirelesscategoryareasfollows:
CiscoAironetSeries802.11acWave2AccessPoints,Aironet2800Series,Aironet1800Series,ModulesforAironet3000APSeries(Hyperlocation,3GSmallCell,WirelessSecurity,802.11ac),Aironet3800SeriesCiscoWLANControllers(standalone,virtualandintegrated)CiscoCMX(ConnectedMobileExperiences)cloudandappliance-basedplatformsCiscoMerakiMRSeriesCloudManagedAccessPointsandintegratedsoftwareservices
In fiscal 2016, weintroduced a comprehensive suite of 802.11ac Wave2 access points across the Aironet andMeraki portfolios. Welaunchedthe first accesspoints with an NBASE-T interface, allowing multi-gigabit speeds over a single Cat 5e/6 Ethernet cable to the access switch. Additionally, the CMX mobileengagementplatformdeliverslocation-basedservices,consumeranalytics,andproximitymessagingviaacloud-basedoffering.
Service Provider Video
OurServiceProviderVideoproductsincludeend-to-end,digitalvideosystems,DataOverCableSystemInterfaceSpecification(DOCSIS)headends,andaccessequipment.Theseproductsenableserviceprovidersandcontentoriginatorstodeliverentertainment,information,andcommunicationservicestoconsumersandbusinesses.KeyproductareaswithinourServiceProviderVideocategoryareasfollows:
CableAccess/Infrastructure ServiceProviderVideoSoftwareandSolutionsCable/TelecommunicationsAccessInfrastructure: •End-to-endvideosecuritysolutions•Cablemodemterminationsystems(CMTSs) •Digitalheadendportfolioforcontentacquisitionanddistribution•Hybridfibercoaxial(HFC)accessnetworkproducts •Virtualizedvideoprocessing(V2P)•Quadratureamplitudemodulation(QAM)products •Cloud-based,SaaS-deliveredend-to-endvideoentertainmentsolutions
NetworkFunctionVirtualization(NFV)products
Our DOCSIS cable access platform, the CBR-8, has the capability to scale to multi-gigabit broadband access speeds. During fiscal 2016, we continued thetransformation of our video software portfolio toward a cloud and SaaS-focused strategy in response to market demand, including customer demandfor fasterspeedsandvideo-overIPsolutions.Wealsocompletedtheacquisitionof
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1Mainstream,aproviderofacloudvideoplatformsolutiondesignedtoquicklylaunchliveandon-demandover-the-top(OTT)videoservicestoawiderangeofconnecteddevices.
OnNovember 20, 2015, wecompleted the sale of the Customer Premises Equipment portion of our Service Provider VideoConnected Devices business (“SPVideoCPEBusiness”).
Security
WebelievethatsecurityisthetopITpriorityformanyofourcustomers.Wefurtherbelievethatsecuritysolutionswillhelptoprotectthedigitaleconomyandwillbeanenablerthatsafeguardsbusinessinterestsandprotectcustomersandtherebycreatescompetitiveadvantage.Wehaveinvestedinsecuritythroughabuild,buy,andpartnerstrategytoprovidesecurityacrosstheentireattackcontinuumbefore,during,andafteracyberattack.
We are delivering our security portfolio by taking an architectural approach designed to increase capability while reducing complexity through focusing ondelivering simple, open, and automated solutions resulting in more effective security. Our security portfolio spans endpoints, the network, and the cloud. Ourofferings cover the following network-related areas: network and data center security, advanced threat protection, web and email security, access and policy,unifiedthreatmanagement,andadvisory,integration,andmanagedservices.
Infiscal2016,wecompletedtheacquisitionofOpenDNS,acloudsecurityplatformdesignedtoprovideeffectivesecurity.Thisplatformissimpletodeployandoperate. We have integrated OpenDNS with ThreatGRID (Cisco’s cloud and on premise sandboxing capability), AnyConnect (Cisco’s industry leading VPNclient),andCisco’sIntegratedServicesRouters(ISRs).Inearlyfiscal2017,weexpandedourcloudsecuritybusinessbyacquiringCloudlock,Inc.,acloudaccesssecuritybroker(CASB).CloudlockprovidesadditionalvisibilityandcontroldirectlyinSaaS,platform-as-a-service(PaaS),andinfrastructure-as-a-service(IaaS)environmentsthroughapplicationprograminterfaces(APIs)thatenablearapiddeployment,andquicktimetovalueforcustomers.
Duringfiscal2016,wefurtherbuiltupontheofferingsfromtheSourcefireacquisitionbyreleasingourunifiedthreat-focusednext-generationfirewall(NGFW)solution.WeintegratedourFirePOWERServicessolution(Sourcefire’sNGIPS),andourAdvancedSecurityAppliances(ASA)softwarecapabilitiestocreatetheFirepowerNGFWsoftwareandmanagementplatform.Additionally,weintroducedanewNGFWhardwareseriesthatcanbeenabledwithourFirepowerNGFWsoftwareandmanagementsolution,thehighperformanceFirepower4100Series.
Infiscal2016,wealsocontinuedtoexpandouradvancedthreatprotectionportfolio.WeacquiredLancope,Inc.,acontext-awaresecurityanalyticscompany.Wecontinued to expand our Advanced Malware Protection (AMP) everywhere strategy by integrating AMP with our Unified Threat Management (Meraki MX)platforms,andbyintegratingourThreatGRIDappliancesintoourAMPenabledsecuritysolution.
Other Products
OurOtherProductscategoryprimarilyconsistsofcertainemergingtechnologies,andothernetworkingproducts.ThisincludesourcontinuedinvestmentinIoTwithouracquisitionofJasper.Throughthisacquisitionweintendtoleveragenewplatformstohelpourcustomersincreasetheirvolumeofbusiness,orotherwiseaddresstheirmostpressingchallenges,intheIoTarea.
Service
Inadditiontoourproductofferings,weprovideabroadrangeofserviceofferings,includingtechnicalsupportservicesandadvancedservices.
Technical support services help our customers ensure their products operate efficiently, remain available, and benefit from the most up-to-date system, andapplicationsoftwarethatwehavedeveloped.Theseserviceshelpcustomersprotecttheirnetworkinvestments,managerisk,andminimizedowntimeforsystemsrunningmission-criticalapplications.AkeyexampleofthisisourCiscoSmartServicesoffering,whichleveragestheintelligencefromtheinstalledbaseofourproductsandcustomerconnectionstoprotectandoptimizenetworkinvestmentforourcustomersandpartners.
Advanced services are part of a comprehensive program that is focused on providing responsive, preventive, and consultative support of our technologies forspecificnetworkingneeds.Weareinvestinginandexpandingouradvancedservicesintheareasofcloud,security,andanalytics,whichreflectsourstrategyofsellingcustomeroutcomes.
Theadvancedservicesprogramsupportsnetworkingdevices,applications,solutions,andcompleteinfrastructures.Ourserviceandsupportstrategyisfocusedoncapitalizing on increased globalization. We believe this strategy, along with our architectural approach and networking expertise, has the potential to furtherdifferentiateusfromcompetitors.
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Customers and Markets
Many factors influence the IT, collaboration, and networking requirements of our customers. These include the size of the organization, number and types oftechnologysystems,geographiclocation,andbusinessapplicationsdeployedthroughoutthecustomer’snetwork.Ourcustomerbaseisnotlimitedtoanyspecificindustry,geography,ormarketsegment.Ineachofthepastthreefiscalyears,nosinglecustomeraccountedfor10%ormoreofrevenue.Ourcustomersprimarilyoperateinthefollowingmarkets:enterprise,commercial,serviceprovider,andpublicsector.
Enterprise
Enterprisebusinessesarelargeregional,national,orglobalorganizationswithmultiplelocationsorbranchofficesandtypicallyemploy1,000ormoreemployees.ManyenterprisebusinesseshaveuniqueIT,collaboration,andnetworkingneedswithinamultivendorenvironment.Weplantotakeadvantageofthenetwork-as-a-platformstrategytointegratebusinessprocesseswithtechnologyarchitecturestoassistcustomergrowth.Weofferserviceandsupportpackages,financing,andmanagednetworkservices, primarilythroughourserviceproviderpartners. Wesell theseproductsthroughanetworkofthird-partyapplicationandtechnologyvendorsandchannelpartners,aswellassellingdirectlytothesecustomers.
Commercial
Wedefinecommercialbusinessesasorganizationswhichtypicallyhavefewerthan1,000employees.Weselltothelarger,ormidmarket, customerswithinthecommercialmarketthroughacombinationofourdirectsalesforceandchannelpartners.Thesecustomerstypicallyrequirethelatestadvancedtechnologiesthatourenterprisecustomersdemand,butwithlesscomplexity.Smallbusinesses,ororganizationswithfewerthan100employees,requireinformationtechnologiesand communication products that are easy to configure, install, and maintain. We sell to these smaller organizations within the commercial market primarilythroughchannelpartners.
Service Providers
Service providers offer data, voice, video, and mobile/wireless services to businesses, governments, utilities, and consumers worldwide. This customer marketcategoryincludesregional,national,andinternationalwirelinecarriers,aswellasInternet,cable,andwirelessproviders.Wealsoincludemedia,broadcast,andcontentproviderswithinourserviceprovidermarket,asthelinesinthetelecommunicationsindustrycontinuetoblurbetweentraditionalnetwork-basedservices,content-based and application-based services. Service providers use a variety of our routing and switching, optical, security, video, mobility, and networkmanagementproducts,systems,andservicesfortheirownnetworks.Inaddition,manyserviceprovidersuseCiscodatacenter,virtualization,andcollaborationtechnologiestooffermanagedorInternet-basedservicestotheirbusinesscustomers.Comparedwithothercustomers,serviceprovidersaremorelikelytorequirenetworkdesign, deployment, andsupport services becauseof thegreater scale andhigher complexity of their networks, whoserequirements are addressed, webelieve,byourarchitecturalapproach.
Public Sector
Public sector entities include federal governments, state and local governments, as well as educational institution customers. Many public sector entities haveuniqueIT,collaboration,andnetworkingneedswithinamultivendorenvironment.Weselltopublicsectorentitiesthroughanetworkofthird-partyapplicationandtechnologyvendorsandchannelpartners,aswellasthroughdirectsales.
Sales Overview
As of the end of fiscal 2016 , our worldwide sales and marketing departments consisted of approximately 25,500 employees, including managers, salesrepresentatives, andtechnical support personnel. Wehavefield sales offices in95countries, andwesell our products andservices bothdirectly andthroughavarietyofchannelswithsupportfromoursalesforce.Asubstantialportionofourproductsandservicesissoldthroughchannelpartners,andtheremainderissoldthroughdirectsales.Channelpartnersincludesystemsintegrators,serviceproviders,otherresellers,anddistributors.
Systemsintegrators andservice providers typically sell directly toendusers andoftenprovidesysteminstallation, technical support, professional services, andother support services in addition to network equipment sales. Systems integrators also typically integrate our products into an overall solution. Some serviceprovidersarealsosystemsintegrators.
Distributorsholdinventoryandtypicallysell tosystemsintegrators, serviceproviders, andotherresellers. Werefertosalesthroughdistributorsasourtwo-tiersystemofsalestotheendcustomer.Revenuefromtwo-tierdistributorsisrecognizedbasedonasell-throughmethodusingpointofsalesinformationprovidedbythese distributors. These distributors are generally given business terms that allowthemto return a portion of inventory, receive credits for changes in sellingprices,andparticipateinvariouscooperativemarketingprograms.
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For information regarding risks related to our channels, see “Item 1A. Risk Factors,” including the risk factors entitled “Disruption of, or changes in, ourdistributionmodelcouldharmoursalesandmargins”and“Ourinventorymanagementrelatingtooursalestoourtwo-tierdistributionchanneliscomplex,andexcessinventorymayharmourgrossmargins.”
Forinformationregardingrisksrelatingtoourinternationaloperations,see“Item1A.RiskFactors,”includingtheriskfactorsentitled“Ouroperatingresultsmaybe adversely affected by unfavorable economic and market conditions and the uncertain geopolitical environment;” “Entrance into newor developing marketsexposesustoadditionalcompetitionandwilllikelyincreasedemandsonourserviceandsupportoperations;”“Duetotheglobalnatureofouroperations,politicaloreconomicchangesorotherfactorsinaspecificcountryorregioncouldharmouroperatingresultsandfinancialcondition;”“Weareexposedtofluctuationsincurrencyexchangeratesthatcouldnegativelyimpactourfinancialresultsandcashflows;”and“Man-madeproblemssuchascomputervirusesorterrorismmaydisruptouroperationsandharmouroperatingresults,”amongothers.
Ourserviceofferingscomplement ourproductsthrougharangeofconsulting, technical, project, quality, andsoftwaremaintenanceservices, including24-houronlineandtelephonesupportthroughtechnicalassistancecenters.
Financing Arrangements
Weprovidefinancingarrangementsforcertainqualifiedcustomerstobuild,maintain,andupgradetheirnetworks.Webelievecustomerfinancingisacompetitiveadvantageinobtainingbusiness,particularlyforthosecustomersinvolvedinsignificantinfrastructureprojects.Ourfinancingarrangementsincludethefollowing:
Leases:•Sales-type•Directfinancing•Operating
LoansFinancedservicecontractsChannelsfinancingarrangementsEnd-userfinancingarrangements
Product Backlog
OurproductbacklogatJuly30,2016wasapproximately$4.6billion,anincreaseof1%yearoveryear,afterexcludingthefiscal2015year-endbalanceofSPVideo CPEBusiness backlog. Our product backlog at July 25, 2015 was approximately $5.1 billion, including SP Video CPEBusiness backlog. The productbacklog includes orders confirmed for products planned to be shipped within 90 days to customers with approved credit status. Subscription-based salesarrangements are not included in product backlog. Our cycle time between order and shipment is generally short and customers occasionally change deliveryschedules.Additionally,orderscanbecanceledwithoutsignificantpenalties. Asaresultofthesefactors,wedonotbelievethatourproductbacklog,asofanyparticulardate,isnecessarilyindicativeofactualproductrevenueforanyfutureperiod.
Acquisitions, Investments, and Alliances
Themarketsinwhichwecompeterequireawidevarietyoftechnologies,products,andcapabilities.Ourgrowthstrategyisbasedonthecomponentsofinnovation,whichwesometimesrefertoasour“build,buy,andpartner”approach.Theforegoingisawayofdescribinghowweinnovate:wecaninternallydevelop,orbuild,ourowninnovativesolutions;wecanacquire,orbuy,companieswithinnovativetechnologies;andwecanpartnerwithcompaniestojointlydevelopand/orresellproducttechnologiesandinnovations.Thecombinationoftechnologicalcomplexity,andrapidchangewithinourmarketsmakesitdifficultforasinglecompanyto develop all of the technological solutions that it desires to offer within its family of products and services. We work to broaden the range of products andserviceswedelivertocustomersintargetmarketsthroughacquisitions,investments,andalliances.Tosummarize,weemploythefollowingstrategiestoaddresstheneedforneworenhancednetworking,andcommunicationsproductsandservices:
• Developingnewtechnologiesandproductsinternally
• Acquiringallorpartsofothercompanies
• Enteringintojointdevelopmenteffortswithothercompanies
• Resellingothercompanies’products
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Acquisitions
Wehave acquired many companies, and we expect to make future acquisitions. Mergers and acquisitions of high-technology companies are inherently risky,especially if the acquired companyhas yet to ship a product. Noassurance can be giventhat our previous or future acquisitions will be successful or will notmateriallyadverselyaffectourfinancialconditionoroperatingresults.Prioracquisitionshaveresultedinawiderangeofoutcomes,fromsuccessfulintroductionofnewproductsandtechnologiestoaninabilitytodoso.Therisksassociatedwithacquisitionsaremorefullydiscussedin“Item1A.RiskFactors,”includingtheriskfactorentitled“Wehavemadeandexpecttocontinuetomakeacquisitionsthatcoulddisruptouroperationsandharmouroperatingresults.”
Investments in Privately Held Companies
Wemakeinvestmentsinprivatelyheldcompaniesthatdeveloptechnologyorprovideservicesthatarecomplementarytoourproductsorthatprovidestrategicvalue. The risks associated with these investments are more fully discussed in “Item 1A. Risk Factors,” including the risk factor entitled “We are exposed tofluctuationsinthemarketvaluesofourportfolioinvestmentsandininterestrates;impairmentofourinvestmentscouldharmourearnings.”
Strategic Alliances
We pursue strategic alliances with other companies in areas where collaboration can produce industry advancement and acceleration of new markets. Theobjectivesandgoalsofastrategicalliancecanincludeoneormoreofthefollowing:technologyexchange,productdevelopment,jointsalesandmarketing,ornewmarketcreation.Companieswithwhichwehave,orrecentlyhad,strategicalliancesincludethefollowing:
Accenture Ltd; Apple Inc.; AT&TInc.; Cap Gemini S.A.; Citrix Systems, Inc.; EMCCorporation; LMEricsson Telephone Company; Fujitsu Limited; InspurGroup Ltd.; Intel Corporation; International Business Machines Corporation; Italtel SpA; Johnson Controls Inc.; Microsoft Corporation; NetApp, Inc.; OracleCorporation;RedHat,Inc.;SAPAG;SprintNextelCorporation;TataConsultancyServicesLtd.;VCECompany,LLC(“VCE”);VMware,Inc.;WiproLimited;andothers.
Companieswithwhichwehavestrategicalliancesinsomeareasmaybecompetitorsinotherareas,andinourviewthistrendmayincrease.Therisksassociatedwithourstrategicalliancesaremorefullydiscussedin“Item1A.RiskFactors,”includingtheriskfactorentitled“Ifwedonotsuccessfullymanageourstrategicalliances,wemaynotrealizetheexpectedbenefitsfromsuchalliances,andwemayexperienceincreasedcompetitionordelaysinproductdevelopment.”
Competition
Wecompete in the networking and communications equipment markets, providing products and services for transporting data, voice, and video traffic acrossintranets, extranets, and the Internet. These markets are characterized by rapid change, converging technologies, and a migration to networking andcommunications solutions that offer relative advantages. These market factors represent both an opportunity, and a competitive threat to us. Wecompete withnumerous vendors in each product category. The overall number of our competitors providing niche product solutions may increase. Also, the identity andcompositionofcompetitorsmaychangeasweincreaseouractivityinournewproductmarkets.Aswecontinuetoexpandglobally,wemayseenewcompetitionindifferentgeographicregions.Inparticular,wehaveexperiencedprice-focusedcompetitionfromcompetitorsinAsia,especiallyfromChina,andweanticipatethiswillcontinue.
Our competitors include AmazonWebServices LLC; Arista Networks, Inc.; ARRISGroup, Inc.; AvayaInc.; Blue Jeans Networks, Brocade CommunicationsSystems,Inc.;CheckPointSoftwareTechnologiesLtd.;CitrixSystems,Inc.;DellInc.;ExtremeNetworks,Inc.;F5Networks,Inc.;FireEye,Inc.;Fortinet,Inc.;Hewlett-Packard Enterprise Company; Huawei Technologies Co., Ltd.; International Business Machines Corporation; Juniper Networks, Inc.; Lenovo GroupLimited; Microsoft Corporation; Nokia Corporation; Palo Alto Networks, Inc.; Polycom, Inc.; Riverbed Technology, Inc.; Symantec Corporation; UbiquitiNetworksandVMware,Inc.;amongothers.
Someofthesecompaniescompeteacrossmanyofourproductlines,whileothersareprimarilyfocusedinaspecificproductarea.Barrierstoentryarerelativelylow,andnewventurestocreateproductsthatdoorcouldcompetewithourproductsareregularlyformed.Inaddition,someofourcompetitorsmayhavegreaterresources, including technical and engineering resources, than we do. As we expand into new markets, we will face competition not only from our existingcompetitors but also fromother competitors, including existing companies with strong technological, marketing, and sales positions in those markets. Wealsosometimesfacecompetitionfromresellersanddistributorsofourproducts.Companieswithwhichwehavestrategicalliancesinsomeareasmaybecompetitorsinother areas, and in our view this trend may increase. For example, the enterprise data center is undergoing a fundamental transformation arising from theconvergence of technologies, including computing, networking, storage, and software, that previously were segregated within the data center. Due to severalfactors, including the availability of highly scalable and general purpose microprocessors, application-specific integrated circuits offering advanced services,standards-basedprotocols,cloudcomputing,andvirtualization,theconvergenceoftechnologieswithintheenterprisedatacenterisspanningmultiple,
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previouslyindependent,technologysegments.Also,someofourcurrentandpotentialcompetitorsforenterprisedatacenterbusinesshavemadeacquisitions,orannouncednewstrategicalliances,designedtopositionthemtoprovideend-to-endtechnologysolutionsfortheenterprisedatacenter.Asaresultofallofthesedevelopments,wefacegreatercompetitioninthedevelopmentandsaleofenterprisedatacentertechnologies,includingcompetitionfromentitiesthatareamongour long-term strategic alliance partners. Companies that are strategic alliance partners in some areas of our business may acquire or form alliances with ourcompetitors,therebyreducingtheirbusinesswithus.
Theprincipalcompetitivefactorsinthemarketsinwhichwepresentlycompeteandmaycompeteinthefutureinclude:• Theabilitytosellsuccessfulbusinessoutcomes
• Theabilitytoprovideabroadrangeofnetworkingandcommunicationsproductsandservices
• Productperformance
• Price
• Theabilitytointroducenewproducts,includingproductswithprice-performanceadvantages
• Theabilitytoreduceproductioncosts
• Theabilitytoprovidevalue-addedfeaturessuchassecurity,reliability,andinvestmentprotection
• Conformancetostandards
• Marketpresence
• Theabilitytoprovidefinancing
• Disruptivetechnologyshiftsandnewbusinessmodels
Wealso face competition fromcustomers to whichwelicense or supply technology, andsuppliers fromwhich wetransfer technology. The inherent nature ofnetworkingrequiresinteroperability.Therefore,wemustcooperateandatthesametimecompetewithmanycompanies.Anyinabilitytoeffectivelymanagethesecomplicated relationships with customers, suppliers, and strategic alliance partners could have a material adverse effect on our business, operating results, andfinancialconditionandaccordinglyaffectourchancesofsuccess.
Research and Development
Weregularlyseektointroducenewproductsandfeaturestoaddresstherequirementsofourmarkets.Weallocateourresearchanddevelopmentbudgetamongourproduct categories, which consist of Switching, NGN Routing, Collaboration, Service Provider Video, Data Center, Wireless, Security, and Other Producttechnologies.Ourresearchanddevelopmentexpenditureswere$6.3billion,$6.2billion,and$6.3billioninfiscal2016,2015,and2014,respectively.Theseexpendituresareappliedgenerallytoallproductareas,withspecificareasoffocusbeingidentifiedfromtimetotime.Recentareasofincreasedfocusinclude,butare not limited to, our core routing and switching products, collaboration, security and products related to the data center. Our expenditures for research anddevelopmentcostswereexpensedasincurred.
The industry in which we compete is subject to rapid technological developments, evolving standards, changes in customer requirements, and new productintroductionsandenhancements.Asaresult,oursuccessdependsinpartuponourability,onacost-effectiveandtimelybasis,tocontinuetoenhanceourexistingproductsandtodevelopandintroducenewproductsthatimproveperformance,andreducetotalcostofownership.Toachievetheseobjectives,ourmanagementandengineeringpersonnelworkwithcustomerstoidentifyandrespondtocustomerneeds,aswellaswithotherinnovatorsofinternetworkingproducts,includinguniversities,laboratories,andcorporations.Wealsoexpecttocontinuetomakeacquisitionsandinvestments,whereappropriate,toprovideuswithaccesstonewtechnologies.Nonetheless,therecanbenoassurancethatwewillbeabletosuccessfullydevelopproductstoaddressnewcustomerrequirementsandtechnologicalchangesorthatthoseproductswillachievemarketacceptance.
Manufacturing
Werelyoncontractmanufacturersforallofourmanufacturingneeds.Wepresentlyuseavarietyofindependentthird-partycompaniestoprovideservicesrelatedtoprinted-circuitboardassembly,in-circuittest,productrepair,andproductassembly.Proprietarysoftwareonelectronicallyprogrammablememorychipsisusedto configure products that meet customer requirements and to maintain quality control and security. The manufacturing process enables us to configure thehardware and software in unique combinations to meet a wide variety of individual customer requirements. The manufacturing process uses automated testingequipmentandburn-inprocedures,aswellascomprehensiveinspection,testing,andstatisticalprocesscontrols,whicharedesignedtohelpensurethequalityandreliabilityofourproducts.ThemanufacturingprocessesandproceduresaregenerallycertifiedtoInternationalOrganizationforStandardization(ISO)9001orISO9003standards.
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Our arrangements with contract manufacturers generally provide for quality, cost, and delivery requirements, as well as manufacturing process terms, such ascontinuityofsupply;inventorymanagement;flexibilityregardingcapacity,quality,andcostmanagement;oversightofmanufacturing;andconditionsforuseofourintellectualproperty.Wehavenotenteredintoanysignificantlong-termcontractswithanymanufacturingserviceprovider.Wegenerallyhavetheoptiontorenewarrangementsonanas-neededbasis.Thesearrangementsgenerallydonotcommitustopurchaseanyparticularamountoranyquantitiesbeyondcertainamountscoveredbyordersorforecaststhatwesubmitcoveringdiscreteperiodsoftime,definedaslessthanoneyear.
Patents, Intellectual Property, and Licensing
Weseektoestablishandmaintainourproprietaryrightsinourtechnologyandproductsthroughtheuseofpatents,copyrights,trademarks,andtradesecretlaws.Wehaveaprogramtofileapplicationsforandobtainpatents,copyrights,andtrademarksintheUnitedStatesandinselectedforeigncountrieswherewebelievefilingforsuchprotectionisappropriate.Wealsoseektomaintainourtradesecretsandconfidentialinformationbynondisclosurepoliciesandthroughtheuseofappropriateconfidentialityagreements.WehaveobtainedasubstantialnumberofpatentsandtrademarksintheUnitedStatesandinothercountries.Therecanbenoassurance,however,thattherightsobtainedcanbesuccessfullyenforcedagainstinfringingproductsineveryjurisdiction.Althoughwebelievetheprotectionaffordedbyourpatents,copyrights,trademarks,andtradesecretshasvalue,therapidlychangingtechnologyinthenetworkingindustryanduncertaintiesinthelegalprocessmakeourfuturesuccessdependentprimarilyontheinnovativeskills,technologicalexpertise,andmanagementabilitiesofouremployeesratherthanontheprotectionaffordedbypatent,copyright,trademark,andtradesecretlaws.
Manyofourproductsaredesignedtoincludesoftwareorotherintellectualpropertylicensedfromthirdparties.Whileitmaybenecessaryinthefuturetoseekorrenewlicensesrelatingtovariousaspectsofourproducts,webelieve,baseduponpastexperienceandstandardindustrypracticethatsuchlicensesgenerallycouldbeobtainedoncommerciallyreasonableterms.Nonetheless,therecanbenoassurancethatthenecessarylicenseswouldbeavailableonacceptableterms,ifatall.Ourinabilitytoobtaincertainlicensesorotherrightsortoobtainsuchlicensesorrightsonfavorableterms,ortheneedtoengageinlitigationregardingthesematters,couldhaveamaterialadverseeffectonourbusiness,operatingresults,andfinancialcondition.Moreover,inclusioninourproductsofsoftwareorotherintellectualpropertylicensedfromthirdpartiesonanonexclusivebasiscanlimitourabilitytoprotectourproprietaryrightsinourproducts.
Theindustryinwhichwecompeteischaracterizedbyrapidlychangingtechnology,alargenumberofpatents,andfrequentclaimsandrelatedlitigationregardingpatent and other intellectual property rights. There can be no assurance that our patents and other proprietary rights will not be challenged, invalidated, orcircumvented;thatotherswillnotassertintellectualpropertyrightstotechnologiesthatarerelevanttous;orthatourrightswillgiveusacompetitiveadvantage.Inaddition,thelawsofsomeforeigncountriesmaynotprotectourproprietaryrightstothesameextentasthelawsoftheUnitedStates.Therisksassociatedwithpatentsandintellectualpropertyaremorefullydiscussedin“Item1A.RiskFactors,”includingtheriskfactorsentitled“Ourproprietaryrightsmayprovedifficulttoenforce,”“Wemaybefoundtoinfringeonintellectualpropertyrightsofothers,”and“Werelyontheavailabilityofthird-partylicenses.”
Employees
Employeesaresummarizedasfollows(approximatenumbers):
July30,2016
Employeesbygeography: UnitedStates 37,550Restofworld 36,150Total 73,700EmployeesbylineitemontheConsolidatedStatementsofOperations: Costofsales(1) 19,500Researchanddevelopment 21,250Salesandmarketing 25,500Generalandadministrative 7,450Total 73,700(1)Costofsalesincludesmanufacturingsupport,services,andtraining.
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Executive Officers of the Registrant
Thefollowingtableshowsthename,age,andpositionasofAugust31,2016ofeachofourexecutiveofficers:
Name Age Position with the Company
CharlesH.Robbins 50 ChiefExecutiveOfficerandDirectorJohnT.Chambers 67 ExecutiveChairmanMarkChandler 60 SeniorVicePresident,LegalServices,GeneralCounselandChiefComplianceOfficerChrisDedicoat 59 ExecutiveVicePresident,WorldwideSalesandFieldOperationsRebeccaJacoby 54 SeniorVicePresidentandChiefofOperationsKellyA.Kramer 49 ExecutiveVicePresidentandChiefFinancialOfficerKarenWalker 54 SeniorVicePresidentandChiefMarketingOfficer
Mr. Robbins hasservedasChiefExecutiveOfficersinceJuly2015andasamemberoftheBoardofDirectorssinceMay2015.HejoinedCiscoinDecember1997,fromwhichtimeuntilMarch2002heheldanumberofmanagerialpositionswithinCisco’ssalesorganization.Mr.RobbinswaspromotedtoVicePresidentinMarch2002,assumingleadershipofCisco’sU.S.channelsalesorganization.Additionally,inJuly2005heassumedleadershipofCisco’sCanadachannelsalesorganization. In December 2007, Mr. Robbins was promoted to Senior Vice President, U.S. Commercial, and in August 2009 he was appointed Senior VicePresident,U.S.Enterprise,CommercialandCanada.InJuly2011,Mr.RobbinswasnamedSeniorVicePresident,Americas.InOctober2012,Mr.RobbinswaspromotedtoSeniorVicePresident,WorldwideFieldOperations,inwhichpositionheserveduntilassumingtheroleofChiefExecutiveOfficer.
Mr. Chambers hasservedasamemberoftheBoardofDirectorssinceNovember1993.Mr.Chambers, whowasappointedExecutiveChairmaninJuly2015,servedasCisco’sChiefExecutiveOfficerfromJanuary1995untilJuly2015,andhealsoservedasPresidentfromJanuary1995toNovember2006.HejoinedCiscoasSeniorVicePresidentinJanuary1991andwaspromotedtoExecutiveVicePresidentinJune1994,priortoassumingtherolesofPresidentandChiefExecutiveOfficerinJanuary1995.BeforejoiningCisco,Mr.ChamberswasemployedbyWangLaboratories,Inc.foreightyears,where,inhislastrole,hewastheSeniorVicePresidentofU.S.Operations.
Mr. Chandler joined Cisco in July 1996, upon Cisco’s acquisition of StrataCom, Inc., where he served as General Counsel. He served as Cisco’s ManagingAttorneyforEurope,theMiddleEast,andAfricafromDecember1996untilJune1999;asDirector,WorldwideLegalOperationsfromJune1999untilFebruary2001;andwaspromotedtoVicePresident,WorldwideLegalServicesinFebruary2001.InOctober2001,Mr.ChandlerwaspromotedtoVicePresident,LegalServices and General Counsel, and in May 2003 he additionally was appointed Secretary, a position he held through November 2015. In February 2006, Mr.Chandler was promoted to Senior Vice President, and in May2012he was appointed Chief Compliance Officer. Before joining StrataCom, Mr. Chandler hadservedasVicePresident,CorporateDevelopmentandGeneralCounselofMaxtorCorporation.
Mr. Dedicoat joinedCiscoinJune1995andhasheldvariousleadershippositionswithinCisco’ssalesorganization.FromJune1995throughApril1999,heservedasamanagerandthenasadirectorwithintheUnitedKingdomportionofCisco’sEuropesalesorganization,overseeingbothcommercialandenterpriseaccounts.InApril1999,Mr.DedicoatwasappointedVicePresident,Europe,andinJune2003hewaspromotedtoSeniorVicePresident,Europe,servingasCisco’sleadsales executive for Europe. In July 2011, Mr. Dedicoat was appointed Senior Vice President, EMEA (Europe, Middle East, and Africa). Mr. Dedicoat wasappointedtohiscurrentpositioneffectiveJuly2015.
Ms. Jacoby joined Cisco in March 1995 and has held a number of leadership positions with Cisco. She served, successively, as a manager, director and vicepresident within Cisco’s global supply chain organization from March 1995 until November 2003. In November 2003, Ms. Jacoby assumed the role of VicePresident, Customer Service and Operations Systems, serving in this capacity until October 2006 when she was appointed Senior Vice President and ChiefInformationOfficer(CIO)ofCisco.Ms.JacobyheldtheSVP/CIOpositionuntilbeingpromotedtohercurrentpositioneffectiveJuly2015.SheisamemberoftheboardofdirectorsofS&PGlobalInc.
Ms. Kramer joinedCiscoinJanuary2012asSeniorVicePresident,CorporateFinance.SheservedinthatpositionuntilOctober2014andservedasCisco’sSeniorVicePresident,BusinessTechnologyandOperationsFinancefromOctober2013untilDecember2014.ShewasappointedtohercurrentpositioneffectiveJanuary2015.FromJanuary2009untilshejoinedCisco,Ms.KramerservedasVicePresidentandChiefFinancialOfficerofGEHealthcareSystems.Ms.Kramerservedas Vice President and Chief Financial Officer of GEHealthcare Diagnostic Imaging fromAugust 2007to January 2009andas Chief Financial Officer of GEHealthcareBiosciencesfromJanuary2006toJuly2007.Priortothat,Ms.KramerheldvariousleadershippositionswithGEcorporateandotherGEbusinesses.SheisamemberoftheboardofdirectorsofGileadSciences,Inc.
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Ms. Walker joinedCiscoinNovember2008,servingfromNovember2008throughJanuary2012asVicePresident,ServicesMarketing.FromFebruary2012toJanuary2013,Ms.Walker servedasSeniorVicePresident, Segment, ServicesandPartner Marketing, andfromFebruary2013until May2015asSeniorVicePresident, Go To Market. In May 2015, Ms. Walker was promoted to her current position. Ms. Walker joined Cisco from Hewlett-Packard, where she heldbusinessandconsumerleadershippositionsincludingVicePresidentofAlliancesandMarketingforHPServices,andVicePresidentofStrategyandMarketingforboththeConsumerDigitalEntertainmentandPersonalSystemsgroups.
Item 1A. Risk Factors
SetforthbelowandelsewhereinthisreportandinotherdocumentswefilewiththeSECaredescriptionsoftherisksanduncertaintiesthatcouldcauseouractualresultstodiffermateriallyfromtheresultscontemplatedbytheforward-lookingstatementscontainedinthisreport.
OUR OPERATING RESULTS MAY FLUCTUATE IN FUTURE PERIODS, WHICH MAY ADVERSELY AFFECT OUR STOCK PRICE
Ouroperatingresultshavebeeninthepast,andwillcontinuetobe,subjecttoquarterlyandannualfluctuationsasaresultofnumerousfactors,someofwhichmaycontributetomorepronouncedfluctuationsinanuncertainglobaleconomicenvironment.Thesefactorsinclude:
•
Fluctuationsindemandforourproductsandservices, especiallywithrespect totelecommunicationsserviceprovidersandInternet businesses, inpartduetochangesintheglobaleconomicenvironment
• Changesinsalesandimplementationcyclesforourproductsandreducedvisibilityintoourcustomers’spendingplansandassociatedrevenue
• Ourabilitytomaintainappropriateinventorylevelsandpurchasecommitments
•
Price and product competition in the communications and networking industries, which can change rapidly due to technological innovation anddifferentbusinessmodelsfromvariousgeographicregions
• Theoverallmovementtowardindustryconsolidationamongbothourcompetitorsandourcustomers
•
Theintroductionandmarket acceptance of newtechnologies andproducts andour success in newandevolvingmarkets, includingin our newerproductcategoriessuchasdatacenterandcollaborationandinemergingtechnologies,aswellastheadoptionofnewstandards
• Newbusinessmodelsforourofferings,suchasother-as-a-service(XaaS),wherecostsareborneupfrontwhilerevenueisrecognizedovertime
• Variationsinsaleschannels,productcosts,mixofproductssold,ormixofdirectsalesandindirectsales.
• Thetiming,size,andmixofordersfromcustomers
• Manufacturingandcustomerleadtimes
• Fluctuationsinourgrossmargins,andthefactorsthatcontributetosuchfluctuations,asdescribedbelow
•
Theabilityofourcustomers,channelpartners,contractmanufacturersandsupplierstoobtainfinancingortofundcapitalexpenditures,especiallyduringaperiodofglobalcreditmarketdisruptionorintheeventofcustomer,channelpartner,contractmanufacturerorsupplierfinancialproblems
• Share-basedcompensationexpense
•
Actual events, circumstances, outcomes, and amounts differing from judgments, assumptions, and estimates used in determining the values ofcertainassets(includingtheamountsofrelatedvaluationallowances),liabilities,andotheritemsreflectedinourConsolidatedFinancialStatements
•
How well we execute on our strategy and operating plans and the impact of changes in our business model that could result in significantrestructuringcharges
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• Ourabilitytoachievetargetedcostreductions
• Benefitsanticipatedfromourinvestmentsinengineering,sales,service,andmarketing
• Changesintaxlawsoraccountingrules,orinterpretationsthereof
Asaconsequence,operatingresultsforaparticularfutureperiodaredifficulttopredict,and,therefore,priorresultsarenotnecessarilyindicativeofresultstobeexpectedinfutureperiods. Anyoftheforegoingfactors, or anyother factors discussedelsewhereherein, couldhaveamaterial adverseeffect onourbusiness,resultsofoperations,andfinancialconditionthatcouldadverselyaffectourstockprice.
OUR OPERATING RESULTS MAY BE ADVERSELY AFFECTED BY UNFAVORABLE ECONOMIC AND MARKET CONDITIONS AND THEUNCERTAIN GEOPOLITICAL ENVIRONMENT
Challenging economic conditions worldwide have from time to time contributed, and may continue to contribute, to slowdowns in the communications andnetworkingindustriesatlarge,aswellasinspecificsegmentsandmarketsinwhichweoperate,resultingin:
•
ReduceddemandforourproductsasaresultofcontinuedconstraintsonIT-relatedcapitalspendingbyourcustomers,particularlyserviceproviders,andothercustomermarketsaswell
• Increasedpricecompetitionforourproducts,notonlyfromourcompetitorsbutalsoasaconsequenceofcustomersdisposingofunutilizedproducts
• Riskofexcessandobsoleteinventories
• Riskofsupplyconstraints
• Riskofexcessfacilitiesandmanufacturingcapacity
• Higheroverheadcostsasapercentageofrevenueandhigherinterestexpense
Theglobalmacroeconomicenvironmenthasbeenchallengingandinconsistent.Instabilityintheglobalcreditmarkets,theimpactofuncertaintyregardingglobalcentralbankmonetarypolicy,theinstabilityinthegeopoliticalenvironmentinmanypartsoftheworldincludingasaresultoftherecentUnitedKingdom“Brexit”referendum to withdraw from the European Union, the current economic challenges in China, including global economic ramifications of Chinese economicdifficulties,andotherdisruptionsmaycontinuetoputpressureonglobaleconomicconditions.Ifglobaleconomicandmarketconditions,oreconomicconditionsinkeymarkets,remainuncertainordeterioratefurther,wemayexperiencematerialimpactsonourbusiness,operatingresults,andfinancialcondition.
Our operating results in one or more segments may also be affected by uncertain or changing economic conditions particularly germane to that segment or toparticular customermarketswithinthat segment. Forexample, emergingcountries intheaggregateexperiencedadeclineinordersduringthefourthquarter offiscal2016,andalsoinfiscal2014andfiscal2015.
Inaddition,reportsofcertainintelligencegatheringmethodsoftheU.S.governmentcouldaffectcustomers’perceptionoftheproductsofITcompanieswhichdesign and manufacture products in the United States. Trust and confidence in us as an IT supplier is critical to the development and growth of our markets.Impairmentofthattrust,orforeignregulatoryactionstakeninresponsetoreportsofcertainintelligencegatheringmethodsoftheU.S.government,couldaffectthedemandforourproductsfromcustomersoutsideoftheUnitedStatesandcouldhaveanadverseeffectonouroperatingresults.
WE HAVE BEEN INVESTING AND EXPECT TO CONTINUE TO INVEST IN KEY PRIORITY AND GROWTH AREAS AS WELL ASMAINTAINING LEADERSHIP IN ROUTING, SWITCHING AND SERVICES, AND IF THE RETURN ON THESE INVESTMENTS IS LOWER ORDEVELOPS MORE SLOWLY THAN WE EXPECT, OUR OPERATING RESULTS MAY BE HARMED
We expect to realign and dedicate resources into key priority and growth areas, such as security, IoT, collaboration, next generation data center, cloud, andsoftware,whilealsofocusingonmaintainingleadershipinrouting,switchingandservices.However,thereturnonourinvestmentsmaybelower,ormaydevelopmoreslowly,thanweexpect.Ifwedonotachievethebenefitsanticipatedfromtheseinvestments(includingifourselectionofareasforinvestmentdoesnotplayoutasweexpect),oriftheachievementofthesebenefitsisdelayed,ouroperatingresultsmaybeadverselyaffected.
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OUR REVENUE FOR A PARTICULAR PERIOD IS DIFFICULT TO PREDICT, AND A SHORTFALL IN REVENUE MAY HARM OUROPERATING RESULTS
As a result of a variety of factors discussed in this report, our revenue for a particular quarter is difficult to predict, especially in light of a challenging andinconsistentglobalmacroeconomicenvironmentandrelatedmarketuncertainty.
Ourrevenuemaygrowataslowerratethaninpastperiodsordeclineasitdidinfiscal2014onayear-over-yearbasis.Ourabilitytomeetfinancialexpectationscould also be adversely affected if the nonlinear sales pattern seenin someof our past quarters recurs in future periods. Wehaveexperienced periods of timeduringwhichshipmentshaveexceedednetbookingsormanufacturingissueshavedelayedshipments,leadingtononlinearityinshippingpatterns.Inadditiontomakingit difficult topredictrevenueforaparticularperiod,nonlinearityinshippingcanincreasecosts,becauseirregularshipmentpatternsresultinperiodsofunderutilizedcapacityandperiodsinwhichovertimeexpensesmaybeincurred,aswellasinpotentialadditionalinventorymanagement-relatedcosts.Inaddition,to the extent that manufacturing issues andanyrelatedcomponent shortages result in delayedshipments in the future, andparticularly in periods in whichourcontractmanufacturersareoperatingathigherlevelsofcapacity,itispossiblethatrevenueforaquartercouldbeadverselyaffectedifsuchmattersoccurandarenotremediatedwithinthesamequarter.
Thetimingoflargeorderscanalsohaveasignificanteffectonourbusinessandoperatingresultsfromquartertoquarter, primarilyintheUnitedStatesandinemergingcountries.Fromtimetotime,wereceivelargeordersthathaveasignificanteffectonouroperatingresultsintheperiodinwhichtheorderisrecognizedasrevenue.Thetimingofsuchordersisdifficulttopredict,andthetimingofrevenuerecognitionfromsuchordersmayaffectperiodtoperiodchangesinrevenue.Asaresult,ouroperatingresultscouldvarymateriallyfromquartertoquarterbasedonthereceiptofsuchordersandtheirultimaterecognitionasrevenue.
Inventorymanagementremainsanareaoffocus.Wehaveexperiencedlongerthannormalmanufacturingleadtimesinthepastwhichhavecausedsomecustomerstoplacethesameordermultipletimeswithinourvarioussaleschannelsandtocanceltheduplicativeordersuponreceiptoftheproduct,ortoplaceorderswithother vendors with shorter manufacturing lead times. Such multiple ordering (along with other factors) or risk of order cancellation may cause difficulty inpredictingourrevenueand,asaresult,couldimpairourabilitytomanagepartsinventoryeffectively.Inaddition,oureffortstoimprovemanufacturinglead-timeperformancemayresult incorrespondingreductionsinorder backlog. Adeclineinbackloglevels couldresult inmorevariability andlesspredictability inourquarter-to-quarter revenue and operating results. In addition, when facing component supply-related challenges, we have increased our efforts in procuringcomponentsinordertomeetcustomerexpectationswhichinturncontributetoanincreaseinpurchasecommitments.Increasesinourpurchasecommitmentstoshortenleadtimescouldalsoleadtoexcessandobsoleteinventorychargesifthedemandforourproductsislessthanourexpectations.
Weplanouroperatingexpenselevelsbasedprimarilyonforecastedrevenuelevels.Theseexpensesandtheimpactoflong-termcommitmentsarerelativelyfixedin the short term. A shortfall in revenue could lead to operating results being below expectations because we may not be able to quickly reduce these fixedexpensesinresponsetoshort-termbusinesschanges.
Anyoftheabovefactorscouldhaveamaterialadverseimpactonouroperationsandfinancialresults.
WE EXPECT GROSS MARGIN TO VARY OVER TIME, AND OUR LEVEL OF PRODUCT GROSS MARGIN MAY NOT BE SUSTAINABLEAlthoughourproductgrossmarginincreasedinfiscal2016,ourlevelofproductgrossmarginshavedeclinedincertainpriorperiodsandcoulddeclineinfuturequartersduetoadverseimpactsfromvariousfactors,including:
• Changesincustomer,geographic,orproductmix,includingmixofconfigurationswithineachproductgroup
• Introductionofnewproducts,includingproductswithprice-performanceadvantages,andnewbusinessmodelsforourofferingssuchasXaaS
• Ourabilitytoreduceproductioncosts
•
Entry into newmarkets or growth in lower margin markets, including markets with different pricing and cost structures, through acquisitions orinternaldevelopment
• Salesdiscounts
• Increasesinmaterial,labororothermanufacturing-relatedcosts,whichcouldbesignificantespeciallyduringperiodsofsupplyconstraints
• Excessinventoryandinventoryholdingcharges
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• Obsolescencecharges
• Changesinshipmentvolume
• Thetimingofrevenuerecognitionandrevenuedeferrals
•
Increasedcost,lossofcostsavingsordilutionofsavingsduetochangesincomponentpricingorchargesincurredduetoinventoryholdingperiodsifpartsorderingdoesnotcorrectlyanticipateproductdemandorifthefinancialhealthofeithercontractmanufacturersorsuppliersdeteriorates
• Lowerthanexpectedbenefitsfromvalueengineering
• Increasedpricecompetition,includingcompetitorsfromAsia,especiallyfromChina
• Changesindistributionchannels
• Increasedwarrantycosts
• Increasedamortizationofpurchasedintangibleassets,especiallyfromacquisitions
• Howwellweexecuteonourstrategyandoperatingplans
Changesinservicegrossmarginmayresultfromvariousfactorssuchaschangesinthemixbetweentechnicalsupportservicesandadvancedservices,aswellasthe timing of technical support service contract initiations and renewals and the addition of personnel and other resources to support higher levels of servicebusinessinfutureperiods.
SALES TO THE SERVICE PROVIDER MARKET ARE ESPECIALLY VOLATILE, AND WEAKNESS IN SALES ORDERS FROM THISINDUSTRY MAY HARM OUR OPERATING RESULTS AND FINANCIAL CONDITION
Salestotheserviceprovidermarkethavebeencharacterizedbylargeandsporadicpurchases,especiallyrelatingtoourroutersalesandsalesofcertainproductsinour newer product categories such as Data Center, Collaboration, and Service Provider Video, in addition to longer sales cycles. Sales to the service providermarketdecreasedin2016.Atvarioustimesinthepast,includinginfiscal2014andfiscal2015,weexperiencedsignificantweaknessinsalestoserviceproviders.Salestotheserviceprovidermarketcouldcontinuetodeclineand,ashasbeenthecaseinthepast,suchsalesweaknesscouldpersistoverextendedperiodsoftimegivenfluctuatingmarketconditions.Salesactivityinthisindustrydependsuponthestageofcompletionofexpandingnetworkinfrastructures;theavailabilityoffunding;andtheextenttowhichserviceprovidersareaffectedbyregulatory,economic,andbusinessconditionsinthecountryofoperations.Weaknessinordersfromthisindustry, includingasaresult ofanyslowdownincapital expendituresbyserviceproviders(whichmaybemoreprevalentduringaglobaleconomicdownturnorperiodsofeconomicuncertainty),couldhaveamaterialadverseeffectonourbusiness,operatingresults,andfinancialcondition.Suchslowdownsmaycontinueor recur in future periods. Orders fromthis industry could decline for manyreasons other thanthe competitiveness of our products andserviceswithintheirrespectivemarkets.Forexample,inthepast,manyofourserviceprovidercustomershavebeenmateriallyandadverselyaffectedbyslowdownsinthegeneraleconomy,byovercapacity,bychangesintheserviceprovidermarket,byregulatorydevelopments,andbyconstraintsoncapitalavailability,resultinginbusinessfailuresandsubstantialreductionsinspendingandexpansionplans.Theseconditionshavemateriallyharmedourbusinessandoperatingresultsinthepast, andsomeof these or other conditions in the service provider market couldaffect our business andoperating results in anyfuture period. Finally, serviceprovider customers typically havelonger implementation cycles; require a broader rangeof services, includingdesignservices; demandthat vendors takeonalargershareofrisks;oftenrequireacceptanceprovisions,whichcanleadtoadelayinrevenuerecognition;andexpectfinancingfromvendors.Allthesefactorscanaddfurtherrisktobusinessconductedwithserviceproviders.
DISRUPTION OF OR CHANGES IN OUR DISTRIBUTION MODEL COULD HARM OUR SALES AND MARGINS
If we fail to manage distribution of our products and services properly, or if our distributors’ financial condition or operations weaken, our revenue and grossmarginscouldbeadverselyaffected.
Asubstantialportionofourproductsandservicesissoldthroughourchannelpartners,andtheremainderissoldthroughdirectsales.Ourchannelpartnersincludesystems integrators, service providers, other resellers, and distributors. Systems integrators and service providers typically sell directly to end users and oftenprovidesysteminstallation,technicalsupport,professionalservices,andothersupportservicesinadditiontonetworkequipmentsales.Systemsintegratorsalsotypicallyintegrateourproductsintoanoverallsolution,andanumberofserviceprovidersarealsosystemsintegrators.Distributorsstockinventoryandtypicallyselltosystemsintegrators,serviceproviders,andotherresellers.Werefertosalesthroughdistributorsasourtwo-tiersystemof
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sales to the end customer. Revenue from distributors is generally recognized based on a sell-through method using information provided by them. Thesedistributors are generally givenbusiness termsthat allowthemto return a portion of inventory, receive credits for changes in selling prices, andparticipate invariouscooperativemarketingprograms.Ifsalesthroughindirectchannelsincrease,thismayleadtogreaterdifficultyinforecastingthemixofourproductsand,toadegree,thetimingofordersfromourcustomers.
Historically,wehaveseenfluctuationsinourgrossmarginsbasedonchangesinthebalanceofourdistributionchannels.Althoughvariabilitytodatehasnotbeensignificant,therecanbenoassurancethatchangesinthebalanceofourdistributionmodelinfutureperiodswouldnothaveanadverseeffectonourgrossmarginsandprofitability.
Somefactorscouldresultindisruptionoforchangesinourdistributionmodel,whichcouldharmoursalesandmargins,includingthefollowing:
•
Wecompetewithsomeofourchannelpartners,includingthroughourdirectsales,whichmayleadthesechannelpartnerstouseothersuppliersthatdonotdirectlyselltheirownproductsorotherwisecompetewiththem
• Someofourchannelpartnersmaydemandthatweabsorbagreatershareoftherisksthattheircustomersmayaskthemtobear
•
Some of our channel partners may have insufficient financial resources and may not be able to withstand changes and challenges in businessconditions
• Revenuefromindirectsalescouldsufferifourdistributors’financialconditionoroperationsweaken
Inaddition,wedependonourchannelpartnersgloballytocomplywithapplicableregulatoryrequirements.Totheextentthattheyfailtodoso,thatcouldhaveamaterialadverseeffectonourbusiness,operatingresults,andfinancialcondition.Further,salesofourproductsoutsideofagreedterritoriescanresultindisruptiontoourdistributionchannels.
THE MARKETS IN WHICH WE COMPETE ARE INTENSELY COMPETITIVE, WHICH COULD ADVERSELY AFFECT OUR ACHIEVEMENTOF REVENUE GROWTH
Themarketsinwhichwecompetearecharacterizedbyrapidchange,convergingtechnologies,andamigrationtonetworkingandcommunicationssolutionsthatoffer relative advantages. Thesemarket factors represent acompetitive threat tous. Wecompetewithnumerousvendors ineachproduct category. Theoverallnumber of our competitors providing niche product solutions may increase. Also, the identity and composition of competitors may change as we increase ouractivity in newer product categories such as data center and collaboration and in key priority and growth areas. For example, as products related to networkprogrammability,suchasSDNproducts,becomemoreprevalent,weexpecttofaceincreasedcompetitionfromcompaniesthatdevelopnetworkingproductsbasedoncommoditizedhardware,referredtoas"whitebox"hardware,totheextentcustomersdecidetopurchasethoseproductofferingsinsteadofours.Inaddition,thegrowthindemandfortechnologydeliveredasaserviceenablesnewcompetitorstoenterthemarket.
Aswecontinuetoexpandglobally, wemayseenewcompetitionindifferent geographicregions. Inparticular, wehaveexperiencedprice-focusedcompetitionfrom competitors in Asia, especially from China, and we anticipate this will continue. For information regarding our competitors, see the section entitled“Competition”containedinItem 1. Busines softhisreport.
Someofourcompetitorscompeteacrossmanyofourproductlines,whileothersareprimarilyfocusedinaspecificproductarea.Barrierstoentryarerelativelylow,andnewventurestocreateproductsthatdoorcouldcompetewithourproductsareregularlyformed.Inaddition,someofourcompetitorsmayhavegreaterresources, including technical and engineering resources, than we do. As we expand into new markets, we will face competition not only from our existingcompetitors but also fromother competitors, including existing companies with strong technological, marketing, and sales positions in those markets. Wealsosometimesfacecompetitionfromresellersanddistributorsofourproducts.Companieswithwhichwehavestrategicalliancesinsomeareasmaybecompetitorsinotherareas,andinourviewthistrendmayincrease.
For example, the enterprise data center is undergoing a fundamental transformation arising from the convergence of technologies, including computing,networking, storage, and software, that previously were segregated. Due to several factors, including the availability of highly scalable and general purposemicroprocessors, ASICsoffering advanced services, standards based protocols, cloud computing and virtualization, the convergence of technologies within theenterprisedatacenterisspanningmultiple,previouslyindependent,technologysegments.Also,someofourcurrentandpotentialcompetitorsforenterprisedatacenter business have made acquisitions, or announced new strategic alliances, designed to position them to provide end-to-end technology solutions for theenterprisedatacenter. Asaresult ofall ofthesedevelopments, wefacegreater competitioninthedevelopmentandsaleofenterprisedatacenter technologies,includingcompetitionfromentitiesthatareamongourlong-termstrategicalliance
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partners.Companiesthatarestrategicalliancepartnersinsomeareasofourbusinessmayacquireorformallianceswithourcompetitors,therebyreducingtheirbusinesswithus.
Theprincipalcompetitivefactorsinthemarketsinwhichwepresentlycompeteandmaycompeteinthefutureinclude:
• Theabilitytoprovideabroadrangeofnetworkingandcommunicationsproductsandservices
• Productperformance
• Price
• Theabilitytointroducenewproducts,includingproductswithprice-performanceadvantages
• Theabilitytoreduceproductioncosts
• Theabilitytoprovidevalue-addedfeaturessuchassecurity,reliability,andinvestmentprotection
• Conformancetostandards
• Marketpresence
• Theabilitytoprovidefinancing
• Disruptivetechnologyshiftsandnewbusinessmodels
Wealso face competition fromcustomers to which we license or supply technology and suppliers fromwhich we transfer technology. The inherent nature ofnetworkingrequiresinteroperability.Assuch,wemustcooperateandatthesametimecompetewithmanycompanies.Anyinabilitytoeffectivelymanagethesecomplicated relationships with customers, suppliers, and strategic alliance partners could have a material adverse effect on our business, operating results, andfinancialconditionandaccordinglyaffectourchancesofsuccess.
OUR INVENTORY MANAGEMENT RELATING TO OUR SALES TO OUR TWO-TIER DISTRIBUTION CHANNEL IS COMPLEX, AND EXCESSINVENTORY MAY HARM OUR GROSS MARGINS
We must manage our inventory relating to sales to our distributors effectively, because inventory held by them could affect our results of operations. Ourdistributorsmayincreaseordersduringperiodsofproductshortages,cancelordersiftheirinventoryistoohigh,ordelayordersinanticipationofnewproducts.Theyalso mayadjust their orders in response to the supply of our products and the products of our competitors that are available to them, and in response toseasonalfluctuationsinend-userdemand.Revenuetoourdistributorsgenerallyisrecognizedbasedonasell-throughmethodusinginformationprovidedbythem,andtheyaregenerallygivenbusinesstermsthatallowthemtoreturnaportionofinventory,receivecreditsforchangesinsellingprice,andparticipateinvariouscooperative marketing programs. Inventory management remains an area of focus as we balance the need to maintain strategic inventory levels to ensurecompetitive leadtimesagainst theriskof inventoryobsolescencebecauseof rapidlychangingtechnologyandcustomer requirements. Whenfacingcomponentsupply-relatedchallenges,wehaveincreasedoureffortsinprocuringcomponentsinordertomeetcustomerexpectations.Ifweultimatelydeterminethatwehaveexcessinventory,wemayhavetoreduceourpricesandwritedowninventory,whichinturncouldresultinlowergrossmargins.
SUPPLY CHAIN ISSUES, INCLUDING FINANCIAL PROBLEMS OF CONTRACT MANUFACTURERS OR COMPONENT SUPPLIERS, OR ASHORTAGE OF ADEQUATE COMPONENT SUPPLY OR MANUFACTURING CAPACITY THAT INCREASED OUR COSTS OR CAUSED ADELAY IN OUR ABILITY TO FULFILL ORDERS, COULD HAVE AN ADVERSE IMPACT ON OUR BUSINESS AND OPERATING RESULTS,AND OUR FAILURE TO ESTIMATE CUSTOMER DEMAND PROPERLY MAY RESULT IN EXCESS OR OBSOLETE COMPONENT SUPPLY,WHICH COULD ADVERSELY AFFECT OUR GROSS MARGINS
Thefactthatwedonotownoroperatethebulkofourmanufacturingfacilitiesandthatwearereliantonourextendedsupplychaincouldhaveanadverseimpactonthesupplyofourproductsandonourbusinessandoperatingresults:
• Anyfinancialproblemsofeithercontractmanufacturersorcomponentsupplierscouldeitherlimitsupplyorincreasecosts
•
Reservationofmanufacturingcapacityatourcontractmanufacturersbyothercompanies,insideoroutsideofourindustry,couldeitherlimitsupplyorincreasecosts
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•
Industryconsolidationoccurringwithinoneormorecomponent supplier markets, suchasthesemiconductor market, couldeither limit supplyorincreasecosts
Areductionorinterruptioninsupply;asignificantincreaseinthepriceofoneormorecomponents;afailuretoadequatelyauthorizeprocurementofinventorybyourcontractmanufacturers;afailuretoappropriatelycancel,reschedule,oradjustour
requirementsbasedonourbusinessneeds;oradecreaseindemandforourproductscouldmateriallyadverselyaffectourbusiness,operatingresults,andfinancialcondition and could materially damage customer relationships. Furthermore, as a result of binding price or purchase commitments with suppliers, we may beobligated to purchase components at prices that are higher than those available in the current market. In the event that we become committed to purchasecomponentsatpricesinexcessofthecurrentmarketpricewhenthecomponentsareactuallyused,ourgrossmarginscoulddecrease.Wehaveexperiencedlongerthan normal lead times in the past. Although we have generally secured additional supply or taken other mitigation actions when significant disruptions haveoccurred,ifsimilarsituationsoccurinthefuture,theycouldhaveamaterialadverseeffectonourbusiness,resultsofoperations,andfinancialcondition.Seetheriskfactoraboveentitled“Ourrevenueforaparticularperiodisdifficulttopredict,andashortfallinrevenuemayharmouroperatingresults.”
Ourgrowthandabilitytomeetcustomerdemandsdependinpartonourabilitytoobtaintimelydeliveriesofpartsfromoursuppliersandcontractmanufacturers.Wehaveexperiencedcomponentshortagesinthepast,includingshortagescausedbymanufacturingprocessissues,thathaveaffectedouroperations.Wemayinthe future experience a shortage of certain component parts as a result of our own manufacturing issues, manufacturing issues at our suppliers or contractmanufacturers, capacity problems experienced by our suppliers or contract manufacturers including capacity or cost problems resulting from industryconsolidation,orstrongdemandintheindustryforthoseparts.Growthintheeconomyislikelytocreategreaterpressuresonusandoursupplierstoaccuratelyproject overall component demand and component demands within specific product categories and to establish optimal component levels and manufacturingcapacity, especiallyforlabor-intensivecomponents, componentsforwhichwepurchaseasubstantial portionofthesupply,orthere-rampingofmanufacturingcapacityforhighlycomplexproducts.Duringperiodsofshortagesordelaysthepriceofcomponentsmayincrease,orthecomponentsmaynotbeavailableatall,andwemayalsoencountershortagesifwedonotaccuratelyanticipateourneeds.Wemaynotbeabletosecureenoughcomponentsatreasonablepricesorofacceptablequalitytobuildnewproductsinatimelymannerinthequantitiesorconfigurationsneeded.Accordingly,ourrevenueandgrossmarginscouldsufferuntilothersourcescanbedeveloped.Ouroperatingresultswouldalsobeadverselyaffectedif,anticipatinggreaterdemandthanactuallydevelops,wecommittothepurchaseofmorecomponentsthanweneed,whichismorelikelytooccurinaperiodofdemanduncertaintiessuchaswearecurrentlyexperiencing.Therecanbenoassurancethatwewillnotencountertheseproblemsinthefuture.Althoughinmanycasesweusestandardpartsandcomponentsforourproducts,certaincomponentsarepresentlyavailableonlyfromasinglesourceorlimitedsources,andaglobaleconomicdownturnandrelatedmarketuncertaintycouldnegativelyimpacttheavailabilityofcomponentsfromoneormoreofthesesources,especiallyduringtimessuchaswehaverecentlyseenwhentherearesupplierconstraintsbasedonlaborandotheractionstakenduringeconomicdownturns.Wemaynotbeabletodiversifysourcesinatimelymanner,whichcouldharmourabilitytodeliverproductstocustomersandseriouslyimpactpresentandfuturesales.
Webelievethatwemaybefacedwiththefollowingchallengesinthefuture:
• Newmarketsinwhichweparticipatemaygrowquickly,whichmaymakeitdifficulttoquicklyobtainsignificantcomponentcapacity
•
As we acquire companies and new technologies, we may be dependent, at least initially, on unfamiliar supply chains or relatively small supplypartners
• Wefacecompetitionforcertaincomponentsthataresupply-constrained,fromexistingcompetitors,andcompaniesinothermarkets
Manufacturingcapacityandcomponentsupplyconstraintscouldcontinuetobesignificantissuesforus.Wepurchasecomponentsfromavarietyofsuppliersanduseseveralcontractmanufacturerstoprovidemanufacturingservicesforourproducts.Duringthenormalcourseofbusiness,inordertoimprovemanufacturinglead-timeperformanceandtohelpensureadequatecomponentsupply,weenterintoagreementswithcontractmanufacturersandsuppliersthateitherallowthemtoprocureinventorybaseduponcriteriaasdefinedbyusorthatestablishtheparametersdefiningourrequirements.Incertaininstances,theseagreementsallowustheoptiontocancel,reschedule,andadjustourrequirementsbasedonourbusinessneedspriortofirmordersbeingplaced.Whenfacingcomponentsupply-relatedchallenges, wehaveincreasedoureffortsinprocuringcomponentsinordertomeetcustomerexpectations, whichinturncontributestoanincreaseinpurchasecommitments. Increases in our purchase commitments to shorten lead times could also lead to excess and obsolete inventory charges if the demand for ourproductsislessthanourexpectations.Ifwefailtoanticipatecustomerdemandproperly,anoversupplyofpartscouldresultinexcessorobsoletecomponentsthatcould
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adverselyaffectourgrossmargins.Foradditionalinformationregardingourpurchasecommitmentswithcontractmanufacturersandsuppliers,seeNote12totheConsolidatedFinancialStatements.
WE DEPEND UPON THE DEVELOPMENT OF NEW PRODUCTS AND ENHANCEMENTS TO EXISTING PRODUCTS, AND IF WE FAIL TOPREDICT AND RESPOND TO EMERGING TECHNOLOGICAL TRENDS AND CUSTOMERS’ CHANGING NEEDS, OUR OPERATINGRESULTS AND MARKET SHARE MAY SUFFER
Themarketsforourproductsarecharacterizedbyrapidlychangingtechnology,evolvingindustrystandards,newproductintroductions,andevolvingmethodsofbuildingandoperatingnetworks.Ouroperatingresultsdependonourabilitytodevelopandintroducenewproductsintoexistingandemergingmarketsandtoreducetheproductioncostsofexistingproducts.Manyofourstrategicinitiativesandinvestmentswehavemade,andourarchitecturalapproach,aredesignedtoenabletheincreaseduseofthenetworkastheplatformforautomating,orchestrating,integrating,anddeliveringanever-increasingarrayofIT-basedproductsandservices.Forexample,severalyearsagowelaunchedourCiscoUnifiedComputingSystem(UCS),ournext-generationenterprisedatacenterplatformarchitectedtounitecomputing,network,storageaccessandvirtualizationresourcesinasinglesystem,whichisdesignedtoaddressthefundamentaltransformationoccurringintheenterprisedatacenter.WhileourCiscoUCSofferingremainsasignificantfocusareaforus,severalmarkettransitionsarealsoshapingourstrategiesandinvestments.Onesuchmarkettransitionwearefocusingonisthemovetowardsmoreprogrammable, flexibleandvirtualnetworks.WebelievethesuccessfulproductsandsolutionsinthismarketwillcombineASICs,hardwareandsoftwareelementstogether.Otherexamplesincludeourfocusonsecurity;themarkettransitionrelatedtodigitaltransformationandIoT;andthetransitionincloud.
The process of developing newtechnology, including technology related to more programmable, flexible and virtual networks and technology related to othermarket transitions— such as security, digital transformation and IoT, and cloud— is complex and uncertain, and if we fail to accurately predict customers’changingneedsandemergingtechnologicaltrendsourbusinesscouldbeharmed.Wemustcommitsignificantresources,includingtheinvestmentswehavebeenmakinginourprioritiestodevelopingnewproductsbeforeknowingwhetherourinvestmentswillresultinproductsthemarketwillaccept.Inparticular, ifourmodeloftheevolutionofnetworkingdoesnotemergeaswebelieveitwill,oriftheindustrydoesnotevolveaswebelieveitwill,orifourstrategyforaddressingthis evolution is not successful, manyof our strategic initiatives andinvestments maybe of noor limited value. For example, if wedonot introduce productsrelated to network programmability, such as software-defined-networking products, in a timely fashion, or if product offerings in this market that ultimatelysucceedarebasedontechnology,oranapproachtotechnology,thatdiffersfromours,suchas,forexample,networkingproductsbasedon“whitebox”hardware,our business could be harmed. Similarly, our business could be harmedif wefail to develop, or fail to develop in a timely fashion, offerings to address othertransitions,oriftheofferingsaddressingtheseothertransitionsthatultimatelysucceedarebasedontechnology,oranapproachtotechnology,differentfromours.
Our strategy is to lead our customers in their digital transition with solutions including pervasive, industry-leading security that intelligently connect nearlyeverythingthatcanbeconnected.Overthelastfewyears,wehavebeentransformingourbusinesstomovefromsellingindividualproductsandservicestosellingproductsandservicesintegratedintoarchitecturesandsolutions.Asapartofthistransformation,wecontinuetomakechangestohowweareorganizedandhowwebuildanddeliverourtechnology.Ifourstrategyforaddressingourcustomerneeds,orthearchitecturesandsolutionswedevelopdonotmeetthoseneeds,orthechangeswearemakinginhowweareorganizedandhowwebuildanddeliverortechnologyisincorrectorineffective,ourbusinesscouldbeharmed.
Furthermore,wemaynotexecutesuccessfullyonourvisionorstrategybecauseofchallengeswithregardtoproductplanningandtiming,technicalhurdlesthatwefailtoovercomeinatimelyfashion,oralackofappropriateresources.Thiscouldresultincompetitors,someofwhichmayalsobeourstrategicalliancepartners,providingthosesolutionsbeforewedoandlossofmarketshare,revenue,andearnings.Inaddition,thegrowthindemandfortechnologydeliveredasaserviceenablesnewcompetitorstoenterthemarket.Thesuccessofnewproductsdependsonseveralfactors,includingpropernewproductdefinition,componentcosts,timely completion and introduction of these products, differentiation of newproducts fromthose of our competitors, andmarket acceptance of these products.Therecanbenoassurancethatwewillsuccessfullyidentifynewproductopportunities,developandbringnewproductstomarketinatimelymanner,orachievemarketacceptanceofourproductsorthatproductsandtechnologiesdevelopedbyotherswillnotrenderourproductsortechnologiesobsoleteornoncompetitive.Theproducts andtechnologies in our other product categories andkeygrowthareas maynot proveto havethe market success weanticipate, andwemaynotsuccessfullyidentifyandinvestinotheremergingornewproducts.
CHANGES IN INDUSTRY STRUCTURE AND MARKET CONDITIONS COULD LEAD TO CHARGES RELATED TO DISCONTINUANCES OFCERTAIN OF OUR PRODUCTS OR BUSINESSES, ASSET IMPAIRMENTS AND WORKFORCE REDUCTIONS OR RESTRUCTURINGSInresponsetochangesinindustryandmarketconditions,wemayberequiredtostrategicallyrealignourresourcesandtoconsiderrestructuring,disposingof,orotherwiseexitingbusinesses.Anyresourcerealignment,ordecisiontolimitinvestmentinordisposeoforotherwiseexitbusinesses,mayresultintherecordingofspecial charges, such as inventory and technology-related write-offs, workforce reduction or restructuring costs, charges relating to consolidation of excessfacilities,orclaimsfromthirdparties
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who were resellers or users of discontinued products. Our estimates with respect to the useful life or ultimate recoverability of our carrying basis of assets,includingpurchasedintangibleassets,couldchangeasaresultofsuchassessmentsanddecisions.Althoughincertaininstancesoursupplyagreementsallowustheoption to cancel, reschedule, and adjust our requirements based on our business needs prior to firm orders being placed, our loss contingencies may includeliabilities for contracts that wecannot cancel withcontract manufacturers andsuppliers. Further, our estimates relatingtotheliabilities for excess facilities areaffectedbychangesinrealestatemarketconditions.Additionally,wearerequiredtoperformgoodwillimpairmenttestsonanannualbasisandbetweenannualtestsincertaincircumstances,andfuturegoodwillimpairmenttestsmayresultinachargetoearnings.
InAugust2016,weannouncedarestructuringplanunderwhichwebegantakingactioninthefirstquarteroffiscal2017.Theimplementationofthisrestructuringplan may be disruptive to our business, and following completion of the restructuring plan our business may not be more efficient or effective than prior toimplementationoftheplan.Ourrestructuringactivities,includinganyrelatedchargesandtheimpactoftherelatedheadcountrestructurings,couldhaveamaterialadverseeffectonourbusiness,operatingresults,andfinancialcondition.
OVER THE LONG TERM WE INTEND TO INVEST IN ENGINEERING, SALES, SERVICE AND MARKETING ACTIVITIES, AND THESEINVESTMENTS MAY ACHIEVE DELAYED, OR LOWER THAN EXPECTED, BENEFITS WHICH COULD HARM OUR OPERATING RESULTS
While we intend to focus on managing our costs and expenses, over the long term, we also intend to invest in personnel and other resources related to ourengineering,sales,serviceandmarketingfunctionsaswerealignanddedicateresourcesonkeypriorityandgrowthareas,suchassecurity,IoT,collaboration,nextgenerationdatacenter,cloud,andsoftware,andwealsointendtofocusonmaintainingleadershipinrouting,switchingandservices.Wearelikelytorecognizethecosts associated with these investments earlier than someof the anticipated benefits, and the return on these investments may be lower, or maydevelop moreslowly, than weexpect. If wedo not achieve the benefits anticipated fromthese investments, or if the achievement of these benefits is delayed, our operatingresultsmaybeadverselyaffected.
OUR BUSINESS SUBSTANTIALLY DEPENDS UPON THE CONTINUED GROWTH OF THE INTERNET AND INTERNET-BASED SYSTEMS
AsubstantialportionofourbusinessandrevenuedependsongrowthandevolutionoftheInternet,includingthecontinueddevelopmentoftheInternetandtheanticipatedmarkettransitions, andonthedeploymentofourproductsbycustomerswhodependonsuchcontinuedgrowthandevolution.TotheextentthataneconomicslowdownoruncertaintyandrelatedreductionincapitalspendingadverselyaffectspendingonInternetinfrastructure,includingspendingorinvestmentrelatedtoanticipatedmarkettransitions,wecouldexperiencematerialharmtoourbusiness,operatingresults,andfinancialcondition.
Becauseoftherapidintroductionofnewproductsandchangingcustomerrequirementsrelatedtomatterssuchascost-effectivenessandsecurity,webelievethattherecouldbeperformanceproblemswithInternetcommunicationsinthefuture,whichcouldreceiveahighdegreeofpublicityandvisibility.Becausewearealargesupplierofnetworkingproducts,ourbusiness,operatingresults,andfinancialconditionmaybemateriallyadverselyaffected,regardlessofwhetherornottheseproblemsareduetotheperformanceofourownproducts.Suchaneventcouldalsoresultinamaterialadverseeffectonthemarketpriceofourcommonstockindependentofdirecteffectsonourbusiness.
WE HAVE MADE AND EXPECT TO CONTINUE TO MAKE ACQUISITIONS THAT COULD DISRUPT OUR OPERATIONS AND HARM OUROPERATING RESULTS
Ourgrowthdependsuponmarketgrowth,ourabilitytoenhanceourexistingproducts,andourabilitytointroducenewproductsonatimelybasis.Weintendtocontinue to address the need to develop newproducts and enhance existing products through acquisitions of other companies, product lines, technologies, andpersonnel.Acquisitionsinvolvenumerousrisks,includingthefollowing:
•
Difficulties in integrating the operations, systems, technologies, products, and personnel of the acquired companies, particularly companies withlargeandwidespreadoperationsand/orcomplexproducts
•
Diversion of management’s attention from normal daily operations of the business and the challenges of managing larger and more widespreadoperationsresultingfromacquisitions
• Potentialdifficultiesincompletingprojectsassociatedwithin-processresearchanddevelopmentintangibles
•
Difficultiesinenteringmarketsinwhichwehavenoorlimiteddirectpriorexperienceandwherecompetitorsinsuchmarketshavestrongermarketpositions
• Initialdependenceonunfamiliarsupplychainsorrelativelysmallsupplypartners
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• Insufficientrevenuetooffsetincreasedexpensesassociatedwithacquisitions
•
The potential loss of key employees, customers, distributors, vendors and other business partners of the companies we acquire following andcontinuingafterannouncementofacquisitionplans
Acquisitionsmayalsocauseusto:
• Issuecommonstockthatwoulddiluteourcurrentshareholders’percentageownership
• Useasubstantialportionofourcashresources,orincurdebt
• Significantlyincreaseourinterestexpense,leverageanddebtservicerequirementsifweincuradditionaldebttopayforanacquisition
• Assumeliabilities
• Recordgoodwillandintangibleassetsthataresubjecttoimpairmenttestingonaregularbasisandpotentialperiodicimpairmentcharges
• Incuramortizationexpensesrelatedtocertainintangibleassets
• IncurtaxexpensesrelatedtotheeffectofacquisitionsonourintercompanyR&Dcostsharingarrangementandlegalstructure
• Incurlargeandimmediatewrite-offsandrestructuringandotherrelatedexpenses
• Becomesubjecttointellectualpropertyorotherlitigation
Mergersandacquisitionsofhigh-technologycompaniesareinherentlyriskyandsubjecttomanyfactorsoutsideofourcontrol,andnoassurancecanbegiventhatour previous or future acquisitions will be successful and will not materially adversely affect our business, operating results, or financial condition. Failure tomanage and successfully integrate acquisitions could materially harm our business and operating results. Prior acquisitions have resulted in a wide range ofoutcomes, from successful introduction of new products and technologies to a failure to do so. Even when an acquired company has already developed andmarketedproducts,therecanbenoassurancethatproductenhancementswillbemadeinatimelyfashionorthatpre-acquisitionduediligencewillhaveidentifiedallpossibleissuesthatmightarisewithrespecttosuchproducts.
Fromtimetotime, wehavemadeacquisitionsthat resultedincharges inanindividual quarter. Thesechargesmayoccur inanyparticular quarter, resultinginvariabilityinourquarterlyearnings. Inaddition,oureffectivetaxrateforfutureperiodsisuncertainandcouldbeimpactedbymergersandacquisitions. Risksrelatedtonewproductdevelopmentalsoapplytoacquisitions.Seetheriskfactorsabove,includingtheriskfactorentitled“Wedependuponthedevelopmentofnewproductsandenhancementstoexistingproducts,andifwefailtopredictandrespondtoemergingtechnologicaltrendsandcustomers’changingneeds,ouroperatingresultsandmarketsharemaysuffer”foradditionalinformation.
ENTRANCE INTO NEW OR DEVELOPING MARKETS EXPOSES US TO ADDITIONAL COMPETITION AND WILL LIKELY INCREASEDEMANDS ON OUR SERVICE AND SUPPORT OPERATIONS
Aswefocusonnewmarketopportunitiesandkeypriorityandgrowthareas,wewillincreasinglycompetewithlargetelecommunicationsequipmentsuppliersaswell as startup companies. Several of our competitors mayhave greater resources, including technical and engineering resources, than wedo. Additionally, ascustomersinthesemarketscompleteinfrastructuredeployments,theymayrequiregreaterlevelsofservice,support,andfinancingthanwehaveprovidedinthepast,especiallyinemergingcountries.Demandforthesetypesofservice,support,orfinancingcontractsmayincreaseinthefuture.Therecanbenoassurancethatwecanprovideproducts,service,support,andfinancingtoeffectivelycompeteforthesemarketopportunities.
Further,provisionofgreaterlevelsofservices,supportandfinancingbyusmayresultinadelayinthetimingofrevenuerecognition.Inaddition,entryintoothermarketshassubjectedandwillsubjectustoadditionalrisks,particularlytothosemarkets,includingtheeffectsofgeneralmarketconditionsandreducedconsumerconfidence. For example, as we add direct selling capabilities globally to meet changing customer demands, we will face increased legal and regulatoryrequirements.
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INDUSTRY CONSOLIDATION MAY LEAD TO INCREASED COMPETITION AND MAY HARM OUR OPERATING RESULTS
Therehasbeenatrendtowardindustryconsolidationinourmarketsforseveralyears.Weexpectthistrendtocontinueascompaniesattempttostrengthenorholdtheirmarketpositionsinanevolvingindustryandascompaniesareacquiredorareunabletocontinueoperations.Forexample,someofourcurrentandpotentialcompetitorsforenterprisedatacenterbusinesshavemadeacquisitions,orannouncednewstrategicalliances,designedtopositionthemwiththeabilitytoprovideend-to-endtechnologysolutionsfortheenterprisedatacenter.Companiesthatarestrategicalliancepartnersinsomeareasofourbusinessmayacquireorformallianceswithourcompetitors,therebyreducingtheirbusinesswithus.Webelievethatindustryconsolidationmayresultinstrongercompetitorsthatarebetterabletocompeteassole-sourcevendorsforcustomers.Thiscouldleadtomorevariabilityinouroperatingresultsandcouldhaveamaterialadverseeffectonourbusiness,operatingresults,andfinancialcondition.Furthermore,particularlyintheserviceprovidermarket,rapidconsolidationwillleadtofewercustomers,withtheeffectthatlossofamajorcustomercouldhaveamaterialimpactonresultsnotanticipatedinacustomermarketplacecomposedofmorenumerousparticipants.
PRODUCT QUALITY PROBLEMS COULD LEAD TO REDUCED REVENUE, GROSS MARGINS, AND NET INCOME
Weproducehighlycomplexproductsthatincorporateleading-edgetechnology,includingbothhardwareandsoftware.Softwaretypicallycontainsbugsthatcanunexpectedlyinterferewithexpectedoperations. Therecanbenoassurancethatourpre-shipmenttestingprogramswill beadequatetodetectall defects, eitheronesinindividualproductsoronesthatcouldaffectnumerousshipments,whichmightinterferewithcustomersatisfaction,reducesalesopportunities,oraffectgrossmargins.Fromtimetotime,wehavehadtoreplacecertaincomponentsandprovideremediationinresponsetothediscoveryofdefectsorbugsinproductsthatwehadshipped.Therecanbenoassurancethatsuchremediation,dependingontheproductinvolved,wouldnothaveamaterialimpact.Aninabilitytocureaproductdefectcouldresultinthefailureofaproductline,temporaryorpermanentwithdrawalfromaproductormarket,damagetoourreputation,inventorycosts,orproductreengineeringexpenses, anyofwhichcouldhaveamaterial impact onourrevenue, margins, andnetincome.Forexample, inthesecondquarter offiscal 2014, we recorded a pre-tax charge of $655 million related to the expected remediation costs for certain products sold in prior fiscal years containingmemorycomponentsmanufacturedbyasinglesupplierbetween2005and2010.
DUE TO THE GLOBAL NATURE OF OUR OPERATIONS, POLITICAL OR ECONOMIC CHANGES OR OTHER FACTORS IN A SPECIFICCOUNTRY OR REGION COULD HARM OUR OPERATING RESULTS AND FINANCIAL CONDITION
Weconduct significant sales and customer support operations in countries around the world. As such, our growth depends in part on our increasing sales intoemergingcountries.Wealsodependonnon-U.S.operationsofourcontractmanufacturers,componentsuppliersanddistributionpartners.Emergingcountriesinthe aggregate experienced a decline in orders during the fourth quarter of fiscal 2016, and also in fiscal 2014 and fiscal 2015. We continue to assess thesustainabilityofanyimprovementsinthesecountriesandtherecanbenoassurancethatourinvestmentsinthesecountrieswillbesuccessful.Ourfutureresultscouldbemateriallyadverselyaffectedbyavarietyofpolitical,economicorotherfactorsrelatingtoouroperationsinsideandoutsidetheUnitedStates,includingimpacts fromglobal central bank monetary policy; issues related to the political relationship between the United States and other countries that can affect thewillingnessofcustomersinthosecountriestopurchaseproductsfromcompaniesheadquarteredintheUnitedStates;andthechallengingandinconsistentglobalmacroeconomicenvironment,anyorallofwhichcouldhaveamaterialadverseeffectonouroperatingresultsandfinancialcondition,including,amongothers,thefollowing:
• Foreigncurrencyexchangerates
• Politicalorsocialunrest
•
Economicinstabilityorweaknessornaturaldisastersinaspecificcountryorregion,includingthecurrenteconomicchallengesinChinaandglobaleconomic ramifications of Chinese economic difficulties; instability as a result of Brexit; environmental andtrade protection measures andotherlegalandregulatoryrequirements,someofwhichmayaffectourabilitytoimportourproducts,toexportourproductsfrom,orsellourproductsinvariouscountries
• Politicalconsiderationsthataffectserviceproviderandgovernmentspendingpatterns
• Healthorsimilarissues,suchasapandemicorepidemic
• Difficultiesinstaffingandmanaginginternationaloperations
• Adversetaxconsequences,includingimpositionofwithholdingorothertaxesonourglobaloperations
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WE ARE EXPOSED TO THE CREDIT RISK OF SOME OF OUR CUSTOMERS AND TO CREDIT EXPOSURES IN WEAKENED MARKETS,WHICH COULD RESULT IN MATERIAL LOSSES
Mostofoursalesareonanopencreditbasis,withtypicalpaymenttermsof30daysintheUnitedStatesand,becauseoflocalcustomsorconditions,longerinsomemarketsoutsidetheUnitedStates.Wemonitorindividualcustomerpaymentcapabilityingrantingsuchopencreditarrangements,seektolimitsuchopencredit to amounts webelievethecustomers canpay, andmaintain reserves webelieveare adequate tocover exposurefor doubtful accounts. Beyondouropencreditarrangements,wehavealsoexperienceddemandsforcustomerfinancingandfacilitationofleasingarrangements.Weexpectdemandforcustomerfinancingto continue, and recently wehave been experiencing an increase in this demandas the credit markets have been impacted by the challenging and inconsistentglobalmacroeconomicenvironment,includingincreaseddemandfromcustomersincertainemergingcountries.
Webelievecustomerfinancingisacompetitivefactorinobtainingbusiness,particularlyinservingcustomersinvolvedinsignificantinfrastructureprojects.Ourloan financing arrangements may include not only financing the acquisition of our products and services but also providing additional funds for other costsassociatedwithnetworkinstallationandintegrationofourproductsandservices.
Ourexposuretothecredit risksrelatingtoour financingactivities describedabovemayincrease if our customers are adverselyaffectedbyaglobal economicdownturn or periods of economic uncertainty. Although we have programs in place that are designed to monitor and mitigate the associated risk, includingmonitoringofparticularrisksincertaingeographicareas,therecanbenoassurancethatsuchprogramswillbeeffectiveinreducingourcreditrisks.
In the past, there have been significant bankruptcies among customers both on open credit and with loan or lease financing arrangements, particularly amongInternetbusinessesandserviceproviders,causingustoincureconomicorfinanciallosses.Therecanbenoassurancethatadditionallosseswillnotbeincurred.Althoughtheselosseshavenotbeenmaterialtodate,futurelosses,ifincurred,couldharmourbusinessandhaveamaterialadverseeffectonouroperatingresultsandfinancialcondition.Aportionofoursalesisderivedthroughourdistributors.Thesedistributorsaregenerallygivenbusinesstermsthatallowthemtoreturnaportionofinventory,receivecreditsforchangesinsellingprices,andparticipateinvariouscooperativemarketingprograms.Wemaintainestimatedaccrualsandallowancesforsuchbusinessterms.However,distributorstendtohavemorelimitedfinancialresourcesthanotherresellersandend-usercustomersandthereforerepresentpotentialsourcesofincreasedcreditrisk,becausetheymaybemorelikelytolackthereserveresourcestomeetpaymentobligations.Additionally,tothedegree that turmoil in the credit markets makes it more difficult for some customers to obtain financing, those customers’ ability to pay could be adverselyimpacted,whichinturncouldhaveamaterialadverseimpactonourbusiness,operatingresults,andfinancialcondition.
WE ARE EXPOSED TO FLUCTUATIONS IN THE MARKET VALUES OF OUR PORTFOLIO INVESTMENTS AND IN INTEREST RATES;IMPAIRMENT OF OUR INVESTMENTS COULD HARM OUR EARNINGS
Wemaintainaninvestmentportfolioofvariousholdings,types,andmaturities.Thesesecuritiesaregenerallyclassifiedasavailable-for-saleand,consequently,arerecordedonourConsolidatedBalanceSheetsatfairvaluewithunrealizedgainsorlossesreportedasacomponentofaccumulatedothercomprehensiveincome(loss),netoftax.Ourportfolioincludesfixedincomesecuritiesandequityinvestmentsinpubliclytradedcompanies,thevaluesofwhicharesubjecttomarketprice volatility to the extent unhedged. If such investments suffer market price declines, as we experienced with someof our investments in the past, we mayrecognizeinearningsthedeclineinthefairvalueofourinvestmentsbelowtheircostbasiswhenthedeclineisjudgedtobeotherthantemporary.Forinformationregarding the sensitivity of and risks associated with the market value of portfolio investments and interest rates, refer to the section titled “Quantitative andQualitative Disclosures About Market Risk.” Our investments in private companies are subject to risk of loss of investment capital. These investments areinherentlyriskybecausethemarketsforthetechnologiesorproductstheyhaveunderdevelopmentaretypicallyintheearlystagesandmaynevermaterialize.Wecouldloseourentireinvestmentinthesecompanies.
WE ARE EXPOSED TO FLUCTUATIONS IN CURRENCY EXCHANGE RATES THAT COULD NEGATIVELY IMPACT OUR FINANCIALRESULTS AND CASH FLOWS
BecauseasignificantportionofourbusinessisconductedoutsidetheUnitedStates,wefaceexposuretoadversemovementsinforeigncurrencyexchangerates.These exposures may change over time as business practices evolve, and they could have a material adverse impact on our financial results and cash flows.Historically, our primary exposures have related to nondollar-denominated sales in Japan, Canada, and Australia and certain nondollar-denominated operatingexpenses and service cost of sales in Europe, Latin America, and Asia, where we sell primarily in U.S. dollars. Additionally, we have exposures to emergingmarketcurrencies,whichcanhaveextremecurrencyvolatility.AnincreaseinthevalueofthedollarcouldincreasetherealcosttoourcustomersofourproductsinthosemarketsoutsidetheUnitedStateswherewesellindollarsandaweakeneddollarcouldincreasethecostoflocaloperatingexpensesandprocurementofrawmaterialstotheextentthatwemustpurchasecomponentsinforeigncurrencies.
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Currently, we enter into foreign exchange forward contracts and options to reduce the short-term impact of foreign currency fluctuations on certain foreigncurrencyreceivables,investments,andpayables.Inaddition,weperiodicallyhedgeanticipatedforeigncurrencycashflows.Ourattemptstohedgeagainsttheserisksmayresultinanadverseimpactonournetincome.
OUR PROPRIETARY RIGHTS MAY PROVE DIFFICULT TO ENFORCE
Wegenerallyrelyonpatents,copyrights,trademarks,andtradesecretlawstoestablishandmaintainproprietaryrightsinourtechnologyandproducts.Althoughwehavebeenissuednumerouspatentsandotherpatentapplicationsarecurrentlypending,therecanbenoassurancethatanyofthesepatentsorotherproprietaryrightswillnotbechallenged,invalidated,orcircumventedorthatourrightswill,infact,providecompetitiveadvantagestous.Furthermore,manykeyaspectsofnetworkingtechnologyaregovernedbyindustrywidestandards,whichareusablebyallmarketentrants.Inaddition,therecanbenoassurancethatpatentswillbeissuedfrompendingapplicationsorthatclaimsallowedonanypatentswillbesufficientlybroadtoprotectourtechnology.Inaddition,thelawsofsomeforeigncountriesmaynotprotectourproprietaryrightstothesameextentasdothelawsoftheUnitedStates.TheoutcomeofanyactionstakenintheseforeigncountriesmaybedifferentthanifsuchactionsweredeterminedunderthelawsoftheUnitedStates.Althoughwearenotdependentonanyindividualpatentsorgroupofpatentsforparticularsegmentsofthebusinessforwhichwecompete,if weareunabletoprotectourproprietaryrightstothetotalityofthefeatures(includingaspects of products protected other than by patent rights) in a market, we may find ourselves at a competitive disadvantage to others who need not incur thesubstantialexpense,time,andeffortrequiredtocreateinnovativeproductsthathaveenabledustobesuccessful.
WE MAY BE FOUND TO INFRINGE ON INTELLECTUAL PROPERTY RIGHTS OF OTHERS
Thirdparties,includingcustomers,haveinthepastandmayinthefutureassertclaimsorinitiatelitigationrelatedtoexclusivepatent,copyright,trademark,andotherintellectualpropertyrightstotechnologiesandrelatedstandardsthatarerelevanttous.Theseassertionshaveincreasedovertimeasaresultofourgrowthandthe general increase in the pace of patent claims assertions, particularly in the United States. Because of the existence of a large number of patents in thenetworkingfield,thesecrecyofsomependingpatents,andtherapidrateofissuanceofnewpatents,itisnoteconomicallypracticalorevenpossibletodetermineinadvancewhetheraproductoranyofitscomponentsinfringesorwillinfringeonthepatentrightsofothers.Theassertedclaimsand/orinitiatedlitigationcaninclude claims against us or our manufacturers, suppliers, or customers, alleging infringement of their proprietary rights with respect to our existing or futureproductsorcomponentsofthoseproducts.Regardlessofthemeritoftheseclaims,theycanbetime-consuming,resultincostlylitigationanddiversionoftechnicalandmanagementpersonnel,orrequireustodevelopanon-infringingtechnologyorenterintolicenseagreements.Whereclaimsaremadebycustomers,resistanceeventounmeritoriousclaimscoulddamagecustomerrelationships.Therecanbenoassurancethatlicenseswillbeavailableonacceptabletermsandconditions,ifatall,orthatourindemnificationbyoursupplierswillbeadequatetocoverourcostsifaclaimwerebroughtdirectlyagainstusorourcustomers.Furthermore,because of the potential for high court awards that are not necessarily predictable, it is not unusual to find even arguably unmeritorious claims settled forsignificant amounts. If anyinfringement orotherintellectual propertyclaimmadeagainst usbyanythirdpartyissuccessful, if wearerequiredtoindemnifyacustomer with respect to a claim against the customer, or if we fail to develop non-infringing technology or license the proprietary rights on commerciallyreasonable termsandconditions, our business, operating results, andfinancial condition could be materially andadversely affected. For additional informationregardingourindemnificationobligations,seeNote12(g)totheConsolidatedFinancialStatementscontainedinthisreport.
Ourexposuretorisksassociatedwiththeuseofintellectualpropertymaybeincreasedasaresultofacquisitions,aswehavealowerlevelofvisibilityintothedevelopment process with respect to such technology or the care taken to safeguard against infringement risks. Further, in the past, third parties have madeinfringementandsimilarclaimsafterwehaveacquiredtechnologythathadnotbeenassertedpriortoouracquisition.
WE RELY ON THE AVAILABILITY OF THIRD-PARTY LICENSES
Manyofourproductsaredesignedtoincludesoftwareorotherintellectualpropertylicensedfromthirdparties.Itmaybenecessaryinthefuturetoseekorrenewlicensesrelatingtovariousaspectsoftheseproducts.Therecanbenoassurancethatthenecessarylicenseswouldbeavailableonacceptableterms,ifatall.Theinabilitytoobtaincertainlicensesorotherrightsortoobtainsuchlicensesorrightsonfavorableterms,ortheneedtoengageinlitigationregardingthesematters,could have a material adverse effect on our business, operating results, and financial condition. Moreover, the inclusion in our products of software or otherintellectualpropertylicensedfromthirdpartiesonanonexclusivebasiscouldlimitourabilitytoprotectourproprietaryrightsinourproducts.
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OUR OPERATING RESULTS MAY BE ADVERSELY AFFECTED AND DAMAGE TO OUR REPUTATION MAY OCCUR DUE TO PRODUCTIONAND SALE OF COUNTERFEIT VERSIONS OF OUR PRODUCTS
Asisthecasewithleadingproductsaroundtheworld,ourproductsaresubjecttoeffortsbythirdpartiestoproducecounterfeitversionsofourproducts.Whilewework diligently with law enforcement authorities in various countries to block the manufacture of counterfeit goods and to interdict their sale, and to detectcounterfeitproductsincustomernetworks,andhavesucceededinprosecutingcounterfeitersandtheirdistributors,resultinginfines,imprisonmentandrestitutiontous,therecanbenoguaranteethatsucheffortswillsucceed.Whilecounterfeitersoftenaimtheirsalesatcustomerswhomightnothaveotherwisepurchasedourproductsduetolackofverifiabilityoforiginandservice,suchcounterfeitsales,totheextenttheyreplaceotherwiselegitimatesales,couldadverselyaffectouroperatingresults.
OUR OPERATING RESULTS AND FUTURE PROSPECTS COULD BE MATERIALLY HARMED BY UNCERTAINTIES OF REGULATION OFTHE INTERNET
Currently,fewlawsorregulationsapplydirectlytoaccessorcommerceontheInternet.WecouldbemateriallyadverselyaffectedbyregulationoftheInternetandInternetcommerceinanycountrywhereweoperate.SuchregulationscouldincludematterssuchasvoiceovertheInternetorusingIP,encryptiontechnology,salesorothertaxesonInternetproductorservicesales,andaccesschargesforInternetserviceproviders.TheadoptionofregulationoftheInternetandInternetcommercecoulddecreasedemandforourproductsand,atthesametime,increasethecostofsellingourproducts,whichcouldhaveamaterialadverseeffectonourbusiness,operatingresults,andfinancialcondition.
CHANGES IN TELECOMMUNICATIONS REGULATION AND TARIFFS COULD HARM OUR PROSPECTS AND FUTURE SALES
Changes in telecommunications requirements, or regulatory requirements in other industries in whichweoperate, in the UnitedStates or other countries couldaffectthesalesofourproducts.Inparticular,webelievethattheremaybefuturechangesinU.S.telecommunicationsregulationsthatcouldslowtheexpansionofthe service providers’ network infrastructures and materially adversely affect our business, operating results, andfinancial condition, including "net neutrality"rulestotheextenttheyimpactdecisionsoninvestmentinnetworkinfrastructure.
Future changes in tariffs by regulatory agencies or application of tariff requirements to currently untariffed services could affect the sales of our products forcertain classes of customers. Additionally, in the United States, our products must comply with various requirements and regulations of the FederalCommunications Commission andother regulatory authorities. In countries outside of the United States, our products must meet various requirements of localtelecommunicationsandotherindustryauthorities.Changesintariffsorfailurebyustoobtaintimelyapprovalofproductscouldhaveamaterialadverseeffectonourbusiness,operatingresults,andfinancialcondition.
FAILURE TO RETAIN AND RECRUIT KEY PERSONNEL WOULD HARM OUR ABILITY TO MEET KEY OBJECTIVES
Oursuccesshasalwaysdependedinlargepartonourabilitytoattractandretainhighlyskilledtechnical,managerial,sales,andmarketingpersonnel.Competitionforthesepersonnelisintense,especiallyintheSiliconValleyareaofNorthernCalifornia.Stockincentiveplansaredesignedtorewardemployeesfortheirlong-termcontributionsandprovideincentivesforthemtoremainwithus.Volatilityorlackofpositiveperformanceinourstockpriceorequityincentiveawards,orchanges to our overall compensation program, including our stock incentive program, resulting from the management of share dilution and share-basedcompensationexpenseorotherwise,mayalsoadverselyaffectourabilitytoretainkeyemployees.Asaresultofoneormoreofthesefactors,wemayincreaseourhiringingeographicareasoutsidetheUnitedStates,whichcouldsubjectustoadditionalgeopoliticalandexchangeraterisk.Thelossofservicesofanyofourkeypersonnel;theinabilitytoretainandattractqualifiedpersonnelinthefuture;ordelaysinhiringrequiredpersonnel,particularlyengineeringandsalespersonnel,couldmakeitdifficulttomeetkeyobjectives,suchastimelyandeffectiveproductintroductions.Inaddition,companiesinourindustrywhoseemployeesacceptpositionswithcompetitorsfrequentlyclaimthatcompetitorshaveengagedinimproperhiringpractices.Wehavereceivedtheseclaimsinthepastandmayreceiveadditionalclaimstothiseffectinthefuture.
ADVERSE RESOLUTION OF LITIGATION OR GOVERNMENTAL INVESTIGATIONS MAY HARM OUR OPERATING RESULTS ORFINANCIAL CONDITION
Weareapartytolawsuitsinthenormalcourseofourbusiness.Litigationcanbeexpensive,lengthy,anddisruptivetonormalbusinessoperations.Moreover,theresultsofcomplexlegalproceedingsaredifficulttopredict.Forexample,BrazilianauthoritieshaveinvestigatedourBraziliansubsidiaryandcertainofitscurrentandformeremployees, aswell asaBrazilianimporter ofourproducts, andits affiliates andemployees, relatingtoallegedevasionofimport taxesandallegedimpropertransactionsinvolvingthesubsidiaryandtheimporter.BraziliantaxauthoritieshaveassessedclaimsagainstourBraziliansubsidiarybasedonatheoryofjointliabilitywiththeBrazilianimporterforimporttaxes,interest,andpenalties.Inthefirstquarteroffiscal2013,theBrazilianfederaltaxauthoritiesassertedanadditionalclaimagainstourBraziliansubsidiarybasedonatheoryofjointliabilitywithrespect
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toanallegedunderpaymentofincometaxes,socialtaxes,interest,andpenaltiesbyaBraziliandistributor.Thisclaimwasdismissedonitsmeritsduringthethirdquarteroffiscal2016.TheassertedclaimsbyBrazilianfederaltaxauthoritieswhichremainareforcalendaryears2003through2007,andtheassertedclaimsbythetaxauthoritiesfromthestateofSaoPauloareforcalendaryears2005through2007.ThetotalassertedclaimsbyBrazilianstateandfederal taxauthoritiesaggregateto$249millionfortheallegedevasionofimportandothertaxes,$1.3billionforinterest,and$1.2billionforvariouspenalties,alldeterminedusinganexchange rate as of July 30, 2016 . We have completed a thorough review of the matters and believe the asserted claims against our Brazilian subsidiary arewithoutmerit,andwearedefendingtheclaimsvigorously.Whilewebelievethereisnolegalbasisfortheallegedliability,duetothecomplexitiesanduncertaintysurroundingthejudicialprocessinBrazilandthenatureoftheclaimsassertingjointliabilitywiththeimporter,weareunabletodeterminethelikelihoodofanunfavorableoutcomeagainstourBraziliansubsidiaryandareunabletoreasonablyestimatearangeofloss,ifany.Wedonotexpectafinaljudicialdeterminationforseveralyears.Anunfavorableresolutionoflawsuitsorgovernmentalinvestigationscouldhaveamaterialadverseeffectonourbusiness,operatingresults,orfinancialcondition.Foradditionalinformationregardingcertainofthemattersinwhichweareinvolved,seeItem3,“LegalProceedings,”containedinPartIofthisreport.
CHANGES IN OUR PROVISION FOR INCOME TAXES OR ADVERSE OUTCOMES RESULTING FROM EXAMINATION OF OUR INCOMETAX RETURNS COULD ADVERSELY AFFECT OUR RESULTS
Ourprovisionforincometaxesissubjecttovolatilityandcouldbeadverselyaffectedbyearningsbeinglowerthananticipatedincountriesthathavelowertaxrates and higher than anticipated in countries that have higher tax rates; by changes in the valuation of our deferred tax assets and liabilities; by changes todomestic manufacturing deduction laws, regulations, or interpretations thereof; by expiration of or lapses in tax incentives; by transfer pricing adjustments,includingtheeffectofacquisitionsonourintercompanyR&Dcostsharingarrangementandlegalstructure;bytaxeffectsofnondeductiblecompensation;bytaxcosts related to intercompany realignments; by changes in accounting principles; or by changes in tax laws and regulations, treaties, or interpretations thereof,includingpossiblechangestothetaxationofearningsofourforeignsubsidiaries,thedeductibilityofexpensesattributabletoforeignincome,ortheforeigntaxcredit rules. Significant judgment is required to determine the recognition and measurement attribute prescribed in the accounting guidance for uncertainty inincome taxes. The Organisation for Economic Co-operation and Development (OECD), an international association comprised of 34 countries, including theUnitedStates,hasrecentlymadechangestonumerouslong-standingtaxprinciples.Therecanbenoassurancethatthesechanges,onceadoptedbycountries,willnot have an adverse impact on our provision for income taxes. Further, as a result of certain of our ongoing employment and capital investment actions andcommitments, our incomein certain countries is subject to reducedtax rates. Our failure to meet these commitments could adversely impact our provisionforincometaxes.Inaddition,wearesubjecttothecontinuousexaminationofourincometaxreturnsbytheInternalRevenueServiceandothertaxauthorities.Weregularlyassessthelikelihoodofadverseoutcomesresultingfromtheseexaminationstodeterminetheadequacyofourprovisionforincometaxes.Therecanbenoassurancethattheoutcomesfromthesecontinuousexaminationswillnothaveanadverseeffectonouroperatingresultsandfinancialcondition.
OUR BUSINESS AND OPERATIONS ARE ESPECIALLY SUBJECT TO THE RISKS OF EARTHQUAKES, FLOODS, AND OTHER NATURALCATASTROPHIC EVENTS
Ourcorporateheadquarters,includingcertainofourresearchanddevelopmentoperationsarelocatedintheSiliconValleyareaofNorthernCalifornia,aregionknownforseismicactivity.Additionally,acertainnumberofourfacilitiesarelocatednearriversthathaveexperiencedfloodinginthepast.Alsocertainofoursuppliersandlogisticscentersarelocatedinregionsthathavebeenormaybeaffectedbyearthquake,tsunamiandfloodingactivitywhichinthepasthasdisrupted,andinthefuturecoulddisrupt,theflowofcomponentsanddeliveryofproducts.Asignificantnaturaldisaster,suchasanearthquake,ahurricane,volcano,oraflood,couldhaveamaterialadverseimpactonourbusiness,operatingresults,andfinancialcondition.MAN-MADE PROBLEMS SUCH AS CYBER-ATTACKS, DATA PROTECTION BREACHES, COMPUTER VIRUSES OR TERRORISM MAYDISRUPT OUR OPERATIONS, HARM OUR OPERATING RESULTS AND DAMAGE OUR REPUTATION, AND CYBER-ATTACKS OR DATAPROTECTION BREACHES ON OUR CUSTOMERS’ NETWORKS, OR IN CLOUD-BASED SERVICES PROVIDED BY OR ENABLED BY US,COULD RESULT IN LIABILITY FOR US, DAMAGE OUR REPUTATION OR OTHERWISE HARM OUR BUSINESS
Despite our implementation of network security measures, the products and services we sell to customers, and our servers, data centers and the cloud-basedsolutions on which our data, and data of our customers, suppliers and business partners are stored, are vulnerable to cyber-attacks, data protection breaches,computerviruses,andsimilardisruptionsfromunauthorizedtamperingorhumanerror.Anysucheventcouldcompromiseournetworksorthoseofourcustomers,andtheinformationstoredonournetworksorthoseofourcustomerscouldbeaccessed,publiclydisclosed,lostorstolen,whichcouldsubjectustoliabilitytoourcustomers, suppliers, businesspartnersandothers, andcouldhaveamaterial adverseeffectonourbusiness, operatingresults, andfinancial conditionandmaycausedamagetoourreputation.EffortstolimittheabilityofmaliciousthirdpartiestodisrupttheoperationsoftheInternetorundermineourownsecurityeffortsmaybe costly to implement andmeet with resistance, andmaynot be successful. Breaches of network security in our customers’ networks, or in cloud-basedservicesprovidedbyorenabledbyus,
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regardlessofwhetherthebreachisattributabletoavulnerabilityinourproductsorservices,couldresultinliabilityforus,damageourreputationorotherwiseharmourbusiness.
Inaddition,thecontinuedthreatofterrorismandheightenedsecurityandmilitaryactioninresponsetothisthreat,oranyfutureactsofterrorism,maycausefurtherdisruptionstotheeconomiesoftheUnitedStatesandothercountriesandcreatefurtheruncertaintiesorotherwisemateriallyharmourbusiness,operatingresults,and financial condition. Likewise, events such as loss of infrastructure and utilities services such as energy, transportation, or telecommunications could havesimilarnegativeimpacts.Totheextentthatsuchdisruptionsoruncertaintiesresultindelaysorcancellationsofcustomerordersorthemanufactureorshipmentofourproducts,ourbusiness,operatingresults,andfinancialconditioncouldbemateriallyandadverselyaffected.
IF WE DO NOT SUCCESSFULLY MANAGE OUR STRATEGIC ALLIANCES, WE MAY NOT REALIZE THE EXPECTED BENEFITS FROMSUCH ALLIANCES AND WE MAY EXPERIENCE INCREASED COMPETITION OR DELAYS IN PRODUCT DEVELOPMENT
WehaveseveralstrategicallianceswithlargeandcomplexorganizationsandothercompanieswithwhichweworktooffercomplementaryproductsandservicesandhaveestablishedajointventuretomarketservicesassociatedwithourCiscoUnifiedComputingSystemproducts.Thesearrangementsaregenerallylimitedtospecificprojects,thegoalofwhichisgenerallytofacilitateproductcompatibilityandadoptionofindustrystandards.Therecanbenoassurancewewillrealizetheexpected benefits from these strategic alliances or from the joint venture. If successful, these relationships may be mutually beneficial and result in industrygrowth. However, alliances carry an element of risk because, in most cases, we must compete in some business areas with a company with which we have astrategicallianceand,atthesametime,cooperatewiththatcompanyinotherbusinessareas.Also,ifthesecompaniesfailtoperformoriftheserelationshipsfailtomaterialize as expected, we could suffer delays in product development or other operational difficulties. Joint ventures can be difficult to manage, given thepotentiallydifferentinterestsofjointventurepartners.
OUR STOCK PRICE MAY BE VOLATILE
Historically, our common stock has experienced substantial price volatility, particularly as a result of variations between our actual financial results and thepublishedexpectationsofanalystsandasaresultofannouncementsbyourcompetitorsandus.Furthermore,speculationinthepressorinvestmentcommunityaboutourstrategicposition,financialcondition,resultsofoperations,business,securityofourproducts,orsignificanttransactionscancausechangesinourstockprice.Inaddition,thestockmarkethasexperiencedextremepriceandvolumefluctuationsthathaveaffectedthemarketpriceofmanytechnologycompanies,inparticular,andthathaveoftenbeenunrelatedtotheoperatingperformanceofthesecompanies.Thesefactors,aswellasgeneraleconomicandpoliticalconditionsandtheannouncementofproposedandcompletedacquisitionsorothersignificanttransactions,oranydifficultiesassociatedwithsuchtransactions,byusorourcurrent or potential competitors, may materially adversely affect the market price of our common stock in the future. Additionally, volatility, lack of positiveperformanceinourstockpriceorchangestoouroverallcompensationprogram,includingourstockincentiveprogram,mayadverselyaffectourabilitytoretainkeyemployees,virtuallyallofwhomarecompensated,inpart,basedontheperformanceofourstockprice.
THERE CAN BE NO ASSURANCE THAT OUR OPERATING RESULTS AND FINANCIAL CONDITION WILL NOT BE ADVERSELYAFFECTED BY OUR INCURRENCE OF DEBT
Asof the end of fiscal 2016, we have senior unsecured notes outstanding in an aggregate principal amount of$28.4billionthat mature at specific dates fromcalendaryear2017through2040.Wehavealsoestablishedacommercialpaperprogramunderwhichwemayissueshort-term,unsecuredcommercialpapernotesonaprivateplacementbasisuptoamaximumaggregateamountoutstandingatanytimeof$3.0billion,andwehadnocommercialpapernotesoutstandingunderthisprogramasofJuly30,2016.Theoutstandingseniorunsecurednotesbearfixed-rate interest payablesemiannually, except$3.4billionofthenoteswhichbearsinterestatafloatingratepayablequarterly.Thefairvalueofthelong-termdebtissubjecttomarketinterestratevolatility.Theinstrumentsgoverningtheseniorunsecurednotescontaincertaincovenantsapplicabletousandourwholly-ownedsubsidiariesthatmayadverselyaffectourabilitytoincurcertainliensorengagein certain types of sale andleaseback transactions. In addition, wewill be required to haveavailable in the United States sufficient cash to service theinterestonourdebtandrepayallofournotesonmaturity.Therecanbenoassurancethatourincurrenceofthisdebtoranyfuturedebtwillbeabettermeansofproviding liquidity to us than would our use of our existing cash resources, including cash currently held offshore. Further, we cannot be assured that ourmaintenanceofthisindebtednessorincurrenceoffutureindebtednesswillnotadverselyaffectouroperatingresultsorfinancialcondition.Inaddition,changesbyanyratingagencytoourcreditratingcannegativelyimpactthevalueandliquidityofbothourdebtandequitysecurities,aswellasthetermsuponwhichwemayborrowunderourcommercialpaperprogramorfuturedebtissuances.
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Item 1B. Unresolved Staff Comments
Notapplicable.
Item 2. Properties
OurcorporateheadquartersarelocatedatanownedsiteinSanJose,California,intheUnitedStatesofAmerica.Thelocationsofourheadquartersbygeographicsegmentareasfollows:
Americas EMEA APJCSanJose,California,USA Amsterdam,Netherlands Singapore
In addition to our headquarters site, we own additional sites in the United States, which include facilities in the surrounding areas of San Jose, California;ResearchTriangle Park, NorthCarolina; Richardson, Texas; Lawrenceville, Georgia; andBoston, Massachusetts. Wealsoownlandfor expansionin someoftheselocations.Inaddition,weleaseofficespaceinmanyU.S.locations.
Outside the United States our operations are conducted primarily in leased sites, such as our Globalisation Centre East campus in Bangalore, India. Othersignificant sites (in addition to the two non-U.S. headquarters locations) are located inBelgium, Canada, China, Germany, India, Israel, Japan, Netherlands,Poland,andtheUnitedKingdom.
We believe that our existing facilities, including both owned and leased, are in good condition and suitable for the conduct of our business. For additionalinformationregardingobligationsunderoperatingleases,seeNote12totheConsolidatedFinancialStatements.
Item 3. Legal Proceedings
BrazilBrazilian authorities have investigated our Brazilian subsidiary and certain of its current and former employees, as well as a Brazilian importer of ourproducts,anditsaffiliatesandemployees,relatingtoallegedevasionofimporttaxesandallegedimpropertransactionsinvolvingthesubsidiaryandtheimporter.Brazilian tax authorities have assessed claims against our Brazilian subsidiary based on a theory of joint liability with the Brazilian importer for import taxes,interest, andpenalties. InadditiontoclaimsassertedbytheBrazilianfederal taxauthorities inprior fiscal years, taxauthorities fromtheBrazilianstate ofSaoPaulohaveassertedsimilarclaimsonthesamelegalbasisinpriorfiscalyears.Inthefirstquarteroffiscal2013,theBrazilianfederaltaxauthoritiesassertedanadditionalclaimagainstourBraziliansubsidiarybasedonatheoryofjointliabilitywithrespecttoanallegedunderpaymentofincometaxes,socialtaxes,interest,andpenaltiesbyaBraziliandistributor.Thisclaimwasdismissedonitsmeritsduringthethirdquarteroffiscal2016.TheassertedclaimsbyBrazilianfederaltaxauthoritieswhichremainareforcalendaryears2003through2007,andtheassertedclaimsbythetaxauthoritiesfromthestateofSaoPauloareforcalendaryears2005through2007.ThetotalassertedclaimsbyBrazilianstateandfederaltaxauthoritiesaggregateto$249millionfortheallegedevasionofimportandothertaxes,$1.3billionforinterest,and$1.2billionforvariouspenalties,alldeterminedusinganexchangerateasofJuly30,2016 . We have completed a thorough review of the matters and believe the asserted claims against our Brazilian subsidiary are without merit, and we aredefendingtheclaimsvigorously.Whilewebelievethereisnolegalbasisfortheallegedliability,duetothecomplexitiesanduncertaintysurroundingthejudicialprocess in Brazil and the nature of the claims asserting joint liability with the importer, we are unable to determine the likelihood of an unfavorable outcomeagainstourBraziliansubsidiaryandareunabletoreasonablyestimatearangeofloss,ifany.Wedonotexpectafinaljudicialdeterminationforseveralyears.
RussiaandtheCommonwealthofIndependentStatesAttherequestoftheU.S.SecuritiesandExchangeCommission(“SEC”)andtheU.S.DepartmentofJustice,we have conducted an investigation into allegations which we and those agencies received regarding possible violations of the U.S. Foreign Corrupt PracticesActinvolvingbusinessactivitiesofouroperationsinRussiaandcertainoftheCommonwealthofIndependentStates,andbycertainresellersofourproductsinthosecountries.WetakeanysuchallegationsveryseriouslyandwehavefullycooperatedwithandsharedtheresultsofourinvestigationwiththeSECandtheDepartmentofJustice.Basedontheinvestigationresults,boththeSECandtheDepartmentofJusticehaverecentlyinformedusthattheyhavedecidednottobringenforcementactions.
BackflipSoftwareBackflipSoftware,Inc.(“Backflip”)assertedcontract,tort,andfraudclaimsagainstusinSantaClaraCounty,CaliforniaSuperiorCourt.TheproceedingwasinstitutedonMarch5,2013.BackflipallegesthatweconspiredwithBackflip'sthen-CEOtoallowustoaccessanduseacopyofBackflip'ssourcecode via a pre-existing escrow agreement, and that, subsequently, we used that source code in violation of trade secret law and the parties' software licenseagreement. Fiveclaimsbrought byBackflip weredismissedbytheCourt in anorder datedAugust 1, 2016; theclaimsremainingin thecaseare for breachofcontractandmisappropriationoftradesecrets.BackflipwillseekcompensatoryandenhanceddamagesduringatrialcurrentlysetforSeptember12,2016.Webelievethatwehavestrongargumentsthatwewereentitledtoaccessanduseacopyofthesourcecode
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undertheparties’softwarelicenseagreementanddidnotviolatetradesecretlaw.Inaddition,ifthejuryweretofindforBackfliponsomeorallofitsclaims,webelievethatdamageswouldnotbematerialgivenourassessmentofthevalueoftheBackflipintellectualpropertythatweareallegedtohavemisappropriated.However,duetotheuncertaintysurroundingthelitigationprocess,weareunabletoreasonablyestimatetheultimateoutcomeofthislitigationatthistime.
SRIInternationalOnSeptember4,2013,SRIInternational,Inc.(“SRI”)assertedpatentinfringementclaimsagainstusintheU.S.DistrictCourtfortheDistrictofDelaware,accusingourproductsandservicesintheareaofnetworkintrusiondetectionofinfringingtwoU.S.patents.SRIsoughtmonetarydamagesofatleastareasonable royalty and enhanced damages. The trial on these claims began on May 2, 2016 and on May 12, 2016, the jury returned a verdict finding willfulinfringementoftheassertedpatents.ThejuryawardedSRIdamagesof$23.7millionandtheCourtwilldecidewhethertoawardenhanceddamagesandattorneys’feesandwhetheranongoingroyaltyshouldbeawardedthroughtheexpirationofthepatentsin2018.InJune2016,wefiledpost-trialmotions.Wealsointendtopursue anappeal to the United States Court of Appeals for the Federal Circuit onvarious grounds. Webelieve wehavestrongarguments to overturn the juryverdictand/orreducethedamagesaward.Whiletheultimateoutcomeofthecasemaystillresultinaloss,wedonotexpectittobematerial.
SSLSSLServices,LLC(“SSL”)hasassertedclaimsforpatentinfringementagainstusintheU.S.DistrictCourtfortheEasternDistrictofTexas.TheproceedingwasinstitutedonMarch25,2015.SSLallegesthatourAnyConnectproductsthatincludeVirtualPrivateNetworkingfunctionsinfringedaU.S.patentownedbySSL. SSLseeks moneydamages fromus. OnAugust 18, 2015, Ciscopetitioned the Patent Trial andAppeal Board (“PTAB”) of the United States Patent andTrademark Office to reviewwhether the patent SSLhas asserted against us is valid over prior art. On February 23, 2016, a PTABmulti-judge panel found areasonablelikelihoodthatCiscowouldprevailinshowingthatSSL’spatentclaimsareunpatentableandinstitutedproceedings.ThePTABscheduledahearingtoreviewourpetitionforNovember16,2016.AlthoughatrialofSSL’sclaimindistrictcourtinTexaswassetforSeptember6,2016,thedistrictcourtissuedanorderonJune28,2016stayingthedistrictcourtcasependingthefinalwrittendecisionfromthePTAB.Webelievewehavestrongargumentsthatourproductsdonotinfringeandthepatentisinvalid.IfwedidnotprevailandajuryweretofindthatourAnyConnectproductsinfringe,webelievedamages,asappropriatelymeasured,wouldbeimmaterial.Duetouncertaintysurroundingpatentlitigationprocesses,however,weareunabletoreasonablyestimatetheultimateoutcomeofthislitigationatthistime.
KangtegaCiscoSystemsGmbH(“CiscoGmbH”)is subject to patent claimsbyKangtega GmbH(“Kangtega”), instituted onJune6, 2013, allegingthat CiscoGmbH infringes in Germany a European Patent by marketing in Germany network intrusion-detection (or firewall) products known as the “ASA” firewalloffering.OnApril29,2014,theMannheimRegionalCourtdismissedtheinfringementactionfindingnoinfringementbyCiscoGmbHoftheassertedpatent.OnNovember23,2016,acourtofappealinGermany(OberlandesgerichtKarlsruhe)willhearanappealofthatjudgment.ThematterhadbeensetforJuly13,2016,butthathearingwaspostponeduntilNovember23,2016.Inaddition,onJuly25,2016,theGermanFederalPatentCourtissueditsgroundsforadecisiondenyingCisco’s nullity request with respect to the Kangtega patent. The nullity decision, which is open to appeal, regards patent validity and was issued in a separateproceedingfromtheinfringementactioninwhichCiscohaspreviouslyprevailed.Intheinfringementaction,KangtegaseeksaninjunctionwhichwouldprohibitCiscoGmbH’sactivitiesinGermanywithrespecttotheASAfirewallofferingunlessCiscoGmbHtakesalicensefromKangtegaorCiscoredesignstheproducts.WebelievethelowercourtrulinginCisco’sfavorintheinfringementactionwascorrectandshouldbeaffirmed.Wedonotanticipatethattheoutcomeofthecasewould be material. However, due to uncertainty surrounding the litigation process, we are unable to reasonably estimate the outcome of the appeal and anysubsequentappealstoahighercourtatthistime.
Inaddition,wearesubjecttolegalproceedings,claims,andlitigationarisingintheordinarycourseofbusiness,includingintellectualpropertylitigation.Whiletheoutcomeofthesemattersiscurrentlynotdeterminable,wedonotexpectthattheultimatecoststoresolvethesematterswillhaveamaterialadverseeffectonourconsolidatedfinancialposition,resultsofoperations,orcashflows.Foradditionalinformationregardingintellectualpropertylitigation,see“PartII,Item1A.RiskFactors-Wemaybefoundtoinfringeonintellectualpropertyrightsofothers”herein.
Item 4. Mine Safety Disclosures
Notapplicable.
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PART II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters, and Issuer Purchases of Equity Securities
(a) CiscocommonstockistradedontheNASDAQGlobalSelectMarketunderthesymbolCSCO.InformationregardingquarterlycashdividendsdeclaredonCisco’scommonstockduringfiscal2016and2015maybefoundinSupplementaryFinancialDataonpage119ofthisreport.Therewere43,798registeredshareholdersasofSeptember2,2016.Thehighandlowcommonstocksalespricespershareforeachperiodwereasfollows:
FISCAL 2016 FISCAL2015
FiscalQuarter High Low High LowFirstquarter $ 29.38 $ 23.03 $ 26.01 $ 22.49Secondquarter $ 29.49 $ 22.47 $ 28.70 $ 23.60Thirdquarter $ 28.70 $ 22.46 $ 30.31 $ 25.92Fourthquarter $ 31.15 $ 25.81 $ 29.90 $ 26.84
(b) OnJuly15,2016,weissuedanaggregateof18,995sharesofourcommonstockinconnectionwithatransactionunderSouthAfrica’sBlackEconomicEmpowerment program to a South African education trust. The offer and sale of the securities were effected without registration in reliance onRegulationSpromulgatedundertheSecuritiesActof1933,asamended.
(c) Issuerpurchasesofequitysecurities(inmillions,exceptper-shareamounts):
Period
TotalNumber of
SharesPurchased
Average Price Paidper Share
Total Number of SharesPurchased as Part ofPublicly AnnouncedPlans or Programs
Approximate Dollar Valueof Shares
That May Yet Be PurchasedUnder the Plans or Programs
May1,2016toMay28,2016 9 $ 27.44 9 $ 15,956May29,2016toJune25,2016 6 $ 28.93 6 $ 15,777June26,2016toJuly30,2016 13 $ 29.48 13 $ 15,403Total 28 $ 28.70 28
OnSeptember13,2001,weannouncedthatourBoardofDirectorshadauthorizedastockrepurchaseprogram.AsofJuly30,2016,ourBoardofDirectorshadauthorizedtherepurchaseofupto$112billionofcommonstockunderthisprogram.Duringfiscal2016,werepurchasedandretired148millionsharesofourcommonstockatanaveragepriceof$26.45pershareforanaggregatepurchasepriceof$3.9billion.AsofJuly30,2016,wehadrepurchasedandretired4.6billionsharesofourcommonstockatanaveragepriceof$21.04pershareforanaggregatepurchasepriceof$96.6billionsinceinceptionofthestockrepurchaseprogram,andtheremainingauthorizedamountforstockrepurchasesunderthisprogramwas$15.4billionwithnoterminationdate.
Forthemajorityofrestrictedstockunitsgranted,thenumberofsharesissuedonthedatetherestrictedstockunitsvestisnetofshareswithheldtomeetapplicabletaxwithholdingrequirements. Althoughthesewithheldsharesarenotissuedorconsideredcommonstockrepurchasesunderourstockrepurchaseprogramandthereforearenotincludedintheprecedingtable,theyaretreatedascommonstockrepurchasesinourfinancialstatementsastheyreducethenumberofsharesthatwouldhavebeenissueduponvesting(seeNote13totheConsolidatedFinancialStatements).
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Stock Performance GraphThe information contained in this Stock Performance Graph section shall not be deemed to be “soliciting material” or “filed” or incorporated by reference infuture filings with the SEC, or subject to the liabilities of Section 18 of the Securities Exchange Act of 1934, except to the extent that Cisco specifically incorporatesit by reference into a document filed under the Securities Act of 1933 or the Securities Exchange Act of 1934.
Thefollowinggraphshowsafive-yearcomparisonofthecumulativetotalshareholderreturnonCiscocommonstockwiththecumulativetotalreturnsoftheS&P500Index,andtheS&PInformationTechnologyIndex.Thegraphtrackstheperformanceofa$100investmentintheCompany’scommonstockandineachoftheindexes(withthereinvestmentofalldividends)onthedatespecified.Shareholderreturnsovertheindicatedperiodarebasedonhistoricaldataandshouldnotbeconsideredindicativeoffutureshareholderreturns.
Comparison of 5-Year Cumulative Total Return Among Cisco Systems, Inc.,the S&P 500 Index, and the S&P Information Technology Index
July2011 July2012 July2013 July2014 July2015 July2016
CiscoSystems,Inc. $ 100.00 $ 99.79 $ 167.05 $ 175.47 $ 197.66 $ 219.92S&P500 $ 100.00 $ 109.65 $ 136.86 $ 163.41 $ 175.32 $ 187.36S&PInformationTechnology $ 100.00 $ 112.69 $ 125.25 $ 164.35 $ 181.01 $ 199.29
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Item 6. Selected Financial Data
FiveYearsEndedJuly30,2016(inmillions,exceptper-shareamounts)
Years Ended July 30, 2016 (1) (2) July25,2015(1) July26,2014(3) July27,2013(4) July28,2012Revenue $ 49,247 $ 49,161 $ 47,142 $ 48,607 $ 46,061Netincome $ 10,739 $ 8,981 $ 7,853 $ 9,983 $ 8,041Netincomepershare—basic $ 2.13 $ 1.76 $ 1.50 $ 1.87 $ 1.50Netincomepershare—diluted $ 2.11 $ 1.75 $ 1.49 $ 1.86 $ 1.49Sharesusedinper-sharecalculation—basic 5,053 5,104 5,234 5,329 5,370Sharesusedinper-sharecalculation—diluted 5,088 5,146 5,281 5,380 5,404Cashdividendsdeclaredpercommonshare $ 0.94 $ 0.80 $ 0.72 $ 0.62 $ 0.28Netcashprovidedbyoperatingactivities $ 13,570 $ 12,552 $ 12,332 $ 12,894 $ 11,491
July 30, 2016 July25,2015 July26,2014 July27,2013 July28,2012Cashandcashequivalentsandinvestments $ 65,756 $ 60,416 $ 52,074 $ 50,610 $ 48,716Totalassets $ 121,652 $ 113,373 $ 105,070 $ 101,138 $ 91,697Debt $ 28,643 $ 25,354 $ 20,845 $ 16,158 $ 16,266Deferredrevenue $ 16,472 $ 15,183 $ 14,142 $ 13,423 $ 12,880
(1) Inthesecondquarteroffiscal2016,CiscocompletedthesaleoftheSPVideoCPEBusiness.Asaresult,revenuefromthisportionoftheServiceProviderVideoproductcategorywillnotrecurinfutureperiods.Thesaleresultedinapre-taxgainof$253million,netofcertaintransactioncostsincurredinpriorperiods.TheyearsendedJuly30,2016andJuly25,2015includeSPVideoCPEBusinessrevenueof$504millionand$1,846million,respectively.
(2) In the second quarter of fiscal 2016, the Internal Revenue Service (IRS) and Cisco settled all outstanding items related to Cisco’s federal income taxreturnsforfiscal2008throughfiscal2010.Asaresultofthesettlement,Ciscorecordedanettaxbenefitof$367million.Alsoduringthesecondquarteroffiscal2016,theProtectingAmericansfromTaxHikesActof2015reinstatedtheU.S.federalR&Dtaxcreditpermanently.Asaresult,Ciscorecognizedtaxbenefitsof$226millioninfiscal2016,ofwhich$81millionrelatedtofiscal2015R&Dexpenses.
(3) Inthesecondquarteroffiscal2014,Ciscorecordedapre-taxchargeof$655milliontoproductcostofsales,whichcorrespondsto$526million,netoftax,fortheexpectedremediationcostforcertainproductssoldinpriorfiscalyearscontainingmemorycomponentsmanufacturedbyasinglesupplierbetween2005and2010.SeeNote12(f)totheConsolidatedFinancialStatements.
(4) Inthesecondquarteroffiscal2013,theIRSandCiscosettledalloutstandingitemsrelatedtoCisco’sfederalincometaxreturnsforfiscal2002throughfiscal2007.Asaresultofthesettlement,Ciscorecordedanettaxbenefitof$794million.Alsoduringthesecondquarteroffiscal2013,theAmericanTaxpayerReliefActof2012reinstatedtheU.S.federalR&Dtaxcredit,retroactivetoJanuary1,2012.Asaresult,Ciscorecognizedtaxbenefitsof$184millioninfiscal2013,ofwhich$72millionrelatedtofiscal2012R&Dexpenses.
Nootherfactorsmateriallyaffectedthecomparabilityoftheinformationpresentedabove.
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Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Forward-Looking Statements
ThisAnnual Report onForm10-K,includingthis Management’s DiscussionandAnalysis ofFinancial ConditionandResults ofOperations, containsforward-lookingstatementsregardingfutureeventsandourfutureresultsthataresubjecttothesafeharborscreatedundertheSecuritiesActof1933(the“SecuritiesAct”)and the Securities Exchange Act of 1934 (the “Exchange Act”). All statements other than statements of historical facts are statements that could be deemedforward-lookingstatements.Thesestatementsarebasedoncurrentexpectations,estimates,forecasts,andprojectionsabouttheindustriesinwhichweoperateandthe beliefs and assumptions of our management. Words such as “expects,” “anticipates,” “targets,” “goals,” “projects,” “intends,” “plans,” “believes,”“momentum,” “seeks,” “estimates,” “continues,” “endeavors,” “strives,” “may,” variations of suchwords, andsimilar expressionsare intendedtoidentify suchforward-looking statements. In addition, any statements that refer to projections of our future financial performance, our anticipated growth and trends in ourbusinesses, and other characterizations of future events or circumstances are forward-looking statements. Readers are cautioned that these forward-lookingstatementsareonlypredictionsandaresubjecttorisks,uncertainties, andassumptionsthataredifficult topredict, includingthoseunder“PartI, Item1A.RiskFactors,” and elsewhere herein. Therefore, actual results may differ materially and adversely from those expressed in any forward-looking statements. Weundertakenoobligationtoreviseorupdateanyforward-lookingstatementsforanyreason.
OVERVIEWCiscodesignsandsellsbroadlinesofproducts,providesservicesanddeliversintegratedsolutionstodevelopandconnectnetworksaroundtheworld.Forover30years,wehavehelpedourcustomersbuildnetworksandautomate,orchestrate,integrate,anddigitizeinformationtechnology(IT)–basedproductsandservices.Inanincreasinglyconnectedworld,Ciscoishelpingtotransformbusinesses,governmentsandcitiesworldwide.Overtime,wehaveexpandedtonewmarketsthatareanaturalextensionofourcorenetworkingbusiness,asthenetworkhasbecometheplatformfordeliveringanever-increasingportfolioofIT–basedproductsandservices.
Asummaryofourresultsisasfollows(inmillions,exceptpercentagesandper-shareamounts):
ThreeMonthsEnded YearsEnded July 30, 2016 July25,2015 Variance July 30, 2016 July25,2015 Variance Revenue(1) $ 12,638 $ 12,843 (1.6)% $ 49,247 $ 49,161 0.2% Grossmarginpercentage 63.1% 60.2% 2.9 pts 62.9% 60.4% 2.5 ptsResearchanddevelopment $ 1,601 $ 1,548 3.4% $ 6,296 $ 6,207 1.4% Salesandmarketing $ 2,443 $ 2,549 (4.2)% $ 9,619 $ 9,821 (2.1)% Generalandadministrative $ 533 $ 536 (0.6)% $ 1,814 $ 2,040 (11.1)% TotalR&D,salesandmarketing,generalandadministrative $ 4,577 $ 4,633 (1.2)% $ 17,729 $ 18,068 (1.9)% Totalasapercentageofrevenue 36.2% 36.1% 0.1 pts 36.0% 36.8% (0.8) ptsAmortizationofpurchasedintangibleassetsincludedinoperatingexpenses $ 82 $ 146 (43.8)% $ 303 $ 359 (15.6)% Restructuringandotherchargesincludedinoperatingexpenses $ 13 $ 73 (82.2)% $ 268 $ 484 (44.6)% Operatingincomeasapercentageofrevenue 26.1% 22.4% 3.7 pts 25.7% 21.9% 3.8 ptsIncometaxpercentage 17.1% 20.9% (3.8) pts 16.9% 19.8% (2.9) ptsNetincome $ 2,813 $ 2,319 21.3% $ 10,739 $ 8,981 19.6% Netincomeasapercentageofrevenue 22.3% 18.1% 4.2 pts 21.8% 18.3% 3.5 ptsEarningspershare—diluted $ 0.56 $ 0.45 24.4% $ 2.11 $ 1.75 20.6% (1)Duringthesecondquarteroffiscal2016,wecompletedthesaleoftheSPVideoCPEBusiness.Asaresult,revenuefromthisportionoftheServiceProviderVideoproductcategorywillnotrecurinfutureperiods.ThethreemonthsendedJuly25,2015includesSPVideoCPEBusinessrevenueof$487million.TheyearsendedJuly30,2016andJuly25,2015includeSPVideoCPEBusinessrevenueof$504millionand$1,846million,respectively.
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Fiscal 2016 Compared with Fiscal 2015—Financial Performance
For fiscal 2016, our total revenue was flat compared with fiscal 2015 , as the service revenue increase of5%was substantially offset by the product revenuedecreaseof1%.Inthesecondquarteroffiscal2016,wecompletedthesaleofourSPVideoCPEBusiness.Totalcompanyrevenueforfiscal2016increased3%notincludingrevenuefromSPVideoCPEproductsforallperiods.Additionally,fiscal2016had53weeks,comparedwith52weeksinfiscal2015,thusourresultsforfiscal2016reflectanextraweekcomparedwithfiscal2015.Weestimatethattheadditionalrevenueassociatedwiththeextraweekwasapproximately$265million,$200millionofwhichwasfromourservicessubscriptions,and$65millionfromoursoftware-as-a-service(SaaS)offeringssuchasWebEx,andasmallamountfromproductdistribution.Totalgrossmarginincreasedby2.5percentagepoints,drivenbyproductivityimprovements,thesaleofthelowermarginSPVideoCPEBusiness,andhigherservicegrossmargin.Asapercentageofrevenue,researchanddevelopment,salesandmarketing,andgeneralandadministrativeexpenses,collectively,decreasedby0.8percentagepoints,driveninpartbythe$253millionpre-taxgainfromthesaleoftheSPVideoCPEBusiness.Operatingincomeasapercentageofrevenueincreasedby3.8percentagepoints,drivenbythefactorsdiscussedaboveaswellasadecreaseinrestructuringandotherchargesrelatedtotherestructuringactionannouncedinAugust2014.Dilutedearningspershareincreasedby21%fromtheprioryear,asaresultofbotha20%increaseinnetincomeandadecreaseindilutedsharecountof58millionshares.
Revenue fromthe Americas decreased by$244 million , driven by the sale of the SP Video CPEBusiness. Revenue for the Americas segment increased notincludingSPVideoCPEproducts.EMEArevenuedecreasedby$41million,ledbyaproductrevenuedeclineinRussia.RevenueinourAPJCsegmentincreased$371million,ledbyproductrevenuegrowthinChina.Wesawimprovementsinourrevenuefrommanyemergingcountries,andinparticularweexperiencedproductrevenuegrowthintheemergingcountriesofChina,IndiaandMexicoof22%,18%and3%,respectively. The“BRICM”countriesexperienced, intheaggregate,productrevenuegrowthof3%,despitedecreasedproductrevenueinBrazilandRussiaof34%and31%,respectively.
Fromacustomermarketstandpoint,infiscal2016weexperiencedsolidproductrevenuegrowthinthecommercialmarketand,toalesserextent,inthepublicsectorandenterprisemarkets,whiletheserviceprovidermarketdeclined.ThedeclineintheserviceprovidermarketwasdrivenbythesaleoftheSPVideoCPEBusiness.
Fromaproductcategoryperspective,totalcompanyproductrevenue,notincludingSPVideoCPEproducts,increased2%yearoveryear.Thisincreasewasledbyproduct revenue growth in Security and Collaboration which grew13%and9%, respectively. We also experienced a 12%increase in revenue fromServiceProviderVideoproducts(notincludingtheCPEBusinessforallperiods), aswellasDataCenterandWirelessproductswhichgrew5%and3%,respectively.Offsetting these increases was a 4%product revenue decrease in our NGN Routing category, driven primarily by a decrease in sales of our high-end routerproducts.Inaddition,webelieveacautiousserviceprovidercapitalexpenditurespendingenvironmentnegativelyimpactedsalesinthisproductcategory.SalesofourSwitchingproductswereflatduetohighersalesofdatacenterswitches,flatsalesofswitchesusedincampusenvironments(whichcomprisesthemajorityofthisproductcategory),andlowersalesofstorageproducts.Webelievetheflatsalesofswitchesusedincampusenvironmentswaslargelydrivenbyuncertaintyinthemacroenvironment,whichledtoaslowdownincustomerspending.
Over this past fiscal year, we experienced a challenging environment with significant volatility and a highly competitive landscape. After three consecutivequartersofpositivebusinessmomentuminboththeserviceprovidercustomermarketandemergingcountriesintheaggregate,theseareasexperiencedadeclineinbusinessmomentumduringthefourthquarteroffiscal2016,whiletheremainderofthebusinessperformedwellwithpositivebusinessmomentum.
Insummary,forfiscal2016weexperiencedsolidrevenuegrowthinSecurity,Switchingproductsusedindatacenters,Collaboration,andourServicescategories.Inaddition,wecontinuedtomakeprogressinthetransitionofourbusinessmodeltosoftwareandsubscriptions.Weremainfocusedonacceleratinginnovationacross our portfolio, andwebelievethat wehavemadesolid progress over thepast year in thesepriority areas. While theoverall macroenvironment remainsuncertain,webelievewearewellpositioned.Atthesametime,weareaggressivelyinvestinginpriorityareastodrivegrowthoverthelongtermregardlessoftheenvironment.
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Fourth Quarter Snapshot
Forthefourthquarteroffiscal2016,ascomparedwiththecorrespondingperiodinfiscal2015,totalrevenuedecreasedby2%.Withinthetotalrevenue,productrevenuedecreased4%whileservicerevenueincreasedby5%.Totalcompanyrevenueforthefourthquarteroffiscal2016increased2%notincludingrevenuefromSPVideoCPEproducts(whichwassoldonNovember20,2015)intheprioryearperiod.Withregardtoourgeographicsegmentperformance,onayear-over-yearbasis,revenueintheAmericasandAPJCeachdecreasedby2%,whileEMEAwasflat.Fromaproductcategoryperspective,totalcompanyproductrevenue,notincludingSPVideoCPEproductsintheprioryearperiod,increased1%yearoveryear.ThisincreasewasdrivenbygrowthfromSecurityproductswhichgrew16%yearoveryear.Totalgrossmarginincreasedby2.9percentagepoints,asresultsforthefourthquarteroffiscal2016didnotincludethelowermarginSPVideoCPEBusiness.Asapercentageofrevenue,researchanddevelopment,salesandmarketing,andgeneralandadministrativeexpensescollectivelyincreasedby0.1percentagepoints.Operatingincomeasapercentageofrevenueincreasedby3.7percentagepoints.Dilutedearningspershareincreasedby24%fromtheprioryear,primarilyasaresultofbotha21%increaseinnetincomeandadecreaseinourdilutedsharecountby64millionshares.
Strategy and Focus Areas
We see our customers increasingly using technology and, specifically, networks to grow their businesses, drive efficiencies, and try to gain a competitiveadvantage.Inthisincreasinglydigitalworld,webelievedataisthemoststrategicassetandisincreasinglydistributedacrosseveryorganizationandecosystem,oncustomer premises, at the edge of the network, and in the cloud. The network also plays an increasingly important role enabling our customers to aggregate,automate,anddrawinsightsfromthishighlydistributeddata,wherethereisapremiumonsecurityandspeed.WebelievethisisdrivingthemtoadoptentirelynewITarchitecturesandorganizationalstructures.Weunderstandhowtechnologycandelivertheoutcomesourcustomerswanttoachieve,andourstrategyistoleadourcustomersintheirdigitaltransitionwithsolutionsincludingpervasive,industry-leadingsecuritythatintelligentlyconnectsnearlyeverythingthatcanbedigitallyconnected.
Todeliveronourstrategy,wearefocusedonprovidinghighlysecure,automatedandintelligentsolutionsbuiltoninfrastructurethatconnectshighlydistributeddatathatisgloballydispersedacrossorganizations.Togetherwithourecosystemofpartnersanddevelopers,wewillprovidetechnology,services,andsolutionswebelievewillenableourcustomerstogaininsightandadvantagefromthisdistributeddatawithscale,securityandagility.
Forafulldiscussionofourstrategyandfocusareas,seeItem1.Business.
Other Key Financial Measures
Thefollowingisasummaryofourotherkeyfinancialmeasuresforfiscal2016comparedwithfiscal2015(inmillions,exceptdayssalesoutstandinginaccountsreceivable(DSO)andannualizedinventoryturns):
Fiscal 2016 Fiscal2015Cashandcashequivalentsandinvestments $65,756 $60,416Cashprovidedbyoperatingactivities $13,570 $12,552Deferredrevenue $16,472 $15,183Repurchasesofcommonstock—stockrepurchaseprogram $3,918 $4,234Dividends $4,750 $4,086DSO 42 days 38daysInventories $1,217 $1,627Annualizedinventoryturns 14.6 12.1
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CRITICAL ACCOUNTING ESTIMATESThepreparationoffinancialstatementsandrelateddisclosuresinconformitywithaccountingprinciplesgenerallyacceptedintheUnitedStatesrequiresustomakejudgments, assumptions, and estimates that affect the amounts reported in the Consolidated Financial Statements and accompanying notes. Note 2 to theConsolidatedFinancialStatementsdescribesthesignificantaccountingpoliciesandmethodsusedinthepreparationoftheConsolidatedFinancialStatements.Theaccounting policies described below are significantly affected by critical accounting estimates. Such accounting policies require significant judgments,assumptions,andestimatesusedinthepreparationoftheConsolidatedFinancialStatements,andactualresultscoulddiffermateriallyfromtheamountsreportedbasedonthesepolicies.
Revenue Recognition
Revenueisrecognizedwhenallofthefollowingcriteriahavebeenmet:• Persuasive evidence of an arrangement exists. Contracts,Internetcommerceagreements,andcustomerpurchaseordersaregenerallyusedtodeterminethe
existenceofanarrangement.• Delivery has occurred. Shippingdocuments andcustomeracceptance, whenapplicable, areusedtoverify delivery. Forsoftware, deliveryis consideredto
haveoccurreduponunrestrictedlicenseaccessandlicensetermcommencement,whenapplicable.• The fee is fixed or determinable. Weassesswhetherthefeeisfixedordeterminablebasedonthepaymenttermsassociatedwiththetransactionandwhether
thesalespriceissubjecttorefundoradjustment.• Collectibility is reasonably assured. Weassess collectibility based primarily on the creditworthiness of the customer as determined by credit checks and
analysis,aswellasthecustomer’spaymenthistory.
Ininstanceswherefinalacceptanceoftheproduct,system,orsolutionisspecifiedbythecustomer,revenueisdeferreduntilallacceptancecriteriahavebeenmet.When a sale involves multiple deliverables, such as sales of products that include services, the multiple deliverables are evaluated to determine the unit ofaccounting, andtheentire feefromthearrangement is allocatedtoeachunit of accountingbasedontherelativesellingprice. Revenueis recognizedwhentherevenuerecognitioncriteriaforeachunitofaccountingaremet.Forhostingarrangements,werecognizesubscriptionrevenueratablyoverthesubscriptionperiod,whileusagerevenueisrecognizedbasedonutilization.Softwaresubscriptionrevenueisdeferredandrecognizedratablyoverthesubscriptiontermupondeliveryofthefirstproductandcommencementoftheterm.
The amount of revenue recognized in a given period is affected by our judgment as to whether an arrangement includes multiple deliverables and, if so, ourvaluation of the units of accounting. Our multiple element arrangements maycontain only deliverables within the scopeof AccountingStandards Codification(ASC) 605,Revenue Recognition , deliverables within the scope of ASC985-605,Software-Revenue Recognition, or a combination of both. According to theaccounting guidance prescribed in ASC 605, we use vendor-specific objective evidence of selling price (VSOE) for each of those units, when available. WedetermineVSOEbasedonournormalpricinganddiscountingpracticesforthespecificproductorservicewhensoldseparately.IndeterminingVSOE,werequirethatasubstantialmajorityofthehistoricalstandalonetransactionshavethesellingpricesforaproductorservicefallwithinareasonablynarrowpricingrange,generallyevidencedbyapproximately80%ofsuchhistoricalstandalonetransactionsfallingwithinplusorminus15%ofthemedianrates.WhenVSOEdoesnotexist,weapplythesellingpricehierarchytoapplicablemultiple-deliverablearrangements.Underthesellingpricehierarchy,third-partyevidenceofsellingprice(TPE)willbeconsideredifVSOEdoesnotexist,andestimatedsellingprice(ESP)willbeusedifneitherVSOEnorTPEisavailable.Generally,wearenotableto determine TPE because our go-to-market strategy differs from that of others in our markets, and the extent of our proprietary technology varies amongcomparable products or services from those of our peers. In determining ESP, we apply significant judgment as we weigh a variety of factors, based on thecharacteristicsofthedeliverable.WetypicallyarriveatanESPforaproductorservicethatisnotsoldseparatelybyconsideringcompany-specificfactorssuchasgeographies,competitivelandscape,internalcosts,profitabilityobjectives,pricingpracticesusedtoestablishbundledpricing,andexistingportfoliopricinganddiscounting.
Asourbusinessandofferingsevolveovertime,ourpricingpracticesmayberequiredtobemodifiedaccordingly,whichcouldresultinchangesinsellingprices,includingbothVSOEandESP,insubsequentperiods.Therewerenomaterialimpactsduringfiscal2016,nordowecurrentlyexpectamaterialimpactinthenext12monthsonourrevenuerecognitionduetoanychangesinourVSOE,TPE,orESP.
Wemakesalestodistributorswhichwerefertoastwo-tiersalestotheendcustomer. Revenuefromtwo-tierdistributorsisrecognizedbasedonasell-throughmethodusingpoint-of-saleinformationprovidedbythesedistributors.Distributorsparticipateinvariouscooperativemarketingandotherincentiveprograms,andwemaintainestimatedaccruals andallowancesfor theseprograms. If actual credits receivedbydistributors under theseprogramsweretodeviate significantlyfromourestimates,whicharebasedonhistoricalexperience,ourrevenuecouldbeadverselyaffected.
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Allowances for Receivables and Sales Returns
Theallowancesforreceivableswereasfollows(inmillions,exceptpercentages):
July 30, 2016 July25,2015
Allowancefordoubtfulaccounts $ 249 $ 302Percentage of gross accounts receivable 4.1% 5.4%Allowanceforcreditloss—leasereceivables $ 230 $ 259Percentage of gross lease receivables (1) 6.6% 7.2%Allowanceforcreditloss—loanreceivables $ 97 $ 87Percentage of gross loan receivables 4.5% 4.9%(1)Calculatedasallowanceforcreditlossonleasereceivablesasapercentageofgrossleasereceivablesandresidualvaluebeforeunearnedincome.
Theallowancefordoubtfulaccountsisbasedonourassessmentofthecollectibilityofcustomeraccounts.Weregularlyreviewtheadequacyoftheseallowancesby considering internal factors such as historical experience, credit quality and age of the receivable balances as well as external factors such as economicconditionsthatmayaffectacustomer’sabilitytopayaswellashistoricalandexpecteddefaultfrequencyrates,whicharepublishedbymajorthird-partycredit-rating agencies andare updated ona quarterly basis. Wealso consider the concentration of receivables outstandingwith a particular customer in assessingtheadequacyofourallowancesfordoubtfulaccounts.Ifamajorcustomer’screditworthinessdeteriorates,ifactualdefaultsarehigherthanourhistoricalexperience,orifothercircumstancesarise,ourestimatesoftherecoverabilityofamountsduetouscouldbeoverstated,andadditionalallowancescouldberequired,whichcouldhaveanadverseimpactonouroperatingresults.
Theallowanceforcreditlossonfinancingreceivablesisalsobasedontheassessmentofcollectibilityofcustomeraccounts.Weregularlyreviewtheadequacyofthe credit allowances determined either on an individual or a collective basis. When evaluating the financing receivables on an individual basis, we considerhistoricalexperience,creditqualityandageofreceivablebalances,andeconomicconditionsthatmayaffectacustomer’sabilitytopay.Whenevaluatingfinancingreceivablesonacollectivebasis,weuseexpecteddefaultfrequencyratespublishedbyamajorthird-partycredit-ratingagencyaswellasourownhistoricallossrate in theevent of default, while alsosystematically givingeffect to economicconditions, concentration of riskandcorrelation. Determiningexpecteddefaultfrequencyrates andlossfactors associatedwithinternal credit riskratings, aswell asassessingfactors suchaseconomicconditions, concentrationofrisk, andcorrelation, arecomplexandsubjective. Ourongoingconsiderationofall thesefactorscouldresult inanincreaseinourallowanceforcredit lossinthefuture,which could adversely affect our operating results. Both accounts receivable and financing receivables are charged off at the point when they are considereduncollectible.
A reserve for future sales returns is established based on historical trends in product return rates. The reserve for future sales returns as of July 30, 2016andJuly25,2015was$126millionand$129million,respectively,andwasrecordedasareductionofouraccountsreceivableandrevenue.Iftheactualfuturereturnsweretodeviatefromthehistoricaldataonwhichthereservehadbeenestablished,ourrevenuecouldbeadverselyaffected.
Inventory Valuation and Liability for Purchase Commitments with Contract Manufacturers and Suppliers
Inventoryiswrittendownbasedonexcessandobsoleteinventories,determinedprimarilybyfuturedemandforecasts.Inventorywrite-downsaremeasuredasthedifferencebetweenthecostoftheinventoryandmarket,baseduponassumptionsaboutfuturedemand,andarechargedtotheprovisionforinventory,whichisacomponentofourcostofsales.Atthepointofthelossrecognition,anew,lowercostbasisforthatinventoryisestablished,andsubsequentchangesinfactsandcircumstancesdonotresultintherestorationorincreaseinthatnewlyestablishedcostbasis.
Werecordaliabilityforfirm,noncancelable,andunconditionalpurchasecommitmentswithcontractmanufacturersandsuppliersforquantitiesinexcessofourfuturedemandforecastsconsistentwiththevaluationofourexcessandobsoleteinventory.AsofJuly30,2016,theliabilityforthesepurchasecommitmentswas$159million,comparedwith$156millionasofJuly25,2015,andwasincludedinothercurrentliabilities.
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Ourprovisionforinventorywas$65million,$54million,and$67millioninfiscal2016,2015,and2014,respectively.Theprovisionfortheliabilityrelatedtopurchasecommitmentswithcontractmanufacturersandsupplierswas$134million,$102million,and$124millioninfiscal2016,2015,and2014,respectively.Ifthereweretobeasuddenandsignificantdecreaseindemandforourproducts,oriftherewereahigherincidenceofinventoryobsolescencebecauseofrapidlychangingtechnologyandcustomerrequirements, wecouldberequiredtoincreaseourinventorywrite-downs, andourliability forpurchasecommitments withcontractmanufacturersandsuppliers,andaccordinglyourprofitability,couldbeadverselyaffected.Weregularlyevaluateourexposureforinventorywrite-downsandtheadequacyofourliabilityforpurchasecommitments.Inventoryandsupplychainmanagementremainareasoffocusaswebalancetheneedtomaintainsupplychainflexibilitytohelpensurecompetitiveleadtimeswiththeriskofinventoryobsolescence,particularlyinlightofcurrentmacroeconomicuncertaintiesandconditionsandtheresultingpotentialforchangesinfuturedemandforecast.
Loss Contingencies and Product Warranties
Wearesubjecttothepossibilityofvariouslossesarisingintheordinarycourseofbusiness.Weconsiderthelikelihoodofimpairmentofanassetortheincurrenceofaliability,aswellasourabilitytoreasonablyestimatetheamountofloss,indetermininglosscontingencies.Anestimatedlosscontingencyisaccruedwhenitisprobablethatanassethasbeenimpairedoraliabilityhasbeenincurredandtheamountoflosscanbereasonablyestimated.Weregularlyevaluateinformationavailabletoustodeterminewhethersuchaccrualsshouldbemadeoradjustedandwhethernewaccrualsarerequired.
Thirdparties,includingcustomers,haveinthepastandmayinthefutureassertclaimsorinitiatelitigationrelatedtoexclusivepatent,copyright,trademark,andotherintellectualpropertyrightstotechnologiesandrelatedstandardsthatarerelevanttous.Theseassertionshaveincreasedovertimeasaresultofourgrowthandthe general increase in thepaceof patent claimsassertions, particularly in the UnitedStates. If anyinfringement or other intellectual property claimmadeagainstusbyanythirdpartyissuccessful,orifwefailtodevelopnon-infringingtechnologyorlicensetheproprietaryrightsoncommerciallyreasonabletermsandconditions,ourbusiness,operatingresults,andfinancialconditioncouldbemateriallyandadverselyaffected.
Wehaverecordedaliabilityfortheexpectedremediationcostforcertainproductssoldinpriorfiscalyearscontainingmemorycomponentsmanufacturedbyasinglesupplierbetween2005and2010.InFebruary2014,onthebasisofthegrowingnumberoffailuresasdescribedinNote12(f)totheConsolidatedFinancialStatements,wedecidedtoexpandourapproach,whichresultedinachargetoproductcostofsalesof$655millionbeingrecordedforthesecondquarteroffiscal2014. During fiscal 2016 and 2015, we recorded adjustments to product cost of sales of $74 million and $164 million , respectively to reduce the liability,reflectingnetlowerthanpreviouslyestimatedfuturecoststoremediatetheimpactedcustomerproducts.Estimatingthisliabilityiscomplexandsubjective,andifweexperiencechangesinanumberofunderlyingassumptionsandestimatessuchasachangeinclaimscomparedwithourexpectations,orifthecostofservicingtheseclaimsisdifferentthanexpected,ourestimatedliabilitymaybeimpacted.
Ourproductsaregenerallycoveredbyawarrantyforperiodsrangingfrom90daystofiveyears,andforsomeproductsweprovidealimitedlifetimewarranty.Weaccrueforwarrantycostsaspartofourcostofsalesbasedonassociatedmaterialcosts,technicalsupportlaborcosts,andassociatedoverhead.Material costisestimated based primarily upon historical trends in the volume of product returns within the warranty period and the cost to repair or replace the equipment.Technicalsupportlaborcostisestimatedbasedprimarilyuponhistoricaltrendsintherateofcustomercasesandthecosttosupportthecustomercaseswithinthewarrantyperiod.Overheadcostisappliedbasedonestimatedtimetosupportwarrantyactivities.
Ifweexperienceanincreaseinwarrantyclaimscomparedwithourhistoricalexperience,orifthecostofservicingwarrantyclaimsisgreaterthanexpected,ourprofitabilitycouldbeadverselyaffected.
Fair Value Measurements
Ourfixedincomeandpubliclytradedequitysecurities,collectively,arereflectedintheConsolidatedBalanceSheetsatafairvalueof$58.1billionasofJuly30,2016 , compared with $53.5 billion as of July 25, 2015 . Our fixed income investment portfolio, as of July 30, 2016 , consisted primarily of high qualityinvestment-gradesecurities.SeeNote8totheConsolidatedFinancialStatements.
As described more fully in Note 2 to the Consolidated Financial Statements, a valuation hierarchy is based on the level of independent, objective evidenceavailableregardingthevalueoftheinvestments.Itencompassesthreeclassesofinvestments:Level1consistsofsecuritiesforwhichtherearequotedpricesinactive markets for identical securities; Level 2 consists of securities for which observable inputs other than Level 1 inputs are used, such as quoted prices forsimilarsecuritiesinactivemarketsorquotedpricesforidenticalsecuritiesinlessactivemarketsandmodel-derivedvaluationsforwhichthevariablesarederivedfrom,orcorroboratedby,observablemarketdata;andLevel3consistsofsecuritiesforwhichthereareunobservableinputstothevaluationmethodologythataresignificanttothemeasurementofthefairvalue.
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OurLevel2securitiesarevaluedusingquotedmarketpricesforsimilarinstrumentsornonbindingmarketpricesthatarecorroboratedbyobservablemarketdata.Weuseinputs suchas actual trade data, benchmark yields, broker/dealer quotes, andother similar data, whichare obtainedfromindependent pricingvendors,quotedmarketprices,orothersourcestodeterminetheultimatefairvalueofourassetsandliabilities.Weusesuchpricingdataastheprimaryinput,towhichwehavenotmadeanymaterialadjustmentsduringfiscal2016and2015,tomakeourassessmentsanddeterminationsastotheultimatevaluationofourinvestmentportfolio.Weareultimatelyresponsibleforthefinancialstatementsandunderlyingestimates.
Theinputsandfairvaluearereviewedforreasonableness,maybefurthervalidatedbycomparisontopubliclyavailableinformation,andcouldbeadjustedbasedonmarketindicesorotherinformationthatmanagementdeemsmaterialtoitsestimateoffairvalue.Theassessmentoffairvaluecanbedifficultandsubjective.However, giventherelativereliability oftheinputsweusetovalueourinvestment portfolio, andbecausesubstantiallyall of ourvaluationinputsareobtainedusingquotedmarket prices for similar or identical assets, wedonot believethat thenature of estimates andassumptionsaffectedbylevels of subjectivity andjudgmentwasmaterial tothevaluationoftheinvestmentportfolioasofJuly30,2016.Level3assetsdonotrepresent asignificant portionofourtotal assetsmeasuredatfairvalueonarecurringbasisasofJuly30,2016andJuly25,2015.
Other-than-Temporary Impairments
Werecognizeanimpairmentchargewhenthedeclinesinthefairvaluesofourfixedincomeorpubliclytradedequitysecuritiesbelowtheircostbasisarejudgedtobeotherthantemporary.Theultimatevaluerealizedonthesesecurities,totheextentunhedged,issubjecttomarketpricevolatilityuntiltheyaresold.
Ifthefairvalueofadebtsecurityislessthanitsamortizedcost,weassesswhethertheimpairmentisotherthantemporary.Animpairmentisconsideredotherthantemporary if (i) we have the intent to sell the security, (ii) it is more likely than not that we will be required to sell the security before recovery of its entireamortizedcostbasis,or(iii)wedonotexpecttorecovertheentireamortizedcostofthesecurity.Ifanimpairmentisconsideredotherthantemporarybasedon(i) or (ii) described in the prior sentence, the entire difference between the amortized cost and the fair value of the security is recognized in earnings. If animpairmentisconsideredotherthantemporarybasedoncondition(iii),theamountrepresentingcreditloss,definedasthedifferencebetweenthepresentvalueofthecashflowsexpectedtobecollectedandtheamortizedcostbasisofthedebtsecurity,willberecognizedinearnings,andtheamountrelatingtoallotherfactorswillberecognizedinothercomprehensiveincome(OCI).Inestimatingtheamountandtimingofcashflowsexpectedtobecollected,weconsiderallavailableinformation,includingpastevents,currentconditions,theremainingpaymenttermsofthesecurity,thefinancialconditionoftheissuer,expecteddefaults,andthevalueofunderlyingcollateral.
Forpubliclytradedequitysecurities,weconsidervariousfactorsindeterminingwhetherweshouldrecognizeanimpairmentcharge,includingthelengthoftimeandextenttowhichthefairvaluehasbeenlessthanourcostbasis,thefinancialconditionandnear-termprospectsoftheissuer,andourintentandabilitytoholdtheinvestmentforaperiodoftimesufficienttoallowforanyanticipatedrecoveryinmarketvalue.
Wealsohaveinvestmentsinprivatelyheldcompanies,someofwhichareinthestartupordevelopmentstages.AsofJuly30,2016,ourinvestmentsinprivatelyheldcompanieswere$1,003million,comparedwith$897millionasofJuly25,2015,andwereincludedinotherassets.Wemonitortheseinvestmentsforeventsorcircumstancesindicativeofpotentialimpairment,andwemakeappropriatereductionsincarryingvaluesifwedeterminethatanimpairmentchargeisrequired,based primarily on the financial condition and near-term prospects of these companies. These investments are inherently risky because the markets for thetechnologiesorproductsthesecompaniesaredevelopingaretypicallyintheearlystagesandmaynevermaterialize. Ourimpairmentchargesoninvestmentsinprivatelyheldcompanieswere$67million,$41million,and$23millioninfiscal2016,2015,and2014,respectively.
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Goodwill and Purchased Intangible Asset Impairments
Ourmethodologyforallocatingthepurchasepricerelatingtopurchaseacquisitionsisdeterminedthroughestablishedvaluationtechniques.Goodwillrepresentsaresidual valueas of theacquisitiondate, whichinmost casesresults in measuringgoodwill as anexcessof thepurchaseconsiderationtransferredplusthefairvalueofanynoncontrollinginterestintheacquiredcompanyoverthefairvalueofnetassetsacquired,includingcontingentconsideration.Weperformgoodwillimpairmenttestsonanannualbasisinthefourthfiscalquarterandbetweenannualtestsincertaincircumstancesforeachreportingunit.Theassessmentoffairvaluefor goodwill andpurchasedintangible assets is basedonfactors that market participants wouldusein anorderly transaction in accordancewith thenewaccountingguidanceforthefairvaluemeasurementofnonfinancialassets.
ThegoodwillrecordedintheConsolidatedBalanceSheetsasofJuly30,2016andJuly25,2015was$26.6billionand$24.5billion,respectively.Inresponsetochangesinindustryandmarketconditions,wecouldberequiredtostrategicallyrealignourresourcesandconsiderrestructuring,disposingof,orotherwiseexitingbusinesses,whichcouldresultinanimpairmentofgoodwill. Therewasnoimpairmentofgoodwillinfiscal2016,2015,and2014.Fortheannualimpairmenttestinginfiscal2016, theexcess of thefair valueoverthecarryingvaluefor eachof ourreportingunits was$40.8billionfor theAmericas, $29.4billionforEMEA,and$13.1billionforAPJC.Duringthefourthquarteroffiscal2016,weperformedasensitivityanalysisforgoodwillimpairmentwithrespecttoeachofourrespectivereportingunitsanddeterminedthatahypothetical10%declineinthefairvalueofeachreportingunitwouldnotresultinanimpairmentofgoodwillforanyreportingunit.
Thefairvalueofacquiredtechnologyandpatents,aswellasacquiredtechnologyunderdevelopment,isdeterminedatacquisitiondateprimarilyusingtheincomeapproach, which discounts expected future cash flows to present value. The discount rates used in the present value calculations are typically derived from aweighted-averagecostofcapitalanalysisandthenadjustedtoreflectrisksinherentinthedevelopmentlifecycleasappropriate.Weconsiderthepricingmodelforproductsrelatedtotheseacquisitionstobestandardwithinthehigh-technologycommunicationsindustry,andtheapplicablediscountratesrepresenttheratesthatmarketparticipantswoulduseforvaluationofsuchintangibleassets.
We make judgments about the recoverability of purchased intangible assets with finite lives whenever events or changes in circumstances indicate that animpairment may exist. Recoverability of purchased intangible assets with finite lives is measured by comparing the carrying amount of the asset to the futureundiscountedcashflowstheassetisexpectedtogenerate.Wereviewindefinite-livedintangibleassetsforimpairmentannuallyorwhenevereventsorchangesincircumstances indicate that the asset might be impaired. If the asset is considered to be impaired, the amount of anyimpairment is measured as the differencebetweenthecarryingvalueandthefairvalueoftheimpairedasset.Assumptionsandestimatesaboutfuturevaluesandremainingusefullivesofourpurchasedintangibleassetsarecomplexandsubjective. Theycanbeaffectedbyavarietyoffactors, includingexternalfactorssuchasindustryandeconomictrends,andinternalfactorssuchaschangesinourbusinessstrategyandourinternalforecasts.Ourimpairmentchargesrelatedtopurchasedintangibleassetswere$74millionand$175millionduringfiscal2016and2015, respectively. There were noimpairment charges related to purchased intangible assets during fiscal2014.Ourongoing consideration of all the factors described previously could result in additional impairment charges in the future, which could adversely affect our netincome.
Income TaxesWearesubjecttoincometaxesintheUnitedStatesandnumerousforeignjurisdictions.Oureffectivetaxratesdifferfromthestatutoryrate,primarilyduetothetax impact of state taxes, foreign operations, R&D tax credits, domestic manufacturing deductions, tax audit settlements, nondeductible compensation,internationalrealignments,andtransferpricingadjustments.Oureffectivetaxratewas16.9%,19.8%,and19.2%infiscal2016,2015,and2014,respectively.Significantjudgmentisrequiredinevaluatingouruncertaintaxpositionsanddeterminingourprovisionforincometaxes.Althoughwebelieveourreservesarereasonable, noassurancecanbegiventhat thefinal taxoutcomeofthesematters will not bedifferent fromthat whichis reflectedinourhistorical incometaxprovisionsandaccruals.Weadjustthesereservesinlightofchangingfactsandcircumstances,suchastheclosingofataxauditortherefinementofanestimate.Totheextentthatthefinaltaxoutcomeofthesemattersisdifferentthantheamountsrecorded,suchdifferenceswillimpacttheprovisionforincometaxesintheperiodinwhichsuchdeterminationismade.Theprovisionforincometaxesincludestheimpactofreserveprovisionsandchangestoreservesthatareconsideredappropriate,aswellastherelatednetinterestandpenalties.Significantjudgmentisalsorequiredindetermininganyvaluationallowancerecordedagainstdeferredtaxassets.Inassessingtheneedforavaluationallowance,weconsiderallavailableevidence,includingpastoperatingresults,estimatesoffuturetaxableincome,andthefeasibilityoftaxplanningstrategies.Intheeventthatwechangeourdeterminationastotheamountofdeferredtaxassetsthatcanberealized,wewilladjustourvaluationallowancewithacorrespondingimpacttotheprovisionforincometaxesintheperiodinwhichsuchdeterminationismade.
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Ourprovisionforincometaxesissubjecttovolatilityandcouldbeadverselyimpactedbyearningsbeinglowerthananticipatedincountriesthathavelowertaxrates and higher than anticipated in countries that have higher tax rates; by changes in the valuation of our deferred tax assets and liabilities; by changes todomestic manufacturing deduction laws, regulations, or interpretations thereof; by expiration of or lapses in tax incentives; by transfer pricing adjustments,includingtheeffectofacquisitionsonourintercompanyR&Dcost-sharingarrangementandlegalstructure;bytaxeffectsofnondeductiblecompensation;bytaxcosts related to intercompany realignments; by changes in accounting principles; or by changes in tax laws and regulations, treaties, or interpretations thereof,includingpossiblechangestothetaxationofearningsofourforeignsubsidiaries,thedeductibilityofexpensesattributabletoforeignincome,ortheforeigntaxcredit rules. Significant judgment is required to determine the recognition and measurement attributes prescribed in the accounting guidance for uncertainty inincome taxes. The Organisation for Economic Co-operation and Development (OECD), an international association comprised of 34 countries, including theUnitedStates,hasrecentlymadechangestonumerouslong-standingtaxprinciples.Therecanbenoassurancethatthesechanges,onceadoptedbycountries,willnothaveanadverseimpactonourprovisionforincometaxes.Asaresultofcertainofourongoingemploymentandcapitalinvestmentactionsandcommitments,ourincomeincertaincountriesissubjecttoreducedtaxrates.Ourfailuretomeetthesecommitmentscouldadverselyimpactourprovisionforincometaxes.Inaddition,wearesubjecttothecontinuousexaminationofourincometaxreturnsbytheInternal RevenueService(IRS)andothertaxauthorities. Weregularlyassess the likelihood of adverse outcomes resulting from these examinations to determine the adequacy of our provision for income taxes. There can be noassurancethattheoutcomesfromthesecontinuousexaminationswillnothaveanadverseimpactonouroperatingresultsandfinancialcondition.
RESULTS OF OPERATIONSRevenue
Thefollowingtablepresentsthebreakdownofrevenuebetweenproductandservice(inmillions,exceptpercentages):
YearsEnded 2016vs.2015 2015vs.2014
July 30, 2016 July25,2015 July26,2014 VarianceinDollars
VarianceinPercent
VarianceinDollars
VarianceinPercent
Revenue: Product $ 37,254 $ 37,750 $ 36,172 $ (496) (1.3)% $ 1,578 4.4%Percentage of revenue 75.6% 76.8% 76.7% Service 11,993 11,411 10,970 582 5.1% 441 4.0%Percentage of revenue 24.4% 23.2% 23.3%
Total $ 49,247 $ 49,161 $ 47,142 $ 86 0.2% $ 2,019 4.3%
Wemanageourbusinessprimarilyonageographicbasis, organizedintothreegeographicsegments. Ourrevenue, whichincludesproductandserviceforeachsegment,issummarizedinthefollowingtable(inmillions,exceptpercentages):
YearsEnded 2016vs.2015 2015vs.2014
July 30, 2016 July25,2015 July26,2014 VarianceinDollars
VarianceinPercent
VarianceinDollars
VarianceinPercent
Revenue: Americas $ 29,411 $ 29,655 $ 27,781 $ (244) (0.8)% $ 1,874 6.7%Percentage of revenue 59.7% 60.3% 58.9% EMEA 12,281 12,322 12,006 (41) (0.3)% 316 2.6%Percentage of revenue 24.9% 25.1% 25.5% APJC 7,555 7,184 7,355 371 5.2% (171) (2.3)%Percentage of revenue 15.4% 14.6% 15.6%
Total $ 49,247 $ 49,161 $ 47,142 $ 86 0.2% $ 2,019 4.3%
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Fiscal 2016 Compared with Fiscal 2015
Forfiscal 2016 , as compared with fiscal 2015 , total revenue was flat. Total company revenue not including SP Video CPEproducts increased 3%. Productrevenuedecreasedby1%intotal,butincreasedby2%forproductrevenuenotincludingSPVideoCPEproducts.Servicerevenueincreasedby5%.Fiscal2016had53weeks,comparedwith52weeksinfiscal2015,thusourresultsforfiscal2016reflectanextraweek.Weestimatethattheadditionalrevenueassociatedwiththeextraweekwasapproximately$265million,$200millionofwhichwasfromourservicessubscriptions,and$65millionfromourSaaSofferingssuchasWebEx, and a small amount fromproduct distribution. Our total revenue grewin our APJCgeographic segment, while revenue declined in the Americas andEMEAgeographic segments. The emerging countries of BRICM, in the aggregate, experienced 3%product revenue growth, with growth in China, India andMexico,partiallyoffsetbydecreasesintheothertwoBRICMcountries.
Weconductbusinessgloballyinnumerouscurrencies.ThedirecteffectofforeigncurrencyfluctuationsonrevenuehasnotbeenmaterialbecauseourrevenueisprimarilydenominatedinU.S.dollars.However,iftheU.S.dollarstrengthensrelativetoothercurrencies,aswasthecaseduringfiscal2016,suchstrengtheningcouldhaveanindirect effect onourrevenuetotheextent it raisesthecost ofourproductstonon-U.S.customersandtherebyreducesdemand.AweakerU.S.dollar could have the opposite effect. However, the precise indirect effect of currency fluctuations is difficult to measure or predict because our revenue isinfluencedbymanyfactorsinadditiontotheimpactofsuchcurrencyfluctuations.Ourrevenueinfiscal2016wasadverselyaffectedbythedepreciationofcertaincurrenciesrelativetotheU.S.dollarandespeciallycurrenciesincertainemergingcountries,althoughtheindirecteffectsaredifficulttomeasure.
Inadditiontotheimpactofmacroeconomicfactors,includingareducedITspendingenvironmentandreductionsinspendingbygovernmententities,revenuebysegmentinaparticular periodmaybesignificantlyimpactedbyseveral factorsrelatedtorevenuerecognition, includingthecomplexityoftransactionssuchasmultiple-elementarrangements; themixof financingarrangementsprovidedtochannelpartnersandcustomers; andfinal acceptanceof theproduct, system,orsolution,amongotherfactors.Inaddition,certaincustomerstendtomakelargeandsporadicpurchases,andtherevenuerelatedtothesetransactionsmayalsobeaffectedbythetimingofrevenuerecognition,whichinturnwouldimpacttherevenueoftherelevantsegment.Ashasbeenthecaseincertainemergingcountriesfromtimetotime,customersrequiregreaterlevelsoffinancingarrangements,service,andsupport,andtheseactivitiesmayoccurinfutureperiods,whichmayalsoimpactthetimingoftherecognitionofrevenue.
Fiscal 2015 Compared with Fiscal 2014
Forfiscal2015,ascomparedwithfiscal2014,totalrevenueincreasedby4%,asproductandservicerevenueeachincreasedby4%.OurtotalrevenuegrewinourAmericasandEMEAgeographicsegments,whilerevenuedeclinedintheAPJCsegment.TheemergingcountriesofBRICM,intheaggregate,experienceda4%productrevenuedecline,withdeclinesinChinaandRussiapartiallyoffsetbyincreasesintheotherthreeBRICMcountries.
Product Revenue by Segment
Thefollowingtablepresentsthebreakdownofproductrevenuebysegment(inmillions,exceptpercentages):
YearsEnded 2016vs.2015 2015vs.2014
July 30, 2016 July25,2015 July26,2014 VarianceinDollars
VarianceinPercent
VarianceinDollars
VarianceinPercent
Productrevenue: Americas $ 21,679 $ 22,261 $ 20,631 $ (582) (2.6)% $ 1,630 7.9%Percentage of product revenue 58.2% 59.0% 57.0% EMEA 9,658 9,856 9,655 (198) (2.0)% 201 2.1%Percentage of product revenue 25.9% 26.1% 26.7% APJC 5,917 5,633 5,886 284 5.0% (253) (4.3)%Percentage of product revenue 15.9% 14.9% 16.3%
Total $ 37,254 $ 37,750 $ 36,172 $ (496) (1.3)% $ 1,578 4.4%
Duringthesecondquarter of fiscal 2016, wecompletedthesale of our SPVideoCPEBusiness. Asa result, fiscal 2016includesonlyfour monthsof productrevenuefromourSPVideoCPEBusiness.RevenuefromthisportionoftheServiceProviderVideoproductcategorywillnotrecurinfutureperiods.SPVideoCPEBusinessrevenuewas$504million,$1,846millionand$2,240millionforfiscal2016,2015and2014,respectively.
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Americas
Fiscal 2016 Compared with Fiscal 2015
Thedecrease in product revenue for the Americas segment was driven by a decline of $1,146million in product sales related to our SPVideo CPEBusiness.ProductrevenuenotincludingSPVideoCPEproductsincreasedfortheAmericassegment.Fromacustomermarketsperspective,thedecreaseinproductrevenueintheAmericassegmentof3%wasledbyasignificantdeclineintheserviceprovidermarketdrivenbythesaleoftheSPVideoCPEBusiness.Weexperiencedproduct revenuegrowthin the commercial, public sector andenterprise markets. Theproduct revenuegrowthin the public sector market wasdueprimarily tohighersalestostateandlocalgovernments,partiallyoffsetbylowersalestotheU.S.federalgovernment.Fromacountryperspective,productrevenuedecreasedby34%inBraziland24%inCanadapartiallyoffsetbyaslightincreaseintheUnitedStatesandanincreaseof3%inMexico.
Fiscal 2015 Compared with Fiscal 2014
Theincreaseinproduct revenueintheAmericassegment of8%wasledbysolidgrowthinthepublicsector, commercial andenterprisemarkets. TheproductrevenuegrowthinthepublicsectormarketwasdueprimarilytohighersalestotheU.S.federalgovernmentand,toalesserextent,highersalestostateandlocalgovernments. The product revenue growth in the enterprise and commercial markets was driven by strength in the United States.We experienced a productrevenuedeclineintheserviceprovidermarketinthissegment.Fromacountryperspective,productrevenueincreasedby8%intheUnitedStates,34%inMexico,and2%inBrazil.
EMEA
Fiscal 2016 Compared with Fiscal 2015
Thedecreaseinproductrevenueof2%,or$198million,fortheEMEAsegmentwasdrivenbyadeclineof$164millioninproductsalesrelatedtoourSPVideoCPEBusiness. Froma customer market perspective, the decrease was driven by product revenue declines in the service provider, public sector and enterprisemarkets,partiallyoffsetbyproductrevenuegrowthinthecommercialmarket.ThedeclineinsalestotheserviceprovidermarketwasdueprimarilytothesaleoftheSPVideoCPEBusiness.ProductrevenuefromemergingcountrieswithinEMEAdecreasedby11%,ledbyadeclineinRussiaof31%.ProductrevenuefortheremainderoftheEMEAsegment,whichprimarilyconsistsofcountriesinWesternEurope,increasedby1%.
Fiscal 2015 Compared with Fiscal 2014
ProductrevenueintheEMEAsegmentincreasedby2%,drivenbygrowthinthecommercial,publicsectorandenterprisemarkets.Productrevenueintheserviceprovidermarketwasflat.ProductrevenuefromemergingcountrieswithinEMEAincreasedby1%andproductrevenuefortheremainderofEMEAgrewby2%.
APJC
Fiscal 2016 Compared with Fiscal 2015
TheincreaseinproductrevenueintheAPJCsegmentof5%wasledbysolidgrowthintheserviceprovidermarketand,toalesserextent,growthintheenterprise,publicsectorandcommercialmarkets.Fromacountryperspective,productrevenueincreasedby22%inChina,drivenbyanincreaseinsalesofServiceProviderVideosoftwareandsolutionsproducts,and18%inIndia,partiallyoffsetbyproductrevenuedecreasesof7%inJapanand5%inAustralia.Productrevenueforthisgeographicsegmentwasadverselyimpactedbya$32milliondecreaseinproductrevenuerelatedtothesaleofourSPVideoCPEBusiness.
Fiscal 2015 Compared with Fiscal 2014
ThedecreaseinproductrevenueintheAPJCsegmentof4%wasledbyasignificantdeclineintheserviceprovidermarketand,toalesserdegree,inthepublicsectorandenterprisemarkets.Thesedecreaseswerepartiallyoffsetbygrowthinthecommercialmarket.Fromacountryperspective,productrevenuedecreasedby21%inChinaand5%inJapan.Weexperiencedproductrevenuegrowthof15%inIndiaand8%inAustralia.
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Product Revenue by Groups of Similar Products
Inadditiontotheprimaryviewonageographicbasis,wealsopreparefinancialinformationrelatedtogroupsofsimilarproductsandcustomermarketsforvariouspurposes. Our product categories consist of the following categories (with subcategories in parentheses): Switching (fixed switching, modular switching, andstorage); NGN Routing (high-end routers, mid-range and low-end routers, and other NGN Routing products); Collaboration (unified communications, CiscoTelePresence,andconferencing);DataCenter;Wireless;ServiceProviderVideo(videosoftwareandsolutions,andcableaccess);Security;andOtherProducts.TheOtherProductscategoryconsistsprimarilyofemergingtechnologyproductsandothernetworkingproducts.
Thefollowingtablepresentsrevenueforgroupsofsimilarproducts(inmillions,exceptpercentages):
YearsEnded 2016vs.2015 2015vs.2014
July 30, 2016 July25,2015 July26,2014 VarianceinDollars
VarianceinPercent
VarianceinDollars
VarianceinPercent
Productrevenue: Switching $ 14,746 $ 14,740 $ 14,001 $ 6 —% $ 739 5.3%Percentage of product revenue 39.6% 39.1% 38.7% NGNRouting 7,408 7,704 7,606 (296) (3.8)% 98 1.3%Percentage of product revenue 19.9% 20.4% 21.0% Collaboration 4,352 4,004 3,817 348 8.7% 187 4.9%Percentage of product revenue 11.7% 10.6% 10.6% DataCenter 3,365 3,219 2,640 146 4.5% 579 21.9%Percentage of product revenue 9.0% 8.5% 7.3% Wireless 2,625 2,542 2,293 83 3.3% 249 10.9%Percentage of product revenue 7.0% 6.7% 6.3% ServiceProviderVideo(1) 2,424 3,555 3,969 (1,131) (31.8)% (414) (10.4)%Percentage of product revenue 6.5% 9.4% 11.0% Security 1,969 1,747 1,566 222 12.7% 181 11.6%Percentage of product revenue 5.3% 4.6% 4.3% Other 365 239 280 126 52.7% (41) (14.6)%Percentage of product revenue 1.0% 0.7% 0.8%
$ 37,254 $ 37,750 $ 36,172 $ (496) (1.3)% $ 1,578 4.4%
(1)Duringthesecondquarteroffiscal2016,wecompletedthesaleoftheSPVideoCPEBusiness.Asaresult,fiscal2016includesonlyfourmonthsofproductrevenuefromSPVideoCPEBusiness.IncludesSPVideoCPEBusinessrevenueof$504million,$1,846millionand$2,240millionforfiscal2016,2015,and2014,respectively.
Certainreclassificationshavebeenmadetothepriorperiodamountstoconformtothecurrentperiod’spresentation.
Switching
Fiscal 2016 Compared with Fiscal 2015We believe the flat revenue growth in our Switching product category was driven in large part by the uncertainty in the macro environment which led to aslowdownincustomerspending.ThisledtoflatgrowthinourSwitchingproductsusedincampusenvironmentswhichcomprisethemajorityofrevenuewithinthisproductcategory.Wealsoexperienceddecreasedrevenuefromstorageproducts.TheseimpactswereoffsetbyanincreaseinsalesofourSwitchingproductsusedindatacenters,reflectingstrengthinourApplicationCentricInfrastructureportfolio.
Intermsofsubcategories,theincreaseinrevenuefromLANfixed-configurationswitchesof5%,or$469millionwassubstantiallyoffsetbydecreasedrevenuefrom our modular switches of 8%, or $375 million, and the decreased revenue from storage products of 17%, or $88 million. Revenue from our LAN-fixedconfigurationswitchesincreaseddueprimarilytohighersalesofourCiscoCatalyst3850SeriesSwitches,CiscoCatalyst3650SeriesSwitches,CiscoNexus9300SeriesSwitchesandCiscoNexus3000SeriesSwitches,partiallyoffsetbyadecreaseinsalesofcertainotherproductsinthisportfolio.DecreasedrevenuefromourmodularswitcheswasdueprimarilytolowersalesofmostofourCiscoCatalystSeriesSwitchesandalsoduetolowersalesofourCiscoNexus7000SeriesSwitches,partiallyoffsetbysalesgrowthinCiscoNexus9500SeriesSwitcheswithinthisproductcategory.
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Fiscal 2015 Compared with Fiscal 2014
TheincreaseinrevenueinourSwitchingproductcategoryof5%,or$739million,wasdrivenbya9%,or$826million,increaseinrevenuefromourLANfixed-configuration switches and, to a lesser extent, a 24%, or $101 million, increase in sales of storage products. Revenue fromLANfixed-configuration switchesincreasedduetohighersalesofmostofourCiscoNexusSeriesSwitchesandCiscoCatalystSeriesSwitcheswithinthiscategory.Weexperiencedadecreaseinrevenue from our modular switches of 4%, or $188 million, driven by lower sales of Cisco Catalyst 6500-E Series Switches and Cisco Nexus 7000 SeriesSwitches.
NGNRouting
Fiscal 2016 Compared with Fiscal 2015Webelieveacautiousserviceprovidercapital expenditurespendingenvironmentnegativelyimpactedsalesinNGNRouting.Revenueinthisproductcategorydecreasedby4%,or$296million,drivenbyan8%,or$378million,decreaseinrevenuefromourhigh-endrouterproductspartiallyoffsetbyan11%,or$48million,increaseinrevenuefromwhatwecategorizeasotherNGNRoutingproductsanda1%,or$34million,increaseinrevenuefromourmid-rangeandlow-endrouterproducts.Revenuefromhigh-endrouterproductsdecreasedduetoadecreaseinrevenuefrommostofourhigh-endrouterproducts,partiallyoffsetbyhigher sales of our CRS-X products. Revenue from other NGN Routing products increased due to higher sales of optical networking products. The revenueincreaseinthemid-rangeandlow-endrouterswasprimarilydrivenbyhighersalesofCiscoISRproducts.
Fiscal 2015 Compared with Fiscal 2014
RevenueinourNGNRoutingproductcategoryincreasedby1%,or$98million,drivenbya6%,or$248million,increaseinrevenuefromourhigh-endrouterproductsandaslightincreaseinrevenuefromourmidrangeandlow-endrouterproducts,partiallyoffsetby28%,or$171million,decreaseinrevenuefromotherNGNRoutingproducts.Revenuefromhigh-endrouterproductsincreasedduetoanincreaseinrevenuefrommostproductswithinourCiscoASRcategoryandtheadoptionofourCiscoNCSplatformandCRS-X,partiallyoffsetbylowersalesofourlegacyhigh-endrouterproducts.Theslightincreaseinrevenuefromourmidrangeandlow-endrouterproductswasduetohighersalesofourCiscoISRproducts,partiallyoffsetbylowersalesofcertainofouraccessproducts.RevenuefromotherNGNRoutingproductsdecreasedprimarilyduetolowersalesofcertainopticalnetworkingproducts.
Collaboration
Fiscal 2016 Compared with Fiscal 2015Revenue from our Collaboration product category increased by 9%, or$348 million , driven by growth across the various subcategories within this productcategory. The growth in Conferencing revenue resulted from higher usage and recurring revenue from WebEx, which we include as product revenue in thiscategory.RevenuefromCiscoTelePresenceproductsgrewduetohigherrevenueininfrastructureandendpointproductsasaresultofnewproductintroductions.The increase in Unified Communications revenue was driven by higher software revenue. We continue to increase the amount of deferred revenue and theproportionofrecurringrevenuerelatedtoourCollaborationproductcategory.
Fiscal 2015 Compared with Fiscal 2014
RevenueinourCollaborationproductcategoryincreasedby5%,or$187million,duetoincreasedrevenuefromourUnifiedCommunicationsproductsasaresultofhighersoftwarerevenueandaslightincreaseinrevenuefromphones.HigherrevenuefromourCiscoTelePresenceandconferencingproductsalsocontributedtotheincrease. RevenuefromCiscoTelePresenceproducts increasedduetohigherrevenueinendpoint products asaresult of newproduct introductions. Theincreaseinconferencingrevenuewasaresultofhigherrecurringrevenue.WecontinuetoincreasetheamountofdeferredrevenueandtheproportionofrecurringrevenuerelatedtoourCollaborationproductcategory.
DataCenter
Fiscal 2016 Compared with Fiscal 2015TheincreaseinrevenueinourDataCenterproductcategoryof5%,or$146million,wasprimarilydrivenbyanincreaseinsalesofourCiscoUnifiedComputingSystemproducts, withgrowthacrossall geographicsegmentsandmostofthecustomermarkets. Webelievetheuncertaintyinthemacroenvironmentledtoaslowdownofcustomerspendingforproductsinthiscategory.Additionally,weareseeingamarkettransitionwithcomputingworkloadsshiftingfrombladeserversystemstorack-basedsystems.Webelievebothofthesefactorsadverselyimpactedthesalesofthisproductcategory.
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Fiscal 2015 Compared with Fiscal 2014
Revenue in our Data Center product category grewby22%,or$579million, with sales growth of our Cisco Unified Computing Systemproducts across allgeographic segments andcustomermarkets. Theincrease wasdueinlargepart to thecontinuedmomentumweare experiencinginbothdata center andcloudenvironments,ascurrentcustomersincreasetheirdatacenterbuild-outsandasnewcustomersdeploytheseofferings.
Wireless
Fiscal 2016 Compared with Fiscal 2015RevenueinourWirelessproductcategoryincreasedby3%,or$83million,dueprimarilytocontinuedgrowthinsalesofMerakiproductswithinthiscategory,partiallyoffsetbyadecreaseinsalesofourcontrollersproducts.WecontinuetoincreasetheamountofdeferredrevenueandtheproportionofrecurringrevenuerelatedtoourWirelessproductcategory.
Fiscal 2015 Compared with Fiscal 2014
RevenueinourWirelessproductcategoryincreasedby11%,or$249million,drivenbycontinuedgrowthinsalesofMerakiproductscombinedwithcontinuedstrengthinour802.11acportfolio.WecontinuetoincreasetheamountofdeferredrevenueandtheproportionofrecurringrevenuerelatedtoourWirelessproductcategory.
ServiceProviderVideo
Fiscal 2016 Compared with Fiscal 2015ThedecreaseinrevenuefromourServiceProviderVideoproductcategoryof32%,or$1,131million,wasdrivenbyadecreaseinproductsalesof$1,342millionrelatedtoourSPVideoCPEBusinesswhichwesoldduringthesecondquarteroffiscal2016.Thisdecreasewaspartiallyoffsetbyanincreaseinrevenuefromcertaincableaccessproductsandanincreaseinrevenuefromourvideosoftwareandsolutionsproducts,particularlyinChina.
Fiscal 2015 Compared with Fiscal 2014
ThedecreaseinrevenuefromourServiceProviderVideoproductcategoryof10%,or$414million,wasdrivenbya16%,or$332million,decreaseinsalesofourServiceProviderVideoinfrastructureproducts, dueprimarilytolowersalesofset-topboxes.Wealsoexperiencedadecreaseinrevenuefromcableaccessproductswithinthisproductcategory.
Security
Fiscal 2016 Compared with Fiscal 2015RevenueinourSecurityproductcategoryincreased13%,or$222million, drivenbyhighersalesofadvancedthreat security, websecurityandunifiedthreatmanagementproducts.WecontinuetoincreasetheamountofdeferredrevenueandtheproportionofrecurringrevenuerelatedtoourSecurityproductcategory.
Fiscal 2015 Compared with Fiscal 2014
RevenueinourSecurityproductcategorywasup12%,or$181million,drivenprimarilybysalesofSourcefireproductsand,toalesserextent,byhighersalesofourhigh-endfirewallproductswithinournetworksecurityproductportfolio.Thisincreasewaspartiallyoffsetbyaslightdecreaseinrevenuefromourcontentsecurityproductsduetolowersalesofwebande-mailsecurityproducts.WecontinuetoincreasetheamountofdeferredrevenueandtheproportionofrecurringrevenuerelatedtoourSecurityproductcategory.
OtherProducts
Theyear-over-yearincreaseinrevenueinourOtherProductscategoryforfiscal2016wasduetoincreasedrevenuefromdataandanalyticsofferings,fromourcloud-relatedofferingsandfromourIoTproducts,drivenbyourJasperacquisition.Weexperiencedayear-over-yeardecreaseinrevenueinourOtherProductscategoryforfiscal2015dueinlargeparttothedecreaseinsalesofourothernetworkingproducts.
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Service Revenue by Segment
Thefollowingtablepresentsthebreakdownofservicerevenuebysegment(inmillions,exceptpercentages):
YearsEnded 2016vs.2015 2015vs.2014
YearsEnded July 30, 2016 July25,2015 July26,2014 VarianceinDollars
VarianceinPercent
VarianceinDollars
VarianceinPercent
Servicerevenue: Americas $ 7,732 $ 7,394 $ 7,150 $ 338 4.6% $ 244 3.4%Percentage of service revenue 64.4% 64.8% 65.2% EMEA 2,623 2,466 2,351 157 6.4% 115 4.9%Percentage of service revenue 21.9% 21.6% 21.4% APJC 1,638 1,551 1,469 87 5.6% 82 5.6%Percentage of service revenue 13.7% 13.6% 13.4%
Total $ 11,993 $ 11,411 $ 10,970 $ 582 5.1% $ 441 4.0%
Fiscal 2016 Compared with Fiscal 2015Servicerevenuegrew5%,whichincludesa$200million,or2%,year-over-yearincreaseasaresultoftheimpactoftheextraweekinfiscal2016.Servicerevenuehadsolidgrowthacrossallofourgeographicsegments.Worldwidetechnicalsupportservicesrevenueincreasedby5%andworldwideadvancedservicesrevenueincreased by 7%. Technical support services revenue increased across all geographic segments. Renewals and technical support service contract initiationsassociatedwithproductsalesprovidedaninstalledbaseofequipmentbeingservicedwhich,inconcertwithnewserviceofferings,weretheprimaryfactorsdrivingthe revenue increases. Advanced services revenue, which relates to professional services for specific customer network needs, grew across all geographicsegments.
Fiscal 2015 Compared with Fiscal 2014Servicerevenueincreasedacrossallofourgeographicsegments.Worldwidetechnicalsupportservicesrevenueincreasedby3%andworldwideadvancedservicesrevenue increased by 6%, driven by growth in subscription revenues. Technical support services revenue experienced relatively balanced growth across allgeographic segments. Renewals and technical support service contract initiations associated with product sales provided an installed base of equipment beingserviced which, in concert with new service offerings, were the primary factors driving the revenue increases. Advanced services revenue grew across allgeographicsegments.
Gross Margin
Thefollowingtablepresentsthegrossmarginforproductsandservices(inmillions,exceptpercentages):
AMOUNT PERCENTAGE
YearsEnded July 30, 2016 July25,2015 July26,2014 July 30, 2016 July25,2015 July26,2014
Grossmargin: Product $ 23,093 $ 22,373 $ 20,531 62.0% 59.3% 56.8%Service 7,867 7,308 7,238 65.6% 64.0% 66.0%
Total $ 30,960 $ 29,681 $ 27,769 62.9% 60.4% 58.9%
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Product Gross Margin
Fiscal 2016 Compared with Fiscal 2015
Thefollowingtablesummarizesthekeyfactorsthatcontributedtothechangeinproductgrossmarginpercentagefromfiscal2015tofiscal2016:
Product Gross Margin
Percentage
Fiscal 2015 59.3 %Productivity (1) 3.3 %SP Video CPE Business impact 1.5 %Amortization of purchased intangible assets 0.6 %Rockstar patent portfolio charge 0.5 %Product pricing (2.2)%Mix of products sold (0.8)%Supplier component remediation adjustment (0.2)%
Fiscal 2016 62.0 %
(1)Productivityincludesoverallmanufacturing-relatedcosts,suchascomponentcosts,warrantyexpense,provisionforinventory,freight,logistics,shipmentvolume,andotheritemsnotcategorizedelsewhere.
Productgrossmarginincreasedby2.7percentagepointsascomparedwithfiscal2015.Theincreaseinproductgrossmarginwasdueinlargeparttoproductivityimprovements, which were driven primarily by value engineering efforts; favorable component pricing; and continued operational efficiency in manufacturingoperations. Value engineering is the process by which production costs are reduced through component redesign, board configuration, test processes, andtransformation processes. Our product gross margin also benefited fromthe sale during the second quarter of fiscal 2016 of our lower margin SP Video CPEBusiness,loweramortizationexpenseandimpairmentchargesrelatedtoacquisition-relatedintangibleassets,anda$188millionchargetoproductcostofsalesrecorded in the first quarter of fiscal 2015 related to the Rockstar patent portfolio. The various factors contributing to the product gross margin increase werepartially offset by unfavorable impacts fromproduct pricing, which were driven by typical market factors and impacted each of our geographic segments andcustomermarkets,anunfavorablemixofproductssoldandthelowersuppliercomponentremediationadjustment.TheunfavorablemixofproductssoldwasduetoanegativemiximpactfromourCiscoUnifiedComputingSystemproducts,highersalesofServiceProviderVideoproducts(notincludingtheCPEBusiness)andanunfavorablemixwithinSwitchingproducts.
Fiscal 2015 Compared with Fiscal 2014
Thefollowingtablesummarizesthekeyfactorsthatcontributedtothechangeinproductgrossmarginpercentagefromfiscal2014tofiscal2015:
ProductGross
MarginPercentage
Fiscal2014 56.8%Productivity(1) 2.8%Suppliercomponentremediationcharge/adjustment 2.2%Mixofproductssold 0.3%Productpricing (2.3)%Rockstarpatentportfoliocharge (0.5)%
Fiscal2015 59.3%
Productgrossmarginincreasedby2.5percentagepointscomparedwithfiscal2014.Theincreaseinproductgrossmarginwasduetoproductivityimprovements,whichweredrivenbyvalueengineeringefforts;favorablecomponentpricing;continuedoperationalefficiencyinmanufacturingoperationsandlowerwarrantyexpense.Theincreasewasalsoduetothe$655millionchargetoproductcostofsalesinfiscal2014relatedtotheexpectedcosttoremediateissueswithasuppliercomponentincertainproductssoldinpriorfiscalyearsandanassociated$164millionfavorableadjustmentrecordedinfiscal2015.
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Additionally,grossmarginincreasedduetothemixofproductssold.ThefavorableproductmiximpactwasduetorevenuedecreasesfromourrelativelylowermarginServiceProviderVideoproductsandarevenueincreasefromcertainofourhighermargincoreproducts,partiallyoffsetbyincreasedrevenuefromourrelativelylowermarginCiscoUnifiedComputingSystemproducts.Thevariousfactorscontributingtotheproductgrossmarginincreasewerepartiallyoffsetbyunfavorableimpactsfromproductpricing,whichweredrivenbytypicalmarketfactorsandimpactedeachofourgeographicsegmentsandcustomermarkets,aswellastheunfavorableimpactofa$188millionchargetoproductcostofsalesrecordedinfiscal2015relatedtotheRockstarpatentportfolio,seeNote4(b)totheConsolidatedFinancialStatements.
Service Gross Margin
Fiscal 2016 Compared with Fiscal 2015
Servicegrossmarginpercentageincreasedby1.6percentagepoints,ascomparedwithfiscal2015,duetohighersalesvolumeanddecreasedheadcount-relatedcosts.Thesebenefitstogrossmarginwerepartiallyoffsetbyincreasedpartnerdeliverycostsandincreasedoutsideservicescosts.
Ourservicegrossmarginnormallyexperiences somefluctuationsduetovariousfactors suchasthetimingofcontract initiationsinourrenewals, ourstrategicinvestments in headcount, and the resources wedeploy to support the overall service business. Other factors include the mix of service offerings, as the grossmarginfromouradvancedservicesistypicallylowerthanthegrossmarginfromtechnicalsupportservices.
Fiscal 2015 Compared with Fiscal 2014
Service gross margin percentage decreasedby2.0percentage points for fiscal2015, as comparedwithfiscal2014, driven by increased cost impacts such aspartnerdeliverycosts,headcount-relatedcostsandoutsideservices.Headcount-relatedcostsincreasedduetocontinuedinvestmentsinsecurityandcloudmanagedservicesandhighervariablecompensationexpense.Thesecostimpactswerepartiallyoffsetbytheresultingbenefittogrossmarginofhighersalesvolumeinbothadvancedservicesandtechnicalsupportservices.
Gross Margin by Segment
Thefollowingtablepresentsthetotalgrossmarginforeachsegment(inmillions,exceptpercentages):
AMOUNT PERCENTAGE
YearsEnded July 30, 2016 July25,2015 July26,2014 July 30, 2016 July25,2015 July26,2014
Grossmargin: Americas $ 19,006 $ 18,670 $ 17,379 64.6% 63.0% 62.6%EMEA 7,976 7,705 7,700 64.9% 62.5% 64.1%APJC 4,622 4,307 4,252 61.2% 60.0% 57.8%Segmenttotal 31,604 30,682 29,331 64.2% 62.4% 62.2%Unallocatedcorporateitems(1) (644) (1,001) (1,562)
Total $ 30,960 $ 29,681 $ 27,769 62.9% 60.4% 58.9%
(1)Theunallocatedcorporateitemsfortheyearspresentedincludetheeffectsofamortizationandimpairmentsofacquisition-relatedintangibleassets,share-basedcompensationexpense,significantlitigationandothercontingencies,chargesrelatedtoassetimpairmentsandrestructurings,andcertainothercharges.Wedonotallocatetheseitemstothegrossmarginforeachsegmentbecausemanagementdoesnotincludesuchinformationinmeasuringtheperformanceoftheoperatingsegments.
Fiscal 2016 Compared with Fiscal 2015
TheAmericassegmentexperiencedagrossmarginpercentageincreasedueprimarilytothesaleofthelowermarginSPVideoCPEBusiness.Inthisgeographicsegment,productivityimprovementsweresubstantiallyoffsetbyunfavorableimpactsfrompricingandproductmix.TheunfavorablemixofproductssoldwasduetoincreasedrevenuefromourlowermarginCiscoUnifiedComputingSystemproductsandanunfavorablemixwithinourNGNRoutingproducts.
ThegrossmarginpercentageincreaseinourEMEAsegmentwasdueprimarilytotheimpactofproductivityimprovementsinthisgeographicsegmentandthesaleoftheSPVideoCPEBusiness.Partiallyoffsettingthesefavorableimpactstogrossmarginwerenegativeimpactsfrompricingandanunfavorableproductmix.TheunfavorablemixofproductssoldwasdueprimarilytoincreasedrevenuefromourlowermarginCiscoUnifiedComputingSystemproducts.Higherservicegrossmarginalsocontributedtotheincreaseintheoverallgrossmargininthisgeographicsegment.
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OurAPJCsegmentgrossmarginpercentageincreasedduetoproductivityimprovements,partiallyoffsetbyunfavorableimpactsfrompricingandmix.ThemiximpactwasdrivenprimarilybyhighersalesfromourServiceProviderVideoproducts(notincludingtheSPVideoCPEBusiness)andunfavorablemixwithinourNGNRoutingproducts.
Thegrossmarginpercentageforaparticularsegmentmayfluctuate,andperiod-to-periodchangesinsuchpercentagesmayormaynotbeindicativeofatrendforthatsegment.
Fiscal 2015 Compared with Fiscal 2014
Weexperienced a gross margin percentage increase in our Americas segment due to productivity improvements partially offset by unfavorable impacts frompricing.TheproductmixwasflatinthisgeographicsegmentastheimpactofdecreasedrevenuefromourrelativelylowermarginServiceProviderVideoproductsoffsettheincreaseinrevenuefromourrelativelylowermarginCiscoUnifiedComputingSystemproducts.
ThegrossmarginpercentagedecreaseinourEMEAsegmentwasdueprimarilytounfavorableimpactsfrompricingandmix.TheunfavorablemiximpactwasdrivenbyanincreaseinrevenuefromourrelativelylowermarginCiscoUnifiedComputingSystemproducts.Lowerservicegrossmarginalsocontributedtothedecreaseintheoverallgrossmargininthissegment.
TheAPJCsegmentgrossmarginpercentageincreasedduetoproductivityimprovementsandafavorablemiximpact,partiallyoffsetbyunfavorableimpactsfrompricing. The favorable mix impact was driven by a decrease in revenue fromour relatively lower margin Service Provider Video products and an increase inrevenuefromcertainofourhighermargincoreproducts.
Research and Development (“R&D”), Sales and Marketing, and General and Administrative (“G&A”) Expenses
R&D,salesandmarketing,andG&Aexpensesaresummarizedinthefollowingtable(inmillions,exceptpercentages):
YearsEnded 2016vs.2015 2015vs.2014
July 30, 2016 July25,2015 July26,2014 VarianceinDollars
VarianceinPercent
VarianceinDollars
VarianceinPercent
Researchanddevelopment $ 6,296 $ 6,207 $ 6,294 $ 89 1.4% $ (87) (1.4)%Percentage of revenue 12.8% 12.6% 13.4% Salesandmarketing 9,619 9,821 9,503 (202) (2.1)% 318 3.3%Percentage of revenue 19.5% 20.0% 20.2% Generalandadministrative 1,814 2,040 1,934 (226) (11.1)% 106 5.5%Percentage of revenue 3.7% 4.1% 4.1%
Total $ 17,729 $ 18,068 $ 17,731 $ (339) (1.9)% $ 337 1.9%Percentage of revenue 36.0% 36.8% 37.6%
Fiscal2016hadanextraweekcomparedwithfiscal2015.Weestimatethattheextraweekcontributedapproximately$116millionintotaloperatingexpenses(notincludingshare-basedcompensationexpensediscussedbelow).
R&DExpenses
Fiscal 2016 Compared with Fiscal 2015R&Dexpensesincreasedforfiscal2016,ascomparedwithfiscal2015,primarilyduetohigherheadcount-relatedexpensesattributableinparttotheimpactoftheextraweekinfiscal2016and,toalesserextent,highershare-basedcompensationexpense.Theseincreaseswerepartiallyoffsetbyloweracquisition-relatedcostsandlowerdiscretionaryspending.Wecontinuetoinvest in R&Dinorder tobringabroadrangeof products tomarket in a timelyfashion. If webelievethat weare unabletoenter a particularmarketinatimelymannerwithinternallydevelopedproducts,wemaypurchaseorlicensetechnologyfromotherbusinesses,orwemaypartnerwithoracquirebusinessesasanalternativetointernalR&D.
Fiscal 2015 Compared with Fiscal 2014Thedecrease in R&Dexpenses for fiscal2015, as comparedwithfiscal2014, was primarily due to higher compensation expense recorded in fiscal 2014inconnection with our acquisition of the remaining interest in Insieme Networks, Inc. (“Insieme”). See Note 12 to the Consolidated Financial Statements.Efficiencies arising from our restructuring action announced in August 2014 also contributed to the decrease. These decreases were partially offset by highercontractedservicesandhighershare-basedcompensationexpense.
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SalesandMarketingExpenses
Fiscal 2016 Compared with Fiscal 2015Salesandmarketingexpensesdecreasedforfiscal2016,ascomparedwithfiscal2015,duetolowerdiscretionaryspendingandlowerheadcount-relatedexpenses.Theaforementioneditemsbenefitedfromforeignexchangeratesduringfiscal2016.Lowershare-basedcompensationexpensealsocontributedtothedecrease.
Fiscal 2015 Compared with Fiscal 2014Salesandmarketingexpensesincreasedforfiscal2015,ascomparedwithfiscal2014,duetohigherheadcount-relatedexpenses,drivenbyincreasedvariablecompensationexpenseandhigherdiscretionaryspending,partiallyoffsetbylowercompensationexpensefromacquisitions.
G&AExpenses
Fiscal 2016 Compared with Fiscal 2015G&Aexpenses decreased in fiscal 2016 , as compared with fiscal 2015 , primarily due to the$253 millionpre-tax gain from the sale of our SP Video CPEBusinessand,toalesserextent,lowercontractedservicesandlowershare-basedcompensationexpense,partiallyoffsetbyhigherheadcount-relatedexpenses.Theextraweekinfiscal2016contributedtotheincreasedheadcount-relatedexpenses.
Fiscal 2015 Compared with Fiscal 2014G&Aexpensesincreasedinfiscal2015, as comparedwithfiscal2014, primarily dueto increasedvariable compensation expenseas a result of our financialperformance,highershare-basedcompensationexpenseandthetimingofcorporate-levelexpenses.Corporate-levelexpenses,whichtendtovaryfromperiodtoperiod,includedoperationalinfrastructureactivitiessuchasITprojectimplementations,whichincludedinvestmentsinourglobaldatacenterinfrastructure,andinvestmentsrelatedtooperationalandfinancialsystems.
EffectofForeignCurrency
Infiscal 2016 , foreign currency fluctuations, net of hedging, decreased the combined R&D, sales and marketing, and G&Aexpenses by approximately $567million,or3.1%,comparedwithfiscal2015.Infiscal2015,foreigncurrencyfluctuations,netofhedging,decreasedthecombinedR&D,salesandmarketing,andG&Aexpensesbyapproximately$278million,or1.6%,comparedwithfiscal2014.
Headcount
Fiscal 2016 Compared with Fiscal 2015
Ourheadcountincreasedbyapproximately1,800employeesinfiscal2016duetoheadcountadditionsfromtargetedhiringinkeygrowthareasinengineeringandservices, and due also to headcount additions from our recent acquisitions. These headcount additions were partially offset by headcount reductions from ourrestructuringplanannouncedinAugust2014andfromthesaleoftheSPVideoCPEBusiness.
Fiscal 2015 Compared with Fiscal 2014
The decrease in headcount of approximately 2,200 employees in fiscal 2015was due to headcount reductions from attrition and from our restructuring planannouncedinAugust2014.Theseheadcountreductionswerepartiallyoffsetbyheadcountadditionsfromtargetedhiringinengineeringandservices,andalsobyheadcountadditionsfromourrecentacquisitions.
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Share-Based Compensation Expense
Thefollowingtablepresentsshare-basedcompensationexpense(inmillions):
YearsEnded July 30, 2016 July25,2015 July26,2014
Costofsales—product $ 70 $ 50 $ 45Costofsales—service 142 157 150Share-basedcompensationexpenseincostofsales 212 207 195Researchanddevelopment 470 448 411Salesandmarketing 545 559 549Generalandadministrative 205 228 198Restructuringandothercharges 26 (2) (5)Share-basedcompensationexpenseinoperatingexpenses 1,246 1,233 1,153Totalshare-basedcompensationexpense $ 1,458 $ 1,440 $ 1,348
Theincreaseinshare-basedcompensationexpenseforfiscal2016,ascomparedwithfiscal2015,wasdueprimarilytothetimingofRSUgrantsandtheimpactoftheextraweekinfiscal2016,partiallyoffsetbylowernetexpenseassociatedwithacceleratedandmodifiedawards.
The increase in share-based compensation expense for fiscal 2015 , as compared with fiscal 2014 , was due primarily to higher expense associated withperformance-basedrestrictedstockunitsandchargesassociatedwithseverancearrangementswithcertainexecutives,partiallyoffsetbylowerexpenserelatedtoequityawardsassumedwithrespecttoourrecentacquisitions.
Amortization of Purchased Intangible Assets
Thefollowingtablepresentstheamortizationofpurchasedintangibleassets(inmillions):
YearsEnded July 30, 2016 July25,2015 July26,2014
Amortizationofpurchasedintangibleassets: Costofsales $ 577 $ 814 $ 742Operatingexpenses 303 359 275
Total $ 880 $ 1,173 $ 1,017
Amortizationofpurchasedintangibleassetsdecreasedinfiscal2016,ascomparedwithfiscal2015,duetocertainpurchasedintangibleassetshavingbecomefullyamortizedorimpaired,partiallyoffsetbyamortizationofpurchasedintangibleassetsfromourrecentacquisitions.Lowerimpairmentchargesinfiscal2016alsocontributedtothedecrease.
Amortizationofpurchasedintangibleassetsincreasedinfiscal2015ascomparedwithfiscal2014,primarilyduetotheimpairmentchargesofapproximately$175millionrecordedinfiscal2015.TheimpairmentchargeswereprimarilyduetodeclinesinestimatedfairvalueresultingfromreductionsinortheeliminationofexpectedfuturecashflowsassociatedwithcertainofourtechnologyandIPR&Dintangibleassets.
Restructuring and Other ChargesInconnectionwitharestructuringactionannouncedinAugust2014,weincurredrestructuringandotherchargesof$267millionand$489millionduringfiscal2016and2015,respectively.Thesechargeswererelatedprimarilytoseveranceandotherone-timeterminationbenefitsandotherassociatedcosts.Wecompletedthisplanattheendoffiscal2016.
InconnectionwitharestructuringactionannouncedinAugust2013,weincurredrestructuringandotherchargesofapproximately$418millionduringfiscal2014,whichwererelatedprimarilytoemployeeseverancechargesforemployeesimpactedbyourworkforcereductionunderthisplan.Wecompletedthisplanattheendoffiscal2014.InAugust2016,weannouncedarestructuringplanthatwillimpactupto5,500employees,representingapproximately7%ofourglobalworkforce.Webegantakingactionunderthisplaninthefirstquarteroffiscal2017.Wecurrentlyestimatethatwewillrecognizepre-taxchargesinanamountofupto$700millionconsistingofseveranceandotherone-timeterminationbenefits,andotherassociatedcosts.Weexpectthatapproximately$325millionto$400millionofthesechargeswill berecognizedduringthefirst quarter of fiscal 2017, withtheremainingamount to berecognizedduringtherest of thefiscal 2017. Weexpect toreinvestsubstantiallyallofthecostsavingsfromtherestructuringactionsinourkeypriorityareassuchassecurity,IoT,collaboration,nextgenerationdatacenterandcloud.Asaresult,theoverallcostsavingsfromtheserestructuringactionsarenotexpectedtobematerialforfutureperiods.
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Operating Income
Thefollowingtablepresentsouroperatingincomeandouroperatingincomeasapercentageofrevenue(inmillions,exceptpercentages):
YearsEnded July 30, 2016 July25,2015 July26,2014
Operatingincome $ 12,660 $ 10,770 $ 9,345Operatingincomeasapercentageofrevenue 25.7% 21.9% 19.8%
Forfiscal2016,ascomparedwithfiscal2015,operatingincomeincreasedby18%,andasapercentageofrevenueoperatingincomeincreasedby3.8percentagepoints.Theincreaseresultedfromthefollowing:agrossmarginpercentageincrease,driveninpartbythesaleofthelowermarginSPVideoCPEBusinessduringfiscal 2016; the $253 million pre-tax gain from the sale of our SP Video CPE Business; and a decrease in restructuring and other charges related to therestructuringactionannouncedinAugust2014.Forfiscal2015,ascomparedwithfiscal2014,operatingincomeincreasedby15%,andasapercentageofrevenueoperatingincomeincreasedby2.1percentagepoints.Theincreaseresultedfromthefollowing:anincreaseinrevenue;agrossmarginpercentageincrease,driveninpartbythe$655millionsuppliercomponentremediation charge (or 1.4 percentage points of fiscal 2014 revenue) recorded in fiscal 2014; and higher compensation expense recorded in fiscal 2014 inconnectionwithouracquisitionoftheremaininginterestinInsieme.
Interest and Other Income (Loss), Net
InterestIncome(Expense),NetThefollowingtablesummarizesinterestincomeandinterestexpense(inmillions):
YearsEnded 2016vs.2015 2015vs.2014
July 30, 2016 July25,2015 July26,2014 VarianceinDollars VarianceinDollars
Interestincome $ 1,005 $ 769 $ 691 $ 236 $ 78Interestexpense (676) (566) (564) (110) (2)
Interestincome(expense),net $ 329 $ 203 $ 127 $ 126 $ 76
Fiscal 2016 Compared with Fiscal 2015
Interest income increased in fiscal 2016 as compared with fiscal 2015 , driven by an increase in our portfolio of cash, cash equivalents, and fixed incomeinvestmentsaswellashigheryieldsonourportfolioofcashandinvestments.Theincreaseininterestexpenseinfiscal2016comparedwithfiscal2015wasdrivenbyhigher averagedebt balances andtheimpact of higher effective interest rates onfloating-rate senior notes andinterest rate swapsassociatedwithfixed-rateseniornotes.
Fiscal 2015 Compared with Fiscal 2014Interest income increased in fiscal 2015 as compared with fiscal 2014, driven by an increase in our portfolio of cash, cash equivalents, and fixed incomeinvestments.Interestexpenseinfiscal2015ascomparedwiththepriorfiscalyearincreasedslightly,drivenbyadditionalinterestexpenseduetothenetincreaseinlong-termdebtinfiscal2015.
OtherIncome(Loss),NetThecomponentsofotherincome(loss),net,aresummarizedasfollows(inmillions):
YearsEnded 2016vs.2015 2015vs.2014
July 30, 2016 July25,2015 July26,2014 VarianceinDollars VarianceinDollars
Gains(losses)oninvestments,net: Publiclytradedequitysecurities $ 33 $ 116 $ 253 $ (83) $ (137)Fixedincomesecurities (34) 41 47 (75) (6)Totalavailable-for-saleinvestments (1) 157 300 (158) (143)Privatelyheldcompanies (35) 82 (60) (117) 142
Netgains(losses)oninvestments (36) 239 240 (275) (1)Othergains(losses),net (33) (11) 3 (22) (14)
Otherincome(loss),net $ (69) $ 228 $ 243 $ (297) $ (15)
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Fiscal 2016 Compared with Fiscal 2015
Thechangeintotalnetgains(losses)onavailable-for-saleinvestmentsinfiscal2016,ascomparedwithfiscal2015,wasprimarilyattributabletolowerrealizedgains on publicly traded equity securities and net losses on fixed income securities in fiscal 2016 compared to net gains in fiscal 2015 as a result of marketconditionsandthetimingofsalesofthesesecurities.
Thechangeinnetgains(losses)oninvestmentsinprivatelyheldcompaniesinfiscal2016,ascomparedwithfiscal2015,wasprimarilyduetoagainof$126millionrelatedtothereorganizationofourinvestmentinVCE,whichwasrecordedinfiscal2015.
The change in other gains (losses), net in fiscal 2016 , as compared with fiscal 2015 , was driven by higher donation expenses and net unfavorable foreignexchangeimpacts,partiallyoffsetbyhighergainsfromcustomerleaseterminations.
Fiscal 2015 Compared with Fiscal 2014
Thedecreaseintotalnetgainsonavailable-for-saleinvestmentsinfiscal2015comparedwithfiscal2014wasprimarilyattributabletolowergainsonpubliclytradedequitysecuritiesinthecurrentperiodasaresultofmarketconditionsandthetimingofsalesofthesesecurities.
Thechangeinnetgains(losses)oninvestmentsinprivatelyheldcompaniesforthefiscal2015ascomparedwithfiscal2014wasprimarilyduetoa$126milliongain recorded in fiscal 2015related to the reorganization of our investments in VCEand lower losses related to this investment under the equity method. WeceasedaccountingforVCEundertheequitymethodinOctober2014.Thesefavorableitemswerepartiallyoffsetbyhigherimpairmentchargesandlowerrealizedgainsfromsalesofvariousinvestmentsinprivatelyheldcompanies.
Thechangeinothergains(losses),netinfiscal2015ascomparedwithfiscal2014wasdrivenbyequityderivativeimpactsandhigherdonationexpenses,partiallyoffsetbynetfavorableforeignexchangeimpactsinfiscal2015.
Provision for Income Taxes
Ourprovisionforincometaxesissubjecttovolatilityandcouldbeadverselyimpactedbyearningsbeinglowerthananticipatedincountriesthathavelowertaxrates,higherthananticipatedincountriesthathavehighertaxrates,andexpirationoforlapsesintaxincentives.OurprovisionforincometaxesdoesnotincludeprovisionsforU.S.incometaxesandforeignwithholdingtaxesassociatedwiththerepatriationofundistributedearningsofcertainforeignsubsidiariesthat weintend to reinvest indefinitely in our foreign subsidiaries. If these earnings were distributed from the foreign subsidiaries to the United States in the form ofdividendsorotherwise,orifthesharesoftherelevantforeignsubsidiariesweresoldorotherwisetransferred,wewouldbesubjecttoadditionalU.S.incometaxes(subjecttoanadjustmentforforeigntaxcredits)andforeignwithholdingtaxes.Further,asaresultofcertainofourongoingemploymentandcapitalinvestmentactions and commitments, our income in certain countries is subject to reduced tax rates. Our failure to meet these commitments could adversely impact ourprovisionforincometaxes.
Fiscal 2016 Compared with Fiscal 2015Theprovisionforincometaxesresultedinaneffectivetaxrateof16.9%forfiscal2016,comparedwith19.8%forfiscal2015.Thenet2.9percentagepointdecreaseintheeffectivetaxratesbetweenfiscalyearswasprimarilyduetoanon-recurringnettaxbenefitof$367million,or2.8percentagepoints,relatedtoataxsettlementwiththeIRSinfiscal2016.
ForafullreconciliationofoureffectivetaxratetotheU.S.federalstatutoryrateof35%andforfurtherexplanationofourprovisionforincometaxes,seeNote16totheConsolidatedFinancialStatements.
Fiscal 2015 Compared with Fiscal 2014The provision for income taxes resulted in an effective tax rate of 19.8%for fiscal 2015, compared with 19.2%for fiscal 2014. The net 0.6 percentage pointincrease in the effective tax rate between fiscal years was primarily due to a decrease in foreign income taxed at lower than U.S. rates, partially offset by anincreaseinU.S.federalR&Dtaxcredit.
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LIQUIDITY AND CAPITAL RESOURCESThefollowingsectionsdiscusstheeffectsofchangesinourbalancesheet,ourcapitalallocationstrategyincludingstockrepurchaseprogramanddividends,ourcontractualobligations,andcertainothercommitmentsandactivitiesonourliquidityandcapitalresources.
Balance Sheet and Cash Flows
CashandCashEquivalentsandInvestmentsThefollowingtablesummarizesourcashandcashequivalentsandinvestments(inmillions):
July 30, 2016 July25,2015 Increase(Decrease)
Cashandcashequivalents $ 7,631 $ 6,877 $ 754Fixedincomesecurities 56,621 51,974 4,647Publiclytradedequitysecurities 1,504 1,565 (61)
Total $ 65,756 $ 60,416 $ 5,340
Thenetincreaseincashandcashequivalentsandinvestmentsfromfiscal2015tofiscal2016wasprimarilytheresultofcashprovidedbyoperatingactivitiesof$13.6billion,anetincreaseindebtof$3.1billion,proceedsfromissuanceofcommonstockof$1.1billionpursuanttoemployeestockincentiveandpurchaseplans,andnetproceedsfromthesaleofourSPVideoCPEBusinessof$0.4billion.Thesesourcesofcashwerepartiallyoffsetbycashreturnedtoshareholdersintheformofcashdividendsof$4.8billionandrepurchaseofcommonstockof$3.9billionunderthestockrepurchaseprogram,netcashpaidforacquisitionsof$3.2billionandcapitalexpendituresof$1.1billion.
Ourtotalincashandcashequivalentsandinvestmentsheldbyvariousforeignsubsidiarieswas$59.8billionand$53.4billionasofJuly30,2016andJuly25,2015,respectively.Undercurrenttaxlawsandregulations,iftheseassetsweretobedistributedfromtheforeignsubsidiariestotheUnitedStatesintheformofdividendsorotherwise,wewouldbesubjecttoadditionalU.S.incometaxes(subjecttoanadjustmentforforeigntaxcredits)andforeignwithholdingtaxes.Thebalance of cash and cash equivalents and investments available in the United States as of July 30, 2016andJuly 25, 2015was$5.9 billion and$7.0 billion ,respectively.
Wemaintainaninvestmentportfolioofvariousholdings,types,andmaturities.Weclassifyourinvestmentsasshort-terminvestmentsbasedontheirnatureandtheir availability for use in current operations. Webelieve the overall credit quality of our portfolio is strong, with our cash equivalents and our fixed incomeinvestment portfolio consisting primarily of high quality investment-grade securities. We believe that our strong cash and cash equivalents and investmentspositionallowsustouseourcashresourcesforstrategic investmentstogainaccesstonewtechnologies, foracquisitions, forcustomerfinancingactivities, forworkingcapitalneeds,andfortherepurchaseofsharesofcommonstockandpaymentofdividendsasdiscussedbelow.
FreeCashFlowandCapital AllocationAspart ofourcapital allocationstrategy, weintendtoreturnaminimumof50%ofourfreecashflowannuallytoourshareholdersthroughcashdividendsandrepurchasesofcommonstock.
Wedefinefreecashflowasnetcashprovidedbyoperatingactivitieslesscashusedtoacquirepropertyandequipment.Thefollowingtablereconcilesournetcashprovidedbyoperatingactivitiestofreecashflow(inmillions):
YearsEnded July 30, 2016 July25,2015 July26,2014
Netcashprovidedbyoperatingactivities $ 13,570 $ 12,552 $ 12,332Acquisitionofpropertyandequipment (1,146) (1,227) (1,275)
Freecashflow $ 12,424 $ 11,325 $ 11,057
Weexpect that cash provided by operating activities mayfluctuate in future periods as a result of a number of factors, including fluctuations in our operatingresults,therateatwhichproductsareshippedduringthequarter(whichwerefertoasshipmentlinearity), thetimingandcollectionofaccountsreceivableandfinancingreceivables,inventoryandsupplychainmanagement,deferredrevenue,excesstaxbenefitsresultingfromshare-basedcompensation,andthetimingandamountoftaxandotherpayments.Foradditionaldiscussion,see“PartI,Item1A.RiskFactors”inthisreport.
We consider free cash flow to be a liquidity measure that provides useful information to management and investors because of our intent to return a statedpercentage of free cash flowto shareholders in the formof dividends and stock repurchases. We further regard free cash flowas a useful measure because itreflects cash that can be used to, amongother things, invest in our business, make strategic acquisitions, repurchase commonstock, and pay dividends on ourcommonstock,afterdeductingcapitalinvestments.Alimitationoftheutilityoffreecashflowasameasureoffinancialperformanceandliquidityisthatthefreecashflowdoesnotrepresentthetotalincreaseordecreaseinourcashbalancefortheperiod.Inaddition,wehaveotherrequiredusesofcash,including
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repaying the principal of our outstanding indebtedness. Free cash flow is not a measure calculated in accordance with U.S. generally accepted accountingprinciplesandshouldnotberegardedinisolationorasanalternativefornetincomeprovidedbyoperatingactivitiesoranyothermeasurecalculatedinaccordancewithsuchprinciples,andothercompaniesmaycalculatefreecashflowinadifferentmannerthanwedo.
Thefollowingtablesummarizesthedividendspaidandstockrepurchases(inmillions,exceptper-shareamounts):
DIVIDENDS STOCKREPURCHASEPROGRAM TOTAL
YearsEnded PerShare Amount Shares Weighted-AveragePrice
perShare Amount Amount
July 30, 2016 $ 0.94 $ 4,750 148 $ 26.45 $ 3,918 $ 8,668July25,2015 $ 0.80 $ 4,086 155 $ 27.22 $ 4,234 $ 8,320July26,2014 $ 0.72 $ 3,758 420 $ 22.71 $ 9,539 $ 13,297
AnyfuturedividendsaresubjecttotheapprovalofourBoardofDirectors.
AccountsReceivable,NetThefollowingtablesummarizesouraccountsreceivable,net(inmillions),andDSO:
July 30, 2016 July25,2015 Increase(Decrease)
Accountsreceivable,net $ 5,847 $ 5,344 $ 503DSO 42 38 4
Ouraccountsreceivablenet,asofJuly30,2016increasedbyapproximately9%comparedwiththeendoffiscal2015.OurDSOasofJuly30,2016washigherbyfourdaysascomparedwiththeendoffiscal2015,astherewasarelativelyhigherproportionofservicebillingsinthelatterpartofthefourthquarterinfiscal2016.
InventorySupplyChainThefollowingtablesummarizesourinventoriesandpurchasecommitmentswithcontractmanufacturersandsuppliers(inmillions,exceptannualizedinventoryturns):
July 30, 2016 July25,2015 Increase(Decrease)
Inventories $ 1,217 $ 1,627 $ (410)Annualizedinventoryturns 14.6 12.1 2.5Purchasecommitmentswithcontractmanufacturersandsuppliers $ 3,896 $ 4,078 $ (182)
InventoryasofJuly30,2016decreasedby25%fromourinventorybalanceattheendoffiscal2015,andforthesameperiodpurchasecommitmentswithcontractmanufacturers and suppliers decreased by approximately 4%. On a combined basis, inventories and purchase commitments with contract manufacturers andsuppliers decreased by 10% compared with the end of fiscal 2015 . The decrease in inventory and purchase commitments with contract manufacturers andsuppliers was due in part to the sale of the SP Video CPEBusiness. We believe our inventory and purchase commitments levels are in line with our currentdemandforecasts.
Ourfinishedgoodsconsistofdistributorinventoryanddeferredcostofsalesandmanufacturedfinishedgoods.Distributorinventoryanddeferredcostofsalesarerelatedtounrecognizedrevenueonshipmentstodistributorsandretailpartnersaswellasshipmentstocustomers.Manufacturedfinishedgoodsconsistprimarilyofbuild-to-orderandbuild-to-stockproducts.
Wepurchasecomponentsfromavarietyofsuppliersanduseseveralcontractmanufacturerstoprovidemanufacturingservicesforourproducts.Duringthenormalcourse of business, in order to manage manufacturing lead times and help ensure adequate component supply, we enter into agreements with contractmanufacturersandsuppliersthatallowthemtoprocureinventorybaseduponcriteriaasdefinedbyusorthatestablishtheparametersdefiningourrequirementsand our commitment to securing manufacturing capacity. A significant portion of our reported purchase commitments arising fromthese agreements are firm,noncancelable,andunconditionalcommitments.Incertaininstances,theseagreementsallowustheoptiontocancel,reschedule,andadjustourrequirementsbasedon our business needs prior to firm orders being placed. Our purchase commitments are for short-term product manufacturing requirements as well as forcommitmentstosupplierstosecuremanufacturingcapacity.
Inventoryandsupplychainmanagementremainareasoffocusaswebalancetheneedtomaintainsupplychainflexibilitytohelpensurecompetitiveleadtimeswiththeriskofinventoryobsolescencebecauseofrapidlychangingtechnologyandcustomerrequirements.Webelievetheamountofourinventoryandpurchasecommitmentsisappropriateforourrevenuelevels.
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Financing Receivables and GuaranteesWe measure our net balance sheet exposure position related to our financing receivables and financing guarantees byreducingthetotalofgrossfinancingreceivablesandfinancingguaranteesbytheassociatedallowancesforcreditlossanddeferredrevenue.AsofJuly30,2016,ournetbalancesheetexposurepositionrelatedtofinancingreceivablesandfinancingguaranteeswasasfollows(inmillions):
FINANCINGRECEIVABLES FINANCINGGUARANTEES
July30,2016Lease
Receivables Loan
Receivables
FinancedServiceContractsandOther Total
ChannelPartner
End-UserCustomers Total TOTAL
Financingreceivablesandguarantees $ 3,474 $ 2,135 $ 3,370 $ 8,979 $ 281 $ 96 $ 377 $ 9,356Unearnedincome (174) — — (174) — — — (174)Allowanceforcreditloss (230) (97) (48) (375) — — — (375)Deferredrevenue (6) (15) (1,716) (1,737) (85) (76) (161) (1,898)
Netbalancesheetexposure $ 3,064 $ 2,023 $ 1,606 $ 6,693 $ 196 $ 20 $ 216 $ 6,909
Financing Receivables Financingreceivableslessunearnedincomeincreasedby1%comparedwiththeendoffiscal2015.Thechangewasprimarilyduetoa21%increase inloanreceivables partially offset bya6%decreaseinfinancedservicecontracts andother anda3%decreaseinleasereceivables. Weprovidefinancingtocertain end-user customers andchannel partners toenable sales of our products, services, andnetworkingsolutions. Thesefinancingarrangementsinclude leases, financed service contracts, and loans. Arrangements related to leases are generally collateralized by a security interest in the underlying assets.Lease receivables include sales-type and direct-financing leases. We also provide certain qualified customers financing for long-term service contracts, whichprimarilyrelatetotechnicalsupportservices.Ourloanfinancingarrangementsmayincludenotonlyfinancingtheacquisitionofourproductsandservicesbutalsoprovidingadditionalfundsforothercostsassociatedwithnetworkinstallationandintegrationofourproductsandservices.Weexpecttocontinuetoexpandtheuseofourfinancingprogramsinthenearterm.
Financing Guarantees Inthenormalcourseofbusiness,thirdpartiesmayprovidefinancingarrangementstoourcustomersandchannelpartnersunderfinancingprograms.Thefinancingarrangementstocustomersprovidedbythirdpartiesarerelatedtoleasesandloansandtypicallyhavetermsofuptothreeyears.Insomecases,weprovideguaranteestothirdpartiesfortheseleaseandloanarrangements.Thefinancingarrangementstochannelpartnersconsistofrevolvingshort-termfinancingprovidedbythirdparties,generallywithpaymenttermsrangingfrom60to90days.Incertaininstances,thesefinancingarrangementsresultinatransferof our receivables to the third party. The receivables are derecognized upon transfer, as these transfers qualify as true sales, and we receive payments for thereceivablesfromthethirdpartybasedonourstandardpaymentterms.Thevolumeofchannelpartnerfinancingwas$26.9billion,$25.9billion,and$24.6billioninfiscal2016,2015,and2014,respectively.Thesefinancingarrangementsfacilitatetheworkingcapitalrequirementsofthechannelpartners,andinsomecases,weguaranteeaportionofthesearrangements.Thebalanceofthechannelpartnerfinancingsubjecttoguaranteeswas$1.1billionand$1.2billionasofJuly30,2016andJuly25,2015,respectively.Wecouldbecalledupontomakepaymentsundertheseguaranteesintheeventofnonpaymentbythechannelpartnersorend-usercustomers.Historically,ourpaymentsunderthesearrangementshavebeenimmaterial.Whereweprovideaguarantee,wedefertherevenueassociatedwith the channel partner and end-user financing arrangement in accordance with revenue recognition policies, or we record a liability for the fair value of theguarantees.Ineithercase,thedeferredrevenueisrecognizedasrevenuewhentheguaranteeisremoved.
Deferred Revenue Related to Financing Receivables and Guarantees Themajority of the deferred revenue in the preceding table is related to financedservicecontracts.Themajorityoftherevenuerelatedtofinancedservicecontracts,whichprimarilyrelatestotechnicalsupportservices,isdeferredastherevenuerelatedtofinancedservicecontractsisrecognizedratablyovertheperiodduringwhichtherelatedservicesaretobeperformed.Aportionoftherevenuerelatedtoleaseandloanreceivablesisalsodeferredandincludedindeferredproductrevenuebasedonrevenuerecognitioncriterianotcurrentlyhavingbeenmet.
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Borrowings
Senior Notes Thefollowingtablesummarizestheprincipalamountofourseniornotes(inmillions):
MaturityDate July 30, 2016 July25,2015 Seniornotes: Floating-ratenotes:
Three-monthLIBORplus0.05% September3,2015 $ — $ 850 Three-monthLIBORplus0.28% March3,2017 1,000 1,000 Three-monthLIBORplus0.60% February21,2018 (1) 1,000 — Three-monthLIBORplus0.31% June15,2018 900 900 Three-monthLIBORplus0.50% March1,2019 500 500
Fixed-ratenotes: 5.50% February22,2016 — 3,000 1.10% March3,2017 2,400 2,400 3.15% March14,2017 750 750 1.40% February28,2018 (1) 1,250 — 1.65% June15,2018 1,600 1,600 4.95% February15,2019 2,000 2,000 1.60% February28,2019 (1) 1,000 — 2.125% March1,2019 1,750 1,750 4.45% January15,2020 2,500 2,500 2.45% June15,2020 1,500 1,500 2.20% February28,2021 (1) 2,500 — 2.90% March4,2021 500 500 3.00% June15,2022 500 500 2.60% February28,2023 (1) 500 — 3.625% March4,2024 1,000 1,000 3.50% June15,2025 500 500 2.95% February28,2026 (1) 750 — 5.90% February15,2039 2,000 2,000 5.50% January15,2040 2,000 2,000
Total $ 28,400 $ 25,250 (1)InFebruary2016,weissuedseniornoteswithanaggregateprincipalamountof$7.0billion.
Interestispayablesemiannuallyoneachclassoftheseniorfixed-ratenotes,eachofwhichisredeemablebyusatanytime,subjecttoamake-wholepremium.Interestispayablequarterlyonthefloating-ratenotes.WewereincompliancewithalldebtcovenantsasofJuly30,2016.
Werepaidthefixed-ratenotes(5.50%)dueonFebruary22,2016foranaggregateprincipalamountof$3.0billionuponmaturity.
Werepaidthefloating-ratenotesdueonSeptember3,2015foranaggregateprincipalamountof$850millionuponmaturity.
Other Debt Other debt as of July 30, 2016 andJuly 25, 2015 includes secured borrowings associated with customer financing arrangements. The amount ofborrowingsoutstandingunderthesearrangementswas$1millionand$4millionasofJuly30,2016andJuly25,2015,respectively.
Commercial Paper Weestablishedashort-termdebtfinancingprogramofupto$3.0billionthroughtheissuanceofcommercialpapernotes.Weusetheproceedsfromthe issuance of commercial paper notes for general corporate purposes. Wehad no commercial paper notes outstanding as of each of July 30, 2016andJuly25,2015.
Credit Facility OnMay15,2015,weenteredintoacreditagreementwithcertaininstitutionallendersthatprovidesfora$3.0billionunsecuredrevolvingcreditfacility that is scheduled to expire on May 15, 2020. Any advances under the credit agreement will accrue interest at rates that are equal to, based on certainconditions,either(i)thehighestof(a)theFederalFundsrateplus0.50%,(b)BankofAmerica’s“primerate”asannouncedfromtimetotime,or(c)LIBOR,oracomparable or successor rate that is approved by the Administrative Agent (“Eurocurrency Rate”), for an interest period of one month plus 1.00%, or (ii) theEurocurrencyRate,plusamarginthatisbasedonourseniordebtcreditratingsaspublishedbyStandard&Poor’sFinancial
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Services,LLCandMoody’sInvestorsService,Inc.,providedthatinnoeventwilltheEurocurrencyRatebelessthanzero.Thecreditagreementrequiresthatwecomplywithcertaincovenants,includingthatitmaintainsaninterestcoverageratioasdefinedintheagreement.
Wemayalso,upontheagreementofeitherthethen-existinglendersoradditionallendersnotcurrentlypartiestotheagreement,increasethecommitmentsunderthecreditfacilitybyuptoanadditional$2.0billionand/orextendtheexpirationdateofthecreditfacilityuptoMay15,2022.Wewereincompliancewiththerequiredinterestcoverageratioandtheothercovenants,andwehadnotborrowedanyfundsunderthecreditfacility.
DeferredRevenueThefollowingtablepresentsthebreakdownofdeferredrevenue(inmillions):
July 30, 2016 July25,2015 Increase(Decrease)
Service $ 10,621 $ 9,757 $ 864Product 5,851 5,426 425
Total $ 16,472 $ 15,183 $ 1,289
Reportedas: Current $ 10,155 $ 9,824 $ 331Noncurrent 6,317 5,359 958
Total $ 16,472 $ 15,183 $ 1,289
Total deferred revenue increased 8% in fiscal 2016. Deferred service revenue increased 9% driven by the timing of multiyear arrangements, an increase incustomers paying technical support service contracts over time and the impact of ongoing amortization of deferred service revenue. Deferred product revenueincreased8%primarilyduetoincreaseddeferralsrelatedtosubscriptionandsoftwarerevenuearrangements,partiallyoffsetbylowerdeferredrevenuerelatedtotwo-tierdistributors.TheproductcategoriesofCollaboration,Security,andWirelesswerethekeycontributorstotheincreaseindeferredproductrevenue.Theportionof deferredproduct revenuerelatedto recurringsoftware andsubscriptions increased33%includingtheportionrelatedto our Security products whichincreased29%andourCollaborationproductswhichincreased13%.
Contractual Obligations
Theimpactofcontractualobligationsonourliquidityandcapitalresourcesinfutureperiodsshouldbeanalyzedinconjunctionwiththefactorsthatimpactourcashflowsfromoperationsdiscussedpreviously.Inaddition,weplanforandmeasureourliquidityandcapitalresourcesthroughanannualbudgetingprocess.ThefollowingtablesummarizesourcontractualobligationsatJuly30,2016(inmillions):
PAYMENTSDUEBYPERIOD
July30,2016 Total Lessthan1
Year 1to3Years 3to5Years Morethan5
Years
Operatingleases $ 1,159 $ 363 $ 446 $ 190 $ 160Purchasecommitmentswithcontractmanufacturersandsuppliers 3,896 3,896 — — —Otherpurchaseobligations 2,010 726 712 523 49Seniornotes 28,400 4,150 10,000 7,000 7,250Otherlong-termliabilities 1,153 — 182 127 844
Totalbyperiod $ 36,618 $ 9,135 $ 11,340 $ 7,840 $ 8,303Otherlong-termliabilities(uncertaintyinthetimingoffuturepayments) 1,203
Total $ 37,821
Operating Leases Formoreinformationonouroperatingleases,seeNote12totheConsolidatedFinancialStatements.
Purchase Commitments with Contract Manufacturers and Suppliers Wepurchasecomponentsfromavarietyofsuppliersanduseseveralcontractmanufacturerstoprovidemanufacturingservicesforourproducts.Asignificantportionofourreportedestimatedpurchasecommitmentsarisingfromtheseagreementsarefirm,noncancelable,andunconditionalcommitments.Werecordaliabilityforfirm,noncancelable,andunconditionalpurchasecommitmentsforquantitiesinexcessofourfuturedemandforecastsconsistentwiththevaluationofourexcessandobsoleteinventory.Seefurtherdiscussionin“InventorySupplyChain.”AsofJuly30,2016,theliabilityforthesepurchasecommitmentswas$159millionandisrecordedinothercurrentliabilitiesandisnotincludedintheprecedingtable.
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Other Purchase Obligations Otherpurchaseobligationsrepresentanestimateofallcontractualobligationsintheordinarycourseofbusiness,otherthanoperatingleasesandcommitmentswithcontractmanufacturersandsuppliers,forwhichwehavenotreceivedthegoodsorservices.Purchaseordersarenotincludedintheprecedingtableastheytypicallyrepresentourauthorizationtopurchaseratherthanbindingcontractualpurchaseobligations.
Long-Term Debt Theamount of long-termdebt in the preceding table represents the principal amount of the respective debt instruments. See Note 10to theConsolidatedFinancialStatements.
Other Long-Term Liabilities Other long-term liabilities primarily include noncurrent income taxes payable, accrued liabilities for deferred compensation,noncurrent deferred tax liabilities, andcertain other long-termliabilities. Dueto the uncertainty in the timingof future payments, our noncurrent incometaxespayableofapproximately$925millionandnoncurrentdeferredtaxliabilitiesof$278millionwerepresentedasoneaggregatedamountinthetotalcolumnonaseparatelineintheprecedingtable.Noncurrentincometaxespayableincludeuncertaintaxpositions(seeNote16totheConsolidatedFinancialStatements).
Other Commitments
Inconnectionwithourbusinesscombinationsandassetpurchases,wehaveagreedtopaycertainadditionalamountscontingentupontheachievementofcertainagreed-upontechnology,development,product,orothermilestonesorthecontinuedemploymentwithusofcertainemployeesoftheacquiredentities.SeeNote12totheConsolidatedFinancialStatements.
Insieme Networks, Inc. Inthethirdquarteroffiscal2012,wemadeaninvestmentinInsieme,anearlystagecompanyfocusedonresearchanddevelopmentinthedata center market. Asset forth in the agreement betweenCiscoandInsieme, this investment included$100millionof fundingandalicensetocertain of ourtechnology. Immediately prior to the call option exercise and acquisition described below, we owned approximately 83% of Insieme as a result of theseinvestmentsandhaveconsolidatedtheresultsofInsiemeinourConsolidatedFinancialStatements.Inconnectionwiththisinvestment,weenteredintoaput/calloptionagreementthatprovideduswiththerighttopurchasetheremaininginterestsinInsieme.Inaddition,thenoncontrollinginterestholderscouldrequireustopurchasetheirsharesupontheoccurrenceofcertainevents.
Duringthefirstquarteroffiscal2014,weexercisedourcalloptionandenteredintoanagreementtopurchasetheremaininginterestsinInsieme.Theacquisitionclosedin the secondquarter of fiscal 2014, at whichtimethe former noncontrolling interest holders becameeligible to receive upto twomilestone payments,which will be determined using agreed-upon formulas based primarily on revenue for certain of Insieme’s products. During fiscal 2016, 2015, and 2014 ,werecordedcompensationexpenseof$160million,$207millionand$416million,respectively,relatedtothefairvalueofthevestedportionofamountsthatwereearnedorexpectedtobeearnedbytheformernoncontrollinginterestholders.Continuedvestingwillresultinadditionalcompensationexpenseinfutureperiods.Basedonthetermsoftheagreement,wehavedeterminedthatthemaximumamountthatcouldberecordedascompensationexpensebyusisapproximately$836million(whichincludesthe$783millionthathasbeenexpensedtodate),netofforfeitures.
Theformernoncontrollinginterest holdersearnedthemaximumamountrelatedtothefirst milestonepaymentandwerepaidapproximately$389millionforaportionofthisamountduringfiscal2016.Duringthefirstquarteroffiscal2017,weexpecttopayapproximately$325millionpursuanttothesecondmilestonepaymentandcontinuedvestingofthefirstmilestonepayment.
Other Funding Commitments Wealsohavecertainfundingcommitmentsprimarilyrelatedtoourinvestmentsinprivatelyheldcompaniesandventurefunds,someofwhicharebasedontheachievementofcertainagreed-uponmilestones,andsomeofwhicharerequiredtobefundedondemand.Thefundingcommitmentswere$222millionasofJuly30,2016,comparedwith$205millionasofJuly25,2015.
Off-Balance Sheet Arrangements
We consider our investments in unconsolidated variable interest entities to be off-balance sheet arrangements. In the ordinary course of business, we haveinvestments in privately held companies and provide financing to certain customers. These privately held companies and customers may be considered to bevariableinterestentities.Weevaluateonanongoingbasisourinvestmentsintheseprivatelyheldcompaniesandcustomerfinancings,andwehavedeterminedthatasofJuly30,2016therewerenomaterialunconsolidatedvariableinterestentities.
Onanongoingbasis,wereassessourinvestmentsinprivatelyheldcompaniesandcustomerfinancingstodetermineiftheyarevariableinterestentitiesandifwewouldberegardedastheprimarybeneficiarypursuanttotheapplicableaccountingguidance.Asaresultofthisongoingassessment,wemayberequiredtomakeadditionaldisclosuresorconsolidatetheseentities.Becausewemaynotcontroltheseentities,wemaynothavetheabilitytoinfluencetheseevents.
Weprovidefinancingguarantees,whicharegenerallyforvariousthird-partyfinancingarrangementsextendedtoourchannelpartnersandend-usercustomers.Wecould be called upon to make payments under these guarantees in the event of nonpayment by the channel partners or end-user customers. See the previousdiscussionofthesefinancingguaranteesunder“FinancingReceivablesandGuarantees.”
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Securities Lending
Weperiodicallyengageinsecuritieslendingactivitieswithcertainofouravailable-for-saleinvestments.Thesetransactionsareaccountedforasasecuredlendingofthesecurities,andthesecuritiesaretypicallyloanedonlyonanovernightbasis.Theaveragedailybalanceofsecuritieslendingforfiscal2016and2015was$1.0billionand$0.4billion,respectively.Werequirecollateralequaltoatleast102%ofthefairmarketvalueoftheloanedsecurityandthatthecollateralbeintheformofcashorliquid,high-qualityassets.Weengageinthesesecuredlendingtransactionsonlywithhighlycreditworthycounterparties,andtheassociatedportfolio custodian has agreed to indemnify us against collateral losses. As of July 30, 2016 and July 25, 2015 , we had no outstanding securities lendingtransactions.Webelievethesearrangementsdonotpresentamaterialriskorimpacttoourliquidityrequirements.
Liquidity and Capital Resource Requirements
Basedonpastperformanceandcurrentexpectations,webelieveourcashandcashequivalents,investments,cashgeneratedfromoperations,andabilitytoaccesscapitalmarketsandcommittedcreditlineswillsatisfy,throughatleastthenext12months,ourliquidityrequirements,bothintotalanddomestically,includingthefollowing: working capital needs, capital expenditures, investment requirements, stock repurchases, cash dividends, contractual obligations, commitments,principal and interest payments on debt, future customer financings, and other liquidity requirements associated with our operations. There are no othertransactions, arrangements, or relationships with unconsolidated entities or other persons that are reasonably likely to materially affect the liquidity and theavailabilityof,aswellasourrequirementsfor,capitalresources.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Ourfinancialpositionisexposedtoavarietyofrisks,includinginterestraterisk,equitypricerisk,andforeigncurrencyexchangerisk.
Interest Rate Risk
FixedIncomeSecuritiesWemaintainaninvestmentportfolioofvariousholdings,types,andmaturities.Ourprimaryobjectiveforholdingfixedincomesecuritiesistoachieveanappropriateinvestmentreturnconsistentwithpreservingprincipalandmanagingrisk.Atanytime,asharpriseinmarketinterestratescouldhaveamaterialadverseimpactonthefairvalueofourfixedincomeinvestmentportfolio.Conversely,declinesininterestrates,includingtheimpactfromlowercreditspreads, could have a material adverse impact on interest income for our investment portfolio. We may utilize derivative instruments designated as hedginginstruments to achieve our investment objectives. We had no outstanding hedging instruments for our fixed income securities as of July 30, 2016 . Our fixedincomeinvestmentsareheldforpurposesotherthantrading.OurfixedincomeinvestmentsarenotleveragedasofJuly30,2016.Wemonitorourinterestrateandcreditrisks,includingourcreditexposurestospecificratingcategoriesandtoindividualissuers.Webelievetheoverallcreditqualityofourportfolioisstrong.
The following tables present the hypothetical fair values of our fixed income securities, including the hedging effects when applicable, as a result of selectedpotentialmarketdecreasesandincreasesininterestrates.Themarketchangesreflectimmediatehypotheticalparallelshiftsintheyieldcurveofplusorminus50basispoints(“BPS”),plus100BPS,andplus150BPS.Duetothelowinterest rateenvironmentattheendofeachoffiscal2016andfiscal2015,wedidnotbelieveaparallelshiftofminus100BPSorminus150BPSwasrelevant.ThehypotheticalfairvaluesasofJuly30,2016andJuly25,2015areasfollows(inmillions):
VALUATIONOFSECURITIESGIVENANINTERESTRATE
DECREASEOFXBASISPOINTS FAIR VALUEAS OF JULY 30,
2016
VALUATIONOFSECURITIESGIVENANINTERESTRATE
INCREASEOFXBASISPOINTS
(150BPS) (100BPS) (50BPS) 50BPS 100BPS 150BPSFixedincomesecurities N/A N/A $57,074 $56,621 $56,168 $55,715 $55,262
VALUATIONOFSECURITIESGIVENANINTERESTRATE
DECREASEOFXBASISPOINTS FAIRVALUEASOFJULY25,
2015
VALUATIONOFSECURITIESGIVENANINTERESTRATE
INCREASEOFXBASISPOINTS
(150BPS) (100BPS) (50BPS) 50BPS 100BPS 150BPSFixedincomesecurities N/A N/A $52,366 $51,974 $51,582 $51,189 $50,797
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FinancingReceivablesAsofJuly30,2016,ourfinancingreceivableshadacarryingvalueof$8.4billion,comparedwith$8.3billionasofJuly25,2015.AsofJuly 30, 2016 , a hypothetical 50 BPSincrease or decrease in market interest rates would change the fair value of our financing receivables by a decrease orincreaseofapproximately$0.1billion,respectively.
DebtAsofJuly 30, 2016 , wehad$28.4billionin principal amount of senior notes outstanding, whichconsistedof$3.4billionfloating-rate notes and$25.0billionfixed-ratenotes.Thecarryingamountoftheseniornoteswas$28.6billion, andtherelatedfair valuebasedonmarketpriceswas$30.9billion.AsofJuly30,2016,ahypothetical50BPSincreaseordecreaseinmarketinterestrateswouldchangethefairvalueofthefixed-ratedebt,excludingthe$9.9billionofhedgeddebt,byadecreaseorincreaseofapproximately$0.6billion,respectively.However,thishypotheticalchangeininterestrateswouldnotimpacttheinterestexpenseonthefixed-ratedebtthatisnothedged.
Equity Price Risk
Thefairvalueofourequityinvestmentsinpubliclytradedcompaniesissubjecttomarketpricevolatility.Wemayholdequitysecuritiesforstrategicpurposesorto diversify our overall investment portfolio. Ourequity portfolio consists of securities with characteristics that most closely matchthe Standard &Poor’s 500IndexorNASDAQComposite Index. Theseequitysecurities are heldfor purposesother thantrading. Tomanageourexposuretochangesinthefair valueofcertainequitysecurities,wemayenterintoequityderivativesdesignatedashedginginstruments.
Publicly Traded Equity SecuritiesThe following tables present the hypothetical fair values of publicly traded equity securities as a result of selected potentialdecreasesandincreasesinthepriceofeachequitysecurityintheportfolio,excludinghedgedequitysecurities,ifany.Potentialfluctuationsinthepriceofeachequitysecurityintheportfolioofplusorminus10%,20%,and30%wereselectedbasedonpotentialnear-termchangesinthosesecurityprices.ThehypotheticalfairvaluesasofJuly30,2016andJuly25,2015areasfollows(inmillions):
VALUATIONOFSECURITIESGIVENANX%DECREASEIN
EACHSTOCK’SPRICE FAIR VALUEAS OF JULY 30,
2016
VALUATIONOFSECURITIESGIVENANX%INCREASEIN
EACHSTOCK’SPRICE
(30)% (20)% (10)% 10% 20% 30%Publiclytradedequitysecurities $1,053 $1,203 $1,354 $1,504 $1,654 $1,805 $1,955
VALUATIONOFSECURITIESGIVENANX%DECREASEIN
EACHSTOCK’SPRICE FAIRVALUEASOFJULY25,
2015
VALUATIONOFSECURITIESGIVENANX%INCREASEIN
EACHSTOCK’SPRICE
(30)% (20)% (10)% 10% 20% 30%Publiclytradedequitysecurities $1,096 $1,252 $1,409 $1,565 $1,722 $1,878 $2,035
InvestmentsinPrivatelyHeldCompaniesWehavealsoinvestedinprivatelyheldcompanies.TheseinvestmentsarerecordedinotherassetsinourConsolidatedBalanceSheetsandareaccountedforusingprimarilyeitherthecostortheequitymethod.AsofJuly30,2016,thetotalcarryingamountofourinvestmentsinprivatelyheldcompanieswas$1,003million,comparedwith$897millionatJuly25,2015.Someoftheprivatelyheldcompaniesinwhichweinvestedareinthestartupordevelopmentstages. Theseinvestments areinherentlyriskybecausethemarkets forthetechnologiesor productsthesecompaniesaredevelopingaretypicallyintheearlystagesandmaynevermaterialize.Wecouldloseourentireinvestmentinthesecompanies.Ourevaluationofinvestmentsinprivatelyheldcompaniesisbasedonthefundamentalsofthebusinessesinvestedin,including,amongotherfactors,thenatureoftheirtechnologiesandpotentialforfinancialreturn.
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Foreign Currency Exchange Risk
Ourforeignexchangeforwardandoptioncontractsoutstandingatfiscalyear-endaresummarizedinU.S.dollarequivalentsasfollows(inmillions):
July 30, 2016 July25,2015
Notional Amount Fair Value NotionalAmount FairValueForwardcontracts:
Purchased $ 3,079 $ (41) $ 1,988 $ (5)Sold $ 651 $ — $ 614 $ 2
Optioncontracts: Purchased $ 688 $ 4 $ 422 $ 6Sold $ 620 $ (10) $ 392 $ (3)
Weconductbusinessgloballyinnumerouscurrencies.ThedirecteffectofforeigncurrencyfluctuationsonrevenuehasnotbeenmaterialbecauseourrevenueisprimarilydenominatedinU.S.dollars.However,iftheU.S.dollarstrengthensrelativetoothercurrencies,aswasthecaseduringfiscal2016,suchstrengtheningcouldhaveanindirect effect onourrevenuetotheextent it raisesthecost ofourproductstonon-U.S.customersandtherebyreducesdemand.AweakerU.S.dollar could have the opposite effect. However, the precise indirect effect of currency fluctuations is difficult to measure or predict because our revenue isinfluencedbymanyfactorsinadditiontotheimpactofsuchcurrencyfluctuations.
Approximately70%ofouroperatingexpensesareU.S.-dollardenominated.Infiscal2016,foreigncurrencyfluctuations,netofhedging,decreasedourcombinedR&D, sales and marketing, and G&A expenses by approximately $567 million , or3.1%, as compared with fiscal 2015 . In fiscal 2015 , foreign currencyfluctuations,netofhedging,decreasedourcombinedR&D,salesandmarketing,andG&Aexpensesbyapproximately$278million,or1.6%,ascomparedwithfiscal2014.Toreducevariabilityinoperatingexpensesandservicecostofsalescausedbynon-U.S.-dollardenominatedoperatingexpensesandcosts,wehedgecertainforecastedforeigncurrencytransactionswithcurrencyoptionsandforwardcontracts.Thesehedgingprogramsarenotdesignedtoprovideforeigncurrencyprotection over long time horizons. In designing a specific hedging approach, we consider several factors, including offsetting exposures, significance ofexposures, costsassociatedwithenteringintoaparticularhedgeinstrument, andpotential effectivenessofthehedge.Thegainsandlossesonforeignexchangecontractsmitigatetheeffectofcurrencymovementsonouroperatingexpensesandservicecostofsales.
Wealsoenterintoforeignexchangeforwardandoptioncontractstoreducetheshort-termeffectsofforeigncurrencyfluctuationsonreceivablesandpayablesthataredenominatedincurrenciesotherthanthefunctionalcurrenciesoftheentities.Themarketrisksassociatedwiththeseforeigncurrencyreceivables,investments,andpayablesrelateprimarilytovariancesfromourforecastedforeigncurrencytransactionsandbalances.Wedonotenterintoforeignexchangeforwardoroptioncontractsforspeculativepurposes.
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Item 8. Financial Statements and Supplementary Data
Index to Consolidated Financial Statements
ReportofIndependentRegisteredPublicAccountingFirm 68Management’sReportonInternalControloverFinancialReporting 69ConsolidatedBalanceSheets 70ConsolidatedStatementsofOperations 71ConsolidatedStatementsofComprehensiveIncome 72ConsolidatedStatementsofCashFlows 73ConsolidatedStatementsofEquity 74NotestoConsolidatedFinancialStatements 75
Note1:BasisofPresentation 75Note2:SummaryofSignificantAccountingPolicies 75Note3:AcquisitionsandDivestitures 82Note4:GoodwillandPurchasedIntangibleAssets 84Note5:RestructuringandOtherCharges 87Note6:BalanceSheetDetails 88Note7:FinancingReceivablesandOperatingLeases 89Note8:Investments 92Note9:FairValue 95Note10:Borrowings 96Note11:DerivativeInstruments 99Note12:CommitmentsandContingencies 102Note13:Shareholders’Equity 107Note14:EmployeeBenefitPlans 108Note15:ComprehensiveIncome 113Note16:IncomeTaxes 114Note17:SegmentInformationandMajorCustomers 117Note18:NetIncomeperShare 118
SupplementaryFinancialData 119
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ReportofIndependentRegisteredPublicAccountingFirm
To the Board of Directors and Shareholders of Cisco Systems, Inc.:
Inouropinion,theaccompanyingconsolidatedbalancesheetsandtherelatedconsolidatedstatementsofoperations,ofcomprehensiveincome,ofcashflowsandofequitypresentfairly,inallmaterialrespects,thefinancialpositionofCiscoSystems,Inc.anditssubsidiariesatJuly30,2016andJuly25,2015,andtheresultsoftheiroperationsandtheircashflowsforeachofthethreeyearsintheperiodendedJuly30,2016inconformitywithaccountingprinciplesgenerallyacceptedintheUnitedStatesofAmerica.Inaddition,inouropinion,thefinancialstatementscheduleappearingunderItem15(a)(2)presentsfairly,inallmaterialrespects,theinformation set forth therein when read in conjunction with the related consolidated financial statements. Also in our opinion, the Company maintained, in allmaterialrespects,effectiveinternalcontroloverfinancialreportingasofJuly30,2016,basedoncriteriaestablishedinInternal Control—Integrated Framework(2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The Company’s management is responsible for thesefinancialstatementsandfinancialstatementschedule,formaintainingeffectiveinternalcontroloverfinancialreportingandforitsassessmentoftheeffectivenessofinternalcontroloverfinancialreporting,includedintheaccompanyingManagement’sReportonInternalControloverFinancialReporting.Ourresponsibilityistoexpressopinionsonthesefinancialstatements,onthefinancialstatementschedule,andontheCompany’sinternalcontroloverfinancialreportingbasedonourintegratedaudits.WeconductedourauditsinaccordancewiththestandardsofthePublicCompanyAccountingOversightBoard(UnitedStates).Thosestandardsrequirethatweplanandperformtheauditstoobtainreasonableassuranceaboutwhetherthefinancialstatementsarefreeofmaterialmisstatementandwhethereffectiveinternalcontroloverfinancialreportingwasmaintainedinallmaterialrespects.Ourauditsofthefinancialstatementsincludedexamining,onatestbasis,evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made bymanagement,andevaluatingtheoverallfinancialstatementpresentation.Ourauditofinternalcontroloverfinancialreportingincludedobtaininganunderstandingofinternalcontroloverfinancialreporting,assessingtheriskthatamaterialweaknessexists,andtestingandevaluatingthedesignandoperatingeffectivenessofinternalcontrolbasedontheassessedrisk.Ourauditsalsoincludedperformingsuchotherproceduresasweconsiderednecessaryinthecircumstances.Webelievethatourauditsprovideareasonablebasisforouropinions.
AsdiscussedinNote2totheconsolidatedfinancialstatements,theCompanychangedthemannerinwhichitclassifiesdeferredtaxassetsandliabilitiesontheconsolidatedbalancesheetsin2016.
Acompany’sinternalcontroloverfinancialreportingisaprocessdesignedtoprovidereasonableassuranceregardingthereliabilityoffinancialreportingandthepreparationoffinancialstatementsforexternalpurposesinaccordancewithgenerallyacceptedaccountingprinciples.Acompany’sinternalcontroloverfinancialreportingincludesthosepoliciesandproceduresthat(i)pertaintothemaintenanceofrecordsthat,inreasonabledetail,accuratelyandfairlyreflectthetransactionsand dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financialstatementsinaccordancewithgenerallyacceptedaccountingprinciples,andthatreceiptsandexpendituresofthecompanyarebeingmadeonlyinaccordancewithauthorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorizedacquisition,use,ordispositionofthecompany’sassetsthatcouldhaveamaterialeffectonthefinancialstatements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation ofeffectivenesstofutureperiodsaresubjecttotheriskthatcontrolsmaybecomeinadequatebecauseofchangesinconditions,orthatthedegreeofcompliancewiththepoliciesorproceduresmaydeteriorate.
/s/PricewaterhouseCoopersLLPSanJose,CaliforniaSeptember8,2016
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Reports of Management
Statement of Management's Responsibility
Cisco’smanagementhasalwaysassumedfullaccountabilityformaintainingcompliancewithourestablishedfinancialaccountingpoliciesandforreportingourresultswithobjectivityandthehighestdegreeofintegrity.ItiscriticalforinvestorsandotherusersoftheConsolidatedFinancialStatementstohaveconfidencethat the financial information that we provide is timely, complete, relevant, and accurate. Management is responsible for the fair presentation of Cisco’sConsolidated Financial Statements, prepared in accordance with accounting principles generally accepted in the United States of America, and has fullresponsibilityfortheirintegrityandaccuracy.
Management,withoversightbyCisco’sBoardofDirectors,hasestablishedandmaintainsastrongethicalclimatesothatouraffairsareconductedtothehigheststandards of personal and corporate conduct. Management also has established an effective system of internal controls. Cisco’s policies and practices reflectcorporategovernanceinitiativesthatarecompliantwiththelistingrequirementsofNASDAQandthecorporategovernancerequirementsoftheSarbanes-OxleyActof2002.
Wearecommittedtoenhancingshareholdervalueandfullyunderstandandembraceourfiduciaryoversightresponsibilities.Wearededicatedtoensuringthatourhighstandardsoffinancialaccountingandreporting,aswellasourunderlyingsystemofinternalcontrols,aremaintained.Ourculturedemandsintegrity,andwehavethehighestconfidenceinourprocesses,ourinternalcontrolsandourpeople,whoareobjectiveintheirresponsibilitiesandwhooperateunderthehighestlevelofethicalstandards.
Management's Report on Internal Control over Financial Reporting
ManagementisresponsibleforestablishingandmaintainingadequateinternalcontroloverfinancialreportingforCisco.Internalcontroloverfinancialreportingisaprocessdesignedtoprovidereasonableassuranceregardingthereliabilityoffinancialreportingandthepreparationoffinancialstatementsforexternalpurposesinaccordancewithgenerallyacceptedaccountingprinciples.Internalcontroloverfinancialreportingincludesthosepoliciesandproceduresthat(i)pertaintothemaintenanceofrecordsthatinreasonabledetailaccuratelyandfairlyreflectthetransactionsanddispositionsoftheassetsoftheCompany;(ii)providereasonableassurancethattransactionsarerecordedasnecessarytopermitpreparationoffinancialstatementsinaccordancewithgenerallyacceptedaccountingprinciplesandthat receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company; and(iii)providereasonableassuranceregardingpreventionortimelydetectionofunauthorizedacquisition,use,ordispositionoftheCompany’sassetsthatcouldhaveamaterialeffectonthefinancialstatements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation ofeffectivenesstofutureperiodsaresubjecttotheriskthatcontrolsmaybecomeinadequatebecauseofchangesinconditionsorthatthedegreeofcompliancewiththepoliciesorproceduresmaydeteriorate.
Management (with the participation of the principal executive officer and principal financial officer) conducted an evaluation of the effectiveness of Cisco’sinternal control over financial reporting based on the framework in Internal Control—Integrated Framework (2013) issued by the Committee of SponsoringOrganizationsoftheTreadwayCommission.Basedonthisevaluation,managementconcludedthatCisco’sinternalcontroloverfinancialreportingwaseffectiveasofJuly30,2016.PricewaterhouseCoopersLLP,anindependentregisteredpublicaccountingfirm,hasauditedtheeffectivenessofCisco’sinternalcontroloverfinancialreportingandhasissuedareportonCisco’sinternalcontroloverfinancialreporting,whichisincludedintheirreportontheprecedingpage.
/S/CHARLESH.ROBBINS /S/KELLYA.KRAMERCharlesH.Robbins KellyA.KramerChiefExecutiveOfficerandDirector ExecutiveVicePresidentandChiefFinancialOfficerSeptember8,2016 September8,2016
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CISCO SYSTEMS, INC.Consolidated Balance Sheets(inmillions,exceptparvalue)
July 30, 2016 July25,2015
ASSETS Currentassets:
Cashandcashequivalents $ 7,631 $ 6,877Investments 58,125 53,539Accountsreceivable,netofallowancefordoubtfulaccountsof$249atJuly30,2016and$302atJuly25,2015 5,847 5,344Inventories 1,217 1,627Financingreceivables,net 4,272 4,491Othercurrentassets 1,627 1,490
Totalcurrentassets 78,719 73,368Propertyandequipment,net 3,506 3,332Financingreceivables,net 4,158 3,858Goodwill 26,625 24,469Purchasedintangibleassets,net 2,501 2,376Deferredtaxassets 4,299 4,454Otherassets 1,844 1,516
TOTAL ASSETS $ 121,652 $ 113,373
LIABILITIES AND EQUITY Currentliabilities:
Short-termdebt $ 4,160 $ 3,897Accountspayable 1,056 1,104Incometaxespayable 517 62Accruedcompensation 2,951 3,049Deferredrevenue 10,155 9,824Othercurrentliabilities 6,072 5,476
Totalcurrentliabilities 24,911 23,412Long-termdebt 24,483 21,457Incometaxespayable 925 1,876Deferredrevenue 6,317 5,359Otherlong-termliabilities 1,431 1,562
Totalliabilities 58,067 53,666Commitmentsandcontingencies(Note12) Equity:
Ciscoshareholders’equity: Preferredstock,noparvalue:5sharesauthorized;noneissuedandoutstanding — —Commonstockandadditionalpaid-incapital,$0.001parvalue:20,000sharesauthorized;5,029and5,085sharesissuedandoutstandingatJuly30,2016andJuly25,2015,respectively 44,516 43,592Retainedearnings 19,396 16,045Accumulatedothercomprehensiveincome(loss) (326) 61
TotalCiscoshareholders’equity 63,586 59,698Noncontrollinginterests (1) 9
Totalequity 63,585 59,707
TOTAL LIABILITIES AND EQUITY $ 121,652 $ 113,373
SeeNotestoConsolidatedFinancialStatements.
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CISCO SYSTEMS, INC.Consolidated Statements of Operations(inmillions,exceptper-shareamounts)
YearsEnded July 30, 2016 July25,2015 July26,2014
REVENUE: Product $ 37,254 $ 37,750 $ 36,172Service 11,993 11,411 10,970
Totalrevenue 49,247 49,161 47,142COST OF SALES:
Product 14,161 15,377 15,641Service 4,126 4,103 3,732
Totalcostofsales 18,287 19,480 19,373GROSS MARGIN 30,960 29,681 27,769OPERATING EXPENSES:
Researchanddevelopment 6,296 6,207 6,294Salesandmarketing 9,619 9,821 9,503Generalandadministrative 1,814 2,040 1,934Amortizationofpurchasedintangibleassets 303 359 275Restructuringandothercharges 268 484 418
Totaloperatingexpenses 18,300 18,911 18,424OPERATING INCOME 12,660 10,770 9,345
Interestincome 1,005 769 691Interestexpense (676) (566) (564)Otherincome(loss),net (69) 228 243
Interestandotherincome(loss),net 260 431 370INCOME BEFORE PROVISION FOR INCOME TAXES 12,920 11,201 9,715Provisionforincometaxes 2,181 2,220 1,862
NET INCOME $ 10,739 $ 8,981 $ 7,853
Netincomepershare: Basic $ 2.13 $ 1.76 $ 1.50
Diluted $ 2.11 $ 1.75 $ 1.49
Sharesusedinper-sharecalculation: Basic 5,053 5,104 5,234
Diluted 5,088 5,146 5,281
Cashdividendsdeclaredpercommonshare $ 0.94 $ 0.80 $ 0.72
SeeNotestoConsolidatedFinancialStatements.
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CISCO SYSTEMS, INC.Consolidated Statements of Comprehensive Income
(inmillions)
YearsEnded July 30, 2016 July25,2015 July26,2014
Netincome $ 10,739 $ 8,981 $ 7,853Available-for-saleinvestments:
Changeinnetunrealizedgains,netoftaxbenefit(expense)of$(49),$14,and$(146)forfiscal2016,2015,and2014,respectively 92 (12) 233Net(gains)lossesreclassifiedintoearnings,netoftaxexpense(benefit)of$0,$57,and$111forfiscal2016,2015,and2014,respectively 1 (100) (189)
93 (112) 44Cashflowhedginginstruments:
Changeinunrealizedgainsandlosses,netoftaxbenefit(expense)of$7,$19and$(6)forfiscal2016,2015,and2014,respectively (59) (140) 42Net(gains)lossesreclassifiedintoearnings,netoftax(benefit)expenseof$(4),$(18),and$6forfiscal2016,2015and2014,respectively 16 136 (62)
(43) (4) (20)Netchangeincumulativetranslationadjustmentandactuarialgainsandlosses,netoftaxbenefit(expense)of$(42),$63,and$(5)forfiscal2016,2015and2014,respectively (447) (498) 44
Othercomprehensiveincome(loss) (397) (614) 68Comprehensiveincome 10,342 8,367 7,921Comprehensive(income)lossattributabletononcontrollinginterests 10 (2) 1
ComprehensiveincomeattributabletoCiscoSystems,Inc. $ 10,352 $ 8,365 $ 7,922
SeeNotestoConsolidatedFinancialStatements.
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CISCO SYSTEMS, INC.Consolidated Statements of Cash Flows
(inmillions)
YearsEnded July 30, 2016 July25,2015 July26,2014
Cashflowsfromoperatingactivities: Netincome $ 10,739 $ 8,981 $ 7,853Adjustmentstoreconcilenetincometonetcashprovidedbyoperatingactivities:
Depreciation,amortization,andother 2,150 2,442 2,439Share-basedcompensationexpense 1,458 1,440 1,348Provisionforreceivables (9) 134 79Deferredincometaxes (194) (23) (678)Excesstaxbenefitsfromshare-basedcompensation (129) (128) (118)(Gains)lossesoninvestmentsandother,net (317) (258) (299)
Changeinoperatingassetsandliabilities,netofeffectsofacquisitionsanddivestitures: Accountsreceivable (404) (413) 340Inventories 315 (116) (109)Financingreceivables (150) (634) (119)Otherassets (37) (370) 26Accountspayable (65) 87 (23)Incometaxes,net (300) 53 191Accruedcompensation (101) 7 (42)Deferredrevenue 1,219 1,275 659Otherliabilities (605) 75 785
Netcashprovidedbyoperatingactivities 13,570 12,552 12,332Cashflowsfrominvestingactivities:
Purchasesofinvestments (46,760) (43,975) (36,317)Proceedsfromsalesofinvestments 28,778 20,237 18,193Proceedsfrommaturitiesofinvestments 14,115 15,293 15,660Acquisitionofbusinesses,netofcashandcashequivalentsacquired (3,161) (326) (2,989)Proceedsfrombusinessdivestiture 372 — —Purchasesofinvestmentsinprivatelyheldcompanies (256) (222) (384)Returnofinvestmentsinprivatelyheldcompanies 91 288 213Acquisitionofpropertyandequipment (1,146) (1,227) (1,275)Proceedsfromsalesofpropertyandequipment 41 22 232Other (191) (178) 24
Netcashusedininvestingactivities (8,117) (10,088) (6,643)Cashflowsfromfinancingactivities:
Issuancesofcommonstock 1,127 2,016 1,907Repurchasesofcommonstock-repurchaseprogram (3,909) (4,324) (9,413)Sharesrepurchasedfortaxwithholdingsonvestingofrestrictedstockunits (557) (502) (430)Short-termborrowings,originalmaturitieslessthan90days,net (4) (4) (2)Issuancesofdebt 6,978 4,981 7,981Repaymentsofdebt (3,863) (508) (3,276)Excesstaxbenefitsfromshare-basedcompensation 129 128 118Dividendspaid (4,750) (4,086) (3,758)Other 150 (14) (15)
Netcashusedinfinancingactivities (4,699) (2,313) (6,888)Netincrease(decrease)incashandcashequivalents 754 151 (1,199)Cashandcashequivalents,beginningoffiscalyear 6,877 6,726 7,925
Cashandcashequivalents,endoffiscalyear $ 7,631 $ 6,877 $ 6,726
Supplementalcashflowinformation: Cashpaidforinterest $ 859 $ 760 $ 682Cashpaidforincometaxes,net $ 2,675 $ 2,190 $ 2,349
SeeNotestoConsolidatedFinancialStatements.
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CISCO SYSTEMS, INC.Consolidated Statements of Equity(inmillions,exceptper-shareamounts)
SharesofCommonStock
CommonStockand
AdditionalPaid-InCapital Retained
Earnings
AccumulatedOther
ComprehensiveIncome(Loss)
TotalCiscoShareholders’
Equity Non-controllingInterests TotalEquity
BALANCEATJULY27,2013 5,389 $ 42,297 $ 16,215 $ 608 $ 59,120 $ 8 $ 59,128
Netincome 7,853 7,853 7,853
Othercomprehensiveincome(loss) 69 69 (1) 68
Issuanceofcommonstock 156 1,907 1,907 1,907
Repurchaseofcommonstock (420) (3,322) (6,217) (9,539) (9,539)Sharesrepurchasedfortaxwithholdingsonvestingofrestrictedstockunits (18) (430) (430) (430)
Cashdividendsdeclared($0.72percommonshare) (3,758) (3,758) (3,758)
Taxeffectsfromemployeestockincentiveplans 35 35 35
Share-basedcompensation 1,348 1,348 1,348
Purchaseacquisitionsandother 49 49 49
BALANCEATJULY26,2014 5,107 $ 41,884 $ 14,093 $ 677 $ 56,654 $ 7 $ 56,661
Netincome 8,981 8,981 8,981
Othercomprehensiveincome(loss) (616) (616) 2 (614)
Issuanceofcommonstock 153 2,016 2,016 2,016
Repurchaseofcommonstock (155) (1,291) (2,943) (4,234) (4,234)Sharesrepurchasedfortaxwithholdingsonvestingofrestrictedstockunits (20) (502) (502) (502)
Cashdividendsdeclared($0.80percommonshare) (4,086) (4,086) (4,086)
Taxeffectsfromemployeestockincentiveplans 41 41 41
Share-basedcompensation 1,440 1,440 1,440
Purchaseacquisitionsandother 4 4 4
BALANCE AT JULY 25, 2015 5,085 $ 43,592 $ 16,045 $ 61 $ 59,698 $ 9 $ 59,707
Net income 10,739 10,739 10,739
Other comprehensive income (loss) (387) (387) (10) (397)
Issuance of common stock 113 1,127 1,127 1,127
Repurchase of common stock (148) (1,280) (2,638) (3,918) (3,918)Shares repurchased for tax withholdings on vesting ofrestricted stock units (21) (557) (557) (557)
Cash dividends declared ($0.94 per common share) (4,750) (4,750) (4,750)
Tax effects from employee stock incentive plans 30 30 30
Share-based compensation 1,458 1,458 1,458
Purchase acquisitions and other 146 146 146
BALANCE AT JULY 30, 2016 5,029 $ 44,516 $ 19,396 $ (326) $ 63,586 $ (1) $ 63,585
Supplemental Information
InSeptember2001,theCompany’sBoardofDirectorsauthorizedastockrepurchaseprogram.AsofJuly30,2016,theCompany’sBoardofDirectorshadauthorizedanaggregaterepurchaseofupto$112billionofcommonstockunderthisprogramwithnoterminationdate.Foradditionalinformationregardingstockrepurchase,seeNote13totheConsolidatedFinancialStatements.ThestockrepurchasessincetheinceptionofthisprogramandtherelatedimpactsonCiscoshareholders’equityaresummarizedinthefollowingtable(inmillions):
SharesofCommonStock
CommonStockandAdditionalPaid-InCapital Retained
Earnings TotalCiscoShareholders’
Equity
Repurchasesofcommonstockundertherepurchaseprogram 4,591 $ 23,895 $ 72,702 $ 96,597
SeeNotestoConsolidatedFinancialStatements.
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CISCO SYSTEMS, INC.Notes to Consolidated Financial Statements
1. Basis of Presentation
ThefiscalyearforCiscoSystems,Inc.(the“Company”or“Cisco”)isthe52or53weeksendingonthelastSaturdayinJuly.Fiscal2016wasa53-weekfiscalyear,andeachoffiscal2015andfiscal2014were52-weekfiscalyears.TheConsolidatedFinancialStatementsincludetheaccountsofCiscoanditssubsidiaries.Allintercompanyaccountsandtransactionshavebeeneliminated.TheCompanyconductsbusinessgloballyandisprimarilymanagedonageographicbasisinthefollowingthreegeographicsegments:theAmericas;Europe,MiddleEast,andAfrica(EMEA);andAsiaPacific,Japan,andChina(APJC).
TheCompanyconsolidatesitsinvestmentsinaventurefundmanagedbySOFTBANKCorp.anditsaffiliates(“SOFTBANK”)asthisisavariableinterestentityandtheCompanyistheprimarybeneficiary.ThenoncontrollinginterestsattributedtoSOFTBANKarepresentedasaseparatecomponentfromtheCompany’sequity in the equity section of the Consolidated Balance Sheets. SOFTBANK’s share of the earnings in the venture fund are not presented separately in theConsolidatedStatementsofOperationsastheseamountsarenotmaterialforanyofthefiscalperiodspresented.
Certain reclassifications have been made to the amounts for prior years in order to conform to the current year’s presentation. The Company has evaluatedsubsequenteventsthroughthedatethatthefinancialstatementswereissued.
2. Summary of Significant Accounting Policies
(a)CashandCashEquivalentsTheCompanyconsidersallhighlyliquidinvestmentspurchasedwithanoriginalorremainingmaturityofthreemonthsorlessatthedateofpurchasetobecashequivalents.Cashandcashequivalentsaremaintainedwithvariousfinancialinstitutions.
(b)Available-for-SaleInvestmentsTheCompanyclassifiesitsinvestmentsinbothfixedincomesecuritiesandpubliclytradedequitysecuritiesasavailable-for-saleinvestments. FixedincomesecuritiesprimarilyconsistofU.S.governmentsecurities, U.S.governmentagencysecurities, non-U.S.governmentandagencysecurities,corporatedebtsecurities,andU.S.agencymortgage-backedsecurities.Theseavailable-for-saleinvestmentsareprimarilyheldinthecustodyofamajorfinancialinstitution.Aspecificidentificationmethodisusedtodeterminethecostbasisoffixedincomeandpublicequitysecuritiessold.Theseinvestmentsarerecorded in the Consolidated Balance Sheets at fair value. Unrealized gains and losses on these investments, to the extent the investments are unhedged, areincludedasaseparatecomponentofaccumulatedothercomprehensiveincome(AOCI),netoftax.TheCompanyclassifiesitsinvestmentsascurrentbasedonthenatureoftheinvestmentsandtheiravailabilityforuseincurrentoperations.
(c) Other-than-Temporary Impairments on Investments When the fair value of a debt security is less than its amortized cost, it is deemed impaired, and theCompanywillassesswhethertheimpairmentisotherthantemporary.Animpairmentisconsideredotherthantemporaryif(i)theCompanyhastheintenttosellthe security, (ii) it is more likely than not that the Companywill be required to sell the security before recovery of the entire amortized cost basis, or (iii) theCompanydoesnotexpect torecovertheentire amortizedcost basis of thesecurity. If impairment is consideredother thantemporarybasedoncondition(i) or(ii) described earlier, the entire difference between the amortized cost and the fair value of the debt security is recognized in earnings. If an impairment isconsideredotherthantemporarybasedoncondition(iii), theamountrepresentingcredit losses(definedasthedifferencebetweenthepresentvalueofthecashflowsexpectedtobecollectedandtheamortizedcostbasisofthedebtsecurity)willberecognizedinearnings,andtheamountrelatingtoallotherfactorswillberecognizedinothercomprehensiveincome(OCI).
TheCompanyrecognizesanimpairmentchargeonpubliclytradedequitysecuritieswhenadeclineinthefairvalueofasecuritybelowtherespectivecostbasisisjudgedtobeotherthantemporary.TheCompanyconsidersvariousfactorsindeterminingwhetheradeclineinthefairvalueoftheseinvestmentsisotherthantemporary,includingthelengthoftimeandextenttowhichthefairvalueofthesecurityhasbeenlessthantheCompany’scostbasis,thefinancialconditionandnear-termprospectsoftheissuer,andtheCompany’sintentandabilitytoholdtheinvestmentforaperiodoftimesufficienttoallowforanyanticipatedrecoveryinmarketvalue.
InvestmentsinprivatelyheldcompaniesareincludedinotherassetsintheConsolidatedBalanceSheetsandareprimarilyaccountedforusingeitherthecostorequitymethod.TheCompanymonitorstheseinvestmentsforimpairmentsandmakesreductionsincarryingvaluesiftheCompanydeterminesthatanimpairmentchargeisrequiredbasedprimarilyonthefinancialconditionandnear-termprospectsofthesecompanies.
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(d)InventoriesInventoriesarestatedatthelowerofcostormarket.Costiscomputedusingstandardcost,whichapproximatesactualcost,onafirst-in,first-outbasis.TheCompanyprovidesinventorywrite-downsbasedonexcessandobsoleteinventoriesdeterminedprimarilybyfuturedemandforecasts.Thewrite-downismeasuredasthedifferencebetweenthecostoftheinventoryandmarketbaseduponassumptionsaboutfuturedemandandchargedtotheprovisionforinventory,whichisacomponentofcostofsales.Atthepointofthelossrecognition,anew,lowercostbasisforthatinventoryisestablished,andsubsequentchangesinfactsand circumstances do not result in the restoration or increase in that newly established cost basis. In addition, the Company records a liability for firm,noncancelable, and unconditional purchase commitments with contract manufacturers and suppliers for quantities in excess of the Company’s future demandforecastsconsistentwithitsvaluationofexcessandobsoleteinventory.
(e)AllowanceforDoubtfulAccountsTheallowancefordoubtfulaccountsisbasedontheCompany’sassessmentofthecollectibilityofcustomeraccounts.TheCompanyregularlyreviewstheallowancebyconsideringfactorssuchashistoricalexperience,creditquality,ageoftheaccountsreceivablebalances,economicconditionsthatmayaffectacustomer’sabilitytopay,andexpecteddefaultfrequencyrates.Tradereceivablesarewrittenoffatthepointwhentheyareconsidereduncollectible.
(f) Financing Receivables and Guarantees TheCompanyprovides financing arrangements, including leases, financed service contracts, andloans, for certainqualifiedend-usercustomerstobuild,maintain,andupgradetheirnetworks.Leasereceivablesprimarilyrepresentsales-typeanddirect-financingleases.Leaseshaveonaverageafour-yeartermandareusuallycollateralizedbyasecurityinterestintheunderlyingassets,whileloanreceivablesgenerallyhavetermsofuptothreeyears.Financedservicecontractstypicallyhavetermsofonetothreeyearsandprimarilyrelatetotechnicalsupportservices.
TheCompanydeterminestheadequacyofitsallowanceforcreditlossbyassessingtherisksandlossesinherentinitsfinancingreceivablesbyportfoliosegment.The portfolio segment is based on the types of financing offered by the Company to its customers: lease receivables, loan receivables, and financed servicecontractsandother.
TheCompanyassessestheallowanceforcreditlossrelatedtofinancingreceivablesoneitheranindividualoracollectivebasis.TheCompanyconsidersvariousfactorsinevaluatingleaseandloanreceivablesandtheearnedportionoffinancedservicecontractsforpossibleimpairmentonanindividualbasis.ThesefactorsincludetheCompany’shistoricalexperience,creditqualityandageofthereceivablebalances,andeconomicconditionsthatmayaffectacustomer’sabilitytopay.Whentheevaluationindicatesthatitisprobablethatallamountsduepursuanttothecontractualtermsofthefinancingagreement,includingscheduledinterestpayments,areunabletobecollected,thefinancingreceivableisconsideredimpaired.Allsuchoutstandingamounts,includinganyaccruedinterest,areassessedandfullyreservedatthecustomerlevel.TheCompany’sinternalcreditriskratingsarecategorizedas1through10,withthelowestcreditriskratingrepresentingthehighest qualityfinancingreceivables. Typically, theCompanyalsoconsidersfinancingreceivables withariskratingof8orhighertobeimpairedandwillincludethemintheindividualassessmentforallowance.TheCompanyevaluatestheremainderofitsfinancingreceivablesportfolioforimpairmentonacollectivebasisandrecordsanallowanceforcreditlossattheportfoliosegmentlevel.Whenevaluatingthefinancingreceivablesonacollectivebasis,theCompanyuseshistoricaldefaultratesandexpecteddefaultfrequencyratespublishedbymajorthird-partycredit-ratingagenciesaswellasitsownhistoricallossrateintheeventofdefault,whilealsosystematicallygivingeffecttoeconomicconditions,concentrationofrisk,andcorrelation.
Expecteddefaultfrequencyratesandhistoricaldefaultratesarepublishedquarterlybymajorthird-partycredit-ratingagencies,andtheinternalcreditriskratingisderivedbytakingintoconsiderationvariouscustomer-specificfactorsandmacroeconomicconditions.Thesefactors,whichincludethestrengthofthecustomer’sbusiness and financial performance, the quality of the customer’s banking relationships, the Company’s specific historical experience with the customer, theperformanceandoutlookofthecustomer’sindustry,thecustomer’slegalandregulatoryenvironment,thepotentialsovereignriskofthegeographiclocationsinwhichthecustomerisoperating,andindependentthird-partyevaluations,areupdatedregularlyorwhenfactsandcircumstancesindicatethatanupdateisdeemednecessary.
Financing receivables are written off at the point when they are considered uncollectible, and all outstanding balances, including any previously earned butuncollected interest income, will be reversed and charged against the allowance for credit loss. The Companydoes not typically have any partially written-offfinancingreceivables.
Outstandingfinancingreceivablesthatareaged31daysormorefromthecontractualpaymentdateareconsideredpastdue.TheCompanydoesnotaccrueintereston financing receivables that are considered impaired or more than90days past due unless either the receivable has not been collected due to administrativereasonsorthereceivableiswellsecuredandintheprocessofcollection. Financingreceivablesmaybeplacedonnonaccrualstatusearlier if, inmanagement’sopinion,atimelycollectionofthefullprincipalandinterestbecomesuncertain.Afterafinancingreceivablehasbeencategorizedasnonaccrual,interestwillberecognizedwhencashisreceived.Afinancingreceivablemaybereturnedtoaccrualstatusafterallofthecustomer’sdelinquentbalancesofprincipalandinteresthavebeensettled,andthecustomerremainscurrentforanappropriateperiod.
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TheCompanyfacilitatesarrangementsforthird-partyfinancingextendedtochannelpartners,consistingofrevolvingshort-termfinancing,generallywithpaymenttermsrangingfrom60to90days. In certain instances, these financing arrangements result in a transfer of the Company’s receivables to the third party. Thereceivablesarederecognizedupontransfer,asthesetransfersqualifyastruesales,andtheCompanyreceivesapaymentforthereceivablesfromthethirdpartybasedontheCompany’sstandardpaymentterms.Thesefinancingarrangementsfacilitatetheworkingcapitalrequirementsofthechannelpartners,and,insomecases,theCompanyguaranteesaportionofthesearrangements.TheCompanyalsoprovidesfinancingguaranteesforthird-partyfinancingarrangementsextendedtoend-usercustomersrelatedtoleasesandloans,whichtypicallyhavetermsofuptothreeyears.TheCompanycouldbecalledupontomakepaymentsundertheseguaranteesintheeventofnonpaymentbythechannelpartnersorend-usercustomers.Deferredrevenuerelatingtothesefinancingarrangementsisrecordedinaccordancewithrevenuerecognitionpoliciesorforthefairvalueofthefinancingguarantees.
(g)DepreciationandAmortizationPropertyandequipmentarestatedatcost,lessaccumulateddepreciationoramortization,wheneverapplicable.Depreciationand amortization expenses for property and equipment were approximately $1.0 billion , $1.1 billion , and $1.2 billion for fiscal 2016 , 2015 , and 2014 ,respectively.Depreciationandamortizationarecomputedusingthestraight-linemethod,generallyoverthefollowingperiods:
AssetCategory PeriodBuildings 25yearsBuildingimprovements 10yearsLeaseholdimprovements Shorterofremainingleasetermorupto10yearsComputerequipmentandrelatedsoftware 30to36monthsProduction,engineering,andotherequipment Upto5yearsOperatingleaseassets BasedonleasetermFurnitureandfixtures 5years
(h)BusinessCombinationsTheCompanyallocatesthefairvalueofthepurchaseconsiderationofitsacquisitionstothetangibleassets,liabilities,andintangibleassets acquired, including in-process research and development (IPR&D), based on their estimated fair values. The excess of the fair value of purchaseconsiderationoverthefairvaluesoftheseidentifiableassetsandliabilitiesisrecordedasgoodwill.IPR&Disinitiallycapitalizedatfairvalueasanintangibleassetwith an indefinite life and assessed for impairment thereafter. When an IPR&D project is completed, the IPR&D is reclassified as an amortizable purchasedintangibleassetandamortizedovertheasset’sestimatedusefullife.Acquisition-relatedexpensesandrelatedrestructuringcostsarerecognizedseparatelyfromthebusinesscombinationandareexpensedasincurred.
(i)GoodwillandPurchasedIntangibleAssetsGoodwillistestedforimpairmentonanannualbasisinthefourthfiscalquarterand,whenspecificcircumstancesdictate, between annual tests. When impaired, the carrying value of goodwill is written down to fair value. The goodwill impairment test involves a two-stepprocess.Thefirststep,identifyingapotentialimpairment,comparesthefairvalueofareportingunitwithitscarryingamount,includinggoodwill.Ifthecarryingvalueofthereportingunitexceedsitsfairvalue,thesecondstepwouldneedtobeconducted;otherwise,nofurtherstepsarenecessaryasnopotentialimpairmentexists.Ifnecessary,thesecondsteptomeasuretheimpairmentlosswouldbetocomparetheimpliedfairvalueofthereportingunitgoodwillwiththecarryingamount of that goodwill. Any excess of the reporting unit goodwill carrying value over the respective implied fair value is recognized as an impairment loss.Purchasedintangible assets withfinite lives are carried at cost, less accumulated amortization. Amortizationis computedover theestimateduseful lives of therespective assets. See “Long-Lived Assets” for the Company’s policy regarding impairment testing of purchased intangible assets with finite lives. Purchasedintangibleassetswithindefinitelivesareassessedforpotentialimpairmentannuallyorwheneventsorcircumstancesindicatethattheircarryingamountsmightbeimpaired.
(j) Long-LivedAssets Long-lived assets that are held and used by the Company are reviewed for impairment whenever events or changes in circumstancesindicate that the carrying amount of such assets may not be recoverable. Determination of recoverability of long-lived assets is based on an estimate of theundiscounted future cash flows resulting from the use of the asset and its eventual disposition. Measurement of an impairment loss for long-lived assets thatmanagementexpectstoholdanduseisbasedonthedifferencebetweenthefairvalueoftheassetanditscarryingvalue.Long-livedassetstobedisposedofarereportedatthelowerofcarryingamountorfairvaluelesscoststosell.
(k)FairValueFairvalueisdefinedasthepricethatwouldbereceivedfromsellinganassetorpaidtotransferaliabilityinanorderlytransactionbetweenmarketparticipants at the measurement date. When determining the fair value measurements for assets and liabilities required or permitted to be either recorded ordisclosedatfairvalue,theCompanyconsiderstheprincipalormostadvantageousmarketinwhichitwouldtransact,anditalsoconsidersassumptionsthatmarketparticipantswouldusewhenpricingtheassetorliability.
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Theaccountingguidanceforfairvaluemeasurementrequiresanentitytomaximizetheuseofobservableinputsandminimizetheuseofunobservableinputswhenmeasuringfairvalue.Thestandardestablishesafairvaluehierarchybasedonthelevelofindependent,objectiveevidencesurroundingtheinputsusedtomeasurefair value. A financial instrument’s categorization within the fair value hierarchy is based upon the lowest level of input that is significant to the fair valuemeasurement.Thefairvaluehierarchyisasfollows:Level1appliestoassetsorliabilitiesforwhichtherearequotedpricesinactivemarketsforidenticalassetsorliabilities.Level2applies to assets or liabilities for whichthere are inputs other thanquotedprices that are observable for the asset or liability suchas quotedprices forsimilar assets or liabilities in active markets; quoted prices for identical assets or liabilities in markets with insufficient volumeor infrequent transactions (lessactivemarkets);ormodel-derivedvaluationsinwhichsignificantinputsareobservableorcanbederivedprincipallyfrom,orcorroboratedby,observablemarketdata.Level3appliestoassetsorliabilitiesforwhichthereareunobservableinputstothevaluationmethodologythataresignificanttothemeasurementofthefairvalueoftheassetsorliabilities.
(l) Derivative Instruments The Company recognizes derivative instruments as either assets or liabilities and measures those instruments at fair value. Theaccountingforchangesinthefair valueofaderivativedependsontheintendeduseofthederivativeandtheresultingdesignation.Foraderivativeinstrumentdesignatedasafair valuehedge,thegainorlossis recognizedinearningsintheperiodofchangetogetherwiththeoffsettinglossorgainonthehedgeditemattributedtotheriskbeinghedged.Foraderivativeinstrumentdesignatedasacashflowhedge,theeffectiveportionofthederivative’sgainorlossisinitiallyreportedasacomponentofAOCIandsubsequentlyreclassifiedintoearningswhenthehedgedexposureaffectsearnings.Theineffectiveportionofthegainorlossisreportedinearningsimmediately.ForaderivativeinstrumentdesignatedasanetinvestmenthedgeoftheCompany’sforeignoperations,thegainorlossisrecorded in the cumulative translation adjustment within AOCI together with the offsetting loss or gain of the hedged exposure of the underlying foreignoperations. Any ineffective portion of the net investment hedges is reported in earnings during the period of change. For derivative instruments that are notdesignated as accounting hedges, changes in fair value are recognized in earnings in the periodof change. TheCompanyrecords derivative instruments in thestatementsofcashflowstooperating,investing,orfinancingactivitiesconsistentwiththecashflowsofthehedgeditem.
Hedgeeffectivenessforforeignexchangeforwardcontractsusedascashflowhedgesisassessedbycomparingthechangeinthefairvalueofthehedgecontractwith the change in the fair value of the forecasted cash flows of the hedged item. Hedge effectiveness for equity forward contracts and foreign exchange netinvestmenthedgeforwardcontractsisassessedbycomparingchangesinfairvalueduetochangesinspotratesforboththederivativeandthehedgeditem.Forforeignexchangeoptioncontracts,hedgeeffectivenessisassessedbasedonthehedginginstrument’sentirechangeinfairvalue.Hedgeeffectivenessforinterestrateswapsisassessedbycomparingthechangeinfairvalueoftheswapwiththechangeinthefairvalueofthehedgeditemduetochangesinthebenchmarkinterestrate.
(m)ForeignCurrencyTranslation Assetsandliabilitiesofnon-U.S.subsidiariesthatoperateinalocalcurrencyenvironment, wherethatlocalcurrencyisthefunctionalcurrency,aretranslatedtoU.S.dollarsatexchangeratesineffectatthebalancesheetdate,withtheresultingtranslationadjustmentsdirectlyrecordedtoaseparatecomponentofAOCI.Incomeandexpenseaccountsaretranslatedataverageexchangeratesduringtheyear.Remeasurementadjustmentsarerecordedinotherincome(loss),net.Theeffectofforeigncurrencyexchangeratesoncashandcashequivalentswasnotmaterialforanyofthefiscalyearspresented.
(n) Concentrations of Risk Cashandcashequivalents are maintained with several financial institutions. Deposits held with banks mayexceed the amount ofinsuranceprovidedonsuchdeposits.Generally,thesedepositsmayberedeemedupondemandandaremaintainedwithfinancialinstitutionswithreputablecreditandthereforebearminimalcreditrisk.TheCompanyseekstomitigateitscreditrisksbyspreadingsuchrisksacrossmultiplecounterpartiesandmonitoringtheriskprofilesofthesecounterparties.
TheCompanyperformsongoingcreditevaluationsofitscustomersand,withtheexceptionofcertainfinancingtransactions,doesnotrequirecollateralfromitscustomers.TheCompanyreceivescertainofitscomponentsfromsolesuppliers.Additionally,theCompanyreliesonalimitednumberofcontractmanufacturersandsupplierstoprovidemanufacturingservicesforitsproducts.TheinabilityofacontractmanufacturerorsuppliertofulfillsupplyrequirementsoftheCompanycouldmateriallyimpactfutureoperatingresults.
(o) Revenue Recognition The Company recognizes revenue when persuasive evidence of an arrangement exists, delivery has occurred, the fee is fixed ordeterminable,andcollectibilityisreasonablyassured.Ininstanceswherefinalacceptanceoftheproduct,system,orsolutionisspecifiedbythecustomer,revenueis deferred until all acceptance criteria have been met. For hosting arrangements, the Company recognizes subscription revenue ratably over the subscriptionperiod,whileusagerevenueisrecognizedbasedonutilization.Softwaresubscriptionrevenueisdeferredandrecognizedratablyoverthesubscriptiontermupondeliveryofthefirstproductandcommencementoftheterm.Technicalsupportandconsultingservicesrevenueisdeferredandrecognizedratablyovertheperiodduringwhichtheservicesaretobeperformed,whichistypicallyfromonetothreeyears.Transactionaladvancedservicesrevenueisrecognizedupondeliveryorcompletionofperformancemilestones.
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TheCompanyusesdistributorsthatstockinventoryandtypicallyselltosystemsintegrators,serviceproviders,andotherresellers.TheCompanyreferstothisasits two-tier sales to the endcustomer. Revenuefromdistributors is recognizedbasedona sell-throughmethodusingpoint-of-sale information providedbythedistributors. Distributors and other partners participate in various rebate, cooperative marketing, and other incentive programs, and the Company maintainsestimated accruals and allowances for these programs. The ending liability for these programs was included in other current liabilities, and the balance as ofJuly30,2016andJuly25,2015was$1.1billionand$1.3billion,respectively.TheCompanyaccruesforwarrantycosts,salesreturns,andotherallowancesbasedonitshistoricalexperience.Shippingandhandlingfeesbilledtocustomersareincludedinrevenue,withtheassociatedcostsincludedincostofsales.
Many of the Company’s products have both software and non-software components that function together to deliver the products’ essential functionality. TheCompany’sproductofferingsfallintothefollowingcategories:Switching,Next-GenerationNetwork(NGN)Routing,Collaboration,ServiceProviderVideo,DataCenter,Wireless,Security,andOtherProducts.TheCompanyalsoprovidestechnicalsupportandadvancedservices.TheCompanyhasabroadcustomerbasethatencompassesvirtuallyalltypesofpublicandprivateentities,includingenterprisebusinesses,serviceproviders,andcommercialcustomers.TheCompanyanditssalesforcearenotorganizedbyproductdivisions,andtheCompany’sproductsandservicescanbesoldstandaloneortogetherinvariouscombinationsacrosstheCompany’sgeographicsegmentsorcustomermarkets.Forexample,serviceproviderarrangementsaretypicallylargerinscalewithlongerdeploymentschedulesandinvolvethedeliveryofavarietyofproducttechnologies,includinghigh-endrouting,videoandnetworkmanagementsoftware,andotherproducttechnologiesalongwithtechnicalsupportandadvancedservices.TheCompany’senterpriseandcommercialarrangementsareuniqueforeachcustomerandsmallerinscaleand may include network infrastructure products such as routers and switches or collaboration technologies such as Unified Communications and CiscoTelePresencesystemsproductsalongwithtechnicalsupportservices.
TheCompanyentersintorevenuearrangementsthatmayconsistofmultipledeliverablesofitsproductandserviceofferingsduetotheneedsofitscustomers.Forexample, a customermaypurchaseroutingproducts alongwithacontract for technical support services. This arrangement wouldconsist of multiple elements,withtheproductsdeliveredinonereportingperiodandthetechnicalsupportservicesdeliveredacrossmultiplereportingperiods.Anothercustomermaypurchasenetworking products along with advanced service offerings, in which all the elements are delivered within the same reporting period. In addition, distributorspurchaseproductsortechnicalsupportservicesonastandalonebasisforresaletoanenduserorforpurposesofstockingcertainproducts,andthesetransactionswouldnotresultinamultiple-elementarrangement.TheCompanyconsidersseveralfactorswhenreviewingmultiplepurchasesmadebythesamecustomerwithina short time frame in order to identify multiple-element arrangements, including whether the deliverables are closely interrelated, whether the deliverables areessential to each other’s functionality, whether payment termsare linked, whether the customer is entitled to a refundor concession if another purchase is notcompletedsatisfactorily,and/orwhetherthepurchaseswerenegotiatedtogetherasoneoverallarrangement.
Inmanyinstances,productsaresoldseparatelyinstandalonearrangementsascustomersmaysupporttheproductsthemselvesorpurchasesupportonatime-and-materialsbasis.Advancedservicesaresometimessoldinstandaloneengagementssuchasgeneralconsulting,networkmanagement,orsecurityadvisoryprojects,andtechnicalsupportservicesaresoldseparatelythroughrenewalsofannualcontracts.TheCompanydeterminesitsvendor-specificobjectiveevidence(VSOE)basedonitsnormalpricinganddiscountingpracticesforproductsorserviceswhensoldseparately.VSOEdeterminationrequiresthatasubstantialmajorityofthehistorical standalone transactions has the selling prices for a product or service that fall within a reasonably narrow pricing range, generally evidenced byapproximately 80% of such historical standalone transactions falling within plus or minus 15% of the median rates. In addition, the Company considers thegeographies in which the products or services are sold, major product and service groups and customer classifications, and other environmental or marketingvariablesindeterminingVSOE.
WhentheCompanyisnotabletoestablishVSOEforalldeliverablesinanarrangementwithmultipleelements,whichmaybeduetotheCompanyinfrequentlysellingeachelementseparately,notpricingproductswithinanarrowrange,oronlyhavingalimitedsaleshistory,suchasinthecaseofcertainnewlyintroducedproductcategories,theCompanyattemptstodeterminethesellingpriceofeachelementbasedonthird-partyevidenceofsellingprice(TPE).TPEisdeterminedbasedoncompetitor pricesfor similar deliverables whensoldseparately. Generally, theCompany’s go-to-market strategydiffers fromthat of its peers, anditsofferingscontainasignificantlevelofdifferentiationsuchthatthecomparablepricingofproductswithsimilarfunctionalitycannotbeobtained.Furthermore,theCompanyisunabletoreliablydeterminewhatsimilarcompetitorproducts’sellingpricesareonastandalonebasis.Therefore,theCompanyistypicallynotabletodetermineTPE.
When the Company is unable to establish fair value using VSOE or TPE, the Company uses estimated selling prices (ESP) in its allocation of arrangementconsideration. The objective of ESP is to determine the price at which the Company would transact a sale if the product or service were regularly sold on astandalonebasis. ESPisgenerallyusedforneworhighlyproprietaryofferingsandsolutionsorforofferingsnotpricedwithinareasonablynarrowrange. TheCompany determines ESP for a product or service by considering multiple factors, including, but not limited to, geographies, market conditions, competitivelandscape,internalcosts,grossmarginobjectives,andpricingpractices.ThedeterminationofESPismadethroughconsultationwithandformalapprovalbytheCompany’smanagement,takingintoconsiderationthego-to-marketstrategy.
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The Company regularly reviews VSOE, TPE, and ESP and maintains internal controls over the establishment and updates of these estimates. There were nomaterialimpactsduringthefiscalyear,nordoestheCompanycurrentlyexpectamaterialimpactintheneartermfromchangesinVSOE,TPE,orESP.
The Company’s arrangements with multiple deliverables may include one or more software deliverables that are subject to the software revenue recognitionguidance.Inthesecases,revenueforthesoftwareisgenerallyrecognizeduponshipmentorelectronicdeliveryandgrantingofthelicense.Therevenueforthesemultiple-element arrangements is allocated to the software deliverables and the non-software deliverables based on the relative selling prices of all of thedeliverablesinthearrangementusingthehierarchyintheapplicableaccountingguidance.InthecircumstanceswheretheCompanycannotdetermineVSOEorTPE of the selling price for all of the deliverables in the arrangement, including the software deliverables, ESP is used for the purposes of performing thisallocation. VSOE is required to allocate the revenue between multiple software deliverables. If VSOE is available for the undelivered software elements, theCompanyapplies the residual method; where VSOEis not available, software revenue is either recognized whenall software elements have beendelivered orrecognizedratablywhenpost-contractsupportistheonlyundeliveredsoftwareelementremaining.
(p) Advertising Costs The Company expenses all advertising costs as incurred. Advertising costs included within sales and marketing expenses wereapproximately$186million,$202million,and$196millionforfiscal2016,2015,and2014,respectively.
(q)Share-BasedCompensationExpenseTheCompanymeasuresandrecognizesthecompensationexpenseforallshare-basedawardsmadetoemployeesanddirectors, includingemployeestockoptions, restrictedstockunits (RSUs), PRSUs,andemployeestockpurchasesrelatedtotheEmployeeStockPurchasePlan(Employee Stock Purchase Rights) based on estimated fair values. The fair value of employee stock options is estimated on the date of grant using a lattice-binomialoption-pricingmodel(Lattice-BinomialModel)ortheBlack-Scholesmodel,andforemployeestockpurchaserightstheCompanyestimatesthefairvalueusingtheBlack-Scholesmodel.Thefairvaluefortime-basedstockawardsandstockawardsthatarecontingentupontheachievementoffinancialperformancemetricsisbasedonthegrantdatesharepricereducedbythepresentvalueoftheexpecteddividendyieldpriortovesting.Thefairvalueofmarket-basedstockawardsisestimatedusinganoption-pricingmodelonthedateofgrant.Share-basedcompensationexpenseisreducedforforfeitures.
(r) Software Development Costs Software development costs, including costs to develop software sold, leased, or otherwise marketed, that are incurredsubsequenttotheestablishmentoftechnologicalfeasibilityarecapitalizedifsignificant.Costsincurredduringtheapplicationdevelopmentstageforinternal-usesoftwarearecapitalizedifsignificant.Capitalizedsoftwaredevelopmentcostsareamortizedusingthestraight-lineamortizationmethodovertheestimatedusefullifeoftheapplicablesoftware.Suchsoftwaredevelopmentcostsrequiredtobecapitalizedhavenotbeenmaterialtodate.
(s) IncomeTaxes Incometax expense is based on pretax financial accounting income. Deferred tax assets and liabilities are recognized for the expected taxconsequences of temporary differences between the tax bases of assets and liabilities and their reported amounts. Valuation allowances are recorded to reducedeferredtaxassetstotheamountthatwillmorelikelythannotberealized.
The Company accounts for uncertainty in income taxes using a two-step approach to recognizing and measuring uncertain tax positions. The first step is toevaluate the tax position for recognition by determining if the weight of available evidence indicates that it is more likely than not that the position will besustainedonaudit,includingresolutionofrelatedappealsorlitigationprocesses,ifany.Thesecondstepistomeasurethetaxbenefitasthelargestamountthatismore than 50% likely of being realized upon settlement. The Company classifies the liability for unrecognized tax benefits as current to the extent that theCompany anticipates payment (or receipt) of cash within one year. Interest and penalties related to uncertain tax positions are recognized in the provision forincometaxes.
(t)ComputationofNetIncomeperShareBasicnetincomepershareiscomputedusingtheweighted-averagenumberofcommonsharesoutstandingduringtheperiod.Dilutednetincomepershareiscomputedusingtheweighted-averagenumberofcommonsharesanddilutivepotentialcommonsharesoutstandingduringtheperiod.Dilutedsharesoutstandingincludesthedilutiveeffectofin-the-moneyoptions,unvestedrestrictedstock,andrestrictedstockunits.Thedilutiveeffectofsuchequityawardsiscalculatedbasedontheaveragesharepriceforeachfiscalperiodusingthetreasurystockmethod.Underthetreasurystockmethod,theamounttheemployeemustpayforexercisingstockoptions,theamountofcompensationcostforfutureservicethattheCompanyhasnotyetrecognized,andtheamountoftaxbenefitsthatwouldberecordedinadditionalpaid-incapitalwhentheawardbecomesdeductiblearecollectivelyassumedtobeusedtorepurchaseshares.
(u)ConsolidationofVariableInterestEntitiesTheCompanyusesaqualitativeapproachinassessingtheconsolidationrequirementforvariableinterestentities.Theapproachfocusesonidentifyingwhichenterprisehasthepowertodirecttheactivitiesthatmostsignificantlyimpactthevariableinterestentity’seconomicperformanceandwhichenterprisehastheobligationtoabsorblossesortherighttoreceivebenefitsfromthevariableinterestentity.IntheeventthattheCompanyis the primary beneficiary of a variable interest entity, the assets, liabilities, and results of operations of the variable interest entity will be included in theCompany’sConsolidatedFinancialStatements.
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(v)UseofEstimatesThepreparationoffinancialstatementsandrelateddisclosuresinconformitywithaccountingprinciplesgenerallyacceptedintheUnitedStatesrequiresmanagementtomakeestimatesandjudgmentsthataffecttheamountsreportedintheConsolidatedFinancialStatementsandaccompanyingnotes.Estimatesareusedforthefollowing,amongothers:
▪ Revenuerecognition
▪ Allowancesforaccountsreceivable,salesreturns,andfinancingreceivables
▪ Inventoryvaluationandliabilityforpurchasecommitmentswithcontractmanufacturersandsuppliers
▪ Losscontingenciesandproductwarranties
▪ Fairvaluemeasurementsandother-than-temporaryimpairments
▪ Goodwillandpurchasedintangibleassetimpairments
▪ Incometaxes
TheactualresultsexperiencedbytheCompanymaydiffermateriallyfrommanagement’sestimates.
(w)NewAccountingUpdatesRecentlyAdopted
Classification of Deferred Taxes Inthefourthquarteroffiscal2016,theCompanyelectedtoearlyadoptanaccountingstandardupdaterequiringalldeferredtaxassetsandliabilitiestobeclassifiedasnon-currentonthebalancesheetinsteadofseparatingdeferredtaxesintocurrentandnon-current.Theamendedstandardwasadoptedonaretrospectivebasis.Asaresultoftheadoption,theCompanymadethefollowingadjustmentstotheConsolidatedBalanceSheetforfiscal2015:a$2.9billiondecrease to current deferred taxassets, a$2.8billionincrease to non-current deferred taxassets, a$211milliondecrease tocurrent deferredtaxliabilities,andanincreaseof$103milliontonon-currentdeferredtaxliabilities.
(x)RecentAccountingStandardsorUpdatesNotYetEffectiveasofFiscalYearEnd
Revenue Recognition In May 2014, the FASB issued an accounting standard update related to revenue from contracts with customers, which, along withamendmentsissuedin2015and2016,willsupersedenearlyallcurrentU.S.GAAPguidanceonthistopicandeliminateindustry-specificguidance.Theunderlyingprincipleistorecognizerevenuewhenpromisedgoodsorservicesaretransferredtocustomersinanamountthatreflectstheconsiderationthatisexpectedtobereceivedforthosegoodsorservices.Thisaccountingstandardupdate,asamended,willbeeffectivefortheCompanybeginninginthefirstquarteroffiscal2019.Thenewrevenuestandardmaybeappliedretrospectivelytoeachpriorperiodpresentedorretrospectivelywiththecumulativeeffectrecognizedasofthedateofadoption.Earlyadoptionispermitted,butnoearlierthanfiscal2018.TheCompanyexpectstoadoptthisaccountingstandardupdateonamodifiedretrospectivebasisinthefirstquarteroffiscal2019,anditiscurrentlyevaluatingtheimpactofthisaccountingstandardupdateonitsConsolidatedFinancialStatements.
Consolidation of Certain Types of Legal Entities InFebruary2015,theFASBissuedanaccountingstandardupdatethatchangestheanalysisthatareportingentitymustperformtodeterminewhetheritshouldconsolidatecertaintypesoflegalentities.TheaccountingstandardupdatewaseffectivefortheCompanybeginninginthe first quarter of fiscal 2017. The application of this accounting standard update did not have any impact on the Company's Consolidated Balance Sheet orStatementofOperationsuponadoption.
Financial Instruments InJanuary2016,theFASBissuedanaccountingstandardupdatethat changestheaccountingfor equityinvestments, financial liabilitiesunderthefair valueoption,andthepresentationanddisclosurerequirementsforfinancial instruments. Theaccountingstandardupdatewill beeffectivefortheCompanybeginninginthefirstquarteroffiscal2019,andearlyadoptionispermitted.TheCompanyiscurrentlyevaluatingtheimpactofthisaccountingstandardupdateonitsConsolidatedFinancialStatements.
Leases InFebruary2016,theFASBissuedanaccountingstandardupdaterelatedtoleasesrequiringlesseestorecognizeoperatingandfinancingleaseliabilitiesonthebalancesheet,aswellascorrespondingright-of-useassets.Thenewleasestandardalsomakessomechangestolessoraccountingandalignskeyaspectsofthelessor accounting model with the revenue recognition standard. In addition, disclosures will be required to enable users of financial statements to assess theamount,timing,anduncertaintyofcashflowsarisingfromleases.TheaccountingstandardupdatewillbeeffectivefortheCompanybeginninginthefirstquarterof fiscal 2020 on a modified retrospective basis, and early adoption is permitted. The Company is currently evaluating the impact of this accounting standardupdateonitsConsolidatedFinancialStatements.
Share-Based Compensation In March 2016, the FASBissuedanaccounting standard update that impacts the accounting for share-based payment transactions,includingincometaxconsequences,classificationofawardsaseitherequityorliabilities,andclassificationontheConsolidatedStatementsofCashFlows.Theaccounting standard will be effective for the Company beginning the first quarter of fiscal 2018, and early adoption is permitted. The Company is currentlyevaluatingtheimpactofthisaccountingstandardupdateonitsConsolidatedFinancialStatements.
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Credit Losses of Financial Instruments InJune2016,theFASBissuedanaccountingstandardupdatethatrequiresmeasurementandrecognitionofexpectedcreditlosses for financial assets held based on historical experience, current conditions, and reasonable and supportable forecasts that affect the collectibility of thereportedamount.TheaccountingstandardupdatewillbeeffectivefortheCompanybeginninginthefirstquarteroffiscal2021onamodifiedretrospectivebasis,andearlyadoptioninfiscal2020ispermitted.TheCompanyiscurrentlyevaluatingtheimpactofthisaccountingstandardupdateonitsConsolidatedFinancialStatements.
Classification of Cash Flow Elements InAugust2016,theFASBissuedanaccountingstandardupdaterelatedtotheclassificationofcertaincashreceiptsandcashpayments on the statement of cash flows. The accounting standard update will be effective for the Company beginning in the first quarter of fiscal 2019 on aretrospective basis, and early adoption is permitted. The Company is currently evaluating the impact of this accounting standard update on its ConsolidatedStatementsofCashFlows.
3. Acquisitions and Divestitures
(a) Acquisition Summary
TheCompanycompleted12acquisitionsduringfiscal2016.Asummaryoftheallocationofthetotalpurchaseconsiderationispresentedasfollows(inmillions):
Fiscal 2016Purchase
Consideration
Net Tangible AssetsAcquired
(LiabilitiesAssumed)
PurchasedIntangible Assets Goodwill
MaintenanceNet $ 105 $ (21) $ 65 $ 61OpenDNS 545 (9) 61 493Lancope 410 (34) 121 323Acano 528 (27) 103 452Leaba 219 (18) 96 141Jasper 1,234 5 361 868CliQr 225 (3) 69 159Others (five in total) 112 (17) 64 65
Total $ 3,378 $ (124) $ 940 $ 2,562
OnAugust 6, 2015 , the Companycompleted its acquisition of privately held MaintenanceNet, Inc. ("MaintenanceNet"), a provider of a cloud-based softwareplatformthatusesdataanalyticsandautomationtomanagerenewalsofrecurringcustomercontracts.ThisacquisitionisacomponentoftheCompany'sstrategyforitsServicesorganizationtosimplifyanddigitizeitsbusinessprocesses.
OnAugust26,2015,theCompanycompleteditsacquisitionofprivatelyheldOpenDNS,Inc.("OpenDNS"),aproviderofadvancedthreatprotectionforendpointdevices.WiththeOpenDNSacquisition,theCompanyaimstostrengthenitssecurityofferingsbyaddingbroadvisibilityandthreatintelligencedeliveredthroughasoftware-as-a-serviceplatform.RevenuefromtheOpenDNSacquisitionhasbeenincludedintheCompany'sSecurityproductcategory.
OnDecember 21, 2015 , the Company completed its acquisition of privately held Lancope, Inc. ("Lancope"), a provider of network behavior analytics, threatvisibility,andsecurityintelligence.WiththeLancopeacquisition,theCompanyaimstoadvanceits"securityeverywhere"strategywithanadditionalcapabilityofnetworkbehavioranalyticsthatextendprotectionfurtherintothenetwork.RevenuefromtheLancopeacquisitionhasbeenincludedintheCompany'sSecurityproductcategory.
OnJanuary29,2016,theCompanycompleteditsacquisitionofprivatelyheld,London-basedAcano(UK)Limited("Acano"),acollaborationinfrastructureandconferencingsoftwareprovider.WiththeAcanoacquisition,theCompanyaimstoenhanceitscollaborationstrategytodelivervideoacrossbothcloudandhybridenvironments.RevenuefromtheAcanoacquisitionhasbeenincludedintheCompany'sCollaborationproductcategory.
OnMarch3,2016,theCompanycompleteditsacquisitionofprivatelyheldLeabaSemiconductor,Ltd.("Leaba"),anIsraeli-basedfablesssemiconductorproviderwhosesemiconductorexpertiseisexpectedtobeleveragedtoacceleratetheCompany'snext-generationproductportfolio.ThisacquisitionisacomponentoftheCompany'sstrategytoenhanceitsproductofferingsinthenetworkingchipsetmarket.
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OnMarch18,2016,theCompanycompleteditsacquisitionofprivatelyheldJasperTechnologies,Inc.("Jasper"),aproviderofacloud-basedInternetofThings(IoT) software-as-a-service platform to help enterprises and service providers launch, manage, and monetize IoT services on a global scale. With the Jasperacquisition,theCompanyaimstoofferanIoTsolutionthatisinteroperableacrossdevicesandworkswithIoTserviceproviders,applicationdevelopers,andanecosystemofpartners.RevenuefromtheJasperacquisitionhasbeenincludedintheCompany'sOtherproductcategory.
OnApril 15, 2016 , the Company completed its acquisition of privately held CliQr Technologies, Inc. ("CliQr"), an application-defined cloud orchestrationplatformprovider.WiththeCliQracquisition,theCompanyaimstohelpitscustomerssimplifyandacceleratetheirprivate,public,andhybridclouddeployments.RevenuefromtheCliQracquisitionhasbeenincludedintheCompany'sSwitchingproductcategory.
The total purchase consideration related to the Company’s acquisitions completed during fiscal 2016 consisted of cash consideration and vested share-basedawardsassumed.Thetotalcashandcashequivalentsacquiredfromtheseacquisitionswasapproximately$44million.
Fiscal2015and2014Acquisitions
Allocationofthepurchaseconsiderationforacquisitionscompletedinfiscal2015issummarizedasfollows(inmillions):
Fiscal2015Purchase
Consideration NetLiabilitiesAssumed
PurchasedIntangibleAssets Goodwill
Metacloud $ 149 $ (7) $ 29 $ 127Others(fiveintotal) 185 (13) 70 128
Total $ 334 $ (20) $ 99 $ 255
TheCompanyacquiredprivatelyheldMetacloud,Inc.("Metacloud")inthefirstquarteroffiscal2015.Priortoitsacquisition,Metacloudprovidedprivatecloudsforglobalorganizations. WithitsacquisitionofMetacloud,theCompanyaimstoadvanceitsIntercloudstrategytodeliveragloballydistributed,highlysecurecloudplatform.TheCompanyhasincludedrevenuefromtheMetacloudacquisition,subsequenttotheacquisitiondate,intheCompany'sServicecategory.
The total purchase consideration related to the Company’s acquisitions completed during fiscal 2015 consisted of cash consideration and vested share-basedawardsassumed.Thetotalcashandcashequivalentsacquiredfromtheseacquisitionswasapproximately$5million.
Allocationofthepurchaseconsiderationforacquisitionscompletedinfiscal2014issummarizedasfollows(inmillions):
Fiscal2014Purchase
Consideration
NetTangibleAssetsAcquired
(LiabilitiesAssumed) PurchasedIntangible
Assets Goodwill
CompositeSoftware $ 160 $ (10) $ 75 $ 95Sourcefire 2,449 81 577 1,791WhipTail 351 (34) 105 280Tail-f 167 (7) 61 113Others(fourintotal) 54 (5) 20 39
Total $ 3,181 $ 25 $ 838 $ 2,318
TheCompanyacquired privately held Composite Software, Inc. (“Composite Software”) in the first quarter of fiscal2014. Prior toits acquisition, CompositeSoftwareprovideddatavirtualizationsoftwareandservicesthatconnectmanytypesofdatafromacrossthenetworkandmakeitappearasifthedataisinoneplace.WithitsacquisitionofCompositeSoftware,theCompanyintendstoextenditsnext-generationservicesplatformbyconnectingdataandinfrastructure.TheCompanyhasincludedrevenuefromtheCompositeSoftwareacquisition,subsequenttotheacquisitiondate,intheCompany'sServicecategory.
TheCompanyacquiredSourcefire,Inc.(“Sourcefire”)inthefirstquarteroffiscal2014.Priortoitsacquisition,Sourcefiredeliveredinnovative,highlyautomatedsecuritythroughcontinuousawareness,threatdetection,andprotectionacrossitsportfolio,includingnext-generationintrusionpreventionsystems,next-generationfirewalls,andadvancedmalwareprotection.WithitsacquisitionofSourcefire,theCompanyaimstoaccelerateitssecuritystrategyofdefending,discovering,andremediatingadvancedthreatstoprovidecontinuoussecuritysolutionstotheCompany’scustomersinmoreplacesacrossthenetwork.TheCompanyhasincludedrevenuefromtheSourcefireacquisitioninitsSecurityproductcategory.
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TheCompanyacquiredprivatelyheldWhipTail Technologies, Inc. (“WhipTail”) inthesecondquarter offiscal2014. Priortoitsacquisition, WhipTail wasaproviderofhigh-performance,scalablesolidstatememorysystems.Inthefourthquarteroffiscal2015,theCompanyannouncedtheend-of-saleandend-of-lifedatesfortheCiscoUCSInvictaSeriesinconnectionwiththedecisiontoshutdowntheWhipTailunit.
TheCompanyacquiredprivatelyheldTail-fSystemsAB("Tail-f")inthefourthquarteroffiscal2014.Priortoitsacquisitions,Tail-fwasaproviderofmulti-vendornetworkserviceorchestrationsolutionsfortraditionalandvirtualizednetworks.WithitsacquisitionofTail-f, theCompanyintendstoadvanceitscloudvirtualization strategy. The Company has included revenue from the Tail-f acquisition in the Company's cloud and virtualization offerings within the Otherproductscategory.
The total purchase consideration related to the Company’s acquisitions completed during fiscal 2014 consisted of cash consideration and vested share-basedawardsassumed.Thetotalcashandcashequivalentsacquiredfromtheseacquisitionswasapproximately$134million.
(b) Divestiture of SP Video CPE Business
Duringthesecondquarteroffiscal2016,theCompanycompletedthesaleoftheassetscomprisingitsSPVideoCPEBusinesstoTechnicolorSA.Asaresultofthetransaction,theCompanyreceivedaggregateconsiderationof$542millionconsistingof$372millionincashand$170millioninTechnicolorstock(asofthedivestituredate)andthetransactionresultedinagainof$253million,netofcertaintransactioncostsincurredtodate.
(c) Other Acquisition Information
TotaltransactioncostsrelatedtotheCompany’sacquisitionsduringfiscal2016,2015,and2014were$32million,$10million,and$7million,respectively.ThesetransactioncostswereexpensedasincurredinG&AexpensesintheConsolidatedStatementsofOperations.
TheCompany’spurchasepriceallocationforacquisitionscompletedduringrecentperiodsispreliminaryandsubjecttorevisionasadditionalinformationaboutfairvalueofassetsandliabilitiesbecomesavailable.AdditionalinformationthatexistedasoftheacquisitiondatebutatthattimewasunknowntotheCompany,maybecomeknowntotheCompanyduringtheremainderofthemeasurementperiod,aperiodnottoexceed12monthsfromtheacquisitiondate.Adjustmentsinthepurchasepriceallocationmayrequirearecastingoftheamountsallocatedtogoodwillretroactivetotheperiodinwhichtheacquisitionoccurred.
ThegoodwillgeneratedfromtheCompany’sacquisitionscompletedduringfiscal2016isprimarilyrelatedtoexpectedsynergies.Thegoodwillisgenerallynotdeductibleforincometaxpurposes.
The Consolidated Financial Statements include the operating results of each acquisition from the date of acquisition. Pro forma results of operations for theacquisitionscompletedduringthefiscalyearspresentedhavenotbeenpresentedbecausetheeffectsoftheacquisitions,individuallyandintheaggregate,werenotmaterialtotheCompany’sfinancialresults.
4. Goodwill and Purchased Intangible Assets
(a) Goodwill
The following tables present the goodwill allocated to the Company’s reportable segments as of July 30, 2016 andJuly 25, 2015 , as well as the changes togoodwillduringfiscal2016and2015(inmillions):
Balance at
July 25, 2015 Acquisitions Divestiture Other Balance at July 30,
2016
Americas $ 15,212 $ 1,607 $ (126) $ (164) $ 16,529EMEA 5,791 554 (12) (64) 6,269APJC 3,466 401 (3) (37) 3,827
Total $ 24,469 $ 2,562 $ (141) $ (265) $ 26,625
Balanceat
July26,2014 Acquisitions Divestiture Other BalanceatJuly25,
2015
Americas $ 15,080 $ 145 $ — $ (13) $ 15,212EMEA 5,715 84 — (8) 5,791APJC 3,444 26 — (4) 3,466
Total $ 24,239 $ 255 $ — $ (25) $ 24,469
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“Other”inthetablesaboveprimarilyconsistsofforeigncurrencytranslation,aswellasimmaterialpurchaseaccountingadjustments.
(b) Purchased Intangible Assets
ThefollowingtablespresentdetailsoftheCompany’sintangibleassetsacquiredthroughacquisitionscompletedduringfiscal2016and2015(inmillions,exceptyears):
FINITE LIVES INDEFINITE
LIVES
TOTAL TECHNOLOGY CUSTOMER
RELATIONSHIPS OTHER IPR&D
Fiscal 2016
Weighted-Average UsefulLife (in Years) Amount
Weighted-Average UsefulLife (in Years) Amount
Weighted-Average UsefulLife (in Years) Amount Amount Amount
MaintenanceNet 5.0 $ 50 5.0 $ 2 2.0 $ 2 $ 11 $ 65OpenDNS 5.0 43 7.0 15 1.0 2 1 61Lancope 5.0 79 6.0 29 3.0 3 10 121Acano 5.0 9 5.0 12 0.0 — 82 103Leaba 0.0 — 0.0 — 0.0 — 96 96Jasper 6.0 240 7.0 75 2.0 23 23 361CliQr 6.0 65 6.0 3 2.0 1 — 69Others (five in total) 4.1 58 6.3 6 0.0 — — 64
Total $ 544 $ 142 $ 31 $ 223 $ 940
FINITELIVES INDEFINITE
LIVES
TOTAL TECHNOLOGY CUSTOMER
RELATIONSHIPS OTHER IPR&D
Fiscal2015
Weighted-AverageUsefulLife(inYears) Amount
Weighted-AverageUsefulLife(inYears) Amount
Weighted-AverageUsefulLife(inYears) Amount Amount Amount
Metacloud 3.0 $ 24 5.0 $ 3 0.0 $ — $ 2 $ 29Others(fiveintotal) 4.7 48 7.8 12 5.8 6 4 70
Total $ 72 $ 15 $ 6 $ 6 $ 99
ThefollowingtablespresentdetailsoftheCompany’spurchasedintangibleassets(inmillions):
July 30, 2016 Gross AccumulatedAmortization Net
Purchased intangible assets with finite lives: Technology $ 3,038 $ (1,391) $ 1,647Customer relationships 1,793 (1,203) 590Other 85 (43) 42
Total purchased intangible assets with finite lives 4,916 (2,637) 2,279In-process research and development, with indefinite lives 222 — 222
Total $ 5,138 $ (2,637) $ 2,501
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July25,2015 Gross AccumulatedAmortization Net
Purchasedintangibleassetswithfinitelives: Technology $ 3,418 $ (1,818) $ 1,600Customerrelationships 1,699 (971) 728Other 55 (24) 31
Totalpurchasedintangibleassetswithfinitelives 5,172 (2,813) 2,359In-processresearchanddevelopment,withindefinitelives 17 — 17
Total $ 5,189 $ (2,813) $ 2,376
Purchasedintangibleassetsincludeintangibleassetsacquiredthroughacquisitionsaswellasthroughdirectpurchasesorlicenses.Infiscal2015,theCompany,alongwithanumberofothercompanies,enteredintoanagreementtoobtainalicensetothepatentsownedbytheRockstarConsortium,andtheCompanypaidapproximately $300 million , of which $188 millionwas expensed to product cost of sales related to the settlement of patent infringement claims, and theremainderwascapitalizedasanintangibleassettobeamortizedoveritsestimatedusefullife.
Impairment charges related to purchased intangible assets were approximately $74 million and $175 million for fiscal 2016 and fiscal 2015 , respectively.ImpairmentchargeswereasaresultofdeclinesinestimatedfairvalueresultingfromthereductionoreliminationofexpectedfuturecashflowsassociatedwithcertainoftheCompany’stechnologyandIPR&Dintangibleassets.Therewerenoimpairmentchargesrelatedtopurchasedintangibleassetsduringfiscal2014.
Thefollowingtablepresentstheamortizationofpurchasedintangibleassets(inmillions):
YearsEnded July 30, 2016 July25,2015 July26,2014
Amortizationofpurchasedintangibleassets: Costofsales $ 577 $ 814 $ 742Operatingexpenses 303 359 275
Total $ 880 $ 1,173 $ 1,017
TheestimatedfutureamortizationexpenseofpurchasedintangibleassetswithfinitelivesasofJuly30,2016isasfollows(inmillions):
FiscalYear Amount
2017 $ 7302018 5852019 4952020 2752021 132Thereafter 62
Total $ 2,279
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5. Restructuring and Other Charges
TheCompanyannouncedarestructuringactioninAugust2014(the“Fiscal2015Plan”),inordertorealignitsworkforcetowardskeygrowthareasofitsbusinesssuchasdatacenter,software,security,andcloud.Inconnectionwiththisplan,theCompanyincurredcumulativechargesofapproximately$756million.TheCompanycompletedtheFiscal2015Planattheendoffiscal2016.
InconnectionwitharestructuringactionannouncedinAugust2013(the“Fiscal2014Plan”),theCompanyincurredcumulativechargesofapproximately$417million,ofwhicha$1millioncreditwasrecognizedinfiscal2016.TheCompanycompletedtheFiscal2014Planattheendoffiscal2014.
Thefollowingtablesummarizestheactivitiesrelatedtotherestructuringandothercharges,asdiscussedabove(inmillions):
FISCAL2014AND
PRIORYEARPLANS FISCAL2015PLAN
EmployeeSeverance Other
EmployeeSeverance Other Total
LiabilityasofJuly27,2013 $ 21 $ 7 $ — $ — $ 28Charges 366 52 — — 418Cashpayments (345) (7) — — (352)Non-cashitems (2) (23) — — (25)
LiabilityasofJuly26,2014 40 29 — — 69Charges — — 464 20 484Cashpayments (29) (14) (413) (3) (459)Non-cashitems — (1) (2) (2) (5)
Liability as of July 25, 2015 11 14 49 15 89Charges — (1) 225 44 268Cash payments (11) (4) (253) (11) (279)Non-cash items — — — (33) (33)
Liability as of July 30, 2016 $ — $ 9 $ 21 $ 15 $ 45
Inadditiontotheaboveamounts,theCompanyincurred$2millioncreditand$5millionofrestructuringandotherchargeswithincostofsalesduringfiscal2016andfiscal2015,respectively.
InAugust2016,theCompanyannouncedarestructuringplanthatwillimpactupto5,500employees,representingapproximately7%ofitsglobalworkforce.TheCompanybegantakingactionunderthisplaninthefirstquarteroffiscal2017.TheCompanycurrentlyestimatesthatitwillrecognizepre-taxchargesofupto$700millionconsistingofseveranceandotherone-timeterminationbenefits,andotherassociatedcosts.Thesechargesareprimarilycashbased.TheCompanyexpectsthatapproximately$325millionto$400millionofthesechargeswillberecognizedduringthefirstquarteroffiscal2017,withtheremainingamounttoberecognizedduringtherestofthefiscal2017.
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6. Balance Sheet Details
Thefollowingtablesprovidedetailsofselectedbalancesheetitems(inmillions):
July 30, 2016 July25,2015
Inventories: Rawmaterials $ 91 $ 114Workinprocess — 2Finishedgoods:
Distributorinventoryanddeferredcostofsales 457 610Manufacturedfinishedgoods 415 593Totalfinishedgoods 872 1,203
Service-relatedspares 236 258Demonstrationsystems 18 50
Total $ 1,217 $ 1,627
Propertyandequipment,net: Grosspropertyandequipment:
Land,buildings,andbuildingandleaseholdimprovements $ 4,778 $ 4,495Computerequipmentandrelatedsoftware 1,288 1,310Production,engineering,andotherequipment 5,658 5,753Operatingleaseassets 296 372Furnitureandfixtures 543 497Totalgrosspropertyandequipment 12,563 12,427
Less:accumulateddepreciationandamortization (9,057) (9,095)Total $ 3,506 $ 3,332
Deferredrevenue: Service $ 10,621 $ 9,757Product:
Unrecognizedrevenueonproductshipmentsandotherdeferredrevenue 5,474 4,766Deferredrevenuerelatedtotwo-tierdistributors 377 660Totalproductdeferredrevenue 5,851 5,426
Total $ 16,472 $ 15,183Reportedas:
Current $ 10,155 $ 9,824Noncurrent 6,317 5,359
Total $ 16,472 $ 15,183
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7. Financing Receivables and Operating Leases
(a) Financing Receivables
Financingreceivablesprimarilyconsistofleasereceivables,loanreceivables,andfinancedservicecontractsandother.Leasereceivablesrepresentsales-typeanddirect-financingleasesresultingfromthesaleoftheCompany’sandcomplementarythird-partyproductsandaretypicallycollateralizedbyasecurityinterestintheunderlyingassets.LoanreceivablesrepresentfinancingarrangementsrelatedtothesaleoftheCompany’sproductsandservices,whichmayincludeadditionalfundingfor other costs associatedwithnetworkinstallationandintegrationof theCompany’s products andservices. Leasereceivables consist of arrangementswithtermsoffouryearsonaverage,whileloanreceivablesgenerallyhavetermsofuptothreeyears.Thefinancedservicecontractsandothercategoryincludesfinancingreceivablesrelatedtotechnicalsupportandadvancedservices,aswellasreceivablesrelatedtofinancingofcertainindirectcostsassociatedwithleases.Revenuerelatedtothetechnicalsupportservicesistypicallydeferredandincludedindeferredservicerevenueandisrecognizedratablyovertheperiodduringwhichtherelatedservicesaretobeperformed,whichtypicallyrangesfromonetothreeyears.
AsummaryoftheCompany'sfinancingreceivablesispresentedasfollows(inmillions):
July 30, 2016Lease
Receivables Loan
Receivables Financed Service
Contracts and Other TotalGross $ 3,272 $ 2,135 $ 3,370 $ 8,777Residual value 202 — — 202Unearned income (174) — — (174)Allowance for credit loss (230) (97) (48) (375)
Total, net $ 3,070 $ 2,038 $ 3,322 $ 8,430Reported as:
Current $ 1,490 $ 988 $ 1,794 $ 4,272Noncurrent 1,580 1,050 1,528 4,158
Total, net $ 3,070 $ 2,038 $ 3,322 $ 8,430
July25,2015Lease
Receivables Loan
Receivables FinancedService
ContractsandOther TotalGross $ 3,361 $ 1,763 $ 3,573 $ 8,697Residualvalue 224 — — 224Unearnedincome (190) — — (190)Allowanceforcreditloss (259) (87) (36) (382)
Total,net $ 3,136 $ 1,676 $ 3,537 $ 8,349Reportedas:
Current $ 1,468 $ 856 $ 2,167 $ 4,491Noncurrent 1,668 820 1,370 3,858
Total,net $ 3,136 $ 1,676 $ 3,537 $ 8,349
AsofJuly30,2016andJuly25,2015,thedeferredservicerevenuerelatedto"FinancedServiceContractsandOther"was$1,716millionand$1,853million,respectively.
FutureminimumleasepaymentstotheCompanyonleasereceivablesasofJuly30,2016aresummarizedasfollows(inmillions):
FiscalYear Amount
2017 $ 1,5652018 9622019 5002020 2092021 36
Total $ 3,272
Actualcashcollectionsmaydifferfromthecontractualmaturitiesduetoearlycustomerbuyouts,refinancings,ordefaults.
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(b) Credit Quality of Financing Receivables
Grossreceivables,excludingresidualvalue,lessunearnedincomecategorizedbytheCompany’sinternalcreditriskratingasofJuly30,2016andJuly25,2015aresummarizedasfollows(inmillions):
INTERNAL CREDIT RISK RATING
July 30, 2016 1 to 4 5 to 6 7 and Higher TotalLease receivables $ 1,703 $ 1,294 $ 101 $ 3,098Loan receivables 986 967 182 2,135Financed service contracts and other 2,077 1,271 22 3,370
Total $ 4,766 $ 3,532 $ 305 $ 8,603
INTERNALCREDITRISKRATING
July25,2015 1to4 5to6 7andHigher TotalLeasereceivables $ 1,688 $ 1,342 $ 141 $ 3,171Loanreceivables 788 823 152 1,763Financedservicecontractsandother 2,133 1,389 51 3,573
Total $ 4,609 $ 3,554 $ 344 $ 8,507
TheCompanydeterminestheadequacyofitsallowanceforcreditlossbyassessingtherisksandlossesinherentinitsfinancingreceivablesbyportfoliosegment.The portfolio segment is based on the types of financing offered by the Company to its customers, which consist of the following: lease receivables, loanreceivables,andfinancedservicecontractsandother.TheCompany’sinternalcreditriskratingsof1through4correspondtoinvestment-graderatings,whilecreditriskratingsof5and6correspondtonon-investmentgraderatings.Creditriskratingsof7andhighercorrespondtosubstandardratings.Incircumstanceswhencollectibilityisnotdeemedreasonablyassured,theassociatedrevenueisdeferredinaccordancewiththeCompany’srevenuerecognitionpolicies,andtherelatedallowanceforcreditloss,ifany,isincludedindeferredrevenue.TheCompanyalsorecordsdeferredrevenueassociatedwithfinancingreceivableswhenthereareremainingperformanceobligations,asitdoesforfinancedservicecontracts.TotalallowancesforcreditlossanddeferredrevenueasofJuly30,2016andJuly25,2015were$2,112millionand$2,253million,respectively,andtheywereassociatedwithtotalfinancingreceivablesbeforeallowanceforcreditlossof$8,805millionand$8,731millionasoftheirrespectiveperiodends.
Thefollowingtablespresenttheaginganalysisofgrossreceivables,excludingresidualvalueandlessunearnedincomeasofJuly30,2016andJuly25,2015(inmillions):
DAYS PAST DUE
(INCLUDES BILLED AND UNBILLED)
July 30, 2016 31 - 60 61 - 90 91+ Total
Past Due Current Total
NonaccrualFinancing
Receivables
ImpairedFinancing
ReceivablesLease receivables $ 111 $ 25 $ 251 $ 387 $ 2,711 $ 3,098 $ 60 $ 60Loan receivables 30 9 37 76 2,059 2,135 42 42Financed service contracts and other 213 152 565 930 2,440 3,370 30 10
Total $ 354 $ 186 $ 853 $ 1,393 $ 7,210 $ 8,603 $ 132 $ 112
DAYSPASTDUE
(INCLUDESBILLEDANDUNBILLED)
July25,2015 31-60 61-90 91+ Total
PastDue Current Total
NonaccrualFinancingReceivables
ImpairedFinancingReceivables
Leasereceivables $ 90 $ 27 $ 185 $ 302 $ 2,869 $ 3,171 $ 73 $ 73Loanreceivables 21 3 25 49 1,714 1,763 32 32Financedservicecontractsandother 396 152 414 962 2,611 3,573 29 9
Total $ 507 $ 182 $ 624 $ 1,313 $ 7,194 $ 8,507 $ 134 $ 114
Past due financing receivables are those that are 31 daysor more past due according to their contractual payment terms. The data in the preceding tables ispresented by contract, and the aging classification of each contract is based on the oldest outstanding receivable, and therefore past due amounts also includeunbilledandcurrentreceivableswithinthesamecontract.Thebalancesofeitherunbilledorcurrentfinancingreceivablesincludedinthecategoryof91dayspluspastdueforfinancingreceivableswere$670millionand$496millionasofJuly30,2016andJuly25,2015,respectively.
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AsofJuly30,2016,theCompanyhadfinancingreceivablesof$144million,netofunbilledorcurrentreceivables,thatwereinthecategoryof91dayspluspastduebutremainedonaccrualstatusastheyarewellsecuredandintheprocessofcollection.Suchbalancewas$70millionasofJuly25,2015.
(c) Allowance for Credit Loss Rollforward
Theallowancesforcreditlossandtherelatedfinancingreceivablesaresummarizedasfollows(inmillions):
CREDIT LOSS ALLOWANCES
Lease
Receivables Loan
Receivables Financed Service
Contracts and Other TotalAllowance for credit loss as of July 25, 2015 $ 259 $ 87 $ 36 $ 382Provisions (13) 13 17 17Recoveries (write-offs), net (10) — (5) (15)Foreign exchange and other (6) (3) — (9)Allowance for credit loss as of July 30, 2016 $ 230 $ 97 $ 48 $ 375
CREDITLOSSALLOWANCES
Lease
Receivables Loan
Receivables FinancedService
ContractsandOther TotalAllowanceforcreditlossasofJuly26,2014 $ 233 $ 98 $ 18 $ 349Provisions 45 (8) 20 57Recoveries(write-offs),net (7) 1 (1) (7)Foreignexchangeandother (12) (4) (1) (17)AllowanceforcreditlossasofJuly25,2015 $ 259 $ 87 $ 36 $ 382
CREDITLOSSALLOWANCES
Lease
Receivables Loan
Receivables FinancedService
ContractsandOther TotalAllowanceforcreditlossasofJuly27,2013 $ 238 $ 86 $ 20 $ 344Provisions 4 9 1 14Recoveries(write-offs),net (11) 5 (3) (9)Foreignexchangeandother 2 (2) — —AllowanceforcreditlossasofJuly26,2014 $ 233 $ 98 $ 18 $ 349
(d) Operating Leases
The Company provides financing of certain equipment through operating leases, and the amounts are included in property and equipment in the ConsolidatedBalanceSheets.Amountsrelatingtoequipmentonoperatingleaseassetsandtheassociatedaccumulateddepreciationaresummarizedasfollows(inmillions):
July 30, 2016 July25,2015
Operatingleaseassets $ 296 $ 372Accumulateddepreciation (161) (205)
Operatingleaseassets,net $ 135 $ 167
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MinimumfuturerentalsonnoncancelableoperatingleasesasofJuly30,2016aresummarizedasfollows(inmillions):
FiscalYear Amount
2017 $ 1992018 1382019 472020 82021 4Thereafter 2
Total $ 398
8. Investments
(a) Summary of Available-for-Sale Investments
ThefollowingtablessummarizetheCompany’savailable-for-saleinvestments(inmillions):
July 30, 2016Amortized
Cost
GrossUnrealized
Gains
GrossUnrealized
Losses Fair
ValueFixed income securities:
U.S. government securities $ 26,473 $ 73 $ (2) $ 26,544U.S. government agency securities 2,809 8 — 2,817Non-U.S. government and agency securities 1,096 4 — 1,100Corporate debt securities 24,044 263 (15) 24,292U.S. agency mortgage-backed securities 1,846 22 — 1,868
Total fixed income securities 56,268 370 (17) 56,621Publicly traded equity securities 1,211 333 (40) 1,504
Total (1) $ 57,479 $ 703 $ (57) $ 58,125
July25,2015Amortized
Cost
GrossUnrealizedGains
GrossUnrealizedLosses
FairValue
Fixedincomesecurities: U.S.governmentsecurities $ 29,904 $ 41 $ (6) $ 29,939U.S.governmentagencysecurities 3,662 2 (1) 3,663Non-U.S.governmentandagencysecurities 1,128 1 (1) 1,128Corporatedebtsecurities 15,802 34 (53) 15,783U.S.agencymortgage-backedsecurities 1,456 8 (3) 1,461
Totalfixedincomesecurities 51,952 86 (64) 51,974Publiclytradedequitysecurities 1,092 480 (7) 1,565
Total(1) $ 53,044 $ 566 $ (71) $ 53,539
(1)Includesinvestmentsthatwerependingsettlementasoftherespectivefiscalyears.Thenetunsettledinvestmentpurchaseswere$654millionand$4millionasofJuly30,2016andJuly25,2015,respectively.
Non-U.S.governmentandagencysecuritiesincludeagencyandcorporatedebtsecuritiesthatareguaranteedbynon-U.S.governments.
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(b) Gains and Losses on Available-for-Sale Investments
ThefollowingtablepresentsthegrossrealizedgainsandgrossrealizedlossesrelatedtotheCompany’savailable-for-saleinvestments(inmillions):
YearsEnded July 30, 2016 July25,2015 July26,2014
Grossrealizedgains $ 152 $ 221 $ 341Grossrealizedlosses (153) (64) (41)
Total $ (1) $ 157 $ 300
ThefollowingtablepresentstherealizednetgainsrelatedtotheCompany’savailable-for-saleinvestmentsbysecuritytype(inmillions):
YearsEnded July 30, 2016 July25,2015 July26,2014
Netgainsoninvestmentsinpubliclytradedequitysecurities $ 33 $ 116 $ 253Netgains/(losses)oninvestmentsinfixedincomesecurities (34) 41 47
Total $ (1) $ 157 $ 300
Forfiscal 2016 , the realized net losses related to the Company's available-for-sale investments included impairment charges of $3 million for fixed incomesecurities.Therewerenoimpairmentchargesonavailable-for-saleinvestmentsforfiscal2015.Forfiscal2014,therealizednetgainsrelatedtotheCompany'savailable-for-saleinvestmentsincludedimpairmentchargesof$11millionforpubliclytradedequitysecurities.Theimpairmentchargeswereduetoadeclineinthefairvalueofthosesecuritiesbelowtheircostbasisthatweredeterminedtobeotherthantemporary.The following tables present the breakdown of the available-for-sale investments with gross unrealized losses and the duration that those losses had beenunrealizedatJuly30,2016andJuly25,2015(inmillions):
UNREALIZED LOSSES
LESS THAN 12 MONTHS UNREALIZED LOSSES
12 MONTHS OR GREATER TOTAL
July 30, 2016 Fair Value
GrossUnrealized
Losses Fair Value
GrossUnrealized
Losses Fair Value
Gross Unrealized
LossesFixed income securities:
U.S. government securities $ 2,414 $ (2) $ — $ — $ 2,414 $ (2)U.S. government agency securities 144 — — — 144 —Non-U.S. government and agencysecurities 61 — — — 61 —Corporate debt securities 2,499 (7) 1,208 (8) 3,707 (15)U.S. agency mortgage-backed securities 174 — — — 174 —
Total fixed income securities 5,292 (9) 1,208 (8) 6,500 (17)Publicly traded equity securities 188 (40) — — 188 (40)
Total $ 5,480 $ (49) $ 1,208 $ (8) $ 6,688 $ (57)
UNREALIZEDLOSSESLESSTHAN12MONTHS
UNREALIZEDLOSSES12MONTHSORGREATER TOTAL
July25,2015 FairValue
GrossUnrealizedLosses FairValue
GrossUnrealizedLosses FairValue
GrossUnrealizedLosses
Fixedincomesecurities: U.S.governmentsecurities $ 6,412 $ (6) $ — $ — $ 6,412 $ (6)U.S.governmentagencysecurities 1,433 (1) — — 1,433 (1)Non-U.S.governmentandagencysecurities 515 (1) 4 — 519 (1)Corporatedebtsecurities 9,552 (49) 312 (4) 9,864 (53)U.S.agencymortgage-backedsecurities 579 (3) — — 579 (3)
Totalfixedincomesecurities 18,491 (60) 316 (4) 18,807 (64)Publiclytradedequitysecurities 108 (7) 2 — 110 (7)
Total $ 18,599 $ (67) $ 318 $ (4) $ 18,917 $ (71)
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AsofJuly30,2016,forfixedincomesecuritiesthatwereinunrealizedlosspositions,theCompanyhasdeterminedthat(i)itdoesnothavetheintenttosellanyoftheseinvestments,and(ii)itisnotmorelikelythannotthatitwillberequiredtosellanyoftheseinvestmentsbeforerecoveryoftheentireamortizedcostbasis.Inaddition,asofJuly30,2016,theCompanyanticipatesthatitwillrecovertheentireamortizedcostbasisofsuchfixedincomesecuritiesandhasdeterminedthatnoother-than-temporaryimpairmentsassociatedwithcreditlossesasofJuly30,2016wererequiredtoberecognized.
The Company has evaluated its publicly traded equity securities as of July 30, 2016and has determined that there wasnoindication of other-than-temporaryimpairmentsintherespectivecategoriesofunrealizedlosses.Thisdeterminationwasbasedonseveralfactors,whichincludethelengthoftimeandextenttowhichfairvaluehasbeenlessthanthecostbasis,thefinancialconditionandnear-termprospectsoftheissuer,andtheCompany’sintentandabilitytoholdthepubliclytradedequitysecuritiesforaperiodoftimesufficienttoallowforanyanticipatedrecoveryinmarketvalue.
(c) Maturities of Fixed Income SecuritiesThefollowingtablesummarizesthematuritiesoftheCompany’sfixedincomesecuritiesatJuly30,2016(inmillions):
AmortizedCost FairValue
Lessthan1year $ 15,473 $ 15,485Duein1to2years 17,791 17,847Duein2to5years 20,870 21,128Dueafter5years 288 293Mortgage-backedsecuritieswithnosinglematurity 1,846 1,868
Total $ 56,268 $ 56,621
Actualmaturitiesmaydifferfromthecontractualmaturitiesbecauseborrowersmayhavetherighttocallorprepaycertainobligations.Theremainingcontractualprincipalmaturitiesformortgage-backedsecuritieswereallocatedassumingnoprepayments.
(d) Securities Lending
The Company periodically engages in securities lending activities with certain of its available-for-sale investments. These transactions are accounted for as asecuredlendingofthesecurities,andthesecuritiesaretypicallyloanedonlyonanovernightbasis.Theaveragedailybalanceofsecuritieslendingforfiscal2016and2015was$1.0billionand$0.4billion,respectively.TheCompanyrequirescollateralequaltoatleast102%ofthefairmarketvalueoftheloanedsecurityandthatthecollateralbeintheformofcashorliquid,high-qualityassets.TheCompanyengagesinthesesecuredlendingtransactionsonlywithhighlycreditworthycounterparties,andtheassociatedportfoliocustodianhasagreedtoindemnifytheCompanyagainstcollaterallosses.TheCompanydidnotexperienceanylossesin connection with the secured lending of securities during the periods presented. As of July 30, 2016 andJuly 25, 2015 , the Company had nooutstandingsecuritieslendingtransactions.
(e) Investments in Privately Held Companies
ThecarryingvalueoftheCompany’sinvestmentsinprivatelyheldcompanieswasincludedinotherassets.ForsuchinvestmentsthatwereaccountedforundertheequityandcostmethodasofJuly30,2016andJuly25,2015,theamountsaresummarizedinthefollowingtable(inmillions):
July 30, 2016 July25,2015
Equitymethodinvestments $ 174 $ 170Costmethodinvestments 829 727
Total $ 1,003 $ 897
Foradditionalinformationonimpairmentchargesrelatedtoinvestmentsinprivatelyheldcompanies,seeNote9.
Variable Interest Entities In the ordinary course of business, the Company has investments in privately held companies and provides financing to certaincustomers. These privately held companies and customers may be considered to be variable interest entities. The Company evaluates on an ongoing basis itsinvestmentsintheseprivatelyheldcompaniesanditscustomerfinancingsandhasdeterminedthatasofJuly30,2016,exceptasdisclosedherein,therewerenovariableinterestentitiesrequiredtobeconsolidatedintheCompany’sConsolidatedFinancialStatements.
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9. Fair Value
(a) Assets and Liabilities Measured at Fair Value on a Recurring Basis
AssetsandliabilitiesmeasuredatfairvalueonarecurringbasisasofJuly30,2016andJuly25,2015wereasfollows(inmillions):
JULY 30, 2016 JULY25,2015
FAIR VALUE MEASUREMENTS FAIRVALUEMEASUREMENTS
Level 1 Level 2 Level 3 Total
Balance Level1 Level2 Level3 TotalBalance
Assets: Cashequivalents:
Moneymarketfunds $ 6,049 $ — $ — $ 6,049 $ 5,336 $ — $ — $ 5,336Corporatedebtsecurities — 43 — 43 — 14 — 14
Available-for-saleinvestments: U.S.governmentsecurities — 26,544 — 26,544 — 29,939 — 29,939U.S.governmentagencysecurities — 2,817 — 2,817 — 3,663 — 3,663Non-U.S.governmentandagencysecurities — 1,100 — 1,100 — 1,128 — 1,128Corporatedebtsecurities — 24,292 — 24,292 — 15,783 — 15,783U.S.agencymortgage-backedsecurities — 1,868 — 1,868 — 1,461 — 1,461Publiclytradedequitysecurities 1,504 — — 1,504 1,565 — — 1,565
Derivativeassets — 384 1 385 — 214 4 218Total $ 7,553 $ 57,048 $ 1 $ 64,602 $ 6,901 $ 52,202 $ 4 $ 59,107
Liabilities: Derivativeliabilities $ — $ 54 $ — $ 54 $ — $ 12 $ — $ 12
Total $ — $ 54 $ — $ 54 $ — $ 12 $ — $ 12
Level1publiclytradedequitysecuritiesaredeterminedbyusingquotedpricesinactivemarketsforidenticalassets.Level2fixedincomesecuritiesarepricedusingquotedmarketpricesforsimilarinstrumentsornonbindingmarketpricesthatarecorroboratedbyobservablemarketdata.TheCompanyusesinputssuchasactualtradedata,benchmarkyields,broker/dealerquotes,andothersimilardata,whichareobtainedfromquotedmarketprices,independentpricingvendors,orothersources,todeterminetheultimatefairvalueoftheseassetsandliabilities.TheCompanyusessuchpricingdataastheprimaryinputtomakeitsassessmentsanddeterminationsastotheultimatevaluationofitsinvestmentportfolioandhasnotmade,duringtheperiodspresented,anymaterialadjustmentstosuchinputs.TheCompanyis ultimately responsible forthefinancial statements andunderlyingestimates. TheCompany’sderivativeinstruments areprimarilyclassifiedasLevel2,astheyarenotactivelytradedandarevaluedusingpricingmodelsthatuseobservablemarketinputs.TheCompanydidnothaveanytransfersbetweenLevel1andLevel2fairvaluemeasurementsduringtheperiodspresented.
Level3assetsincludecertainderivativeinstruments, thevaluesofwhicharedeterminedbasedondiscountedcashflowmodelsusinginputsthattheCompanycouldnotcorroboratewithmarketdata.
(b) Assets Measured at Fair Value on a Nonrecurring Basis
ThefollowingtablepresentstheCompany’sassetsthatweremeasuredatfairvalueonanonrecurringbasisduringtheindicatedperiodsandtherelatedrecognizedgainsandlossesfortheperiodsindicated(inmillions):
TOTALGAINS(LOSSES)FORTHEYEARSENDED
July 30, 2016 July25,2015 July26,2014
Investmentsinprivatelyheldcompanies(impaired) $ (57) $ (38) $ (21)Purchasedintangibleassets(impaired) (74) (175) —Gains(losses)onassetsnolongerheldatendoffiscalyear (10) (8) (2)
Totalgains(losses)fornonrecurringmeasurements $ (141) $ (221) $ (23)
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These assets were measured at fair value due to events or circumstances the Company identified as having significant impact on their fair value during therespectiveperiods.Toarriveatthevaluationoftheseassets,theCompanyconsidersanysignificantchangesinthefinancialmetricsandeconomicvariablesandalsousesthird-partyvaluationreportstoassistinthevaluationasnecessary.ThefairvaluemeasurementoftheimpairedinvestmentswasclassifiedasLevel3becausesignificantunobservableinputswereusedinthevaluationduetotheabsenceofquotedmarketpricesandinherentlackofliquidity.Significantunobservableinputs,whichincludedfinancialmetricsofcomparableprivateandpubliccompanies,financialconditionandnear-termprospectsoftheinvestees,recentfinancingactivitiesoftheinvestees,andtheinvestees’capitalstructureaswellasother economic variables, reflected the assumptions market participants would use in pricing these assets. The impairment charges, representing the differencebetween the net book value and the fair value as a result of the evaluation, were recorded to other income (loss), net. The remaining carrying value of theinvestmentsthatwereimpairedwas$24millionasofJuly30,2016.ThefairvalueforpurchasedintangiblesassetsmeasuredatfairvalueonanonrecurringbasiswascategorizedasLevel3duetotheuseofsignificantunobservableinputsinthevaluation.Significantunobservableinputsthatwereusedincludedexpectedrevenuesandnetincomerelatedtotheassetsandtheexpectedlifeoftheassets.Thedifferencebetweentheestimatedfairvalueandthecarryingvalueoftheassetswasrecordedasanimpairmentcharge,whichwasincludedinproductcostofsalesandoperatingexpensesasapplicable.SeeNote4.TheremainingcarryingvalueofthespecificpurchasedintangibleassetsthatwereimpairedwaszeroasofJuly30,2016.Thefairvalueofpropertyheldforsalewasmeasuredwiththeassistanceofthird-partyvaluationmodels,whichuseddiscountedcashflowtechniquesaspartoftheir analysis. The fair value measurement was categorized as Level 3, as significant unobservable inputs were used in the valuation report. The impairmentchargesasaresultofthevaluations,whichrepresentedthedifferencebetweenthefairvaluelesscosttosellandthecarryingamountoftheassetsheldforsale,wereincludedinG&Aexpenses.
(c) Other Fair Value Disclosures
ThecarryingvalueoftheCompany’sinvestmentsinprivatelyheldcompaniesthatwereaccountedforunderthecostmethodwas$829millionand$727millionasofJuly30,2016andJuly25,2015,respectively.Itwasnotpracticabletoestimatethefairvalueofthisportfolio.
The fair value of the Company’s short-term loan receivables and financed service contracts approximates their carrying value due to their short duration. TheaggregatecarryingvalueoftheCompany’slong-termloanreceivablesandfinancedservicecontractsandotherasofJuly30,2016andJuly25,2015was$2.6billionand$2.2billion,respectively.TheestimatedfairvalueoftheCompany’slong-termloanreceivablesandfinancedservicecontractsandotherapproximatestheir carrying value. The Company uses significant unobservable inputs in determining discounted cash flows to estimate the fair value of its long-term loanreceivablesandfinancedservicecontracts,andthereforetheyarecategorizedasLevel3.
AsofJuly30,2016andJuly25,2015,theestimatedfairvalueoftheshort-termdebtapproximatesitscarryingvalueduetotheshortmaturities.AsofJuly30,2016,thefairvalueoftheCompany’sseniornotesandotherlong-termdebtwas$30.9billion,withacarryingamountof$28.6billion.Thiscomparestoafairvalueof$26.6billionandacarryingamountof$25.4billionasofJuly25,2015.Thefairvalueoftheseniornotesandotherlong-termdebtwasdeterminedbasedonobservablemarketpricesinalessactivemarketandwascategorizedasLevel2inthefairvaluehierarchy.
10. Borrowings
(a) Short-Term Debt
ThefollowingtablesummarizestheCompany’sshort-termdebt(inmillions,exceptpercentages):
July 30, 2016 July25,2015
Amount Effective Rate Amount EffectiveRateCurrentportionoflong-termdebt $ 4,159 0.97% $ 3,894 2.48%Othernotesandborrowings 1 2.08% 3 2.44%
Totalshort-termdebt $ 4,160 $ 3,897
Theeffectiveinterestrateonthecurrentportionoflong-termdebtincludestheimpactofinterestrateswaps,asdiscussedfurtherin"(b)Long-TermDebt."Othernotesandborrowingsconsistoftheshort-termportionofsecuredborrowingsassociatedwithcustomerfinancingarrangements.Thesenotesandcreditfacilitiesweresubjecttovarioustermsandforeigncurrencymarketinterest ratespursuanttoindividual financial arrangementsbetweenthefinancinginstitutionandtheapplicableforeignsubsidiary.
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OnSeptember3,2015,theCompanyrepaidanaggregateprincipalamountof$850millionuponmaturityofits2015Floating-RateNotes.OnFebruary22,2016,theCompanyrepaidanaggregateprincipalamountof$3.0billionuponthematurityofits2016FixedRateNotes.
TheCompanyhasestablishedashort-termdebtfinancingprogramofupto$3.0billionthroughtheissuanceofcommercialpapernotes.TheCompanyusestheproceedsfromtheissuanceofcommercialpapernotesforgeneralcorporatepurposes.TheCompanydidnothaveanycommercialpapernotesoutstandingasofeachofJuly30,2016andJuly25,2015.(b) Long-Term DebtThefollowingtablesummarizestheCompany’slong-termdebt(inmillions,exceptpercentages):
July 30, 2016 July25,2015
MaturityDate Amount Effective Rate Amount EffectiveRate
Seniornotes: Floating-ratenotes:
Three-monthLIBORplus0.05% September3,2015 $ — — $ 850 0.43%Three-monthLIBORplus0.28% March3,2017 1,000 1.03% 1,000 0.63%Three-monthLIBORplus0.60% February21,2018 (1) 1,000 1.32% — —Three-monthLIBORplus0.31% June15,2018 900 1.03% 900 0.65%Three-monthLIBORplus0.50% March1,2019 500 1.23% 500 0.84%
Fixed-ratenotes: 5.50% February22,2016 — — 3,000 3.07%1.10% March3,2017 2,400 0.87% 2,400 0.59%3.15% March14,2017 750 1.22% 750 0.85%1.40% February28,2018 (1) 1,250 1.47% — —1.65% June15,2018 1,600 1.72% 1,600 1.72%4.95% February15,2019 2,000 4.76% 2,000 4.70%1.60% February28,2019 (1) 1,000 1.67% — —2.125% March1,2019 1,750 1.08% 1,750 0.80%4.45% January15,2020 2,500 3.25% 2,500 3.01%2.45% June15,2020 1,500 2.54% 1,500 2.54%2.20% February28,2021 (1) 2,500 2.30% — —2.90% March4,2021 500 1.24% 500 0.96%3.00% June15,2022 500 1.51% 500 1.21%2.60% February28,2023 (1) 500 2.68% — —3.625% March4,2024 1,000 1.36% 1,000 1.08%3.50% June15,2025 500 1.67% 500 1.37%2.95% February28,2026 (1) 750 3.01% — —5.90% February15,2039 2,000 6.11% 2,000 6.11%5.50% January15,2040 2,000 5.67% 2,000 5.67%
Otherlong-termdebt — — 1 2.08%Total 28,400 25,251
Unaccreteddiscount/issuancecosts (137) (131) Hedgeaccountingfairvalueadjustments 379 231
Total $ 28,642 $ 25,351
Reportedas: Currentportionoflong-termdebt $ 4,159 $ 3,894 Long-termdebt 24,483 21,457
Total $ 28,642 $ 25,351 (1)InFebruary2016,theCompanyissuedseniornotesforanaggregateprincipalamountof$7.0billion.
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Toachieveitsinterestrateriskmanagementobjectives,theCompanyenteredintointerestrateswapsinpriorperiodswithanaggregatenotionalamountof$9.9billiondesignated as fair value hedges of certain of its fixed-rate senior notes. In effect, these swaps convert the fixed interest rates of the fixed-rate notes tofloatinginterestratesbasedontheLondonInterBankOfferedRate(LIBOR).Thegainsandlossesrelatedtochangesinthefairvalueoftheinterestrateswapssubstantiallyoffsetchangesinthefairvalueofthehedgedportionoftheunderlyingdebtthatareattributabletothechangesinmarketinterestrates.Foradditionalinformation,seeNote11.Theeffectiveratesforthefixed-ratedebtincludetheinterestonthenotes,theaccretionofthediscount,and,ifapplicable,adjustmentsrelatedtohedging.Interestis payable semiannually on each class of the senior fixed-rate notes and payable quarterly on the floating-rate notes. Each of the senior fixed-rate notes isredeemablebytheCompanyatanytime,subjecttoamake-wholepremium.TheseniornotesrankatparwiththecommercialpapernotesthatmaybeissuedinthefuturepursuanttotheCompany’sshort-termdebtfinancingprogram,asdiscussedaboveunder“(a)Short-TermDebt.”AsofJuly30,2016,theCompanywasincompliancewithalldebtcovenants.
AsofJuly30,2016,futureprincipalpaymentsforlong-termdebt,includingthecurrentportion,aresummarizedasfollows(inmillions):
FiscalYear Amount
2017 $ 4,1502018 4,7502019 5,2502020 4,0002021 3,000Thereafter 7,250
Total $ 28,400
(c) Credit FacilityOnMay15,2015,theCompanyenteredintoacreditagreementwithcertaininstitutionallendersthatprovidesfora$3.0billionunsecuredrevolvingcreditfacilitythatisscheduledtoexpireonMay15,2020.Anyadvancesunderthecreditagreementwillaccrueinterestatratesthatareequalto,basedoncertainconditions,either(i)thehighestof(a)theFederalFundsrateplus0.50%,(b)BankofAmerica’s“primerate”asannouncedfromtimetotime,or(c)LIBOR,oracomparableorsuccessorratethatisapprovedbytheAdministrativeAgent(“EurocurrencyRate”),foraninterestperiodofone-monthplus1.00%,or(ii)theEurocurrencyRate,plusamarginthatisbasedontheCompany’sseniordebtcreditratingsaspublishedbyStandard&Poor’sFinancialServices,LLCandMoody’sInvestorsService,Inc.,providedthatinnoeventwilltheEurocurrencyRatebelessthanzero.ThecreditagreementrequirestheCompanytocomplywithcertaincovenants,includingthatitmaintainsaninterestcoverageratioasdefinedintheagreement.
The Company may also, upon the agreement of either the then-existing lenders or additional lenders not currently parties to the agreement, increase thecommitmentsunderthecreditfacilitybyuptoanadditional$2.0billionand/orextendtheexpirationdateofthecreditfacilityuptoMay15,2022.AsofJuly30,2016,theCompanywasincompliancewiththerequiredinterestcoverageratioandtheothercovenants,andtheCompanyhadnotborrowedanyfundsunderthecreditfacility.
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11. Derivative Instruments
(a) Summary of Derivative Instruments
TheCompanyusesderivativeinstrumentsprimarilytomanageexposurestoforeigncurrencyexchangerate,interestrate,andequitypricerisks.TheCompany’sprimaryobjectiveinholdingderivativesistoreducethevolatilityofearningsandcashflowsassociatedwithchangesinforeigncurrencyexchangerates,interestrates,andequityprices.TheCompany’sderivativesexposeittocreditrisktotheextentthatthecounterpartiesmaybeunabletomeetthetermsoftheagreement.TheCompanydoes,however,seektomitigatesuchrisksbylimitingitscounterpartiestomajorfinancialinstitutions.Inaddition,thepotentialriskoflosswithanyonecounterpartyresultingfromthistypeofcreditriskismonitored.Managementdoesnotexpectmateriallossesasaresultofdefaultsbycounterparties.
ThefairvaluesoftheCompany’sderivativeinstrumentsandthelineitemsontheConsolidatedBalanceSheetstowhichtheywererecordedaresummarizedasfollows(inmillions):
DERIVATIVEASSETS DERIVATIVELIABILITIES
BalanceSheetLineItem July 30,
2016 July25,2015 BalanceSheetLineItem
July 30,2016
July25,2015
Derivativesdesignatedashedginginstruments: Foreigncurrencyderivatives Othercurrentassets $ 7 $ 10 Othercurrentliabilities $ 53 $ 11Interestratederivatives Othercurrentassets 11 22 Othercurrentliabilities — —Interestratederivatives Otherassets 366 180 Otherlong-termliabilities — —Total 384 212 53 11
Derivativesnotdesignatedashedginginstruments:
Foreigncurrencyderivatives Othercurrentassets — 2 Othercurrentliabilities 1 1Equityderivatives/warrants Otherassets 1 4 Otherlong-termliabilities — —Total 1 6 1 1
Total $ 385 $ 218 $ 54 $ 12
The effects of the Company’s cash flow and net investment hedging instruments on other comprehensive income (OCI) and the Consolidated Statements ofOperationsaresummarizedasfollows(inmillions):
GAINS(LOSSES)RECOGNIZEDINOCIONDERIVATIVESFOR
THEYEARSENDED(EFFECTIVEPORTION)
GAINS(LOSSES)RECLASSIFIEDFROMAOCIINTOINCOMEFOR
THEYEARSENDED(EFFECTIVEPORTION)
July 30,
2016 July25,2015 July26,2014 LineIteminStatementsofOperations July 30, 2016
July25,2015 July26,2014
Derivativesdesignatedascashflowhedginginstruments: Foreigncurrencyderivatives $ (66) $ (159) $ 48 Operatingexpenses $ (15) $ (121) $ 55
Costofsales—service (5) (33) 13Total $ (66) $ (159) $ 48 Total $ (20) $ (154) $ 68
Derivativesdesignatedasnetinvestmenthedginginstruments: Foreigncurrencyderivatives $ 16 $ 42 $ (15) Otherincome(loss),net $ — $ — $ —
AsofJuly30,2016,theCompanyestimatesthatapproximately$54millionofnetderivativelossesrelatedtoitscashflowhedgesincludedinaccumulatedothercomprehensiveincome(AOCI)willbereclassifiedintoearningswithinthenext12monthswhentheunderlyinghedgeditemimpactsearnings.
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TheeffectontheConsolidatedStatementsofOperationsofderivativeinstrumentsdesignatedasfairvaluehedgesandtheunderlyinghedgeditemsissummarizedasfollows(inmillions):
GAINS(LOSSES)ONDERIVATIVEINSTRUMENTSFORTHE
YEARSENDED GAINS(LOSSES)RELATEDTOHEDGED
ITEMSFORTHEYEARSENDED
DerivativesDesignatedasFairValueHedgingInstruments LineIteminStatementsofOperations July 30, 2016 July25,2015 July26,2014
July 30,2016
July25,2015 July26,2014
Equityderivatives Otherincome(loss),net $ — $ 56 $ (72) $ — $ (56) $ 72Interestratederivatives Interestexpense 175 54 (2) (169) (57) —
Total $ 175 $ 110 $ (74) $ (169) $ (113) $ 72
TheeffectontheConsolidatedStatementsofOperationsofderivativeinstrumentsnotdesignatedashedgesissummarizedasfollows(inmillions):
GAINS(LOSSES)FORTHEYEARSENDED
DerivativesNotDesignatedasHedgingInstruments LineIteminStatementsofOperations July 30, 2016 July25,2015 July26,2014
Foreigncurrencyderivatives Otherincome(loss),net $ (19) $ (173) $ 23Totalreturnswaps—deferredcompensation Operatingexpenses 7 19 47Equityderivatives Otherincome(loss),net 13 27 34
Total $ 1 $ (127) $ 104
ThenotionalamountsoftheCompany’soutstandingderivativesaresummarizedasfollows(inmillions):
July 30, 2016 July25,2015
Derivativesdesignatedashedginginstruments: Foreigncurrencyderivatives—cashflowhedges $ 2,683 $ 1,201Interestratederivatives 9,900 11,400Netinvestmenthedginginstruments 298 192
Derivativesnotdesignatedashedginginstruments: Foreigncurrencyderivatives 2,057 2,023Totalreturnswaps—deferredcompensation 476 462
Total $ 15,414 $ 15,278
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(b) Offsetting of Derivative Instruments
TheCompanypresentsitsderivativeinstrumentsatgrossfairvaluesintheConsolidatedBalanceSheets.However,theCompany’smasternettingandothersimilararrangements with the respective counterparties allow for net settlement under certain conditions, which are designed to reduce credit risk by permitting netsettlement with the same counterparty. To further limit credit risk, the Company also enters into collateral security arrangements related to certain derivativeinstrumentswherebycashispostedascollateralbetweenthecounterpartiesbasedonthefairmarketvalueofthederivativeinstrument.Informationrelatedtotheseoffsettingarrangementsissummarizedasfollows(inmillions):
GROSS AMOUNTS OFFSET IN THE CONSOLIDATED
BALANCE SHEET
GROSS AMOUNTS NOT OFFSET IN THECONSOLIDATED BALANCE SHEET
BUT WITH LEGAL RIGHTS TO OFFSET
July 30, 2016Gross Amounts
Recognized Gross Amounts
Offset Net Amounts
Presented Gross Derivative
Amounts Cash Collateral Net Amount
Derivatives assets $ 385 $ — $ 385 $ (23) $ (305) $ 57Derivatives liabilities $ 54 $ — $ 54 $ (23) $ — $ 31
GROSSAMOUNTSOFFSETINTHECONSOLIDATED
BALANCESHEET
GROSSAMOUNTSNOTOFFSETINTHECONSOLIDATEDBALANCESHEET
BUTWITHLEGALRIGHTSTOOFFSET
July25,2015GrossAmountsRecognized GrossAmountsOffset
NetAmountsPresented
GrossDerivativeAmounts CashCollateral NetAmount
Derivativesassets $ 218 $ — $ 218 $ (12) $ (124) $ 82Derivativesliabilities $ 12 $ — $ 12 $ (12) $ — $ —
(c) Foreign Currency Exchange Risk
TheCompanyconductsbusinessgloballyinnumerouscurrencies.Therefore,itisexposedtoadversemovementsinforeigncurrencyexchangerates.Tolimittheexposurerelatedtoforeigncurrencychanges,theCompanyentersintoforeigncurrencycontracts.TheCompanydoesnotenterintosuchcontractsforspeculativepurposes.
TheCompanyhedgesforecastedforeigncurrencytransactionsrelatedtocertainoperatingexpensesandservicecostofsaleswithcurrencyoptionsandforwardcontracts.Thesecurrencyoptionsandforwardcontracts,designatedascashflowhedges,generallyhavematuritiesoflessthan24months.TheCompanyassesseseffectiveness based on changes in total fair value of the derivatives. The effective portion of the derivative instrument’s gain or loss is initially reported as acomponentofAOCIandsubsequentlyreclassifiedintoearningswhenthehedgedexposureaffectsearnings.Theineffectiveportion,ifany,ofthegainorlossisreported in earnings immediately. During the fiscal years presented, the Company did not discontinue any cash flow hedges for which it was probable that aforecastedtransactionwouldnotoccur.
TheCompanyentersintoforeignexchangeforwardandoptioncontractstoreducetheshort-termeffectsofforeigncurrencyfluctuationsonassetsandliabilitiessuch as foreign currency receivables, including long-term customer financings, investments, and payables. These derivatives are not designated as hedginginstruments. Gains and losses on the contracts are included in other income (loss), net, and substantially offset foreign exchange gains and losses from theremeasurement of intercompanybalances or other current assets, investments, or liabilities denominated in currencies other thanthe functional currencyof thereportingentity.
The Company hedges certain net investments in its foreign operations with forward contracts to reduce the effects of foreign currency fluctuations on theCompany’snetinvestmentinthoseforeignsubsidiaries.Thesederivativeinstrumentsgenerallyhavematuritiesofuptosixmonths.
(d) Interest Rate Risk
Interest Rate Derivatives, Investments The Company’s primary objective for holding fixed income securities is to achieve an appropriate investment returnconsistentwithpreservingprincipalandmanagingrisk.Torealizetheseobjectives,theCompanymayutilizeinterestrateswapsorotherderivativesdesignatedasfair value or cashflowhedges. AsofJuly30,2016andJuly25,2015, theCompanydidnot haveanyoutstandinginterest rate derivativesrelatedtoits fixedincomesecurities.
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InterestRateDerivativesDesignatedasFairValueHedges,Long-TermDebtInfiscal2016,theCompanydidnotenterintoanyinterestrateswaps.Inpriorfiscalyears, the Companyentered into interest rate swapsdesignated as fair value hedges related to fixed-rate senior notes that are duein fiscal 2017 through2025.Undertheseinterestrateswaps,theCompanyreceivesfixed-rateinterest paymentsandmakesinterest paymentsbasedonLIBORplusafixednumberofbasispoints.Theeffectofsuchswapsistoconvertthefixedinterestratesoftheseniorfixed-ratenotestofloatinginterestratesbasedonLIBOR.Thegainsandlossesrelatedtochangesinthefairvalueoftheinterestrateswapsareincludedininterestexpenseandsubstantiallyoffsetchangesinthefairvalueofthehedgedportionoftheunderlyingdebtthatareattributabletothechangesinmarketinterestrates.Thefairvalueoftheinterestrateswapswasreflectedinothercurrentassetsandotherassets.
(e) Equity Price Risk
The Company may hold equity securities for strategic purposes or to diversify its overall investment portfolio. The publicly traded equity securities in theCompany’sportfolioaresubjecttopricerisk.Tomanageitsexposuretochangesinthefairvalueofcertainequitysecurities,theCompanyhasperiodicallyenteredintoequityderivativesthataredesignatedasfairvaluehedges.Thechangesinthevalueofthehedginginstrumentsareincludedinotherincome(loss),net,andoffsetthechangeinthefairvalueoftheunderlyinghedgedinvestment.Inaddition,theCompanyperiodicallyentersintoequityderivativesthatarenotdesignatedasaccountinghedges.Thechangesinthefairvalueofthesederivativesarealsoincludedinotherincome(loss),net.
TheCompanyisalsoexposedtovariabilityincompensationchargesrelatedtocertaindeferredcompensationobligationstoemployees.Althoughnotdesignatedasaccountinghedges,theCompanyutilizesderivativessuchastotalreturnswapstoeconomicallyhedgethisexposure.
(f) Hedge Effectiveness
Forthefiscalyearspresented,amountsexcludedfromtheassessmentofhedgeeffectivenesswerenotmaterialforfairvalue,cashflow,andnetinvestmenthedges.Inaddition,hedgeineffectivenessforfairvalue,cashflow,andnetinvestmenthedgeswasnotmaterialforanyofthefiscalyearspresented.
12. Commitments and Contingencies
(a) Operating Leases
TheCompanyleasesofficespaceinmanyU.S.locations.OutsidetheUnitedStates,largerleasedsitesincludesitesinBelgium,Canada,China,Germany,India,Israel, Japan, Netherlands, Poland, and the United Kingdom . The Company also leases equipment and vehicles. Future minimum lease payments under allnoncancelableoperatingleaseswithaninitialterminexcessofoneyearasofJuly30,2016areasfollows(inmillions):
FiscalYear Amount
2017 $ 3632018 2802019 1662020 1182021 72Thereafter 160
Total $ 1,159
Rentexpenseforofficespaceandequipmenttotaled$385million,$394million,and$413millioninfiscal2016,2015,and2014,respectively.
(b) Purchase Commitments with Contract Manufacturers and Suppliers
TheCompanypurchasescomponentsfromavarietyofsuppliersandusesseveralcontractmanufacturerstoprovidemanufacturingservicesforitsproducts.Duringthenormalcourseofbusiness,inordertomanagemanufacturingleadtimesandhelpensureadequatecomponentsupply,theCompanyentersintoagreementswithcontract manufacturers and suppliers that either allow them to procure inventory based upon criteria as defined by the Company or establish the parametersdefining the Company’s requirements. Asignificant portion of the Company’s reported purchase commitments arising fromthese agreements consists of firm,noncancelable, and unconditional commitments. In certain instances, these agreements allow the Company the option to cancel, reschedule, and adjust theCompany’srequirementsbasedonitsbusinessneedspriortofirmordersbeingplaced.AsofJuly30,2016andJuly25,2015,theCompanyhadtotalpurchasecommitmentsforinventoryof$3,896millionand$4,078million,respectively.
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The Company records a liability for firm, noncancelable, and unconditional purchase commitments for quantities in excess of its future demand forecastsconsistentwiththevaluationoftheCompany’sexcessandobsoleteinventory.AsofJuly30,2016andJuly25,2015,theliabilityforthesepurchasecommitmentswas$159millionand$156million,respectively,andwasincludedinothercurrentliabilities.
(c) Other Commitments
InconnectionwiththeCompany’sacquisitions, theCompanyhasagreedtopaycertainadditional amountscontingent upontheachievement ofcertainagreed-upontechnology,development,product,orothermilestonesoruponthecontinuedemploymentwiththeCompanyofcertainemployeesoftheacquiredentities.
Thefollowingtablesummarizesthecompensationexpenserelatedtoacquisitions(inmillions):
July 30, 2016 July25,2015 July26,2014
Compensationexpenserelatedtoacquisitions $ 282 $ 334 $ 607
As of July 30, 2016 , the Company estimated that future cash compensation expense of up to$328 millionmay be required to be recognized pursuant to theapplicablebusinesscombinationagreements,whichincludedtheremainingpotentialcompensationexpenserelatedtoInsiemeasmorefullydiscussedimmediatelybelow.
Insieme Networks, Inc. In the third quarter of fiscal 2012, the Company made an investment in Insieme, an early stage company focused on research anddevelopmentinthedatacentermarket.AssetforthintheagreementbetweentheCompanyandInsieme,thisinvestmentincluded$100millionoffundingandalicensetocertainoftheCompany’stechnology.Immediatelypriortothecalloptionexerciseandacquisitiondescribedbelow,theCompanyownedapproximately83%of Insieme as a result of these investments and has consolidated the results of Insieme in its Consolidated Financial Statements. In connection with thisinvestment, theCompanyandInsiemeenteredintoaput/call optionagreementthatprovidedtheCompanywiththerighttopurchasetheremaininginterests inInsieme.Inaddition,thenoncontrollinginterestholderscouldrequiretheCompanytopurchasetheirsharesupontheoccurrenceofcertainevents.
Duringthefirstquarteroffiscal2014,theCompanyexerciseditscalloptionandenteredintoanagreementtopurchasetheremaininginterestsinInsieme.Theacquisitionclosedinthesecondquarter offiscal 2014,at whichtimetheformernoncontrollinginterest holdersbecameeligibletoreceiveuptotwomilestonepayments, which will be determined using agreed-upon formulas based primarily on revenue for certain of Insieme’s products. The Company recordedcompensationexpenseof$160million,$207million,and$416millionduringfiscal2016,2015,and2014,respectively,relatedtothefairvalueofthevestedportion of amounts that were earned or are expected to be earned by the former noncontrolling interest holders. Continued vesting will result in additionalcompensationexpenseinfutureperiods.Basedonthetermsoftheagreement,theCompanyhasdeterminedthatthemaximumamountthatcouldberecordedascompensationexpensebytheCompanyisapproximately$836million(whichincludesthe$783millionthathasbeenexpensedtodate),netofforfeitures.
Theformernoncontrollinginterest holdersearnedthemaximumamountrelatedtothefirst milestonepaymentandwerepaidapproximately$389millionforaportionofthisamountduringfiscal2016.Themajorityofthebalanceofthefirstmilestonepaymentwaspaidduringfiscal2016.Duringthefirstquarteroffiscal2017,theCompanyexpectstopayapproximately$325millionpursuanttothesecondmilestonepaymentandcontinuedvestingofthefirstmilestonepayment.
TheCompanyalsohascertainfundingcommitments,primarilyrelatedtoitsinvestmentsinprivatelyheldcompaniesandventurefunds,someofwhicharebasedontheachievementofcertainagreed-uponmilestones,andsomeofwhicharerequiredtobefundedondemand.Thefundingcommitmentswere$222millionand$205millionasofJuly30,2016andJuly25,2015,respectively.
(d) Product Warranties
Thefollowingtablesummarizestheactivityrelatedtotheproductwarrantyliability(inmillions):
July 30, 2016 July25,2015 July26,2014
Balanceatbeginningoffiscalyear $ 449 $ 446 $ 402Provisionsforwarrantyissued 715 686 708Adjustmentsforpre-existingwarranties (8) 10 (4)Settlements (714) (693) (660)Divestiture (28) — —Balanceatendoffiscalyear $ 414 $ 449 $ 446
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The Company accrues for warranty costs as part of its cost of sales based on associated material product costs, labor costs for technical support staff, andassociatedoverhead. TheCompany’s products are generally coveredbyawarrantyfor periods rangingfrom90daystofiveyears, andforsomeproductstheCompanyprovidesalimitedlifetimewarranty.
(e) Financing and Other Guarantees
Intheordinarycourseofbusiness,theCompanyprovidesfinancingguaranteesforvariousthird-partyfinancingarrangementsextendedtochannelpartnersandend-usercustomers.Paymentsunderthesefinancingguaranteearrangementswerenotmaterialfortheperiodspresented.
Channel Partner Financing Guarantees The Company facilitates arrangements for third-party financing extended to channel partners, consisting of revolvingshort-termfinancing,generallywithpaymenttermsrangingfrom60to90days.Thesefinancingarrangementsfacilitatetheworkingcapitalrequirementsofthechannelpartners,and,insomecases,theCompanyguaranteesaportionofthesearrangements.Thevolumeofchannelpartnerfinancingwas$26.9billion,$25.9billion,and$24.6billioninfiscal2016,2015,and2014,respectively.Thebalanceofthechannelpartnerfinancingsubjecttoguaranteeswas$1.1billionand$1.2billionasofJuly30,2016andJuly25,2015,respectively.
End-UserFinancingGuaranteesTheCompanyalsoprovidesfinancingguaranteesforthird-partyfinancingarrangementsextendedtoend-usercustomersrelatedto leases and loans, which typically have terms of up to three years . The volume of financing provided by third parties for leases and loans as to which theCompanyhadprovidedguaranteeswas$63million,$107million,and$129millioninfiscal2016,2015,and2014,respectively.
FinancingGuaranteeSummaryTheaggregateamountsoffinancingguaranteesoutstandingatJuly30,2016andJuly25,2015,representingthetotalmaximumpotential future payments under financing arrangements with third parties along with the related deferred revenue, are summarized in the following table (inmillions):
July 30, 2016 July25,2015
Maximumpotentialfuturepaymentsrelatingtofinancingguarantees: Channelpartner $ 281 $ 288Enduser 96 129
Total $ 377 $ 417Deferredrevenueassociatedwithfinancingguarantees:
Channelpartner $ (85) $ (127)Enduser (76) (107)
Total $ (161) $ (234)Maximumpotentialfuturepaymentsrelatingtofinancingguarantees,netofassociateddeferredrevenue $ 216 $ 183
OtherGuaranteesTheCompany’sotherguaranteearrangementsasofJuly30,2016andJuly25,2015thatweresubjecttorecognitionanddisclosurerequirementswerenotmaterial.
(f) Supplier Component Remediation Liability
TheCompanyhasrecordedinothercurrentliabilitiesaliabilityfortheexpectedremediationcostforcertainproductssoldinpriorfiscalyearscontainingmemorycomponentsmanufacturedbyasinglesupplierbetween2005and2010.ThesecomponentswerewidelyusedacrosstheindustryandareincludedinanumberoftheCompany'sproducts.Defectsinsomeofthesecomponentshavecausedproductstofailafterapowercycleevent.Defectratesduetothisissuehavebeenandareexpectedtobelow.However,theCompanyhasseenasmallnumberofitscustomersexperienceagrowingnumberoffailuresintheirnetworksasaresultofthiscomponentproblem.AlthoughthemajorityoftheseproductswerebeyondtheCompany'swarrantyterms,theCompanyhasbeenproactivelyworkingwithcustomersonmitigation.Priortothesecondquarteroffiscal2014,theCompanyhadaliabilityof$63millionrelatedtothisissueforexpectedremediationcostsbasedontheintendedapproachatthattime.InFebruary2014,onthebasisofthegrowingnumberoffailuresdescribedabove,theCompanydecidedtoexpanditsapproach,whichresultedinachargetoproductcostofsalesof$655millionbeingrecordedforthesecondquarteroffiscal2014.Duringfiscal2016and2015,adjustments to product cost of sales of $74 million and$164 million , respectively, were recorded to reduce the liability, reflecting net lower than previouslyestimatedfuturecoststoremediatetheimpactedcustomerproducts.Thesuppliercomponentremediationliabilitywas$276millionand$408millionasofJuly30,2016andJuly25,2015,respectively.
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(g) Indemnifications
Inthenormalcourseofbusiness,theCompanyindemnifiesotherparties,includingcustomers,lessors,andpartiestoothertransactionswiththeCompany,withrespecttocertainmatters. TheCompanyhasagreedtoholdsuchpartiesharmlessagainstlossesarisingfromabreachofrepresentationsorcovenantsoroutofintellectualpropertyinfringementorotherclaimsmadeagainstcertainparties.Theseagreementsmaylimitthetimewithinwhichanindemnificationclaimcanbemadeandtheamountoftheclaim.
TheCompanyisprovidingsuchindemnifications,amongothercases,inmattersinvolvingcertainoftheCompany’sserviceprovidercustomersthataresubjecttopatent infringement claims asserted bySprint Communications Company, L.P. (“Sprint”) nowpendingin Kansas andDelaware. Sprint alleges that the serviceprovidercustomersinfringeSprint’spatentsbyofferingVoiceoverInternet Protocol-basedtelephoneservicesutilizingproductsprovidedbytheCompanyandothermanufacturers.Sprintseeksmonetarydamages.Sprint’scasesinKansasincludeclaimsagainstComcastandTimeWarnerCable,andthecaseinDelawareforwhichtheCompanyisprovidingindemnificationinvolvesCoxCommunications("Cox").OnMay15,2015,thejudgeinSprint'sDelawareactionagainstCoxruledinvalidsixoftheassertedpatentsandafinaljudgmentwasenteredonAugust27,2015,ofinvalidity,whichSprintappealedonOctober1,2015.Inlightofthe invalidity rulings against Sprint in Delaware, the judge in Sprint’s Kansas actions stayed the Kansas actions until resolution of Sprint's appeal from theDelawareaction.OnMarch21,2016,thejudgeinSprint'sDelawareactionalsograntedapartialsummaryjudgmentforCox,findingthatCoxdoesnotliterallyinfringefiveoftheremainingpatentsSprinthasassertedagainstCox.OnAugust5,2016,Coxfiledmotionsforsummaryjudgmentfornon-infringementunderthe doctrine of equivalents as to five patents and lack of damages evidence as to one patent. Sprint also dropped one patent fromthe case. The trial date forSprint’sdoctrineofequivalentsclaimsonfourpatentsissetfortrialonFebruary13,2017.Additionally,Comcasthasalsowonajudgmentofnon-infringement,nowbeingappealedbySprint,inaseparatecasebroughtagainstitbySprintinDelaware.
TheCompanybelievesthattheserviceprovidershavestrongdefensesandthatitsproductsdonotinfringethepatentssubjecttotheclaimsand/orthatSprint'spatentsareinvalid.Duetotheuncertaintysurroundingthelitigationprocess,whichinvolvesnumerousdefendants,theCompanyisunabletoreasonablyestimatethe ultimate outcome of this litigation at this time. Should the plaintiff prevail in litigation, mediation, or settlement, the Company, in accordance with itsagreements,mayhaveanobligationtoindemnifyitsserviceprovidercustomersfordamages,mediationawards,orsettlementamountsarisingfromtheiruseofCiscoproducts.
Inaddition,theCompanyhasenteredintoindemnificationagreementswithitsofficersanddirectors,andtheCompany’sAmendedandRestatedBylawscontainsimilarindemnificationobligationstotheCompany’sagents.
It is not possible to determine the maximum potential amount under these indemnification agreements due to the Company’s limited history with priorindemnificationclaimsandtheuniquefactsandcircumstancesinvolvedineachparticularagreement.Historically,paymentsmadebytheCompanyundertheseagreementshavenothadamaterialeffectontheCompany’soperatingresults,financialposition,orcashflows.
(h) Legal Proceedings
BrazilBrazilianauthoritieshaveinvestigatedtheCompany’sBraziliansubsidiaryandcertainofitscurrentandformeremployees,aswellasaBrazilianimporteroftheCompany’sproducts,anditsaffiliatesandemployees,relatingtoallegedevasionofimporttaxesandallegedimpropertransactionsinvolvingthesubsidiaryandtheimporter.BraziliantaxauthoritieshaveassessedclaimsagainsttheCompany’sBraziliansubsidiarybasedonatheoryofjointliabilitywiththeBrazilianimporterforimporttaxes,interest,andpenalties.InadditiontoclaimsassertedbytheBrazilianfederaltaxauthoritiesinpriorfiscalyears,taxauthoritiesfromtheBrazilianstateofSaoPaulohaveassertedsimilarclaimsonthesamelegalbasisinpriorfiscalyears.Inthefirstquarteroffiscal2013,theBrazilianfederaltaxauthoritiesassertedanadditionalclaimagainsttheCompany’sBraziliansubsidiarybasedonatheoryofjointliabilitywithrespecttoanallegedunderpaymentofincometaxes,socialtaxes,interest,andpenaltiesbyaBraziliandistributor.Thisclaimwasdismissedonitsmeritsduringthethirdquarteroffiscal2016.
TheassertedclaimsbyBrazilianfederaltaxauthoritiesthatremainareforcalendaryears2003through2007,andtheassertedclaimsbythetaxauthoritiesfromthestateofSaoPauloareforcalendaryears2005through2007.ThetotalassertedclaimsbyBrazilianstateandfederaltaxauthoritiesaggregateto$249millionfortheallegedevasionofimportandothertaxes,$1.3billionforinterest,and$1.2billionforvariouspenalties,alldeterminedusinganexchangerateasofJuly30,2016. TheCompanyhas completed a thoroughreviewof the matters andbelieves the asserted claimsagainst the Company’s Brazilian subsidiary are withoutmerit,andtheCompanyisdefendingtheclaimsvigorously.WhiletheCompanybelievesthereisnolegalbasisfortheallegedliability,duetothecomplexitiesanduncertaintysurroundingthejudicialprocessinBrazilandthenatureoftheclaimsassertingjointliabilitywiththeimporter,theCompanyisunabletodeterminethelikelihoodofanunfavorableoutcomeagainstitsBraziliansubsidiaryandisunabletoreasonablyestimatearangeofloss,ifany.TheCompanydoesnotexpectafinaljudicialdeterminationforseveralyears.
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RussiaandtheCommonwealthofIndependentStatesAttherequestoftheU.S.SecuritiesandExchangeCommission("SEC")andtheU.S.DepartmentofJustice,the Company has conducted an investigation into allegations that the Company and those agencies received regarding possible violations of the U.S. ForeignCorruptPracticesActinvolvingbusinessactivitiesoftheCompany'soperationsinRussiaandcertainoftheCommonwealthofIndependentStatesandbycertainresellers of the Company’s products in those countries. The Companytakes any such allegations very seriously and has fully cooperated with and shared theresults of its investigation with the SEC and the Department of Justice. Based on the investigation results, both the SEC and the Department of Justice haverecentlyinformedtheCompanythattheyhavedecidednottobringenforcementactions.
BackflipSoftwareBackflipSoftware,Inc.(“Backflip”)assertedcontract,tort,andfraudclaimsagainsttheCompanyinSantaClaraCounty,CaliforniaSuperiorCourt.TheproceedingwasinstitutedonMarch5,2013.BackflipallegesthatCiscoconspiredwithBackflip'sthen-CEOtoallowtheCompanytoaccessanduseacopyofBackflip'ssourcecodeviaapre-existingescrowagreementandthat,subsequently,theCompanyusedthatsourcecodeinviolationoftradesecretlawandtheparties'softwarelicenseagreement.FiveclaimsbroughtbyBackflipweredismissedbytheCourtinanorderdatedAugust1,2016;theclaimsremaininginthecase are for breach of contract and misappropriation of trade secrets. Backflip will seek compensatory and enhanced damages during a trial currently set forSeptember12,2016.TheCompanybelievesthatithasstrongargumentsthatitwasentitledtoaccessanduseacopyofthesourcecodeundertheparties’softwarelicenseagreementanddidnotviolatetradesecretlaw.Inaddition,ifthejuryweretofindforBackfliponsomeorall ofitsclaims,theCompanybelievesthatdamages would not be material given the Company's assessment of the value of the Backflip intellectual property that the Company is alleged to havemisappropriated.However,duetotheuncertaintysurroundingthelitigationprocess,theCompanyisunabletoreasonablyestimatetheultimateoutcomeofthislitigationatthistime.
SRIInternationalOnSeptember4,2013,SRIInternational,Inc.(“SRI”)assertedpatentinfringementclaimsagainsttheCompanyintheU.S.DistrictCourtfortheDistrictofDelaware,accusingCiscoproductsandservicesintheareaofnetworkintrusiondetectionofinfringingtwoU.S.patents.SRIsoughtmonetarydamagesofatleastareasonableroyaltyandenhanceddamages.ThetrialontheseclaimsbeganonMay2,2016andonMay12,2016,thejuryreturnedaverdictfindingwillfulinfringementoftheassertedpatents.ThejuryawardedSRIdamagesof$23.7million,andtheCourtwilldecidewhethertoawardenhanceddamagesandattorneys’ fees and whether an ongoing royalty should be awarded through the expiration of the patents in 2018. In June 2016, the Company filed post-trialmotions.TheCompanyalsointendstopursueanappealtotheUnitedStatesCourtofAppealsfortheFederalCircuitonvariousgrounds.TheCompanybelievesithasstrongargumentstooverturnthejuryverdictand/orreducethedamagesaward.Whiletheultimateoutcomeofthecasemaystillresultinaloss,theCompanydoesnotexpectittobematerial.
SSLSSLServices,LLC(“SSL”)hasassertedclaimsforpatentinfringementagainsttheCompanyintheU.S.DistrictCourtfortheEasternDistrictofTexas.TheproceedingwasinstitutedonMarch25,2015.SSLallegesthattheCompany'sAnyConnectproductsthatincludeVirtualPrivateNetworkingfunctionsinfringedaU.S.patentownedbySSL.SSLseeksmoneydamagesfromtheCompany.OnAugust18,2015,CiscopetitionedthePatentTrialandAppealBoard(“PTAB”)oftheUnitedStatesPatentandTrademarkOfficetoreviewwhetherthepatentSSLhasassertedagainsttheCompanyisvalidoverpriorart.OnFebruary23,2016,aPTABmulti-judgepanelfoundareasonablelikelihoodthatCiscowouldprevailinshowingthatSSL’spatentclaimsareunpatentableandinstitutedproceedings.ThePTABscheduledahearingtoreviewourpetitionforNovember16,2016.AlthoughatrialofSSL’sclaimindistrictcourtinTexaswassetforSeptember6,2016,thedistrictcourtissuedanorderonJune28,2016stayingthedistrictcourtcasependingthefinalwrittendecisionfromthePTAB.TheCompanybelievesithas strong arguments that the Company's products do not infringe and the patent is invalid. If the Company did not prevail and a jury were to find that theCompany'sAnyConnectproductsinfringe,theCompanybelievesdamages,asappropriatelymeasured,wouldbeimmaterial.Duetouncertaintysurroundingpatentlitigationprocesses,however,theCompanyisunabletoreasonablyestimatetheultimateoutcomeofthislitigationatthistime.
KangtegaCiscoSystemsGmbH(“CiscoGmbH”)issubjecttopatentclaimsbyKangtegaGmbH(“Kangtega”), institutedonJune6,2013,allegingthatCiscoGmbHinfringesinGermanyaEuropeanPatentbymarketinginGermanynetworkintrusion-detection(orfirewall)productsknownasthe“ASA”firewalloffering.On April 29, 2014, the Mannheim Regional Court dismissed the infringement action, finding no infringement by Cisco GmbH of the asserted patent. OnNovember23,2016,acourtofappealinGermany(OberlandesgerichtKarlsruhe)willhearanappealofthatjudgment.ThematterhadbeensetforJuly13,2016,butthathearingwaspostponeduntilNovember23,2016.Inaddition,onJuly25,2016theGermanFederalPatentCourtissueditsgroundsforadecisiondenyingCisco’s nullity request with respect to the Kangtega patent. The nullity decision, which is open to appeal, regards patent validity and was issued in a separateproceedingfromtheinfringementactioninwhichCiscohaspreviouslyprevailed.Intheinfringementaction,KangtegaseeksaninjunctionwhichwouldprohibitCiscoGmbH’sactivitiesinGermanywithrespecttotheASAfirewallofferingunlessCiscoGmbHtakesalicensefromKangtegaortheCompanyredesignstheproducts.TheCompanybelievesthatthelowercourtrulinginCisco'sfavorintheinfringementactionwascorrectandshouldbeaffirmed.TheCompanydoesnotanticipatethattheoutcomeofthecasewouldbematerial. However,duetouncertaintysurroundingthelitigationprocess,theCompanyisunabletoreasonablyestimatetheoutcomeoftheappealandanysubsequentappealstoahighercourtatthistime.
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Inaddition,theCompanyissubjecttolegalproceedings,claims,andlitigationarisingintheordinarycourseofbusiness,includingintellectualpropertylitigation.Whiletheoutcomeofthesemattersiscurrentlynotdeterminable,theCompanydoesnotexpectthattheultimatecoststoresolvethesematterswillhaveamaterialadverseeffectonitsconsolidatedfinancialposition,resultsofoperations,orcashflows.
13. Shareholders’ Equity
(a) Cash Dividends on Shares of Common Stock
Duringfiscal2016,theCompanydeclaredandpaidcashdividendsof$0.94percommonshare,or$4.8billion,ontheCompany’soutstandingcommonstock.Duringfiscal2015,theCompanydeclaredandpaidcashdividendsof$0.80percommonshare,or$4.1billion,ontheCompany’soutstandingcommonstock.
AnyfuturedividendswillbesubjecttotheapprovaloftheCompany'sBoardofDirectors.
(b) Stock Repurchase Program
In September 2001, the Company’s Board of Directors authorized a stock repurchase program. As of July 30, 2016 , the Company’s Board of Directors hadauthorizedanaggregaterepurchaseofupto$112billionofcommonstockunderthisprogram,andtheremainingauthorizedrepurchaseamountwas$15.4billion,with notermination date. Asummary of the stockrepurchase activity under the stockrepurchase program, reported basedonthe trade date, is summarized asfollows(inmillions,exceptper-shareamounts):
Shares
Repurchased
Weighted-AveragePriceperShare
AmountRepurchased
CumulativebalanceatJuly26,2014 4,288 $ 20.63 $ 88,445Repurchaseofcommonstockunderthestockrepurchaseprogram(1) 155 27.22 4,234Cumulative balance at July 25, 2015 4,443 20.86 92,679Repurchase of common stock under the stock repurchase program (2) 148 26.45 3,918Cumulative balance at July 30, 2016 4,591 $ 21.04 $ 96,597
(1)Includesstockrepurchasesof$36million,whichwerependingsettlementasofJuly25,2015.(2)Includesstockrepurchasesof$45million,whichwerependingsettlementasofJuly30,2016.
ThepurchasepriceforthesharesoftheCompany’sstockrepurchasedisreflectedasareductiontoshareholders’equity.TheCompanyisrequiredtoallocatethepurchasepriceoftherepurchasedsharesas(i)areductiontoretainedearningsand(ii)areductionofcommonstockandadditionalpaid-incapital.
(c) Restricted Stock Unit Withholdings
FortheyearsendedJuly30,2016andJuly25,2015,theCompanyrepurchasedapproximately21millionand20millionshares,or$557millionand$502million,ofcommonstock,respectively,insettlementofemployeetaxwithholdingobligationsdueuponthevestingofrestrictedstockorstockunits.
(d) Preferred Stock
UnderthetermsoftheCompany’sArticlesofIncorporation,theBoardofDirectorsmaydeterminetherights,preferences,andtermsoftheCompany’sauthorizedbutunissuedsharesofpreferredstock.
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14. Employee Benefit Plans
(a) Employee Stock Incentive Plans
StockIncentivePlanProgramDescriptionAsofJuly30,2016,theCompanyhadthreestockincentiveplans:the2005StockIncentivePlan(the“2005Plan”);the Cisco Systems, Inc. SA Acquisition Long-Term Incentive Plan (the “SA Acquisition Plan”); and the Cisco Systems, Inc. WebEx Acquisition Long-TermIncentivePlan(the“WebExAcquisitionPlan”).Inaddition,theCompanyhas,inconnectionwiththeacquisitionsofvariouscompanies,assumedtheshare-basedawardsgrantedunderstockincentiveplansoftheacquiredcompaniesorissuedshare-basedawardsinreplacementthereof.Share-basedawardsaredesignedtorewardemployeesfortheirlong-termcontributionstotheCompanyandprovideincentivesforthemtoremainwiththeCompany.Thenumberandfrequencyofshare-basedawardsarebasedoncompetitivepractices,operatingresultsoftheCompany,governmentregulations,andotherfactors.TheCompany’sprimarystockincentiveplansaresummarizedasfollows:
2005Plan AsofJuly30,2016,themaximumnumberofsharesissuableunderthe2005Planoveritstermwas694millionshares,plussharesfromthe1996StockIncentivePlan,theSAAcquisitionPlan,andtheWebExAcquisitionPlanthatareforfeitedorareterminatedforanyotherreasonbeforebeingexercisedorsettled.Ifanyawardsgrantedunderthe2005Planareforfeitedorareterminatedforanyotherreasonbeforebeingexercisedorsettled,theunexercisedorunsettledsharesunderlyingtheawardswillagainbeavailableunderthe2005Plan.StartingNovember19,2013,shareswithheldbytheCompanyfromanawardotherthanastockoptionorstockappreciationrighttosatisfywithholdingtaxliabilitiesresultingfromsuchawardwillagainbeavailableforissuance,basedonthefungibleshareratioineffectonthedateofgrant.
PursuanttoanamendmentapprovedbytheCompany’sshareholdersonNovember12,2009,thenumberofsharesavailableforissuanceunderthe2005Planisreducedby1.5sharesforeachshareawardedasastockgrantorastockunit,andanysharesunderlyingawardsoutstandingunderthe1996StockIncentivePlan,theSAAcquisitionPlan,andtheWebExAcquisitionPlanthatexpireunexercisedattheendoftheirmaximumtermsbecomeavailableforreissuanceunderthe2005Plan.The2005Planpermitsthegrantingofstockoptions,restrictedstock,andRSUs,thevestingofwhichmaybeperformance-basedormarket-basedalongwiththerequisiteservicerequirement,andstockappreciationrightstoemployees(includingemployeedirectorsandofficers),consultantsoftheCompanyanditssubsidiariesandaffiliates,andnon-employeedirectorsoftheCompany.Stockoptionsandstockappreciationrightsgrantedunderthe2005Planhaveanexercisepriceofatleast100%ofthefairmarketvalueoftheunderlyingstockonthegrantdateandpriortoNovember12,2009haveanexpirationdatenolaterthannineyearsfromthegrantdate. TheexpirationdateforstockoptionsandstockappreciationrightsgrantedsubsequenttotheamendmentapprovedonNovember12,2009shallbenolaterthan10yearsfromthegrantdate.
Thestockoptionswillgenerallybecomeexercisablefor20%or25%oftheoptionsharesoneyearfromthedateofgrantandthenratablyoverthefollowing48monthsor36months, respectively. Time-basedstockgrantsandtime-basedRSUswill generallyvestwithrespectto20%or25%ofthesharesorshareunitscoveredbythegrantannuallyoverthevestingperiod.Themajorityoftheperformance-basedandmarket-basedRSUsvestsattheendofthethree-yearrequisiteserviceperiodorearlieriftheawardrecipientmeetscertainretirementeligibilityconditions.Certainperformance-basedRSUsthatarebasedontheachievementof financial and/or non-financial operating goals typically vest upon the achievement of milestones (and mayrequire subsequent service periods), with overallvestingofthesharesunderlyingtheawardrangingfromsixmonthstothreeyears.TheCompensationandManagementDevelopmentCommitteeoftheBoardofDirectorshasthediscretiontousedifferentvestingschedules.Stockappreciationrightsmaybeawardedincombinationwithstockoptionsorstockgrants,andsuchawardsshallprovidethatthestockappreciationrightswillnotbeexercisableunlesstherelatedstockoptionsorstockgrantsareforfeited.Stockgrantsmaybeawardedincombinationwithnon-statutorystockoptions,andsuchawardsmayprovidethatthestockgrantswillbeforfeitedintheeventthattherelatednon-statutorystockoptionsareexercised.
AcquisitionPlansInconnectionwiththeCompany’sacquisitionsofScientific-Atlanta,Inc.(“Scientific-Atlanta”)andWebExCommunications,Inc.(“WebEx”),theCompanyadoptedtheSAAcquisitionPlanandtheWebExAcquisitionPlan,respectively,eacheffectiveuponcompletionoftheapplicableacquisition.Theseplans constitute assumptions, amendments, restatements, and renamings of the 2003 Long-Term Incentive Plan of Scientific-Atlanta and the WebExCommunications,Inc.AmendedandRestated2000StockIncentivePlan,respectively.Theplanspermitthegrantofstockoptions,stock,stockunits,andstockappreciation rights to certain employees of the Company and its subsidiaries and affiliates who had been employed by Scientific-Atlanta or its subsidiaries orWebExoritssubsidiaries,asapplicable.Asaresultoftheshareholderapprovaloftheamendmentandextensionofthe2005Plan,asofNovember15,2007,theCompanywillnolongermakestockoptiongrantsordirectshareissuancesundereithertheSAAcquisitionPlanortheWebExAcquisitionPlan.
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(b) Employee Stock Purchase Plan
TheCompanyhasanEmployeeStockPurchasePlan,whichincludesitssubplannamedtheInternationalEmployeeStockPurchasePlan(together,the“PurchasePlan”), underwhich621millionshares of the Company’s commonstockhavebeenreservedfor issuanceas of July30,2016. Eligible employees are offeredsharesthrougha24-monthofferingperiod,whichconsistsoffourconsecutive6-monthpurchaseperiods.EmployeesmaypurchasealimitednumberofsharesoftheCompany’s stockat a discount of upto15%ofthelesser of themarket valueat thebeginningof theofferingperiodor theendofeach6-monthpurchaseperiod.ThePurchasePlanisscheduledtoterminateonJanuary3,2020.TheCompanyissued25million,27million,and27millionsharesunderthePurchasePlaninfiscal2016,2015,and2014,respectively.AsofJuly30,2016,123millionshareswereavailableforissuanceunderthePurchasePlan.
(c) Summary of Share-Based Compensation Expense
Share-basedcompensationexpenseconsistsprimarilyofexpensesforstockoptions, stockpurchaserights, restrictedstock,andrestrictedstockunitsgrantedtoemployees.Thefollowingtablesummarizesshare-basedcompensationexpense(inmillions):
YearsEnded July 30, 2016 July25,2015 July26,2014
Costofsales—product $ 70 $ 50 $ 45Costofsales—service 142 157 150Share-basedcompensationexpenseincostofsales 212 207 195Researchanddevelopment 470 448 411Salesandmarketing 545 559 549Generalandadministrative 205 228 198Restructuringandothercharges 26 (2) (5)Share-basedcompensationexpenseinoperatingexpenses 1,246 1,233 1,153
Totalshare-basedcompensationexpense $ 1,458 $ 1,440 $ 1,348
Incometaxbenefitforshare-basedcompensation $ 429 $ 373 $ 324
AsofJuly30,2016,thetotalcompensationcostrelatedtounvestedshare-basedawardsnotyetrecognizedwas$2.9billion,whichisexpectedtoberecognizedoverapproximately2.6yearsonaweighted-averagebasis.
(d) Share-Based Awards Available for Grant
Asummaryofshare-basedawardsavailableforgrantisasfollows(inmillions):
YearsEnded July 30, 2016 July25,2015 July26,2014
Balanceatbeginningoffiscalyear 276 310 228Restrictedstock,stockunits,andothershare-basedawardsgranted (96) (101) (98)Share-basedawardscanceled/forfeited/expired 30 40 36Additionalsharesreserved — — 135Shareswithheldfortaxesandnotissued 30 27 6Other 2 — 3
Balanceatendoffiscalyear 242 276 310
Asreflectedintheprecedingtable,foreachshareawardedasrestrictedstockorsubjecttoarestrictedstockunitawardunderthe2005Plan,anequivalentof1.5shareswasdeductedfromtheavailableshare-basedawardbalance.Forrestrictedstockunitsthatwereawardedwithvestingcontingentupontheachievementoffuturefinancialperformanceormarket-basedmetrics,themaximumawardsthatcanbeachieveduponfullvestingofsuchawardswerereflectedintheprecedingtable.
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(e) Restricted Stock and Stock Unit AwardsAsummaryoftherestrictedstockandstockunitactivity,whichincludestime-basedandperformance-basedormarket-basedrestrictedstockunits,isasfollows(inmillions,exceptper-shareamounts):
RestrictedStock/StockUnits
Weighted-AverageGrantDateFairValueperShare AggregateFairValue
UNVESTEDBALANCEATJULY27,2013 143 $ 18.80 Grantedandassumed 72 20.85 Vested (53) 19.55 $ 1,229Canceled/forfeited (13) 18.61 UNVESTEDBALANCEATJULY26,2014 149 19.54 Grantedandassumed 67 25.29 Vested (57) 19.82 $ 1,517Canceled/forfeited (16) 20.17 UNVESTED BALANCE AT JULY 25, 2015 143 22.08 Granted and assumed 70 25.69 Vested (54) 20.68 $ 1,428Canceled/forfeited (14) 22.86 UNVESTED BALANCE AT JULY 30, 2016 145 $ 24.26
(f) Stock Option Awards
Asummaryofthestockoptionactivityisasfollows(inmillions,exceptper-shareamounts):
STOCKOPTIONSOUTSTANDING
Number
Outstanding Weighted-Average
ExercisePriceperShareBALANCEATJULY27,2013 276 $ 24.44Assumedfromacquisitions 6 3.60Exercised (78) 18.30Canceled/forfeited/expired (17) 27.53BALANCEATJULY26,2014 187 26.03Assumedfromacquisitions 1 2.60Exercised (71) 21.15Canceled/forfeited/expired (14) 29.68BALANCE AT JULY 25, 2015 103 28.68Assumed from acquisitions 18 5.17Exercised (32) 19.22Canceled/forfeited/expired (16) 30.01BALANCE AT JULY 30, 2016 73 $ 26.78
Thetotalpretaxintrinsicvalueofstockoptionsexercisedduringfiscal2016,2015,and2014was$266million,$434million,and$458million,respectively.
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ThefollowingtablesummarizessignificantrangesofoutstandingandexercisablestockoptionsasofJuly30,2016(inmillions,exceptyearsandshareprices):
STOCKOPTIONSOUTSTANDING STOCKOPTIONSEXERCISABLE
RangeofExercisePrices Number
Outstanding
Weighted-AverageRemainingContractual
Life(inYears)
Weighted-AverageExercisePriceperShare
AggregateIntrinsicValue
NumberExercisable
Weighted-AverageExercisePriceperShare
AggregateIntrinsicValue
$0.01–20.00 14 6.9 $ 5.68 $ 346 5 $ 5.28 $ 127$20.01–25.00 1 0.5 23.38 6 1 23.38 6$25.01–30.00 4 0.6 27.23 12 4 27.23 12$30.01–35.00 54 0.1 32.16 — 54 32.16 —
Total 73 1.4 $ 26.78 $ 364 64 $ 29.66 $ 145
Theaggregateintrinsicvalueintheprecedingtablerepresentsthetotalpretaxintrinsicvalue,basedontheCompany'sclosingstockpriceof$30.53asofJuly29,2016,thatwouldhavebeenreceivedbytheoptionholdershadthoseoptionholdersexercisedtheirstockoptionsasofthatdate.Thetotalnumberofin-the-moneystockoptionsexercisableasofJuly30,2016was10million.AsofJuly25,2015,102millionoutstandingstockoptionswereexercisable, andtheweighted-averageexercisepricewas$29.02.
(g) Valuation of Employee Share-Based Awards
Time-basedrestrictedstockunitsandPRSUsthatarebasedontheCompany’sfinancialperformancemetricsornon-financialoperatinggoalsarevaluedusingthemarketvalueoftheCompany’scommonstockonthedateofgrant, discountedforthepresentvalueofexpecteddividends.Onthedateofgrant, theCompanyestimatedthefairvalueofthetotalshareholderreturn(TSR)componentofthePRSUsusingaMonteCarlosimulationmodel.Theassumptionsforthevaluationoftime-basedRSUsandPRSUsaresummarizedasfollows:
RESTRICTEDSTOCKUNITS
YearsEnded July 30, 2016 July25,2015 July26,2014
Numberofsharesgranted(inmillions) 57 55 56Grantdatefairvaluepershare $ 26.01 $ 25.30 $ 20.61Weighted-averageassumptions/inputs: Expecteddividendyield 3.2% 2.9% 3.1%Rangeofrisk-freeinterestrates 0.0% – 1.2% 0.0%–1.8% 0.0%–1.7%
PERFORMANCEBASEDRESTRICTEDSTOCKUNITS
YearsEnded July 30, 2016 July25,2015 July26,2014
Numberofsharesgranted(inmillions) 5 11 7Grantdatefairvaluepershare $ 24.70 $ 24.85 $ 21.90Weighted-averageassumptions/inputs: Expecteddividendyield 3.1% 3.0% 3.0%Rangeofrisk-freeinterestrates 0.0% – 1.2% 0.0%–1.8% 0.0%–1.7%Rangeofexpectedvolatilitiesforindex 15.3% – 54.3% 14.3%–70.0% 14.2%–70.5%
The PRSUs granted during fiscal 2016, 2015, and 2014 are contingent on the achievement of the Company’s financial performance metrics, its comparativemarket-basedreturns, ortheachievementoffinancial andnon-financial operatinggoals. Fortheawardsbasedonfinancial performancemetricsorcomparativemarket-basedreturns,generally50%ofthePRSUsareearnedbasedontheaverageofannualoperatingcashflowandearningspersharegoalsestablishedatthebeginning of each fiscal year over a three-year performance period. Generally, the remaining 50% of the PRSUs are earned based on the Company’s TSRmeasuredagainstthebenchmarkTSRofapeergroupoverthesameperiod.EachPRSUrecipientcouldvestin0%to150%ofthetargetsharesgrantedcontingenton the achievement of the Company's financial performance metrics or its comparative market-based returns, and 0% to 100% of the target shares grantedcontingentontheachievementofnon-financialoperatinggoals.
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Theassumptionsforthevaluationofemployeestockpurchaserightsaresummarizedasfollows:
EMPLOYEESTOCKPURCHASERIGHTS
YearsEnded July 30, 2016 July25,2015 July26,2014
Weighted-averageassumptions: Expectedvolatility 23.9% 26.0% 25.1%Risk-freeinterestrate 0.4% 0.3% 0.1%Expecteddividend 3.1% 2.8% 2.8%Expectedlife(inyears) 1.3 1.8 0.8Weighted-averageestimatedgrantdatefairvaluepershare $ 5.73 $ 6.54 $ 5.54
Thevaluationofemployeestockpurchaserightsandtherelatedassumptionsarefortheemployeestockpurchasesmadeduringtherespectivefiscalyears.
TheCompanyusesthird-partyanalysestoassistindevelopingtheassumptionsusedin,aswellascalibrating,itslattice-binomialandBlack-Scholesmodels.TheCompanyisresponsiblefordeterminingtheassumptionsusedinestimatingthefairvalueofitsshare-basedpaymentawards.
TheCompanyusedtheimpliedvolatilityfortradedoptions(withcontracttermscorrespondingtotheexpectedlifeoftheemployeestockpurchaserights)ontheCompany’sstockas theexpectedvolatility assumptionrequiredintheBlack-Scholes model. Theimpliedvolatility is morerepresentative of futurestockpricetrendsthanhistoricalvolatility.Therisk-freeinterestrateassumptionisbaseduponobservedinterestratesappropriateforthetermoftheCompany’semployeestockpurchaserights.Thedividendyieldassumptionisbasedonthehistoryandexpectationofdividendpayoutsatthegrantdate.
(h) Employee 401(k) Plans
TheCompanysponsorstheCiscoSystems,Inc.401(k)Plan(the“Plan”)toprovideretirementbenefitsforitsemployees.AsallowedunderSection401(k)oftheInternalRevenueCode,thePlanprovidesfortax-deferredsalarycontributionsandafter-taxcontributionsforeligibleemployees.ThePlanallowsemployeestocontributeupto75%oftheirannualeligibleearningstothePlanonapretaxandafter-taxbasis,includingRothcontributions.EmployeecontributionsarelimitedtoamaximumannualamountassetperiodicallybytheInternalRevenueCode.TheCompanymatchespretaxandRothemployeecontributionsupto100%ofthefirst 4.5% of eligible earnings that are contributed by employees. Therefore, the maximum matching contribution that the Company may allocate to eachparticipant’saccountwillnotexceed$11,925forthe2016calendaryearduetothe$265,000annuallimitoneligibleearningsimposedbytheInternalRevenueCode.Allmatchingcontributionsvestimmediately.TheCompany’smatchingcontributionstothePlantotaled$262million,$244million,and$236millioninfiscal2016,2015,and2014,respectively.
ThePlanallowsemployeeswhomeettheagerequirementsandreachthePlancontributionlimitstomakecatch-upcontributions(pretaxorRoth)nottoexceedthelesser of 75% of their annual eligible earnings or the limit set forth in the Internal Revenue Code. Catch-up contributions are not eligible for matchingcontributions.Inaddition,thePlanprovidesfordiscretionaryprofit-sharingcontributionsasdeterminedbytheBoardofDirectors.SuchcontributionstothePlanare allocated among eligible participants in the proportion of their salaries to the total salaries of all participants. There were no discretionary profit-sharingcontributionsmadeinfiscal2016,2015,and2014.
TheCompanyalsosponsorsother401(k)plansasaresultofacquisitionsofothercompanies.TheCompany’scontributionstotheseplanswerenotmaterialtotheCompanyoneitheranindividualoraggregatebasisforanyofthefiscalyearspresented.
(i) Deferred Compensation Plans
TheCiscoSystems,Inc.DeferredCompensationPlan(the“DeferredCompensationPlan”),anonqualifieddeferredcompensationplan,becameeffectivein2007.Asrequiredbyapplicablelaw,participationintheDeferredCompensationPlanislimitedtoaselectgroupoftheCompany’smanagementemployees.UndertheDeferredCompensationPlan,whichisanunfundedandunsecureddeferredcompensationarrangement,aparticipantmayelecttodeferbasesalary,bonus,and/orcommissions,pursuanttosuchrulesasmaybeestablishedbytheCompany,uptothemaximumpercentagesforeachdeferralelectionasdescribedintheplan.TheCompanymayalso,atitsdiscretion,makeamatchingcontributiontotheemployeeundertheDeferredCompensationPlan.Amatchingcontributionequalto4.5%ofeligiblecompensationinexcessoftheInternalRevenueCodelimitforqualifiedplansforcalendaryear2016thatisdeferredbyparticipantsundertheDeferredCompensation Plan (with a $1.5 million cap on eligible compensation) will be made to eligible participants’ accounts at the end of calendar year 2016. Thedeferred compensation liability under the Deferred Compensation Plan, together with a deferred compensation plan assumed from Scientific-Atlanta, wasapproximately$569millionand$536millionasofJuly30,2016andJuly25,2015,respectively,andwasrecordedprimarilyinotherlong-termliabilities.
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15. Comprehensive Income
ThecomponentsofAOCI,netoftax,andtheothercomprehensiveincome(loss),excludingnoncontrollinginterest,aresummarizedasfollows(inmillions):
NetUnrealizedGainsonAvailable-for-Sale
Investments
NetUnrealizedGains(Losses)CashFlowHedgingInstruments
CumulativeTranslation
AdjustmentandActuarialGainsand
Losses
AccumulatedOtherComprehensiveIncome
(Loss)
BALANCEATJULY27,2013 $ 379 $ 8 $ 221 $ 608Othercomprehensiveincome(loss)beforereclassificationsattributabletoCiscoSystems,Inc. 380 48 49 477(Gains)lossesreclassifiedoutofAOCI (300) (68) — (368)Taxbenefit(expense) (35) — (5) (40)BALANCEATJULY26,2014 424 (12) 265 677Othercomprehensiveincome(loss)beforereclassificationsattributabletoCiscoSystems,Inc. (28) (159) (563) (750)(Gains)lossesreclassifiedoutofAOCI (157) 154 2 (1)Taxbenefit(expense) 71 1 63 135BALANCE AT JULY 25, 2015 310 (16) (233) 61Other comprehensive income (loss) before reclassificationsattributable to Cisco Systems, Inc. 151 (66) (399) (314)(Gains) losses reclassified out of AOCI 1 20 (6) 15Tax benefit (expense) (49) 3 (42) (88)BALANCE AT JULY 30, 2016 $ 413 $ (59) $ (680) $ (326)
Thenetgains(losses)reclassifiedoutofAOCIintotheConsolidatedStatementsofOperations,withlineitemlocation,duringeachperiodwereasfollows(inmillions):
July 30, 2016 July25,2015 July26,2014 ComprehensiveIncomeComponents IncomeBeforeTaxes LineIteminStatementsofOperations
Netunrealizedgainsonavailable-for-saleinvestments $ (1) $ 157 $ 300 Otherincome(loss),net Netunrealizedgainsandlossesoncashflowhedginginstruments Foreigncurrencyderivatives (15) (121) 55 OperatingexpensesForeigncurrencyderivatives (5) (33) 13 Costofsales—service
(20) (154) 68 Cumulativetranslationadjustmentandactuarialgainsandlosses 6 (2) — Operatingexpenses TotalamountsreclassifiedoutofAOCI $ (15) $ 1 $ 368
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16. Income Taxes
(a) Provision for Income Taxes
Theprovisionforincometaxesconsistsofthefollowing(inmillions):
YearsEnded July 30, 2016 July25,2015 July26,2014
Federal: Current $ 865 $ 1,583 $ 1,672Deferred (93) 43 (383)
772 1,626 1,289State:
Current 78 130 176Deferred 13 (20) (64)
91 110 112Foreign:
Current 1,432 530 692Deferred (114) (46) (231)
1,318 484 461Total $ 2,181 $ 2,220 $ 1,862
Incomebeforeprovisionforincometaxesconsistsofthefollowing(inmillions):
YearsEnded July 30, 2016 July25,2015 July26,2014
UnitedStates $ 2,907 $ 3,570 $ 2,734International 10,013 7,631 6,981
Total $ 12,920 $ 11,201 $ 9,715
Theitemsaccountingforthedifferencebetweenincometaxescomputedatthefederalstatutoryrateandtheprovisionforincometaxesconsistofthefollowing:
YearsEnded July 30, 2016 July25,2015 July26,2014
Federalstatutoryrate 35.0 % 35.0% 35.0%Effectof:
Statetaxes,netoffederaltaxbenefit 0.5 0.8 0.5ForeignincomeatotherthanU.S.rates (14.5) (15.2) (16.4)Taxcredits (1.7) (1.2) (0.7)Domesticmanufacturingdeduction (0.6) (0.7) (0.9)Nondeductiblecompensation 1.4 2.0 3.3Taxauditsettlement (2.8) — —Other,net (0.4) (0.9) (1.6)
Total 16.9 % 19.8% 19.2%
Duringfiscal 2016,theInternal RevenueService(IRS)andtheCompanysettledall outstandingitemsrelatedtotheaudit oftheCompany'sfederal incometaxreturnsforthefiscal yearsendedJuly26,2008throughJuly31,2010.Asaresult ofthesettlement, theCompanyrecognizedanetbenefit totheprovisionforincometaxesof$367million,whichincludedareductionofinterestexpenseof$21million.Inaddition,theProtectingAmericansfromTaxHikesActof2015reinstatedtheU.S.federalR&Dtaxcreditpermanently.Asaresult,thetaxprovisioninfiscal2016includedataxbenefitof$226millionrelatedtotheU.S.R&Dtaxcredit,ofwhich$81millionwasattributabletofiscal2015.
Duringfiscal2015,theTaxIncreasePreventionActof2014reinstatedtheU.S.federalR&Dtaxcreditforcalendaryear2014R&Dexpenses.Asaresult,thetaxprovisioninfiscal2015includedataxbenefitof$138millionrelatedtotheU.S.R&Dtaxcredit,ofwhich$78millionwasattributabletofiscal2014.
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U.S.incometaxesandforeignwithholdingtaxesassociatedwiththerepatriationofearningsofforeignsubsidiarieswerenotprovidedforonacumulativetotalof$65.6billionofundistributedearningsforcertainforeignsubsidiariesasoftheendoffiscal2016.TheCompanyintendstoreinvesttheseearningsindefinitelyinits foreign subsidiaries. If these earnings were distributed to the United States in the form of dividends or otherwise, or if the shares of the relevant foreignsubsidiariesweresoldorotherwisetransferred,theCompanywouldbesubjecttoadditionalU.S.incometaxes(subjecttoanadjustmentforforeigntaxcredits)andforeignwithholdingtaxes.Determinationoftheamountofunrecognizeddeferredincometaxliabilityrelatedtotheseearningsisnotpracticable.
Asaresultofcertainemploymentandcapitalinvestmentactions,theCompany’sincomeincertainforeigncountriesissubjecttoreducedtaxrates.Aportionoftheseincentivesexpiredattheendoffiscal2015.Themajorityoftheremainingtaxincentiveswillexpireattheendoffiscal2018.Thegrossincometaxbenefitattributabletotaxincentiveswasestimatedtobe$1.2billion($0.23perdilutedshare)infiscal2016.Asoftheendoffiscal2015and2014,thegrossincometaxbenefits attributabletotaxincentiveswereestimatedtobe$1.4billionand$1.3billion($0.28and$0.25perdilutedshare)fortherespectiveyears. ThegrossincometaxbenefitswerepartiallyoffsetbyaccrualsofU.S.incometaxesonundistributedearnings.
UnrecognizedTaxBenefits
Theaggregatechangesinthebalanceofgrossunrecognizedtaxbenefitswereasfollows(inmillions):
YearsEnded July 30, 2016 July25,2015 July26,2014
Beginningbalance $ 2,029 $ 1,938 $ 1,775Additionsbasedontaxpositionsrelatedtothecurrentyear 255 276 262Additionsfortaxpositionsofprioryears 116 137 64Reductionsfortaxpositionsofprioryears (457) (30) (13)Settlements (241) (165) (17)Lapseofstatuteoflimitations (75) (127) (133)Endingbalance $ 1,627 $ 2,029 $ 1,938
AsaresultoftheIRStaxsettlementrelatedtothefederalincometaxreturnsforthefiscalyearsendedJuly26,2008throughJuly31,2010,theamountofgrossunrecognizedtaxbenefitsinfiscal2016wasreducedbyapproximately$563million.TheCompanyalsoreducedtheamountofaccruedinterestby$63million.
AsofJuly30,2016,$1.2billionoftheunrecognizedtaxbenefitswouldaffecttheeffectivetaxrateifrealized.Duringfiscal2016,theCompanyrecognizeda$55millionreductionin net interest expenseanda$40millionreductioninpenalties. Duringfiscal2015, theCompanyrecognizeda$37millionreductioninnetinterest expense and a $3 million reduction in penalties. During fiscal 2014 , the Company recognized $20 millionof net interest expense and $8 millionofpenalties.TheCompany’stotalaccrualforinterestandpenaltieswas$154million,$274million,and$304millionasoftheendoffiscal2016,2015,and2014,respectively. TheCompanyisnolongersubject toU.S.federal incometaxaudit forreturnscoveringtaxyearsthroughfiscal 2010.TheCompanyisnolongersubjecttoforeign,state,orlocalincometaxauditsforreturnscoveringtaxyearsthroughfiscal2000.
TheCompanyregularly engages in discussions andnegotiations with tax authorities regarding tax matters in various jurisdictions. TheCompanybelieves it isreasonablypossiblethatcertainfederal, foreign,andstatetaxmattersmaybeconcludedinthenext12months.Specificpositionsthatmayberesolvedincludeissues involving transfer pricing and various other matters. The Company estimates that the unrecognized tax benefits at July 30, 2016 could be reduced byapproximately$150millioninthenext12months.
(b) Deferred Tax Assets and Liabilities
Thefollowingtablepresentsthebreakdownfornetdeferredtaxassets(inmillions):
July 30, 2016 July25,2015
Deferredtaxassets $ 4,299 $ 4,454Deferredtaxliabilities (278) (349)
Totalnetdeferredtaxassets $ 4,021 $ 4,105
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Thefollowingtablepresentsthecomponentsofthedeferredtaxassetsandliabilities(inmillions):
July 30, 2016 July25,2015
ASSETS Allowancefordoubtfulaccountsandreturns $ 524 $ 417Sales-typeanddirect-financingleases 289 266Inventorywrite-downsandcapitalization 417 345Investmentprovisions 126 112IPR&D,goodwill,andpurchasedintangibleassets 139 134Deferredrevenue 1,858 1,795Creditsandnetoperatinglosscarryforwards 863 746Share-basedcompensationexpense 438 520Accruedcompensation 572 467Other 516 670
Grossdeferredtaxassets 5,742 5,472Valuationallowance (134) (84)Totaldeferredtaxassets 5,608 5,388
LIABILITIES Purchasedintangibleassets (995) (950)Depreciation (289) (143)Unrealizedgainsoninvestments (225) (175)Other (78) (15)
Totaldeferredtaxliabilities (1,587) (1,283)Totalnetdeferredtaxassets $ 4,021 $ 4,105
AsofJuly30,2016,theCompany’sfederal,state,andforeignnetoperatinglosscarryforwardsforincometaxpurposeswere$466million,$735million,and$809million,respectively.Asignificantamountofthefederalnetoperatinglosscarryforwardsrelatestoacquisitionsand,asaresult,islimitedintheamountthatcanberecognizedinanyoneyear.Ifnotutilized,thefederalnetoperatinglosswillbegintoexpireinfiscal2018,andthestateandforeignnetoperatinglosscarryforwardswillbegintoexpireinfiscal2018and2017,respectively.TheCompanyhasprovidedavaluationallowanceof$97millionfordeferredtaxassetsrelatedtoforeignnetoperatinglossesthatarenotexpectedtoberealized.
AsofJuly30,2016,theCompany’sfederal,state,andforeigntaxcreditcarryforwardsforincometaxpurposeswereapproximately$8million,$734million,and$20million,respectively.Thefederaltaxcreditcarryforwardswillbegintoexpireinfiscal2017.Themajorityofstatetaxcreditscanbecarriedforwardindefinitely. The foreign tax credits carryforwards will begin to expire in fiscal 2018. The Company has provided a valuation allowance of $32 million fordeferredtaxassetsrelatedtostateandforeigntaxcreditsthatarenotexpectedtoberealized.
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17. Segment Information and Major Customers
(a) Revenue and Gross Margin by Segment
TheCompanyconducts business globally andis primarily managedona geographic basis consistingof threesegments: theAmericas, EMEA,andAPJC.TheCompany’smanagement makesfinancial decisionsandallocates resourcesbasedontheinformationit receivesfromits internal management system.Salesareattributedtoasegmentbasedontheorderinglocationofthecustomer.TheCompanydoesnotallocateresearchanddevelopment,salesandmarketing,orgeneralandadministrativeexpensestoitssegmentsinthisinternalmanagementsystembecausemanagementdoesnotincludetheinformationinitsmeasurementoftheperformanceoftheoperatingsegments. Inaddition,theCompanydoesnotallocateamortizationandimpairmentofacquisition-relatedintangibleassets, share-basedcompensationexpense,significantlitigationandothercontingencies,impactstocostofsalesfrompurchaseaccountingadjustmentstoinventory,chargesrelated to asset impairments and restructurings, and certain other charges to the gross margin for each segment because management does not include thisinformationinitsmeasurementoftheperformanceoftheoperatingsegments.
Summarized financial information by segment for fiscal 2016, 2015, and 2014 , based on the Company’s internal management system and as utilized by theCompany’sChiefOperatingDecisionMaker(“CODM”),isasfollows(inmillions):
YearsEnded July 30, 2016 July25,2015 July26,2014
Revenue: Americas $ 29,411 $ 29,655 $ 27,781EMEA 12,281 12,322 12,006APJC 7,555 7,184 7,355
Total $ 49,247 $ 49,161 $ 47,142Grossmargin:
Americas $ 19,006 $ 18,670 $ 17,379EMEA 7,976 7,705 7,700APJC 4,622 4,307 4,252
Segmenttotal 31,604 30,682 29,331Unallocatedcorporateitems (644) (1,001) (1,562)
Total $ 30,960 $ 29,681 $ 27,769
RevenueintheUnitedStateswas$26.2billion,$26.2billion,and$24.4billionforfiscal2016,2015,and2014,respectively.
(b) Revenue for Groups of Similar Products and Services
The Company designs, manufactures, and sells Internet Protocol (IP)-based networking and other products related to the communications and IT industry andprovidesservicesassociatedwiththeseproductsandtheiruse.TheCompanygroupsitsproductsandtechnologiesintothefollowingcategories:Switching,NGNRouting,Collaboration,ServiceProviderVideo,DataCenter,Wireless,Security,andOtherProducts.Theseproducts,primarilyintegratedbyCiscoIOSSoftware,linkgeographicallydispersedlocal-areanetworks(LANs),metropolitan-areanetworks(MANs),andwide-areanetworks(WANs).
Thefollowingtablepresentsrevenueforgroupsofsimilarproductsandservices(inmillions):
YearsEnded July 30, 2016 July25,2015 July26,2014
Revenue: Switching $ 14,746 $ 14,740 $ 14,001NGNRouting 7,408 7,704 7,606Collaboration 4,352 4,004 3,817DataCenter 3,365 3,219 2,640Wireless 2,625 2,542 2,293ServiceProviderVideo(1) 2,424 3,555 3,969Security 1,969 1,747 1,566Other 365 239 280
Product 37,254 37,750 36,172Service 11,993 11,411 10,970
Total $ 49,247 $ 49,161 $ 47,142
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(1)Duringthesecondquarteroffiscal2016,theCompanycompletedthesaleofourSPVideoCPEBusiness.Asaresult,revenuefromthisportionoftheServiceProviderVideoproductcategorywillnotrecurinfutureperiods.SPVideoCPEBusinessrevenuewas$504million,$1,846million,and$2,240millionforfiscal2016,2015and2014,respectively.
TheCompanyhasmadecertainreclassificationstotheproductrevenueamountsforprioryearstoconformtothecurrentyear’spresentation.
(c) Additional Segment Information
ThemajorityoftheCompany’sassets, excludingcashandcashequivalentsandinvestments, asofJuly30,2016andJuly25,2015wasattributabletoitsU.S.operations.TheCompany’stotalcashandcashequivalentsandinvestmentsheldbyvariousforeignsubsidiarieswere$59.8billionand$53.4billionasofJuly30,2016andJuly25,2015,respectively,andtheremaining$5.9billionand$7.0billionattherespectivefiscalyearendswereavailableintheUnitedStates.Infiscal2016,2015,and2014,nosinglecustomeraccountedfor10%ormoreofrevenue.
Property and equipment information is based on the physical location of the assets. The following table presents property and equipment information forgeographicareas(inmillions):
July 30, 2016 July25,2015 July26,2014
Propertyandequipment,net: UnitedStates $ 2,822 $ 2,733 $ 2,697International 684 599 555
Total $ 3,506 $ 3,332 $ 3,252
18. Net Income per Share
Thefollowingtablepresentsthecalculationofbasicanddilutednetincomepershare(inmillions,exceptper-shareamounts):
YearsEnded July 30, 2016 July25,2015 July26,2014
Netincome $ 10,739 $ 8,981 $ 7,853
Weighted-averageshares—basic 5,053 5,104 5,234Effectofdilutivepotentialcommonshares 35 42 47
Weighted-averageshares—diluted 5,088 5,146 5,281
Netincomepershare—basic $ 2.13 $ 1.76 $ 1.50
Netincomepershare—diluted $ 2.11 $ 1.75 $ 1.49
Antidilutiveemployeeshare-basedawards,excluded 148 183 254
Employeeequityshareoptions, unvestedshares, andsimilar equityinstruments grantedbytheCompanyaretreatedaspotential commonsharesoutstandingincomputingdilutedearningspershare.Dilutedsharesoutstandingincludethedilutiveeffectofin-the-moneyoptions,unvestedrestrictedstock,andrestrictedstockunits.Thedilutiveeffectofsuchequityawardsiscalculatedbasedontheaveragesharepriceforeachfiscalperiodusingthetreasurystockmethod.Underthetreasurystockmethod,theamounttheemployeemustpayforexercisingstockoptions,theamountofcompensationcostforfutureservicethattheCompanyhasnot yet recognized, and the amount of tax benefits that would be recorded in additional paid-in capital when the award becomes deductible are collectivelyassumedtobeusedtorepurchaseshares.
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Supplementary Financial Data (Unaudited)(inmillions,exceptper-shareamounts)
Quarters Ended July 30, 2016 April 30, 2016 January 23, 2016 October 24, 2015Revenue $ 12,638 $ 12,000 $ 11,927 $ 12,682Gross margin $ 7,975 $ 7,721 $ 7,432 $ 7,832Operating income $ 3,303 $ 2,984 $ 3,294 $ 3,079Net income $ 2,813 $ 2,349 $ 3,147 $ 2,430Net income per share - basic $ 0.56 $ 0.47 $ 0.62 $ 0.48Net income per share - diluted $ 0.56 $ 0.46 $ 0.62 $ 0.48Cash dividends declared per common share $ 0.26 $ 0.26 $ 0.21 $ 0.21Cash and cash equivalents and investments $ 65,756 $ 63,512 $ 60,375 $ 59,107
QuartersEnded July25,2015 April25,2015 January24,2015 October25,2014Revenue $ 12,843 $ 12,137 $ 11,936 $ 12,245Grossmargin $ 7,733 $ 7,525 $ 7,090 $ 7,333Operatingincome $ 2,881 $ 2,925 $ 2,622 $ 2,342Netincome $ 2,319 $ 2,437 $ 2,397 $ 1,828Netincomepershare-basic $ 0.46 $ 0.48 $ 0.47 $ 0.36Netincomepershare-diluted $ 0.45 $ 0.47 $ 0.46 $ 0.35Cashdividendsdeclaredpercommonshare $ 0.21 $ 0.21 $ 0.19 $ 0.19Cashandcashequivalentsandinvestments $ 60,416 $ 54,419 $ 53,022 $ 52,107
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosures
None.
Item 9A. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Basedonourmanagement’sevaluation(withtheparticipationofourprincipalexecutiveofficerandprincipalfinancialofficer), asoftheendoftheperiodcovered bythis report, our principal executive officer andprincipal financial officer haveconcludedthat our disclosure controls andprocedures (as defined inRules13a-15(e)and15d-15(e)undertheSecuritiesExchangeActof1934,asamended,(the“ExchangeAct”))areeffectivetoensurethatinformationrequiredtobedisclosedbyusinreportsthatwefileorsubmitundertheExchangeActisrecorded,processed,summarizedandreportedwithinthetimeperiodsspecifiedinSecurities andExchangeCommissionrulesandformsandis accumulatedandcommunicatedtoourmanagement, includingourprincipal executiveofficer andprincipalfinancialofficer,asappropriatetoallowtimelydecisionsregardingrequireddisclosure.
Internal Control over Financial ReportingManagement’s report on our internal control over financial reporting and the report of our independent registered public accounting firm on our internal
controloverfinancialreportingaresetforth,respectively,onpage69underthecaption“Management’sReportonInternalControlOverFinancialReporting”andonpage68ofthisreport.
Therewasnochangeinourinternalcontroloverfinancialreportingduringourfourthquarteroffiscal2016thathasmateriallyaffected,orisreasonablylikelytomateriallyaffect,ourinternalcontroloverfinancialreporting.
Item 9B. Other Information
None.
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PART III
Item 10. Directors, Executive Officers and Corporate Governance
Theinformationrequiredbythisitemrelatingtoourdirectorsandnomineesisincludedunderthecaptions“ProposalNo.1—ElectionofDirectors,”“BusinessExperienceandQualificationsofNominees,”and“BoardMeetingsandCommittees—NominationandGovernanceCommittee”inourProxyStatementrelatedtothe2016AnnualMeetingofShareholdersandisincorporatedhereinbyreference.
The information required by this item regarding our Audit Committee is included under the caption “Proposal No. 1— Election of Directors—BoardMeetingsandCommittees”inourProxyStatementrelatedtothe2016AnnualMeetingofShareholdersandisincorporatedhereinbyreference.
Pursuant to General InstructionG(3) of Form10-K,theinformationrequiredbythis itemrelatingto our executive officers is includedunder thecaption“ExecutiveOfficersoftheRegistrant”inPartIofthisreport.
TheinformationrequiredbythisitemregardingcompliancewithSection16(a)oftheSecuritiesActof1934isincludedunderthecaption“OwnershipofSecurities—Section 16(a) Beneficial Ownership Reporting Compliance” in our Proxy Statement related to the 2016Annual Meeting of Shareholders and isincorporatedhereinbyreference.
Wehaveadoptedacodeofethicsthatappliestoourprincipalexecutiveofficerandallmembersofourfinancedepartment,includingtheprincipalfinancialofficerandprincipalaccountingofficer.Thiscodeofethicsisentitled“SpecialEthicsObligationsforEmployeeswithFinancialReportingResponsibilities:FinancialOfficerCodeofEthics”andispostedonourwebsite.TheInternetaddressforourwebsiteiswww.cisco.com,andthiscodeofethicsmaybefoundfromourmainwebpagebyclickingfirston“AboutCisco”andthenon“CorporateGovernance”under“InvestorRelations,”andfinallyon“FinancialOfficerCodeofEthics”.
WeintendtosatisfyanydisclosurerequirementunderItem5.05ofForm8-Kregardinganamendmentto,orwaiverfrom,aprovisionofthiscodeofethicsbypostingsuchinformationonourwebsite,onthewebpagefoundbyclickingthroughto“FinancialOfficerCodeofEthics”asspecifiedabove.
Item 11. Executive Compensation
Theinformationrequiredbythisitemrelatingtoexecutivecompensationisincludedunderthecaptions“ProposalNo.2-AdvisoryVotetoApproveExecutiveCompensation,”“CompensationDiscussionandAnalysis,”“CompensationCommitteeReport,”“Fiscal2016CompensationTables-SummaryCompensationTable,”“Fiscal2016CompensationTables-GrantofPlan-BasedAwards-Fiscal2016”and“CompensationCommitteeInterlocksandInsiderParticipation”inourProxyStatementrelatedtothe2016AnnualMeetingofShareholdersisincorporatedhereinbyreference.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Theinformationrequiredbythisitemrelatingtosecurityownershipofcertainbeneficialownersandmanagementisincludedunderthecaption“OwnershipofSecurities,”andtheinformationrequiredbythisitemrelatingtosecuritiesauthorizedforissuanceunderequitycompensationplansisincludedunderthecaption“OwnershipofSecurities—EquityCompensationPlanInformation,”ineachcaseinourProxyStatementrelatedtothe2016AnnualMeetingofShareholders,andisincorporatedhereinbyreference.
Item 13. Certain Relationships and Related Transactions, and Director Independence
Theinformationrequiredbythisitemrelatingtoreview,approvalorratificationoftransactionswithrelatedpersonsisincludedunderthecaption“CertainRelationshipsandTransactionswithRelatedPersons,”andtheinformationrequiredbythisitemrelatingtodirectorindependenceisincludedunderthecaption“ProposalNo.1—ElectionofDirectors—IndependentDirectors,”ineachcaseinourProxyStatementrelatedtothe2016AnnualMeetingofShareholders,andisincorporatedhereinbyreference.
Item 14. Principal Accountant Fees and Services
Theinformationrequiredbythisitemisincludedunderthecaptions“ProposalNo.3—RatificationofIndependentRegisteredPublicAccountingFirm—PrincipalAccountantFeesandServices”and“PolicyonAuditCommitteePre-ApprovalofAuditandPermissibleNon-AuditServicesofIndependentRegisteredPublicAccountingFirm”inourProxyStatementrelatedtothe2016AnnualMeetingofShareholders,andisincorporatedhereinbyreference.
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PART IV
Item 15. Exhibits and Financial Statement Schedules
(a) 1.FinancialStatementsSeethe“IndextoConsolidatedFinancialStatements”onpage67ofthisreport.
2. FinancialStatementScheduleSee“ScheduleII—ValuationandQualifyingAccounts”(below)withinItem15ofthisreport.
3. ExhibitsSeethe“IndextoExhibits”immediatelyfollowingthesignaturepageofthisreport.
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS(in millions)
AllowancesFor
FinancingReceivables
AccountsReceivable
YearendedJuly26,2014 Balanceatbeginningoffiscalyear $ 344 $ 228Provisions 14 65Recoveries(write-offs),net (9) (28)
Balanceatendoffiscalyear $ 349 $ 265
YearendedJuly25,2015 Balanceatbeginningoffiscalyear $ 349 $ 265Provisions 57 77Recoveries(write-offs),net (7) (40)Foreignexchangeandother (17) —
Balanceatendoffiscalyear $ 382 $ 302
Year ended July 30, 2016 Balance at beginning of fiscal year $ 382 $ 302Provisions 17 (26)Recoveries (write-offs), net (15) (28)Foreign exchange and other (9) 1
Balance at end of fiscal year $ 375 $ 249Foreignexchangeandotherincludestheimpactofforeignexchangeandcertainimmaterialreclassifications.
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SIGNATURES
PursuanttotherequirementsofSection13or15(d)oftheSecuritiesExchangeActof1934,theregistranthasdulycausedthisReportonForm10-Ktobesignedonitsbehalfbytheundersigned,thereuntodulyauthorized.
September8,2016 CISCOSYSTEMS,INC.
/S/CHARLESH.ROBBINS Charles H. Robbins Chief Executive Officer
POWER OF ATTORNEY
KNOWALLPERSONSBYTHESEPRESENTS,thateachpersonwhosesignatureappearsbelowconstitutesandappointsCharlesH.RobbinsandKellyA. Kramer , jointly and severally, his attorney-in-fact, each with the full power of substitution, for such person, in any and all capacities, to sign any and allamendmentstothisAnnualReportonForm10-K,andtofilethesame,withallexhibitstheretoandotherdocumentsinconnectiontherewith,withtheSecuritiesandExchangeCommission,grantinguntosaidattorney-in-factandagentfullpowerandauthoritytodoandperformeachandeveryactandthingrequisiteandnecessarytobedoneinconnectiontherewith,asfullytoallintentsandpurposesashemightdoorcoulddoinpersonherebyratifyingandconfirmingallthateachofsaidattorneys-in-factandagents,orhissubstitute,maydoorcausetobedonebyvirtuehereof.
PursuanttotherequirementsoftheSecuritiesExchangeActof1934,thisReportonForm10-Khasbeensignedbelowbythefollowingpersonsonbehalfoftheregistrantandinthecapacitiesandonthedatesindicated.
Signature Title Date
/S/CHARLESH.ROBBINS ChiefExecutiveOfficerandDirector September8,2016Charles H. Robbins (PrincipalExecutiveOfficer)
/S/KELLYA.KRAMER ExecutiveVicePresidentandChiefFinancialOfficer September8,2016Kelly A. Kramer (PrincipalFinancialOfficer)
/S/PRATS.BHATT SeniorVicePresident,CorporateControllerand September8,2016Prat S. Bhatt ChiefAccountingOfficer
(PrincipalAccountingOfficer)
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Signature Title Date
/S/JOHNT.CHAMBERS ExecutiveChairman September8,2016John T. Chambers
LeadIndependentDirector Carol A. Bartz
/S/M.MICHELEBURNS Director September8,2016M. Michele Burns
/S/MICHAELD.CAPELLAS Director September8,2016Michael D. Capellas
/S/BRIANL.HALLA Director September8,2016Brian L. Halla
/S/JOHNL.HENNESSY Director September8,2016Dr. John L. Hennessy
/S/KRISTINAM.JOHNSON Director September8,2016Dr. Kristina M. Johnson
/S/RODERICKC.MCGEARY Director September8,2016Roderick C. McGeary
/S/ARUNSARIN Director September8,2016Arun Sarin
/S/STEVENM.WEST Director September8,2016Steven M. West
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INDEX TO EXHIBITS
ExhibitNumber Exhibit Description Incorporated by Reference
FiledHerewith
Form File No. Exhibit Filing Date
3.1RestatedArticlesofIncorporationofCiscoSystems,Inc.,ascurrentlyineffect
S-3
333-56004
4.1
2/21/2001
3.2AmendedandRestatedBylawsofCiscoSystems,Inc.,ascurrentlyineffect
8-K
000-18225
3.1
7/29/2016
4.1Indenture,datedFebruary17,2009,betweenCiscoSystems,Inc.andtheBankofNewYorkMellonTrustCompany,N.A.,astrustee
8-K
000-18225
4.1
2/17/2009
4.2Indenture,datedNovember17,2009,betweenCiscoSystems,Inc.andtheBankofNewYorkMellonTrustCompany,N.A.,astrustee
8-K
000-18225
4.1
11/17/2009
4.3Indenture,datedMarch16,2011,betweenCiscoSystems,Inc.andtheBankofNewYorkMellonTrustCompany,N.A.,astrustee
8-K
000-18225
4.1
3/16/2011
4.4Indenture,datedMarch3,2014,betweentheCompanyandTheBankofNewYorkMellonTrustCompany,N.A.,astrustee
8-K
000-18225
4.1
3/3/2014
4.5FormsofGlobalNotefortheregistrant’s4.95%SeniorNotesdue2019and5.90%SeniorNotesdue2039
8-K
000-18225
4.1
2/17/2009
4.6FormsofGlobalNotefortheregistrant’s4.45%SeniorNotesdue2020and5.50%SeniorNotesdue2040
8-K
000-18225
4.1
11/17/2009
4.7FormsofGlobalNotefortheCompany’s3.150%SeniorNotesdue2017
8-K
000-18225
4.1
3/16/2011
4.8FormofOfficer’sCertificatesettingforththetermsoftheFixedandFloatingRateNotesissuedinMarch2014
8-K
000-18225
4.2
3/3/2014
4.9FormofOfficer’sCertificatesettingforththetermsoftheFixedandFloatingNotesissuedinJune2015
8-K
000-18225
4.1
6/18/2015
4.10FormofOfficer’sCertificatesettingforththetermsoftheFixedandFloatingNotesissuedinFebruary2016
8-K
000-18225
4.1
2/29/2016
10.1*CiscoSystems,Inc.2005StockIncentivePlan(includingrelatedformagreements)
X
10.2*
CiscoSystems,Inc.SAAcquisitionLong-TermIncentivePlan(amendsandrestatesthe2003Long-TermIncentivePlanofScientific-Atlanta)(includingrelatedformagreements)
10-K
000-18225
10.4
9/18/2007
10.3*
CiscoSystems,Inc.WebExAcquisitionLong-TermIncentivePlan.(amendsandrestatestheWebExCommunications,Inc.AmendedandRestated2000StockIncentivePlan)(includingrelatedformagreements)
10-K
000-18225
10.5
9/18/2007
10.4* CiscoSystems,Inc.EmployeeStockPurchasePlan 8-K 000-18225 10.1 11/24/2014 10.5* CiscoSystems,Inc.DeferredCompensationPlan,asamended 10-Q 000-18225 10.5 2/18/2015 10.6* CiscoSystems,Inc.ExecutiveIncentivePlan 8-K 000-18225 10.1 11/16/2012 10.7* FormofExecutiveOfficerIndemnificationAgreement 10-K 000-18225 10.7 9/20/2004 10.8* FormofDirectorIndemnificationAgreement 10-K 000-18225 10.8 9/20/2004 10.9*
RelocationAgreementbetweenCiscoSystems,Inc.andCharlesRobbins
10-Q
000-18225
10.2
11/22/2013
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ExhibitNumber Exhibit Description Incorporated by Reference
FiledHerewith
Form File No. Exhibit Filing Date
10.10*LetterAgreementbyandbetweenCiscoSystems,Inc.andKellyA.Kramer
8-K
000-18225
10.2
11/24/2014
10.11*TransitionandSeparationAgreementbyandbetweenCiscoSystems,Inc.andFrankA.Calderoni
8-K
000-18225
10.3
11/24/2014
10.12*SeparationAgreementbyandbetweenCiscoSystems,Inc.andRobertW.Lloyd
8-K
000-18225
10.1
6/1/2015
10.13*SeparationAgreementbyandbetweenCiscoSystems,Inc.andGaryB.Moore
8-K
000-18225
10.2
6/1/2015
10.14
CreditAgreementdatedasofMay15,2015,byandamongCiscoSystems,Inc.andLenderspartythereto,andBankofAmerica,N.A.,asadministrationagent,swinglinelenderandanL/Cissuer
10-Q
000-18225
10.1
5/20/2015
10.15 FormofCommercialPaperDealerAgreement 10-Q 000-18225 10.1 2/23/2011 10.16
CommercialPaperIssuingandPayingAgentAgreementdatedJanuary31,2011betweentheRegistrantandBankofAmerica,N.A.
10-Q
000-18225
10.2
2/23/2011
21.1 SubsidiariesoftheRegistrant X23.1 ConsentofIndependentRegisteredPublicAccountingFirm X24.1
PowerofAttorney(includedonpage122ofthisAnnualReportonForm10-K)
X
31.1 Rule13a–14(a)/15d–14(a)CertificationofPrincipalExecutiveOfficer X31.2 Rule13a–14(a)/15d–14(a)CertificationofPrincipalFinancialOfficer X32.1 Section1350CertificationofPrincipalExecutiveOfficer X32.2 Section1350CertificationofPrincipalFinancialOfficer X
101.INS XBRLInstanceDocument X101.SCH XBRLTaxonomyExtensionSchemaDocument X101.CAL XBRLTaxonomyExtensionCalculationLinkbaseDocument X101.DEF XBRLTaxonomyExtensionDefinitionLinkbaseDocument X101.LAB XBRLTaxonomyExtensionLabelLinkbaseDocument X101.PRE XBRLTaxonomyExtensionPresentationLinkbaseDocument X
* Indicatesamanagementcontractorcompensatoryplanorarrangement.
125
Exhibit 10.1
CISCO SYSTEMS, INC.
2005 STOCK INCENTIVE PLAN
AS AMENDED AND RESTATED
EFFECTIVE AS OF June 2, 2016
SECTION1. INTRODUCTION 1
SECTION2. DEFINITIONS 1
(a) “Affiliate” 1
(b) “Award” 1
(c) “Board” 1
(d) “CashlessExercise” 1
(e) “Cause” 1
(f) “ChangeInControl” 1
(g) “Code” 1
(h) “Committee” 1
(i) “CommonStock” 1
(j) “Company” 1
(k) “Consultant” 1
(l) “CorporateTransaction” 2
(m) “CoveredEmployees” 2
(n) “Director” 2
(o) “Disability” 2
(p) “Employee” 2
(q) “ExchangeAct” 2
(r) “ExercisePrice” 2
i
(s) “FairMarketValue” 2
(t) “FiscalYear” 2
(u) “Grant” 2
(v) “IncentiveStockOption”or“ISO” 2
(w) “KeyEmployee” 2
(x) “Non-EmployeeDirector” 2
(y) “NonstatutoryStockOption”or“NSO” 2
(z) “Option” 2
(aa) “Optionee” 2
(bb) “Parent” 2
(cc) “Participant” 2
(dd) “PerformanceGoal” 3
(ee) “PerformancePeriod” 3
(ff) “Plan” 3
(gg) “PreviousPlanAward” 3
(hh) “Re-Price” 3
(ii) “SARAgreement” 3
(jj) “SEC” 3
(kk) “Section16Persons” 3
(ll) “SecuritiesAct” 3
(mm) “Service” 3
(nn) “Share” 3
(oo) “StockAppreciationRight”or“SAR” 3
(pp) “StockGrant” 3
(qq) “StockGrantAgreement” 3
(rr) “StockOptionAgreement” 3
(ss) “StockUnit” 3
(tt) “StockUnitAgreement” 3
(uu) “Subsidiary” 3
(vv) “10-PercentShareholder” 3
SECTION3. ADMINISTRATION 3
(a) CommitteeComposition 4
(b) AuthorityoftheCommittee 4
(c) Indemnification 4
SECTION4. GENERAL 4
(a) GeneralEligibility 4
(b) IncentiveStockOptions 4
(c) RestrictionsonShares 4
(d) Beneficiaries 4
(e) PerformanceConditions 4
(f) NoRightsasaShareholder 5
(g) TerminationofService 5
(h) DirectorFees 5
SECTION5. SHARESSUBJECTTOPLANANDSHARELIMITS 5
(a) BasicLimitations 5
(b) AdditionalShares 5
(c) DividendEquivalents 5
(d) ShareLimits 5
ii
iii
SECTION6. TERMSANDCONDITIONSOFOPTIONS 6
(a) StockOptionAgreement 6
(b) NumberofShares 6
(c) ExercisePrice 6
(d) ExercisabilityandTerm 6
(e) ModificationsorAssumptionofOptions 6
(f) AssignmentorTransferofOptions 6
SECTION7. PAYMENTFOROPTIONSHARES 6
SECTION8. TERMSANDCONDITIONSOFSTOCKAPPRECIATIONRIGHTS 7
(a) SARAgreement 7
(b) NumberofShares 7
(c) ExercisePrice 7
(d) ExercisabilityandTerm 7
(e) ExerciseofSARs 7
(f) ModificationorAssumptionofSARs 7
(g) AssignmentorTransferofSARs 7
SECTION9. TERMSANDCONDITIONSFORSTOCKGRANTS 7
(a) AmountandFormofAwards 7
iv
(b) StockGrantAgreement 7
(c) PaymentforStockGrants 8
(d) VestingConditions 8
(e) AssignmentorTransferofStockGrants 8
(f) VotingandDividendRights 8
(g) ModificationorAssumptionofStockGrants 8
SECTION10. TERMSANDCONDITIONSOFSTOCKUNITS 8
(a) StockUnitAgreement 8
(b) NumberofShares 8
(c) PaymentforStockUnits 8
(d) VestingConditions 8
(e) VotingandDividendRights 8
(f) FormandTimeofSettlementofStockUnits 8
(g) Creditors’Rights 9
(h) ModificationorAssumptionofStockUnits 9
(i) AssignmentorTransferofStockUnits 9
v
SECTION11. PROTECTIONAGAINSTDILUTION 9
(a) Adjustments 9
(b) ParticipantRights 9
(c) FractionalShares 9
SECTION12. EFFECTOFACORPORATETRANSACTION 9
(a) CorporateTransaction 9
(b) Acceleration 9
(c) Dissolution 9
SECTION13. LIMITATIONSONRIGHTS 10
(a) NoEntitlements 10
(b) Shareholders’Rights 10
(c) RegulatoryRequirements 10
SECTION14. WITHHOLDINGTAXES 10
(a) General 10
(b) ShareWithholding 10
SECTION15. DURATIONANDAMENDMENTS 10
(a) TermofthePlan 10
(b) RighttoAmendorTerminatethePlan 10
vi
CISCO SYSTEMS, INC.
2005STOCKINCENTIVEPLAN
ASAMENDEDANDRESTATED
(EffectiveasofJune2,2016)
SECTION 1. INTRODUCTION.TheCompany’sshareholdersapprovedtheCiscoSystems,Inc.2005StockIncentivePlan,asamendedandrestatedandeffectiveonNovember19,2013.TheCompany’sBoardofDirectorsapprovedanamendmentandrestatementofthePlanthatdoesnotrequireshareholderapproval,effectiveasofJune2,2016.
ThepurposeofthePlanistopromotethelong-termsuccessoftheCompanyandthecreationofshareholdervaluebyofferingKeyEmployeesanopportunitytoshareinsuchlong-termsuccessbyacquiringaproprietaryinterestintheCompany.
ThePlanseekstoachievethispurposebyprovidingfordiscretionarylong-termincentiveAwardsintheformofOptions(whichmayconstituteIncentiveStockOptionsorNonstatutoryStockOptions),StockAppreciationRights,StockGrants,andStockUnits.
ThePlanshallbegovernedby,andconstruedinaccordancewith,thelawsoftheStateofCalifornia(exceptitschoice-of-lawprovisions).
CapitalizedtermsshallhavethemeaningprovidedinSection2unlessotherwiseprovidedinthisPlanoranyrelatedStockOptionAgreement,SARAgreement,StockGrantAgreementorStockUnitAgreement.
SECTION 2. DEFINITIONS.(a)“Affiliate”meansanyentityotherthanaSubsidiary,iftheCompanyand/oroneormoreSubsidiariesownnotlessthan50%ofsuchentity.(b)“Award”meansanyawardofanOption,SAR,StockGrantorStockUnitunderthePlan.(c)“Board”meanstheBoardofDirectorsoftheCompany,asconstitutedfromtimetotime.(d)“CashlessExercise”means,totheextentthataStockOptionAgreementsoprovidesandaspermittedbyapplicablelaw,aprogramapprovedbytheCommitteeinwhichpaymentmaybemadeallorinpartbydelivery(onaformprescribedbytheCommittee)ofanirrevocabledirectiontoasecuritiesbrokertosellSharesandtodeliverallorpartofthesaleproceedstotheCompanyinpaymentoftheaggregateExercisePriceand,ifapplicable,theamountnecessarytosatisfytheCompany’swithholdingobligationsattheminimumstatutorywithholdingrates,including,butnotlimitedto,U.S.federalandstateincometaxes,payrolltaxes,andforeigntaxes,ifapplicable.(e)“Cause”means,exceptasmayotherwisebeprovidedinaParticipant’semploymentagreementorAwardagreement,aconvictionofaParticipantforafelonycrimeorthefailureofaParticipanttocontestprosecutionforafelonycrime,oraParticipant’smisconduct,fraudordishonesty(assuchtermsaredefinedbytheCommitteeinitssolediscretion),oranyunauthorizeduseordisclosureofconfidentialinformationortradesecrets,ineachcaseasdeterminedbytheCommittee,andtheCommittee’sdeterminationshallbeconclusiveandbinding.(f)“ChangeInControl”exceptasmayotherwisebeprovidedinaParticipant’semploymentagreementorAwardagreement,meanstheoccurrenceofanyofthefollowing:
(i)AchangeinthecompositionoftheBoardoveraperiodofthirty-sixconsecutivemonthsorlesssuchthatamajorityoftheBoardmembersceases,byreasonofoneormorecontestedelectionsforBoardmembership,tobecomprisedofindividualswhoeither(A)havebeenBoardmemberscontinuouslysincethebeginningofsuchperiodor(B)havebeenelectedornominatedforelectionasBoardmembersduringsuchperiodbyatleastamajorityoftheBoardmembersdescribedinclause(A)whowerestillinofficeatthetimetheBoardapprovedsuchelectionornomination;or
(ii)Theacquisition,directlyorindirectly,byanypersonorrelatedgroupofpersons(otherthantheCompanyorapersonthatdirectlyorindirectlycontrols,iscontrolledby,orisundercommoncontrolwith,theCompany)ofbeneficialownership(withinthemeaningofRule13d-3undertheExchangeAct)ofsecuritiesoftheCompanyrepresentingmorethan35%ofthetotalcombinedvotingpoweroftheCompany’sthenoutstandingsecuritiespursuanttoatenderorexchangeoffermadedirectlytotheCompany’sshareholderswhichtheBoarddoesnotrecommendsuchshareholdersaccept.(g)“Code”meanstheInternalRevenueCodeof1986,asamended,andtheregulationsandinterpretationspromulgatedthereunder.(h)“Committee”meansacommitteedescribedinSection3.(i)“CommonStock”meanstheCompany’scommonstock.(j)“Company”meansCiscoSystems,Inc.,aCaliforniacorporation.(k)“Consultant”meansanindividualwhoperformsbonafideservicestotheCompany,aParent,aSubsidiaryoranAffiliate,otherthanasanEmployeeorDirectororNon-EmployeeDirector.
1
(l)“CorporateTransaction”exceptasmayotherwisebeprovidedinaParticipant’semploymentagreementorAwardagreement,meanstheoccurrenceofanyofthefollowingshareholderapprovedtransactions:
(i)TheconsummationofamergerorconsolidationoftheCompanywithorintoanotherentityoranyothercorporatereorganization,ifmorethan50%ofthecombinedvotingpowerofthecontinuingorsurvivingentity’ssecuritiesoutstandingimmediatelyaftersuchmerger,consolidationorotherreorganizationisownedbypersonswhowerenotshareholdersoftheCompanyimmediatelypriortosuchmerger,consolidationorotherreorganization;or
(ii)Thesale,transferorotherdispositionofallorsubstantiallyalloftheCompany’sassets.AtransactionshallnotconstituteaCorporateTransactionifitssolepurposeistochangethestateoftheCompany’sincorporationortocreateaholdingcompanythatwillbeownedinsubstantiallythesameproportionsbythepersonswhoheldtheCompany’ssecuritiesimmediatelybeforesuchtransactions.(m)“CoveredEmployees”meansthosepersonswhoaresubjecttothelimitationsofCodeSection162(m).(n)“Director”meansamemberoftheBoardwhoisalsoanEmployee.(o)“Disability”meansthattheKeyEmployeeisclassifiedasdisabledunderalong-termdisabilitypolicyoftheCompanyor,ifnosuchpolicyapplies,theKeyEmployeeisunabletoengageinanysubstantialgainfulactivitybyreasonofanymedicallydeterminablephysicalormentalimpairmentwhichcanbeexpectedtoresultindeathorwhichhaslastedorcanbeexpectedtolastforacontinuousperiodofnotlessthan12months.(p)“Employee”meansanindividualwhoisacommon-lawemployeeoftheCompany,aParent,aSubsidiaryoranAffiliate.(q)“ExchangeAct”meanstheSecuritiesExchangeActof1934,asamended.(r)“ExercisePrice”means,inthecaseofanOption,theamountforwhichaSharemaybepurchaseduponexerciseofsuchOption,asspecifiedintheapplicableStockOptionAgreement.“ExercisePrice,”inthecaseofaSAR,meansanamount,asspecifiedintheapplicableSARAgreement,whichissubtractedfromtheFairMarketValueindeterminingtheamountpayableuponexerciseofsuchSAR.(s)“FairMarketValue”meansthemarketpriceofaShareasdeterminedingoodfaithbytheCommittee.TheFairMarketValueshallbedeterminedbythefollowing:
(i)IftheSharesweretradedover-the-counterorlistedwithNASDAQonthedateinquestion,thentheFairMarketValueshallbeequaltothelasttransactionpricequotedbytheNASDAQsystemforthedateinquestionor(ii)iftheCommonStockislistedontheNewYorkStockExchangeortheAmericanStockExchangeonthedateinquestion,theFairMarketValueistheclosingsellingpricefortheCommonStockassuchpriceisofficiallyquotedinthecompositetapeoftransactionsontheexchangedeterminedbytheCommitteetobetheprimarymarketfortheCommonStockforthedateinquestion;provided,however,thatifthereisnosuchreportedpricefortheCommonStockforthedateinquestionunder(i)or(ii),thensuchpriceonthelastprecedingdateforwhichsuchpriceexistsshallbedeterminativeofFairMarketValue.Ifneither(i)or(ii)areapplicable,thentheFairMarketValueshallbedeterminedbytheCommitteeingoodfaithonsuchbasisasitdeemsappropriate.Wheneverpossible,thedeterminationofFairMarketValuebytheCommitteeshallbebasedonthepricesreportedintheWesternEditionofTheWallStreetJournal.Suchdeterminationshallbeconclusiveandbindingonallpersons.(t)“FiscalYear”meanstheCompany’sfiscalyear.(u)“Grant”meansanygrantofanAwardunderthePlan.(v)“IncentiveStockOption”or“ISO”meansanincentivestockoptiondescribedinCodeSection422.(w)“KeyEmployee”meansanEmployee,Director,Non-EmployeeDirectororConsultantwhohasbeenselectedbytheCommitteetoreceiveanAwardunderthePlan.(x)“Non-EmployeeDirector”meansamemberoftheBoardwhoisnotanEmployee.(y)“NonstatutoryStockOption”or“NSO”meansastockoptionthatisnotanISO.(z)“Option”meansanISOorNSOgrantedunderthePlanentitlingtheOptioneetopurchaseShares.(aa)“Optionee”meansanindividual,estateorotherentitythatholdsanOption.(bb)“Parent”meansanycorporation(otherthantheCompany)inanunbrokenchainofcorporationsendingwiththeCompany,ifeachofthecorporationsotherthantheCompanyownsstockpossessing50%ormoreofthetotalcombinedvotingpowerofallclassesofstockinoneoftheothercorporationsinsuchchain.AcorporationthatattainsthestatusofaParentonadateaftertheadoptionofthePlanshallbeconsideredaParentcommencingasofsuchdate.(cc)“Participant”meansanindividualorestateorotherentitythatholdsanAward.
2
(dd)“PerformanceGoal”meansanobjectiveformulaorstandarddeterminedbytheCommitteewithrespecttoeachPerformancePeriodutilizingoneormoreofthefollowingfactorsandanyobjectivelyverifiableadjustment(s)theretopermittedandpreestablishedbytheCommitteeinaccordancewithCodeSection162(m):(i)operatingincome,operatingcashflowandoperatingexpense;(ii)earningsbeforeinterest,taxes,depreciationandamortization;(iii)earnings;(iv)cashflow;(v)marketshare;(vi)sales;(vii)revenue;(viii)profitsbeforeinterestandtaxes;(ix)expenses;(x)costofgoodssold;(xi)profit/lossorprofitmargin;(xii)workingcapital;(xiii)returnoncapital,equityorassets;(xiv)earningspershare;(xv)economicvalueadded;(xvi)stockprice;(xvii)price/earningsratio;(xviii)debtordebt-to-equity;(xix)accountsreceivable;(xx)writeoffs;(xxi)cash;(xxii)assets;(xxiii)liquidity;(xxiv)operations;(xxv)intellectualproperty(e.g.,patents);(xxvi)productdevelopment;(xxvii)regulatoryactivity;(xxviii)manufacturing,productionorinventory;(xxix)mergersandacquisitionsordivestitures;(xxx)financings;(xxxi)customersatisfaction;and/or(xxxii)totalshareholderreturn,eachwithrespecttotheCompanyand/oroneormoreofitsaffiliatesoroperatingunits.AwardsissuedtopersonswhoarenotCoveredEmployeesmaytakeintoaccountotherfactors(includingsubjectivefactors).(ee)“PerformancePeriod”meansanyperiodnotexceeding36monthsasdeterminedbytheCommittee,initssolediscretion.TheCommitteemayestablishdifferentPerformancePeriodsfordifferentParticipants,andtheCommitteemayestablishconcurrentoroverlappingPerformancePeriods.(ff)“Plan”meansthisCiscoSystems,Inc.2005StockIncentivePlanasamendedandrestated,andasitmaybefurtheramendedfromtimetotime.(gg)“PreviousPlanAward”meansanyawardofanOption,SAR,StockGrantorStockUnitundertheCiscoSystems,Inc.1996StockIncentivePlan,theCiscoSystems,Inc.SAAcquisitionLong-TermIncentivePlanortheCiscoSystems,Inc.WebExAcquisitionLong-TermIncentivePlan.(hh)“Re-Price”meansthattheCompanyhas(i)loweredorreducedtheExercisePriceofoutstandingOptionsand/oroutstandingSARsforanyParticipant(s),whetherthroughamendment,cancellation,orreplacementgrants,oranyothermeans,or(ii)repurchasedforcashoutstandingOptionsand/oroutstandingSARswhentheExercisePriceisgreaterthantheFairMarketValueoftheunderlyingShares.(ii)“SARAgreement”meanstheagreementdescribedinSection8evidencingeachAwardofaStockAppreciationRight.(jj)“SEC”meanstheSecuritiesandExchangeCommission.(kk)“Section16Persons”meansthoseofficers,directorsorotherpersonswhoaresubjecttoSection16oftheExchangeAct.(ll)“SecuritiesAct”meanstheSecuritiesActof1933,asamended.(mm)“Service”meansserviceasanEmployee,Director,Non-EmployeeDirectororConsultant.AParticipant’sServicedoesnotterminatewhencontinuedservicecreditingisrequiredbyapplicablelaw.However,forpurposesofdeterminingwhetheranOptionisentitledtocontinuingISOstatus,acommon-lawemployee’sServicewillbetreatedasterminatingninety(90)daysaftersuchEmployeewentonleave,unlesssuchEmployee’srighttoreturntoactiveworkisguaranteedbylaworbyacontract.Serviceterminatesinanyeventwhentheapprovedleaveends,unlesssuchEmployeeimmediatelyreturnstoactivework.TheCommitteedetermineswhichleavescounttowardService,andwhenServiceterminatesforallpurposesunderthePlan.Further,unlessotherwisedeterminedbytheCommittee,aParticipant’sServiceshallnotbedeemedtohaveterminatedmerelybecauseofachangeinthecapacityinwhichtheParticipantprovidesservicetotheCompany,aParent,SubsidiaryorAffiliate,oratransferbetweenentities(theCompanyoranyParent,Subsidiary,orAffiliate);providedthatthereisnointerruptionorotherterminationofService.(nn)“Share”meansoneshareofCommonStock.(oo)“StockAppreciationRight”or“SAR”meansastockappreciationrightawardedunderthePlan.(pp)“StockGrant”meansSharesawardedunderthePlan.(qq)“StockGrantAgreement”meanstheagreementdescribedinSection9evidencingeachAwardofaStockGrant.(rr)“StockOptionAgreement”meanstheagreementdescribedinSection6evidencingeachAwardofanOption.(ss)“StockUnit”meansabookkeepingentryrepresentingtheequivalentofoneShare,asawardedunderthePlan.(tt)“StockUnitAgreement”meanstheagreementdescribedinSection10evidencingeachAwardofaStockUnit.(uu)“Subsidiary”meansanycorporation(otherthantheCompany)inanunbrokenchainofcorporationsbeginningwiththeCompany,ifeachofthecorporationsotherthanthelastcorporationintheunbrokenchainownsstockpossessing50%ormoreofthetotalcombinedvotingpowerofallclassesofstockinoneoftheothercorporationsinsuchchain.AcorporationthatattainsthestatusofaSubsidiaryonadateaftertheadoptionofthePlanshallbeconsideredaSubsidiarycommencingasofsuchdate.(vv)“10-PercentShareholder”meansanindividualwhoownsmorethan10%ofthetotalcombinedvotingpowerofallclassesofoutstandingstockoftheCompany,itsParentoranyofitsSubsidiaries.Indeterminingstockownership,theattributionrulesofSection424(d)oftheCodeshallbeapplied.
SECTION 3. ADMINISTRATION.(a)CommitteeComposition.TheBoardoraCommitteeappointedbytheBoardshalladministerthePlan.UnlesstheBoardprovidesotherwise,theCompany’sCompensation&ManagementDevelopmentCommitteeshallbetheCommittee.MembersoftheCommittee
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shallserveforsuchperiodoftimeastheBoardmaydetermineandshallbesubjecttoremovalbytheBoardatanytime.TheBoardmayalsoatanytimeterminatethefunctionsoftheCommitteeandreassumeallpowersandauthoritypreviouslydelegatedtotheCommittee.TheCommitteeshallhavemembershipcompositionwhichenables(i)AwardstoSection16PersonstoqualifyasexemptfromliabilityunderSection16(b)oftheExchangeActand(ii)AwardstoCoveredEmployeestoqualifyasperformance-basedcompensationasprovidedunderCodeSection162(m).TheBoardmayalsoappointoneormoreseparatecommitteesoftheBoard,eachcomposedoftwoormoredirectorsoftheCompanywhoneednotqualifyunderRule16b-3orCodeSection162(m),thatmayadministerthePlanwithrespecttoKeyEmployeeswhoarenotSection16PersonsorCoveredEmployees,respectively,maygrantAwardsunderthePlantosuchKeyEmployeesandmaydeterminealltermsofsuchAwards.Notwithstandingtheforegoing,theBoardshallconstitutetheCommitteeandshalladministerthePlanwithrespecttoNon-EmployeeDirectors,shallgrantAwardsunderthePlantosuchNon-EmployeeDirectors,andshalldeterminealltermsofsuchAwards.(b)AuthorityoftheCommittee.SubjecttotheprovisionsofthePlan,theCommitteeshallhavefullauthorityandsolediscretiontotakeanyactionsitdeemsnecessaryoradvisablefortheadministrationofthePlan.Suchactionsshallinclude:
(i)selectingKeyEmployeeswhoaretoreceiveAwardsunderthePlan;(ii)determiningthetype,number,vestingrequirementsandotherfeaturesandconditionsofsuchAwardsandamendingsuchAwards;(iii)correctinganydefect,supplyinganyomission,orreconcilinganyinconsistencyinthePlanoranyAwardagreement;(iv)acceleratingthevesting,orextendingthepost-terminationexerciseterm,ofAwardsatanytimeandundersuchtermsandconditionsasitdeems
appropriate;(v)interpretingthePlan;(vi)makingallotherdecisionsrelatingtotheoperationofthePlan;and(vii)adoptingsuchplansorsubplansasmaybedeemednecessaryorappropriatetoprovidefortheparticipationbyKeyEmployeesoftheCompany
anditsSubsidiariesandAffiliateswhoresideoutsidetheU.S.,whichplansand/orsubplansshallbeattachedheretoasAppendices.
TheCommitteemayadoptsuchrulesorguidelinesasitdeemsappropriatetoimplementthePlan.TheCommittee’sdeterminationsunderthePlanshallbefinalandbindingonallpersons.(c)Indemnification.Tothemaximumextentpermittedbyapplicablelaw,eachmemberoftheCommittee,oroftheBoard,shallbeindemnifiedandheldharmlessbytheCompanyagainstandfrom(i)anyloss,cost,liability,orexpensethatmaybeimposeduponorreasonablyincurredbyhimorherinconnectionwithorresultingfromanyclaim,action,suit,orproceedingtowhichheorshemaybeapartyorinwhichheorshemaybeinvolvedbyreasonofanyactiontakenorfailuretoactunderthePlanoranyStockOptionAgreement,SARAgreement,StockGrantAgreementorStockUnitAgreement,and(ii)fromanyandallamountspaidbyhimorherinsettlementthereof,withtheCompany’sapproval,orpaidbyhimorherinsatisfactionofanyjudgmentinanysuchclaim,action,suit,orproceedingagainsthimorher,providedheorsheshallgivetheCompanyanopportunity,atitsownexpense,tohandleanddefendthesamebeforeheorsheundertakestohandleanddefenditonhisorherownbehalf.TheforegoingrightofindemnificationshallnotbeexclusiveofanyotherrightsofindemnificationtowhichsuchpersonsmaybeentitledundertheCompany’sArticlesofIncorporationorBylaws,bycontract,asamatteroflaw,orotherwise,orunderanypowerthattheCompanymayhavetoindemnifythemorholdthemharmless.
SECTION 4. GENERAL.(a)GeneralEligibility.OnlyEmployees,Directors,Non-EmployeeDirectorsandConsultantsshallbeeligiblefordesignationasKeyEmployeesbytheCommittee,initssolediscretion.(b)IncentiveStockOptions.OnlyKeyEmployeeswhoarecommon-lawemployeesoftheCompany,aParentoraSubsidiaryshallbeeligibleforthegrantofISOs.Inaddition,aKeyEmployeewhoisa10-PercentShareholdershallnotbeeligibleforthegrantofanISOunlesstherequirementssetforthinSection422(c)(5)oftheCodearesatisfied.(c)RestrictionsonShares.AnySharesissuedpursuanttoanAwardshallbesubjecttosuchrightsofrepurchase,rightsoffirstrefusalandothertransferrestrictionsastheCommitteemaydetermine,initssolediscretion.SuchrestrictionsshallapplyinadditiontoanyrestrictionsthatmayapplytoholdersofSharesgenerallyandshallalsocomplytotheextentnecessarywithapplicablelaw.InnoeventshalltheCompanyberequiredtoissuefractionalSharesunderthisPlan.(d)Beneficiaries.UnlessstatedotherwiseinanAwardagreement,aParticipantmaydesignateoneormorebeneficiarieswithrespecttoanAwardbytimelyfilingtheprescribedformwiththeCompany.AbeneficiarydesignationmaybechangedbyfilingtheprescribedformwiththeCompanyatanytimebeforetheParticipant’sdeath.IfnobeneficiarywasdesignatedorifnodesignatedbeneficiarysurvivestheParticipant,thenafteraParticipant’sdeathanyvestedAward(s)shallbetransferredordistributedtotheParticipant’sestate.(e)PerformanceConditions.TheCommitteemay,initsdiscretion,includeperformanceconditionsinanAwardorgrantanAwarduponthesatisfactionofperformanceconditions.IfperformanceconditionsareincludedinAwardstoCoveredEmployees,thensuchAwardsmaybesubjecttotheachievementofPerformanceGoalsestablishedbytheCommittee.SuchPerformanceGoalsshallbeestablishedand
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administeredpursuanttotherequirementsofCodeSection162(m).BeforeanySharesunderlyinganAwardoranyAwardpaymentssubjecttoPerformanceGoalsarereleasedtoaCoveredEmployeewithrespecttoaPerformancePeriod,theCommitteeshallcertifyinwritingthatthePerformanceGoalsforsuchPerformancePeriodhavebeensatisfied.AwardswithperformanceconditionsthataregrantedtoKeyEmployeeswhoarenotCoveredEmployeesneednotcomplywiththerequirementsofCodeSection162(m).(f)NoRightsasaShareholder.AParticipant,oratransfereeofaParticipant,shallhavenorightsasashareholderwithrespecttoanyCommonStockcoveredbyanAwarduntilsuchpersonhassatisfiedallofthetermsandconditionstoreceivesuchCommonStock,hassatisfiedanyapplicablewithholdingortaxobligationsrelatingtotheAwardandtheShareshavebeenissued(asevidencedbyanappropriateentryonthebooksoftheCompanyoradulyauthorizedtransferagentoftheCompany).(g)TerminationofService.UnlesstheapplicableAwardagreementor,withrespecttoParticipantswhoresideintheU.S.,theapplicableemploymentagreementprovidesotherwise,thefollowingrulesshallgovernthevesting,exercisabilityandtermofoutstandingAwardsheldbyaParticipantintheeventofterminationofsuchParticipant’sService(inallcasessubjecttotheexpirationtermoftheOptionorSARasapplicable):(i)uponterminationofServiceforanyreason,allunvestedportionsofanyoutstandingAwardsshallbeimmediatelyforfeitedwithoutconsiderationandthevestedportionsofanyoutstandingStockUnitsshallbesettledupontermination;(ii)iftheServiceofaParticipantisterminatedforCause,thenallunexercisedOptionsandSARs,unvestedportionsofStockUnitsandunvestedportionsofStockGrantsshallterminateandbeforfeitedimmediatelywithoutconsideration;(iii)iftheServiceofaParticipantisterminatedforanyreasonotherthanforCause,death,orDisability,thenthevestedportionofhisorherthen-outstandingOptionsand/orSARsmaybeexercisedbysuchParticipantorhisorherpersonalrepresentativewithinthreemonthsafterthedateofsuchtermination;or(iv)iftheServiceofaParticipantisterminatedduetodeathorDisability,thevestedportionofhisorherthen-outstandingOptionsand/orSARsmaybeexercisedwithineighteenmonthsafterthedateofterminationofService.(h)DirectorFees.EachNon-EmployeeDirectormayelecttoreceiveaStockGrantorStockUnitunderthePlaninlieuofpaymentofaportionofhisorherregularannualretainerbasedontheFairMarketValueoftheSharesonthedateanyregularannualretainerwouldotherwisebepaid.ForpurposesofthePlan,aNon-EmployeeDirector’sregularannualretainershallnotincludeanyadditionalretainerpaidinconnectionwithserviceonanycommitteeoftheBoardorpaidforanyotherreason.Suchanelectionmaybeforanydollarorpercentageamountequaltoatleast25%oftheNon-EmployeeDirector’sregularannualretainer(uptoalimitof100%oftheNon-EmployeeDirector’sregularannualretainer).TheelectionmustbemadepriortothebeginningoftheannualboardofdirectorscyclewhichshallbeanytwelvemonthcontinuousperioddesignatedbytheBoard.AnyamountoftheregularannualretainernotelectedtobereceivedasaStockGrantorStockUnitshallbepayableincashinaccordancewiththeCompany’sstandardpaymentprocedures.SharesgrantedunderthisSection4(h)shallotherwisebesubjecttothetermsofthePlanapplicabletoNon-EmployeeDirectorsortoParticipantsgenerally(otherthanprovisionsspecificallyapplyingonlytoEmployees).
SECTION 5. SHARESSUBJECTTOPLANANDSHARELIMITS.(a)BasicLimitations.ThestockissuableunderthePlanshallbeauthorizedbutunissuedShares.TheaggregatenumberofSharesreservedforAwardsunderthePlanshallnotexceed694,000,000Shares,subjecttoadjustmentpursuanttoSection11.SharesissuedasStockGrants,pursuanttoStockUnitsorpursuanttothesettlementofdividendequivalentswillcountagainsttheSharesavailableforissuanceunderthePlanas1.5Sharesforevery1ShareissuedinconnectionwiththeAwardordividendequivalent.(b)AdditionalShares.IfAwardsareforfeitedorareterminatedforanyotherreasonbeforebeingexercisedorsettled,thentheSharesunderlyingsuchAwards,plusthenumberofadditionalShares,ifany,thatcountedagainstSharesavailableforissuanceunderthePlaninrespectthereofatthetimeofGrant,shallagainbecomeavailableforAwardsunderthePlan.IfaPreviousPlanAwardisforfeitedoristerminatedforanyotherreasonbeforebeingexercisedorsettled,thentheSharesunderlyingsuchPreviousPlanAwardshallagainbecomeavailableforAwardsunderthisPlan.SARsshallbecountedinfullagainstthenumberofSharesavailableforissuanceunderthePlan,regardlessofthenumberofSharesissueduponsettlementoftheSARs.IntheeventthatwithholdingtaxliabilitiesarisingfromanAwardotherthananOptionorSARaresatisfiedbythewithholdingofSharesbytheCompany,thentheSharessowithheld,plusthenumberofadditionalShares,ifany,thatcountedagainstSharesavailableforissuanceunderthePlaninrespectthereofatthetimeofGrant,shallagainbecomeavailableforAwardsunderthePlan.IntheeventthatwithholdingtaxliabilitiesarisingfromanOptionorSARaresatisfiedbythewithholdingofSharesbytheCompany,thentheSharessowithheldshallnotbeaddedtotheSharesavailableforAwardsunderthePlan.Inaddition,SharesthatareexchangedbyaParticipantorwithheldbytheCompanyasfullorpartialpaymentinconnectionwiththeexerciseorsettlementofanOptionorSARshallnotbeavailableforsubsequentAwardsunderthePlanandSharesrepurchasedontheopenmarketwiththeproceedsofanOptionexerciseshallnotagainbemadeavailableforissuanceunderthePlan.(c)DividendEquivalents.AnydividendequivalentssettledinSharesunderthePlanshallbeappliedagainstthenumberofSharesavailableforAwards.(d)ShareLimits.
(i)LimitsonOptions.SubjecttoadjustmentpursuanttoSection11,noKeyEmployeeshallreceiveOptionstopurchaseSharesduringanyFiscalYearcoveringinexcessof5,000,000SharesandtheaggregatemaximumnumberofSharesthatmaybeissuedinconnectionwithISOsshallbe694,000,000Shares.
(ii)LimitsonSARs.SubjecttoadjustmentpursuanttoSection11,noKeyEmployeeshallreceiveAwardsofSARsduringanyFiscalYearcoveringinexcessof5,000,000SharesandtheaggregatemaximumnumberofSharesthatmaybeissuedinconnectionwithSARsshallbe694,000,000Shares.
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(iii)LimitsonStockGrantsandStockUnits.SubjecttoadjustmentpursuanttoSection11,noKeyEmployeeshallreceiveStockGrantsorStockUnitsduringanyFiscalYearcovering,intheaggregate,inexcessof5,000,000Shares.
(iv)LimitsonAwardstoNon-EmployeeDirectors.SubjecttoadjustmentpursuanttoSection11,noNon-EmployeeDirectorshallreceiveAwardsduringanyFiscalYearcovering,intheaggregate,inexcessof50,000Shares;providedthatanySharesreceivedpursuanttoanelectionunderSection4(h)shallnotcountagainstsuchlimit.
SECTION 6. TERMSANDCONDITIONSOFOPTIONS.(a)StockOptionAgreement.EachGrantofanOptionunderthePlanshallbeevidencedandgovernedexclusivelybyaStockOptionAgreementbetweentheOptioneeandtheCompany.SuchOptionshallbesubjecttoallapplicabletermsandconditionsofthePlanandmaybesubjecttoanyothertermsandconditionsthatarenotinconsistentwiththePlanandthattheCommitteedeemsappropriateforinclusioninaStockOptionAgreement(includingwithoutlimitationanyperformanceconditions).TheprovisionsofthevariousStockOptionAgreementsenteredintounderthePlanneednotbeidentical.TheStockOptionAgreementshallalsospecifywhethertheOptionisanISOoranNSO.(b)NumberofShares.EachStockOptionAgreementshallspecifythenumberofSharesthataresubjecttotheOptionandshallbesubjecttoadjustmentofsuchnumberinaccordancewithSection11.(c)ExercisePrice.AnOption’sExercisePriceshallbeestablishedbytheCommitteeandsetforthinaStockOptionAgreement.TheExercisePriceofanOptionshallnotbelessthan100%oftheFairMarketValue(110%forISOgrantsto10-PercentShareholders)onthedateofGrant.(d)ExercisabilityandTerm.EachStockOptionAgreementshallspecifythedatewhenalloranyinstallmentoftheOptionistobecomeexercisable.TheStockOptionAgreementshallalsospecifythetermoftheOption;providedthatthetermofanOptionshallinnoeventexceedtenyearsfromthedateofGrant.UnlesstheapplicableStockOptionAgreementprovidesotherwise,eachOptionshallvestandbecomeexercisablewithrespectto20%oftheSharessubjecttotheOptionuponcompletionofoneyearofServicemeasuredfromthevestingcommencementdate,thebalanceoftheSharessubjecttotheOptionshallvestandbecomeexercisableinforty-eightequalinstallmentsuponcompletionofeachmonthofServicethereafter,andthetermoftheOptionshallbetenyearsfromthedateofGrant.AStockOptionAgreementmayprovideforacceleratedvestingintheeventoftheParticipant’sdeath,Disability,orotherevents.NotwithstandinganyotherprovisionofthePlan,noOptioncanbeexercisedaftertheexpirationdateprovidedintheapplicableStockOptionAgreementandnoOptionmayprovidethat,uponexerciseoftheOption,anewOptionwillautomaticallybegranted.
(e)ModificationsorAssumptionofOptions.WithinthelimitationsofthePlan,theCommitteemaymodify,extendorassumeoutstandingoptionsormayacceptthecancellationofoutstandingoptions(whethergrantedbytheCompanyorbyanotherissuer)inreturnforthegrantofnewOptionsforthesameoradifferentnumberofShares,atthesameoradifferentExercisePrice,andwiththesameordifferentvestingprovisions.Notwithstandingtheprecedingsentenceoranythingtothecontraryherein,theCommitteemaynotRe-PriceoutstandingOptionsunlessthereisapprovalbytheCompanyshareholdersand,unlessamodificationisnecessaryordesirable
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tocomplywithanyapplicablelaw,regulationorrule,suchmodificationofanOptionshallnot,withouttheconsentoftheOptionee,impairhisorherrightsorobligationsundersuchOption.(f)AssignmentorTransferofOptions.ExceptasotherwiseprovidedintheapplicableStockOptionAgreementandthenonlytotheextentpermittedbyapplicablelaw,noOptionshallbetransferablebytheOptioneeotherthanbywillorbythelawsofdescentanddistribution.ExceptasotherwiseprovidedintheapplicableStockOptionAgreement,anOptionmaybeexercisedduringthelifetimeoftheOptioneeonlybytheOptioneeorbytheguardianorlegalrepresentativeoftheOptionee.NoOptionorinterestthereinmaybeassigned,pledgedorhypothecatedbytheOptioneeduringhisorherlifetime,whetherbyoperationoflaworotherwise,orbemadesubjecttoexecution,attachmentorsimilarprocess.
SECTION 7. PAYMENTFOROPTIONSHARES.TheentireExercisePriceofSharesissueduponexerciseofOptionsshallbepayableincashatthetimewhensuchSharesarepurchased,exceptasfollowsandifsoprovidedforinanapplicableStockOptionAgreement:
(i)SurrenderofStock.PaymentforalloranypartoftheExercisePriceorOptionsmaybemadewithShareswhichhavealreadybeenownedbytheOptionee;providedthattheCommitteemay,initssolediscretion,requirethatSharestenderedforpaymentbepreviouslyheldbytheOptioneeforaminimumduration.SuchSharesshallbevaluedattheirFairMarketValue.
(ii)CashlessExercise.PaymentforalloranypartoftheExercisePricemaybemadethroughCashlessExerciseattheCommittee’ssolediscretion.(iii)OtherFormsofPayment.PaymentforalloranypartoftheExercisePricemaybemadeinanyotherformthatisconsistentwithapplicablelaws,
regulationsandrulesandapprovedbytheCommittee.InthecaseofanISOgrantedunderthePlan,paymentshallbemadeonlypursuanttotheexpressprovisionsoftheapplicableStockOptionAgreement.TheStockOptionAgreementmayspecifythatpaymentmaybemadeinanyform(s)describedinthisSection7.InthecaseofanNSOgrantedunderthePlan,theCommitteemay,initsdiscretionatanytime,acceptpaymentinanyform(s)describedinthisSection7.
SECTION 8. TERMSANDCONDITIONSOFSTOCKAPPRECIATIONRIGHTS.(a)SARAgreement.EachGrantofaSARunderthePlanshallbeevidencedandgovernedexclusivelybyaSARAgreementbetweentheParticipantandtheCompany.SuchSARshallbesubjecttoallapplicabletermsandconditionsofthePlanandmaybesubjecttoanyothertermsandconditionsthatarenotinconsistentwiththePlanandthattheCommitteedeemsappropriateforinclusioninaSARAgreement(includingwithoutlimitationanyperformanceconditions).ASARAgreementmayprovideforamaximumlimitontheamountofanypayoutnotwithstandingtheFairMarketValueonthedateofexerciseoftheSAR.TheprovisionsofthevariousSARAgreementsenteredintounderthePlanneednotbeidentical.SARsmaybegrantedinconsiderationofareductionintheParticipant’scompensation.(b)NumberofShares.EachSARAgreementshallspecifythenumberofSharestowhichtheSARpertainsandshallbesubjecttoadjustmentofsuchnumberinaccordancewithSection11.(c)ExercisePrice.EachSARAgreementshallspecifytheExercisePricewhichshallbeestablishedbytheCommittee.TheExercisePriceofaSARshallnotbelessthan100%oftheFairMarketValueonthedateofGrant.(d)ExercisabilityandTerm.EachSARAgreementshallspecifythedatewhenalloranyinstallmentoftheSARistobecomeexercisable.TheSARAgreementshallalsospecifythetermoftheSARwhichshallnotexceedtenyearsfromthedateofGrant.UnlesstheapplicableSARAgreementprovidesotherwise,eachSARshallvestandbecomeexercisablewithrespectto20%oftheSharessubjecttotheSARuponcompletionofoneyearofServicemeasuredfromthevestingcommencementdate,thebalanceoftheSharessubjecttotheSARshallvestandbecomeexercisableinforty-eightequalinstallmentsuponcompletionofeachmonthofServicethereafter,andthetermoftheSARshallbetenyearsfromthedateofGrant.ASARAgreementmayprovideforacceleratedvestingintheeventoftheParticipant’sdeath,Disability,orotherevents.SARsmaybeawardedincombinationwithOptionsorStockGrants,andsuchanAwardshallprovidethattheSARswillnotbeexercisableunlesstherelatedOptionsorStockGrantsareforfeited.ASARmaybeincludedinanISOonlyatthetimeofGrantbutmaybeincludedinanNSOatthetimeofGrantoratanysubsequenttime,butnotlaterthansixmonthsbeforetheexpirationofsuchNSO.NoSARmayprovidethat,uponexerciseoftheSAR,anewSARwillautomaticallybegranted.(e)ExerciseofSARs.If,onthedatewhenaSARexpires,theExercisePriceundersuchSARislessthantheFairMarketValueonsuchdatebutanyportionofsuchSARhasnotbeenexercisedorsurrendered,thensuchSARshallautomaticallybedeemedtobeexercisedasofsuchdatewithrespecttosuchportion.UponexerciseofaSAR,theParticipant(oranypersonhavingtherighttoexercisetheSAR)shallreceivefromtheCompany(i)Shares,(ii)cashor(iii)anycombinationofSharesandcash,astheCommitteeshalldetermineatthetimeofGrantoftheSAR,initssolediscretion.Theamountofcashand/ortheFairMarketValueofSharesreceiveduponexerciseofSARsshall,intheaggregate,beequaltotheamountbywhichtheFairMarketValue(onthedateofexercise)oftheSharessubjecttotheSARsexceedstheExercisePriceofthoseShares.(f)ModificationorAssumptionofSARs.WithinthelimitationsofthePlan,theCommitteemaymodify,extendorassumeoutstandingstockappreciationrightsormayacceptthecancellationofoutstandingstockappreciationrights(includingstockappreciationrights
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grantedbyanotherissuer)inreturnforthegrantofnewSARsforthesameoradifferentnumberofShares,atthesameoradifferentExercisePrice,andwiththesameordifferentvestingprovisions.Notwithstandingtheprecedingsentenceoranythingtothecontraryherein,theCommitteemaynotRe-PriceoutstandingSARsunlessthereisapprovalbytheCompanyshareholdersand,unlessamodificationisnecessaryordesirabletocomplywithanyapplicablelaw,regulationorrule,suchmodificationofaSARshallnot, withouttheconsentoftheParticipant,impairhisorherrightsorobligationsundersuchSAR.(g)AssignmentorTransferofSARs.ExceptasotherwiseprovidedintheapplicableSARAgreementandthenonlytotheextentpermittedbyapplicablelaw,noSARshallbetransferablebytheParticipantotherthanbywillorbythelawsofdescentanddistribution.ExceptasotherwiseprovidedintheapplicableSARAgreement,aSARmaybeexercisedduringthelifetimeoftheParticipantonlybytheParticipantorbytheguardianorlegalrepresentativeoftheParticipant.NoSARorinterestthereinmaybeassigned,pledgedorhypothecatedbytheParticipantduringhisorherlifetime,whetherbyoperationoflaworotherwise,orbemadesubjecttoexecution,attachmentorsimilarprocess.
SECTION 9. TERMSANDCONDITIONSFORSTOCKGRANTS.(a)AmountandFormofAwards.AwardsunderthisSection9maybegrantedintheformofaStockGrant.EachStockGrantAgreementshallspecifythenumberofSharestowhichtheStockGrantpertainsandshallbesubjecttoadjustmentofsuchnumberinaccordancewithSection11.AStockGrantmayalsobeawardedincombinationwithNSOs,andsuchanAwardmayprovidethattheStockGrantwillbeforfeitedintheeventthattherelatedNSOsareexercised.(b)StockGrantAgreement.EachStockGrantawardedunderthePlanshallbeevidencedandgovernedexclusivelybyaStockGrantAgreementbetweentheParticipantandtheCompany.EachStockGrantshallbesubjecttoallapplicabletermsandconditionsofthePlanandmaybesubjecttoanyothertermsandconditionsthatarenotinconsistentwiththePlanandthattheCommitteedeemsappropriateforinclusionintheapplicableStockGrantAgreement(includingwithoutlimitationanyperformanceconditions).TheprovisionsofthevariousStockGrantAgreementsenteredintounderthePlanneednotbeidentical.(c)PaymentforStockGrants.StockGrantsmaybeissuedwithorwithoutcashconsiderationoranyotherformoflegallypermissibleconsiderationapprovedbytheCommittee.(d)VestingConditions.EachStockGrantmayormaynotbesubjecttovesting.AnysuchvestingprovisionmayprovidethatSharesshallvestbasedonServiceovertimeorshallvest,infullorininstallments,uponsatisfactionofperformanceconditionsspecifiedintheStockGrantAgreementwhichmayincludePerformanceGoalspursuanttoSection4(e).UnlesstheapplicableStockGrantAgreementprovidesotherwise,eachStockGrantshallvestwithrespectto20%oftheSharessubjecttotheStockGrantuponcompletionofeachyearofServiceoneachofthefirstthroughfifthannualanniversariesofthevestingcommencementdate.AStockGrantAgreementmayprovideforacceleratedvestingintheeventoftheParticipant’sdeath,Disability,orotherevents.(e)AssignmentorTransferofStockGrants.ExceptasprovidedintheapplicableStockGrantAgreement,andthenonlytotheextentpermittedbyapplicablelaw,aStockGrantawardedunderthePlanshallnotbeanticipated,assigned,attached,garnished,optioned,transferredormadesubjecttoanycreditor’sprocess,whethervoluntarily,involuntarilyorbyoperationoflaw.AnyactinviolationofthisSection9(e)shallbevoid.However,thisSection9(e)shallnotprecludeaParticipantfromdesignatingabeneficiarywhowillreceiveanyvestedoutstandingStockGrantAwardsintheeventoftheParticipant’sdeath,norshallitprecludeatransferofvestedStockGrantAwardsbywillorbythelawsofdescentanddistribution.(f)VotingandDividendRights.TheholderofaStockGrantawardedunderthePlanshallhavethesamevoting,dividendandotherrightsastheCompany’sothershareholders.AStockGrantAgreement,however,mayrequirethattheholderofsuchStockGrantinvestanycashdividendsreceivedinadditionalSharessubjecttotheStockGrant.SuchadditionalSharessubjecttotheStockGrantshallbesubjecttothesameconditionsandrestrictionsastheStockGrantwithrespecttowhichthedividendswerepaid.SuchadditionalSharessubjecttotheStockGrantshallnotreducethenumberofSharesavailableforissuanceunderSection5.(g)ModificationorAssumptionofStockGrants.WithinthelimitationsofthePlan,theCommitteemaymodifyorassumeoutstandingstockgrantsormayacceptthecancellationofoutstandingstockgrants(includingstockgrantedbyanotherissuer)inreturnforthegrantofnewStockGrantsforthesameoradifferentnumberofSharesandwiththesameordifferentvestingprovisions.Notwithstandingtheprecedingsentenceoranythingtothecontraryherein,theCommitteemaynotmodifyanoutstandingStockGrantsuchthatthemodificationshall,withouttheconsentoftheParticipant,impairhisorherrightsorobligationsundersuchStockGrant,unlesssuchmodificationisnecessaryordesirabletocomplywithanyapplicablelaw,regulationorrule.
SECTION 10. TERMSANDCONDITIONSOFSTOCKUNITS.(a)StockUnitAgreement.EachgrantofStockUnitsunderthePlanshallbeevidencedandgovernedexclusivelybyaStockUnitAgreementbetweentheParticipantandtheCompany.SuchStockUnitsshallbesubjecttoallapplicabletermsandconditionsofthePlanandmaybesubjecttoanyothertermsandconditionsthatarenotinconsistentwiththePlanandthattheCommitteedeemsappropriateforinclusionintheapplicableStockUnitAgreement(includingwithoutlimitationanyperformanceconditions).TheprovisionsofthevariousStockUnitAgreementsenteredintounderthePlanneednotbeidentical.StockUnitsmaybegrantedinconsiderationofareductionintheParticipant’sothercompensation.(b)NumberofShares.EachStockUnitAgreementshallspecifythenumberofSharestowhichtheStockUnitGrantpertainsandshallbesubjecttoadjustmentofsuchnumberinaccordancewithSection11.
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(c)PaymentforStockUnits.StockUnitsshallbeissuedwithoutconsideration.(d)VestingConditions.EachAwardofStockUnitsmayormaynotbesubjecttovesting.AnysuchvestingprovisionmayprovidethatSharesshallvestbasedonServiceovertimeorshallvest,infullorininstallments,uponsatisfactionofperformanceconditionsspecifiedintheStockUnitAgreementwhichmayincludePerformanceGoalspursuanttoSection4(e).UnlesstheapplicableStockUnitAgreementprovidesotherwise,eachStockUnitshallvestwithrespectto20%oftheSharessubjecttotheStockUnituponcompletionofeachyearofServiceoneachofthefirstthroughfifthannualanniversariesofthevestingcommencementdate.AStockUnitAgreementmayprovideforacceleratedvestingintheeventoftheParticipant’sdeath,Disability,orotherevents.(e)VotingandDividendRights.TheholdersofStockUnitsshallhavenovotingrights.Priortosettlementorforfeiture,anyStockUnitawardedunderthePlanmay,attheCommittee’sdiscretion,carrywithitarighttodividendequivalents.SuchrightentitlestheholdertobecreditedwithanamountequaltoallcashdividendspaidononeSharewhiletheStockUnitisoutstanding.DividendequivalentsmaybeconvertedintoadditionalStockUnits.Settlementofdividendequivalentsmaybemadeintheformofcash,intheformofShares,orinacombinationofboth.Priortodistribution,anydividendequivalentsshallbesubjecttothesameconditionsandrestrictionsastheStockUnitstowhichtheyattachandmaynotbepaiduntiltheapplicableconditionsandrestrictions,includinganyperformanceconditions,aresatisfied.(f)FormandTimeofSettlementofStockUnits.SettlementofvestedStockUnitsmaybemadeintheformof(a)cash,(b)Sharesor(c)anycombinationofboth,asdeterminedbytheCommitteeatthetimeofthegrantoftheStockUnits,initssolediscretion.MethodsofconvertingStockUnitsintocashmayinclude(withoutlimitation)amethodbasedontheaverageFairMarketValueofSharesoveraseriesoftradingdays.VestedStockUnitsmaybesettledinalumpsumorininstallments.ThedistributionmayoccurorcommencewhenthevestingconditionsapplicabletotheStockUnitshavebeensatisfiedorhavelapsed,oritmaybedeferred,inaccordancewithapplicablelaw,toanylaterdate.Theamountofadeferreddistributionmaybeincreasedbyaninterestfactororbydividendequivalents.UntilanAwardofStockUnitsissettled,thenumberofsuchStockUnitsshallbesubjecttoadjustmentpursuanttoSection11.(g)Creditors’Rights.AholderofStockUnitsshallhavenorightsotherthanthoseofageneralcreditoroftheCompany.StockUnitsrepresentanunfundedandunsecuredobligationoftheCompany,subjecttothetermsandconditionsoftheapplicableStockUnitAgreement.(h)ModificationorAssumptionofStockUnits.WithinthelimitationsofthePlan,theCommitteemaymodifyorassumeoutstandingstockunitsormayacceptthecancellationofoutstandingstockunits(includingstockunitsgrantedbyanotherissuer)inreturnforthegrantofnewStockUnitsforthesameoradifferentnumberofSharesandwiththesameordifferentvestingprovisions.Notwithstandingtheprecedingsentenceoranythingtothecontraryherein,theCommitteemaynotmodifyanoutstandingStockUnitsuchthatthemodificationshall,withouttheconsentoftheParticipant,impairhisorherrightsorobligationsundersuchStockUnit,unlesssuchmodificationisnecessaryordesirabletocomplywithanyapplicablelaw,regulationorrule.(i)AssignmentorTransferofStockUnits.ExceptasprovidedintheapplicableStockUnitAgreement,andthenonlytotheextentpermittedbyapplicablelaw,StockUnitsshallnotbeanticipated,assigned,attached,garnished,optioned,transferredormadesubjecttoanycreditor’sprocess,whethervoluntarily,involuntarilyorbyoperationoflaw.AnyactinviolationofthisSection10(i)shallbevoid.However,thisSection10(i)shallnotprecludeaParticipantfromdesignatingabeneficiarywhowillreceiveanyoutstandingvestedStockUnitsintheeventoftheParticipant’sdeath,norshallitprecludeatransferofvestedStockUnitsbywillorbythelawsofdescentanddistribution.
SECTION 11. PROTECTIONAGAINSTDILUTION.(a)Adjustments.IntheeventofasubdivisionoftheoutstandingShares,adeclarationofadividendpayableinShares,adeclarationofadividendpayableinaformotherthanSharesinanamountthathasamaterialeffectonthepriceofShares,acombinationorconsolidationoftheoutstandingShares(byreclassificationorotherwise)intoalessernumberofShares,arecapitalization,aspin-offorasimilaroccurrence,theCommitteeshallmakeappropriateadjustmentstothefollowing:
(i)thenumberofSharesandthekindofsharesorsecuritiesavailableforfutureAwardsunderSection5;
(ii)thelimitsonAwardsspecifiedinSection5;
(iii)thenumberofSharesandthekindofsharesorsecuritiescoveredbyeachoutstandingAward;or(iv)theExercisePriceundereachoutstandingSARorOption.
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(b)ParticipantRights.ExceptasprovidedinthisSection11,aParticipantshallhavenorightsbyreasonofanyissuebytheCompanyofstockofanyclassorsecuritiesconvertibleintostockofanyclass,anysubdivisionorconsolidationofsharesofstockofanyclass,thepaymentofanystockdividendoranyotherincreaseordecreaseinthenumberofsharesofstockofanyclass.IfbyreasonofanadjustmentpursuanttothisSection11aParticipant’sAwardcoversadditionalordifferentsharesofstockorsecurities,thensuchadditionalordifferentsharesandtheAwardinrespectthereofshallbesubjecttoalloftheterms,conditionsandrestrictionswhichwereapplicabletotheAwardandtheSharessubjecttotheAwardpriortosuchadjustment.(c)FractionalShares.AnyadjustmentofSharespursuanttothisSection11shallberoundeddowntothenearestwholenumberofShares.UndernocircumstancesshalltheCompanyberequiredtoauthorizeorissuefractionalsharesandnoconsiderationshallbeprovidedasaresultofanyfractionalsharesnotbeingissuedorauthorized.
SECTION 12. EFFECTOFACORPORATETRANSACTION.(a)CorporateTransaction.IntheeventthattheCompanyisapartytoaCorporateTransaction,outstandingAwardsshallbesubjecttotheapplicableagreementofmerger,reorganization,orsaleofassets.Suchagreementmayprovide,withoutlimitation,fortheassumptionorsubstitutionofoutstandingOptions,SARs,orStockUnitsbythesurvivingcorporationoritsparent,fortheassumptionofoutstandingStockGrantAgreementsbythesurvivingcorporationoritsparent,forthereplacementofoutstandingOptions,SARs,andStockUnitswithacashincentiveprogramofthesurvivingcorporationwhichpreservesthespreadexistingontheunvestedportionsofsuchoutstandingAwardsatthetimeofthetransactionandprovidesforsubsequentpayoutinaccordancewiththesamevestingprovisionsapplicabletothoseAwards,foracceleratedvestingofoutstandingAwards,orforthecancellationofoutstandingOptions,SARs,andStockUnits,withorwithoutconsideration,inallcaseswithouttheconsentoftheParticipant.(b)Acceleration.TheCommitteemaydetermine,atthetimeofgrantofanAwardorthereafter,thatsuchAwardshallbecomefullyvestedastoallSharessubjecttosuchAwardintheeventthataCorporateTransactionoraChangeinControloccurs.UnlessotherwiseprovidedintheapplicableAwardagreement,intheeventthataCorporateTransactionoccursandanyoutstandingOptions,SARsorStockUnitsarenotassumed,substituted,orreplacedwithacashincentiveprogrampursuanttoSection12(a)oranyoutstandingStockGrantAgreementsarenotassumedpursuanttoSection12(a),thensuchAwardsshallfullyvestandbefullyexercisableimmediatelypriortosuchCorporateTransaction.ImmediatelyfollowingtheconsummationofaCorporateTransaction,alloutstandingOptions,SARsandStockUnitsshallterminateandceasetobeoutstanding,excepttotheextentthattheyareassumedbythesurvivingcorporationoritsparent.(c)Dissolution.Totheextentnotpreviouslyexercisedorsettled,Options,SARsandStockUnitsshallterminateimmediatelypriortothedissolutionorliquidationoftheCompany.
SECTION 13. LIMITATIONSONRIGHTS.(a)NoEntitlements.AParticipant’srights,ifany,inrespectoforinconnectionwithanyAwardisderivedsolelyfromthediscretionarydecisionoftheCompanytopermittheindividualtoparticipateinthePlanandtobenefitfromadiscretionaryAward.ByacceptinganAwardunderthePlan,aParticipantexpresslyacknowledgesthatthereisnoobligationonthepartoftheCompanytocontinuethePlanand/orgrantanyadditionalAwards.AnyAwardgrantedhereunderisnotintendedtobecompensationofacontinuingorrecurringnature,orpartofaParticipant’snormalorexpectedcompensation,andinnowayrepresentsanyportionofaParticipant’ssalary,compensation,orotherremunerationforpurposesofpensionbenefits,severance,redundancy,resignationoranyotherpurpose.NeitherthePlannoranyAwardgrantedunderthePlanshallbedeemedtogiveanyindividualarighttoremainanemployee,consultantordirectoroftheCompany,aParent,aSubsidiaryoranAffiliate.TheCompanyanditsParentsandSubsidiariesandAffiliatesreservetherighttoterminatetheServiceofanypersonatanytime,andforanyreason,subjecttoapplicablelaws,theCompany’sArticlesofIncorporationandBylawsandawrittenemploymentagreement(ifany),andsuchterminatedpersonshallbedeemedirrevocablytohavewaivedanyclaimtodamagesorspecificperformanceforbreachofcontractordismissal,compensationforlossofoffice,tortorotherwisewithrespecttothePlanoranyoutstandingAwardthatisforfeitedand/oristerminatedbyitstermsortoanyfutureAward.(b)Shareholders’Rights.AParticipantshallhavenodividendrights,votingrightsorotherrightsasashareholderwithrespecttoanySharescoveredbyhisorherAwardpriortotheissuanceofsuchShares(asevidencedbyanappropriateentryonthebooksoftheCompanyoradulyauthorizedtransferagentoftheCompany).NoadjustmentshallbemadeforcashdividendsorotherrightsforwhichtherecorddateispriortothedatewhensuchSharesareissued,exceptasexpresslyprovidedinSection11.(c)RegulatoryRequirements.AnyotherprovisionofthePlannotwithstanding,theobligationoftheCompanytoissueSharesorothersecuritiesunderthePlanshallbesubjecttoallapplicablelaws,rulesandregulationsandsuchapprovalbyanyregulatorybodyasmayberequired.TheCompanyreservestherighttorestrict,inwholeorinpart,thedeliveryofSharesorother
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securitiespursuanttoanyAwardpriortothesatisfactionofalllegalrequirementsrelatingtotheissuanceofsuchSharesorothersecurities,totheirregistration,qualificationorlistingortoanexemptionfromregistration,qualificationorlisting.
SECTION 14. WITHHOLDINGTAXES.(a)General.AParticipantshallmakearrangementssatisfactorytotheCompanyforthesatisfactionofanywithholdingtaxobligationsthatariseinconnectionwithhisorherAward.TheCompanyshallnotberequiredtoissueanySharesormakeanycashpaymentunderthePlanuntilsuchobligationsaresatisfied.(b)ShareWithholding.IfapublicmarketfortheCompany’sSharesexists,theCommitteemaypermitaParticipanttosatisfyallorpartofhisorherwithholdingorincometaxobligationsbyhavingtheCompanywithholdalloraportionofanySharesthatotherwisewouldbeissuedtohimorherorbysurrenderingorattestingtoalloraportionofanySharesthatheorshepreviouslyacquired.SuchSharesshallbevaluedbasedonthevalueoftheactualtradeor,ifthereisnone,theFairMarketValueasofthepreviousday.AnypaymentoftaxesbyassigningSharestotheCompanymaybesubjecttorestrictions,including,butnotlimitedto,anyrestrictionsrequiredbyrulesoftheSEC.TheCommitteemay,initsdiscretion,alsopermitaParticipanttosatisfywithholdingorincometaxobligationsrelatedtoanAwardthroughCashlessExerciseorthroughasaleofSharesunderlyingtheAward.
SECTION 15. DURATIONANDAMENDMENTS.(a)TermofthePlan.TotheextenttheBoardapprovesanamendmenttothePlanthatrequiresshareholderapproval,theamendmenttothePlanshallbecomeeffectiveuponitsapprovalbyCompanyshareholders.ThePlanshallterminateattheCompany’s2021AnnualMeetingofShareholdersandmaybeterminatedonanyearlierdatepursuanttothisSection15.(b)RighttoAmendorTerminatethePlan.TheBoardmayamendorterminatethePlanatanytimeandforanyreason.TheterminationofthePlan,oranyamendmentthereof,shallnotimpairtherightsorobligationsofanyParticipantunderanyAwardpreviouslygrantedunderthePlanwithouttheParticipant’sconsent,unlesssuchmodificationisnecessaryordesirabletocomplywithanyapplicablelaw,regulationorrule.NoAwardsshallbegrantedunderthePlanafterthePlan’stermination.AnamendmentofthePlanshallbesubjecttotheapprovaloftheCompany’sshareholdersonlytotheextentsuchapprovalisotherwiserequiredbyapplicablelaws,regulationsorrules.
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(For Grants Beginning in July 2016)
CISCO SYSTEMS, INC.NOTICE OF GRANT OF STOCK OPTION
Noticeisherebygivenofthefollowingoptiongrant(the“Option”)madetopurchasesharesofCiscoSystems,Inc.(the“Company”)commonstock:
Optionee:GrantDate:TypeofOption:U.S.NonstatutoryStockOptionGrantNumber:NumberofOptionShares:________________________sharesExercisePrice:$__________________________pershareFirstVestDate:ExpirationDate:
Exercise Schedule .SolongasOptionee’sServicecontinues,theOptionshallvestandbecomeexercisablewithrespectto(i)______percent(__%)oftheoptionshares,assetforthabove(the“OptionShares”)ontheFirstVestDateassetforthaboveand(ii)thebalanceoftheOptionSharesin________________installmentsuponOptionee’scompletionofeachadditional_______ofServiceoverthe_____________periodmeasuredfromtheFirstVestDate.InnoeventshalltheOptionvestandbecomeexercisableforanyadditionalOptionSharesafterOptionee’scessationofService.
ShouldOptioneerequestareductiontohisorherworkcommitmenttolessthanthirty(30)hoursperweek,thentheCompanyshallhavetherighttoextendtheperiodoverwhichtheOptionshallthereaftervestandbecomeexercisablefortheOptionSharesduringtheremainderoftheOptiontermtotheextentpermittedunderlocallaw.Innoeventshallanyextensionoftheexerciseschedule,assetforthabove(“ExerciseSchedule”)fortheOptionSharesresultintheextensionoftheexpirationdate,assetforthabove,(“ExpirationDate”)oftheOption.
OptioneeunderstandsandagreesthattheOptionisofferedsubjecttoandinaccordancewiththetermsoftheCiscoSystems,Inc.2005StockIncentivePlan(the“Plan”).OptioneefurtheragreestobeboundbythetermsofthePlanandthetermsoftheOptionassetforthintheStockOptionAgreement(the“Agreement”)attachedhereto.
No Employment or Service Contract .NothinginthisNoticeorintheattachedAgreementorinthePlanshallconferuponOptioneeanyrighttocontinueinServiceforanyperiodofspecificdurationorinterferewithorotherwiserestrictinanywaytherightsoftheCompany(oranyParent,SubsidiaryorAffiliateemployingorretainingOptionee)orofOptionee,whichrightsareherebyexpresslyreservedbyeach,toterminateOptionee’sServiceatanytimeforanyreason,withorwithoutcausetotheextentpermissibleunderlocallaw.
Definitions .AllcapitalizedtermsinthisNoticeshallhavethemeaningassignedtotheminthisNotice,theattachedAgreementorthePlan.
STOCK OPTION AGREEMENT
Recitals
A.TheBoardhasadoptedthePlanforthepurposeofretainingtheservicesofselectedEmployees,non-employeemembersoftheBoardandConsultants.
B.OptioneeistorendervaluableservicestotheCompany(oraParent,SubsidiaryorAffiliate),andthisAgreementisexecutedpursuantto,andisintendedtocarryoutthepurposesof,thePlaninconnectionwiththeCompany’sgrantofanoptiontoOptionee.
C.AllcapitalizedtermsinthisAgreementshallhavethemeaningassignedtotheminthisAgreement,theattachedNoticeofGrantofStockOption(the“Notice”),orthePlan.
NOW, THEREFORE ,itisherebyagreedasfollows:
1.Grant of Option .TheCompanyherebygrantstoOptionee,asofthegrantdate,assetforthintheNotice,(the“GrantDate”)anoptiontopurchaseuptothenumberofOptionSharesspecifiedintheNotice.TheOptionSharesshallbepurchasablefromtimetotimeduringtheOptiontermspecifiedinParagraph2attheExercisePricespecifiedintheNotice.
2.Option Term .ThisOptionshallhaveamaximumtermof__________years[nottoexceedten(10)years]measuredfrom
theGrantDateandshallaccordinglyexpireatthecloseofbusinessontheExpirationDate,unlesssoonerterminatedinaccordancewithParagraph4,5or6.
3.Non-Transferability .ThisOptionshallnotbeanticipated,assigned,attached,garnished,optioned,transferredormadesubjecttoanycreditor’sprocess,whethervoluntarilyorinvoluntarilyorbyoperationoflaw.Notwithstandingtheforegoing,shouldtheOptioneediewhileholdingthisOption,thenthisOptionshallbetransferredinaccordancewithOptionee’swillorthelawsofdescentanddistribution.
4.Dates of Exercise .ThisOptionshallvestandbecomeexercisablefortheOptionSharesinoneormoreinstallmentsasspecifiedintheNotice.AstheOptionbecomesexercisableforsuchinstallments,thoseinstallmentsshallaccumulateandtheOptionshallremainexercisablefortheaccumulatedinstallmentsuntiltheExpirationDateorsoonerterminationoftheOptiontermunderParagraph5or6.Asanadministrativematter,theexercisableportionofthisOptionmayonlybeexerciseduntilthecloseoftheNasdaqGlobalSelectMarketontheExpirationDateortheearlierterminationdateunderParagraph5or6or,ifsuchdateisnotatradingdayontheNasdaqGlobalSelectMarket,thelasttradingdaybeforesuchdate.AnylaterattempttoexercisethisOptionwillnotbehonored.Forexample,ifOptioneeceasestoremaininServiceasprovidedinParagraph5(i)andthedatethree(3)monthsfromthedateofcessationisMonday,July4(aholidayonwhichtheNasdaqGlobalSelectMarketisclosed),OptioneemustexercisetheexercisableportionofthisOptionby4:00p.m.EasternDaylightTimeonFriday,July1.
5.Cessation of Service .TheOptiontermspecifiedinParagraph2shallterminate(andthisOptionshallceasetobeoutstanding)priortotheExpirationDateshouldanyofthefollowingprovisionsbecomeapplicable:
(i)ShouldOptioneeceasetoremaininServiceforanyreason(otherthandeath,DisabilityorCauseandwhetherornotinbreachoflocallaborlaws)whilethisOptionisoutstanding,thenOptioneeshallhaveaperiodofthree(3)months(commencingwiththedateofsuchcessationofService)duringwhichtoexercisethisOption,butinnoeventshallthisOptionbeexercisableatanytimeaftertheExpirationDate.
(ii)IfOptioneedieswhilethisOptionisoutstanding,thentheOptionee’sdesignatedbeneficiaryor,ifnobeneficiarywasdesignatedorproperlydesignatedor,ifnodesignatedbeneficiarysurvivestheOptionee,theOptionee’sestate(totheextentreasonablydeterminable)orotherindividualorentityentitledtoreceivetheOptionunderapplicablelocallawshallhavetherighttoexercisethisOption.Suchrightshalllapse,andthisOptionshallceasetobeoutstanding,upontheearlierof(A)theexpirationoftheeighteen(18)monthperiodmeasuredfromthedateofOptionee’sdeathor(B)theExpirationDate.OptioneemayonlymakeabeneficiarydesignationwithrespecttothisOptioniftheCompanyhasapprovedaprocessorprocedureforsuchbeneficiarydesignationforthelocaljurisdictionwithinwhichOptioneeperformsservicesfortheCompanyoraParent,SubsidiaryorAffiliate.IfnosuchbeneficiarydesignationprocessorprocedurehasbeenapprovedbytheCompany,then,intheeventofOptionee’sdeath,thisOptionmayonlybeexercisedbytheOptionee’sestate(totheextentreasonablydeterminable)orotherindividualorentityentitledtoreceivetheOptionunderapplicablelocallaw.
(iii)ShouldOptioneeceaseServicebyreasonofDisabilitywhilethisOptionisoutstanding,thenOptioneeshallhaveaperiodofeighteen(18)months(commencingwiththedateofsuchcessationofService)duringwhichtoexercisethisOption,butinnoeventshallthisOptionbeexercisableatanytimeaftertheExpirationDate.
(iv)Duringthelimitedperiodofpost-Serviceexercisability,thisOptionmaynotbeexercisedintheaggregateformorethanthenumberofvestedOptionSharesforwhichtheOptionisexercisableatthedatetheOptioneeceasestoactivelyprovideService(notextendedbyanynoticeperiodmandatedunderlocallaw).Upontheexpirationofsuchlimitedexerciseperiodor(ifearlier)upontheExpirationDate,thisOptionshallterminateandceasetobeoutstandingforanyvestedOptionSharesforwhichtheOptionhasnotbeenexercised.However,thisOptionshall,immediatelyasofthedatetheOptioneeceasestoactivelyprovideServiceforanyreason,terminateandceasetobeoutstandingwithrespecttoanyOptionSharesinwhichOptioneeisnototherwiseatthattimevestedorforwhichthisOptionisnototherwiseatthattimeexercisable.
(v)ShouldOptionee’sServicebeterminatedforCauseorshouldOptioneeotherwiseengageinactivitiesconstitutingCausewhilethisOptionisoutstanding,thenthisOptionshallterminateimmediatelyandceasetoremainoutstanding.IntheeventOptionee’sServiceissuspendedpendinganinvestigationofwhetherOptionee’sServicewillbeterminatedforCause,allOptionee’srightsundertheOption,includingtherighttoexercisetheOption,shallbesuspendedduringtheinvestigationperiod.
(vi)ForpurposesofthisParagraph5,intheeventofOptionee’scessationofService,Optionee’srighttoreceiveadditionaloptionsortovestintheOptionwillendasofthedatetheOptioneeisnolongeractivelyprovidingServiceandwillnotbeextendedbyanynoticeperiodmandatedunderlocallaw(e.g .,activeServicewouldnotincludeanyperiodof“gardenleave”orsimilarperiodpursuanttolocallaw);theCompanyshallhavetheexclusivediscretiontodeterminewhenanOptioneeisnolongeractivelyprovidingServiceforpurposesofthisOption.
6.Special Acceleration of Option .
(a)ThisOption,totheextentoutstandingatthetimeofaCorporateTransactionbutnototherwisefullyvestedandexercisable,shallautomaticallyacceleratesothatthisOptionshall,immediatelypriortotheeffectivedateoftheCorporateTransaction,becomevestedandexercisableforalloftheOptionSharesatthetimesubjecttothisOptionandmaybeexercisedforanyorallofthoseOptionSharesasfully-vestedShares.NosuchaccelerationofthisOption,however,shalloccurifandtotheextent:(i)thisOptionis,inconnectionwiththeCorporateTransaction,eitherassumedbythesuccessorcorporation(orparentthereof)orreplacedwithacomparableoptiontopurchasesharesofthecapitalstockofthesuccessorcorporation(orparentthereof)or(ii)thisOptionisreplacedwithacashincentiveprogramofthesuccessorcorporationwhichpreservesthespreadexistingontheunvestedOptionSharesatthetimeoftheCorporateTransaction(theexcessoftheFairMarketValueofthoseOptionSharesovertheaggregateExercisePricepayableforsuchShares)andprovidesforsubsequentpay-outinaccordancewiththesameExerciseSchedulesetforthintheNotice.Thedeterminationofoptioncomparabilityunderclause(i)shallbemadebytheCommittee,andsuchdeterminationshallbefinal,bindingandconclusive.
(b)ImmediatelyfollowingtheeffectivedateoftheCorporateTransaction,thisOptionshallterminateandceasetobeoutstanding,excepttotheextentassumedbythesuccessorcorporation(orparentthereof)inconnectionwiththeCorporateTransaction.
(c)IfthisOptionisassumedinconnectionwithaCorporateTransaction,thentheCommitteeshallappropriatelyadjustthenumberofsharesandthekindofsharesorsecuritiescoveredbytheOptionandtheExercisePriceimmediatelyaftersuchCorporateTransaction,providedtheaggregateExercisePriceshallremainthesame.
(d)ThisAgreementshallnotinanywayaffecttherightoftheCompanytoadjust,reclassify,reorganizeorotherwisechangeitscapitalorbusinessstructureortomerge,consolidate,dissolve,liquidateorsellortransferalloranypartofitsbusinessorassets.
7.Adjustment in Option Shares .IntheeventofasubdivisionoftheoutstandingShares,adeclarationofadividendpayableinShares,adeclarationofadividendpayableinaformotherthanSharesinanamountthathasamaterialeffectonthepriceofShares,acombinationorconsolidationoftheoutstandingShares(byreclassificationorotherwise)intoalessernumberofShares,arecapitalization,aspin-offorasimilaroccurrence,appropriateadjustmentsshallbemadeto(i)thetotalnumberand/orkindofsharesorsecuritiessubjecttothisOptionand(ii)theExercisePriceinordertoreflectsuchchangeandtherebyprecludeadilutionorenlargementofbenefitshereunder.
8.Shareholder Rights .TheholderofthisOptionshallnothaveanyshareholderrightswithrespecttotheOptionSharesuntilsuchpersonshallhaveexercisedtheOption,paidtheExercisePriceandbecomeaholderofrecordofthepurchasedShares.
9.Manner of Exercising Option .
(a)InordertoexercisethisOptionwithrespecttoalloranypartoftheOptionSharesforwhichthisOptionisatthetimeexercisable,Optionee(oranyotherpersonorpersonsexercisingtheOption)musttakethefollowingactions:
(i)PaytheaggregateExercisePriceforthepurchasedSharesinoneormoreofthefollowingforms:
(A)cashorcheckwhich,intheCompany’ssolediscretion,shallbemadepayabletoaCompany-designatedbrokeragefirmortheCompany;and
(B)aspermittedbyapplicablelaw,throughaspecialsaleandremittanceprocedurepursuanttowhichOptionee(oranyotherpersonorpersonsexercisingtheOption)shallconcurrentlyprovideirrevocablewritteninstructions(I)toaCompany-designatedbrokeragefirm(orinthecaseofanexecutiveofficerorBoardmemberoftheCompany,anOptionee-designatedbrokeragefirm)toeffecttheimmediatesaleofthepurchasedSharesandremittotheCompany,outofthesaleproceedsavailableonthesettlementdate,sufficientfundstocovertheaggregateExercisePricepayableforthepurchasedSharesplus,ifapplicable,theamountnecessarytosatisfytheCompany’s(oraParent’s,Subsidiary’sorAffiliate’s)withholdingobligations(includingincometax,socialtaxesorinsurancecontributions,payrolltax,paymentonaccountorothertaxitemsrelatedtoOptionee’sparticipationinthePlanandlegallyapplicabletoOptionee(“Tax-RelatedItems”))and(II)totheCompanytodeliverthepurchasedSharesdirectlytosuchbrokeragefirminordertocompletethesaletransaction.
(ii)FurnishtotheCompanyappropriatedocumentationthatthepersonorpersonsexercisingtheOption(ifotherthanOptionee)havetherighttoexercisethisOption.
(iii)MakeappropriatearrangementswiththeCompany(oraParent,SubsidiaryorAffiliateemployingorretainingOptionee)forthesatisfactionofallwithholdingorotherobligationsrelatedtoTax-RelatedItemsapplicabletotheOptiongrant,vesting,exerciseorthesaleofShares,asapplicable.
(b)Assoonaspracticalaftertheexercisedate,theCompanyshallissuetooronbehalfofOptionee(oranyotherpersonorpersonsexercisingthisOption)thepurchasedOptionShares,(asevidencedbyanappropriateentryonthebooksoftheCompanyoraduly
authorizedtransferagentoftheCompany),subjecttotheappropriatelegendsand/orstoptransferinstructions.
(c)InnoeventmaythisOptionbeexercisedforanyfractionalShares.
(d)NotwithstandinganyotherprovisionsofthePlan,thisAgreementoranyotheragreementtothecontrary,ifatthetimethisOptionisexercised,OptioneeisindebtedtotheCompany(oranyParent,SubsidiaryorAffiliate)foranyreason,thefollowingactionsshallbetaken,asdeemedappropriatebytheCommittee:
(i)anySharestobeissueduponsuchexerciseshallautomaticallybepledgedagainstOptionee’soutstandingindebtedness;and
(ii)ifthisOptionisexercisedinaccordancewithsubparagraph9(a)(i)(B)above,theaftertaxproceedsofthesaleofOptionee’sSharesshallautomaticallybeappliedtotheoutstandingbalanceofOptionee’sindebtedness.
10.Responsibility for Taxes .
(a)OptioneeauthorizestheCompanyand/ortheOptionee’semployer(the“Employer”)ortheirrespectiveagents,attheirdiscretion,tosatisfyanyobligationsrelatedtoTax-RelatedItemsbyoneoracombinationofthefollowing:(1)withholdingallapplicableTax-RelatedItemsfromOptionee’swagesorothercashcompensationpaidtoOptioneebytheCompanyand/ortheEmployer;(2)withholdingfromproceedsofthesaleofSharesacquireduponexerciseoftheOptioneitherthroughavoluntarysale(specificallyincludingwherethisOptionisexercisedinaccordancewithsubparagraph9(a)(i)(B)above)orthroughamandatorysalearrangedbytheCompany(onOptionee’sbehalfpursuanttothisauthorization);or(3)withholdingofSharesthatwouldotherwisebeissueduponexerciseoftheOption.Toavoidfinancialaccountingchargesunderapplicableaccountingguidance,theCompanymaywithholdoraccountforTax-RelatedItemsbyconsideringapplicableminimumstatutorywithholdingratesormaytakeanyotheractionrequiredtoavoidfinancialaccountingchargesunderapplicableaccountingguidance.Finally,OptioneemustpaytotheCompanyortheEmployeranyamountofTax-RelatedItemsthattheCompanyortheEmployermayberequiredtowithholdoraccountforasaresultofOptionee’sparticipationinthePlanorOptionee’spurchaseofSharesthatcannotbesatisfiedbythemeanspreviouslydescribed.TheCompanymayrefusetohonortheexerciseandrefusetoissueordelivertheSharesortheproceedsofthesaleoftheSharesifOptioneefailstocomplywithOptionee’sobligationsinconnectionwiththeTax-RelatedItemsasdescribedinthisParagraph.
(b)RegardlessofanyactiontheCompanyortheEmployertakeswithrespecttoanyorallTax-RelatedItems,OptioneeacknowledgesthattheultimateliabilityforallTax-RelatedItemsisandremainsOptionee’sresponsibilityandmayexceedtheamountactuallywithheldbytheCompanyortheEmployer.OptioneefurtheracknowledgesthattheCompanyand/ortheEmployer(1)makenorepresentationsorundertakingsregardingthetreatmentofanyTax-RelatedItemsinconnectionwithanyaspectoftheOption,includingthegrant,vestingorexerciseoftheOption,thesubsequentsaleofSharesacquiredpursuanttosuchexerciseandthereceiptofanydividends;and(2)donotcommittoandareundernoobligationtostructurethetermsofthegrantoranyaspectoftheOptiontoreduceoreliminateOptionee’sliabilityforTax-RelatedItemsorachieveanyparticulartaxresult.Further,ifOptioneebecomessubjecttotaxationinmorethanonejurisdictionbetweentheGrantDateandthedateofanyrelevanttaxableevent,OptioneeacknowledgesthattheCompanyand/ortheEmployer(orformeremployer,asapplicable)mayberequiredtowithholdoraccountforTax-RelatedItemsinmorethanonejurisdiction.
11.Compliance with Laws and Regulations .
(a)TheexerciseofthisOptionandtheissuanceoftheOptionSharesuponsuchexerciseshallbesubjecttocompliancebytheCompanyandOptioneewithallapplicablelaws,regulationsandrulesrelatingthereto,includingallapplicableregulationsofanystockexchange(ortheNasdaqGlobalSelectMarket,ifapplicable)onwhichtheSharesmaybelistedfortradingatthetimeofsuchexerciseandissuanceandallapplicableforeignlaws.
(b)TheinabilityoftheCompanytoobtainapprovalfromanyregulatorybodyhavingauthoritydeemedbytheCompanytobenecessarytothelawfulissuanceandsaleofanySharespursuanttothisOptionshallrelievetheCompanyofanyliabilitywithrespecttothenon-issuanceorsaleoftheSharesastowhichsuchapprovalshallnothavebeenobtained.
12.Successors and Assigns .ExcepttotheextentotherwiseprovidedinParagraphs3,5and6,theprovisionsofthisAgreementshallinuretothebenefitof,andbebindingupon,theCompanyanditssuccessorsandassignsandOptionee,Optionee’sassignsandthelegalrepresentatives,heirsandlegateesofOptionee’sestate.
13.Notices .AnynoticerequiredorpermittedunderthetermsofthisAgreementshallbeinwritingandshallbedeemedsufficientwhendeliveredpersonallyorsentbyconfirmedemail,telegram,orfaxorforty-eight(48)hoursafterbeingdepositedinthemail,ascertifiedorregisteredmail,withpostageprepaid,andaddressedtotheCompanyattheCompany’sprincipalcorporateofficesortotheOptioneeattheaddressmaintainedfortheOptioneeintheCompany’srecordsor,ineithercase,assubsequentlymodifiedbywrittennoticetotheotherparty.
14.Construction .TheNotice,thisAgreement,andtheOptionevidencedhereby(a)aremadeandgrantedpursuanttothePlanandareinallrespectslimitedbyandsubjecttothetermsofthePlan,and(b)constitutetheentireagreementbetweenOptioneeandtheCompanyonthesubjectmatterhereofandsupercedeallproposals,writtenororal,andallothercommunicationsbetweenthepartiesrelatedtothesubjectmatter.AlldecisionsoftheCommitteewithrespecttoanyquestionorissuearisingundertheNotice,thisAgreementorthePlanshallbeconclusiveandbindingonallpersonshavinganinterestinthisOption.TheprovisionsofthisAgreementareseverableandifanyoneormoreprovisionsaredeterminedtobeillegalorotherwiseunenforceable,inwholeorinpart,theremainingprovisionsshallneverthelessbebindingandenforceable.
15.Governing Law and Forum .ThisAgreementshallbegovernedbyandconstruedinaccordancewiththelawsoftheStateofCaliforniawithoutregardtotheconflictoflawsprinciplesthereof.ForpurposesoflitigatinganydisputethatmayarisedirectlyorindirectlyfromthisAgreement,thepartiesherebysubmitandconsenttolitigationintheexclusivejurisdictionoftheStateofCaliforniaandagreethatanysuchlitigationshallbeconductedonlyinthecourtsofCaliforniaorthefederalcourtsfortheUnitedStatesfortheNorthernDistrictofCaliforniaandnoothercourts.
16.Excess Shares .IftheOptionSharescoveredbythisAgreementexceed,asoftheGrantDate,thenumberofShareswhichmaywithoutshareholderapprovalbeissuedunderthePlan,thenthisOptionshallbevoidwithrespecttothoseexcessshares,unlessshareholderapprovalofanamendmentsufficientlyincreasingthenumberofSharesissuableunderthePlanisobtainedinaccordancewiththeprovisionsofthePlanandallapplicablelaws,regulationsandrules.
17.Leave of Absence .UnlessotherwisedeterminedbytheCommittee,totheextentpermittedbylocallaw,thefollowingprovisionsshallapplyupontheOptionee’scommencementofanauthorizedleaveofabsence:
(a)TheExerciseScheduleineffectundertheNoticeshallbefrozenasofthefirstdayoftheauthorizedleave,andthisOptionshallnotbecomeexercisableforanyadditionalinstallmentsoftheOptionSharesduringtheperiodOptioneeremainsonsuchleave.
(b)InnoeventshallthisOptionbecomeexercisableforanyadditionalOptionSharesorotherwiseremainoutstandingifOptioneedoesnotresumeServicepriortotheExpirationDateoftheOptionterm.
18.Further Instruments .ThepartiesagreetoexecutesuchfurtherinstrumentsandtotakesuchfurtheractionasmaybereasonablynecessarytocarryoutthepurposesandintentofthisAgreement.
19.Authorization to Release and Transfer Necessary Personal Information .
(a) Optionee hereby explicitly and unambiguously consents to the collection, use and transfer, in electronic or other form, of Optionee’spersonal information as described in this Agreement by and among, as applicable, the Employer, and the Company and its Parent, Subsidiaries and Affiliatesfor the exclusive purpose of implementing, administering and managing Optionee’s participation in the Plan.
(b) Optionee understands that the Company and the Employer may hold certain personal information about Optionee, including, but notlimited to, Optionee’s name, home address and telephone number, date of birth, social insurance number (or any other social or national identificationnumber), salary, nationality, job title, residency status, any Shares or directorships held in the Company, details of all options or any other entitlement toShares awarded, canceled, exercised, vested, unvested or outstanding (the “Data”) for the purpose of implementing, administering and managing theOptionee’s participation in the Plan. Optionee understands that Data may be transferred to the Company or any of its Parent, Subsidiaries or Affiliates, or toany third parties assisting in the implementation, administration and management of the Plan, that these recipients may be located in Optionee’s country orelsewhere, including outside the European Economic Area, and that the recipient’s country (e.g., the United States) may have different data privacy laws andprotections than Optionee’s country. Optionee understands that Optionee may request a list with the names and addresses of any potential recipients of theData by contacting Optionee’s local human resources representative. Optionee authorizes the recipients to receive, possess, use, retain and transfer the Data,in electronic or other form, for the sole purposes of implementing, administering and managing Optionee’s participation in the Plan, including any requisitetransfer of such Data to a broker or other third party assisting with the administration of the Option under the Plan or with whom Shares acquired pursuant tothese Options or cash from the sale of such Shares may be deposited. Furthermore, you acknowledge and understand that the transfer of the Data to theCompany or any of its Parent, Subsidiaries or Affiliates, or to any third parties is necessary for your participation in the Plan.
(c) Optionee understands that Data will be held only as long as is necessary to implement, administer and manage Optionee’s participation inthe Plan. Optionee understands that Optionee may, at any time, view the Data, request additional information about the storage and processing of the Data,require any necessary amendments to the Data or refuse or withdraw the consents herein by contacting Optionee’s local human resources representative inwriting. Optionee further acknowledges that withdrawal of consent may affect Optionee’s ability to vest in or realize benefits from the Options, and Optionee’sability to participate in the Plan. For more information on the consequences of Optionee’s refusal to consent or withdrawal of consent, Optionee understandsthat Optionee may contact Optionee’s local human resources representative.
20.No Entitlement or Claims for Compensation .
(a)Optionee’srights,ifany,inrespectoforinconnectionwiththisOptionoranyotherAwardarederivedsolelyfromthediscretionarydecisionoftheCompanytopermitOptioneetoparticipateinthePlanandtobenefitfromadiscretionaryAward.ThePlanmaybeamended,suspendedorterminatedbytheCompanyatanytime,unlessotherwiseprovidedinthePlanandthisAgreement.ByacceptingthisOption,OptioneeexpresslyacknowledgesthatthereisnoobligationonthepartoftheCompanytocontinuethePlanand/orgrantanyadditionalAwardstoOptioneeorbenefitsinlieuofOptionsoranyotherAwardsevenifOptionshavebeengrantedrepeatedlyinthepast.AlldecisionswithrespecttofutureOptiongrants,ifany,willbeatthesolediscretionoftheCommittee.
(b)ThisOptionandtheSharessubjecttotheOptionarenotintendedtoreplaceanypensionrightsorcompensationandarenottobeconsideredcompensationofacontinuingorrecurringnature,orpartofOptionee’snormalorexpectedcompensation,andinnowayrepresentanyportionofOptionee’ssalary,compensationorotherremunerationforanypurpose,includingbutnotlimitedto,calculatinganyseverance,resignation,termination,redundancy,dismissal,endofservicepayments,bonuses,long-serviceawards,pensionorretirementbenefitsorsimilarpayments,andinnoeventshouldbeconsideredascompensationfor,orrelatinginanywayto,pastservicesfortheCompany,theEmployeroranyParent,SubsidiaryorAffiliate.ThevalueoftheOptionandtheSharessubjecttotheOptionareanextraordinaryitemthatdonotconstitutecompensationofanykindforservicesofanykindrenderedtotheCompany,theEmployeroranyParent,SubsidiaryorAffiliateandwhichareoutsidethescopeofOptionee’swrittenemploymentagreement(ifany).
(c)OptioneeacknowledgesthatheorsheisvoluntarilyparticipatinginthePlan.
(d)NeitherthePlannorthisOptionoranyotherAwardgrantedunderthePlanshallbedeemedtogiveOptioneearighttoremainanEmployee,ConsultantordirectoroftheCompany,aParent,SubsidiaryoranAffiliate.TheEmployerreservestherighttoterminatetheServiceofOptioneeatanytime,withorwithoutcause,andforanyreason,subjecttoapplicablelaws,theCompany’sArticlesofIncorporationandBylawsandawrittenemploymentagreement(ifany).
(e)ThegrantoftheOptionandOptionee'sparticipationinthePlanwillnotbeinterpretedtoformanemploymentcontractorrelationshipwiththeCompany,theEmployeroranyParent,SubsidiaryorAffiliate.
(f)ThefuturevalueoftheunderlyingSharesisunknownandcannotbepredictedwithcertainty.IftheunderlyingSharesdonotincreaseinvalue,theOptionwillhavenovalue.IfOptioneeexercisestheOptionandobtainsShares,thevalueoftheSharesacquireduponexercisemayincreaseordecreaseinvalue,evenbelowtheExercisePrice.OptioneealsounderstandsthatneithertheCompany,northeEmployeroranyParent,SubsidiaryorAffiliateisresponsibleforanyforeignexchangefluctuationbetweentheEmployer’slocalcurrencyandtheUnitedStatesDollarthatmayaffectthevalueofthisOption.
(g)InconsiderationofthegrantoftheOption,noclaimorentitlementtocompensationordamagesshallarisefromforfeitureoftheOptionresultingfromterminationofOptionee’sServicebytheCompanyortheEmployer(foranyreasonwhatsoeverandwhetherornotinbreachoflocallaborlaws)andOptioneeirrevocablyreleasestheCompanyandtheEmployerfromanysuchclaimthatmayarise;if,notwithstandingtheforegoing,anysuchclaimisfoundbyacourtofcompetentjurisdictiontohavearisen,OptioneeshallbedeemedirrevocablytohavewaivedOptionee’sentitlementtopursuesuchclaim.
(h)OptioneeagreesthattheCompanymayrequireOptionsgrantedhereunderbeexercisedwith,andtheOptionSharesheldby,abrokerdesignatedbytheCompany.
(i)Optioneeagreesthathisorherrightshereunder(ifany)shallbesubjecttoset-offbytheCompanyforanyvaliddebtstheOptioneeowestotheCompany.
(j)TheOptionandthebenefitsunderthePlan,ifany,willnotautomaticallytransfertoanothercompanyinthecaseofamerger,take-overortransferofliability.
21.No Advice Regarding Grant .TheCompanyandtheEmployerhavenotprovidedanytax,legalorfinancialadvice,norhastheCompanyortheEmployermadeanyrecommendationsregardingOptionee’sparticipationinthePlan,orOptionee’sacquisitionorsaleoftheunderlyingShares.OptioneeisherebyadvisedtoconsultwithOptionee’sownpersonaltax,legalandfinancialadvisorsregardingOptionee’sparticipationinthePlanbeforetakinganyactionrelatedtothePlan.
22.Electronic Delivery .TheCompanymay,initssolediscretion,decidetodeliveranydocumentsrelatedtoOptionee’scurrentorfutureparticipationinthePlanbyelectronicmeansortorequestOptionee’sconsenttoparticipateinthePlanbyelectronicmeans.OptioneeherebyconsentstoreceivesuchdocumentsbyelectronicdeliveryandagreestoparticipateinthePlanthroughanon-lineorelectronicsystemestablishedandmaintainedbytheCompanyorathirdpartydesignatedbytheCompany.
23.Language .IfthisAgreementoranyotherdocumentrelatedtothePlanistranslatedintoalanguageotherthenEnglishand
themeaningofthetranslatedversionisdifferentfromtheEnglishversion,theEnglishversionwilltakeprecedence.
24.Appendix .NotwithstandinganyprovisionsinthisAgreement,theOptionshallbesubjecttoanyspecialtermsandconditionssetforthinanyAppendixtothisAgreementforOptionee’scountryofresidence.Moreover,ifOptioneerelocatestooneofthecountriesincludedintheAppendix,thespecialtermsandconditionsforsuchcountrywillapplytoOptionee,totheextenttheCompanydeterminesthattheapplicationofsuchtermsandconditionsisnecessaryoradvisableinordertocomplywithlocallaworfacilitatetheadministrationofthePlan.TheAppendixconstitutespartofthisAgreement.
25.Imposition of Other Requirements .TheCompanyreservestherighttoimposeotherrequirementsonOptionee’sparticipationinthePlan,ontheOptionandonanySharesacquiredunderthePlan,totheextenttheCompanydeterminesitisnecessaryoradvisableinordertocomplywithlocallaworfacilitatetheadministrationofthePlan.Optioneeagreestosignanyadditionalagreementsorundertakingsthatmaybenecessarytoaccomplishtheforegoing.Furthermore,OptioneeacknowledgesthatthelawsofthecountryinwhichOptioneeisworkingatthetimeofgrant,vestingandexerciseoftheOptionorthesaleofSharesreceivedpursuanttothisAgreement(includinganyrulesorregulationsgoverningsecurities,foreignexchange,tax,labor,orothermatters)maysubjectOptioneetoadditionalproceduralorregulatoryrequirementsthatOptioneeisandwillbesolelyresponsibleforandmustfulfill.
(For Grants Beginning September 2008and Prior to July 2016)
CISCO SYSTEMS, INC.NOTICE OF GRANT OF STOCK OPTION
Noticeisherebygivenofthefollowingoptiongrant(the“Option”)madetopurchasesharesofCiscoSystems,Inc.(the“Company”)commonstock:
Optionee:GrantDate:TypeofOption:U.S.NonstatutoryStockOptionGrantNumber:NumberofOptionShares:sharesExercisePrice:$pershareFirstVestDate:ExpirationDate:
Exercise Schedule .SolongasOptionee’sServicecontinues,theOptionshallvestandbecomeexercisablewithrespectto(i)percent(%)oftheoptionshares,assetforthabove(the“OptionShares”)ontheFirstVestDateassetforthaboveand(ii)thebalanceoftheOptionSharesininstallmentsuponOptionee’scompletionofeachadditionalofServiceovertheperiodmeasuredfromtheFirstVestDate.InnoeventshalltheOptionvestandbecomeexercisableforanyadditionalOptionSharesafterOptionee’scessationofService.
ShouldOptioneerequestareductiontohisorherworkcommitmenttolessthanthirty(30)hoursperweek,thentheCompanyshallhavetherighttoextendtheperiodoverwhichtheOptionshallthereaftervestandbecomeexercisablefortheOptionSharesduringtheremainderoftheOptiontermtotheextentpermittedunderlocallaw.Innoeventshallanyextensionoftheexerciseschedule,assetforthabove(“ExerciseSchedule”)fortheOptionSharesresultintheextensionoftheexpirationdate,assetforthabove,(“ExpirationDate”)oftheOption.
OptioneeunderstandsandagreesthattheOptionisofferedsubjecttoandinaccordancewiththetermsoftheCiscoSystems,Inc.2005StockIncentivePlan(the“Plan”).OptioneefurtheragreestobeboundbythetermsofthePlanandthetermsoftheOptionassetforthintheStockOptionAgreement(the“Agreement”)attachedhereto.
No Employment or Service Contract .NothinginthisNoticeorintheattachedAgreementorinthePlanshallconferuponOptioneeanyrighttocontinueinServiceforanyperiodofspecificdurationorinterferewithorotherwiserestrictinanywaytherightsoftheCompany(oranyParent,SubsidiaryorAffiliateemployingorretainingOptionee)orofOptionee,whichrightsareherebyexpresslyreservedbyeach,toterminateOptionee’sServiceatanytimeforanyreason,withorwithoutcausetotheextentpermissibleunderlocallaw.
Definitions .AllcapitalizedtermsinthisNoticeshallhavethemeaningassignedtotheminthisNotice,theattachedAgreementorthePlan.
STOCK OPTION AGREEMENT
RecitalsA.TheBoardhasadoptedthePlanforthepurposeofretainingtheservicesofselectedEmployees,non-employeemembersoftheBoardandConsultants.
B.OptioneeistorendervaluableservicestotheCompany(oraParent,SubsidiaryorAffiliate),andthisAgreementisexecutedpursuantto,andisintendedtocarryoutthepurposesof,thePlaninconnectionwiththeCompany’sgrantofanoptiontoOptionee.
C.AllcapitalizedtermsinthisAgreementshallhavethemeaningassignedtotheminthisAgreement,theattachedNoticeofGrantofStockOption(the“Notice”),orthePlan.
NOW, THEREFORE ,itisherebyagreedasfollows:1. Grant of Option .TheCompanyherebygrantstoOptionee,asofthegrantdate,assetforthintheNotice,(the“GrantDate”)anoptiontopurchaseuptothenumberofOptionSharesspecifiedintheNotice.TheOptionSharesshallbepurchasablefromtimetotimeduringtheOptiontermspecifiedinParagraph2attheExercisePricespecifiedintheNotice.
2. Option Term .ThisOptionshallhaveamaximumtermofyears[nottoexceedten(10)years]measuredfromtheGrantDateandshallaccordinglyexpireatthecloseofbusinessontheExpirationDate,unlesssoonerterminatedinaccordancewithParagraph4,5or6.
3. Non-Transferability .ThisOptionshallnotbeanticipated,assigned,attached,garnished,optioned,transferredormadesubjecttoanycreditor’sprocess,whethervoluntarilyorinvoluntarilyorbyoperationoflaw.Notwithstandingtheforegoing,shouldtheOptioneediewhileholdingthisOption,thenthisOptionshallbetransferredinaccordancewithOptionee’swillorthelawsofdescentanddistribution.
4. Dates of Exercise .ThisOptionshallvestandbecomeexercisablefortheOptionSharesinoneormoreinstallmentsasspecifiedintheNotice.AstheOptionbecomesexercisableforsuchinstallments,thoseinstallmentsshallaccumulateandtheOptionshallremainexercisablefortheaccumulatedinstallmentsuntiltheExpirationDateorsoonerterminationoftheOptiontermunderParagraph5or6.Asanadministrativematter,theexercisableportionofthisOptionmayonlybeexerciseduntilthecloseoftheNasdaqGlobalSelectMarketontheExpirationDateortheearlierterminationdateunderParagraph5or6or,ifsuchdateisnotatradingdayontheNasdaqGlobalSelectMarket,thelasttradingdaybeforesuchdate.AnylaterattempttoexercisethisOptionwillnotbehonored.Forexample,ifOptioneeceasestoremaininServiceasprovidedinParagraph5(i)andthedatethree(3)monthsfromthedateofcessationisMonday,July4(aholidayonwhichtheNasdaqGlobalSelectMarketisclosed),OptioneemustexercisetheexercisableportionofthisOptionby4:00p.m.EasternDaylightTimeonFriday,July1.
5. Cessation of Service .TheOptiontermspecifiedinParagraph2shallterminate(andthisOptionshallceasetobeoutstanding)priortotheExpirationDateshouldanyofthefollowingprovisionsbecomeapplicable:
(i)ShouldOptioneeceasetoremaininServiceforanyreason(otherthandeath,DisabilityorCauseandwhetherornotinbreachoflocallaborlaws)whilethisOptionisoutstanding,thenOptioneeshallhaveaperiodofthree(3)months(commencingwiththedateofsuchcessationofService)duringwhichtoexercisethisOption,butinnoeventshallthisOptionbeexercisableatanytimeaftertheExpirationDate.
(ii)IfOptioneedieswhilethisOptionisoutstanding,thentheOptionee’sdesignatedbeneficiaryor,ifnobeneficiarywasdesignatedorproperlydesignatedor,ifnodesignatedbeneficiarysurvivestheOptionee,theOptionee’sestate(totheextentreasonablydeterminable)orotherindividualorentityentitledtoreceivetheOptionunderapplicablelocallawshallhavetherighttoexercisethisOption.Suchrightshalllapse,andthisOptionshallceasetobeoutstanding,upontheearlierof(A)theexpirationoftheeighteen(18)monthperiodmeasuredfromthedateofOptionee’sdeathor(B)theExpirationDate.OptioneemayonlymakeabeneficiarydesignationwithrespecttothisOptioniftheCompanyhasapprovedaprocessorprocedureforsuchbeneficiarydesignationforthelocaljurisdictionwithinwhichOptioneeperformsservicesfortheCompanyoraParent,SubsidiaryorAffiliate.IfnosuchbeneficiarydesignationprocessorprocedurehasbeenapprovedbytheCompany,then,intheeventofOptionee’sdeath,thisOptionmayonlybeexercisedbytheOptionee’sestate(totheextentreasonablydeterminable)orotherindividualorentityentitledtoreceivetheOptionunderapplicablelocallaw.
(iii)ShouldOptioneeceaseServicebyreasonofDisabilitywhilethisOptionisoutstanding,thenOptioneeshallhaveaperiodofeighteen(18)months(commencingwiththedateofsuchcessationofService)duringwhichtoexercisethisOption,butinnoeventshallthisOptionbeexercisableatanytimeaftertheExpirationDate.
(iv)Duringthelimitedperiodofpost-Serviceexercisability,thisOptionmaynotbeexercisedintheaggregateformorethanthenumberofvestedOptionSharesforwhichtheOptionisexercisableatthedatetheOptioneeceasestoactivelyprovideService(notextendedbyanynoticeperiodmandatedunderlocallaw).Upontheexpirationofsuchlimitedexerciseperiodor(ifearlier)upontheExpirationDate,thisOptionshallterminateandceasetobeoutstandingforanyvestedOptionSharesforwhichtheOptionhasnotbeenexercised.However,thisOptionshall,immediatelyasofthedatetheOptioneeceasestoactivelyprovideServiceforanyreason,terminateandceasetobeoutstandingwithrespecttoanyOptionSharesinwhichOptioneeisnototherwiseatthattimevestedorforwhichthisOptionisnototherwiseatthattimeexercisable.
(v)ShouldOptionee’sServicebeterminatedforCauseorshouldOptioneeotherwiseengageinactivitiesconstitutingCausewhilethisOptionisoutstanding,thenthisOptionshallterminateimmediatelyandceasetoremainoutstanding.IntheeventOptionee’sServiceissuspendedpendinganinvestigationofwhetherOptionee’sServicewillbeterminatedforCause,allOptionee’srightsundertheOption,includingtherighttoexercisetheOption,shallbesuspendedduringtheinvestigationperiod.
(vi)ForpurposesofthisParagraph5,intheeventofOptionee’scessationofService,Optionee’srighttoreceiveadditionaloptionsortovestintheOptionwillendasofthedatetheOptioneeisnolongeractivelyprovidingServiceandwillnotbeextendedbyanynoticeperiodmandatedunderlocallaw(e.g .,activeServicewouldnotincludeanyperiodof“gardenleave”orsimilarperiodpursuanttolocallaw);theCompanyshallhavetheexclusivediscretiontodeterminewhenanOptioneeisnolongeractivelyprovidingServiceforpurposesofthisOption.
6. Special Acceleration of Option .(a)ThisOption,totheextentoutstandingatthetimeofaCorporateTransactionbutnototherwisefullyvestedandexercisable,shallautomaticallyacceleratesothatthisOptionshall,immediatelypriortotheeffectivedateoftheCorporateTransaction,becomevestedandexercisableforalloftheOptionSharesatthetimesubjecttothisOptionandmaybeexercisedforanyorallofthoseOptionSharesasfully-vestedShares.NosuchaccelerationofthisOption,however,shalloccurifandtotheextent:(i)thisOptionis,inconnectionwiththeCorporateTransaction,eitherassumedbythesuccessorcorporation(orparentthereof)orreplacedwithacomparableoptiontopurchasesharesofthecapitalstockofthesuccessorcorporation(orparentthereof)or(ii)thisOptionisreplacedwithacashincentiveprogramofthesuccessorcorporationwhichpreservesthespreadexistingontheunvestedOptionSharesatthetimeoftheCorporateTransaction(theexcessoftheFairMarketValueofthoseOptionSharesovertheaggregateExercisePricepayableforsuchShares)andprovidesforsubsequentpay-outinaccordancewiththesameExerciseSchedulesetforthintheNotice.Thedeterminationofoptioncomparabilityunderclause(i)shallbemadebytheCommittee,andsuchdeterminationshallbefinal,bindingandconclusive.
(b)ImmediatelyfollowingtheeffectivedateoftheCorporateTransaction,thisOptionshallterminateandceasetobeoutstanding,excepttotheextentassumedbythesuccessorcorporation(orparentthereof)inconnectionwiththeCorporateTransaction.
(c)IfthisOptionisassumedinconnectionwithaCorporateTransaction,thentheCommitteeshallappropriatelyadjustthenumberofsharesandthekindofsharesorsecuritiescoveredbytheOptionandtheExercisePriceimmediatelyaftersuchCorporateTransaction,providedtheaggregateExercisePriceshallremainthesame.
(d)ThisOption,totheextentoutstandingatthetimeofaChangeinControlbutnototherwisefullyvestedandexercisable,shallautomaticallyacceleratesothatthisOptionshall,immediatelypriortotheeffectivedateoftheChangeinControl,becomevestedandexercisableforalloftheOptionSharesatthetimesubjecttothisOptionandmaybeexercisedforanyorallofthoseOptionSharesasfully-vestedShares.ThisOptionshallremainsoexercisableuntiltheExpirationDateorsoonerterminationoftheOptionterm.
(e)ThisAgreementshallnotinanywayaffecttherightoftheCompanytoadjust,reclassify,reorganizeorotherwisechangeitscapitalorbusinessstructureortomerge,consolidate,dissolve,liquidateorsellortransferalloranypartofitsbusinessorassets.
7. Adjustment in Option Shares .IntheeventofasubdivisionoftheoutstandingShares,adeclarationofadividendpayableinShares,adeclarationofadividendpayableinaformotherthanSharesinanamountthathasamaterialeffectonthepriceofShares,acombinationorconsolidationoftheoutstandingShares(byreclassificationorotherwise)intoalessernumberofShares,arecapitalization,aspin-offorasimilaroccurrence,appropriateadjustmentsshallbemadeto(i)thetotalnumberand/orkindofsharesorsecuritiessubjecttothisOptionand(ii)theExercisePriceinordertoreflectsuchchangeandtherebyprecludeadilutionorenlargementofbenefitshereunder.
8. Shareholder Rights .TheholderofthisOptionshallnothaveanyshareholderrightswithrespecttotheOptionSharesuntilsuchpersonshallhaveexercisedtheOption,paidtheExercisePriceandbecomeaholderofrecordofthepurchasedShares.
9. Manner of Exercising Option .(a)InordertoexercisethisOptionwithrespecttoalloranypartoftheOptionSharesforwhichthisOptionisatthetimeexercisable,Optionee(oranyotherpersonorpersonsexercisingtheOption)musttakethefollowingactions:
(i)PaytheaggregateExercisePriceforthepurchasedSharesinoneormoreofthefollowingforms:(A)cashorcheckwhich,intheCompany’ssolediscretion,shallbemadepayabletoaCompany-designatedbrokeragefirmortheCompany;and
(B)aspermittedbyapplicablelaw,throughaspecialsaleandremittanceprocedurepursuanttowhichOptionee(oranyotherpersonorpersonsexercisingtheOption)shallconcurrentlyprovideirrevocablewritteninstructions(I)toaCompany-designatedbrokeragefirm(orinthecaseofanexecutiveofficerorBoardmemberoftheCompany,anOptionee-designatedbrokeragefirm)toeffecttheimmediatesaleofthepurchasedSharesandremittotheCompany,outofthesaleproceedsavailableonthesettlementdate,sufficientfundstocovertheaggregateExercisePricepayableforthepurchasedSharesplus,ifapplicable,theamountnecessarytosatisfytheCompany’s(oraParent’s,Subsidiary’sorAffiliate’s)withholdingobligations(includingincometax,socialtaxesorinsurancecontributions,payrolltax,paymentonaccountorothertaxitems
relatedtoOptionee’sparticipationinthePlanandlegallyapplicabletoOptionee(“Tax-RelatedItems”))and(II)totheCompanytodeliverthepurchasedSharesdirectlytosuchbrokeragefirminordertocompletethesaletransaction.
(ii)FurnishtotheCompanyappropriatedocumentationthatthepersonorpersonsexercisingtheOption(ifotherthanOptionee)havetherighttoexercisethisOption.
(iii)MakeappropriatearrangementswiththeCompany(oraParent,SubsidiaryorAffiliateemployingorretainingOptionee)forthesatisfactionofallwithholdingorotherobligationsrelatedtoTax-RelatedItemsapplicabletotheOptiongrant,vesting,exerciseorthesaleofShares,asapplicable.
(b)Assoonaspracticalaftertheexercisedate,theCompanyshallissuetooronbehalfofOptionee(oranyotherpersonorpersonsexercisingthisOption)thepurchasedOptionShares,(asevidencedbyanappropriateentryonthebooksoftheCompanyoradulyauthorizedtransferagentoftheCompany),subjecttotheappropriatelegendsand/orstoptransferinstructions.
(c)InnoeventmaythisOptionbeexercisedforanyfractionalShares.
(d)NotwithstandinganyotherprovisionsofthePlan,thisAgreementoranyotheragreementtothecontrary,ifatthetimethisOptionisexercised,OptioneeisindebtedtotheCompany(oranyParent,SubsidiaryorAffiliate)foranyreason,thefollowingactionsshallbetaken,asdeemedappropriatebytheCommittee:
(i)anySharestobeissueduponsuchexerciseshallautomaticallybepledgedagainstOptionee’soutstandingindebtedness;and
(ii)ifthisOptionisexercisedinaccordancewithsubparagraph9(a)(i)(B)above,theaftertaxproceedsofthesaleofOptionee’sSharesshallautomaticallybeappliedtotheoutstandingbalanceofOptionee’sindebtedness.
10. Responsibility for Taxes .(a)OptioneeauthorizestheCompanyand/ortheOptionee’semployer(the“Employer”)ortheirrespectiveagents,attheirdiscretion,tosatisfyanyobligationsrelatedtoTax-RelatedItemsbyoneoracombinationofthefollowing:(1)withholdingallapplicableTax-RelatedItemsfromOptionee’swagesorothercashcompensationpaidtoOptioneebytheCompanyand/ortheEmployer;(2)withholdingfromproceedsofthesaleofSharesacquireduponexerciseoftheOptioneitherthroughavoluntarysale(specificallyincludingwherethisOptionisexercisedinaccordancewithsubparagraph9(a)(i)(B)above)orthroughamandatorysalearrangedbytheCompany(onOptionee’sbehalfpursuanttothisauthorization);or(3)withholdingofSharesthatwouldotherwisebeissueduponexerciseoftheOption.Toavoidfinancialaccountingchargesunderapplicableaccountingguidance,theCompanymaywithholdoraccountforTax-RelatedItemsbyconsideringapplicableminimumstatutorywithholdingratesormaytakeanyotheractionrequiredtoavoidfinancialaccountingchargesunderapplicableaccountingguidance.Finally,OptioneemustpaytotheCompanyortheEmployeranyamountofTax-RelatedItemsthattheCompanyortheEmployermayberequiredtowithholdoraccountforasaresultofOptionee’sparticipationinthePlanorOptionee’spurchaseofSharesthatcannotbesatisfiedbythemeanspreviouslydescribed.TheCompanymayrefusetohonortheexerciseandrefusetoissueordelivertheSharesortheproceedsofthesaleoftheSharesifOptioneefailstocomplywithOptionee’sobligationsinconnectionwiththeTax-RelatedItemsasdescribedinthisParagraph.
(b)RegardlessofanyactiontheCompanyortheEmployertakeswithrespecttoanyorallTax-RelatedItems,OptioneeacknowledgesthattheultimateliabilityforallTax-RelatedItemsisandremainsOptionee’sresponsibilityandmayexceedtheamountactuallywithheldbytheCompanyortheEmployer.OptioneefurtheracknowledgesthattheCompanyand/ortheEmployer(1)makenorepresentationsorundertakingsregardingthetreatmentofanyTax-RelatedItemsinconnectionwithanyaspectoftheOption,includingthegrant,vestingorexerciseoftheOption,thesubsequentsaleofSharesacquiredpursuanttosuchexerciseandthereceiptofanydividends;and(2)donotcommittoandareundernoobligationtostructurethetermsofthegrantoranyaspectoftheOptiontoreduceoreliminateOptionee’sliabilityforTax-RelatedItemsorachieveanyparticulartaxresult.Further,ifOptioneebecomessubjecttotaxationinmorethanonejurisdictionbetweentheGrantDateandthedateofanyrelevanttaxableevent,OptioneeacknowledgesthattheCompanyand/ortheEmployer(orformeremployer,asapplicable)mayberequiredtowithholdoraccountforTax-RelatedItemsinmorethanonejurisdiction.
11. Compliance with Laws and Regulations .(a)TheexerciseofthisOptionandtheissuanceoftheOptionSharesuponsuchexerciseshallbesubjecttocompliancebytheCompanyandOptioneewithallapplicablelaws,regulationsandrulesrelatingthereto,includingallapplicableregulationsofanystockexchange(ortheNasdaqGlobalSelectMarket,ifapplicable)onwhichtheSharesmaybelistedfortradingatthetimeofsuchexerciseandissuanceandallapplicableforeignlaws.
(b)TheinabilityoftheCompanytoobtainapprovalfromanyregulatorybodyhavingauthoritydeemedbytheCompanytobenecessarytothelawfulissuanceandsaleofanySharespursuanttothisOptionshallrelievetheCompanyofanyliabilitywithrespecttothenon-issuanceorsaleoftheSharesastowhichsuchapprovalshallnothavebeenobtained.
12. Successors and Assigns .ExcepttotheextentotherwiseprovidedinParagraphs3,5and6,theprovisionsofthisAgreementshallinuretothebenefitof,andbebindingupon,theCompanyanditssuccessorsandassignsandOptionee,Optionee’sassignsandthelegalrepresentatives,heirsandlegateesofOptionee’sestate.
13. Notices .AnynoticerequiredorpermittedunderthetermsofthisAgreementshallbeinwritingandshallbedeemedsufficientwhendeliveredpersonallyorsentbyconfirmedemail,telegram,orfaxorforty-eight(48)hoursafterbeingdepositedinthemail,ascertifiedorregisteredmail,withpostageprepaid,andaddressedtotheCompanyattheCompany’sprincipalcorporateofficesortotheOptioneeattheaddressmaintainedfortheOptioneeintheCompany’srecordsor,ineithercase,assubsequentlymodifiedbywrittennoticetotheotherparty.
14. Construction .TheNotice,thisAgreement,andtheOptionevidencedhereby(a)aremadeandgrantedpursuanttothePlanandareinallrespectslimitedbyandsubjecttothetermsofthePlan,and(b)constitutetheentireagreementbetweenOptioneeandtheCompanyonthesubjectmatterhereofandsupercedeallproposals,writtenororal,andallothercommunicationsbetweenthepartiesrelatedtothesubjectmatter.AlldecisionsoftheCommitteewithrespecttoanyquestionorissuearisingundertheNotice,thisAgreementorthePlanshallbeconclusiveandbindingonallpersonshavinganinterestinthisOption.TheprovisionsofthisAgreementareseverableandifanyoneormoreprovisionsaredeterminedtobeillegalorotherwiseunenforceable,inwholeorinpart,theremainingprovisionsshallneverthelessbebindingandenforceable.
15. Governing Law and Forum .ThisAgreementshallbegovernedbyandconstruedinaccordancewiththelawsoftheStateofCaliforniawithoutregardtotheconflictoflawsprinciplesthereof.ForpurposesoflitigatinganydisputethatmayarisedirectlyorindirectlyfromthisAgreement,thepartiesherebysubmitandconsenttolitigationintheexclusivejurisdictionoftheStateofCaliforniaandagreethatanysuchlitigationshallbeconductedonlyinthecourtsofCaliforniaorthefederalcourtsfortheUnitedStatesfortheNorthernDistrictofCaliforniaandnoothercourts.
16. Excess Shares .IftheOptionSharescoveredbythisAgreementexceed,asoftheGrantDate,thenumberofShareswhichmaywithoutshareholderapprovalbeissuedunderthePlan,thenthisOptionshallbevoidwithrespecttothoseexcessshares,unlessshareholderapprovalofanamendmentsufficientlyincreasingthenumberofSharesissuableunderthePlanisobtainedinaccordancewiththeprovisionsofthePlanandallapplicablelaws,regulationsandrules.
17. Leave of Absence .UnlessotherwisedeterminedbytheCommittee,totheextentpermittedbylocallaw,thefollowingprovisionsshallapplyupontheOptionee’scommencementofanauthorizedleaveofabsence:
(a)TheExerciseScheduleineffectundertheNoticeshallbefrozenasofthefirstdayoftheauthorizedleave,andthisOptionshallnotbecomeexercisableforanyadditionalinstallmentsoftheOptionSharesduringtheperiodOptioneeremainsonsuchleave.
(b)InnoeventshallthisOptionbecomeexercisableforanyadditionalOptionSharesorotherwiseremainoutstandingifOptioneedoesnotresumeServicepriortotheExpirationDateoftheOptionterm.
18. Further Instruments .ThepartiesagreetoexecutesuchfurtherinstrumentsandtotakesuchfurtheractionasmaybereasonablynecessarytocarryoutthepurposesandintentofthisAgreement.
19. Authorization to Release and Transfer Necessary Personal Information .(a) Optionee hereby explicitly and unambiguously consents to the collection, use and transfer, in electronic or other form, of Optionee’s personalinformation as described in this Agreement by and among, as applicable, the Employer, and the Company and its Parent, Subsidiaries and Affiliates forthe exclusive purpose of implementing, administering and managing Optionee’s participation in the Plan.
(b) Optionee understands that the Company and the Employer may hold certain personal information about Optionee, including, but not limited to,Optionee’s name, home address and telephone number, date of birth, social insurance number (or any other social or national identification number),salary, nationality, job title, residency status, any Shares or directorships held in the Company, details of all options or any other entitlement to Sharesawarded, canceled, exercised, vested, unvested or outstanding (the “Data”) for the purpose of implementing, administering and managing the Optionee’sparticipation in the Plan. Optionee understands that Data may be transferred to the Company or any of its Parent, Subsidiaries or Affiliates, or to anythird parties assisting in the implementation, administration and management of the Plan, that these recipients may be located in Optionee’s country orelsewhere, including outside the European Economic Area, and that the recipient’s country (e.g., the United States) may have different data privacy lawsand protections than Optionee’s country. Optionee understands that Optionee may request a list with the names and addresses of any potential recipientsof the Data by contacting Optionee’s local human resources representative. Optionee authorizes the recipients to receive, possess, use, retain and transferthe Data, in electronic or other form, for the sole purposes of implementing, administering and managing Optionee’s participation in the Plan, includingany requisite transfer of such Data to a broker or other third party assisting with the administration of the Option under the Plan or with whom Sharesacquired pursuant to these Options or cash from the sale of such Shares may be deposited. Furthermore, you acknowledge and understand that thetransfer of the Data to the Company or any of its Parent, Subsidiaries or Affiliates, or to any third parties is necessary for your participation in the Plan.
(c) Optionee understands that Data will be held only as long as is necessary to implement, administer and manage Optionee’s participation in the Plan.Optionee understands that Optionee may, at any time, view the Data, request additional information about the storage and processing of the Data,require any necessary amendments to the Data or refuse or withdraw the consents herein by contacting Optionee’s local human resources representativein writing. Optionee further acknowledges that withdrawal of consent may affect Optionee’s ability to vest in or realize benefits from the Options, andOptionee’s ability to participate in the Plan. For more
information on the consequences of Optionee’s refusal to consent or withdrawal of consent, Optionee understands that Optionee may contact Optionee’slocal human resources representative.
20. No Entitlement or Claims for Compensation .(a)Optionee’srights,ifany,inrespectoforinconnectionwiththisOptionoranyotherAwardarederivedsolelyfromthediscretionarydecisionoftheCompanytopermitOptioneetoparticipateinthePlanandtobenefitfromadiscretionaryAward.ThePlanmaybeamended,suspendedorterminatedbytheCompanyatanytime,unlessotherwiseprovidedinthePlanandthisAgreement.ByacceptingthisOption,OptioneeexpresslyacknowledgesthatthereisnoobligationonthepartoftheCompanytocontinuethePlanand/orgrantanyadditionalAwardstoOptioneeorbenefitsinlieuofOptionsoranyotherAwardsevenifOptionshavebeengrantedrepeatedlyinthepast.AlldecisionswithrespecttofutureOptiongrants,ifany,willbeatthesolediscretionoftheCommittee.
(b)ThisOptionandtheSharessubjecttotheOptionarenotintendedtoreplaceanypensionrightsorcompensationandarenottobeconsideredcompensationofacontinuingorrecurringnature,orpartofOptionee’snormalorexpectedcompensation,andinnowayrepresentanyportionofOptionee’ssalary,compensationorotherremunerationforanypurpose,includingbutnotlimitedto,calculatinganyseverance,resignation,termination,redundancy,dismissal,endofservicepayments,bonuses,long-serviceawards,pensionorretirementbenefitsorsimilarpayments,andinnoeventshouldbeconsideredascompensationfor,orrelatinginanywayto,pastservicesfortheCompany,theEmployeroranyParent,SubsidiaryorAffiliate.ThevalueoftheOptionandtheSharessubjecttotheOptionareanextraordinaryitemthatdonotconstitutecompensationofanykindforservicesofanykindrenderedtotheCompany,theEmployeroranyParent,SubsidiaryorAffiliateandwhichareoutsidethescopeofOptionee’swrittenemploymentagreement(ifany).
(c)OptioneeacknowledgesthatheorsheisvoluntarilyparticipatinginthePlan.
(d)NeitherthePlannorthisOptionoranyotherAwardgrantedunderthePlanshallbedeemedtogiveOptioneearighttoremainanEmployee,ConsultantordirectoroftheCompany,aParent,SubsidiaryoranAffiliate.TheEmployerreservestherighttoterminatetheServiceofOptioneeatanytime,withorwithoutcause,andforanyreason,subjecttoapplicablelaws,theCompany’sArticlesofIncorporationandBylawsandawrittenemploymentagreement(ifany).
(e)ThegrantoftheOptionandOptionee’sparticipationinthePlanwillnotbeinterpretedtoformanemploymentcontractorrelationshipwiththeCompany,theEmployeroranyParent,SubsidiaryorAffiliate.
(f)ThefuturevalueoftheunderlyingSharesisunknownandcannotbepredictedwithcertainty.IftheunderlyingSharesdonotincreaseinvalue,theOptionwillhavenovalue.IfOptioneeexercisestheOptionandobtainsShares,thevalueoftheSharesacquireduponexercisemayincreaseordecreaseinvalue,evenbelowtheExercisePrice.OptioneealsounderstandsthatneithertheCompany,northeEmployeroranyParent,SubsidiaryorAffiliateisresponsibleforanyforeignexchangefluctuationbetweentheEmployer’slocalcurrencyandtheUnitedStatesDollarthatmayaffectthevalueofthisOption.
(g)InconsiderationofthegrantoftheOption,noclaimorentitlementtocompensationordamagesshallarisefromforfeitureoftheOptionresultingfromterminationofOptionee’sServicebytheCompanyortheEmployer(foranyreasonwhatsoeverandwhetherornotinbreachoflocallaborlaws)andOptioneeirrevocablyreleasestheCompanyandtheEmployerfromanysuchclaimthatmayarise;if,notwithstandingtheforegoing,anysuchclaimisfoundbyacourtofcompetentjurisdictiontohavearisen,OptioneeshallbedeemedirrevocablytohavewaivedOptionee’sentitlementtopursuesuchclaim.
(h)OptioneeagreesthattheCompanymayrequireOptionsgrantedhereunderbeexercisedwith,andtheOptionSharesheldby,abrokerdesignatedbytheCompany.
(i)Optioneeagreesthathisorherrightshereunder(ifany)shallbesubjecttoset-offbytheCompanyforanyvaliddebtstheOptioneeowestotheCompany.
(j)TheOptionandthebenefitsunderthePlan,ifany,willnotautomaticallytransfertoanothercompanyinthecaseofamerger,take-overortransferofliability.
21. No Advice Regarding Grant .TheCompanyandtheEmployerhavenotprovidedanytax,legalorfinancialadvice,norhastheCompanyortheEmployermadeanyrecommendationsregardingOptionee’sparticipationinthePlan,orOptionee’sacquisitionorsaleoftheunderlyingShares.OptioneeisherebyadvisedtoconsultwithOptionee’sownpersonaltax,legalandfinancialadvisorsregardingOptionee’sparticipationinthePlanbeforetakinganyactionrelatedtothePlan.
22. Electronic Delivery .TheCompanymay,initssolediscretion,decidetodeliveranydocumentsrelatedtoOptionee’scurrentorfutureparticipationinthePlanbyelectronicmeansortorequestOptionee’sconsenttoparticipateinthePlanbyelectronicmeans.OptioneeherebyconsentstoreceivesuchdocumentsbyelectronicdeliveryandagreestoparticipateinthePlanthroughanon-lineorelectronicsystemestablishedandmaintainedbytheCompanyorathirdpartydesignatedbytheCompany.
23. Language .IfthisAgreementoranyotherdocumentrelatedtothePlanistranslatedintoalanguageotherthenEnglishandthemeaningofthetranslatedversionisdifferentfromtheEnglishversion,theEnglishversionwilltakeprecedence.
24. Appendix .NotwithstandinganyprovisionsinthisAgreement,theOptionshallbesubjecttoanyspecialtermsandconditionssetforthinanyAppendixtothisAgreementforOptionee’scountryofresidence.Moreover,ifOptioneerelocatestooneofthecountriesincludedintheAppendix,thespecialtermsandconditionsforsuchcountrywillapplytoOptionee,totheextenttheCompanydeterminesthattheapplicationofsuchtermsandconditionsisnecessaryoradvisableinordertocomplywithlocallaworfacilitatetheadministrationofthePlan.TheAppendixconstitutespartofthisAgreement.
25. Imposition of Other Requirements .TheCompanyreservestherighttoimposeotherrequirementsonOptionee’sparticipationinthePlan,ontheOptionandonanySharesacquiredunderthePlan,totheextenttheCompanydeterminesitisnecessaryoradvisableinordertocomplywithlocallaworfacilitatetheadministrationofthePlan.Optioneeagreestosignanyadditionalagreementsorundertakingsthatmaybenecessarytoaccomplishtheforegoing.Furthermore,OptioneeacknowledgesthatthelawsofthecountryinwhichOptioneeisworkingatthetimeofgrant,vestingandexerciseoftheOptionorthesaleofSharesreceivedpursuanttothisAgreement(includinganyrulesorregulationsgoverningsecurities,foreignexchange,tax,labor,orothermatters)maysubjectOptioneetoadditionalproceduralorregulatoryrequirementsthatOptioneeisandwillbesolelyresponsibleforandmustfulfill.
(For Grants Prior to September 2008)
CISCO SYSTEMS, INC.NOTICE OF GRANT OF STOCK OPTION
Noticeisherebygivenofthefollowingoptiongrant(the“Option”)madetopurchasesharesofCiscoSystems,Inc.(the“Company”)commonstock:Optionee:GrantDate:
TypeofOption: IncentiveStockOption NonstatutoryStockOption GrantNumber:NumberofOptionShares:sharesExercisePrice:$pershareVestingCommencementDate:ExpirationDate:
Exercise ScheduleTheOptionshallvestandbecomeexercisablewithrespectto(i)twentypercent(20%)oftheOptionSharesuponOptionee’scompletionofone(1)yearofServicemeasuredfromtheVestingCommencementDateand(ii)thebalanceoftheOptionSharesinaseriesofforty-eight(48)successiveequalmonthlyinstallmentsuponOptionee’scompletionofeachadditionalmonthofServiceovertheforty-eight(48)-monthperiodmeasuredfromthefirstannualanniversaryoftheVestingCommencementDate.InnoeventshalltheOptionvestandbecomeexercisableforanyadditionalOptionSharesafterOptionee’scessationofService.
ShouldOptioneerequestareductiontohisorherworkcommitmenttolessthanthirty(30)hoursperweek,thentheCommitteeshallhavetheright,toextendtheperiodoverwhichtheOptionshallthereaftervestandbecomeexercisablefortheOptionSharesduringtheremainderoftheOptionterm.ThedecisionwhetherornottoapproveOptionee’srequestforanyreducedworkcommitmentshallbeatthesolediscretionoftheCompany.InnoeventshallanyextensionoftheExerciseSchedulefortheOptionSharesresultintheextensionoftheExpirationDateoftheOption.
OptioneeunderstandsandagreesthattheOptionisofferedsubjecttoandinaccordancewiththetermsoftheCiscoSystems,Inc.2005StockIncentivePlan(the“Plan”).OptioneefurtheragreestobeboundbythetermsofthePlanandthetermsoftheOptionassetforthintheStockOptionAgreementattachedhereto.
No Employment or Service Contract .NothinginthisNoticeorintheattachedStockOptionAgreementorinthePlanshallconferuponOptioneeanyrighttocontinueinServiceforanyperiodofspecificdurationorinterferewithorotherwiserestrictinanywaytherightsoftheCompany(oranyParentorSubsidiaryemployingorretainingOptionee)orofOptionee,whichrightsareherebyexpresslyreservedbyeach,toterminateOptionee’sServiceatanytimeforanyreason,withorwithoutcause.
Definitions .AllcapitalizedtermsinthisNoticeshallhavethemeaningassignedtotheminthisNotice,theattachedStockOptionAgreementorthePlan.
STOCK OPTION AGREEMENT
RecitalsA.TheBoardhasadoptedthePlanforthepurposeofretainingtheservicesofselectedEmployees,non-employeemembersoftheBoardoroftheboardofdirectorsofanyParentorSubsidiaryandConsultantsandotherindependentadvisorswhoprovideservicestotheCompany(oranyParentorSubsidiary).
B.OptioneeistorendervaluableservicestotheCompany(oraParentorSubsidiary),andthisAgreementisexecutedpursuantto,andisintendedtocarryoutthepurposesof,thePlaninconnectionwiththeCompany’sgrantofanoptiontoOptionee.
C.AllcapitalizedtermsinthisAgreementshallhavethemeaningassignedtotheminthisAgreement,theattachedNoticeofGrantofStockOption(the“Notice”),orthePlan.
NOW, THEREFORE ,itisherebyagreedasfollows:1. Grant of Option .TheCompanyherebygrantstoOptionee,asoftheGrantDate,anoptiontopurchaseuptothenumberofOptionSharesspecifiedintheNotice.TheOptionSharesshallbepurchasablefromtimetotimeduringtheOptiontermspecifiedinParagraph2attheExercisePricespecifiedintheNotice.
2. Option Term .ThisOptionshallhaveamaximumtermofnine(9)yearsmeasuredfromtheGrantDateandshallaccordinglyexpireatthecloseofbusinessontheExpirationDate,unlesssoonerterminatedinaccordancewithParagraph4,5or6.
3. Non-Transferability .ThisOptionshallnotbeanticipated,assigned,attached,garnished,optioned,transferredormadesubjecttoanycreditor’sprocess,whethervoluntarilyorinvoluntarilyorbyoperationoflaw.Notwithstandingtheforegoing,shouldtheOptioneediewhileholdingthisOption,thenthisOptionshallbetransferredinaccordancewithOptionee’swillorthelawsofdescentanddistribution.
4. Dates of Exercise .ThisOptionshallvestandbecomeexercisablefortheOptionSharesinoneormoreinstallmentsasspecifiedintheNotice.AstheOptionbecomesexercisableforsuchinstallments,thoseinstallmentsshallaccumulateandtheOptionshallremainexercisablefortheaccumulatedinstallmentsuntiltheExpirationDateorsoonerterminationoftheOptiontermunderParagraph5or6.Asanadministrativematter,theexercisableportionofthisOptionmayonlybeexerciseduntilthecloseoftheNasdaqGlobalSelectMarketontheExpirationDateortheearlierterminationdateunderParagraph5or6or,ifsuchdateisnotatradingdayontheNasdaqGlobalSelectMarket,thelasttradingdaybeforesuchdate.AnylaterattempttoexercisethisOptionwillnotbehonored.Forexample,ifOptioneeceasestoremaininServiceasprovidedinParagraph5(i)andthedatethree(3)monthsfromthedateofcessationisMonday,July4(aholidayonwhichtheNasdaqGlobalSelectMarketisclosed),OptioneemustexercisetheexercisableportionofthisOptionby4pmEasternDaylightTimeonFriday,July1.
5. Cessation of Service .TheOptiontermspecifiedinParagraph2shallterminate(andthisOptionshallceasetobeoutstanding)priortotheExpirationDateshouldanyofthefollowingprovisionsbecomeapplicable:
(i)ShouldOptioneeceasetoremaininServiceforanyreason(otherthandeath,DisabilityorCause)whilethisOptionisoutstanding,thenOptioneeshallhaveaperiodofthree(3)months(commencingwiththedateofsuchcessationofService)duringwhichtoexercisethisOption,butinnoeventshallthisOptionbeexercisableatanytimeaftertheExpirationDate.
(ii)IfOptioneedieswhilethisOptionisoutstanding,thenthepersonalrepresentativeofOptionee’sestateorthepersonorpersonstowhomtheOptionistransferredpursuanttoOptionee’swillorinaccordancewiththelawsofdescentanddistributionshallhavetherighttoexercisethisOption.Suchrightshalllapse,andthisOptionshallceasetobeoutstanding,upontheearlierof(A)theexpirationoftheeighteen(18)-monthperiodmeasuredfromthedateofOptionee’sdeathor(B)theExpirationDate.
(iii)ShouldOptioneeceaseServicebyreasonofDisabilitywhilethisOptionisoutstanding,thenOptioneeshallhaveaperiodofeighteen(18)months(commencingwiththedateofsuchcessationofService)duringwhichtoexercisethisOption,butinnoeventshallthisOptionbeexercisableatanytimeaftertheExpirationDate.
(iv)Optionee’sdateofcessationofServiceshallmeanthedateuponwhichOptioneeceasesactiveperformanceofservicesfortheCompanyfollowingtheprovisionofsuchnotificationofterminationorresignationfromServiceandshallbedeterminedsolelybythisAgreementandwithoutreferencetoanyotheragreement,writtenororal,includingOptionee’scontractofemployment,andshallnototherwiseincludeanyperiodofnoticeofterminationofemployment,whetherexpressedorimplied.
(v)Duringthelimitedperiodofpost-Serviceexercisability,thisOptionmaynotbeexercisedintheaggregateformorethanthenumberofvestedOptionSharesforwhichtheOptionisexercisableatthetimeofOptionee’scessationofService.Upontheexpirationofsuchlimitedexerciseperiodor(ifearlier)upontheExpirationDate,thisOptionshallterminateandceasetobeoutstandingforanyvestedOptionSharesforwhichtheOptionhasnotbeenexercised.However,thisOptionshall,immediatelyuponOptionee’scessationofServiceforanyreason,terminateandceasetobeoutstandingwithrespecttoanyOptionSharesinwhichOptioneeisnototherwiseatthattimevestedorforwhichthisOptionisnototherwiseatthattimeexercisable.
(vi)ShouldOptionee’sServicebeterminatedforCauseorshouldOptioneeotherwiseengageinactivitiesconstitutingCausewhilethisOptionisoutstanding,thenthisOptionshallterminateimmediatelyandceasetoremainoutstanding.IntheeventOptionee’sServicewiththeCompanyissuspendedpendinganinvestigationofwhetherOptionee’sServicewillbeterminatedforCause,allOptionee’srightsundertheOption,includingtherighttoexercisetheOption,shallbesuspendedduringtheinvestigationperiod.
6. Special Acceleration of Option(a)ThisOption,totheextentoutstandingatthetimeofaCorporateTransactionbutnototherwisefullyvestedandexercisable,shallautomaticallyacceleratesothatthisOptionshall,immediatelypriortotheeffectivedateoftheCorporateTransaction,becomevestedandexercisableforalloftheOptionSharesatthetimesubjecttothisOptionandmaybeexercisedforanyorallofthoseOptionSharesasfully-vestedShares.NosuchaccelerationofthisOption,however,shalloccurifandtotheextent:(i)thisOptionis,inconnectionwiththeCorporateTransaction,eitherassumedbythesuccessorcorporation(orparentthereof)orreplacedwithacomparableoptiontopurchasesharesofthecapitalstockofthesuccessorcorporation(orparentthereof)or(ii)thisOptionisreplacedwithacashincentiveprogramofthesuccessorcorporationwhichpreservesthespreadexistingontheunvestedOptionSharesatthetimeoftheCorporateTransaction(theexcessoftheFairMarketValueofthoseOptionSharesovertheaggregateExercisePricepayableforsuchShares)andprovidesforsubsequentpay-outinaccordancewiththesameExerciseSchedulesetforthintheNotice.Thedeterminationofoptioncomparabilityunderclause(i)shallbemadebytheCommittee,andsuchdeterminationshallbefinal,bindingandconclusive.
(b)ImmediatelyfollowingtheeffectivedateoftheCorporateTransaction,thisOptionshallterminateandceasetobeoutstanding,excepttotheextentassumedbythesuccessorcorporation(orparentthereof)inconnectionwiththeCorporateTransaction.
(c)IfthisOptionisassumedinconnectionwithaCorporateTransaction,thentheCommitteeshallappropriatelyadjustthenumberofsharesandthekindofsharesorsecuritiescoveredbytheOptionandtheExercisePriceimmediatelyaftersuchCorporateTransaction,providedtheaggregateExercisePriceshallremainthesame.
(d)ThisOption,totheextentoutstandingatthetimeofaChangeinControlbutnototherwisefullyvestedandexercisable,shallautomaticallyacceleratesothatthisOptionshall,immediatelypriortotheeffectivedateoftheChangeinControl,becomevestedandexercisableforalloftheOptionSharesatthetimesubjecttothisOptionandmaybeexercisedforanyorallofthoseOptionSharesasfully-vestedShares.ThisOptionshallremainsoexercisableuntiltheExpirationDateorsoonerterminationoftheOptionterm.
(e)ThisAgreementshallnotinanywayaffecttherightoftheCompanytoadjust,reclassify,reorganizeorotherwisechangeitscapitalorbusinessstructureortomerge,consolidate,dissolve,liquidateorsellortransferalloranypartofitsbusinessorassets.
7. Adjustment in Option Shares .IntheeventofasubdivisionoftheoutstandingShares,adeclarationofadividendpayableinShares,adeclarationofadividendpayableinaformotherthanSharesinanamountthathasamaterialeffectonthepriceofShares,acombinationorconsolidationoftheoutstandingShares(byreclassificationorotherwise)intoalessernumberofShares,arecapitalization,aspin-offorasimilaroccurrence,appropriateadjustmentsshallbemadeto(i)thetotalnumberand/orkindofsharesorsecuritiessubjecttothisOptionand(ii)theExercisePriceinordertoreflectsuchchangeandtherebyprecludeadilutionorenlargementofbenefitshereunder.
8. Shareholder Rights .TheholderofthisOptionshallnothaveanyshareholderrightswithrespecttotheOptionSharesuntilsuchpersonshallhaveexercisedtheOption,paidtheExercisePriceandbecomeaholderofrecordofthepurchasedShares.
9. Manner of Exercising Option .(a)InordertoexercisethisOptionwithrespecttoalloranypartoftheOptionSharesforwhichthisOptionisatthetimeexercisable,Optionee(oranyotherpersonorpersonsexercisingtheOption)musttakethefollowingactions:
(i)PaytheaggregateExercisePriceforthepurchasedSharesinoneormoreofthefollowingforms:(A)cashorcheckwhich,intheCompany’ssolediscretion,shallbemadepayabletoaCompany-designatedbrokeragefirmortheCompany;
(B)aspermittedbyapplicablelaw,throughaspecialsaleandremittanceprocedurepursuanttowhichOptionee(oranyotherpersonorpersonsexercisingtheOption)shallconcurrentlyprovideirrevocablewritteninstructions(I)toaCompany-designatedbrokeragefirm(orinthecaseofanexecutiveofficerorBoardmemberoftheCompany,anOptionee-designatedbrokeragefirm)toeffecttheimmediatesaleofthepurchasedSharesandremittotheCompany,outofthesaleproceedsavailableonthesettlementdate,sufficientfundstocovertheaggregateExercisePricepayableforthepurchasedSharesplus,ifapplicable,theamountnecessarytosatisfytheCompany’swithholdingobligationsattheminimumstatutorywithholdingratesand(II)totheCompanytodeliverthecertificatesforthepurchasedSharesdirectlytosuchbrokeragefirminordertocompletethesaletransaction;and
(C)apromissorynotepayabletotheCompany,butonlytotheextentauthorizedbytheCommitteeinaccordancewithParagraph13.
(ii)FurnishtotheCompanyappropriatedocumentationthatthepersonorpersonsexercisingtheOption(ifotherthanOptionee)havetherighttoexercisethisOption.
(iii)MakeappropriatearrangementswiththeCompany(orParentorSubsidiaryemployingorretainingOptionee)forthesatisfactionofalltaxwithholdingrequirementsapplicabletotheOptionexercise.
(b)Assoonaspracticalaftertheexercisedate,theCompanyshallissuetooronbehalfofOptionee(oranyotherpersonorpersonsexercisingthisOption)thepurchasedOptionShares(asevidencedbyanappropriateentryonthebooksoftheCompanyoradulyauthorizedtransferagentoftheCompany),subjecttotheappropriatelegendsand/orstoptransferinstructions.
(c)InnoeventmaythisOptionbeexercisedforanyfractionalShares.
(d)NotwithstandinganyotherprovisionsofthePlan,thisAgreementoranyotheragreementtothecontrary,ifatthetimethisOptionisexercised,OptioneeisindebtedtotheCompany(oranyParentorSubsidiary)foranyreason,thefollowingactionsshallbetaken,asdeemedappropriatebytheCommittee:
(i)anySharestobeissueduponsuchexerciseshallautomaticallybepledgedagainstOptionee’soutstandingindebtedness;and
(ii)ifthisOptionisexercisedinaccordancewithsubparagraph9(a)(i)(B)above,theaftertaxproceedsofthesaleofOptionee’sSharesshallautomaticallybeappliedtotheoutstandingbalanceofOptionee’sindebtedness.
10. Compliance with Laws and Regulations .(a)TheexerciseofthisOptionandtheissuanceoftheOptionSharesuponsuchexerciseshallbesubjecttocompliancebytheCompanyandOptioneewithallapplicablelaws,regulationsandrulesrelatingthereto,includingallapplicableregulationsofanystockexchange(ortheNasdaqGlobalSelectMarket,ifapplicable)onwhichtheSharesmaybelistedfortradingatthetimeofsuchexerciseandissuance.
(b)TheinabilityoftheCompanytoobtainapprovalfromanyregulatorybodyhavingauthoritydeemedbytheCompanytobenecessarytothelawfulissuanceandsaleofanySharespursuanttothisOptionshallrelievetheCompanyofanyliabilitywithrespecttothenon-issuanceorsaleoftheSharesastowhichsuchapprovalshallnothavebeenobtained.TheCompany,however,shalluseitsbesteffortstoobtainallsuchapprovals.
11. Successors and Assigns .ExcepttotheextentotherwiseprovidedinParagraphs3and6,theprovisionsofthisAgreementshallinuretothebenefitof,andbebindingupon,theCompanyanditssuccessorsandassignsandOptionee,Optionee’sassignsandthelegalrepresentatives,heirsandlegateesofOptionee’sestate.
12. Notices .AnynoticerequiredorpermittedunderthetermsofthisAgreementshallbeinwritingandshallbedeemedsufficientwhendeliveredpersonallyorsentbyconfirmedemail,telegram,orfaxorforty-eight(48)hoursafterbeingdepositedintheU.S.mail,ascertifiedorregisteredmail,withpostageprepaid,andaddressedtotheCompanyattheCompany’sprincipalcorporateofficesortotheOptioneeattheaddressmaintainedfortheOptioneeintheCompany’srecordsor,ineithercase,assubsequentlymodifiedbywrittennoticetotheotherparty.
13. Financing .TheCommitteemay,initsabsolutediscretionandwithoutanyobligationtodoso,permitOptioneetopaytheExercisePriceforthepurchasedOptionSharesbydeliveringafull-recoursepromissorynotepayabletotheCompany.Thetermsofanysuchpromissorynote(includingtheinterestrate,therequirementsforcollateralandthetermsofrepayment)shallbeestablishedbytheCommitteeinitssolediscretion.
14. Construction .TheNotice,thisAgreement,andtheOptionevidencedhereby(a)aremadeandgrantedpursuanttothePlanandareinallrespectslimitedbyandsubjecttothetermsofthePlan,and(b)constitutetheentireagreementbetweenOptioneeandtheCompanyonthesubjectmatterhereofandsupercedeallproposals,writtenororal,andallothercommunicationsbetweenthepartiesrelatedtothesubjectmatter.AlldecisionsoftheCommitteewithrespecttoanyquestionorissuearisingundertheNotice,thisAgreementorthePlanshallbeconclusiveandbindingonallpersonshavinganinterestinthisOption.
15. Governing Law .Theinterpretation,performanceandenforcementofthisAgreementshallbegovernedbythelawsoftheStateofCaliforniawithoutresorttotheconflictoflawsprinciplesthereof.
16. Excess Shares .IftheOptionSharescoveredbythisAgreementexceed,asoftheGrantDate,thenumberofShareswhichmaywithoutshareholderapprovalbeissuedunderthePlan,thenthisOptionshallbevoidwithrespecttothoseexcessshares,unlessshareholderapprovalofanamendmentsufficientlyincreasingthenumberofSharesissuableunderthePlanisobtainedinaccordancewiththeprovisionsofthePlanandallapplicablelaws,regulationsandrules.
17. Additional Terms Applicable to an Incentive Stock Options .IntheeventthisOptionisdesignatedanIncentiveStockOptionintheNotice,thefollowingtermsandconditionsshallalsoapplytotheOption:
(a)ThisOptionshallceasetoqualifyforfavorabletaxtreatmentasanIncentiveStockOptionif(andtotheextent)thisOptionisexercisedforoneormoreOptionShares:(A)morethanthree(3)monthsafterthedateOptioneeceasestobeanEmployeeforanyreasonotherthandeathorDisabilityor(B)morethantwelve(12)monthsafterthedateOptioneeceasestobeanEmployeebyreasonofDisability.
(b)EvenifthisOptionisdesignatedasanIncentiveStockOption,iftheSharessubjecttothisOption(andallotherIncentiveStockOptionsgrantedtoOptioneebytheCompanyoranyParentorSubsidiary,includingunderotherplansoftheCompany)thatfirstbecomeexercisableinanycalendaryearhaveanaggregateFairMarketValue(determinedforeachShareasofthedateofgrantoftheoptioncoveringsuchShare)inexcessof$100,000,theSharesinexcessof$100,000shallbetreatedassubjecttoaNonstatutoryStockOptioninaccordanceallapplicablelaws,regulationsandrules.
18. Leave of Absence . UnlessotherwisedeterminedbytheCommittee,thefollowingprovisionsshallapplyupontheOptionee’scommencementofanauthorizedleaveofabsence:
(a)TheExerciseScheduleineffectundertheNoticeshallbefrozenasofthefirstdayoftheauthorizedleave,andthisOptionshallnotbecomeexercisableforanyadditionalinstallmentsoftheOptionSharesduringtheperiodOptioneeremainsonsuchleave.
(b)IftheOptionisdesignatedasanIncentiveStockOptionintheNoticeandiftheleaveofabsencecontinuesformorethanninety(90)days,thenthisOptionshallautomaticallyconverttoaNonstatutoryStockOptionattheendofthethree(3)-monthperiodmeasuredfromtheninety-first(91st)dayofsuchleave,unlesstheOptionee’srighttoreturntoactiveworkisguaranteedbylaworbyacontract.
(c)InnoeventshallthisOptionbecomeexercisableforanyadditionalOptionSharesorotherwiseremainoutstandingifOptioneedoesnotresumeServicepriortotheExpirationDateoftheOptionterm.
19. Further Instruments .ThepartiesagreetoexecutesuchfurtherinstrumentsandtotakesuchfurtheractionasmaybereasonablynecessarytocarryoutthepurposesandintentofthisAgreement.
20. Authorization to Release Necessary Personal Information .(a)OptioneeherebyauthorizesanddirectsOptionee’semployertocollect,useandtransferinelectronicorotherform,anypersonalinformation(the“Data”)regardingOptionee’semployment,thenatureandamountofOptionee’scompensationandthefactandconditionsofOptionee’sparticipationinthePlan(including,butnotlimitedto,Optionee’sname,homeaddress,telephonenumber,dateofbirth,socialsecuritynumber(oranyothersocialornationalidentificationnumber),salary,nationality,jobtitle,numberofSharesheldandthedetailsofalloptionsoranyotherentitlementtoSharesawarded,cancelled,exercised,vested,unvestedoroutstanding)forthepurposeofimplementing,administeringandmanagingOptionee’sparticipationinthePlan.OptioneeunderstandsthattheDatamaybetransferredtotheCompanyoranyofitsSubsidiaries,ortoanythirdpartiesassistingintheimplementation,administrationandmanagementofthePlan,includinganyrequisitetransfertoabrokerorotherthirdpartyassistingwiththeexerciseofOptionsunderthePlanorwithwhomSharesacquireduponexerciseofthisOptionorcashfromthesaleofsuchsharesmaybedeposited.OptioneeacknowledgesthatrecipientsoftheDatamaybelocatedindifferentcountries,andthosecountriesmayhavedataprivacylawsandprotectionsdifferentfromthoseinthecountryofOptionee’sresidence.Furthermore,OptioneeacknowledgesandunderstandsthatthetransferoftheDatatotheCompanyoranyofitsSubsidiaries,ortoanythirdpartiesisnecessaryforOptionee’sparticipationinthePlan.
(b)Optioneemayatanytimewithdrawtheconsentsherein,bycontactingOptionee’slocalhumanresourcesrepresentativeinwriting.OptioneefurtheracknowledgesthatwithdrawalofconsentmayaffectOptionee’sabilitytoexerciseorrealizebenefitsfromtheOption,andOptionee’sabilitytoparticipateinthePlan.
21. No Entitlement or Claims for Compensation .(a)Optionee’srights,ifany,inrespectoforinconnectionwiththisOptionoranyotherAwardisderivedsolelyfromthediscretionarydecisionoftheCompanytopermitOptioneetoparticipateinthePlanandtobenefitfromadiscretionaryAward.ByacceptingthisOption,OptioneeexpresslyacknowledgesthatthereisnoobligationonthepartoftheCompanytocontinuethePlanand/orgrantanyadditionalAwardstoOptionee.ThisOptionisnotintendedtobecompensationofacontinuingorrecurringnature,orpartofOptionee’snormalorexpectedcompensation,andinnowayrepresentsanyportionofaOptionee’ssalary,compensation,orotherremunerationforpurposesofpensionbenefits,severance,redundancy,resignationoranyotherpurpose.
(b)NeitherthePlannorthisOptionoranyotherAwardgrantedunderthePlanshallbedeemedtogiveOptioneearighttoremainanEmployee,ConsultantordirectoroftheCompany,aParentoraSubsidiaryoranAffiliate.TheCompanyanditsParentsandSubsidiariesandAffiliatesreservetherighttoterminatetheServiceofOptioneeatanytime,withorwithoutcause,andforanyreason,subjecttoapplicablelaws,theCompany’sArticlesofIncorporationandBylawsandawrittenemploymentagreement(ifany),andOptioneeshallbedeemedirrevocablytohavewaivedanyclaimtodamagesorspecificperformanceforbreachofcontractordismissal,compensationforlossofoffice,tortorotherwisewithrespecttothePlan,thisOptionoranyoutstandingAwardthatisforfeitedand/oristerminatedbyitstermsortoanyfutureAward.
(c)OptioneeagreesthattheCompanymayrequireOptionsgrantedhereunderbeexercisedwith,andtheOptionSharesheldby,abrokerdesignatedbytheCompany.Inaddition,Optioneeagreesthathisorherrightshereundershallbesubjecttoset-offbytheCompanyforanyvaliddebtstheOptioneeowestotheCompany.
(For Grants Beginning in July 2016)
CISCO SYSTEMS, INC.STOCK GRANT AGREEMENT
ThisStockGrantAgreement(the“Agreement”)ismadeandenteredintoasoftheGrantDate(asdefinedbelow)byandbetweenCiscoSystems,Inc.,aCaliforniacorporation(the“Company”),andyoupursuanttotheCiscoSystems,Inc.2005StockIncentivePlan(the“Plan”).ThematerialtermsofthisStockGrantAwardareasfollows:
EmployeeID:
GrantDate:
GrantNumber:
RestrictedShares:
FirstVestDate:_______________,20__(thefirstannualanniversaryofthevestingcommencementdate)
TotheextentanycapitalizedtermsusedinthisAgreementarenotdefined,theyshallhavethemeaningascribedtotheminthePlan.IntheeventofaconflictbetweenthetermsandprovisionsofthePlanandthetermsandprovisionsofthisAgreement,thePlantermsandprovisionsshallprevail.
Inconsiderationofthemutualagreementshereincontainedandintendingtobelegallyboundhereby,thepartiesagreeasfollows:
1.Restricted Shares .PursuanttothePlan,theCompanyherebytransferstoyou,andyouherebyacceptfromtheCompany,aStockGrantAwardconsistingoftheRestrictedShares,onthetermsandconditionssetforthhereinandinthePlan.
2.Vesting of Restricted Shares .SolongasyourServicecontinues,theRestrictedSharesshallvestinaccordancewiththefollowingschedule:___________percent(___%)ofthetotalnumberofRestrictedSharesissuedpursuanttothisAgreementshallvestontheFirstVestDateandoneachannualanniversarythereafter,unlessotherwiseprovidedbythePlanorSection3below.IntheeventoftheterminationofyourServiceforanyreason,allunvestedRestrictedSharesshallbeimmediatelyforfeitedwithoutconsideration.ForpurposesoffacilitatingtheenforcementoftheprovisionsofthisSection2,theCompanymayissuestop-transferinstructionsontheRestrictedSharestotheCompany'stransferagent,orotherwiseholdtheRestrictedSharesinescrow,untiltheRestrictedShareshavevestedandyouhavesatisfiedallapplicableobligationswithrespecttotheRestrictedShares,includinganyapplicabletaxwithholdingobligationssetforthinSection5below.Anynew,substitutedoradditionalsecuritiesorotherpropertywhichisissuedordistributedwithrespecttotheunvestedRestrictedSharesshallbesubjecttothesametermsandconditionsasareapplicabletotheunvestedRestrictedSharesunderthisAgreementandthePlan.
3.Special Acceleration.
(a)TotheextenttheRestrictedSharesareoutstandingatthetimeofaCorporateTransaction,butnototherwisefullyvested,suchRestrictedSharesshallautomaticallyaccelerateimmediatelypriortotheeffectivedateoftheCorporateTransactionandshallbecomevestedinfullatthattime.Nosuchacceleration,however,shalloccurifandtotheextent:(i)thisStockGrantAgreementis,inconnectionwiththeCorporateTransaction,assumedbythesuccessorcorporation(orparentthereof),or(ii)theRestrictedSharesarereplacedwithacashincentiveprogramofthesuccessorcorporationwhichpreservestheFairMarketValueoftheRestrictedSharesatthetimeoftheCorporateTransactionandprovidesforsubsequentpay-outinaccordancewiththevestingschedulesetforthinSection2above.
(b)ImmediatelyfollowingtheeffectivedateoftheCorporateTransaction,thisStockGrantAgreementshallterminateandceasetobeoutstanding,excepttotheextentassumedbythesuccessorcorporation(orparentthereof)inconnectionwiththeCorporateTransaction.
(c)IfthisStockGrantAgreementisassumedinconnectionwithaCorporateTransaction,thentheCommitteeshallappropriatelyadjustthenumberofsharesandthekindofsharesorsecuritiescoveredbythisStockGrantAgreementimmediatelyaftersuchCorporateTransaction.
(d)ThisStockGrantAgreementshallnotinanywayaffecttherightoftheCompanytoadjust,reclassify,reorganizeorotherwisechangeitscapitalorbusinessstructureortomerge,consolidate,dissolve,liquidate,sellortransferalloranypartofitsbusinessorassets.
4.Restriction on Election to Recognize Income in the Year of Grant .UnderSection83oftheCode,theFairMarketValueoftheRestrictedSharesonthedatetheRestrictedSharesvestwillbetaxableasordinaryincomeatthattime.Youunderstand,acknowledgeandagreethat,asaconditiontothegrantofthisAward,youmaynotelecttobetaxedatthetimetheRestrictedSharesareacquiredbyfilinganelectionunderSection83(b)oftheCodewiththeInternalRevenueService.
5.Withholding Taxes .YouagreetomakearrangementssatisfactorytotheCompanyforthesatisfactionofanyapplicablewithholdingtaxobligationsthatariseinconnectionwiththeRestrictedShareswhich,atthesolediscretionoftheCompany,mayinclude(i)havingtheCompanywithholdSharesfromtheRestrictedSharesheldinescrow,or(ii)anyotherarrangementapprovedbytheCompany,inanycase,equalinvaluetotheamountnecessarytosatisfyanysuchwithholdingtaxobligation.SuchSharesshallbevaluedbasedontheFair
MarketValueasofthedaypriortothedatethattheamountoftaxtobewithheldistobedeterminedunderapplicablelaw.TheCompanyshallnotberequiredtoreleasetheRestrictedSharesfromthestop-transferinstructionsorescrowunlessanduntilsuchobligationsaresatisfied.
6.Tax Advice .Yourepresent,warrantandacknowledgethattheCompanyhasmadenowarrantiesorrepresentationstoyouwithrespecttotheincometaxconsequencesofthetransactionscontemplatedbythisAgreement,andyouareinnomannerrelyingontheCompanyortheCompany’srepresentativesforanassessmentofsuchtaxconsequences.YOUUNDERSTANDTHATTHETAXLAWSANDREGULATIONSARESUBJECTTOCHANGE.YOUSHOULDCONSULTYOUROWNTAXADVISORREGARDINGANYSTOCKGRANTAWARD.NOTHINGSTATEDHEREINISINTENDEDORWRITTENTOBEUSED,ANDCANNOTBEUSED,FORTHEPURPOSEOFAVOIDINGTAXPAYERPENALTIES.
7.Non-Transferability of Restricted Shares .RestrictedShareswhichhavenotvestedpursuanttoSection2aboveshallnotbeanticipated,assigned,attached,garnished,optioned,transferredormadesubjecttoanycreditor'sprocess,whethervoluntarilyorinvoluntarilyorbytheoperationoflaw.However,thisSection7shallnotprecludeyoufromdesignatingabeneficiarywhowillreceiveanyvestedRestrictedSharesintheeventoftheyourdeath,norshallitprecludeatransferofvestedRestrictedSharesbywillorbythelawsofdescentanddistribution.
8.Restriction on Transfer .RegardlessofwhetherthetransferorissuanceoftheRestrictedShareshasbeenregisteredundertheSecuritiesActorhasbeenregisteredorqualifiedunderthesecuritieslawsofanystate,theCompanymayimposeadditionalrestrictionsuponthesale,pledge,orothertransferoftheRestrictedShares(includingtheplacementofappropriatelegendsonstockcertificatesandtheissuanceofstop-transferinstructionstotheCompany’stransferagent)if,inthejudgmentoftheCompanyandtheCompany’scounsel,suchrestrictionsarenecessaryinordertoachievecompliancewiththeprovisionsoftheSecuritiesAct,thesecuritieslawsofanystate,oranyotherlaw.
9.Stock Certificate Restrictive Legends . StockcertificatesevidencingtheRestrictedSharesmaybearsuchrestrictivelegendsastheCompanyandtheCompany’scounseldeemnecessaryunderapplicablelaworpursuanttothisAgreement.
10.Representations, Warranties, Covenants, and Acknowledgments .YouherebyagreethatintheeventtheCompanyandtheCompany’scounseldeemitnecessaryoradvisableintheexerciseoftheirdiscretion,thetransferorissuanceoftheRestrictedSharesmaybeconditioneduponyoumakingcertainrepresentations,warranties,andacknowledgmentsrelatingtocompliancewithapplicablesecuritieslaws.
11.Voting and Other Rights .SubjecttothetermsofthisAgreement,youshallhavealltherightsandprivilegesofashareholderoftheCompanywhiletheRestrictedSharesaresubjecttostop-transferinstructions,orotherwiseheldinescrow,includingtherighttovoteandtoreceivedividends(ifany).
12.Authorization to Release Necessary Personal Information .
(a)Youherebyauthorizeanddirectyouremployertocollect,useandtransferinelectronicorotherform,anypersonalinformation(the“Data”)regardingyouremployment,thenatureandamountofyourcompensationandthefactsandconditionsofyourparticipationinthePlan(including,butnotlimitedto,yourname,homeaddress,telephonenumber,dateofbirth,socialsecuritynumber(oranyothersocialornationalidentificationnumber),salary,nationality,jobtitle,numberofSharesheldandthedetailsofallAwardsoranyotherentitlementtoSharesawarded,cancelled,exercised,vested,unvestedoroutstanding)forthepurposeofimplementing,administeringandmanagingyourparticipationinthePlan.YouunderstandthattheDatamaybetransferredtotheCompanyoranyofitsSubsidiaries,ortoanythirdpartiesassistingintheimplementation,administrationandmanagementofthePlan,includinganyrequisitetransfertoabrokerorotherthirdpartyassistingwiththeadministrationofthisStockGrantAwardunderthePlanorwithwhomSharesacquiredpursuanttothisStockGrantAwardorcashfromthesaleofsuchsharesmaybedeposited.YouacknowledgethatrecipientsoftheDatamaybelocatedindifferentcountries,andthosecountriesmayhavedataprivacylawsandprotectionsdifferentfromthoseinthecountryofyourresidence.Furthermore,youacknowledgeandunderstandthatthetransferoftheDatatotheCompanyoranyofitsSubsidiaries,ortoanythirdpartiesisnecessaryforyourparticipationinthePlan.
(b)Youmayatanytimewithdrawtheconsentshereinbycontactingyourlocalhumanresourcesrepresentativeinwriting.YoufurtheracknowledgethatwithdrawalofconsentmayaffectyourabilitytoexerciseorrealizebenefitsfromthisStockGrantAward,andyourabilitytoparticipateinthePlan.
13.No Entitlement or Claims for Compensation .
(a)Yourrights,ifany,inrespectoforinconnectionwiththisStockGrantAwardoranyotherAwardisderivedsolelyfromthediscretionarydecisionoftheCompanytopermityoutoparticipateinthePlanandtobenefitfromadiscretionaryAward.ByacceptingthisStockGrantAward,youexpresslyacknowledgethatthereisnoobligationonthepartoftheCompanytocontinuethePlanand/orgrantanyadditionalAwardstoyou.ThisStockGrantAwardisnotintendedtobecompensationofacontinuingorrecurringnature,orpartofyournormalorexpectedcompensation,andinnowayrepresentsanyportionofayoursalary,compensation,orotherremunerationforpurposesofpensionbenefits,severance,redundancy,resignationoranyotherpurpose.
(b)NeitherthePlannorthisStockGrantAwardoranyotherAwardgrantedunderthePlanshallbedeemedtogiveyouarighttoremainanEmployee,ConsultantordirectoroftheCompany,aParent,aSubsidiaryoranAffiliate.TheCompanyanditsParentsandSubsidiariesandAffiliatesreservetherighttoterminateyourServiceatanytime,withorwithoutcause,andforanyreason,subjecttoapplicablelaws,theCompany’sArticlesofIncorporationandBylawsandawrittenemploymentagreement(ifany),andyoushallbedeemed
irrevocablytohavewaivedanyclaimtodamagesorspecificperformanceforbreachofcontractordismissal,compensationforlossofoffice,tortorotherwisewithrespecttothePlan,thisStockGrantAwardoranyoutstandingAwardthatisforfeitedand/oristerminatedbyitstermsortoanyfutureAward.
(c)YouagreethattheCompanymayrequirethatRestrictedSharesbeheldbyabrokerdesignatedbytheCompany.Inaddition,youagreethatyourrightshereundershallbesubjecttoset-offbytheCompanyforanyvaliddebtsyouowetheCompany.
14.Governing Law .ThisAgreementshallbegovernedbyandconstruedinaccordancewiththelawsoftheStateofCaliforniawithoutregardtotheconflictoflawsprinciplesthereof.
15.Notices .AnynoticerequiredorpermittedunderthetermsofthisAgreementshallbeinwritingandshallbedeemedsufficientwhendeliveredpersonallyorsentbyconfirmedemail,telegram,orfaxorforty-eight(48)hoursafterbeingdepositedintheU.S.mail,ascertifiedorregisteredmail,withpostageprepaid,andaddressedtotheCompanyattheCompany'sprincipalcorporateofficesortoyouattheaddressmaintainedforyouintheCompany'srecordsor,ineithercase,assubsequentlymodifiedbywrittennoticetotheotherparty.
16.Binding Effect .SubjecttothelimitationssetforthinthisAgreement,thisAgreementshallbebindingupon,andinuretothebenefitof,theexecutors,administrators,heirs,legalrepresentatives,successors,andassignsofthepartieshereto.
17.Severability .IfanyprovisionofthisAgreementisheldtobeunenforceableforanyreason,itshallbeadjustedratherthanvoided,ifpossible,inordertoachievetheintentofthepartiestotheextentpossible.Inanyevent,allotherprovisionsofthisAgreementshallbedeemedvalidandenforceabletothefullextentpossible.
(For Grants Prior to July 2016)
CISCO SYSTEMS, INC.STOCK GRANT AGREEMENT
ThisStockGrantAgreement(the“Agreement”)ismadeandenteredintoasoftheGrantDate(asdefinedbelow)byandbetweenCiscoSystems,Inc.,aCaliforniacorporation(the“Company”),andyoupursuanttotheCiscoSystems,Inc.2005StockIncentivePlan(the“Plan”).ThematerialtermsofthisStockGrantAwardareasfollows:
EmployeeID:
GrantDate:
GrantNumber:
RestrictedShares:
FirstVestDate: ,20(thefirstannualanniversaryofthevestingcommencementdate)
TotheextentanycapitalizedtermsusedinthisAgreementarenotdefined,theyshallhavethemeaningascribedtotheminthePlan.IntheeventofaconflictbetweenthetermsandprovisionsofthePlanandthetermsandprovisionsofthisAgreement,thePlantermsandprovisionsshallprevail.
Inconsiderationofthemutualagreementshereincontainedandintendingtobelegallyboundhereby,thepartiesagreeasfollows:1. Restricted Shares .PursuanttothePlan,theCompanyherebytransferstoyou,andyouherebyacceptfromtheCompany,aStockGrantAwardconsistingoftheRestrictedShares,onthetermsandconditionssetforthhereinandinthePlan.
2. Vesting of Restricted Shares .SolongasyourServicecontinues,theRestrictedSharesshallvestinaccordancewiththefollowingschedule:percent(%)ofthetotalnumberofRestrictedSharesissuedpursuanttothisAgreementshallvestontheFirstVestDateandoneachannualanniversarythereafter,unlessotherwiseprovidedbythePlanorSection3below.IntheeventoftheterminationofyourServiceforanyreason,allunvestedRestrictedSharesshallbeimmediatelyforfeitedwithoutconsideration.ForpurposesoffacilitatingtheenforcementoftheprovisionsofthisSection2,theCompanymayissuestop-transferinstructionsontheRestrictedSharestotheCompany’stransferagent,orotherwiseholdtheRestrictedSharesinescrow,untiltheRestrictedShareshavevestedandyouhavesatisfiedallapplicableobligationswithrespecttotheRestrictedShares,includinganyapplicabletaxwithholdingobligationssetforthinSection5below.Anynew,substitutedoradditionalsecuritiesorotherpropertywhichisissuedordistributedwithrespecttotheunvestedRestrictedSharesshallbesubjecttothesametermsandconditionsasareapplicabletotheunvestedRestrictedSharesunderthisAgreementandthePlan.
3. Special Acceleration .(a)TotheextenttheRestrictedSharesareoutstandingatthetimeofaCorporateTransaction,butnototherwisefullyvested,suchRestrictedSharesshallautomaticallyaccelerateimmediatelypriortotheeffectivedateoftheCorporateTransactionandshallbecomevestedinfullatthattime.Nosuchacceleration,however,shalloccurifandtotheextent:(i)thisStockGrantAgreementis,inconnectionwiththeCorporateTransaction,assumedbythesuccessorcorporation(orparentthereof),or(ii)theRestrictedSharesarereplacedwithacashincentiveprogramofthesuccessorcorporationwhichpreservestheFairMarketValueoftheRestrictedSharesatthetimeoftheCorporateTransactionandprovidesforsubsequentpay-outinaccordancewiththevestingschedulesetforthinSection2above.
(b)ImmediatelyfollowingtheeffectivedateoftheCorporateTransaction,thisStockGrantAgreementshallterminateandceasetobeoutstanding,excepttotheextentassumedbythesuccessorcorporation(orparentthereof)inconnectionwiththeCorporateTransaction.
(c)IfthisStockGrantAgreementisassumedinconnectionwithaCorporateTransaction,thentheCommitteeshallappropriatelyadjustthenumberofsharesandthekindofsharesorsecuritiescoveredbythisStockGrantAgreementimmediatelyaftersuchCorporateTransaction.
(d)TotheextenttheRestrictedSharesareoutstandingatthetimeofaChangeinControlbutnototherwisefullyvested,suchRestrictedSharesshallautomaticallyaccelerateimmediatelypriortotheeffectivedateoftheChangeinControlandshallbecomevestedinfullatthattime.
(e)ThisStockGrantAgreementshallnotinanywayaffecttherightoftheCompanytoadjust,reclassify,reorganizeorotherwisechangeitscapitalorbusinessstructureortomerge,consolidate,dissolve,liquidate,sellortransferalloranypartofitsbusinessorassets.
4. Restriction on Election to Recognize Income in the Year of Grant .UnderSection83oftheCode,theFairMarketValueoftheRestrictedSharesonthedatetheRestrictedSharesvestwillbetaxableasordinaryincomeatthattime.Youunderstand,acknowledgeandagreethat,asaconditiontothegrantofthisAward,youmaynotelecttobetaxedatthetimetheRestrictedSharesareacquiredbyfilinganelectionunderSection83(b)oftheCodewiththeInternalRevenueService.
5. Withholding Taxes .YouagreetomakearrangementssatisfactorytotheCompanyforthesatisfactionofanyapplicablewithholdingtaxobligationsthatariseinconnectionwiththeRestrictedShareswhich,atthesolediscretionoftheCompany,mayinclude(i)havingtheCompanywithholdSharesfromtheRestrictedSharesheldinescrow,or(ii)anyotherarrangementapprovedbytheCompany,inanycase,equalinvaluetotheamountnecessarytosatisfyanysuchwithholdingtaxobligation.SuchSharesshallbevaluedbasedontheFairMarketValueasofthedaypriortothedatethattheamountoftaxtobewithheldistobedeterminedunderapplicablelaw.TheCompanyshallnotberequiredtoreleasetheRestrictedSharesfromthestop-transferinstructionsorescrowunlessanduntilsuchobligationsaresatisfied.
6. Tax Advice .Yourepresent,warrantandacknowledgethattheCompanyhasmadenowarrantiesorrepresentationstoyouwithrespecttotheincometaxconsequencesofthetransactionscontemplatedbythisAgreement,andyouareinnomannerrelyingontheCompanyortheCompany’srepresentativesforanassessmentofsuchtaxconsequences.
YOUUNDERSTANDTHATTHETAXLAWSANDREGULATIONSARESUBJECTTOCHANGE.YOUSHOULDCONSULTYOUROWNTAXADVISORREGARDINGANYSTOCKGRANTAWARD.NOTHINGSTATEDHEREINISINTENDEDORWRITTENTOBEUSED,ANDCANNOTBEUSED,FORTHEPURPOSEOFAVOIDINGTAXPAYERPENALTIES.
7. Non-Transferability of Restricted Shares .RestrictedShareswhichhavenotvestedpursuanttoSection2aboveshallnotbeanticipated,assigned,attached,garnished,optioned,transferredormadesubjecttoanycreditor’sprocess,whethervoluntarilyorinvoluntarilyorbytheoperationoflaw.However,thisSection7shallnotprecludeyoufromdesignatingabeneficiarywhowillreceiveanyvestedRestrictedSharesintheeventoftheyourdeath,norshallitprecludeatransferofvestedRestrictedSharesbywillorbythelawsofdescentanddistribution.
8. Restriction on Transfer .RegardlessofwhetherthetransferorissuanceoftheRestrictedShareshasbeenregisteredundertheSecuritiesActorhasbeenregisteredorqualifiedunderthesecuritieslawsofanystate,theCompanymayimposeadditionalrestrictionsuponthesale,pledge,orothertransferoftheRestrictedShares(includingtheplacementofappropriatelegendsonstockcertificatesandtheissuanceofstop-transferinstructionstotheCompany’stransferagent)if,inthejudgmentoftheCompanyandtheCompany’scounsel,suchrestrictionsarenecessaryinordertoachievecompliancewiththeprovisionsoftheSecuritiesAct,thesecuritieslawsofanystate,oranyotherlaw.
9. Stock Certificate Restrictive Legends . StockcertificatesevidencingtheRestrictedSharesmaybearsuchrestrictivelegendsastheCompanyandtheCompany’scounseldeemnecessaryunderapplicablelaworpursuanttothisAgreement.
10. Representations, Warranties, Covenants, and Acknowledgments .YouherebyagreethatintheeventtheCompanyandtheCompany’scounseldeemitnecessaryoradvisableintheexerciseoftheirdiscretion,thetransferorissuanceoftheRestrictedSharesmaybeconditioneduponyoumakingcertainrepresentations,warranties,andacknowledgmentsrelatingtocompliancewithapplicablesecuritieslaws.
11. Voting and Other Rights .SubjecttothetermsofthisAgreement,youshallhavealltherightsandprivilegesofashareholderoftheCompanywhiletheRestrictedSharesaresubjecttostop-transferinstructions,orotherwiseheldinescrow,includingtherighttovoteandtoreceivedividends(ifany).
12. Authorization to Release Necessary Personal Information .(a)Youherebyauthorizeanddirectyouremployertocollect,useandtransferinelectronicorotherform,anypersonalinformation(the“Data”)regardingyouremployment,thenatureandamountofyourcompensationandthefactsandconditionsofyourparticipationinthePlan(including,butnotlimitedto,yourname,homeaddress,telephonenumber,dateofbirth,socialsecuritynumber(oranyothersocialornationalidentificationnumber),salary,nationality,jobtitle,numberofSharesheldandthedetailsofallAwardsoranyotherentitlementtoSharesawarded,cancelled,exercised,vested,unvestedoroutstanding)forthepurposeofimplementing,administeringandmanagingyourparticipationinthePlan.YouunderstandthattheDatamaybetransferredtotheCompanyoranyofitsSubsidiaries,ortoanythirdpartiesassistingintheimplementation,administrationandmanagementofthePlan,includinganyrequisitetransfertoabrokerorotherthirdpartyassistingwiththeadministrationofthisStockGrantAwardunderthePlanorwithwhomSharesacquiredpursuanttothisStockGrantAwardorcashfromthesaleofsuchsharesmaybedeposited.YouacknowledgethatrecipientsoftheDatamaybelocatedindifferentcountries,andthosecountriesmayhavedataprivacylawsandprotectionsdifferentfromthoseinthecountryofyourresidence.Furthermore,youacknowledgeandunderstandthatthetransferoftheDatatotheCompanyoranyofitsSubsidiaries,ortoanythirdpartiesisnecessaryforyourparticipationinthePlan.
(b)Youmayatanytimewithdrawtheconsentshereinbycontactingyourlocalhumanresourcesrepresentativeinwriting.YoufurtheracknowledgethatwithdrawalofconsentmayaffectyourabilitytoexerciseorrealizebenefitsfromthisStockGrantAward,andyourabilitytoparticipateinthePlan.
13. No Entitlement or Claims for Compensation .(a)Yourrights,ifany,inrespectoforinconnectionwiththisStockGrantAwardoranyotherAwardisderivedsolelyfromthediscretionarydecisionoftheCompanytopermityoutoparticipateinthePlanandtobenefitfromadiscretionaryAward.ByacceptingthisStockGrantAward,youexpresslyacknowledgethatthereisnoobligationonthepartoftheCompanytocontinuethePlanand/orgrantanyadditionalAwardstoyou.ThisStockGrantAwardisnotintendedtobecompensationofacontinuingorrecurringnature,orpartofyournormalorexpectedcompensation,andinnowayrepresentsanyportionofayoursalary,compensation,orotherremunerationforpurposesofpensionbenefits,severance,redundancy,resignationoranyotherpurpose.
(b)NeitherthePlannorthisStockGrantAwardoranyotherAwardgrantedunderthePlanshallbedeemedtogiveyouarighttoremainanEmployee,ConsultantordirectoroftheCompany,aParent,aSubsidiaryoranAffiliate.TheCompanyanditsParentsandSubsidiariesandAffiliatesreservetherighttoterminateyourServiceatanytime,withorwithoutcause,andforanyreason,subjecttoapplicablelaws,theCompany’sArticlesofIncorporationandBylawsandawrittenemploymentagreement(ifany),andyoushallbedeemedirrevocablytohavewaivedanyclaimtodamagesorspecificperformanceforbreachofcontractordismissal,compensationforlossofoffice,tortorotherwisewithrespecttothePlan,thisStockGrantAwardoranyoutstandingAwardthatisforfeitedand/oristerminatedbyitstermsortoanyfutureAward.
(c)YouagreethattheCompanymayrequirethatRestrictedSharesbeheldbyabrokerdesignatedbytheCompany.Inaddition,youagreethatyourrightshereundershallbesubjecttoset-offbytheCompanyforanyvaliddebtsyouowetheCompany.
14. Governing Law .ThisAgreementshallbegovernedbyandconstruedinaccordancewiththelawsoftheStateofCaliforniawithoutregardtotheconflictoflawsprinciplesthereof.
15. Notices .AnynoticerequiredorpermittedunderthetermsofthisAgreementshallbeinwritingandshallbedeemedsufficientwhendeliveredpersonallyorsentbyconfirmedemail,telegram,orfaxorforty-eight(48)hoursafterbeingdepositedintheU.S.mail,ascertifiedorregisteredmail,withpostageprepaid,andaddressedtotheCompanyattheCompany’sprincipalcorporateofficesortoyouattheaddressmaintainedforyouintheCompany’srecordsor,ineithercase,assubsequentlymodifiedbywrittennoticetotheotherparty.
16. Binding Effect .SubjecttothelimitationssetforthinthisAgreement,thisAgreementshallbebindingupon,andinuretothebenefitof,theexecutors,administrators,heirs,legalrepresentatives,successors,andassignsofthepartieshereto.
17. Severability .IfanyprovisionofthisAgreementisheldtobeunenforceableforanyreason,itshallbeadjustedratherthanvoided,ifpossible,inordertoachievetheintentofthepartiestotheextentpossible.Inanyevent,allotherprovisionsofthisAgreementshallbedeemedvalidandenforceabletothefullextentpossible.
(For Grants Beginning in July 2016)
CISCO SYSTEMS, INC.PERFORMANCE-BASED STOCK UNIT AGREEMENT
ThisPerformance-BasedStockUnitAgreement(the“Agreement”)ismadeandenteredintoasoftheGrantDate(asdefinedbelow)byandbetweenCiscoSystems,Inc.,aCaliforniacorporation(the“Company”),andyoupursuanttotheCiscoSystems,Inc.2005StockIncentivePlan(the“Plan”).ThematerialtermsofthisStockUnitAwardareasfollows:
EmployeeID:______________________________
GrantDate:______________________________
GrantNumber:______________________________
TargetAmountofPerformance-BasedStockUnits:______________________________
VestDate:______________________________
TotheextentanycapitalizedtermsusedinthisAgreementarenotdefined,theyshallhavethemeaningascribedtotheminthePlan.IntheeventofaconflictbetweenthetermsandprovisionsofthePlanandthetermsandprovisionsofthisAgreement,thePlantermsandprovisionsshallprevail.
Inconsiderationofthemutualagreementshereincontainedandintendingtobelegallyboundhereby,thepartiesagreeasfollows:
1.Performance-Based Stock Units .PursuanttothePlan,theCompanyherebygrantstoyouandyouherebyacceptfromtheCompany,Performance-BasedStockUnits,eachofwhichisabookkeepingentryrepresentingtheequivalentinvalueofone(1)Share,onthetermsandconditionssetforthhereinandinthePlan.TheTargetAmountofPerformance-BasedStockUnitsstatedabovereflectsthetargetnumberofPerformance-BasedStockUnits(the“TargetAmount”).ThenumberofPerformance-BasedStockUnitsultimatelypaidouttoyouwillrangefrom__%to__%oftheTargetAmountasdeterminedbasedupontheCompany’sperformanceduringtheperformanceperiodagainsttheperformancegoalsassetforthinExhibitA.
2.Vesting of Performance-Based Stock Units .SolongasyourServicecontinuesandsubjectto,andtotheextentof,thesatisfactionoftheperformancegoalsassetforthinExhibitA,thePerformance-BasedStockUnitsshallvestinaccordancewiththefollowingschedule:__________(_%)ofthetotalnumberofPerformance-BasedStockUnitsearned,ifany,pursuanttothesatisfactionoftheperformancegoalsinExhibitAshallvestontheVestDate,unlessotherwiseprovidedbythePlanorSections3(b)or4below.Ifyoutakealeaveofabsence,theCompanymay,atitsdiscretionandtotheextentpermittedunderapplicablelocallaw,eithersuspendvestingduringtheperiodofleaveorpro-ratethePerformance-BasedStockUnits,notwithstandingtheCompany’sVestingPolicyforLeavesofAbsence.
3.Termination of Service .
(a)ExceptasotherwiseprovidedinSection3(b)beloworSection4,intheeventoftheterminationofyourServiceforanyreason(whetherornotinbreachoflocallaborlaws),allunvestedPerformance-BasedStockUnitsshallbeimmediatelyforfeitedwithoutconsideration.Forpurposesoftheprecedingsentence,yourrighttovestinthePerformance-BasedStockUnitswillterminateeffectiveasofthedatethatyouarenolongeractivelyprovidingService(orearlieruponyour“SeparationfromService”withinthemeaningofCodeSection409A)andwillnotbeextendedbyanynoticeperiodmandatedunderlocallaw(e.g. ,activeServicewouldnotincludeaperiodof“gardenleave”orsimilarperiodpursuanttolocallaw);theCompanyshallhavetheexclusivediscretiontodeterminewhenyouarenolongeractivelyprovidingServiceforpurposesofthePerformance-BasedStockUnits.
(b)IntheeventthatyouresignoryourServiceisterminatedforanyreasonotherthanCauseonorafterthedatethat(x)youhaveattainedatleast______(____)yearsofageand(y)yourageplusyouryearsofServiceisatleastequalto_____(____),andsolongassuchresignationortheterminationofyourServiceoccursnoearlierthanthe______anniversaryoftheGrantDate(thesatisfactionoftheaforementionedconditionsisreferredtohereinas“Retirement1”),allunvestedPerformance-BasedStockUnitsmaybeearnedpursuanttothe
1IfyouaresubjecttotheemploymentprotectionsofacountrywithintheEuropeanEconomicAreabecauseyouresideinsuchcountryorareotherwisesubjectthereto,“Retirement”shallmeanyouryearsofServiceisatleastequalto_______(_____),regardlessofyourage,andtheprovisionsconcerningRetirementshallapplytoyousolongastheterminationofyourServiceoccursnoearlierthantheone-yearanniversaryoftheGrantDate.Inallcases,yearsofServiceshallbedeterminedbasedonthedateyouoriginallyprovidedService.IfyoupreviouslyterminatedService,butsubsequentlyreturnedtoServicepriortotheGrantDate,youwillreceivecreditforyourpriorService.
satisfactionoftheperformancegoalsinExhibitA,andshallvestinaccordancewiththevestingschedulesetforthinSection2above,determinedasifyourServicehadcontinuedafteryourresignationorterminationofService,andshallbesettledinaccordancewithSection5(a);providedthatanyunsettledorunvestedPerformance-BasedStockUnitsshallbeforfeitedwithoutconsiderationimmediatelyuponthebreachofanyofthefollowingconditions:
(i)Unlessprohibitedbyapplicablelaw,youshallrender,asanindependentadvisororconsultantandnotasanEmployee,suchadvisoryorconsultingservicestotheCompany(oranyParent,SubsidiaryorAffiliate)asshallreasonablyberequestedbytheCompany(oranyParent,SubsidiaryorAffiliate),andsuchservicesshallnotbeterminatedforCause(forpurposesofclarity,anyrequesttoprovidesuchadvisoryorconsultingservicestotheCompany(oranyParent,SubsidiaryorAffiliate)shallnotbeconsideredacontinuationof“Service”unlesstheCompanyspecificallyprovidesthatthecontinuationofservicesisacontinuationof“Service”forpurposesofthisSection3(b)).
(ii)Foraperiodof_____(___)yearbeginningonthedateofyourterminationofServiceorduringanyperiodinwhichyouprovideindependentadvisoryorconsultingservicestotheCompany(oranyParent,SubsidiaryorAffiliate),youshallnotdirectlyorindirectly,individuallyoronbehalfofotherpersonsorentities,intentionallysolicitorinduce(a)anyemployeeoftheCompany(oranyParent,SubsidiaryorAffiliate)toleavetheemployee’semploymentinordertoacceptemploymentwithanotherpersonorentityor(b)anycustomeroftheCompany(oranyParent,SubsidiaryorAffiliate)withwhomyouhaveworkedinyourcapacityasanEmployeepriortoyourterminationofServicewhoseidentityand/oranyrelatedinformationconstitutesprotectedtradesecrets(withsuchcustomersdeterminedasofthedateoftheterminationofyourService,toretainoruseanyotherpersonorentityforthepurposeofrenderingservicesincompetitionwiththeCompany(oranyParent,SubsidiaryorAffiliate)ortopurchaseproductsfromanybusinesswhich,intheopinionoftheCompany(oranyParent,SubsidiaryorAffiliate),competeswithorisinconflictwiththeinterestsoftheCompany(oranyParent,SubsidiaryorAffiliate),ineithercase,unlesstheserestrictionsareprohibited(whetherinwholeorinpart)byapplicablelaw.
(iii)Foraperiodof_____(___)beginningonthedateofyourterminationofServiceorduringanyperiodinwhichyouprovideindependentadvisoryorconsultingservicestotheCompany(oranyParent,SubsidiaryorAffiliate),youshallnotrenderservicesforanyorganizationorengagedirectlyorindirectlyinanybusinesswhich,intheopinionoftheCompany,competeswithorisinconflictwiththeinterestsoftheCompany(oranyParent,SubsidiaryorAffiliate),unlessthisrestrictionisprohibitedbyapplicablelaw.
(iv)Youshallnot,withoutpriorwrittenauthorizationfromtheCompany,useordiscloseanyconfidentialinformationortradesecretsconcerningtheCompany(oranyParent,SubsidiaryorAffiliate),ineachcaseasdeterminedbytheCommittee,andtheCommittee’sdeterminationshallbeconclusiveandbinding.
(c)NotwithstandinganyprovisionstothecontraryinthisAgreement,intheeventoftheterminationofyourServiceforCauseorintheeventoftheterminationforCauseofanyindependentadvisoryorconsultingservicesyoumaybeprovidingasdescribedinSection3(b)(i),anyunsettledorunvestedPerformance-BasedStockUnitsshallterminateandbeforfeitedimmediatelywithoutconsideration.
4.Special Acceleration .
(a)TotheextentthePerformance-BasedStockUnitsareoutstandingatthetimeofaCorporateTransaction,suchPerformance-BasedStockUnitsshallautomaticallybecomevestedinfullattheTargetAmountimmediatelypriortotheeffectivedateoftheCorporateTransactionandsettledinaccordancewithSection5below.Nosuchacceleratedvesting,however,shalloccurifandtotheextent:(i)thesePerformance-BasedStockUnitsare,inconnectionwiththeCorporateTransaction,eitherassumedbythesuccessorcorporation(orparentthereof)orreplacedwithcomparableperformance-basedstockunitsofthesuccessorcorporation(orparentthereof),ineachcase,havingaminimumpayoutequaltotheTargetAmountandpreservingthesettlementprovisionssetforthinSection5belowor(ii)thesePerformance-BasedStockUnitsarereplacedwithacashincentiveprogramofthesuccessorcorporationwhichcomplieswithCodeSection409Aand,ataminimum,preservesthefairmarketvalueofthePerformance-BasedStockUnitsatthetimeoftheCorporateTransaction(basedontheTargetAmount)andprovidesforsubsequentpay-outinaccordancewiththesettlementprovisionssetforthinSection5below.Thedeterminationofthecomparabilityofperformance-basedstockunitsunderclause(i)shallbemadebytheCommittee,andsuchdeterminationshallbefinal,bindingandconclusive.
(b)ImmediatelyfollowingtheeffectivedateoftheCorporateTransaction,thisAgreementshallterminateandceasetobeoutstanding,exceptassetforthinSection5belowwithrespecttothesettlementofPerformance-BasedStockUnitsortotheextentassumedbythesuccessorcorporation(orparentthereof)inconnectionwiththeCorporateTransaction.
(c)IfthisAgreementisassumedinconnectionwithaCorporateTransaction,thentheCommitteeshallappropriatelyadjustthenumberofunitsandthekindofsharesorsecuritiestobeissuedpursuanttothisAgreementimmediatelyaftersuchCorporateTransaction.
(d)ThisAgreementshallnotinanywayaffecttherightoftheCompanytoadjust,reclassify,reorganizeorotherwisechangeitscapitalorbusinessstructureortomerge,consolidate,dissolve,liquidate,sellortransferalloranypartofitsbusinessorassets.
5.Settlement of Performance-Based Stock Units .
(a)General Settlement Terms .ThePerformance-BasedStockUnits,totheextentearnedandvestedhereunder(including,withoutlimitationbyreasonofRetirement),shallbeautomaticallysettledinSharesontheVestDate(whichconstitutesafixedpaymentdateforpurposesofCodeSection409A)or,ifearlier,upontheearliesttooccurofthesettlementeventssetforthbeloworintheCompany’sVestingAccelerationPolicyforDeathandTerminalIllness;itbeingunderstoodthatnothinghereinshalllimittheCompany’sabilitytoamendorterminatesuchpolicyinitssolediscretionandwithoutyourconsent.
(b)Corporate Transaction .If,asoftheGrantDate,youhavenotsatisfiedanditisnotpossibleforyoutosatisfytheageandServiceRetirementconditionswithrespecttothisPerformance-BasedStockUnitawardandthisPerformance-BasedStockUnitawardisnotassumedorreplacedasdescribedinSection4(a)inconnectionwithaCorporateTransaction,thenthePerformance-BasedStockUnitsshallbeautomaticallysettledinSharesimmediatelypriortotheeffectivedateoftheCorporateTransactioninsteadofontheVestDate.
(c)TheCompanyshallhavenoobligationtoissueSharespursuanttothisAgreementunlessanduntilyouhavesatisfiedanyapplicabletaxand/orotherobligationspursuanttoSection6belowandsuchissuanceotherwisecomplieswithallapplicablelaw.
(d)NotwithstandinganythinginthisSection5orinthisAgreement,totheextentyourPerformance-BasedStockUnitswouldotherwisebesettleduponyourSeparationfromService,suchsettlementshallinsteadoccurupontheCompany’sfirstbusinessdayfollowingthesix-monthanniversaryofyourSeparationfromService.
(e)PriortothetimethatthePerformance-BasedStockUnitsaresettled,youshallhavenorightsotherthanthoseofageneralcreditoroftheCompany.ThePerformance-BasedStockUnitsrepresentanunfundedandunsecuredobligationoftheCompany.
6.Taxes .
(a) RegardlessofanyactiontheCompanyoryouremployer(the“Employer”)takeswithrespecttoanyandallincometax,socialtaxesorinsurancecontributions,payrolltax,paymentonaccountorothertax-relateditemsrelatedtoyourparticipationinthePlanandlegallyapplicabletoyou(“Tax-RelatedItems”),youacknowledgethattheultimateliabilityforallTax-RelatedItemswithrespecttothePerformance-BasedStockUnitsisandremainsyourresponsibilityandmayexceedtheamountactuallywithheldbytheCompanyortheEmployer.YoufurtheracknowledgethattheCompanyand/ortheEmployer(i)makenorepresentationsorundertakingsregardingthetreatmentofanyTax-RelatedItemsinconnectionwithanyaspectofthePerformance-BasedStockUnits,includingthegrant,vestingorsettlementofthePerformance-BasedStockUnits,orthesubsequentsaleofanySharesacquiredatvestingorthereceiptofanydividendswithrespecttosuchShares;and(ii)donotcommittoandareundernoobligationtostructurethetermsoranyaspectofthePerformance-BasedStockUnitstoreduceoreliminateyourliabilityforTax-RelatedItemsorachieveanyparticulartaxresult.Further,ifyoubecomesubjecttotaxationinmorethanonejurisdictionbetweentheGrantDateandthedateofanyrelevanttaxableevent,youacknowledgethattheCompanyand/ortheEmployer(orformeremployer,asapplicable)mayberequiredtowithholdoraccountforTax-RelatedItemsinmorethanonejurisdiction.
(b) Priortoanyrelevanttax,withholdingorrequireddeductionevent,asapplicable,youagreetomakearrangementssatisfactorytotheCompanyforthesatisfactionofanyapplicabletax,withholding,requireddeductionandpaymentonaccountofanyobligationsoftheCompanyand/ortheEmployerthatariseinconnectionwiththePerformance-BasedStockUnits.Inthisregard,youauthorizetheCompanyand/ortheEmployer,ortheirrespectiveagents,attheirdiscretion,tosatisfyanyobligationsrelatedtoTax-RelatedItemsbyoneoracombinationofthefollowing:(1)withholdingfromyourwagesorothercashcompensationpayabletoyoubytheCompanyortheEmployer;(2)withholdingfromproceedsofthesaleofSharesacquireduponsettlementofthePerformance-BasedStockUnitseitherthroughavoluntarysaleorthroughamandatorysalearrangedbytheCompany(onyourbehalfpursuanttothisauthorization);(3)withholdingofSharesthatwouldotherwisebeissueduponsettlementofthePerformance-BasedStockUnits;or(4)requiringyoutosatisfytheliabilityforTax-RelatedItemsbymeansofanyotherarrangementapprovedbytheCompany.IftheobligationforTax-RelatedItemsissatisfiedbywithholdingShares,fortaxpurposes,youaredeemedtohavebeenissuedthefullnumberofSharessubjecttothevestedPerformance-BasedStockUnits,notwithstandingthatanumberoftheSharesareheldbacksolelyforthepurposeofpayingtheTax-RelatedItemsdueasaresultofanyaspectofyourparticipationinthePlan.Toavoidfinancialaccountingchargesunderapplicableaccountingguidance,theCompanymaywithholdoraccountforTax-RelatedItemsbyconsideringapplicableminimumstatutoryratesormaytakeanyotheractionrequiredtoavoidfinancialaccountingchargesunderapplicableaccountingguidance.
(c) Finally,youwillpaytotheCompanyortheEmployeranyamountofTax-RelatedItemsthattheCompanyortheEmployermayberequiredtowithholdoraccountforasaresultofyourparticipationinthePlanoryouracquisitionofSharesthatcannotbesatisfiedbythemeanspreviouslydescribed.TheCompanyshallnotberequiredtoissueordeliverSharespursuanttothisAgreementunlessanduntilsuchobligationsaresatisfied.
7.Tax and Legal Advice .Yourepresent,warrantandacknowledgethatneithertheCompanynoryourEmployerhavemadeanywarrantiesorrepresentationstoyouwithrespecttoanyTax-RelatedItems,legalorfinancialconsequencesofthetransactions
contemplatedbythisAgreement,andyouareinnomannerrelyingontheCompany,yourEmployerortheCompany’sortheEmployer’srepresentativesforanassessmentofsuchconsequences.YOUUNDERSTANDTHATTHELAWSGOVERNINGTHISAWARDARESUBJECTTOCHANGE.YOUSHOULDCONSULTYOUROWNPROFESSIONALTAX,LEGALANDFINANCIALADVISORREGARDINGANYPERFORMANCE-BASEDSTOCKUNITS.YOUUNDERSTANDTHATTHECOMPANYANDYOUREMPLOYERARENOTPROVIDINGANYTAX,LEGAL,ORFINANCIALADVICE,NORISTHECOMPANYORYOUREMPLOYERMAKINGANYRECOMMENDATIONREGARDINGYOURACCEPTANCEOFTHISAWARD.NOTHINGSTATEDHEREINISINTENDEDORWRITTENTOBEUSED,ANDCANNOTBEUSED,FORTHEPURPOSEOFAVOIDINGTAXPAYEROROTHERPENALTIES.
8.Non-Transferability of Performance-Based Stock Units .Performance-BasedStockUnitsshallnotbeanticipated,assigned,attached,garnished,optioned,transferredormadesubjecttoanycreditor’sprocess,whethervoluntarilyorinvoluntarilyorbyoperationoflaw.
9.Restriction on Transfer .RegardlessofwhetherthetransferorissuanceoftheSharestobeissuedpursuanttothePerformance-BasedStockUnitshasbeenregisteredundertheSecuritiesActorhasbeenregisteredorqualifiedunderthesecuritieslawsofanystate,theCompanymayimposeadditionalrestrictionsuponthesale,pledge,orothertransferoftheShares(includingtheplacementofappropriatelegendsonstockcertificatesandtheissuanceofstop-transferinstructionstotheCompany’stransferagent)if,inthejudgmentoftheCompanyandtheCompany’scounsel,suchrestrictionsarenecessaryinordertoachievecompliancewiththeprovisionsoftheSecuritiesAct,thesecuritieslawsofanystate,oranyotherlawincludingallapplicableforeignlaws.
10.Restrictive Legends and Stop-Transfer Instructions .StockcertificatesevidencingtheSharesissuedpursuanttothePerformance-BasedStockUnitsmaybearsuchrestrictivelegendsand/orappropriatestop-transferinstructionsmaybeissuedtotheCompany’stransferagentastheCompanyandtheCompany’scounseldeemnecessaryunderapplicablelaworpursuanttothisAgreement.
11.Representations, Warranties, Covenants, and Acknowledgments .YouherebyagreethatintheeventtheCompanyandtheCompany’scounseldeemitnecessaryoradvisableintheexerciseoftheirdiscretion,thetransferorissuanceoftheSharesissuedpursuanttothePerformance-BasedStockUnitsmaybeconditioneduponyoumakingcertainrepresentations,warranties,andacknowledgmentsrelatingtocompliancewithapplicablelaws.
12.Voting and Other Rights .SubjecttothetermsofthisAgreement,youshallnothaveanyvotingrightsoranyotherrightsandprivilegesofastockholderoftheCompanyunlessanduntilthePerformance-BasedStockUnitsaresettledinShares.Inaddition,youshallnothaveanyrightstodividendequivalentpaymentswithrespecttoPerformance-BasedStockUnits.
13.Authorization to Release and Transfer Necessary Personal Information .
(a)You hereby explicitly and unambiguously consent to the collection, use and transfer, in electronic or other form, of your personalinformation as described in this Agreement by and among, as applicable, the Employer, and the Company and its Parent, Subsidiaries and Affiliates for theexclusive purpose of implementing, administering and managing your participation in the Plan.
(b)You understand that the Company and the Employer may hold certain personal information about you, including, but not limited to,your name, home address and telephone number, date of birth, social insurance number (or any other social or national identification number), salary,nationality, job title, residency status, any Shares or directorships held in the Company, details of all Performance-Based Stock Units or any other entitlementto Shares awarded, canceled, exercised, vested, unvested or outstanding (the “Data”) for the purpose of implementing, administering and managing yourparticipation in the Plan. You understand that Data may be transferred to the Company or any of its Parent, Subsidiaries or Affiliates, or to any third partiesassisting in the implementation, administration and management of the Plan, that these recipients may be located in your country or elsewhere, includingoutside the European Economic Area, and that the recipient’s country (e.g., the United States) may have different data privacy laws and protections than yourcountry. You understand that you may request a list with the names and addresses of any potential recipients of the Data by contacting your local humanresources representative. You authorize the recipients to receive, possess, use, retain and transfer the Data, in electronic or other form, for the sole purposes ofimplementing, administering and managing your participation in the Plan, including any requisite transfer of such Data to a broker or other third partyassisting with the administration of these Performance-Based Stock Units under the Plan or with whom Shares acquired pursuant to these Performance-BasedStock Units or cash from the sale of such Shares may be deposited. Furthermore, you acknowledge and understand that the transfer of the Data to theCompany or any of its Parent, Subsidiaries or Affiliates, or to any third parties is necessary for your participation in the Plan.
(c)You understand that Data will be held only as long as is necessary to implement, administer and manage your participation in the Plan.You understand that you may, at any time, view the Data, request additional information about the storage and processing of the Data, require any necessaryamendments to the Data or refuse or withdraw the consents herein by contacting your local human resources representative in writing. You furtheracknowledge that withdrawal of consent may affect your ability to vest in or realize benefits from these Performance-Based Stock Units, and your ability toparticipate in the Plan. For more information on the consequences of your refusal to consent or withdrawal of consent, you understand that you may contactyour local human resources representative.
14.No Entitlement or Claims for Compensation .
(a)Yourrights,ifany,inrespectoforinconnectionwiththesePerformance-BasedStockUnitsoranyotherAwardarederivedsolelyfromthediscretionarydecisionoftheCompanytopermityoutoparticipateinthePlanandtobenefitfromadiscretionaryAward.ThePlanmaybeamended,suspendedorterminatedbytheCompanyatanytime,unlessotherwiseprovidedinthePlanandthisAgreement.ByacceptingthesePerformance-BasedStockUnits,youexpresslyacknowledgethatthereisnoobligationonthepartoftheCompanytocontinuethePlanand/orgrantanyadditionalPerformance-BasedStockUnitstoyouorbenefitsinlieuofRestrictedStockUnits,evenifPerformance-BasedStockUnitshavebeengrantedrepeatedlyinthepast.AlldecisionswithrespecttofuturegrantsofPerformance-BasedStockUnits,ifany,willbeatthesolediscretionoftheCommittee.
(b)ThePerformance-BasedStockUnitsandtheSharessubjecttothePerformance-BasedStockUnitsarenotintendedtoreplaceanypensionrightsorcompensationandarenottobeconsideredcompensationofacontinuingorrecurringnature,orpartofyournormalorexpectedcompensation,andinnowayrepresentanyportionofyoursalary,compensationorotherremunerationforanypurpose,includingbutnotlimitedto,calculatinganyseverance,resignation,termination,redundancy,dismissal,endofservicepayments,bonuses,long-serviceawards,pensionorretirementbenefitsorsimilarpayments,andinnoeventshouldbeconsideredascompensationfor,orrelatinginanywayto,pastservicesfortheCompany,theEmployeroranyParent,SubsidiaryorAffiliate.ThevalueofthePerformance-BasedStockUnitsisanextraordinaryitemthatdoesnotconstitutecompensationofanykindforservicesofanykindrenderedtotheCompany,theEmployeroranyParent,SubsidiaryorAffiliateandwhichisoutsidethescopeofyourwrittenemploymentagreement(ifany).
(c)YouacknowledgethatyouarevoluntarilyparticipatinginthePlan.
(d)NeitherthePlannorthesePerformance-BasedStockUnitsoranyotherAwardgrantedunderthePlanshallbedeemedtogiveyouarighttoremainanEmployee,ConsultantordirectoroftheCompany,aParent,SubsidiaryoranAffiliate.TheEmployerreservestherighttoterminateyourServiceatanytime,withorwithoutcause,andforanyreason,subjecttoapplicablelaws,theCompany’sArticlesofIncorporationandBylaws,andawrittenemploymentagreement(ifany).
(e)ThegrantofthePerformance-BasedStockUnitsandyourparticipationinthePlanwillnotbeinterpretedtoformanemploymentcontractorrelationshipwiththeCompany,theEmployeroranyParent,SubsidiaryorAffiliate.
(f)ThefuturevalueoftheunderlyingSharesisunknownandcannotbepredictedwithcertaintyandifyouvestinthePerformance-BasedStockUnitsandareissuedShares,thevalueofthoseSharesmayincreaseordecrease.YoualsounderstandthatneithertheCompany,northeEmployeroranyParent,SubsidiaryorAffiliateisresponsibleforanyforeignexchangefluctuationbetweenyourEmployer’slocalcurrencyandtheUnitedStatesDollarthatmayaffectthevalueofthisAward.
(g)InconsiderationofthegrantofthePerformance-BasedStockUnits,noclaimorentitlementtocompensationordamagesshallarisefromforfeitureofthePerformance-BasedStockUnitsresultingfromterminationofyourServicebytheCompanyortheEmployer(foranyreasonwhatsoeverandwhetherornotinbreachoflocallaborlaws)orfromtheCompany’sdeterminationthatperformancegoalshavenotbeensatisfiedinwholeorinpartandyouirrevocablyreleasetheCompanyandtheEmployerfromanysuchclaimthatmayarise;if,notwithstandingtheforegoing,anysuchclaimisfoundbyacourtofcompetentjurisdictiontohavearisen,youshallbedeemedirrevocablytohavewaivedyourentitlementtopursuesuchclaim.
(h)YouagreethattheCompanymayrequireSharesreceivedpursuanttothePerformance-BasedStockUnitstobeheldbyabrokerdesignatedbytheCompany.
(i)Youagreethatyourrightshereunder(ifany)shallbesubjecttoset-offbytheCompanyforanyvaliddebtsyouowetheCompany.
(j)ThePerformance-BasedStockUnitsandthebenefitsunderthePlan,ifany,willnotautomaticallytransfertoanothercompanyinthecaseofamerger,take-overortransferofliability.
15.Governing Law and Forum .ThisAgreementshallbegovernedbyandconstruedinaccordancewiththelawsoftheStateofCaliforniawithoutregardtotheconflictoflawsprinciplesthereof.ForpurposesoflitigatinganydisputethatmayarisedirectlyorindirectlyfromthisAgreement,thepartiesherebysubmitandconsenttolitigationintheexclusivejurisdictionoftheStateofCaliforniaandagreethatanysuchlitigationshallbeconductedonlyinthecourtsofCaliforniaorthefederalcourtsfortheUnitedStatesfortheNorthernDistrictofCaliforniaandnoothercourts.
16.Notices .AnynoticerequiredorpermittedunderthetermsofthisAgreementshallbeinwritingandshallbedeemedsufficientwhendeliveredpersonallyorsentbyconfirmedemail,telegram,orfaxorforty-eight(48)hoursafterbeingdepositedinthemail,ascertifiedorregisteredmail,withpostageprepaid,andaddressedtotheCompanyattheCompany’sprincipalcorporateofficesortoyouattheaddressmaintainedforyouintheCompany’srecordsor,ineithercase,assubsequentlymodifiedbywrittennoticetotheotherparty.
17.Binding Effect .SubjecttothelimitationssetforthinthisAgreement,thisAgreementshallbebindingupon,andinuretothebenefitof,theexecutors,administrators,heirs,legalrepresentatives,successors,andassignsofthepartieshereto.
18.Severability .IfanyprovisionofthisAgreementisheldtobeunenforceableforanyreason,itshallbeadjustedratherthanvoided,ifpossible,inordertoachievetheintentofthepartiestotheextentpossible.Inanyevent,allotherprovisionsofthisAgreementshallbedeemedvalidandenforceabletothefullextentpossible.
19.Electronic Delivery .TheCompanymay,initssolediscretion,decidetodeliveranydocumentsrelatedtoyourcurrentorfutureparticipationinthePlanbyelectronicmeansortorequestyourconsenttoparticipateinthePlanbyelectronicmeans.YouherebyconsenttoreceivesuchdocumentsbyelectronicdeliveryandagreetoparticipateinthePlanthroughanon-lineorelectronicsystemestablishedandmaintainedbytheCompanyorathirdpartydesignatedbytheCompany.
20.Language .IfthisAgreementoranyotherdocumentrelatedtothePlanistranslatedintoalanguageotherthanEnglishandthemeaningofthetranslatedversionisdifferentfromtheEnglishversion,theEnglishversionwilltakeprecedence.
21.Appendix .NotwithstandinganyprovisionsinthisAgreement,thePerformance-BasedStockUnitsshallbesubjecttoanyspecialtermsandconditionssetforthinanyAppendixtothisAgreementforyourcountryofresidence.Moreover,ifyourelocatetooneofthecountriesincludedintheAppendix,thespecialtermsandconditionsforsuchcountrywillapplytoyou,totheextenttheCompanydeterminesthattheapplicationofsuchtermsandconditionsisnecessaryoradvisableinordertocomplywithlocallaworfacilitatetheadministrationofthePlan.TheAppendixconstitutespartofthisAgreement.
22.Imposition of Other Requirements .TheCompanyreservestherighttoimposeotherrequirementsonyourparticipationinthePlan,onthePerformance-BasedStockUnitsandonanySharesacquiredunderthePlan,totheextenttheCompanydeterminesitisnecessaryoradvisableinordertocomplywithlocallaworfacilitatetheadministrationofthePlan.Youagreetosignanyadditionalagreementsorundertakingsthatmaybenecessarytoaccomplishtheforegoing.Furthermore,youacknowledgethatthelawsofthecountryinwhichyouareworkingatthetimeofgrant,vestingandsettlementofthePerformance-BasedStockUnitsorthesaleofSharesreceivedpursuanttothisAgreement(includinganyrulesorregulationsgoverningsecurities,foreignexchange,tax,labor,orothermatters)maysubjectyoutoadditionalproceduralorregulatoryrequirementsthatyouareandwillbesolelyresponsibleforandmustfulfill.
23.Acceptance of Agreement .YoumustexpresslyacceptthetermsandconditionsofyourPerformance-BasedStockUnitsassetforthinthisAgreementbyelectronicallyacceptingthisAgreementwithin300daysaftertheCompanysendsthisAgreementtoyou.IfyoudonotacceptyourPerformance-BasedStockUnitsinthemannerinstructedbytheCompany,yourPerformance-BasedStockUnitswillbesubjecttocancellation.
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YouacknowledgethatbyclickingontheI agree buttonbelow,youagreetobeboundbythetermsofthisAgreement.
PLEASE PRINT AND KEEP A COPY FOR YOUR RECORDS
(For Grants Beginning September 2015and Prior to July 2016)
CISCO SYSTEMS, INC.PERFORMANCE-BASED STOCK UNIT AGREEMENT
ThisPerformance-BasedStockUnitAgreement(the“Agreement”)ismadeandenteredintoasoftheGrantDate(asdefinedbelow)byandbetweenCiscoSystems,Inc.,aCaliforniacorporation(the“Company”),andyoupursuanttotheCiscoSystems,Inc.2005StockIncentivePlan(the“Plan”).ThematerialtermsofthisStockUnitAwardareasfollows:
EmployeeID:
GrantDate:
GrantNumber:
TargetAmountofPerformance-BasedStockUnits:___________________________
VestDate:
TotheextentanycapitalizedtermsusedinthisAgreementarenotdefined,theyshallhavethemeaningascribedtotheminthePlan.IntheeventofaconflictbetweenthetermsandprovisionsofthePlanandthetermsandprovisionsofthisAgreement,thePlantermsandprovisionsshallprevail.
Inconsiderationofthemutualagreementshereincontainedandintendingtobelegallyboundhereby,thepartiesagreeasfollows:
1.Performance-Based Stock Units .PursuanttothePlan,theCompanyherebygrantstoyouandyouherebyacceptfromtheCompany,Performance-BasedStockUnits,eachofwhichisabookkeepingentryrepresentingtheequivalentinvalueofone(1)Share,onthetermsandconditionssetforthhereinandinthePlan.TheTargetAmountofPerformance-BasedStockUnitsstatedabovereflectsthetargetnumberofPerformance-BasedStockUnits(the“TargetAmount”).ThenumberofPerformance-BasedStockUnitsultimatelypaidouttoyouwillrangefrom___%to___%oftheTargetAmountasdeterminedbasedupontheCompany’sperformanceduringtheperformanceperiodagainsttheperformancegoalsassetforthinExhibitA.
2.Vesting of Performance-Based Stock Units .SolongasyourServicecontinuesandsubjectto,andtotheextentof,thesatisfactionoftheperformancegoalsassetforthinExhibitA,thePerformance-BasedStockUnitsshallvestinaccordancewiththefollowingschedule:_______________(___%)ofthetotalnumberofPerformance-BasedStockUnitsearned,ifany,pursuanttothesatisfactionoftheperformancegoalsinExhibitAshallvestontheVestDate,unlessotherwiseprovidedbythePlanorSections3(b)or4below.Ifyoutakealeaveofabsence,theCompanymay,atitsdiscretionandtotheextentpermittedunderapplicablelocallaw,eithersuspendvestingduringtheperiodofleaveorpro-ratethePerformance-BasedStockUnits,notwithstandingtheCompany’sVestingPolicyforLeavesofAbsence.
3.Termination of Service .
(a)ExceptasotherwiseprovidedinSection3(b)beloworSection4,intheeventoftheterminationofyourServiceforanyreason(whetherornotinbreachoflocallaborlaws),allunvestedPerformance-BasedStockUnitsshallbeimmediatelyforfeitedwithoutconsideration.Forpurposesoftheprecedingsentence,yourrighttovestinthePerformance-BasedStockUnitswillterminateeffectiveasofthedatethatyouarenolongeractivelyprovidingService(orearlieruponyour“SeparationfromService”withinthemeaningofCodeSection409A)andwillnotbeextendedbyanynoticeperiodmandatedunderlocallaw(e.g. ,activeServicewouldnotincludeaperiodof“gardenleave”orsimilarperiodpursuanttolocallaw);theCompanyshallhavetheexclusivediscretiontodeterminewhenyouarenolongeractivelyprovidingServiceforpurposesofthePerformance-BasedStockUnits.
(b)IntheeventthatyouresignoryourServiceisterminatedforanyreasonotherthanCauseonorafterthedatethat(x)youhaveattainedatleast__________(___)yearsofageand(y)yourageplusyouryearsofServiceisatleastequalto__________(___),andsolongassuchresignationortheterminationofyourServiceoccursnoearlierthanthe________anniversaryoftheGrantDate(thesatisfactionoftheaforementionedconditionsisreferredtohereinas“Retirement1”),allunvestedPerformance-BasedStockUnitsmaybeearnedpursuanttothesatisfactionoftheperformancegoalsinExhibitA,andshallvestinaccordancewiththevestingschedulesetforthinSection2above,determinedasifyourServicehadcontinuedafteryourresignationorterminationofService,andshallbesettledinaccordancewithSection5(a);providedthatanyunsettledorunvestedPerformance-BasedStockUnitsshallbeforfeitedwithoutconsiderationimmediatelyuponthebreachofanyofthefollowingconditions:
1IfyouaresubjecttotheemploymentprotectionsofacountrywithintheEuropeanEconomicAreabecauseyouresideinsuchcountryorareotherwisesubjectthereto,“Retirement”shallmeanyouryearsofServiceisatleastequalto_______(_____),regardlessofyourage,andtheprovisionsconcerningRetirementshallapplytoyousolongastheterminationofyourServiceoccursnoearlierthantheone-yearanniversaryoftheGrantDate.Inallcases,yearsofServiceshallbedeterminedbasedonthedateyouoriginallyprovidedService.IfyoupreviouslyterminatedService,butsubsequentlyreturnedtoServicepriortotheGrantDate,youwillreceivecreditforyourpriorService.
(i)Unlessprohibitedbyapplicablelaw,youshallrender,asanindependentadvisororconsultantandnotasanEmployee,suchadvisoryorconsultingservicestotheCompany(oranyParent,SubsidiaryorAffiliate)asshallreasonablyberequestedbytheCompany(oranyParent,SubsidiaryorAffiliate),andsuchservicesshallnotbeterminatedforCause(forpurposesofclarity,anyrequesttoprovidesuchadvisoryorconsultingservicestotheCompany(oranyParent,SubsidiaryorAffiliate)shallnotbeconsideredacontinuationof“Service”unlesstheCompanyspecificallyprovidesthatthecontinuationofservicesisacontinuationof“Service”forpurposesofthisSection3(b)).
(ii)Foraperiodof___(__)beginningonthedateofyourterminationofServiceorduringanyperiodinwhichyouprovideindependentadvisoryorconsultingservicestotheCompany(oranyParent,SubsidiaryorAffiliate),youshallnotdirectlyorindirectly,individuallyoronbehalfofotherpersonsorentities,intentionallysolicitorinduce(a)anyemployeeoftheCompany(oranyParent,SubsidiaryorAffiliate)toleavetheemployee’semploymentinordertoacceptemploymentwithanotherpersonorentityor(b)anycustomeroftheCompany(oranyParent,SubsidiaryorAffiliate)withwhomyouhaveworkedinyourcapacityasanEmployeepriortoyourterminationofServicewhoseidentityand/oranyrelatedinformationconstitutesprotectedtradesecrets(withsuchcustomersdeterminedasofthedateoftheterminationofyourService,toretainoruseanyotherpersonorentityforthepurposeofrenderingservicesincompetitionwiththeCompany(oranyParent,SubsidiaryorAffiliate)ortopurchaseproductsfromanybusinesswhich,intheopinionoftheCompany(oranyParent,SubsidiaryorAffiliate),competeswithorisinconflictwiththeinterestsoftheCompany(oranyParent,SubsidiaryorAffiliate),ineithercase,unlesstheserestrictionsareprohibited(whetherinwholeorinpart)byapplicablelaw.
(iii)Foraperiodof___(__)beginningonthedateofyourterminationofServiceorduringanyperiodinwhichyouprovideindependentadvisoryorconsultingservicestotheCompany(oranyParent,SubsidiaryorAffiliate),youshallnotrenderservicesforanyorganizationorengagedirectlyorindirectlyinanybusinesswhich,intheopinionoftheCompany,competeswithorisinconflictwiththeinterestsoftheCompany(oranyParent,SubsidiaryorAffiliate),unlessthisrestrictionisprohibitedbyapplicablelaw.
(iv)Youshallnot,withoutpriorwrittenauthorizationfromtheCompany,useordiscloseanyconfidentialinformationortradesecretsconcerningtheCompany(oranyParent,SubsidiaryorAffiliate),ineachcaseasdeterminedbytheCommittee,andtheCommittee’sdeterminationshallbeconclusiveandbinding.
(c)NotwithstandinganyprovisionstothecontraryinthisAgreement,intheeventoftheterminationofyourServiceforCauseorintheeventoftheterminationforCauseofanyindependentadvisoryorconsultingservicesyoumaybeprovidingasdescribedinSection3(b)(i),anyunsettledorunvestedPerformance-BasedStockUnitsshallterminateandbeforfeitedimmediatelywithoutconsideration.
4.Special Acceleration .
(a)TotheextentthePerformance-BasedStockUnitsareoutstandingatthetimeofaCorporateTransaction,suchPerformance-BasedStockUnitsshallautomaticallybecomevestedinfullattheTargetAmountimmediatelypriortotheeffectivedateoftheCorporateTransactionandsettledinaccordancewithSection5below.Nosuchacceleratedvesting,however,shalloccurifandtotheextent:(i)thesePerformance-BasedStockUnitsare,inconnectionwiththeCorporateTransaction,eitherassumedbythesuccessorcorporation(orparentthereof)orreplacedwithcomparableperformance-basedstockunitsofthesuccessorcorporation(orparentthereof),ineachcase,havingaminimumpayoutequaltotheTargetAmountandpreservingthesettlementprovisionssetforthinSection5belowor(ii)thesePerformance-BasedStockUnitsarereplacedwithacashincentiveprogramofthesuccessorcorporationwhichcomplieswithCodeSection409Aand,ataminimum,preservesthefairmarketvalueofthePerformance-BasedStockUnitsatthetimeoftheCorporateTransaction(basedontheTargetAmount)andprovidesforsubsequentpay-outinaccordancewiththesettlementprovisionssetforthinSection5below.Thedeterminationofthecomparabilityofperformance-basedstockunitsunderclause(i)shallbemadebytheCommittee,andsuchdeterminationshallbefinal,bindingandconclusive.
(b)ImmediatelyfollowingtheeffectivedateoftheCorporateTransaction,thisAgreementshallterminateandceasetobeoutstanding,exceptassetforthinSection5belowwithrespecttothesettlementofPerformance-BasedStockUnitsortotheextentassumedbythesuccessorcorporation(orparentthereof)inconnectionwiththeCorporateTransaction.
(c)IfthisAgreementisassumedinconnectionwithaCorporateTransaction,thentheCommitteeshallappropriatelyadjustthenumberofunitsandthekindofsharesorsecuritiestobeissuedpursuanttothisAgreementimmediatelyaftersuchCorporateTransaction.
(d)TotheextentthePerformance-BasedStockUnitsareoutstandingatthetimeofaChangeinControl,suchPerformance-BasedStockUnitsshallautomaticallyaccelerateimmediatelypriortotheeffectivedateoftheChangeinControlandshallbecomevestedinfullattheTargetAmountatthattimeandsettledinaccordancewithSection5below.
(e)ThisAgreementshallnotinanywayaffecttherightoftheCompanytoadjust,reclassify,reorganizeorotherwisechangeitscapitalorbusinessstructureortomerge,consolidate,dissolve,liquidate,sellortransferalloranypartofitsbusinessorassets.
5.Settlement of Performance-Based Stock Units .
(a)General Settlement Terms .ThePerformance-BasedStockUnits,totheextentearnedandvestedhereunder(including,withoutlimitationbyreasonofRetirement),shallbeautomaticallysettledinSharesontheVestDate(whichconstitutesafixedpaymentdateforpurposesofCodeSection409A)or,ifearlier,upontheearliesttooccurofthesettlementeventssetforthbeloworintheCompany’sVestingAccelerationPolicyforDeathandTerminalIllness;itbeingunderstoodthatnothinghereinshalllimittheCompany’sabilitytoamendorterminatesuchpolicyinitssolediscretionandwithoutyourconsent.
(b)Corporate Transaction .If,asoftheGrantDate,youhavenotsatisfiedanditisnotpossibleforyoutosatisfytheageandServiceRetirementconditionswithrespecttothisPerformance-BasedStockUnitawardandthisPerformance-BasedStockUnitawardisnotassumedorreplacedasdescribedinSection4(a)inconnectionwithaCorporateTransaction,thenthePerformance-BasedStockUnitsshallbeautomaticallysettledinSharesimmediatelypriortotheeffectivedateoftheCorporateTransactioninsteadofontheVestDate.
(c)Change in Control .IntheeventaChangeinControlisconsummatedpriortotheVestDateandsuchChangeinControlisapermissibledistributioneventunderCodeSection409A,thePerformance-BasedStockUnitsshallbeautomaticallysettledinSharesimmediatelypriortotheeffectivedateoftheChangeinControl.IntheeventsuchChangeinControlisnotapermissibledistributioneventunderCodeSection409A,thePerformance-BasedStockUnitsshallbeautomaticallysettledinSharesupontheearlierof(i)theVestDateor(ii)yourSeparationfromServicethatoccursimmediatelypriortooratanytimeaftersuchChangeinControl.Notwithstandingtheforegoing,if,asoftheGrantDate,youhavenotsatisfiedanditisnotpossibleforyoutosatisfytheageandServiceRetirementconditionswithrespecttothisPerformance-BasedStockUnitaward,thensuchsettlementshallinallcasesoccurimmediatelypriortheeffectivedateoftheChangeinControl.
(d)TheCompanyshallhavenoobligationtoissueSharespursuanttothisAgreementunlessanduntilyouhavesatisfiedanyapplicabletaxand/orotherobligationspursuanttoSection6belowandsuchissuanceotherwisecomplieswithallapplicablelaw.
(e)NotwithstandinganythinginthisSection5orinthisAgreement,totheextentyourPerformance-BasedStockUnitswouldotherwisebesettleduponyourSeparationfromService,suchsettlementshallinsteadoccurupontheCompany’sfirstbusinessdayfollowingthesix-monthanniversaryofyourSeparationfromService.
(f)PriortothetimethatthePerformance-BasedStockUnitsaresettled,youshallhavenorightsotherthanthoseofageneralcreditoroftheCompany.ThePerformance-BasedStockUnitsrepresentanunfundedandunsecuredobligationoftheCompany.
6.Taxes .
(a)RegardlessofanyactiontheCompanyoryouremployer(the“Employer”)takeswithrespecttoanyandallincometax,socialtaxesorinsurancecontributions,payrolltax,paymentonaccountorothertax-relateditemsrelatedtoyourparticipationinthePlanandlegallyapplicabletoyou(“Tax-RelatedItems”),youacknowledgethattheultimateliabilityforallTax-RelatedItemswithrespecttothePerformance-BasedStockUnitsisandremainsyourresponsibilityandmayexceedtheamountactuallywithheldbytheCompanyortheEmployer.YoufurtheracknowledgethattheCompanyand/ortheEmployer(i)makenorepresentationsorundertakingsregardingthetreatmentofanyTax-RelatedItemsinconnectionwithanyaspectofthePerformance-BasedStockUnits,includingthegrant,vestingorsettlementofthePerformance-BasedStockUnits,orthesubsequentsaleofanySharesacquiredatvestingorthereceiptofanydividendswithrespecttosuchShares;and(ii)donotcommittoandareundernoobligationtostructurethetermsoranyaspectofthePerformance-BasedStockUnitstoreduceoreliminateyourliabilityforTax-RelatedItemsorachieveanyparticulartaxresult.Further,ifyoubecomesubjecttotaxationinmorethanonejurisdictionbetweentheGrantDateandthedateofanyrelevanttaxableevent,youacknowledgethattheCompanyand/ortheEmployer(orformeremployer,asapplicable)mayberequiredtowithholdoraccountforTax-RelatedItemsinmorethanonejurisdiction.
(b)Priortoanyrelevanttax,withholdingorrequireddeductionevent,asapplicable,youagreetomakearrangementssatisfactorytotheCompanyforthesatisfactionofanyapplicabletax,withholding,requireddeductionandpaymentonaccountofanyobligationsoftheCompanyand/ortheEmployerthatariseinconnectionwiththePerformance-BasedStockUnits.Inthisregard,youauthorizetheCompanyand/ortheEmployer,ortheirrespectiveagents,attheirdiscretion,tosatisfyanyobligationsrelatedtoTax-RelatedItemsbyoneoracombinationofthefollowing:(1)withholdingfromyourwagesorothercashcompensationpayabletoyoubytheCompanyortheEmployer;(2)withholdingfromproceedsofthesaleofSharesacquireduponsettlementofthePerformance-BasedStockUnitseitherthroughavoluntarysaleorthroughamandatorysalearrangedbytheCompany(onyourbehalfpursuanttothisauthorization);(3)withholdingofSharesthatwouldotherwisebeissueduponsettlementofthePerformance-BasedStockUnits;or(4)requiringyoutosatisfytheliabilityforTax-RelatedItemsbymeansofanyotherarrangementapprovedbytheCompany.IftheobligationforTax-RelatedItemsissatisfiedbywithholdingShares,fortaxpurposes,youaredeemedtohavebeenissuedthefullnumberofSharessubjecttothevestedPerformance-BasedStockUnits,notwithstandingthatanumberoftheSharesareheldbacksolelyforthepurposeofpayingtheTax-RelatedItemsdueasaresultofanyaspectofyourparticipationinthePlan.Toavoidfinancialaccountingchargesunderapplicableaccountingguidance,theCompanymay
withholdoraccountforTax-RelatedItemsbyconsideringapplicableminimumstatutoryratesormaytakeanyotheractionrequiredtoavoidfinancialaccountingchargesunderapplicableaccountingguidance.
(c)Finally,youwillpaytotheCompanyortheEmployeranyamountofTax-RelatedItemsthattheCompanyortheEmployermayberequiredtowithholdoraccountforasaresultofyourparticipationinthePlanoryouracquisitionofSharesthatcannotbesatisfiedbythemeanspreviouslydescribed.TheCompanyshallnotberequiredtoissueordeliverSharespursuanttothisAgreementunlessanduntilsuchobligationsaresatisfied.
7.Tax and Legal Advice .Yourepresent,warrantandacknowledgethatneithertheCompanynoryourEmployerhavemadeanywarrantiesorrepresentationstoyouwithrespecttoanyTax-RelatedItems,legalorfinancialconsequencesofthetransactionscontemplatedbythisAgreement,andyouareinnomannerrelyingontheCompany,yourEmployerortheCompany’sortheEmployer’srepresentativesforanassessmentofsuchconsequences.YOUUNDERSTANDTHATTHELAWSGOVERNINGTHISAWARDARESUBJECTTOCHANGE.YOUSHOULDCONSULTYOUROWNPROFESSIONALTAX,LEGALANDFINANCIALADVISORREGARDINGANYPERFORMANCE-BASEDSTOCKUNITS.YOUUNDERSTANDTHATTHECOMPANYANDYOUREMPLOYERARENOTPROVIDINGANYTAX,LEGAL,ORFINANCIALADVICE,NORISTHECOMPANYORYOUREMPLOYERMAKINGANYRECOMMENDATIONREGARDINGYOURACCEPTANCEOFTHISAWARD.NOTHINGSTATEDHEREINISINTENDEDORWRITTENTOBEUSED,ANDCANNOTBEUSED,FORTHEPURPOSEOFAVOIDINGTAXPAYEROROTHERPENALTIES.
8.Non-Transferability of Performance-Based Stock Units .Performance-BasedStockUnitsshallnotbeanticipated,assigned,attached,garnished,optioned,transferredormadesubjecttoanycreditor’sprocess,whethervoluntarilyorinvoluntarilyorbyoperationoflaw.
9.Restriction on Transfer .RegardlessofwhetherthetransferorissuanceoftheSharestobeissuedpursuanttothePerformance-BasedStockUnitshasbeenregisteredundertheSecuritiesActorhasbeenregisteredorqualifiedunderthesecuritieslawsofanystate,theCompanymayimposeadditionalrestrictionsuponthesale,pledge,orothertransferoftheShares(includingtheplacementofappropriatelegendsonstockcertificatesandtheissuanceofstop-transferinstructionstotheCompany’stransferagent)if,inthejudgmentoftheCompanyandtheCompany’scounsel,suchrestrictionsarenecessaryinordertoachievecompliancewiththeprovisionsoftheSecuritiesAct,thesecuritieslawsofanystate,oranyotherlawincludingallapplicableforeignlaws.
10.Restrictive Legends and Stop-Transfer Instructions .StockcertificatesevidencingtheSharesissuedpursuanttothePerformance-BasedStockUnitsmaybearsuchrestrictivelegendsand/orappropriatestop-transferinstructionsmaybeissuedtotheCompany’stransferagentastheCompanyandtheCompany’scounseldeemnecessaryunderapplicablelaworpursuanttothisAgreement.
11.Representations, Warranties, Covenants, and Acknowledgments .YouherebyagreethatintheeventtheCompanyandtheCompany’scounseldeemitnecessaryoradvisableintheexerciseoftheirdiscretion,thetransferorissuanceoftheSharesissuedpursuanttothePerformance-BasedStockUnitsmaybeconditioneduponyoumakingcertainrepresentations,warranties,andacknowledgmentsrelatingtocompliancewithapplicablelaws.
12.Voting and Other Rights .SubjecttothetermsofthisAgreement,youshallnothaveanyvotingrightsoranyotherrightsandprivilegesofastockholderoftheCompanyunlessanduntilthePerformance-BasedStockUnitsaresettledinShares.Inaddition,youshallnothaveanyrightstodividendequivalentpaymentswithrespecttoPerformance-BasedStockUnits.
13.Authorization to Release and Transfer Necessary Personal Information .
(a)You hereby explicitly and unambiguously consent to the collection, use and transfer, in electronic or other form, of your personalinformation as described in this Agreement by and among, as applicable, the Employer, and the Company and its Parent, Subsidiaries and Affiliates for theexclusive purpose of implementing, administering and managing your participation in the Plan.
(b)You understand that the Company and the Employer may hold certain personal information about you, including, but not limited to,your name, home address and telephone number, date of birth, social insurance number (or any other social or national identification number), salary,nationality, job title, residency status, any Shares or directorships held in the Company, details of all Performance-Based Stock Units or any other entitlementto Shares awarded, canceled, exercised, vested, unvested or outstanding (the “Data”) for the purpose of implementing, administering and managing yourparticipation in the Plan. You understand that Data may be transferred to the Company or any of its Parent, Subsidiaries or Affiliates, or to any third partiesassisting in the implementation, administration and management of the Plan, that these recipients may be located in your country or elsewhere, includingoutside the European Economic Area, and that the recipient’s country (e.g., the United States) may have different data privacy laws and protections than yourcountry. You understand that you may request a list with the names and addresses of any potential recipients of the Data by contacting your local humanresources representative. You authorize the recipients to receive, possess, use, retain and transfer the Data, in electronic or other form, for the sole purposes ofimplementing, administering and managing your participation in the Plan, including any requisite transfer of such Data to a broker or other third partyassisting with the administration of these Performance-Based Stock Units under the Plan or with whom Shares acquired pursuant to these Performance-BasedStock Units or cash from the sale of such Shares may
be deposited. Furthermore, you acknowledge and understand that the transfer of the Data to the Company or any of its Parent, Subsidiaries or Affiliates, or toany third parties is necessary for your participation in the Plan.
(c)You understand that Data will be held only as long as is necessary to implement, administer and manage your participation in the Plan.You understand that you may, at any time, view the Data, request additional information about the storage and processing of the Data, require any necessaryamendments to the Data or refuse or withdraw the consents herein by contacting your local human resources representative in writing. You furtheracknowledge that withdrawal of consent may affect your ability to vest in or realize benefits from these Performance-Based Stock Units, and your ability toparticipate in the Plan. For more information on the consequences of your refusal to consent or withdrawal of consent, you understand that you may contactyour local human resources representative.
14.No Entitlement or Claims for Compensation .
(a)Yourrights,ifany,inrespectoforinconnectionwiththesePerformance-BasedStockUnitsoranyotherAwardarederivedsolelyfromthediscretionarydecisionoftheCompanytopermityoutoparticipateinthePlanandtobenefitfromadiscretionaryAward.ThePlanmaybeamended,suspendedorterminatedbytheCompanyatanytime,unlessotherwiseprovidedinthePlanandthisAgreement.ByacceptingthesePerformance-BasedStockUnits,youexpresslyacknowledgethatthereisnoobligationonthepartoftheCompanytocontinuethePlanand/orgrantanyadditionalPerformance-BasedStockUnitstoyouorbenefitsinlieuofRestrictedStockUnits,evenifPerformance-BasedStockUnitshavebeengrantedrepeatedlyinthepast.AlldecisionswithrespecttofuturegrantsofPerformance-BasedStockUnits,ifany,willbeatthesolediscretionoftheCommittee.
(b)ThePerformance-BasedStockUnitsandtheSharessubjecttothePerformance-BasedStockUnitsarenotintendedtoreplaceanypensionrightsorcompensationandarenottobeconsideredcompensationofacontinuingorrecurringnature,orpartofyournormalorexpectedcompensation,andinnowayrepresentanyportionofyoursalary,compensationorotherremunerationforanypurpose,includingbutnotlimitedto,calculatinganyseverance,resignation,termination,redundancy,dismissal,endofservicepayments,bonuses,long-serviceawards,pensionorretirementbenefitsorsimilarpayments,andinnoeventshouldbeconsideredascompensationfor,orrelatinginanywayto,pastservicesfortheCompany,theEmployeroranyParent,SubsidiaryorAffiliate.ThevalueofthePerformance-BasedStockUnitsisanextraordinaryitemthatdoesnotconstitutecompensationofanykindforservicesofanykindrenderedtotheCompany,theEmployeroranyParent,SubsidiaryorAffiliateandwhichisoutsidethescopeofyourwrittenemploymentagreement(ifany).
(c)YouacknowledgethatyouarevoluntarilyparticipatinginthePlan.
(d)NeitherthePlannorthesePerformance-BasedStockUnitsoranyotherAwardgrantedunderthePlanshallbedeemedtogiveyouarighttoremainanEmployee,ConsultantordirectoroftheCompany,aParent,SubsidiaryoranAffiliate.TheEmployerreservestherighttoterminateyourServiceatanytime,withorwithoutcause,andforanyreason,subjecttoapplicablelaws,theCompany’sArticlesofIncorporationandBylaws,andawrittenemploymentagreement(ifany).
(e)ThegrantofthePerformance-BasedStockUnitsandyourparticipationinthePlanwillnotbeinterpretedtoformanemploymentcontractorrelationshipwiththeCompany,theEmployeroranyParent,SubsidiaryorAffiliate.
(f)ThefuturevalueoftheunderlyingSharesisunknownandcannotbepredictedwithcertaintyandifyouvestinthePerformance-BasedStockUnitsandareissuedShares,thevalueofthoseSharesmayincreaseordecrease.YoualsounderstandthatneithertheCompany,northeEmployeroranyParent,SubsidiaryorAffiliateisresponsibleforanyforeignexchangefluctuationbetweenyourEmployer’slocalcurrencyandtheUnitedStatesDollarthatmayaffectthevalueofthisAward.
(g)InconsiderationofthegrantofthePerformance-BasedStockUnits,noclaimorentitlementtocompensationordamagesshallarisefromforfeitureofthePerformance-BasedStockUnitsresultingfromterminationofyourServicebytheCompanyortheEmployer(foranyreasonwhatsoeverandwhetherornotinbreachoflocallaborlaws)orfromtheCompany’sdeterminationthatperformancegoalshavenotbeensatisfiedinwholeorinpartandyouirrevocablyreleasetheCompanyandtheEmployerfromanysuchclaimthatmayarise;if,notwithstandingtheforegoing,anysuchclaimisfoundbyacourtofcompetentjurisdictiontohavearisen,youshallbedeemedirrevocablytohavewaivedyourentitlementtopursuesuchclaim.
(h)YouagreethattheCompanymayrequireSharesreceivedpursuanttothePerformance-BasedStockUnitstobeheldbyabrokerdesignatedbytheCompany.
(i)Youagreethatyourrightshereunder(ifany)shallbesubjecttoset-offbytheCompanyforanyvaliddebtsyouowetheCompany.
(j)ThePerformance-BasedStockUnitsandthebenefitsunderthePlan,ifany,willnotautomaticallytransfertoanothercompanyinthecaseofamerger,take-overortransferofliability.
15.Governing Law and Forum .ThisAgreementshallbegovernedbyandconstruedinaccordancewiththelawsoftheStateofCaliforniawithoutregardtotheconflictoflawsprinciplesthereof.ForpurposesoflitigatinganydisputethatmayarisedirectlyorindirectlyfromthisAgreement,thepartiesherebysubmitandconsenttolitigationintheexclusivejurisdictionoftheStateofCaliforniaandagreethatanysuchlitigationshallbeconductedonlyinthecourtsofCaliforniaorthefederalcourtsfortheUnitedStatesfortheNorthernDistrictofCaliforniaandnoothercourts.
16.Notices .AnynoticerequiredorpermittedunderthetermsofthisAgreementshallbeinwritingandshallbedeemedsufficientwhendeliveredpersonallyorsentbyconfirmedemail,telegram,orfaxorforty-eight(48)hoursafterbeingdepositedinthemail,ascertifiedorregisteredmail,withpostageprepaid,andaddressedtotheCompanyattheCompany’sprincipalcorporateofficesortoyouattheaddressmaintainedforyouintheCompany’srecordsor,ineithercase,assubsequentlymodifiedbywrittennoticetotheotherparty.
17.Binding Effect .SubjecttothelimitationssetforthinthisAgreement,thisAgreementshallbebindingupon,andinuretothebenefitof,theexecutors,administrators,heirs,legalrepresentatives,successors,andassignsofthepartieshereto.
18.Severability .IfanyprovisionofthisAgreementisheldtobeunenforceableforanyreason,itshallbeadjustedratherthanvoided,ifpossible,inordertoachievetheintentofthepartiestotheextentpossible.Inanyevent,allotherprovisionsofthisAgreementshallbedeemedvalidandenforceabletothefullextentpossible.
19.Electronic Delivery .TheCompanymay,initssolediscretion,decidetodeliveranydocumentsrelatedtoyourcurrentorfutureparticipationinthePlanbyelectronicmeansortorequestyourconsenttoparticipateinthePlanbyelectronicmeans.YouherebyconsenttoreceivesuchdocumentsbyelectronicdeliveryandagreetoparticipateinthePlanthroughanon-lineorelectronicsystemestablishedandmaintainedbytheCompanyorathirdpartydesignatedbytheCompany.
20.Language .IfthisAgreementoranyotherdocumentrelatedtothePlanistranslatedintoalanguageotherthanEnglishandthemeaningofthetranslatedversionisdifferentfromtheEnglishversion,theEnglishversionwilltakeprecedence.
21.Appendix .NotwithstandinganyprovisionsinthisAgreement,thePerformance-BasedStockUnitsshallbesubjecttoanyspecialtermsandconditionssetforthinanyAppendixtothisAgreementforyourcountryofresidence.Moreover,ifyourelocatetooneofthecountriesincludedintheAppendix,thespecialtermsandconditionsforsuchcountrywillapplytoyou,totheextenttheCompanydeterminesthattheapplicationofsuchtermsandconditionsisnecessaryoradvisableinordertocomplywithlocallaworfacilitatetheadministrationofthePlan.TheAppendixconstitutespartofthisAgreement.
22.Imposition of Other Requirements .TheCompanyreservestherighttoimposeotherrequirementsonyourparticipationinthePlan,onthePerformance-BasedStockUnitsandonanySharesacquiredunderthePlan,totheextenttheCompanydeterminesitisnecessaryoradvisableinordertocomplywithlocallaworfacilitatetheadministrationofthePlan.Youagreetosignanyadditionalagreementsorundertakingsthatmaybenecessarytoaccomplishtheforegoing.Furthermore,youacknowledgethatthelawsofthecountryinwhichyouareworkingatthetimeofgrant,vestingandsettlementofthePerformance-BasedStockUnitsorthesaleofSharesreceivedpursuanttothisAgreement(includinganyrulesorregulationsgoverningsecurities,foreignexchange,tax,labor,orothermatters)maysubjectyoutoadditionalproceduralorregulatoryrequirementsthatyouareandwillbesolelyresponsibleforandmustfulfill.
23.Acceptance of Agreement .YoumustexpresslyacceptthetermsandconditionsofyourPerformance-BasedStockUnitsassetforthinthisAgreementbyelectronicallyacceptingthisAgreementwithin300daysaftertheCompanysendsthisAgreementtoyou.IfyoudonotacceptyourPerformance-BasedStockUnitsinthemannerinstructedbytheCompany,yourPerformance-BasedStockUnitswillbesubjecttocancellation.
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YouacknowledgethatbyclickingontheI agree buttonbelow,youagreetobeboundbythetermsofthisAgreement.
PLEASE PRINT AND KEEP A COPY FOR YOUR RECORDS
(For Grants Prior to September 2015)
CISCO SYSTEMS, INC.PERFORMANCE-BASED STOCK UNIT AGREEMENT
ThisPerformance-BasedStockUnitAgreement(the“Agreement”)ismadeandenteredintoasoftheGrantDate(asdefinedbelow)byandbetweenCiscoSystems,Inc.,aCaliforniacorporation(the“Company”),andyoupursuanttotheCiscoSystems,Inc.2005StockIncentivePlan(the“Plan”).ThematerialtermsofthisStockUnitAwardareasfollows:
EmployeeID: GrantDate: GrantNumber: TargetAmountofPerformance-BasedStockUnits: VestDate:
TotheextentanycapitalizedtermsusedinthisAgreementarenotdefined,theyshallhavethemeaningascribedtotheminthePlan.IntheeventofaconflictbetweenthetermsandprovisionsofthePlanandthetermsandprovisionsofthisAgreement,thePlantermsandprovisionsshallprevail.
Inconsiderationofthemutualagreementshereincontainedandintendingtobelegallyboundhereby,thepartiesagreeasfollows:
1.Performance-Based Stock Units .PursuanttothePlan,theCompanyherebygrantstoyou,[subjecttotheapprovalbythestockholdersoftheCompanyoftheamendmentandrestatementofthePlan,]andyouherebyacceptfromtheCompany,Performance-BasedStockUnits,eachofwhichisabookkeepingentryrepresentingtheequivalentinvalueofone(1)Share,onthetermsandconditionssetforthhereinandinthePlan.TheTargetAmountofPerformance-BasedStockUnitsstatedabovereflectsthetargetnumberofPerformance-BasedStockUnits(the“TargetAmount”).ThenumberofPerformance-BasedStockUnitsultimatelypaidouttoyouwillrangefrom%to%oftheTargetAmountasdeterminedbasedupontheCompany’sperformanceduringtheperformanceperiodagainsttheperformancegoalsassetforthinExhibitA.
2.Vesting of Performance-Based Stock Units .SolongasyourServicecontinuesandsubjectto,andtotheextentof,thesatisfactionoftheperformancegoalsassetforthinExhibitA,thePerformance-BasedStockUnitsshallvestinaccordancewiththefollowingschedule:(%)ofthetotalnumberofPerformance-BasedStockUnitsearned,ifany,pursuanttothesatisfactionoftheperformancegoalsinExhibitAshallvestontheVestDate,unlessotherwiseprovidedbythePlanorSections3(b)or4below.Ifyoutakealeaveofabsence,theCompanymay,atitsdiscretionandtotheextentpermittedunderapplicablelocallaw,eithersuspendvestingduringtheperiodofleaveorpro-ratethePerformance-BasedStockUnits,notwithstandingtheCompany’sVestingPolicyforLeavesofAbsence.PriortothetimethatthePerformance-BasedStockUnitsaresettled,youshallhavenorightsotherthanthoseofageneralcreditoroftheCompany.ThePerformance-BasedStockUnitsrepresentanunfundedandunsecuredobligationoftheCompany.
3.Termination of Service .(a)ExceptasotherwiseprovidedinSection3(b)beloworSection4,intheeventoftheterminationofyourServiceforanyreason(whetherornotin
breachoflocallaborlaws),allunvestedPerformance-BasedStockUnitsshallbeimmediatelyforfeitedwithoutconsideration.Forpurposesoftheprecedingsentence,yourrighttovestinthePerformance-BasedStockUnitswillterminateeffectiveasofthedatethatyouarenolongeractivelyprovidingService(orearlieruponyour“SeparationfromService”withinthemeaningofCodeSection409A)andwillnotbeextendedbyanynoticeperiodmandatedunderlocallaw(e.g. ,activeServicewouldnotincludeaperiodof“gardenleave”orsimilarperiodpursuanttolocallaw);theCompanyshallhavetheexclusivediscretiontodeterminewhenyouarenolongeractivelyprovidingServiceforpurposesofthePerformance-BasedStockUnits.
(b)IntheeventthatyouresignoryourServiceisterminatedforanyreasonotherthanCauseonorafterthedatethat(x)youhaveattainedatleast()yearsofageand(y)yourageplusyouryearsofServiceisatleastequalto(),andsolongassuchresignationortheterminationofyourServiceoccursnoearlierthantheanniversaryoftheGrantDate(thesatisfactionoftheaforementionedconditionsisreferredtohereinas“Retirement”1),allunvestedPerformance-BasedStockUnitsmaybeearnedpursuanttothesatisfactionoftheperformancegoalsinExhibitA,andshallvestinaccordancewiththevestingscheduleset
1IfyouaresubjecttotheemploymentprotectionsofacountrywithintheEuropeanEconomicAreabecauseyouresideinsuchcountryorareotherwisesubjectthereto,“Retirement”shallmeanyouryearsofServiceisatleastequalto_______(_____),regardlessofyourage,andtheprovisionsconcerningRetirementshallapplytoyousolongastheterminationofyourServiceoccursnoearlierthantheone-yearanniversaryoftheGrantDate.Inallcases,yearsofServiceshallbedeterminedbasedonthedateyouoriginallyprovidedService.IfyoupreviouslyterminatedService,butsubsequentlyreturnedtoServicepriortotheGrantDate,youwillreceivecreditforyourpriorService.
forthinSection2above,determinedasifyourServicehadcontinuedafteryourresignationorterminationofService,andshallbesettledinaccordancewithSection5(a);providedthatanyunsettledorunvestedPerformance-BasedStockUnitsshallbeforfeitedwithoutconsiderationimmediatelyuponthebreachofanyofthefollowingconditions:
(i)Unlessprohibitedbyapplicablelaw,youshallrender,asanindependentadvisororconsultantandnotasanEmployee,suchadvisoryorconsultingservicestotheCompany(oranyParent,SubsidiaryorAffiliate)asshallreasonablyberequestedbytheCompany(oranyParent,SubsidiaryorAffiliate),andsuchservicesshallnotbeterminatedforCause(forpurposesofclarity,anyrequesttoprovidesuchadvisoryorconsultingservicestotheCompany(oranyParent,SubsidiaryorAffiliate)shallnotbeconsideredacontinuationof“Service”unlesstheCompanyspecificallyprovidesthatthecontinuationofservicesisacontinuationof“Service”forpurposesofthisSection3(b)).
(ii)Foraperiodof()beginningonthedateofyourterminationofServiceorduringanyperiodinwhichyouprovideindependentadvisoryorconsultingservicestotheCompany(oranyParent,SubsidiaryorAffiliate),youshallnotdirectlyorindirectly,individuallyoronbehalfofotherpersonsorentities,intentionallysolicitorinduce(a)anyemployeeoftheCompany(oranyParent,SubsidiaryorAffiliate)toleavetheemployee’semploymentinordertoacceptemploymentwithanotherpersonorentityor(b)anycustomeroftheCompany(oranyParent,SubsidiaryorAffiliate)withwhomyouhaveworkedinyourcapacityasanEmployeepriortoyourterminationofServicewhoseidentityand/oranyrelatedinformationconstitutesprotectedtradesecrets(withsuchcustomersdeterminedasofthedateoftheterminationofyourService,toretainoruseanyotherpersonorentityforthepurposeofrenderingservicesincompetitionwiththeCompany(oranyParent,SubsidiaryorAffiliate)ortopurchaseproductsfromanybusinesswhich,intheopinionoftheCompany(oranyParent,SubsidiaryorAffiliate),competeswithorisinconflictwiththeinterestsoftheCompany(oranyParent,SubsidiaryorAffiliate),ineithercase,unlesstheserestrictionsareprohibited(whetherinwholeorinpart)byapplicablelaw.
(iii)Foraperiodof()beginningonthedateofyourterminationofServiceorduringanyperiodinwhichyouprovideindependentadvisoryorconsultingservicestotheCompany(oranyParent,SubsidiaryorAffiliate),youshallnotrenderservicesforanyorganizationorengagedirectlyorindirectlyinanybusinesswhich,intheopinionoftheCompany,competeswithorisinconflictwiththeinterestsoftheCompany(oranyParent,SubsidiaryorAffiliate),unlessthisrestrictionisprohibitedbyapplicablelaw.
(iv)Youshallnot,withoutpriorwrittenauthorizationfromtheCompany,useordiscloseanyconfidentialinformationortradesecretsconcerningtheCompany(oranyParent,SubsidiaryorAffiliate),ineachcaseasdeterminedbytheCommittee,andtheCommittee’sdeterminationshallbeconclusiveandbinding.
(c)NotwithstandinganyprovisionstothecontraryinthisAgreement,intheeventoftheterminationofyourServiceforCauseorintheeventoftheterminationforCauseofanyindependentadvisoryorconsultingservicesyoumaybeprovidingasdescribedinSection3(b)(i),anyunsettledorunvestedPerformance-BasedStockUnitsshallterminateandbeforfeitedimmediatelywithoutconsideration.
4.Special Acceleration .
(a)TotheextentthePerformance-BasedStockUnitsareoutstandingatthetimeofaCorporateTransaction,suchPerformance-BasedStockUnitsshallautomaticallybecomevestedinfullattheTargetAmountimmediatelypriortotheeffectivedateoftheCorporateTransactionandsettledinaccordancewithSection5below.Nosuchacceleratedvesting,however,shalloccurifandtotheextent:(i)thesePerformance-BasedStockUnitsare,inconnectionwiththeCorporateTransaction,eitherassumedbythesuccessorcorporation(orparentthereof)orreplacedwithcomparableperformance-basedstockunitsofthesuccessorcorporation(orparentthereof),ineachcase,havingaminimumpayoutequaltotheTargetAmountandpreservingthesettlementprovisionssetforthinSection5belowor(ii)thesePerformance-BasedStockUnitsarereplacedwithacashincentiveprogramofthesuccessorcorporationwhichcomplieswithCodeSection409Aand,ataminimum,preservesthefairmarketvalueofthePerformance-BasedStockUnitsatthetimeoftheCorporateTransaction(basedontheTargetAmount)andprovidesforsubsequentpay-outinaccordancewiththesettlementprovisionssetforthinSection5below.Thedeterminationofthecomparabilityofperformance-basedstockunitsunderclause(i)shallbemadebytheCommittee,andsuchdeterminationshallbefinal,bindingandconclusive.
(b)ImmediatelyfollowingtheeffectivedateoftheCorporateTransaction,thisAgreementshallterminateandceasetobeoutstanding,exceptassetforthinSection5belowwithrespecttothesettlementofPerformance-BasedStockUnitsortotheextentassumedbythesuccessorcorporation(orparentthereof)inconnectionwiththeCorporateTransaction.
(c)IfthisAgreementisassumedinconnectionwithaCorporateTransaction,thentheCommitteeshallappropriatelyadjustthenumberofunitsandthekindofsharesorsecuritiestobeissuedpursuanttothisAgreementimmediatelyaftersuchCorporateTransaction.
(d)TotheextentthePerformance-BasedStockUnitsareoutstandingatthetimeofaChangeinControl,suchPerformance-BasedStockUnitsshallautomaticallyaccelerateimmediatelypriortotheeffectivedateoftheChangeinControlandshallbecomevestedinfullattheTargetAmountatthattimeandsettledinaccordancewithSection5below.
(e)ThisAgreementshallnotinanywayaffecttherightoftheCompanytoadjust,reclassify,reorganizeorotherwisechangeitscapitalorbusinessstructureortomerge,consolidate,dissolve,liquidate,sellortransferalloranypartofitsbusinessorassets.
5.Settlement of Performance-Based Stock Units .(a)General Settlement Terms .ThePerformance-BasedStockUnits,totheextentearnedandvestedhereunder(including,withoutlimitationby
reasonofRetirement),shallbeautomaticallysettledinSharesontheVestDate(whichconstitutesafixedpaymentdateforpurposesofCodeSection409A)or,ifearlier,upontheearliesttooccurofthesettlementeventssetforthbeloworintheCompany’sVestingAccelerationPolicyforDeathandTerminalIllness;itbeingunderstoodthatnothinghereinshalllimittheCompany’sabilitytoamendorterminatesuchpolicyinitssolediscretionandwithoutyourconsent.
(b)Corporate Transaction .If,asoftheGrantDate,youhavenotsatisfiedanditisnotpossibleforyoutosatisfytheageandServiceRetirementconditionswithrespecttothisPerformance-BasedStockUnitawardandthisPerformance-BasedStockUnitawardisnotassumedorreplacedasdescribedinSection4(a)inconnectionwithaCorporateTransaction,thenthePerformance-BasedStockUnitsshallbeautomaticallysettledinSharesimmediatelypriortotheeffectivedateoftheCorporateTransactioninsteadofontheVestDate.
(c)Change in Control .IntheeventaChangeinControlisconsummatedpriortotheVestDateandsuchChangeinControlisapermissibledistributioneventunderCodeSection409A,thePerformance-BasedStockUnitsshallbeautomaticallysettledinSharesimmediatelypriortotheeffectivedateoftheChangeinControl.IntheeventsuchChangeinControlisnotapermissibledistributioneventunderCodeSection409A,thePerformance-BasedStockUnitsshallbeautomaticallysettledinSharesupontheearlierof(i)theVestDateor(ii)yourSeparationfromServicethatoccursimmediatelypriortooratanytimeaftersuchChangeinControl.Notwithstandingtheforegoing,if,asoftheGrantDate,youhavenotsatisfiedanditisnotpossibleforyoutosatisfytheageandServiceRetirementconditionswithrespecttothisPerformance-BasedStockUnitaward,thensuchsettlementshallinallcasesoccurimmediatelypriortheeffectivedateoftheChangeinControl.
(d)TheCompanyshallhavenoobligationtoissueSharespursuanttothisAgreementunlessanduntilyouhavesatisfiedanyapplicabletaxand/orotherobligationspursuanttoSection6belowandsuchissuanceotherwisecomplieswithallapplicablelaw.
(e)NotwithstandinganythinginthisSection5orinthisAgreement,totheextentyourPerformance-BasedStockUnitswouldotherwisebesettleduponyourSeparationfromService,suchsettlementshallinsteadoccurupontheCompany’sfirstbusinessdayfollowingthesix-monthanniversaryofyourSeparationfromService.
6.Taxes .(a)RegardlessofanyactiontheCompanyoryouremployer(the“Employer”)takeswithrespecttoanyandallincometax,socialtaxesorinsurance
contributions,payrolltax,paymentonaccountorothertax-relateditemsrelatedtoyourparticipationinthePlanandlegallyapplicabletoyou(“Tax-RelatedItems”),youacknowledgethattheultimateliabilityforallTax-RelatedItemswithrespecttothePerformance-BasedStockUnitsisandremainsyourresponsibilityandmayexceedtheamountactuallywithheldbytheCompanyortheEmployer.YoufurtheracknowledgethattheCompanyand/ortheEmployer(i)makenorepresentationsorundertakingsregardingthetreatmentofanyTax-RelatedItemsinconnectionwithanyaspectofthePerformance-BasedStockUnits,includingthegrant,vestingorsettlementofthePerformance-BasedStockUnits,orthesubsequentsaleofanySharesacquiredatvestingorthereceiptofanydividendswithrespecttosuchShares;and(ii)donotcommittoandareundernoobligationtostructurethetermsoranyaspectofthePerformance-BasedStockUnitstoreduceoreliminateyourliabilityforTax-RelatedItemsorachieveanyparticulartaxresult.Further,ifyoubecomesubjecttotaxationinmorethanonejurisdictionbetweentheGrantDateandthedateofanyrelevanttaxableevent,youacknowledgethattheCompanyand/ortheEmployer(orformeremployer,asapplicable)mayberequiredtowithholdoraccountforTax-RelatedItemsinmorethanonejurisdiction.
(b)Priortoanyrelevanttax,withholdingorrequireddeductionevent,asapplicable,youagreetomakearrangementssatisfactorytotheCompanyforthesatisfactionofanyapplicabletax,withholding,requireddeductionandpaymentonaccountobligationsoftheCompanyand/ortheEmployerthatariseinconnectionwiththePerformance-BasedStockUnits.Inthisregard,youauthorizetheCompanyand/ortheEmployer,ortheirrespectiveagents,attheirdiscretion,tosatisfyanyobligationsrelatedtoTax-RelatedItemsbyoneoracombinationofthefollowing:(1)withholdingfromyourwagesorothercashcompensationpayabletoyoubytheCompanyortheEmployer;(2)withholdingfromproceedsofthesaleofSharesacquireduponsettlementofthePerformance-BasedStockUnitseitherthroughavoluntarysaleorthroughamandatorysalearrangedbytheCompany(onyourbehalfpursuanttothisauthorization);(3)withholdingofSharesthatwouldotherwisebeissueduponsettlementofthePerformance-BasedStockUnits;or(4)requiringyoutosatisfytheliabilityforTax-RelatedItemsbymeansofanyotherarrangementapprovedbytheCompany.IftheobligationforTax-RelatedItemsissatisfiedbywithholdingofShares,fortaxpurposes,youaredeemedtohavebeenissuedthefullnumberofSharessubjecttothevestedPerformance-BasedStockUnits,notwithstandingthatanumberoftheSharesareheldbacksolelyforthepurposeofpayingtheTax-RelatedItemsdueasaresultofanyaspectofyourparticipationinthePlan.Toavoidfinancialaccountingchargesunderapplicableaccountingguidance,theCompanymaywithholdoraccountforTax-RelatedItemsbyconsideringapplicableminimumstatutoryratesormaytakeanyotheractionrequiredtoavoidfinancialaccountingchargesunderapplicableaccountingguidance.
(c)Finally,youwillpaytotheCompanyortheEmployeranyamountofTax-RelatedItemsthattheCompanyortheEmployermayberequiredtowithholdoraccountforasaresultofyourparticipationinthePlanoryouracquisitionofSharesthatcannotbesatisfiedbythemeanspreviouslydescribed.TheCompanyshallnotberequiredtoissueordeliverSharespursuanttothisAgreementunlessanduntilsuchobligationsaresatisfied.
7.Tax and Legal Advice .Yourepresent,warrantandacknowledgethatneithertheCompanynoryourEmployerhavemadeanywarrantiesorrepresentationstoyouwithrespecttoanyTax-RelatedItems,legalorfinancialconsequencesofthetransactionscontemplatedbythisAgreement,andyouareinnomannerrelyingontheCompany,yourEmployer’sortheCompany’sortheEmployer’srepresentativesforanassessmentofsuchconsequences.YOUUNDERSTANDTHATTHELAWSGOVERNINGTHISAWARDARESUBJECTTOCHANGE.YOUSHOULDCONSULTYOUROWNPROFESSIONALTAX,LEGALANDFINANCIALADVISORREGARDINGANYPERFORMANCE-BASEDSTOCKUNITS.YOUUNDERSTANDTHATTHECOMPANYANDYOUREMPLOYERARENOTPROVIDINGANYTAX,LEGAL,ORFINANCIALADVICE,NORISTHECOMPANYORYOUREMPLOYERMAKINGANYRECOMMENDATIONREGARDINGYOURACCEPTANCEOFTHISAWARD.NOTHINGSTATEDHEREINISINTENDEDORWRITTENTOBEUSED,ANDCANNOTBEUSED,FORTHEPURPOSEOFAVOIDINGTAXPAYEROROTHERPENALTIES.
8.Non-Transferability of Performance-Based Stock Units .Performance-BasedStockUnitsshallnotbeanticipated,assigned,attached,garnished,optioned,transferredormadesubjecttoanycreditor’sprocess,whethervoluntarilyorinvoluntarilyorbyoperationoflaw.
9.Restriction on Transfer .RegardlessofwhetherthetransferorissuanceoftheSharestobeissuedpursuanttothePerformance-BasedStockUnitshasbeenregisteredundertheSecuritiesActorhasbeenregisteredorqualifiedunderthesecuritieslawsofanystate,theCompanymayimposeadditionalrestrictionsuponthesale,pledge,orothertransferoftheShares(includingtheplacementofappropriatelegendsonstockcertificatesandtheissuanceofstop-transferinstructionstotheCompany’stransferagent)if,inthejudgmentoftheCompanyandtheCompany’scounsel,suchrestrictionsarenecessaryinordertoachievecompliancewiththeprovisionsoftheSecuritiesAct,thesecuritieslawsofanystate,oranyotherlawincludingallapplicableforeignlaws.
10.Restrictive Legends and Stop-Transfer Instructions .StockcertificatesevidencingtheSharesissuedpursuanttothePerformance-BasedStockUnitsmaybearsuchrestrictivelegendsand/orappropriatestop-transferinstructionsmaybeissuedtotheCompany’stransferagentastheCompanyandtheCompany’scounseldeemnecessaryunderapplicablelaworpursuanttothisAgreement.
11.Representations, Warranties, Covenants, and Acknowledgments .YouherebyagreethatintheeventtheCompanyandtheCompany’scounseldeemitnecessaryoradvisableintheexerciseoftheirdiscretion,thetransferorissuanceoftheSharesissuedpursuanttothePerformance-BasedStockUnitsmaybeconditioneduponyoumakingcertainrepresentations,warranties,andacknowledgmentsrelatingtocompliancewithapplicablelaws.
12.Voting and Other Rights .SubjecttothetermsofthisAgreement,youshallnothaveanyvotingrightsoranyotherrightsandprivilegesofastockholderoftheCompanyunlessanduntilthePerformance-BasedStockUnitsaresettledinShares.Inaddition,youshallnothaveanyrightstodividendequivalentpaymentswithrespecttoPerformance-BasedStockUnits.
13.Authorization to Release and Transfer Necessary Personal Information .(a)You hereby explicitly and unambiguously consent to the collection, use and transfer, in electronic or other form, of your personal information
as described in this Agreement by and among, as applicable, the Employer, and the Company and its Parent, Subsidiaries and Affiliates for the exclusivepurpose of implementing, administering and managing your participation in the Plan.
(b)You understand that the Company and the Employer may hold certain personal information about you, including, but not limited to, your name,home address and telephone number, date of birth, social insurance number (or any other social or national identification number), salary, nationality, jobtitle, residency status, any Shares or directorships held in the Company, details of all Performance-Based Stock Units or any other entitlement to Sharesawarded, canceled, exercised, vested, unvested or outstanding (the “Data”) for the purpose of implementing, administering and managing your participation inthe Plan. You understand that Data may be transferred to the Company or any of its Parent, Subsidiaries or Affiliates, or to any third parties assisting in theimplementation, administration and management of the Plan, that these recipients may be located in your country or elsewhere, including outside theEuropean Economic Area, and that the recipient’s country (e.g., the United States) may have different data privacy laws and protections than your country.You understand that you may request a list with the names and addresses of any potential recipients of the Data by contacting your local human resourcesrepresentative. You authorize the recipients to receive, possess, use, retain and transfer the Data, in electronic or other form, for the sole purposes ofimplementing, administering and managing your participation in the Plan, including any requisite transfer of such Data to a broker or other third partyassisting with the administration of these Performance-Based Stock Units under the Plan or with whom Shares acquired pursuant to these Performance-BasedStock Units or cash from the sale of such Shares may be deposited. Furthermore, you acknowledge and understand that the transfer of the Data to theCompany or any of its Parent, Subsidiaries or Affiliates, or to any third parties is necessary for your participation in the Plan.
(c)You understand that Data will be held only as long as is necessary to implement, administer and manage your participation in the Plan. Youunderstand that you may, at any time, view the Data, request additional information about the storage and processing of the Data, require any necessaryamendments to the Data or refuse or withdraw the consents herein by contacting your local human resources representative in writing. You furtheracknowledge that withdrawal of consent may affect your ability to vest in or realize benefits from these Performance-Based Stock Units, and your ability toparticipate in the Plan. For more information on the consequences of your refusal to consent or withdrawal of consent, you understand that you may contactyour local human resources representative.
14.No Entitlement or Claims for Compensation .
(a)Yourrights,ifany,inrespectoforinconnectionwiththesePerformance-BasedStockUnitsoranyotherAwardarederivedsolelyfromthediscretionarydecisionoftheCompanytopermityoutoparticipateinthePlanandtobenefitfromadiscretionaryAward.ThePlanmaybeamended,suspendedorterminatedbytheCompanyatanytime,unlessotherwiseprovidedinthePlanandthisAgreement.ByacceptingthesePerformance-BasedStockUnits,youexpresslyacknowledgethatthereisnoobligationonthepartoftheCompanytocontinuethePlanand/orgrantanyadditionalPerformance-BasedStockUnitstoyouorbenefitsinlieuofRestrictedStockUnits,evenifPerformance-BasedStockUnitshavebeengrantedrepeatedlyinthepast.AlldecisionswithrespecttofuturegrantsofPerformance-BasedStockUnits,ifany,willbeatthesolediscretionoftheCommittee.
(b)ThePerformance-BasedStockUnitsandtheSharessubjecttothePerformance-BasedStockUnitsarenotintendedtoreplaceanypensionrightsorcompensationandarenottobeconsideredcompensationofacontinuingorrecurringnature,orpartofyournormalorexpectedcompensation,andinnowayrepresentanyportionofyoursalary,compensationorotherremunerationforanypurpose,includingbutnotlimitedto,calculatinganyseverance,resignation,termination,redundancy,dismissal,endofservicepayments,bonuses,long-serviceawards,pensionorretirementbenefitsorsimilarpayments,andinnoeventshouldbeconsideredascompensationfor,orrelatinginanywayto,pastservicesfortheCompany,theEmployeroranyParent,SubsidiaryorAffiliate.ThevalueofthePerformance-BasedStockUnitsisanextraordinaryitemthatdoesnotconstitutecompensationofanykindforservicesofanykindrenderedtotheCompany,theEmployeroranyParent,SubsidiaryorAffiliateandwhichisoutsidethescopeofyourwrittenemploymentagreement(ifany).
(c)YouacknowledgethatyouarevoluntarilyparticipatinginthePlan.
(d)NeitherthePlannorthesePerformance-BasedStockUnitsoranyotherAwardgrantedunderthePlanshallbedeemedtogiveyouarighttoremainanEmployee,ConsultantordirectoroftheCompany,aParent,SubsidiaryoranAffiliate.TheEmployerreservestherighttoterminateyourServiceatanytime,withorwithoutcause,andforanyreason,subjecttoapplicablelaws,theCompany’sArticlesofIncorporationandBylaws,andawrittenemploymentagreement(ifany).
(e)ThegrantofthePerformance-BasedStockUnitsandyourparticipationinthePlanwillnotbeinterpretedtoformanemploymentcontractorrelationshipwiththeCompany,theEmployeroranyParent,SubsidiaryorAffiliate.
(f)ThefuturevalueoftheunderlyingSharesisunknownandcannotbepredictedwithcertaintyandifyouvestinthePerformance-BasedStockUnitsandareissuedShares,thevalueofthoseSharesmayincreaseordecrease.Youalsounderstandthatneitherthe
Company,northeEmployeroranyParent,SubsidiaryorAffiliateisresponsibleforanyforeignexchangefluctuationbetweenyourEmployer’slocalcurrencyandtheUnitedStatesDollarthatmayaffectthevalueofthisAward.
(g)InconsiderationofthegrantofthePerformance-BasedStockUnits,noclaimorentitlementtocompensationordamagesshallarisefromforfeitureofthePerformance-BasedStockUnitsresultingfromterminationofyourServicebytheCompanyortheEmployer(foranyreasonwhatsoeverandwhetherornotinbreachoflocallaborlaws)orfromtheCompany’sdeterminationthatperformancegoalshavenotbeensatisfiedinwholeorinpartandyouirrevocablyreleasetheCompanyandtheEmployerfromanysuchclaimthatmayarise;if,notwithstandingtheforegoing,anysuchclaimisfoundbyacourtofcompetentjurisdictiontohavearisen,youshallbedeemedirrevocablytohavewaivedyourentitlementtopursuesuchclaim.
(h)YouagreethattheCompanymayrequireSharesreceivedpursuanttothePerformance-BasedStockUnitstobeheldbyabrokerdesignatedbytheCompany.
(i)Youagreethatyourrightshereunder(ifany)shallbesubjecttoset-offbytheCompanyforanyvaliddebtsyouowetheCompany.
(j)ThePerformance-BasedStockUnitsandthebenefitsunderthePlan,ifany,willnotautomaticallytransfertoanothercompanyinthecaseofamerger,take-overortransferofliability.
15.Governing Law and Forum .ThisAgreementshallbegovernedbyandconstruedinaccordancewiththelawsoftheStateofCaliforniawithoutregardtotheconflictoflawsprinciplesthereof.ForpurposesoflitigatinganydisputethatmayarisedirectlyorindirectlyfromthisAgreement,thepartiesherebysubmitandconsenttolitigationintheexclusivejurisdictionoftheStateofCaliforniaandagreethatanysuchlitigationshallbeconductedonlyinthecourtsofCaliforniaorthefederalcourtsfortheUnitedStatesfortheNorthernDistrictofCaliforniaandnoothercourts.
16.Notices .AnynoticerequiredorpermittedunderthetermsofthisAgreementshallbeinwritingandshallbedeemedsufficientwhendeliveredpersonallyorsentbyconfirmedemail,telegram,orfaxorforty-eight(48)hoursafterbeingdepositedinthemail,ascertifiedorregisteredmail,withpostageprepaid,andaddressedtotheCompanyattheCompany’sprincipalcorporateofficesortoyouattheaddressmaintainedforyouintheCompany’srecordsor,ineithercase,assubsequentlymodifiedbywrittennoticetotheotherparty.
17.Binding Effect .SubjecttothelimitationssetforthinthisAgreement,thisAgreementshallbebindingupon,andinuretothebenefitof,theexecutors,administrators,heirs,legalrepresentatives,successors,andassignsofthepartieshereto.
18.Severability .IfanyprovisionofthisAgreementisheldtobeunenforceableforanyreason,itshallbeadjustedratherthanvoided,ifpossible,inordertoachievetheintentofthepartiestotheextentpossible.Inanyevent,allotherprovisionsofthisAgreementshallbedeemedvalidandenforceabletothefullextentpossible.
19.Electronic Delivery .TheCompanymay,initssolediscretion,decidetodeliveranydocumentsrelatedtoyourcurrentorfutureparticipationinthePlanbyelectronicmeansortorequestyourconsenttoparticipateinthePlanbyelectronicmeans.YouherebyconsenttoreceivesuchdocumentsbyelectronicdeliveryandagreetoparticipateinthePlanthroughanon-lineorelectronicsystemestablishedandmaintainedbytheCompanyorathirdpartydesignatedbytheCompany.
20.Language .IfthisAgreementoranyotherdocumentrelatedtothePlanistranslatedintoalanguageotherthanEnglishandthemeaningofthetranslatedversionisdifferentfromtheEnglishversion,theEnglishversionwilltakeprecedence.
21.Appendix .NotwithstandinganyprovisionsinthisAgreement,thePerformance-BasedStockUnitsshallbesubjecttoanyspecialtermsandconditionssetforthinanyAppendixtothisAgreementforyourcountryofresidence.Moreover,ifyourelocatetooneofthecountriesincludedintheAppendix,thespecialtermsandconditionsforsuchcountrywillapplytoyou,totheextenttheCompanydeterminesthattheapplicationofsuchtermsandconditionsisnecessaryoradvisableinordertocomplywithlocallaworfacilitatetheadministrationofthePlan.TheAppendixconstitutespartofthisAgreement.
22.Imposition of Other Requirements .TheCompanyreservestherighttoimposeotherrequirementsonyourparticipationinthePlan,onthePerformance-BasedStockUnitsandonanySharesacquiredunderthePlan,totheextenttheCompanydeterminesitisnecessaryoradvisableinordertocomplywithlocallaworfacilitatetheadministrationofthePlan.Youagreetosignanyadditionalagreementsorundertakingsthatmaybenecessarytoaccomplishtheforegoing.Furthermore,youacknowledgethatthelawsofthecountryinwhichyouareworkingatthetimeofgrant,vestingandsettlementofthePerformance-BasedStockUnitsorthesaleofSharesreceivedpursuanttothisAgreement(includinganyrulesorregulationsgoverningsecurities,foreignexchange,tax,labor,orothermatters)maysubjectyoutoadditionalproceduralorregulatoryrequirementsthatyouareandwillbesolelyresponsibleforandmustfulfill.
23.Acceptance of Agreement .YoumustexpresslyacceptthetermsandconditionsofyourPerformance-BasedStockUnitsassetforthinthisAgreementbyelectronicallyacceptingthisAgreementwithin300daysaftertheCompanysendsthisAgreementtoyou.IfyoudonotacceptyourPerformance-BasedStockUnitsinthemannerinstructedbytheCompany,yourPerformance-BasedStockUnitswillbesubjecttocancellation.
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YouacknowledgethatbyclickingontheI agree buttonbelow,youagreetobeboundbythetermsofthisAgreement.
PLEASE PRINT AND KEEP A COPY FOR YOUR RECORDS
(For Grants Beginning in July 2016)
CISCO SYSTEMS, INC.
STOCK UNIT AGREEMENT
ThisStockUnitAgreement(the“Agreement”)ismadeandenteredintoasoftheGrantDate(asdefinedbelow)byandbetweenCiscoSystems,Inc.,aCaliforniacorporation(the“Company”),andyoupursuanttotheCiscoSystems,Inc.2005StockIncentivePlan(the“Plan”).ThematerialtermsofthisStockUnitAwardareasfollows:
EmployeeID:__________________________________
GrantDate:__________________________________
GrantNumber:__________________________________
RestrictedStockUnits:__________________________________
FirstVestDate:__________________________________
TotheextentanycapitalizedtermsusedinthisAgreementarenotdefined,theyshallhavethemeaningascribedtotheminthePlan.IntheeventofaconflictbetweenthetermsandprovisionsofthePlanandthetermsandprovisionsofthisAgreement,thePlantermsandprovisionsshallprevail.
Inconsiderationofthemutualagreementshereincontainedandintendingtobelegallyboundhereby,thepartiesagreeasfollows:
1. Restricted Stock Units .PursuanttothePlan,theCompanyherebygrantstoyou,andyouherebyacceptfromtheCompany,RestrictedStockUnits,eachofwhichisabookkeepingentryrepresentingtheequivalentinvalueofone(1)Share,onthetermsandconditionssetforthhereinandinthePlan.
2. Vesting of Restricted Stock Units .SolongasyourServicecontinues,theRestrictedStockUnitsshallvestinaccordancewiththefollowingschedule:_______(___%)ofthetotalnumberofRestrictedStockUnitsgrantedpursuanttothisAgreementshallvestontheFirstVestDateandoneachanniversarythereafter,unlessotherwiseprovidedbythePlanorSection4below.Ifyoutakealeaveofabsence,theCompanymay,atitsdiscretion,suspendvestingduringtheperiodofleavetotheextentpermittedundertheemploymentlawsinthejurisdictionwhereyouareprovidingServiceorunderthetermsofyouremploymentorserviceagreement,ifany.
3. Termination of Service .IntheeventoftheterminationofyourServiceforanyreason(whetherornotlaterfoundtobeinvalidorinbreachoftheemploymentlawsinthejurisdictionwhereyouareemployedorprovidingService,orthetermsofyouremploymentorserviceagreement,ifany),allunvestedRestrictedStockUnitsshallbeimmediatelyforfeitedwithoutconsideration.Forpurposesoftheprecedingsentence,yourrighttovestintheRestrictedStockUnitswillterminateeffectiveasofthedatethatyouarenolongerprovidingService,andtheCompanyshallhavetheexclusivediscretiontodeterminewhenyouarenolongerprovidingServiceforpurposesoftheRestrictedStockUnits.
4. Special Acceleration .
(a) TotheextenttheRestrictedStockUnitsareoutstandingatthetimeofaCorporateTransaction,suchRestrictedStockUnitsshallautomaticallybecomevestedinfullimmediatelypriortotheeffectivedateoftheCorporateTransaction.Nosuchacceleratedvesting,however,shalloccurifandtotheextent:(i)theseRestrictedStockUnitsare,inconnectionwiththeCorporateTransaction,eitherassumedbythesuccessorcorporation(orparentthereof)orreplacedwithcomparablerestrictedstockunitsofthesuccessorcorporation(orparentthereof)or(ii)theseRestrictedStockUnitsarereplacedwithacashincentiveprogramofthesuccessorcorporationwhichcomplieswithCodeSection409AandpreservesthefairmarketvalueoftheRestrictedStockUnitsatthetimeoftheCorporateTransactionandprovidesforsubsequentpay-outinaccordancewiththesettlementprovisionssetforthinSection5below.Thedeterminationofthecomparabilityofrestrictedstockunitsunderclause(i)shallbemadebytheCommittee,andsuchdeterminationshallbefinal,bindingandconclusive.
(b) ImmediatelyfollowingtheeffectivedateoftheCorporateTransaction,thisAgreementshallterminateandceasetobeoutstanding,exceptassetforthinSection5belowwithrespecttothedeferredsettlementofRestrictedStockUnitsortotheextentassumedbythesuccessorcorporation(orparentthereof)inconnectionwiththeCorporateTransaction.
(c) IfthisAgreementisassumedinconnectionwithaCorporateTransaction,thentheCommitteeshallappropriatelyadjustthenumberofunitsandthekindofsharesorsecuritiestobeissuedpursuanttothisAgreementimmediatelyaftersuchCorporateTransaction.
(d) ThisAgreementshallnotinanywayaffecttherightoftheCompanytoadjust,reclassify,reorganizeorotherwisechangeitscapitalorbusinessstructureortomerge,consolidate,dissolve,liquidate,sellortransferalloranypartofitsbusinessorassets.
5. Settlement of Restricted Stock Units .TotheextentyouareeligiblebuthavenotelectedtodefersettlementoftheRestrictedStockUnits,theRestrictedStockUnitsshallbeautomaticallysettledinSharesuponvestingofsuchRestrictedStockUnits,providedthattheCompanyshallhavenoobligationtoissueSharespursuanttothisAgreementunlessanduntilyouhavesatisfiedanyapplicableTax-RelatedItems,asdescribedanddefinedinSection6below,andsuchissuanceotherwisecomplieswithallapplicablelaws.TotheextentyouareeligiblebuthaveelectedtodefersettlementoftheRestrictedStockUnits,thevestedportionoftheRestrictedStockUnitsshallbesettledinSharesupontheearlierof:(a)yourseparationfromservicewithinthemeaningofCodeSection409A(“SeparationfromService”)and(b)thefixedpaymentdateelectedbyyou,ifany,atthetimeofsuchdeferral(whichshallbethefirstbusinessdayofayearnoearlierthansixyearsaftertheyearoftheGrantDateinaccordancewithproceduresapprovedbytheCommittee),providedthattheCompanyshallhavenoobligationtoissueSharespursuanttothisAgreementunlesssuchissuancecomplieswithallapplicablelaw.Notwithstandingtheforegoing,totheextentyourRestrictedStockUnitswouldotherwisebesettleduponyourSeparationfromService,suchsettlementshallinsteadoccurupontheCompany'sfirstbusinessdayfollowingthesix-monthanniversaryofyourSeparationfromService.PriortothetimethattheRestrictedStockUnitsaresettled,youshallhavenorightsotherthanthoseofageneralcreditoroftheCompany.TheRestrictedStockUnitsrepresentanunfundedandunsecuredobligationoftheCompany.
6. Taxes .
(a) RegardlessofanyactiontheCompanyoryouremployer(the“Employer”)takeswithrespecttoanyandallincometax,socialtaxesorinsurancecontributions,payrolltax,paymentonaccountorothertax-relateditemsrelatedtoyourparticipationinthePlanandlegallyapplicabletoyou(“Tax-RelatedItems”),youacknowledgethattheultimateliabilityforallTax-RelatedItemswithrespecttotheRestrictedStockUnitsisandremainsyourresponsibilityandmayexceedtheamountactuallywithheldbytheCompanyortheEmployer.YoufurtheracknowledgethattheCompanyand/ortheEmployer(i)makenorepresentationsorundertakingsregardingthetreatmentofanyTax-RelatedItemsinconnectionwithanyaspectoftheRestrictedStockUnits,includingthegrant,vestingorsettlementoftheRestrictedStockUnits,orthesubsequentsaleofanySharesacquiredatvestingorthereceiptofanydividendswithrespecttosuchShares,and(ii)donotcommittoandareundernoobligationtostructurethetermsoranyaspectoftheRestrictedStockUnitstoreduceoreliminateyourliabilityforTax-RelatedItemsorachieveanyparticulartaxresult.Further,ifyoubecomesubjecttotaxationinmorethanonejurisdictionbetweentheGrantDateandthedateofanyrelevanttaxableevent,youacknowledgethattheCompanyand/ortheEmployer(orformeremployer,asapplicable)mayberequiredtowithholdoraccountforTax-RelatedItemsinmorethanonejurisdiction.
(b) Priortoanyrelevanttax,withholdingorrequireddeductionevent,asapplicable,youagreetomakearrangementssatisfactorytotheCompanyforthesatisfactionofanyapplicabletax,withholding,requireddeductionandpaymentonaccountofanyobligationsoftheCompanyand/ortheEmployerthatariseinconnectionwiththeRestrictedStockUnits.Inthisregard,youauthorizetheCompanyand/ortheEmployer,ortheirrespectiveagents,attheirdiscretion,tosatisfyanyobligationsrelatedtoTax-RelatedItemsbyoneoracombinationofthefollowing:(1)withholdingfromyourwagesorothercashcompensationpayabletoyoubytheCompanyortheEmployer;(2)withholdingfromproceedsofthesaleofSharesacquireduponsettlementoftheRestrictedStockUnitseitherthroughavoluntarysaleorthroughamandatorysalearrangedbytheCompany(onyourbehalfpursuanttothisauthorization);(3)withholdingofSharesthatwouldotherwisebeissueduponsettlementoftheRestrictedStockUnits;or(4)requiringyoutosatisfytheliabilityforTax-RelatedItemsbymeansofanyotherarrangementapprovedbytheCompany.IftheobligationforTax-RelatedItemsissatisfiedbywithholdingShares,fortaxpurposes,youaredeemedtohavebeenissuedthefullnumberofSharessubjecttothevestedRestrictedStockUnits,notwithstandingthatanumberoftheSharesareheldbacksolelyforthepurposeofpayingtheTax-RelatedItemsdueasaresultofanyaspectofyourparticipationinthePlan.YouagreetoprovidetheCompanyand/oritsstockplanbroker/administratorwiththeinformationnecessarytomanageyourTax-RelatedItemwithholdingandacknowledgethatshouldyoufailtoprovidesuchinformationonatimelybasis,theCompanyand/oritsstockplanbroker/administratormaybeobligatedtowithholdamountsfromyouanditmaybenecessaryforyoutoseekarefunddirectlyfromthetaxauthorities.Toavoidfinancialaccountingchargesunderapplicableaccountingguidance,theCompanymaywithholdoraccountforTax-RelatedItemsbyconsideringapplicableminimumstatutoryratesormaytakeanyotheractionrequiredtoavoidfinancialaccountingchargesunderapplicableaccountingguidance.IftheCompanydoesnotsatisfytheobligationforTax-RelatedItemsbythewithholdingofSharesandinsteadwithholdsproceedsfromthesaleofSharesacquireduponsettlementoftheRestrictedStockUnits,theCompanymaywithholdoraccountforTax-RelatedItemsbyconsideringmaximumapplicablerates,inwhichcaseyouwillreceivearefundofanyover-withheldamountincashtotheextentthatanyover-withheldamounthasnototherwisebeenremittedtotheapplicabletaxauthorityandwillhavenoentitlementtotheCommonStockequivalent.
(c) Finally,youwillpaytotheCompanyortheEmployeranyamountofTax-RelatedItemsthattheCompanyortheEmployermayberequiredtowithholdoraccountforasaresultofyourparticipationinthePlanoryouracquisitionofSharesthatcannotbesatisfiedbythemeanspreviouslydescribed.TheCompanyshallnotberequiredtoissueordeliverSharespursuanttothisAgreementunlessanduntilsuchobligationsaresatisfied.
7. Tax and Legal Advice .Yourepresent,warrantandacknowledgethatneithertheCompanynoryourEmployerhavemadeanywarrantiesorrepresentationstoyouwithrespecttoanyTax-RelatedItems,legalorfinancialconsequencesofthetransactionscontemplatedbythisAgreement,andyouareinnomannerrelyingontheCompany,theEmployer’sortheCompany’sortheEmployer’srepresentativesforanassessmentofsuchconsequences.YOUUNDERSTANDTHATTHELAWSGOVERNINGTHISAWARDARESUBJECTTOCHANGE.YOUSHOULDCONSULTYOUROWNPROFESSIONALTAX,LEGALANDFINANCIALADVISORREGARDINGANYRESTRICTEDSTOCKUNITS.YOUUNDERSTANDTHATTHECOMPANYANDTHEEMPLOYERARENOTPROVIDINGANYTAX,LEGAL,ORFINANCIALADVICE,NORISTHECOMPANYORTHEEMPLOYERMAKINGANYRECOMMENDATIONREGARDINGYOURACCEPTANCEOFTHISAWARD.NOTHING
STATEDHEREINISINTENDEDORWRITTENTOBEUSED,ANDCANNOTBEUSED,FORTHEPURPOSEOFAVOIDINGTAXPAYEROROTHERPENALTIES.
8. Non-Transferability of Restricted Stock Units .RestrictedStockUnitsshallnotbeanticipated,assigned,attached,garnished,optioned,transferredormadesubjecttoanycreditor’sprocess,whethervoluntarilyorinvoluntarilyorbyoperationoflaw.
9. Restriction on Transfer .RegardlessofwhetherthetransferorissuanceoftheSharestobeissuedpursuanttotheRestrictedStockUnitshasbeenregisteredundertheSecuritiesActorhasbeenregisteredorqualifiedunderthesecuritieslawsofanystate,theCompanymayimposeadditionalrestrictionsuponthesale,pledge,orothertransferoftheShares(includingtheplacementofappropriatelegendsonstockcertificatesandtheissuanceofstop-transferinstructionstotheCompany’stransferagent)if,inthejudgmentoftheCompanyandtheCompany’scounsel,suchrestrictionsarenecessaryinordertoachievecompliancewiththeprovisionsoftheSecuritiesAct,thesecuritieslawsofanystate,oranyotherlaw,includingallapplicableforeignlaws.
10. Restrictive Legends and Stop-Transfer Instructions .StockcertificatesevidencingtheSharesissuedpursuanttotheRestrictedStockUnitsmaybearsuchrestrictivelegendsand/orappropriatestop-transferinstructionsmaybeissuedtotheCompany’stransferagentastheCompanyandtheCompany’scounseldeemnecessaryunderapplicablelaworpursuanttothisAgreement.
11. Representations, Warranties, Covenants, and Acknowledgments .YouherebyagreethatintheeventtheCompanyandtheCompany’scounseldeemitnecessaryoradvisableintheexerciseoftheirdiscretion,thetransferorissuanceoftheSharesissuedpursuanttotheRestrictedStockUnitsmaybeconditioneduponyoumakingcertainrepresentations,warranties,andacknowledgmentsrelatingtocompliancewithapplicablelaws.
12. Voting, Dividend and Other Rights .SubjecttothetermsofthisAgreementandexceptassetforthbelow,youshallnothaveanyvotingrightsoranyotherrightsandprivilegesofashareholderoftheCompanyunlessanduntiltheRestrictedStockUnitsaresettledinShares.TotheextentyouhaveelectedtodefersettlementoftheRestrictedStockUnitswithaFirstVestDateonorafterSeptember11,2016,dividendequivalentsshallonlyaccrueafterthevestingoftheRestrictedStockUnitsandwillbesubjecttothesameconditionsandrestrictionsastheRestrictedStockUnitstowhichtheyattachassetforthinthePlanorthisAgreementandwillbesettledinadditionalSharesuponthesettlementoftheRestrictedStockUnitsassetforthinSection5above.
13. Authorization to Release and Transfer Necessary Personal Information .
(a) You hereby explicitly and unambiguously consent to the collection, use and transfer, in electronic or other form, ofyour personal information as described in this Agreement by and among, as applicable, the Employer, and the Company and its Parent, Subsidiariesand Affiliates for the exclusive purpose of implementing, administering and managing your participation in the Plan.
(b) You understand that the Company and the Employer may hold certain personal information about you, including, but notlimited to, your name, home address and telephone number, date of birth, social insurance number (or any other social or national identification number),salary, nationality, job title, residency status, any Shares or directorships held in the Company, details of all Restricted Stock Units or any other entitlement toShares awarded, canceled, exercised, vested, unvested or outstanding (the “Data”) for the purpose of implementing, administering and managing yourparticipation in the Plan. You understand that the Data may be transferred to the Company or any of its Parent, Subsidiaries or Affiliates, or to any thirdparties assisting in the implementation, administration and management of the Plan, that these recipients may be located in your country or elsewhere,including outside the European Economic Area, and that the recipient’s country (e.g., the United States) may have different data privacy laws and protectionsthan your country. You understand that you may request a list with the names and addresses of any potential recipients of the Data by contacting your localhuman resources representative. You authorize the recipients to receive, possess, use, retain and transfer the Data, in electronic or other form, for the solepurposes of implementing, administering and managing your participation in the Plan, including any requisite transfer of such Data to a broker or other thirdparty assisting with the administration of these Restricted Stock Units under the Plan or with whom Shares acquired pursuant to these Restricted Stock Unitsor cash from the sale of such Shares may be deposited. Furthermore, you acknowledge and understand that the transfer of the Data to the Company or any ofits Parent, Subsidiaries or Affiliates, or to any third parties is necessary for your participation in the Plan.
(c) You understand that the Data will be held only as long as is necessary to implement, administer and manage your participationin the Plan. You understand that you may, at any time, view the Data, request additional information about the storage and processing of the Data, require anynecessary amendments to the Data or refuse or withdraw the consents herein by contacting your local human resources representative in writing. Further, youunderstand that you are providing the consents herein on a purely voluntary basis. If you do not consent, or if you later seek to revoke your consent, youremployment status or service and career with the Employer will not be adversely affected; the only adverse consequence of refusing or withdrawing yourconsent is that the Company would not be able to grant you Restricted Stock Units or other equity awards, or administer or maintain such awards. Therefore,you understand that refusing or withdrawing your consent may affect your ability to vest in or realize benefits from these Restricted Stock Units and yourability to participate in the Plan. For more information on the consequences of your refusal to consent or withdrawal of consent, you understand that you maycontact your local human resources representative.
14. No Entitlement or Claims for Compensation .
(a) Yourrights,ifany,inrespectoforinconnectionwiththeseRestrictedStockUnitsoranyotherAwardarederivedsolelyfromthediscretionarydecisionoftheCompanytopermityoutoparticipateinthePlanandtobenefitfromadiscretionaryAward.ThePlanmaybeamended,suspendedorterminatedbytheCompanyatanytime,unlessotherwiseprovidedinthePlanandthisAgreement.ByacceptingtheseRestrictedStockUnits,youexpresslyacknowledgethatthereisnoobligationonthepartoftheCompanytocontinuethePlanand/orgrantanyadditionalRestrictedStockUnitstoyouorbenefitsinlieuofRestricted
StockUnits,evenifRestrictedStockUnitshavebeengrantedinthepast.AlldecisionswithrespecttofuturegrantsofRestrictedStockUnits,ifany,willbeatthesolediscretionoftheCommittee.
(b) TheRestrictedStockUnitsandtheSharessubjecttotheRestrictedStockUnitsarenotintendedtoreplaceanypensionrightsorcompensationandarenottobeconsideredcompensationofacontinuingorrecurringnature,orpartofyournormalorexpectedcompensation,andinnowayrepresentanyportionofyoursalary,compensationorotherremunerationforanypurpose,including,butnotlimitedto,calculatinganyseverance,resignation,termination,redundancy,dismissal,endofservicepayments,bonuses,long-serviceawards,pensionorretirementbenefitsorsimilarpayments,andinnoeventshouldbeconsideredascompensationfor,orrelatinginanywayto,pastservicesfortheCompany,theEmployeroranyParent,SubsidiaryorAffiliate.ThevalueoftheRestrictedStockUnitsisanextraordinaryitemthatdoesnotconstitutecompensationofanykindforservicesofanykindrenderedtotheCompany,theEmployeroranyParent,SubsidiaryorAffiliateandwhichisoutsidethescopeofyourwrittenemploymentorserviceagreement(ifany).
(c) YouacknowledgethatyouarevoluntarilyparticipatinginthePlan.
(d) NeitherthePlannortheseRestrictedStockUnitsoranyotherAwardgrantedunderthePlanshallbedeemedtogiveyouarighttoremainanEmployee,ConsultantordirectoroftheCompany,aParent,SubsidiaryoranAffiliate.TheEmployerreservestherighttoterminateyourServiceatanytime,withorwithoutcause,andforanyreason.
(e) ThegrantoftheRestrictedStockUnitsandyourparticipationinthePlanwillnotbeinterpretedtoformanemploymentcontractorservicerelationshipwiththeCompany,theEmployeroranyParent,SubsidiaryorAffiliate.
(f) ThefuturevalueoftheunderlyingSharesisunknown,indeterminableandcannotbepredictedwithcertaintyandifyouvestintheRestrictedStockUnitsandareissuedShares,thevalueofthoseSharesmayincreaseordecrease.YoualsounderstandthatnoneoftheCompany,theEmployeroranyParent,SubsidiaryorAffiliateisresponsibleforanyforeignexchangefluctuationbetweentheEmployer’slocalcurrencyandtheUnitedStatesDollarthatmayaffectthevalueofthisAward.
(g) NoclaimorentitlementtocompensationordamagesshallarisefromforfeitureoftheRestrictedStockUnitsresultingfromtheterminationofyourServicebytheCompanyortheEmployer(foranyreasonwhatsoeverandwhetherornotlaterfoundtobeinvalidorinbreachoftheemploymentlawsinthejurisdictionwhereyouareemployedorprovidingService,orthetermsofyouremploymentorserviceagreement,ifany)and,inconsiderationofthegrantoftheAwardtowhichyouarenototherwiseentitled,youirrevocablyagreenevertoinstituteanyclaimagainsttheEmployer,theCompanyoritsParent,SubsidiariesorAffiliates,waiveyourability,ifany,tobringanysuchclaim,andreleasetheCompanyanditsParent,SubsidiariesandAffiliatesfromanysuchclaim;ifnotwithstandingtheforegoing,anysuchclaimisallowedbyacourtofcompetentjurisdiction,then,byacceptingtheAward,youshallbedeemedirrevocablytohaveagreedtonotpursuesuchclaimandagreetoexecuteanyandalldocumentsnecessarytorequestthewithdrawalofsuchclaim.
(h) YouagreethattheCompanymayrequireSharesreceivedpursuanttotheRestrictedStockUnitstobeheldbyabrokerdesignatedbytheCompany.
(i) Youagreethatyourrightshereunder(ifany)shallbesubjecttoset-offbytheCompanyforanyvaliddebtsyouowetheCompany.
(j) UnlessotherwiseprovidedinthePlanorthisAgreement,orbytheCompanyinitsdiscretion,theRestrictedStockUnitsandthebenefitsevidencedbythisAgreementdonotcreateanyentitlementtohavetheRestrictedStockUnitstransferredto,orassumedby,anothercompany,nortobeexchanged,cashedoutorsubstitutedforinconnectionwithanyCorporateTransactionaffectingtheCommonStock.
15. Governing Law and Forum .ThisAgreementshallbegovernedbyandconstruedinaccordancewiththelawsoftheStateofCaliforniawithoutregardtotheconflictoflawsprinciplesthereof.ForpurposesoflitigatinganydisputethatmayarisedirectlyorindirectlyfromthisAgreement,thepartiesherebysubmitandconsenttolitigationintheexclusivejurisdictionoftheStateofCaliforniaandagreethatanysuchlitigationshallbeconductedonlyinthecourtsofCaliforniaorthefederalcourtsfortheUnitedStatesfortheNorthernDistrictofCaliforniaandnoothercourts.
16. Notices .AnynoticerequiredorpermittedunderthetermsofthisAgreementshallbeinwritingandshallbedeemedsufficientwhendeliveredpersonallyorsentbyconfirmedemail,telegram,orfaxorforty-eight(48)hoursafterbeingdepositedinthemail,ascertifiedorregisteredmail,withpostageprepaid,andaddressedtotheCompanyattheCompany’sprincipalcorporateofficesortoyouattheaddressmaintainedforyouintheCompany’srecordsor,ineithercase,assubsequentlymodifiedbywrittennoticetotheotherparty.
17. Binding Effect .SubjecttothelimitationssetforthinthisAgreement,thisAgreementshallbebindingupon,andinuretothebenefitof,theexecutors,administrators,heirs,legalrepresentatives,successors,andassignsofthepartieshereto.
18. Severability .IfanyprovisionofthisAgreementisheldtobeunenforceableforanyreason,itshallbeadjustedratherthanvoided,ifpossible,inordertoachievetheintentofthepartiestotheextentpossible.Inanyevent,allotherprovisionsofthisAgreementshallbedeemedvalidandenforceabletothefullextentpossible.
19. Waiver .YouagreethatawaiverbytheCompanyofabreachofanyprovisionofthisAgreementshallnotoperateorbeconstruedasawaiverofanyotherprovisionofthisAgreement,orofanysubsequentbreachbyyouoranyotherparticipant.
20. Electronic Delivery .TheCompanymay,initssolediscretion,decidetodeliveranydocumentsrelatedtoyourcurrentorfutureparticipationinthePlanbyelectronicmeansortorequestyourconsenttoparticipateinthePlanbyelectronicmeans.YouherebyconsenttoreceivesuchdocumentsbyelectronicdeliveryandagreetoparticipateinthePlanthroughanon-lineorelectronicsystemestablishedandmaintainedbytheCompanyorathirdpartydesignatedbytheCompany.
21. Language .IfthisAgreementoranyotherdocumentrelatedtothePlanistranslatedintoalanguageotherthanEnglishandthemeaningofthetranslatedversionisdifferentfromtheEnglishversion,theEnglishversionwilltakeprecedence.
22. Appendix .NotwithstandinganyprovisionsinthisAgreement,theRestrictedStockUnitsshallbesubjecttoanyspecialtermsandconditionssetforthinanyAppendixtothisAgreementforyourcountryofresidence.Moreover,ifyourelocatetooneofthecountriesincludedintheAppendix,thespecialtermsandconditionsforsuchcountrywillapplytoyou,totheextenttheCompanydeterminesthattheapplicationofsuchtermsandconditionsisnecessaryoradvisableinordertocomplywithlocallaworfacilitatetheadministrationofthePlan.TheAppendixconstitutespartofthisAgreement.
23. Imposition of Other Requirements .TheCompanyreservestherighttoimposeotherrequirementsonyourparticipationinthePlan,ontheRestrictedStockUnitsandonanySharesacquiredunderthePlan,totheextenttheCompanydeterminesitisnecessaryoradvisableinordertocomplywithlocallaworfacilitatetheadministrationofthePlan.Youagreetosignanyadditionalagreementsorundertakingsthatmaybenecessarytoaccomplishtheforegoing.Furthermore,youacknowledgethatthelawsofthecountryinwhichyouareworkingatthetimeofgrant,vestingandsettlementoftheRestrictedStockUnitsorthesaleofSharesreceivedpursuanttothisAgreement(includinganyrulesorregulationsgoverningsecurities,foreignexchange,tax,labor,orothermatters)maysubjectyoutoadditionalproceduralorregulatoryrequirementsthatyouareandwillbesolelyresponsibleforandmustfulfill.
24. Acceptance of Agreement .YoumustexpresslyacceptthetermsandconditionsofyourRestrictedStockUnitsassetforthinthisAgreementbyelectronicallyacceptingthisAgreementwithin300daysaftertheCompanysendsthisAgreementtoyou.IfyoudonotacceptyourRestrictedStockUnitsinthemannerinstructedbytheCompany,yourRestrictedStockUnitswillbesubjecttocancellation.
****YouacknowledgethatbyclickingontheI agree buttonbelow,youagreetobeboundbythetermsofthisAgreement.
PLEASE PRINT AND KEEP A COPY FOR YOUR RECORDS
(For Grants Beginning September
2015 and Prior to July 2016)
CISCO SYSTEMS, INC. STOCK UNIT AGREEMENT
ThisStockUnitAgreement(the“Agreement”)ismadeandenteredintoasoftheGrantDate(asdefinedbelow)byandbetweenCiscoSystems,Inc.,aCaliforniacorporation(the“Company”),andyoupursuanttotheCiscoSystems,Inc.2005StockIncentivePlan(the“Plan”).ThematerialtermsofthisStockUnitAwardareasfollows:
EmployeeID:
GrantDate:
GrantNumber:
RestrictedStockUnits:
FirstVestDate:
TotheextentanycapitalizedtermsusedinthisAgreementarenotdefined,theyshallhavethemeaningascribedtotheminthePlan.IntheeventofaconflictbetweenthetermsandprovisionsofthePlanandthetermsandprovisionsofthisAgreement,thePlantermsandprovisionsshallprevail.
Inconsiderationofthemutualagreementshereincontainedandintendingtobelegallyboundhereby,thepartiesagreeasfollows:
1.Restricted Stock Units .PursuanttothePlan,theCompanyherebygrantstoyou,andyouherebyacceptfromtheCompany,RestrictedStockUnits,eachofwhichisabookkeepingentryrepresentingtheequivalentinvalueofone(1)Share,onthetermsandconditionssetforthhereinandinthePlan.
2.Vesting of Restricted Stock Units .SolongasyourServicecontinues,theRestrictedStockUnitsshallvestinaccordancewiththefollowingschedule:________percent(___%)ofthetotalnumberofRestrictedStockUnitsgrantedpursuanttothisAgreementshallvestontheFirstVestDateandoneach____anniversarythereafter,unlessotherwiseprovidedbythePlanorSection4below.Ifyoutakealeaveofabsence,theCompanymay,atitsdiscretion,suspendvestingduringtheperiodofleavetotheextentpermittedundertheemploymentlawsinthejurisdictionwhereyouareprovidingServiceorunderthetermsofyouremploymentorserviceagreement,ifany.
3.Termination of Service .IntheeventoftheterminationofyourServiceforanyreason(whetherornotlaterfoundtobeinvalidorinbreachoftheemploymentlawsinthejurisdictionwhereyouareemployedorprovidingService,orthetermsofyouremploymentorserviceagreement,ifany),allunvestedRestrictedStockUnitsshallbeimmediatelyforfeitedwithoutconsideration.Forpurposesoftheprecedingsentence,yourrighttovestintheRestrictedStockUnitswillterminateeffectiveasofthedatethatyouarenolongerprovidingService,andtheCompanyshallhavetheexclusivediscretiontodeterminewhenyouarenolongerprovidingServiceforpurposesoftheRestrictedStockUnits.
4.Special Acceleration .
(a)TotheextenttheRestrictedStockUnitsareoutstandingatthetimeofaCorporateTransaction,suchRestrictedStockUnitsshallautomaticallybecomevestedinfullimmediatelypriortotheeffectivedateoftheCorporateTransaction.Nosuchacceleratedvesting,however,shalloccurifandtotheextent:(i)theseRestrictedStockUnitsare,inconnectionwiththeCorporateTransaction,eitherassumedbythesuccessorcorporation(orparentthereof)orreplacedwithcomparablerestrictedstockunitsofthesuccessorcorporation(orparentthereof)or(ii)theseRestrictedStockUnitsarereplacedwithacashincentiveprogramofthesuccessorcorporationwhichcomplieswithCodeSection409AandpreservesthefairmarketvalueoftheRestrictedStockUnitsatthetimeoftheCorporateTransactionandprovidesforsubsequentpay-outinaccordancewiththesettlementprovisionssetforthinSection5below.Thedeterminationofthecomparabilityofrestrictedstockunitsunderclause(i)shallbemadebytheCommittee,andsuchdeterminationshallbefinal,bindingandconclusive.
(b)ImmediatelyfollowingtheeffectivedateoftheCorporateTransaction,thisAgreementshallterminateandceasetobeoutstanding,exceptassetforthinSection5belowwithrespecttothedeferredsettlementofRestrictedStockUnitsortotheextentassumedbythesuccessorcorporation(orparentthereof)inconnectionwiththeCorporateTransaction.
(c)IfthisAgreementisassumedinconnectionwithaCorporateTransaction,thentheCommitteeshallappropriatelyadjustthenumberofunitsandthekindofsharesorsecuritiestobeissuedpursuanttothisAgreementimmediatelyaftersuchCorporateTransaction.
(d)TotheextenttheRestrictedStockUnitsareoutstandingatthetimeofaChangeinControl,suchRestrictedStockUnitsshallautomaticallyaccelerateimmediatelypriortotheeffectivedateoftheChangeinControlandshallbecomevestedinfullatthattimeandsettledinaccordancewithSection5below.
(e)ThisAgreementshallnotinanywayaffecttherightoftheCompanytoadjust,reclassify,reorganizeorotherwisechangeitscapitalorbusinessstructureortomerge,consolidate,dissolve,liquidate,sellortransferalloranypartofitsbusinessorassets.
5.Settlement of Restricted Stock Units .TotheextentyouareeligiblebuthavenotelectedtodefersettlementoftheRestrictedStockUnits,theRestrictedStockUnitsshallbeautomaticallysettledinSharesuponvestingofsuchRestrictedStockUnits,providedthattheCompanyshallhavenoobligationtoissueSharespursuanttothisAgreementunlessanduntilyouhavesatisfiedanyapplicableTax-RelatedItems,asdescribedanddefinedinSection6below,andsuchissuanceotherwisecomplieswithallapplicablelaws.TotheextentyouareeligiblebuthaveelectedtodefersettlementoftheRestrictedStockUnits,thevestedportionoftheRestrictedStockUnitsshallbesettledinSharesupontheearlierof:(a)yourseparationfromservicewithinthemeaningofCodeSection409A(“SeparationfromService”)and(b)thefixedpaymentdateelectedbyyou,ifany,atthetimeofsuchdeferral(whichshallbethefirstbusinessdayofayearnoearlierthansixyearsaftertheyearoftheGrantDateinaccordancewithproceduresapprovedbytheCommittee),providedthattheCompanyshallhavenoobligationtoissueSharespursuanttothisAgreementunlesssuchissuancecomplieswithallapplicablelaw.Notwithstandingtheforegoing,totheextentyourRestrictedStockUnitswouldotherwisebesettleduponyourSeparationfromService,suchsettlementshallinsteadoccurupontheCompany'sfirstbusinessdayfollowingthesix-monthanniversaryofyourSeparationfromService.PriortothetimethattheRestrictedStockUnitsaresettled,youshallhavenorightsotherthanthoseofageneralcreditoroftheCompany.TheRestrictedStockUnitsrepresentanunfundedandunsecuredobligationoftheCompany.
6.Taxes .
(a)RegardlessofanyactiontheCompanyoryouremployer(the“Employer”)takeswithrespecttoanyandallincometax,socialtaxesorinsurancecontributions,payrolltax,paymentonaccountorothertax-relateditemsrelatedtoyourparticipationinthePlanandlegallyapplicabletoyou(“Tax-RelatedItems”),youacknowledgethattheultimateliabilityforallTax-RelatedItemswithrespecttotheRestrictedStockUnitsisandremainsyourresponsibilityandmayexceedtheamountactuallywithheldbytheCompanyortheEmployer.YoufurtheracknowledgethattheCompanyand/ortheEmployer(i)makenorepresentationsorundertakingsregardingthetreatmentofanyTax-RelatedItemsinconnectionwithanyaspectoftheRestrictedStockUnits,includingthegrant,vestingorsettlementoftheRestrictedStockUnits,orthesubsequentsaleofanySharesacquiredatvestingorthereceiptofanydividendswithrespecttosuchShares,and(ii)donotcommittoandareundernoobligationtostructurethetermsoranyaspectoftheRestrictedStockUnitstoreduceoreliminateyourliabilityforTax-RelatedItemsorachieveanyparticulartaxresult.Further,ifyoubecomesubjecttotaxationinmorethanonejurisdictionbetweentheGrantDateandthedateofanyrelevanttaxableevent,youacknowledgethattheCompanyand/ortheEmployer(orformeremployer,asapplicable)mayberequiredtowithholdoraccountforTax-RelatedItemsinmorethanonejurisdiction.
(b)Priortoanyrelevanttax,withholdingorrequireddeductionevent,asapplicable,youagreetomakearrangementssatisfactorytotheCompanyforthesatisfactionofanyapplicabletax,withholding,requireddeductionandpaymentonaccountofanyobligationsoftheCompanyand/ortheEmployerthatariseinconnectionwiththeRestrictedStockUnits.Inthisregard,youauthorizetheCompanyand/ortheEmployer,ortheirrespectiveagents,attheirdiscretion,tosatisfyanyobligationsrelatedtoTax-RelatedItemsbyoneoracombinationofthefollowing:(1)withholdingfromyourwagesorothercashcompensationpayabletoyoubytheCompanyortheEmployer;(2)withholdingfromproceedsofthesaleofSharesacquireduponsettlementoftheRestrictedStockUnitseitherthroughavoluntarysaleorthroughamandatorysalearrangedbytheCompany(onyourbehalfpursuanttothisauthorization);(3)withholdingofSharesthatwouldotherwisebeissueduponsettlementoftheRestrictedStockUnits;or(4)requiringyoutosatisfytheliabilityforTax-RelatedItemsbymeansofanyotherarrangementapprovedbytheCompany.IftheobligationforTax-RelatedItemsissatisfiedbywithholdingShares,fortaxpurposes,youaredeemedtohavebeenissuedthefullnumberofSharessubjecttothevestedRestrictedStockUnits,notwithstandingthatanumberoftheSharesareheldbacksolelyforthepurposeofpayingtheTax-RelatedItemsdueasaresultofanyaspectofyourparticipationinthePlan.YouagreetoprovidetheCompanyand/oritsstockplanbroker/administratorwiththeinformationnecessarytomanageyourTax-RelatedItemwithholdingandacknowledgethatshouldyoufailtoprovidesuchinformationonatimelybasis,theCompanyand/oritsstockplanbroker/administratormaybeobligatedtowithholdamountsfromyouanditmaybenecessaryforyoutoseekarefunddirectlyfromthetaxauthorities.Toavoidfinancialaccountingchargesunderapplicableaccountingguidance,theCompanymaywithholdoraccountforTax-RelatedItemsbyconsideringapplicableminimumstatutoryratesormaytakeanyotheractionrequiredtoavoidfinancialaccountingchargesunderapplicableaccountingguidance.IftheCompanydoesnotsatisfytheobligationforTax-RelatedItemsbythewithholdingofSharesandinsteadwithholdsproceedsfromthesaleofSharesacquireduponsettlementoftheRestrictedStockUnits,theCompanymaywithholdoraccountforTax-RelatedItemsbyconsideringmaximumapplicablerates,inwhichcaseyouwillreceivearefundofanyover-withheldamountincashtotheextentthatanyover-withheldamounthasnototherwisebeenremittedtotheapplicabletaxauthorityandwillhavenoentitlementtotheCommonStockequivalent.
(c)Finally,youwillpaytotheCompanyortheEmployeranyamountofTax-RelatedItemsthattheCompanyortheEmployermayberequiredtowithholdoraccountforasaresultofyourparticipationinthePlanoryouracquisitionofSharesthatcannotbesatisfiedbythemeanspreviouslydescribed.TheCompanyshallnotberequiredtoissueordeliverSharespursuanttothisAgreementunlessanduntilsuchobligationsaresatisfied.
7.Tax and Legal Advice .Yourepresent,warrantandacknowledgethatneithertheCompanynoryourEmployerhavemadeanywarrantiesorrepresentationstoyouwithrespecttoanyTax-RelatedItems,legalorfinancialconsequencesofthetransactionscontemplatedbythisAgreement,andyouareinnomannerrelyingontheCompany,theEmployer’sortheCompany’sortheEmployer’srepresentativesforanassessmentofsuchconsequences.YOUUNDERSTANDTHATTHELAWSGOVERNINGTHISAWARDARESUBJECTTOCHANGE.YOUSHOULDCONSULTYOUROWNPROFESSIONALTAX,LEGALANDFINANCIALADVISORREGARDINGANYRESTRICTEDSTOCKUNITS.YOUUNDERSTANDTHATTHECOMPANYANDTHEEMPLOYERARENOTPROVIDINGANYTAX,LEGAL,ORFINANCIALADVICE,NORISTHECOMPANYORTHEEMPLOYERMAKINGANYRECOMMENDATIONREGARDINGYOURACCEPTANCEOFTHISAWARD.NOTHINGSTATEDHEREINISINTENDEDORWRITTENTOBEUSED,ANDCANNOTBEUSED,FORTHEPURPOSEOFAVOIDINGTAXPAYEROROTHERPENALTIES.
8.Non-Transferability of Restricted Stock Units .RestrictedStockUnitsshallnotbeanticipated,assigned,attached,garnished,optioned,transferredormadesubjecttoanycreditor’sprocess,whethervoluntarilyorinvoluntarilyorbyoperationoflaw.
9.Restriction on Transfer .RegardlessofwhetherthetransferorissuanceoftheSharestobeissuedpursuanttotheRestrictedStockUnitshasbeenregisteredundertheSecuritiesActorhasbeenregisteredorqualifiedunderthesecuritieslawsofanystate,theCompanymayimposeadditionalrestrictionsuponthesale,pledge,orothertransferoftheShares(includingtheplacementofappropriatelegendsonstockcertificatesandtheissuanceofstop-transferinstructionstotheCompany’stransferagent)if,inthejudgmentoftheCompanyandtheCompany’scounsel,suchrestrictionsarenecessaryinordertoachievecompliancewiththeprovisionsoftheSecuritiesAct,thesecuritieslawsofanystate,oranyotherlaw,includingallapplicableforeignlaws.
10.Restrictive Legends and Stop-Transfer Instructions .StockcertificatesevidencingtheSharesissuedpursuanttotheRestrictedStockUnitsmaybearsuchrestrictivelegendsand/orappropriatestop-transferinstructionsmaybeissuedtotheCompany’stransferagentastheCompanyandtheCompany’scounseldeemnecessaryunderapplicablelaworpursuanttothisAgreement.
11.Representations, Warranties, Covenants, and Acknowledgments .YouherebyagreethatintheeventtheCompanyandtheCompany’scounseldeemitnecessaryoradvisableintheexerciseoftheirdiscretion,thetransferorissuanceoftheSharesissuedpursuanttotheRestrictedStockUnitsmaybeconditioneduponyoumakingcertainrepresentations,warranties,andacknowledgmentsrelatingtocompliancewithapplicablelaws.
12.Voting, Dividend and Other Rights .SubjecttothetermsofthisAgreementandexceptassetforthbelow,youshallnothaveanyvotingrightsoranyotherrightsandprivilegesofashareholderoftheCompanyunlessanduntiltheRestrictedStockUnitsaresettledinShares.TotheextentyouhaveelectedtodefersettlementoftheRestrictedStockUnitswithaFirstVestDateonorafterSeptember11,2016,dividendequivalentsshallonlyaccrueafterthevestingoftheRestrictedStockUnitsandwillbesubjecttothesameconditionsandrestrictionsastheRestrictedStockUnitstowhichtheyattachassetforthinthePlanorthisAgreementandwillbesettledinadditionalSharesuponthesettlementoftheRestrictedStockUnitsassetforthinSection5above.
13.Authorization to Release and Transfer Necessary Personal Information .
(a)You hereby explicitly and unambiguously consent to the collection, use and transfer, in electronic or other form, of your personalinformation as described in this Agreement by and among, as applicable, the Employer, and the Company and its Parent, Subsidiaries and Affiliates for theexclusive purpose of implementing, administering and managing your participation in the Plan.
(b)You understand that the Company and the Employer may hold certain personal information about you, including, but not limited to,your name, home address and telephone number, date of birth, social insurance number (or any other social or national identification number), salary,nationality, job title, residency status, any Shares or directorships held in the Company, details of all Restricted Stock Units or any other entitlement to Sharesawarded, canceled, exercised, vested, unvested or outstanding (the “Data”) for the purpose of implementing, administering and managing your participation inthe Plan. You understand that the Data may be transferred to the Company or any of its Parent, Subsidiaries or Affiliates, or to any third parties assisting inthe implementation, administration and management of the Plan, that these recipients may be located in your country or elsewhere, including outside theEuropean Economic Area, and that the recipient’s country (e.g., the United States) may have different data privacy laws and protections than your country.You understand that you may request a list with the names and addresses of any potential recipients of the Data by contacting your local human resourcesrepresentative. You authorize the recipients to receive, possess, use, retain and transfer the Data, in electronic or other form, for the sole purposes ofimplementing, administering and managing your participation in the Plan, including any requisite transfer of such Data to a broker or other third partyassisting with the administration of these Restricted Stock Units under the Plan or with whom Shares acquired pursuant to these Restricted Stock Units or cashfrom the sale of such Shares may be deposited. Furthermore, you acknowledge and understand that the transfer of the Data to the Company or any of itsParent, Subsidiaries or Affiliates, or to any third parties is necessary for your participation in the Plan.
(c)You understand that the Data will be held only as long as is necessary to implement, administer and manage your participation in thePlan. You understand that you may, at any time, view the Data, request additional information about the storage and processing of the Data, require anynecessary amendments to the Data or refuse or withdraw the consents herein by contacting your local
human resources representative in writing. Further, you understand that you are providing the consents herein on a purely voluntary basis. If you do notconsent, or if you later seek to revoke your consent, your employment status or service and career with the Employer will not be adversely affected; the onlyadverse consequence of refusing or withdrawing your consent is that the Company would not be able to grant you Restricted Stock Units or other equityawards, or administer or maintain such awards. Therefore, you understand that refusing or withdrawing your consent may affect your ability to vest in orrealize benefits from these Restricted Stock Units and your ability to participate in the Plan. For more information on the consequences of your refusal toconsent or withdrawal of consent, you understand that you may contact your local human resources representative.
14.No Entitlement or Claims for Compensation .
(a)Yourrights,ifany,inrespectoforinconnectionwiththeseRestrictedStockUnitsoranyotherAwardarederivedsolelyfromthediscretionarydecisionoftheCompanytopermityoutoparticipateinthePlanandtobenefitfromadiscretionaryAward.ThePlanmaybeamended,suspendedorterminatedbytheCompanyatanytime,unlessotherwiseprovidedinthePlanandthisAgreement.ByacceptingtheseRestrictedStockUnits,youexpresslyacknowledgethatthereisnoobligationonthepartoftheCompanytocontinuethePlanand/orgrantanyadditionalRestrictedStockUnitstoyouorbenefitsinlieuofRestrictedStockUnits,evenifRestrictedStockUnitshavebeengrantedinthepast.AlldecisionswithrespecttofuturegrantsofRestrictedStockUnits,ifany,willbeatthesolediscretionoftheCommittee.
(b)TheRestrictedStockUnitsandtheSharessubjecttotheRestrictedStockUnitsarenotintendedtoreplaceanypensionrightsorcompensationandarenottobeconsideredcompensationofacontinuingorrecurringnature,orpartofyournormalorexpectedcompensation,andinnowayrepresentanyportionofyoursalary,compensationorotherremunerationforanypurpose,including,butnotlimitedto,calculatinganyseverance,resignation,termination,redundancy,dismissal,endofservicepayments,bonuses,long-serviceawards,pensionorretirementbenefitsorsimilarpayments,andinnoeventshouldbeconsideredascompensationfor,orrelatinginanywayto,pastservicesfortheCompany,theEmployeroranyParent,SubsidiaryorAffiliate.ThevalueoftheRestrictedStockUnitsisanextraordinaryitemthatdoesnotconstitutecompensationofanykindforservicesofanykindrenderedtotheCompany,theEmployeroranyParent,SubsidiaryorAffiliateandwhichisoutsidethescopeofyourwrittenemploymentorserviceagreement(ifany).
(c)YouacknowledgethatyouarevoluntarilyparticipatinginthePlan.
(d)NeitherthePlannortheseRestrictedStockUnitsoranyotherAwardgrantedunderthePlanshallbedeemedtogiveyouarighttoremainanEmployee,ConsultantordirectoroftheCompany,aParent,SubsidiaryoranAffiliate.TheEmployerreservestherighttoterminateyourServiceatanytime,withorwithoutcause,andforanyreason.
(e)ThegrantoftheRestrictedStockUnitsandyourparticipationinthePlanwillnotbeinterpretedtoformanemploymentcontractorservicerelationshipwiththeCompany,theEmployeroranyParent,SubsidiaryorAffiliate.
(f)ThefuturevalueoftheunderlyingSharesisunknown,indeterminableandcannotbepredictedwithcertaintyandifyouvestintheRestrictedStockUnitsandareissuedShares,thevalueofthoseSharesmayincreaseordecrease.YoualsounderstandthatnoneoftheCompany,theEmployeroranyParent,SubsidiaryorAffiliateisresponsibleforanyforeignexchangefluctuationbetweentheEmployer’slocalcurrencyandtheUnitedStatesDollarthatmayaffectthevalueofthisAward.
(g)NoclaimorentitlementtocompensationordamagesshallarisefromforfeitureoftheRestrictedStockUnitsresultingfromtheterminationofyourServicebytheCompanyortheEmployer(foranyreasonwhatsoeverandwhetherornotlaterfoundtobeinvalidorinbreachoftheemploymentlawsinthejurisdictionwhereyouareemployedorprovidingService,orthetermsofyouremploymentorserviceagreement,ifany)and,inconsiderationofthegrantoftheAwardtowhichyouarenototherwiseentitled,youirrevocablyagreenevertoinstituteanyclaimagainsttheEmployer,theCompanyoritsParent,SubsidiariesorAffiliates,waiveyourability,ifany,tobringanysuchclaim,andreleasetheCompanyanditsParent,SubsidiariesandAffiliatesfromanysuchclaim;ifnotwithstandingtheforegoing,anysuchclaimisallowedbyacourtofcompetentjurisdiction,then,byacceptingtheAward,youshallbedeemedirrevocablytohaveagreedtonotpursuesuchclaimandagreetoexecuteanyandalldocumentsnecessarytorequestthewithdrawalofsuchclaim.
(h)YouagreethattheCompanymayrequireSharesreceivedpursuanttotheRestrictedStockUnitstobeheldbyabrokerdesignatedbytheCompany.
(i)Youagreethatyourrightshereunder(ifany)shallbesubjecttoset-offbytheCompanyforanyvaliddebtsyouowetheCompany.
(j)UnlessotherwiseprovidedinthePlanorthisAgreement,orbytheCompanyinitsdiscretion,theRestrictedStockUnitsandthebenefitsevidencedbythisAgreementdonotcreateanyentitlementtohavetheRestrictedStockUnitstransferredto,orassumedby,anothercompany,nortobeexchanged,cashedoutorsubstitutedforinconnectionwithanyCorporateTransactionaffectingtheCommonStock.
15.Governing Law and Forum .ThisAgreementshallbegovernedbyandconstruedinaccordancewiththelawsoftheStateofCaliforniawithoutregardtotheconflictoflawsprinciplesthereof.ForpurposesoflitigatinganydisputethatmayarisedirectlyorindirectlyfromthisAgreement,thepartiesherebysubmitandconsenttolitigationintheexclusivejurisdictionoftheStateofCaliforniaandagreethatanysuchlitigationshallbeconductedonlyinthecourtsofCaliforniaorthefederalcourtsfortheUnitedStatesfortheNorthernDistrictofCaliforniaandnoothercourts.
16.Notices .AnynoticerequiredorpermittedunderthetermsofthisAgreementshallbeinwritingandshallbedeemedsufficientwhendeliveredpersonallyorsentbyconfirmedemail,telegram,orfaxorforty-eight(48)hoursafterbeingdepositedinthemail,ascertifiedorregisteredmail,withpostageprepaid,andaddressedtotheCompanyattheCompany’sprincipalcorporateofficesortoyouattheaddressmaintainedforyouintheCompany’srecordsor,ineithercase,assubsequentlymodifiedbywrittennoticetotheotherparty.
17.Binding Effect .SubjecttothelimitationssetforthinthisAgreement,thisAgreementshallbebindingupon,andinuretothebenefitof,theexecutors,administrators,heirs,legalrepresentatives,successors,andassignsofthepartieshereto.
18.Severability .IfanyprovisionofthisAgreementisheldtobeunenforceableforanyreason,itshallbeadjustedratherthanvoided,ifpossible,inordertoachievetheintentofthepartiestotheextentpossible.Inanyevent,allotherprovisionsofthisAgreementshallbedeemedvalidandenforceabletothefullextentpossible.
19.Waiver .YouagreethatawaiverbytheCompanyofabreachofanyprovisionofthisAgreementshallnotoperateorbeconstruedasawaiverofanyotherprovisionofthisAgreement,orofanysubsequentbreachbyyouoranyotherparticipant.
20.Electronic Delivery .TheCompanymay,initssolediscretion,decidetodeliveranydocumentsrelatedtoyourcurrentorfutureparticipationinthePlanbyelectronicmeansortorequestyourconsenttoparticipateinthePlanbyelectronicmeans.YouherebyconsenttoreceivesuchdocumentsbyelectronicdeliveryandagreetoparticipateinthePlanthroughanon-lineorelectronicsystemestablishedandmaintainedbytheCompanyorathirdpartydesignatedbytheCompany.
21.Language .IfthisAgreementoranyotherdocumentrelatedtothePlanistranslatedintoalanguageotherthanEnglishandthemeaningofthetranslatedversionisdifferentfromtheEnglishversion,theEnglishversionwilltakeprecedence.
22.Appendix .NotwithstandinganyprovisionsinthisAgreement,theRestrictedStockUnitsshallbesubjecttoanyspecialtermsandconditionssetforthinanyAppendixtothisAgreementforyourcountryofresidence.Moreover,ifyourelocatetooneofthecountriesincludedintheAppendix,thespecialtermsandconditionsforsuchcountrywillapplytoyou,totheextenttheCompanydeterminesthattheapplicationofsuchtermsandconditionsisnecessaryoradvisableinordertocomplywithlocallaworfacilitatetheadministrationofthePlan.TheAppendixconstitutespartofthisAgreement.
23.Imposition of Other Requirements .TheCompanyreservestherighttoimposeotherrequirementsonyourparticipationinthePlan,ontheRestrictedStockUnitsandonanySharesacquiredunderthePlan,totheextenttheCompanydeterminesitisnecessaryoradvisableinordertocomplywithlocallaworfacilitatetheadministrationofthePlan.Youagreetosignanyadditionalagreementsorundertakingsthatmaybenecessarytoaccomplishtheforegoing.Furthermore,youacknowledgethatthelawsofthecountryinwhichyouareworkingatthetimeofgrant,vestingandsettlementoftheRestrictedStockUnitsorthesaleofSharesreceivedpursuanttothisAgreement(includinganyrulesorregulationsgoverningsecurities,foreignexchange,tax,labor,orothermatters)maysubjectyoutoadditionalproceduralorregulatoryrequirementsthatyouareandwillbesolelyresponsibleforandmustfulfill.
24.Acceptance of Agreement .YoumustexpresslyacceptthetermsandconditionsofyourRestrictedStockUnitsassetforthinthisAgreementbyelectronicallyacceptingthisAgreementwithin300daysaftertheCompanysendsthisAgreementtoyou.IfyoudonotacceptyourRestrictedStockUnitsinthemannerinstructedbytheCompany,yourRestrictedStockUnitswillbesubjecttocancellation.
****
YouacknowledgethatbyclickingontheI agree buttonbelow,youagreetobeboundbythetermsofthisAgreement.
PLEASE PRINT AND KEEP A COPY FOR YOUR RECORDS
(For Grants Beginning September2013 and Prior to September 2015)
CISCO SYSTEMS, INC. STOCK UNIT AGREEMENT
ThisStockUnitAgreement(the“Agreement”)ismadeandenteredintoasoftheGrantDate(asdefinedbelow)byandbetweenCiscoSystems,Inc.,aCaliforniacorporation(the“Company”),andyoupursuanttotheCiscoSystems,Inc.2005StockIncentivePlan(the“Plan”).ThematerialtermsofthisStockUnitAwardareasfollows:
EmployeeID:
GrantDate:
GrantNumber:
RestrictedStockUnits:
FirstVestDate:
TotheextentanycapitalizedtermsusedinthisAgreementarenotdefined,theyshallhavethemeaningascribedtotheminthePlan.IntheeventofaconflictbetweenthetermsandprovisionsofthePlanandthetermsandprovisionsofthisAgreement,thePlantermsandprovisionsshallprevail.
Inconsiderationofthemutualagreementshereincontainedandintendingtobelegallyboundhereby,thepartiesagreeasfollows:
1. Restricted Stock Units .PursuanttothePlan,theCompanyherebygrantstoyou,andyouherebyacceptfromtheCompany,RestrictedStockUnits,eachofwhichisabookkeepingentryrepresentingtheequivalentinvalueofone(1)Share,onthetermsandconditionssetforthhereinandinthePlan.
2. Vesting of Restricted Stock Units .SolongasyourServicecontinues,theRestrictedStockUnitsshallvestinaccordancewiththefollowingschedule:________________percent(___%)ofthetotalnumberofRestrictedStockUnitsgrantedpursuanttothisAgreementshallvestontheFirstVestDateandoneach______anniversarythereafter,unlessotherwiseprovidedbythePlanorSection4below.Ifyoutakealeaveofabsence,theCompanymay,atitsdiscretion,suspendvestingduringtheperiodofleavetotheextentpermittedundertheemploymentlawsinthejurisdictionwhereyouareprovidingServiceorthetermsyouremploymentorserviceagreement,ifany.PriortothetimethattheRestrictedStockUnitsaresettled,youshallhavenorightsotherthanthoseofageneralcreditoroftheCompany.TheRestrictedStockUnitsrepresentanunfundedandunsecuredobligationoftheCompany.
3. Termination of Service .IntheeventoftheterminationofyourServiceforanyreason(whetherornotlaterfoundtobeinvalidorinbreachoftheemploymentlawsinthejurisdictionwhereyouareemployedorprovidingService,orthetermsyouremploymentorserviceagreement,ifany),allunvestedRestrictedStockUnitsshallbeimmediatelyforfeitedwithoutconsideration.Forpurposesoftheprecedingsentence,yourrighttovestintheRestrictedStockUnitswillterminateeffectiveasofthedatethatyouarenolongerprovidingService;theCompanyshallhavetheexclusivediscretiontodeterminewhenyouarenolongerprovidingServiceforpurposesoftheRestrictedStockUnits.
4. Special Acceleration .
(a) TotheextenttheRestrictedStockUnitsareoutstandingatthetimeofaCorporateTransaction,suchRestrictedStockUnitsshallautomaticallybecomevestedinfullimmediatelypriortotheeffectivedateoftheCorporateTransaction.Nosuchacceleratedvesting,however,shalloccurifandtotheextent:(i)theseRestrictedStockUnitsare,inconnectionwiththeCorporateTransaction,eitherassumedbythesuccessorcorporation(orparentthereof)orreplacedwithcomparablerestrictedstockunitsofthesuccessorcorporation(orparentthereof)or(ii)theseRestrictedStockUnitsarereplacedwithacashincentiveprogramofthesuccessorcorporationwhichcomplieswithCodeSection409AandpreservesthefairmarketvalueoftheRestrictedStockUnitsatthetimeoftheCorporateTransactionandprovidesforsubsequentpay-outinaccordancewiththesettlementprovisionssetforthinSection5below.Thedeterminationofthecomparabilityofrestrictedstockunitsunderclause(i)shallbemadebytheCommittee,andsuchdeterminationshallbefinal,bindingandconclusive.
(b) ImmediatelyfollowingtheeffectivedateoftheCorporateTransaction,thisAgreementshallterminateandceasetobeoutstanding,exceptassetforthinSection5belowwithrespecttothedeferredsettlementofRestrictedStockUnitsortotheextentassumedbythesuccessorcorporation(orparentthereof)inconnectionwiththeCorporateTransaction.
(c) IfthisAgreementisassumedinconnectionwithaCorporateTransaction,thentheCommitteeshallappropriatelyadjustthenumberofunitsandthekindofsharesorsecuritiestobeissuedpursuanttothisAgreementimmediatelyaftersuchCorporateTransaction.
(d) TotheextenttheRestrictedStockUnitsareoutstandingatthetimeofaChangeinControl,suchRestrictedStockUnitsshallautomaticallyaccelerateimmediatelypriortotheeffectivedateoftheChangeinControlandshallbecomevestedinfullatthattimeandsettledinaccordancewithSection5below.
(e) ThisAgreementshallnotinanywayaffecttherightoftheCompanytoadjust,reclassify,reorganizeorotherwisechangeitscapitalorbusinessstructureortomerge,consolidate,dissolve,liquidate,sellortransferalloranypartofitsbusinessorassets.
5. Settlement of Restricted Stock Units .TotheextentyouareeligiblebuthavenotelectedtodefersettlementoftheRestrictedStockUnits,theRestrictedStockUnitsshallbeautomaticallysettledinSharesuponvestingofsuchRestrictedStockUnits,providedthattheCompanyshallhavenoobligationtoissueSharespursuanttothisAgreementunlessanduntilyouhavesatisfiedanyapplicableTax-RelatedItems,asdescribedandefinedinSection6below,andsuchissuanceotherwisecomplieswithallapplicablelaws.TotheextentyouareeligiblebuthaveelectedtodefersettlementoftheRestrictedStockUnits,thevestedportionoftheRestrictedStockUnitsshallbesettledinSharesupontheearlierof:(a)yourseparationfromservicewithinthemeaningofCodeSection409A(“SeparationfromService”)and(b)thefixedpaymentdateelectedbyyou,ifany,atthetimeofsuchdeferral(whichshallbethefirstbusinessdayofayearnoearlierthansixyearsaftertheyearoftheGrantDateinaccordancewithproceduresapprovedbytheCommittee),providedthattheCompanyshallhavenoobligationtoissueSharespursuanttothisAgreementunlesssuchissuancecomplieswithallapplicablelaw.Notwithstandingtheforegoing,totheextentyourRestrictedStockUnitswouldotherwisebesettleduponyourSeparationfromService,suchsettlementshallinsteadoccurupontheCompany'sfirstbusinessdayfollowingthesix-monthanniversaryofyourSeparationfromService.
6. Taxes .
(a) RegardlessofanyactiontheCompanyoryouremployer(the“Employer”)takeswithrespecttoanyandallincometax,socialtaxesorinsurancecontributions,payrolltax,paymentonaccountorothertax-relateditemsrelatedtoyourparticipationinthePlanandlegallyapplicabletoyou(“Tax-RelatedItems”),youacknowledgethattheultimateliabilityforallTax-RelatedItemswithrespecttotheRestrictedStockUnitsisandremainsyourresponsibilityandmayexceedtheamountactuallywithheldbytheCompanyortheEmployer.YoufurtheracknowledgethattheCompanyand/ortheEmployer(i)makenorepresentationsorundertakingsregardingthetreatmentofanyTax-RelatedItemsinconnectionwithanyaspectoftheRestrictedStockUnits,includingthegrant,vestingorsettlementoftheRestrictedStockUnits,orthesubsequentsaleofanySharesacquiredatvestingorthereceiptofanydividendswithrespecttosuchShares,and(ii)donotcommittoandareundernoobligationtostructurethetermsoranyaspectoftheRestrictedStockUnitstoreduceoreliminateyourliabilityforTax-RelatedItemsorachieveanyparticulartaxresult.Further,ifyoubecomesubjecttotaxationinmorethanonejurisdictionbetweentheGrantDateandthedateofanyrelevanttaxableevent,youacknowledgethattheCompanyand/ortheEmployer(orformeremployer,asapplicable)mayberequiredtowithholdoraccountforTax-RelatedItemsinmorethanonejurisdiction.
(b) Priortoanyrelevanttax,withholdingorrequireddeductionevent,asapplicable,youagreetomakearrangementssatisfactorytotheCompanyforthesatisfactionofanyapplicabletax,withholding,requireddeductionandpaymentonaccountobligationsoftheCompanyand/ortheEmployerthatariseinconnectionwiththeRestrictedStockUnits.Inthisregard,youauthorizetheCompanyand/ortheEmployer,ortheirrespectiveagents,attheirdiscretion,tosatisfyanyobligationsrelatedtoTax-RelatedItemsbyoneoracombinationofthefollowing:(1)withholdingfromyourwagesorothercashcompensationpayabletoyoubytheCompanyortheEmployer;(2)withholdingfromproceedsofthesaleofSharesacquireduponsettlementoftheRestrictedStockUnitseitherthroughavoluntarysaleorthroughamandatorysalearrangedbytheCompany(onyourbehalfpursuanttothisauthorization);(3)withholdingofSharesthatwouldotherwisebeissueduponsettlementoftheRestrictedStockUnits;or(4)requiringyoutosatisfytheliabilityforTax-RelatedItemsbymeansofanyotherarrangementapprovedbytheCompany.IftheobligationforTax-RelatedItemsissatisfiedbywithholdingofShares,fortaxpurposes,youaredeemedtohavebeenissuedthefullnumberofSharessubjecttothevestedRestrictedStockUnits,notwithstandingthatanumberoftheSharesareheldbacksolelyforthepurposeofpayingtheTax-RelatedItemsdueasaresultofanyaspectofyourparticipationinthePlan.YouagreetoprovidetheCompanyand/oritsstockplanbroker/administratorwiththeinformationnecessarytomanageyourTax-RelatedItemwithholdingandacknowledgethatshouldyoufailtoprovidesuchinformationonatimelybasis,theCompanyand/oritsstockplanbroker/administratormaybeobligatedtowithholdamountsfromyouanditmaybenecessaryforyoutoseekarefunddirectlyfromthetaxauthorities.Toavoidfinancialaccountingchargesunderapplicableaccountingguidance,theCompanymaywithholdoraccountforTax-RelatedItemsbyconsideringapplicableminimumstatutoryratesormaytakeanyotheractionrequiredtoavoidfinancialaccountingchargesunderapplicableaccountingguidance.IftheCompanydoesnotsatisfytheobligationforTax-RelatedItemsbythewithholdingofSharesandinsteadwithholdsproceedsfromthesaleofSharesacquireduponsettlementoftheRestrictedStockUnits,theCompanymaywithholdoraccountforTax-RelatedItemsbyconsideringmaximumapplicablerates,inwhichcaseyouwillreceivearefundofanyover-withheldamountincashtotheextentthatanyover-withheldamounthasnototherwisebeenremittedtotheapplicabletaxauthorityandwillhavenoentitlementtotheCommonStockequivalent.
(c) Finally,youwillpaytotheCompanyortheEmployeranyamountofTax-RelatedItemsthattheCompanyortheEmployermayberequiredtowithholdoraccountforasaresultofyourparticipationinthePlanoryouracquisitionofSharesthatcannotbe
satisfiedbythemeanspreviouslydescribed.TheCompanyshallnotberequiredtoissueordeliverSharespursuanttothisAgreementunlessanduntilsuchobligationsaresatisfied.
7. Tax and Legal Advice .Yourepresent,warrantandacknowledgethatneithertheCompanynoryourEmployerhavemadeanywarrantiesorrepresentationstoyouwithrespecttoanyTax-RelatedItems,legalorfinancialconsequencesofthetransactionscontemplatedbythisAgreement,andyouareinnomannerrelyingontheCompany,theEmployer’sortheCompany’sortheEmployer’srepresentativesforanassessmentofsuchconsequences.YOUUNDERSTANDTHATTHELAWSGOVERNINGTHISAWARDARESUBJECTTOCHANGE.YOUSHOULDCONSULTYOUROWNPROFESSIONALTAX,LEGALANDFINANCIALADVISORREGARDINGANYRESTRICTEDSTOCKUNITS.YOUUNDERSTANDTHATTHECOMPANYANDTHEEMPLOYERARENOTPROVIDINGANYTAX,LEGAL,ORFINANCIALADVICE,NORISTHECOMPANYORTHEEMPLOYERMAKINGANYRECOMMENDATIONREGARDINGYOURACCEPTANCEOFTHISAWARD.NOTHINGSTATEDHEREINISINTENDEDORWRITTENTOBEUSED,ANDCANNOTBEUSED,FORTHEPURPOSEOFAVOIDINGTAXPAYEROROTHERPENALTIES.
8. Non-Transferability of Restricted Stock Units .RestrictedStockUnitsshallnotbeanticipated,assigned,attached,garnished,optioned,transferredormadesubjecttoanycreditor’sprocess,whethervoluntarilyorinvoluntarilyorbyoperationoflaw.
9. Restriction on Transfer .RegardlessofwhetherthetransferorissuanceoftheSharestobeissuedpursuanttotheRestrictedStockUnitshasbeenregisteredundertheSecuritiesActorhasbeenregisteredorqualifiedunderthesecuritieslawsofanystate,theCompanymayimposeadditionalrestrictionsuponthesale,pledge,orothertransferoftheShares(includingtheplacementofappropriatelegendsonstockcertificatesandtheissuanceofstop-transferinstructionstotheCompany’stransferagent)if,inthejudgmentoftheCompanyandtheCompany’scounsel,suchrestrictionsarenecessaryinordertoachievecompliancewiththeprovisionsoftheSecuritiesAct,thesecuritieslawsofanystate,oranyotherlaw,includingallapplicableforeignlaws.
10. Restrictive Legends and Stop-Transfer Instructions .StockcertificatesevidencingtheSharesissuedpursuanttotheRestrictedStockUnitsmaybearsuchrestrictivelegendsand/orappropriatestop-transferinstructionsmaybeissuedtotheCompany’stransferagentastheCompanyandtheCompany’scounseldeemnecessaryunderapplicablelaworpursuanttothisAgreement.
11. Representations, Warranties, Covenants, and Acknowledgments .YouherebyagreethatintheeventtheCompanyandtheCompany’scounseldeemitnecessaryoradvisableintheexerciseoftheirdiscretion,thetransferorissuanceoftheSharesissuedpursuanttotheRestrictedStockUnitsmaybeconditioneduponyoumakingcertainrepresentations,warranties,andacknowledgmentsrelatingtocompliancewithapplicablelaws.
12. Voting and Other Rights .SubjecttothetermsofthisAgreement,youshallnothaveanyvotingrightsoranyotherrightsandprivilegesofastockholderoftheCompanyunlessanduntiltheRestrictedStockUnitsaresettledinShares.Inaddition,youshallnothaveanyrightstodividendequivalentpaymentswithrespecttoRestrictedStockUnits.
13. Authorization to Release and Transfer Necessary Personal Information .
(a) You hereby explicitly and unambiguously consent to the collection, use and transfer, in electronic or other form, of yourpersonal information as described in this Agreement by and among, as applicable, the Employer, and the Company and its Parent, Subsidiaries and Affiliatesfor the exclusive purpose of implementing, administering and managing your participation in the Plan.
(b) You understand that the Company and the Employer may hold certain personal information about you, including, but notlimited to, your name, home address and telephone number, date of birth, social insurance number (or any other social or national identification number),salary, nationality, job title, residency status, any Shares or directorships held in the Company, details of all Restricted Stock Units or any other entitlement toShares awarded, canceled, exercised, vested, unvested or outstanding (the “Data”) for the purpose of implementing, administering and managing yourparticipation in the Plan. You understand that the Data may be transferred to the Company or any of its Parent, Subsidiaries or Affiliates, or to any thirdparties assisting in the implementation, administration and management of the Plan, that these recipients may be located in your country or elsewhere,including outside the European Economic Area, and that the recipient’s country (e.g., the United States) may have different data privacy laws and protectionsthan your country. You understand that you may request a list with the names and addresses of any potential recipients of the Data by contacting your localhuman resources representative. You authorize the recipients to receive, possess, use, retain and transfer the Data, in electronic or other form, for the solepurposes of implementing, administering and managing your participation in the Plan, including any requisite transfer of such Data to a broker or other thirdparty assisting with the administration of these Restricted Stock Units under the Plan or with whom Shares acquired pursuant to these Restricted Stock Unitsor cash from the sale of such Shares may be deposited. Furthermore, you acknowledge and understand that the transfer of the Data to the Company or any ofits Parent, Subsidiaries or Affiliates, or to any third parties is necessary for your participation in the Plan.
(c) You understand that the Data will be held only as long as is necessary to implement, administer and manage your participationin the Plan. You understand that you may, at any time, view the Data, request additional information about the storage and processing of the Data, require anynecessary amendments to the Data or refuse or withdraw the consents herein by contacting your local human resources representative in writing. Further, youunderstand that you are providing the consents herein on a purely voluntary basis. If you do not consent, or if you later seek to revoke your consent, youremployment status or service and career with the Employer will not be adversely affected; the only adverse consequence of refusing or withdrawing yourconsent is that the Company would not be able to grant you Restricted Stock Units or other equity awards, or administer or maintain such awards. Therefore,you understand that refusing or withdrawing your consent may affect your ability to vest in or realize benefits from these Restricted Stock Units and yourability to participate in the Plan. For more information on the consequences of your refusal to consent or withdrawal of consent, you understand that you maycontact your local human resources representative.
14. No Entitlement or Claims for Compensation .
(a) Yourrights,ifany,inrespectoforinconnectionwiththeseRestrictedStockUnitsoranyotherAwardarederivedsolelyfromthediscretionarydecisionoftheCompanytopermityoutoparticipateinthePlanandtobenefitfromadiscretionaryAward.ThePlanmaybeamended,suspendedorterminatedbytheCompanyatanytime,unlessotherwiseprovidedinthePlanandthisAgreement.ByacceptingtheseRestrictedStockUnits,youexpresslyacknowledgethatthereisnoobligationonthepartoftheCompanytocontinuethePlanand/orgrantanyadditionalRestrictedStockUnitstoyouorbenefitsinlieuofRestrictedStockUnits,evenifRestrictedStockUnitshavebeengrantedinthepast.AlldecisionswithrespecttofuturegrantsofRestrictedStockUnits,ifany,willbeatthesolediscretionoftheCommittee.
(b) TheRestrictedStockUnitsandtheSharessubjecttotheRestrictedStockUnitsarenotintendedtoreplaceanypensionrightsorcompensationandarenottobeconsideredcompensationofacontinuingorrecurringnature,orpartofyournormalorexpectedcompensation,andinnowayrepresentanyportionofyoursalary,compensationorotherremunerationforanypurpose,including,butnotlimitedto,calculatinganyseverance,resignation,termination,redundancy,dismissal,endofservicepayments,bonuses,long-serviceawards,pensionorretirementbenefitsorsimilarpayments,andinnoeventshouldbeconsideredascompensationfor,orrelatinginanywayto,pastservicesfortheCompany,theEmployeroranyParent,SubsidiaryorAffiliate.ThevalueoftheRestrictedStockUnitsisanextraordinaryitemthatdoesnotconstitutecompensationofanykindforservicesofanykindrenderedtotheCompany,theEmployeroranyParent,SubsidiaryorAffiliateandwhichisoutsidethescopeofyourwrittenemploymentorserviceagreement(ifany).
(c) YouacknowledgethatyouarevoluntarilyparticipatinginthePlan.
(d) NeitherthePlannortheseRestrictedStockUnitsoranyotherAwardgrantedunderthePlanshallbedeemedtogiveyouarighttoremainanEmployee,ConsultantordirectoroftheCompany,aParent,SubsidiaryoranAffiliate.TheEmployerreservestherighttoterminateyourServiceatanytime,withorwithoutcause,andforanyreason.
(e) ThegrantoftheRestrictedStockUnitsandyourparticipationinthePlanwillnotbeinterpretedtoformanemploymentcontractorservicerelationshipwiththeCompany,theEmployeroranyParent,SubsidiaryorAffiliate.
(f) ThefuturevalueoftheunderlyingSharesisunknown,indeterminableandcannotbepredictedwithcertaintyandifyouvestintheRestrictedStockUnitsandareissuedShares,thevalueofthoseSharesmayincreaseordecrease.YoualsounderstandthatnoneoftheCompany,theEmployeroranyParent,SubsidiaryorAffiliateisresponsibleforanyforeignexchangefluctuationbetweentheEmployer’slocalcurrencyandtheUnitedStatesDollarthatmayaffectthevalueofthisAward.
(g) NoclaimorentitlementtocompensationordamagesshallarisefromforfeitureoftheRestrictedStockUnitsresultingfromtheterminationofyourServicebytheCompanyortheEmployer(foranyreasonwhatsoeverandwhetherornotlaterfoundtobeinvalidorinbreachoftheemploymentlawsinthejurisdictionwhereyouareemployedorprovidingService,orthetermsyouremploymentorserviceagreement,ifany)and,inconsiderationofthegrantoftheAwardtowhichyouarenototherwiseentitled,youirrevocablyagreenevertoinstituteanyclaimagainsttheEmployer,theCompanyoritsParent,SubsidiariesorAffiliates,waiveyourability,ifany,tobringanysuchclaim,andreleasetheCompanyanditsParent,SubsidiariesandAffiliatesfromanysuchclaim;ifnotwithstandingtheforegoing,anysuchclaimisallowedbyacourtofcompetentjurisdiction,then,byacceptingtheAward,youshallbedeemedirrevocablytohaveagreedtonotpursuesuchclaimandagreetoexecuteanyandalldocumentsnecessarytorequestthewithdrawalofsuchclaim.
(h) YouagreethattheCompanymayrequireSharesreceivedpursuanttotheRestrictedStockUnitstobeheldbyabrokerdesignatedbytheCompany.
(i) Youagreethatyourrightshereunder(ifany)shallbesubjecttoset-offbytheCompanyforanyvaliddebtsyouowetheCompany.
(j) UnlessotherwiseprovidedinthePlanorthisAgreement,orbytheCompanyinitsdiscretion,theRestrictedStockUnitsandthebenefitsevidencedbythisAgreementdonotcreateanyentitlementtohavetheRestrictedStockUnitstransferredto,orassumedby,anothercompany,nortobeexchanged,cashedoutorsubstitutedforinconnectionwithanyCorporateTransactionaffectingtheCommonStock.
15. Governing Law and Forum .ThisAgreementshallbegovernedbyandconstruedinaccordancewiththelawsoftheStateofCaliforniawithoutregardtotheconflictoflawsprinciplesthereof.ForpurposesoflitigatinganydisputethatmayarisedirectlyorindirectlyfromthisAgreement,thepartiesherebysubmitandconsenttolitigationintheexclusivejurisdictionoftheStateofCaliforniaandagreethatanysuchlitigationshallbeconductedonlyinthecourtsofCaliforniaorthefederalcourtsfortheUnitedStatesfortheNorthernDistrictofCaliforniaandnoothercourts.
16. Notices .AnynoticerequiredorpermittedunderthetermsofthisAgreementshallbeinwritingandshallbedeemedsufficientwhendeliveredpersonallyorsentbyconfirmedemail,telegram,orfaxorforty-eight(48)hoursafterbeingdepositedinthemail,ascertifiedorregisteredmail,withpostageprepaid,andaddressedtotheCompanyattheCompany’sprincipalcorporateofficesortoyouattheaddressmaintainedforyouintheCompany’srecordsor,ineithercase,assubsequentlymodifiedbywrittennoticetotheotherparty.
17. Binding Effect .SubjecttothelimitationssetforthinthisAgreement,thisAgreementshallbebindingupon,andinuretothebenefitof,theexecutors,administrators,heirs,legalrepresentatives,successors,andassignsofthepartieshereto.
18. Severability .IfanyprovisionofthisAgreementisheldtobeunenforceableforanyreason,itshallbeadjustedratherthanvoided,ifpossible,inordertoachievetheintentofthepartiestotheextentpossible.Inanyevent,allotherprovisionsofthisAgreementshallbedeemedvalidandenforceabletothefullextentpossible.
19. Waiver .YouagreethatawaiverbytheCompanyofabreachofanyprovisionofthisAgreementshallnotoperateorbeconstruedasawaiverofanyotherprovisionofthisAgreement,orofanysubsequentbreachbyyouoranyotherparticipant.
20. Electronic Delivery .TheCompanymay,initssolediscretion,decidetodeliveranydocumentsrelatedtoyourcurrentorfutureparticipationinthePlanbyelectronicmeansortorequestyourconsenttoparticipateinthePlanbyelectronicmeans.YouherebyconsenttoreceivesuchdocumentsbyelectronicdeliveryandagreetoparticipateinthePlanthroughanon-lineorelectronicsystemestablishedandmaintainedbytheCompanyorathirdpartydesignatedbytheCompany.
21. Language .IfthisAgreementoranyotherdocumentrelatedtothePlanistranslatedintoalanguageotherthanEnglishandthemeaningofthetranslatedversionisdifferentfromtheEnglishversion,theEnglishversionwilltakeprecedence.
22. Appendix .NotwithstandinganyprovisionsinthisAgreement,theRestrictedStockUnitsshallbesubjecttoanyspecialtermsandconditionssetforthinanyAppendixtothisAgreementforyourcountryofresidence.Moreover,ifyourelocatetooneofthecountriesincludedintheAppendix,thespecialtermsandconditionsforsuchcountrywillapplytoyou,totheextenttheCompanydeterminesthattheapplicationofsuchtermsandconditionsisnecessaryoradvisableinordertocomplywithlocallaworfacilitatetheadministrationofthePlan.TheAppendixconstitutespartofthisAgreement.
23. Imposition of Other Requirements .TheCompanyreservestherighttoimposeotherrequirementsonyourparticipationinthePlan,ontheRestrictedStockUnitsandonanySharesacquiredunderthePlan,totheextenttheCompanydeterminesitisnecessaryoradvisableinordertocomplywithlocallaworfacilitatetheadministrationofthePlan.Youagreetosignanyadditionalagreementsorundertakingsthatmaybenecessarytoaccomplishtheforegoing.Furthermore,youacknowledgethatthelawsofthecountryinwhichyouareworkingatthetimeofgrant,vestingandsettlementoftheRestrictedStockUnitsorthesaleofSharesreceivedpursuanttothisAgreement(includinganyrulesorregulationsgoverningsecurities,foreignexchange,tax,labor,orothermatters)maysubjectyoutoadditionalproceduralorregulatoryrequirementsthatyouareandwillbesolelyresponsibleforandmustfulfill.
24. Acceptance of Agreement .YoumustexpresslyacceptthetermsandconditionsofyourRestrictedStockUnitsassetforthinthisAgreementbyelectronicallyacceptingthisAgreementwithin300daysaftertheCompanysendsthisAgreementtoyou.IfyoudonotacceptyourRestrictedStockUnitsinthemannerinstructedbytheCompany,yourRestrictedStockUnitswillbesubjecttocancellation.
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(For Grants Beginning September 2012 andPrior to September 2013)
CISCO SYSTEMS, INC.STOCK UNIT AGREEMENT
ThisStockUnitAgreement(the“Agreement”)ismadeandenteredintoasoftheGrantDate(asdefinedbelow)byandbetweenCiscoSystems,Inc.,aCaliforniacorporation(the“Company”),andyoupursuanttotheCiscoSystems,Inc.2005StockIncentivePlan(the“Plan”).ThematerialtermsofthisStockUnitAwardareasfollows:
EmployeeID:
GrantDate:
GrantNumber:
RestrictedStockUnits:
FirstVestDate: TotheextentanycapitalizedtermsusedinthisAgreementarenotdefined,theyshallhavethemeaningascribedtotheminthePlan.Intheeventofaconflict
betweenthetermsandprovisionsofthePlanandthetermsandprovisionsofthisAgreement,thePlantermsandprovisionsshallprevail.
Inconsiderationofthemutualagreementshereincontainedandintendingtobelegallyboundhereby,thepartiesagreeasfollows:
1.Restricted Stock Units .PursuanttothePlan,theCompanyherebygrantstoyou,andyouherebyacceptfromtheCompany,RestrictedStockUnits,eachofwhichisabookkeepingentryrepresentingtheequivalentinvalueofone(1)Share,onthetermsandconditionssetforthhereinandinthePlan.
2.Vesting of Restricted Stock Units .SolongasyourServicecontinues,theRestrictedStockUnitsshallvestinaccordancewiththefollowingschedule:___________percent(__%)ofthetotalnumberofRestrictedStockUnitsgrantedpursuanttothisAgreementshallvestontheFirstVestDateandoneach__________anniversarythereafter,unlessotherwiseprovidedbythePlanorSection4below.Ifyoutakealeaveofabsence,theCompanymay,atitsdiscretion,suspendvestingduringtheperiodofleavetotheextentpermittedunderapplicablelocallaw.PriortothetimethattheRestrictedStockUnitsaresettled,youshallhavenorightsotherthanthoseofageneralcreditoroftheCompany.TheRestrictedStockUnitsrepresentanunfundedandunsecuredobligationoftheCompany.
3.Termination of Service .IntheeventoftheterminationofyourServiceforanyreason(whetherornotinbreachoflocallaborlaws),allunvestedRestrictedStockUnitsshallbeimmediatelyforfeitedwithoutconsideration.Forpurposesoftheprecedingsentence,yourrighttovestintheRestrictedStockUnitswillterminateeffectiveasofthedatethatyouarenolongeractivelyprovidingServiceandwillnotbeextendedbyanynoticeperiodmandatedunderlocallaw(e.g. ,activeServicewouldnotincludeaperiodof“gardenleave”orsimilarperiodpursuanttolocallaw);theCompanyshallhavetheexclusivediscretiontodeterminewhenyouarenolongeractivelyprovidingServiceforpurposesoftheRestrictedStockUnits.
4.Special Acceleration .(a)TotheextenttheRestrictedStockUnitsareoutstandingatthetimeofaCorporateTransaction,suchRestrictedStockUnitsshallautomatically
becomevestedinfullimmediatelypriortotheeffectivedateoftheCorporateTransaction.Nosuchacceleratedvesting,however,shalloccurifandtotheextent:(i)theseRestrictedStockUnitsare,inconnectionwiththeCorporateTransaction,eitherassumedbythesuccessorcorporation(orparentthereof)orreplacedwithcomparablerestrictedstockunitsofthesuccessorcorporation(orparentthereof)or(ii)theseRestrictedStockUnitsarereplacedwithacashincentiveprogramofthesuccessorcorporationwhichcomplieswithCodeSection409AandpreservesthefairmarketvalueoftheRestrictedStockUnitsatthetimeoftheCorporateTransactionandprovidesforsubsequentpay-outinaccordancewiththesettlementprovisionssetforthinSection5below.Thedeterminationofthecomparabilityofrestrictedstockunitsunderclause(i)shallbemadebytheCommittee,andsuchdeterminationshallbefinal,bindingandconclusive.
(b)ImmediatelyfollowingtheeffectivedateoftheCorporateTransaction,thisAgreementshallterminateandceasetobeoutstanding,exceptassetforthinSection5belowwithrespecttothedeferredsettlementofRestrictedStockUnitsortotheextentassumedbythesuccessorcorporation(orparentthereof)inconnectionwiththeCorporateTransaction.
(c)IfthisAgreementisassumedinconnectionwithaCorporateTransaction,thentheCommitteeshallappropriatelyadjustthenumberofunitsandthekindofsharesorsecuritiestobeissuedpursuanttothisAgreementimmediatelyaftersuchCorporateTransaction.
(d)TotheextenttheRestrictedStockUnitsareoutstandingatthetimeofaChangeinControl,suchRestrictedStockUnitsshallautomaticallyaccelerateimmediatelypriortotheeffectivedateoftheChangeinControlandshallbecomevestedinfullatthattimeandsettledinaccordancewithSection5below.
(e)ThisAgreementshallnotinanywayaffecttherightoftheCompanytoadjust,reclassify,reorganizeorotherwisechangeitscapitalorbusinessstructureortomerge,consolidate,dissolve,liquidate,sellortransferalloranypartofitsbusinessorassets.
5.Settlement of Restricted Stock Units .TotheextentyouareeligiblebuthavenotelectedtodefersettlementoftheRestrictedStockUnits,theRestrictedStockUnitsshallbeautomaticallysettledinSharesuponvestingofsuchRestrictedStockUnits,providedthattheCompanyshallhavenoobligationtoissueSharespursuanttothisAgreementunlessanduntilyouhavesatisfiedanyapplicabletaxand/orotherobligationspursuanttoSection6belowandsuchissuanceotherwisecomplieswithallapplicablelaw.TotheextentyouareeligiblebuthaveelectedtodefersettlementoftheRestrictedStockUnits,thevestedportionoftheRestrictedStockUnitsshallbesettledinSharesupontheearlierof:(a)yourseparationfromservicewithinthemeaningofCodeSection409A(“SeparationfromService”)and(b)thefixedpaymentdateelectedbyyou,ifany,atthetimeofsuchdeferral(whichshallbethefirstbusinessdayofayearnoearlierthansixyearsaftertheyearoftheGrantDateinaccordancewithproceduresapprovedbytheCommittee),providedthattheCompanyshallhavenoobligationtoissueSharespursuanttothisAgreementunlesssuchissuancecomplieswithallapplicablelaw.Notwithstandingtheforegoing,totheextentyourRestrictedStockUnitswouldotherwisebesettleduponyourSeparationfromService,suchsettlementshallinsteadoccurupontheCompany’sfirstbusinessdayfollowingthesix-monthanniversaryofyourSeparationfromService.
6.Taxes .(a)RegardlessofanyactiontheCompanyoryouremployer(the“Employer”)takeswithrespecttoanyandallincometax,socialtaxesorinsurance
contributions,payrolltax,paymentonaccountorothertax-relateditemsrelatedtoyourparticipationinthePlanandlegallyapplicabletoyou(“Tax-RelatedItems”),youacknowledgethattheultimateliabilityforallTax-RelatedItemswithrespecttotheRestrictedStockUnitsisandremainsyourresponsibilityandmayexceedtheamountactuallywithheldbytheCompanyortheEmployer.YoufurtheracknowledgethattheCompanyand/ortheEmployer(i)makenorepresentationsorundertakingsregardingthetreatmentofanyTax-RelatedItemsinconnectionwithanyaspectoftheRestrictedStockUnits,includingthegrant,vestingorsettlementoftheRestrictedStockUnits,orthesubsequentsaleofanySharesacquiredatvestingorthereceiptofanydividendswithrespecttosuchShares;and(ii)donotcommittoandareundernoobligationtostructurethetermsoranyaspectoftheRestrictedStockUnitstoreduceoreliminateyourliabilityforTax-RelatedItemsorachieveanyparticulartaxresult.Further,ifyoubecomesubjecttotaxationinmorethanonejurisdictionbetweentheGrantDateandthedateofanyrelevanttaxableevent,youacknowledgethattheCompanyand/ortheEmployer(orformeremployer,asapplicable)mayberequiredtowithholdoraccountforTax-RelatedItemsinmorethanonejurisdiction.
(b)Priortoanyrelevanttax,withholdingorrequireddeductionevent,asapplicable,youagreetomakearrangementssatisfactorytotheCompanyforthesatisfactionofanyapplicabletax,withholding,requireddeductionandpaymentonaccountobligationsoftheCompanyand/ortheEmployerthatariseinconnectionwiththeRestrictedStockUnits.Inthisregard,youauthorizetheCompanyand/ortheEmployer,ortheirrespectiveagents,attheirdiscretion,tosatisfyanyobligationsrelatedtoTax-RelatedItemsbyoneoracombinationofthefollowing:(1)withholdingfromyourwagesorothercashcompensationpayabletoyoubytheCompanyortheEmployer;(2)withholdingfromproceedsofthesaleofSharesacquireduponsettlementoftheRestrictedStockUnitseitherthroughavoluntarysaleorthroughamandatorysalearrangedbytheCompany(onyourbehalfpursuanttothisauthorization);(3)withholdingofSharesthatwouldotherwisebeissueduponsettlementoftheRestrictedStockUnits;or(4)requiringyoutosatisfytheliabilityforTax-RelatedItemsbymeansofanyotherarrangementapprovedbytheCompany.IftheobligationforTax-RelatedItemsissatisfiedbywithholdingofShares,fortaxpurposes,youaredeemedtohavebeenissuedthefullnumberofSharessubjecttothevestedRestrictedStockUnits,notwithstandingthatanumberoftheSharesareheldbacksolelyforthepurposeofpayingtheTax-RelatedItemsdueasaresultofanyaspectofyourparticipationinthePlan.Toavoidfinancialaccountingchargesunderapplicableaccountingguidance,theCompanymaywithholdoraccountforTax-RelatedItemsbyconsideringapplicableminimumstatutoryratesormaytakeanyotheractionrequiredtoavoidfinancialaccountingchargesunderapplicableaccountingguidance.
(c)Finally,youwillpaytotheCompanyortheEmployeranyamountofTax-RelatedItemsthattheCompanyortheEmployermayberequiredtowithholdoraccountforasaresultofyourparticipationinthePlanoryouracquisitionofSharesthatcannotbesatisfiedbythemeanspreviouslydescribed.TheCompanyshallnotberequiredtoissueordeliverSharespursuanttothisAgreementunlessanduntilsuchobligationsaresatisfied.
7.Tax and Legal Advice .Yourepresent,warrantandacknowledgethatneithertheCompanynoryourEmployerhavemadeanywarrantiesorrepresentationstoyouwithrespecttoanyTax-RelatedItems,legalorfinancialconsequencesofthetransactionscontemplatedbythisAgreement,andyouareinnomannerrelyingontheCompany,yourEmployer’sortheCompany’sortheEmployer’srepresentativesforanassessmentofsuchconsequences.YOUUNDERSTANDTHATTHELAWSGOVERNINGTHISAWARDARESUBJECTTOCHANGE.YOUSHOULDCONSULTYOUROWNPROFESSIONALTAX,LEGALANDFINANCIALADVISORREGARDINGANYRESTRICTEDSTOCKUNITS.YOUUNDERSTANDTHATTHECOMPANYANDYOUREMPLOYERARENOTPROVIDINGANYTAX,LEGAL,ORFINANCIALADVICE,NORISTHECOMPANYORYOUREMPLOYERMAKINGANYRECOMMENDATIONREGARDINGYOURACCEPTANCEOFTHISAWARD.NOTHINGSTATEDHEREINISINTENDEDORWRITTENTOBEUSED,ANDCANNOTBEUSED,FORTHEPURPOSEOFAVOIDINGTAXPAYEROROTHERPENALTIES.
8.Non-Transferability of Restricted Stock Units .RestrictedStockUnitsshallnotbeanticipated,assigned,attached,garnished,optioned,transferredormadesubjecttoanycreditor’sprocess,whethervoluntarilyorinvoluntarilyorbyoperationoflaw.
9.Restriction on Transfer .RegardlessofwhetherthetransferorissuanceoftheSharestobeissuedpursuanttotheRestrictedStockUnitshasbeenregisteredundertheSecuritiesActorhasbeenregisteredorqualifiedunderthesecuritieslawsofanystate,theCompanymayimposeadditionalrestrictionsuponthesale,pledge,orothertransferoftheShares(includingtheplacementofappropriatelegendsonstockcertificatesandtheissuanceofstop-transferinstructionstotheCompany’stransferagent)if,inthejudgmentoftheCompanyandtheCompany’scounsel,suchrestrictionsarenecessaryinordertoachievecompliancewiththeprovisionsoftheSecuritiesAct,thesecuritieslawsofanystate,oranyotherlawincludingallapplicableforeignlaws.
10.Restrictive Legends and Stop-Transfer Instructions .StockcertificatesevidencingtheSharesissuedpursuanttotheRestrictedStockUnitsmaybearsuchrestrictivelegendsand/orappropriatestop-transferinstructionsmaybeissuedtotheCompany’stransferagentastheCompanyandtheCompany’scounseldeemnecessaryunderapplicablelaworpursuanttothisAgreement.
11.Representations, Warranties, Covenants, and Acknowledgments .YouherebyagreethatintheeventtheCompanyandtheCompany’scounseldeemitnecessaryoradvisableintheexerciseoftheirdiscretion,thetransferorissuanceoftheSharesissuedpursuanttotheRestrictedStockUnitsmaybeconditioneduponyoumakingcertainrepresentations,warranties,andacknowledgmentsrelatingtocompliancewithapplicablelaws.
12.Voting and Other Rights .SubjecttothetermsofthisAgreement,youshallnothaveanyvotingrightsoranyotherrightsandprivilegesofastockholderoftheCompanyunlessanduntiltheRestrictedStockUnitsaresettledinShares.Inaddition,youshallnothaveanyrightstodividendequivalentpaymentswithrespecttoRestrictedStockUnits.
13.Authorization to Release and Transfer Necessary Personal Information .(a)You hereby explicitly and unambiguously consent to the collection, use and transfer, in electronic or other form, of your personal information
as described in this Agreement by and among, as applicable, the Employer, and the Company and its Parent, Subsidiaries and Affiliates for the exclusivepurpose of implementing, administering and managing your participation in the Plan .
(b)You understand that the Company and the Employer may hold certain personal information about you, including, but not limited to, your name,home address and telephone number, date of birth, social insurance number (or any other social or national identification number), salary, nationality, jobtitle, residency status, any Shares or directorships held in the Company, details of all Restricted Stock Units or any other entitlement to Shares awarded,canceled, exercised, vested, unvested or outstanding (the “Data”) for the purpose of implementing, administering and managing your participation in the Plan.You understand that Data may be transferred to the Company or any of its Parent, Subsidiaries or Affiliates, or to any third parties assisting in theimplementation, administration and management of the Plan, that these recipients may be located in your country or elsewhere, including outside theEuropean Economic Area, and that the recipient’s country (e.g., the United States) may have different data privacy laws and protections than your country.You understand that you may request a list with the names and addresses of any potential recipients of the Data by contacting your local human resourcesrepresentative. You authorize the recipients to receive, possess, use, retain and transfer the Data, in electronic or other form, for the sole purposes ofimplementing, administering and managing your participation in the Plan, including any requisite transfer of such Data to a broker or other third partyassisting with the administration of these Restricted Stock Units under the Plan or with whom Shares acquired pursuant to these Restricted Stock Units or cashfrom the sale of such Shares may be deposited. Furthermore, you acknowledge and understand that the transfer of the Data to the Company or any of itsParent, Subsidiaries or Affiliates, or to any third parties is necessary for your participation in the Plan .
(c)You understand that Data will be held only as long as is necessary to implement, administer and manage your participation in the Plan. Youunderstand that you may, at any time, view the Data, request additional information about the storage and processing of the Data, require any necessaryamendments to the Data or refuse or withdraw the consents herein by contacting your local human resources representative in writing. You furtheracknowledge that withdrawal of consent may affect your ability to vest in or realize benefits from these Restricted Stock Units, and your ability to participate inthe Plan. For more information on the consequences of your refusal to consent or withdrawal of consent, you understand that you may contact your localhuman resources representative .
14.No Entitlement or Claims for Compensation .(a)Yourrights,ifany,inrespectoforinconnectionwiththeseRestrictedStockUnitsoranyotherAwardarederivedsolelyfromthediscretionary
decisionoftheCompanytopermityoutoparticipateinthePlanandtobenefitfromadiscretionaryAward.ThePlanmaybeamended,suspendedorterminatedbytheCompanyatanytime,unlessotherwiseprovidedinthePlanandthisAgreement.ByacceptingtheseRestrictedStockUnits,youexpresslyacknowledgethatthereisnoobligationonthepartoftheCompanytocontinuethePlanand/orgrantanyadditionalRestrictedStockUnitstoyouorbenefitsinlieuofRestrictedStockUnits,evenifRestrictedStockUnitshavebeengrantedrepeatedlyinthepast.AlldecisionswithrespecttofuturegrantsofRestrictedStockUnits,ifany,willbeatthesolediscretionoftheCommittee.
(b)TheRestrictedStockUnitsandtheSharessubjecttotheRestrictedStockUnitsarenotintendedtoreplaceanypensionrightsorcompensationandarenottobeconsideredcompensationofacontinuingorrecurringnature,orpartofyournormalorexpectedcompensation,andinnowayrepresentanyportionofyoursalary,compensationorotherremunerationforanypurpose,includingbutnotlimitedto,calculatinganyseverance,resignation,termination,redundancy,dismissal,endofservicepayments,bonuses,long-serviceawards,pensionorretirementbenefitsorsimilarpayments,andinnoeventshouldbeconsideredascompensationfor,orrelatinginanywayto,pastservicesfortheCompany,theEmployeroranyParent,SubsidiaryorAffiliate.ThevalueoftheRestrictedStockUnitsisanextraordinaryitemthatdoesnotconstitutecompensationofanykindforservicesofanykindrenderedtotheCompany,theEmployeroranyParent,SubsidiaryorAffiliateandwhichisoutsidethescopeofyourwrittenemploymentagreement(ifany).
(c)YouacknowledgethatyouarevoluntarilyparticipatinginthePlan.
(d)NeitherthePlannortheseRestrictedStockUnitsoranyotherAwardgrantedunderthePlanshallbedeemedtogiveyouarighttoremainanEmployee,ConsultantordirectoroftheCompany,aParent,SubsidiaryoranAffiliate.TheEmployerreservestherighttoterminateyourServiceatanytime,withorwithoutcause,andforanyreason,subjecttoapplicablelaws,theCompany’sArticlesofIncorporationandBylaws,andawrittenemploymentagreement(ifany).
(e)ThegrantoftheRestrictedStockUnitsandyourparticipationinthePlanwillnotbeinterpretedtoformanemploymentcontractorrelationshipwiththeCompany,theEmployeroranyParent,SubsidiaryorAffiliate.
(f)ThefuturevalueoftheunderlyingSharesisunknownandcannotbepredictedwithcertaintyandifyouvestintheRestrictedStockUnitsandareissuedShares,thevalueofthoseSharesmayincreaseordecrease.YoualsounderstandthatneithertheCompany,northeEmployeroranyParent,SubsidiaryorAffiliateisresponsibleforanyforeignexchangefluctuationbetweenyourEmployer’slocalcurrencyandtheUnitedStatesDollarthatmayaffectthevalueofthisAward.
(g)InconsiderationofthegrantoftheRestrictedStockUnits,noclaimorentitlementtocompensationordamagesshallarisefromforfeitureoftheRestrictedStockUnitsresultingfromterminationofyourServicebytheCompanyortheEmployer(foranyreasonwhatsoeverandwhetherornotinbreachoflocallaborlaws)andyouirrevocablyreleasetheCompanyandtheEmployerfromanysuchclaimthatmayarise;if,notwithstandingtheforegoing,anysuchclaimisfoundbyacourtofcompetentjurisdictiontohavearisen,youshallbedeemedirrevocablytohavewaivedyourentitlementtopursuesuchclaim.
(h)YouagreethattheCompanymayrequireSharesreceivedpursuanttotheRestrictedStockUnitstobeheldbyabrokerdesignatedbytheCompany.
(i)Youagreethatyourrightshereunder(ifany)shallbesubjecttoset-offbytheCompanyforanyvaliddebtsyouowetheCompany.
(j)TheRestrictedStockUnitsandthebenefitsunderthePlan,ifany,willnotautomaticallytransfertoanothercompanyinthecaseofamerger,take-overortransferofliability.
15.Governing Law and Forum .ThisAgreementshallbegovernedbyandconstruedinaccordancewiththelawsoftheStateofCaliforniawithoutregardtotheconflictoflawsprinciplesthereof.ForpurposesoflitigatinganydisputethatmayarisedirectlyorindirectlyfromthisAgreement,thepartiesherebysubmitandconsenttolitigationintheexclusivejurisdictionoftheStateofCaliforniaandagreethatanysuchlitigationshallbeconductedonlyinthecourtsofCaliforniaorthefederalcourtsfortheUnitedStatesfortheNorthernDistrictofCaliforniaandnoothercourts.
16.Notices .AnynoticerequiredorpermittedunderthetermsofthisAgreementshallbeinwritingandshallbedeemedsufficientwhendeliveredpersonallyorsentbyconfirmedemail,telegram,orfaxorforty-eight(48)hoursafterbeingdepositedinthemail,ascertifiedorregisteredmail,withpostageprepaid,andaddressedtotheCompanyattheCompany’sprincipalcorporateofficesortoyouattheaddressmaintainedforyouintheCompany’srecordsor,ineithercase,assubsequentlymodifiedbywrittennoticetotheotherparty.
17.Binding Effect .SubjecttothelimitationssetforthinthisAgreement,thisAgreementshallbebindingupon,andinuretothebenefitof,theexecutors,administrators,heirs,legalrepresentatives,successors,andassignsofthepartieshereto.
18.Severability .IfanyprovisionofthisAgreementisheldtobeunenforceableforanyreason,itshallbeadjustedratherthanvoided,ifpossible,inordertoachievetheintentofthepartiestotheextentpossible.Inanyevent,allotherprovisionsofthisAgreementshallbedeemedvalidandenforceabletothefullextentpossible.
19.Electronic Delivery .TheCompanymay,initssolediscretion,decidetodeliveranydocumentsrelatedtoyourcurrentorfutureparticipationinthePlanbyelectronicmeansortorequestyourconsenttoparticipateinthePlanbyelectronicmeans.YouherebyconsenttoreceivesuchdocumentsbyelectronicdeliveryandagreetoparticipateinthePlanthroughanon-lineorelectronicsystemestablishedandmaintainedbytheCompanyorathirdpartydesignatedbytheCompany.
20.Language .IfthisAgreementoranyotherdocumentrelatedtothePlanistranslatedintoalanguageotherthanEnglishandthemeaningofthetranslatedversionisdifferentfromtheEnglishversion,theEnglishversionwilltakeprecedence.
21.Appendix .NotwithstandinganyprovisionsinthisAgreement,theRestrictedStockUnitsshallbesubjecttoanyspecialtermsandconditionssetforthinanyAppendixtothisAgreementforyourcountryofresidence.Moreover,ifyourelocatetooneofthecountriesincludedintheAppendix,thespecialtermsandconditionsforsuchcountrywillapplytoyou,totheextenttheCompanydeterminesthattheapplicationofsuchtermsandconditionsisnecessaryoradvisableinordertocomplywithlocallaworfacilitatetheadministrationofthePlan.TheAppendixconstitutespartofthisAgreement.
22.Imposition of Other Requirements .TheCompanyreservestherighttoimposeotherrequirementsonyourparticipationinthePlan,ontheRestrictedStockUnitsandonanySharesacquiredunderthePlan,totheextenttheCompanydeterminesitisnecessaryoradvisableinordertocomplywithlocallaworfacilitatetheadministrationofthePlan.Youagreetosignanyadditionalagreementsorundertakingsthatmaybenecessarytoaccomplishtheforegoing.Furthermore,youacknowledgethatthelawsofthecountryinwhichyouareworkingatthetimeofgrant,vestingandsettlementoftheRestrictedStockUnitsorthesaleofSharesreceivedpursuanttothisAgreement(includinganyrulesorregulationsgoverningsecurities,foreignexchange,tax,labor,orothermatters)maysubjectyoutoadditionalproceduralorregulatoryrequirementsthatyouareandwillbesolelyresponsibleforandmustfulfill.
23.Acceptance of Agreement .YoumustexpresslyacceptthetermsandconditionsofyourRestrictedStockUnitsassetforthinthisAgreementbyelectronicallyacceptingthisAgreementwithin300daysaftertheCompanysendsthisAgreementtoyou.IfyoudonotacceptyourRestrictedStockUnitsinthemannerinstructedbytheCompany,yourRestrictedStockUnitswillbesubjecttocancellation.
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YouacknowledgethatbyclickingontheI agree buttonbelow,youagreetobeboundbythetermsofthisAgreement.
PLEASE PRINT AND KEEP A COPY FOR YOUR RECORDS
(For Grants Beginning September 2010 andPrior to September 2012)
CISCO SYSTEMS, INC.STOCK UNIT AGREEMENT
ThisStockUnitAgreement(the“Agreement”)ismadeandenteredintoasoftheGrantDate(asdefinedbelow)byandbetweenCiscoSystems,Inc.,aCaliforniacorporation(the“Company”),andyoupursuanttotheCiscoSystems,Inc.2005StockIncentivePlan(the“Plan”).ThematerialtermsofthisStockUnitAwardareasfollows:
EmployeeID:
GrantDate:
GrantNumber:
RestrictedStockUnits:
FirstVestDate: TotheextentanycapitalizedtermsusedinthisAgreementarenotdefined,theyshallhavethemeaningascribedtotheminthePlan.Intheeventofaconflict
betweenthetermsandprovisionsofthePlanandthetermsandprovisionsofthisAgreement,thePlantermsandprovisionsshallprevail.
Inconsiderationofthemutualagreementshereincontainedandintendingtobelegallyboundhereby,thepartiesagreeasfollows:1.Restricted Stock Units .PursuanttothePlan,theCompanyherebygrantstoyou,andyouherebyacceptfromtheCompany,RestrictedStockUnits,each
ofwhichisabookkeepingentryrepresentingtheequivalentinvalueofone(1)Share,onthetermsandconditionssetforthhereinandinthePlan.
2.Vesting of Restricted Stock Units .SolongasyourServicecontinues,theRestrictedStockUnitsshallvestinaccordancewiththefollowingschedule:(%)ofthetotalnumberofRestrictedStockUnitsgrantedpursuanttothisAgreementshallvestontheFirstVestDateandoneachanniversarythereafter,unlessotherwiseprovidedbythePlanorSection4below.Ifyoutakealeaveofabsence,theCompanymay,atitsdiscretion,suspendvestingduringtheperiodofleavetotheextentpermittedunderapplicablelocallaw.PriortothetimethattheRestrictedStockUnitsaresettled,youshallhavenorightsotherthanthoseofageneralcreditoroftheCompany.TheRestrictedStockUnitsrepresentanunfundedandunsecuredobligationoftheCompany.
3.Termination of Service .IntheeventoftheterminationofyourServiceforanyreason(whetherornotinbreachoflocallaborlaws),allunvestedRestrictedStockUnitsshallbeimmediatelyforfeitedwithoutconsideration.Forpurposesoftheprecedingsentence,yourrighttovestintheRestrictedStockUnitswillterminateeffectiveasofthedatethatyouarenolongeractivelyprovidingServiceandwillnotbeextendedbyanynoticeperiodmandatedunderlocallaw(e.g. ,activeServicewouldnotincludeaperiodof“gardenleave”orsimilarperiodpursuanttolocallaw);theCompanyshallhavetheexclusivediscretiontodeterminewhenyouarenolongeractivelyprovidingServiceforpurposesoftheRestrictedStockUnits.
4.Special Acceleration .(a)TotheextenttheRestrictedStockUnitsareoutstandingatthetimeofaCorporateTransaction,suchRestrictedStockUnitsshallautomatically
becomevestedinfullimmediatelypriortotheeffectivedateoftheCorporateTransaction.Nosuchacceleratedvesting,however,shalloccurifandtotheextent:(i)theseRestrictedStockUnitsare,inconnectionwiththeCorporateTransaction,eitherassumedbythesuccessorcorporation(orparentthereof)orreplacedwithcomparablerestrictedstockunitsofthesuccessorcorporation(orparentthereof)or(ii)theseRestrictedStockUnitsarereplacedwithacashincentiveprogramofthesuccessorcorporationwhichcomplieswithCodeSection409AandpreservesthefairmarketvalueoftheRestrictedStockUnitsatthetimeoftheCorporateTransactionandprovidesforsubsequentpay-outinaccordancewiththesettlementprovisionssetforthinSection5below.Thedeterminationofthecomparabilityofrestrictedstockunitsunderclause(i)shallbemadebytheCommittee,andsuchdeterminationshallbefinal,bindingandconclusive.
(b)ImmediatelyfollowingtheeffectivedateoftheCorporateTransaction,thisAgreementshallterminateandceasetobeoutstanding,exceptassetforthinSection5belowwithrespecttothedeferredsettlementofRestrictedStockUnitsortotheextentassumedbythesuccessorcorporation(orparentthereof)inconnectionwiththeCorporateTransaction.
(c)IfthisAgreementisassumedinconnectionwithaCorporateTransaction,thentheCommitteeshallappropriatelyadjustthenumberofunitsandthekindofsharesorsecuritiestobeissuedpursuanttothisAgreementimmediatelyaftersuchCorporateTransaction.
(d)TotheextenttheRestrictedStockUnitsareoutstandingatthetimeofaChangeinControl,suchRestrictedStockUnitsshallautomaticallyaccelerateimmediatelypriortotheeffectivedateoftheChangeinControlandshallbecomevestedinfullatthattimeandsettledinaccordancewithSection5below.
(e)ThisAgreementshallnotinanywayaffecttherightoftheCompanytoadjust,reclassify,reorganizeorotherwisechangeitscapitalorbusinessstructureortomerge,consolidate,dissolve,liquidate,sellortransferalloranypartofitsbusinessorassets.
5.Settlement of Restricted Stock Units .TotheextentyouareeligiblebuthavenotelectedtodefersettlementoftheRestrictedStockUnits,theRestrictedStockUnitsshallbeautomaticallysettledinSharesuponvestingofsuchRestrictedStockUnits,providedthattheCompanyshallhavenoobligationtoissueSharespursuanttothisAgreementunlessanduntilyouhavesatisfiedanyapplicabletaxand/orotherobligationspursuanttoSection6belowandsuchissuanceotherwisecomplieswithallapplicablelaw.TotheextentyouareeligiblebuthaveelectedtodefersettlementoftheRestrictedStockUnits,thevestedportionoftheRestrictedStockUnitsshallbesettledinSharesupontheearlierof:(a)yourseparationfromservicewithinthemeaningofCodeSection409A(“SeparationfromService”)and(b)thefixedpaymentdateelectedbyyou,ifany,atthetimeofsuchdeferral(whichshallbethefirstbusinessdayofayearnoearlierthanfiveyearsaftertheyearoftheGrantDateinaccordancewithproceduresapprovedbytheCommittee),providedthattheCompanyshallhavenoobligationtoissueSharespursuanttothisAgreementunlesssuchissuancecomplieswithallapplicablelaw.Notwithstandingtheforegoing,totheextentyourRestrictedStockUnitswouldotherwisebesettleduponyourSeparationfromService,suchsettlementshallinsteadoccurupontheCompany’sfirstbusinessdayfollowingthesix-monthanniversaryofyourSeparationfromService.
6.Taxes .(a)RegardlessofanyactiontheCompanyoryouremployer(the“Employer”)takeswithrespecttoanyandallincometax,socialtaxesorinsurance
contributions,payrolltax,paymentonaccountorothertax-relateditemsrelatedtoyourparticipationinthePlanandlegallyapplicabletoyou(“Tax-RelatedItems”),youacknowledgethattheultimateliabilityforallTax-RelatedItemswithrespecttotheRestrictedStockUnitsisandremainsyourresponsibilityandmayexceedtheamountactuallywithheldbytheCompanyortheEmployer.YoufurtheracknowledgethattheCompanyand/ortheEmployer(i)makenorepresentationsorundertakingsregardingthetreatmentofanyTax-RelatedItemsinconnectionwithanyaspectoftheRestrictedStockUnits,includingthegrant,vestingorsettlementoftheRestrictedStockUnits,orthesubsequentsaleofanySharesacquiredatvestingorthereceiptofanydividendswithrespecttosuchShares;and(ii)donotcommittoandareundernoobligationtostructurethetermsoranyaspectoftheRestrictedStockUnitstoreduceoreliminateyourliabilityforTax-RelatedItemsorachieveanyparticulartaxresult.Further,ifyoubecomesubjecttotaxationinmorethanonejurisdictionbetweentheGrantDateandthedateofanyrelevanttaxableevent,youacknowledgethattheCompanyand/ortheEmployer(orformeremployer,asapplicable)mayberequiredtowithholdoraccountforTax-RelatedItemsinmorethanonejurisdiction.
(b)Priortoanyrelevanttax,withholdingorrequireddeductionevent,asapplicable,youagreetomakearrangementssatisfactorytotheCompanyforthesatisfactionofanyapplicabletax,withholding,requireddeductionandpaymentonaccountobligationsoftheCompanyand/ortheEmployerthatariseinconnectionwiththeRestrictedStockUnits.Inthisregard,youauthorizetheCompanyand/ortheEmployer,ortheirrespectiveagents,attheirdiscretion,tosatisfyanyobligationsrelatedtoTax-RelatedItemsbyoneoracombinationofthefollowing:(1)withholdingfromyourwagesorothercashcompensationpayabletoyoubytheCompanyortheEmployer;(2)withholdingfromproceedsofthesaleofSharesacquireduponsettlementoftheRestrictedStockUnitseitherthroughavoluntarysaleorthroughamandatorysalearrangedbytheCompany(onyourbehalfpursuanttothisauthorization);(3)withholdingofSharesthatwouldotherwisebeissueduponsettlementoftheRestrictedStockUnits;or(4)requiringyoutosatisfytheliabilityforTax-RelatedItemsbymeansofanyotherarrangementapprovedbytheCompany.IftheobligationforTax-RelatedItemsissatisfiedbywithholdingofShares,fortaxpurposes,youaredeemedtohavebeenissuedthefullnumberofSharessubjecttothevestedRestrictedStockUnits,notwithstandingthatanumberoftheSharesareheldbacksolelyforthepurposeofpayingtheTax-RelatedItemsdueasaresultofanyaspectofyourparticipationinthePlan.Toavoidfinancialaccountingchargesunderapplicableaccountingguidance,theCompanymaywithholdoraccountforTax-RelatedItemsbyconsideringapplicableminimumstatutoryratesormaytakeanyotheractionrequiredtoavoidfinancialaccountingchargesunderapplicableaccountingguidance.
(c)Finally,youwillpaytotheCompanyortheEmployeranyamountofTax-RelatedItemsthattheCompanyortheEmployermayberequiredtowithholdoraccountforasaresultofyourparticipationinthePlanoryouracquisitionofSharesthatcannotbesatisfiedbythemeanspreviouslydescribed.TheCompanyshallnotberequiredtoissueordeliverSharespursuanttothisAgreementunlessanduntilsuchobligationsaresatisfied.
7.Tax and Legal Advice .Yourepresent,warrantandacknowledgethatneithertheCompanynoryourEmployerhavemadeanywarrantiesorrepresentationstoyouwithrespecttoanyTax-RelatedItems,legalorfinancialconsequencesofthetransactionscontemplatedbythisAgreement,andyouareinnomannerrelyingontheCompany,yourEmployer’sortheCompany’sortheEmployer’srepresentativesforanassessmentofsuchconsequences.YOUUNDERSTANDTHATTHELAWSGOVERNINGTHISAWARDARESUBJECTTOCHANGE.YOUSHOULDCONSULTYOUROWNPROFESSIONALTAX,LEGALANDFINANCIALADVISORREGARDINGANYRESTRICTEDSTOCKUNITS.YOUUNDERSTANDTHATTHECOMPANYANDYOUREMPLOYERARENOTPROVIDINGANYTAX,LEGAL,ORFINANCIALADVICE,NORISTHECOMPANYORYOUREMPLOYERMAKINGANYRECOMMENDATIONREGARDINGYOURACCEPTANCEOFTHISAWARD.NOTHINGSTATEDHEREINISINTENDEDORWRITTENTOBEUSED,ANDCANNOTBEUSED,FORTHEPURPOSEOFAVOIDINGTAXPAYEROROTHERPENALTIES.
8.Non-Transferability of Restricted Stock Units .RestrictedStockUnitsshallnotbeanticipated,assigned,attached,garnished,optioned,transferredormadesubjecttoanycreditor’sprocess,whethervoluntarilyorinvoluntarilyorbyoperationoflaw.
9.Restriction on Transfer .RegardlessofwhetherthetransferorissuanceoftheSharestobeissuedpursuanttotheRestrictedStockUnitshasbeenregisteredundertheSecuritiesActorhasbeenregisteredorqualifiedunderthesecuritieslawsofanystate,theCompanymayimposeadditionalrestrictionsuponthesale,pledge,orothertransferoftheShares(includingtheplacementofappropriatelegendsonstockcertificatesandtheissuanceofstop-transferinstructionstotheCompany’stransferagent)if,inthejudgmentoftheCompanyandtheCompany’scounsel,suchrestrictionsarenecessaryinordertoachievecompliancewiththeprovisionsoftheSecuritiesAct,thesecuritieslawsofanystate,oranyotherlawincludingallapplicableforeignlaws.
10.Restrictive Legends and Stop-Transfer Instructions .StockcertificatesevidencingtheSharesissuedpursuanttotheRestrictedStockUnitsmaybearsuchrestrictivelegendsand/orappropriatestop-transferinstructionsmaybeissuedtotheCompany’stransferagentastheCompanyandtheCompany’scounseldeemnecessaryunderapplicablelaworpursuanttothisAgreement.
11.Representations, Warranties, Covenants, and Acknowledgments .YouherebyagreethatintheeventtheCompanyandtheCompany’scounseldeemitnecessaryoradvisableintheexerciseoftheirdiscretion,thetransferorissuanceoftheSharesissuedpursuanttotheRestrictedStockUnitsmaybeconditioneduponyoumakingcertainrepresentations,warranties,andacknowledgmentsrelatingtocompliancewithapplicablelaws.
12.Voting and Other Rights .SubjecttothetermsofthisAgreement,youshallnothaveanyvotingrightsoranyotherrightsandprivilegesofastockholderoftheCompanyunlessanduntiltheRestrictedStockUnitsaresettledinShares.Inaddition,youshallnothaveanyrightstodividendequivalentpaymentswithrespecttoRestrictedStockUnits.
13.Authorization to Release and Transfer Necessary Personal Information .(a)You hereby explicitly and unambiguously consent to the collection, use and transfer, in electronic or other form, of your personal information
as described in this Agreement by and among, as applicable, the Employer, and the Company and its Parent, Subsidiaries and Affiliates for the exclusivepurpose of implementing, administering and managing your participation in the Plan.
(b)You understand that the Company and the Employer may hold certain personal information about you, including, but not limited to, your name,home address and telephone number, date of birth, social insurance number (or any other social or national identification number), salary, nationality, jobtitle, residency status, any Shares or directorships held in the Company, details of all Restricted Stock Units or any other entitlement to Shares awarded,canceled, exercised, vested, unvested or outstanding (the “Data”) for the purpose of implementing, administering and managing your participation in the Plan.You understand that Data may be transferred to the Company or any of its Parent, Subsidiaries or Affiliates, or to any third parties assisting in theimplementation, administration and management of the Plan, that these recipients may be located in your country or elsewhere, including outside theEuropean Economic Area, and that the recipient’s country (e.g., the United States) may have different data privacy laws and protections than your country.You understand that you may request a list with the names and addresses of any potential recipients of the Data by contacting your local human resourcesrepresentative. You authorize the recipients to receive, possess, use, retain and transfer the Data, in electronic or other form, for the sole purposes ofimplementing, administering and managing your participation in the Plan, including any requisite transfer of such Data to a broker or other third partyassisting with the administration of these Restricted Stock Units under the Plan or with whom Shares acquired pursuant to these Restricted Stock Units or cashfrom the sale of such Shares may be deposited. Furthermore, you acknowledge and understand that the transfer of the Data to the Company or any of itsParent, Subsidiaries or Affiliates, or to any third parties is necessary for your participation in the Plan.
(c)You understand that Data will be held only as long as is necessary to implement, administer and manage your participation in the Plan. Youunderstand that you may, at any time, view the Data, request additional information about the storage and processing of the Data, require any necessaryamendments to the Data or refuse or withdraw the consents herein by contacting your local human resources representative in writing. You furtheracknowledge that withdrawal of consent may affect your ability to vest in or realize benefits from these Restricted Stock Units, and your ability to participate inthe Plan. For more information on the consequences of your refusal to consent or withdrawal of consent, you understand that you may contact your localhuman resources representative.
14.No Entitlement or Claims for Compensation .
(a)Yourrights,ifany,inrespectoforinconnectionwiththeseRestrictedStockUnitsoranyotherAwardarederivedsolelyfromthediscretionarydecisionoftheCompanytopermityoutoparticipateinthePlanandtobenefitfromadiscretionaryAward.ThePlanmaybeamended,suspendedorterminatedbytheCompanyatanytime,unlessotherwiseprovidedinthePlanandthisAgreement.ByacceptingtheseRestrictedStockUnits,youexpresslyacknowledgethatthereisnoobligationonthepartoftheCompanytocontinuethePlanand/orgrantanyadditionalRestrictedStockUnitstoyouorbenefitsinlieuofRestrictedStockUnits,evenifRestrictedStockUnitshavebeengrantedrepeatedlyinthepast.AlldecisionswithrespecttofuturegrantsofRestrictedStockUnits,ifany,willbeatthesolediscretionoftheCommittee.
(b)TheRestrictedStockUnitsandtheSharessubjecttotheRestrictedStockUnitsarenotintendedtoreplaceanypensionrightsorcompensationandarenottobeconsideredcompensationofacontinuingorrecurringnature,orpartofyournormalorexpectedcompensation,andinnowayrepresentanyportionofyoursalary,compensationorotherremunerationforanypurpose,includingbutnotlimitedto,
calculatinganyseverance,resignation,termination,redundancy,dismissal,endofservicepayments,bonuses,long-serviceawards,pensionorretirementbenefitsorsimilarpayments,andinnoeventshouldbeconsideredascompensationfor,orrelatinginanywayto,pastservicesfortheCompany,theEmployeroranyParent,SubsidiaryorAffiliate.ThevalueoftheRestrictedStockUnitsisanextraordinaryitemthatdoesnotconstitutecompensationofanykindforservicesofanykindrenderedtotheCompany,theEmployeroranyParent,SubsidiaryorAffiliateandwhichisoutsidethescopeofyourwrittenemploymentagreement(ifany).
(c)YouacknowledgethatyouarevoluntarilyparticipatinginthePlan.
(d)NeitherthePlannortheseRestrictedStockUnitsoranyotherAwardgrantedunderthePlanshallbedeemedtogiveyouarighttoremainanEmployee,ConsultantordirectoroftheCompany,aParent,SubsidiaryoranAffiliate.TheEmployerreservestherighttoterminateyourServiceatanytime,withorwithoutcause,andforanyreason,subjecttoapplicablelaws,theCompany’sArticlesofIncorporationandBylaws,andawrittenemploymentagreement(ifany).
(e)ThegrantoftheRestrictedStockUnitsandyourparticipationinthePlanwillnotbeinterpretedtoformanemploymentcontractorrelationshipwiththeCompany,theEmployeroranyParent,SubsidiaryorAffiliate.
(f)ThefuturevalueoftheunderlyingSharesisunknownandcannotbepredictedwithcertaintyandifyouvestintheRestrictedStockUnitsandareissuedShares,thevalueofthoseSharesmayincreaseordecrease.YoualsounderstandthatneithertheCompany,northeEmployeroranyParent,SubsidiaryorAffiliateisresponsibleforanyforeignexchangefluctuationbetweenyourEmployer’slocalcurrencyandtheUnitedStatesDollarthatmayaffectthevalueofthisAward.
(g)InconsiderationofthegrantoftheRestrictedStockUnits,noclaimorentitlementtocompensationordamagesshallarisefromforfeitureoftheRestrictedStockUnitsresultingfromterminationofyourServicebytheCompanyortheEmployer(foranyreasonwhatsoeverandwhetherornotinbreachoflocallaborlaws)andyouirrevocablyreleasetheCompanyandtheEmployerfromanysuchclaimthatmayarise;if,notwithstandingtheforegoing,anysuchclaimisfoundbyacourtofcompetentjurisdictiontohavearisen,youshallbedeemedirrevocablytohavewaivedyourentitlementtopursuesuchclaim.
(h)YouagreethattheCompanymayrequireSharesreceivedpursuanttotheRestrictedStockUnitstobeheldbyabrokerdesignatedbytheCompany.
(i)Youagreethatyourrightshereunder(ifany)shallbesubjecttoset-offbytheCompanyforanyvaliddebtsyouowetheCompany.
(j)TheRestrictedStockUnitsandthebenefitsunderthePlan,ifany,willnotautomaticallytransfertoanothercompanyinthecaseofamerger,take-overortransferofliability.
15.Governing Law and Forum .ThisAgreementshallbegovernedbyandconstruedinaccordancewiththelawsoftheStateofCaliforniawithoutregardtotheconflictoflawsprinciplesthereof.ForpurposesoflitigatinganydisputethatmayarisedirectlyorindirectlyfromthisAgreement,thepartiesherebysubmitandconsenttolitigationintheexclusivejurisdictionoftheStateofCaliforniaandagreethatanysuchlitigationshallbeconductedonlyinthecourtsofCaliforniaorthefederalcourtsfortheUnitedStatesfortheNorthernDistrictofCaliforniaandnoothercourts.
16.Notices .AnynoticerequiredorpermittedunderthetermsofthisAgreementshallbeinwritingandshallbedeemedsufficientwhendeliveredpersonallyorsentbyconfirmedemail,telegram,orfaxorforty-eight(48)hoursafterbeingdepositedinthemail,ascertifiedorregisteredmail,withpostageprepaid,andaddressedtotheCompanyattheCompany’sprincipalcorporateofficesortoyouattheaddressmaintainedforyouintheCompany’srecordsor,ineithercase,assubsequentlymodifiedbywrittennoticetotheotherparty.
17.Binding Effect .SubjecttothelimitationssetforthinthisAgreement,thisAgreementshallbebindingupon,andinuretothebenefitof,theexecutors,administrators,heirs,legalrepresentatives,successors,andassignsofthepartieshereto.
18.Severability .IfanyprovisionofthisAgreementisheldtobeunenforceableforanyreason,itshallbeadjustedratherthanvoided,ifpossible,inordertoachievetheintentofthepartiestotheextentpossible.Inanyevent,allotherprovisionsofthisAgreementshallbedeemedvalidandenforceabletothefullextentpossible.
19.Electronic Delivery .TheCompanymay,initssolediscretion,decidetodeliveranydocumentsrelatedtoyourcurrentorfutureparticipationinthePlanbyelectronicmeansortorequestyourconsenttoparticipateinthePlanbyelectronicmeans.YouherebyconsenttoreceivesuchdocumentsbyelectronicdeliveryandagreetoparticipateinthePlanthroughanon-lineorelectronicsystemestablishedandmaintainedbytheCompanyorathirdpartydesignatedbytheCompany.
20.Language .IfthisAgreementoranyotherdocumentrelatedtothePlanistranslatedintoalanguageotherthanEnglishandthemeaningofthetranslatedversionisdifferentfromtheEnglishversion,theEnglishversionwilltakeprecedence.
21.Appendix .NotwithstandinganyprovisionsinthisAgreement,theRestrictedStockUnitsshallbesubjecttoanyspecialtermsandconditionssetforthinanyAppendixtothisAgreementforyourcountryofresidence.Moreover,ifyourelocatetooneofthecountriesincludedintheAppendix,thespecialtermsandconditionsforsuchcountrywillapplytoyou,totheextenttheCompanydeterminesthattheapplication
ofsuchtermsandconditionsisnecessaryoradvisableinordertocomplywithlocallaworfacilitatetheadministrationofthePlan.TheAppendixconstitutespartofthisAgreement.
22.Imposition of Other Requirements .TheCompanyreservestherighttoimposeotherrequirementsonyourparticipationinthePlan,ontheRestrictedStockUnitsandonanySharesacquiredunderthePlan,totheextenttheCompanydeterminesitisnecessaryoradvisableinordertocomplywithlocallaworfacilitatetheadministrationofthePlan.Youagreetosignanyadditionalagreementsorundertakingsthatmaybenecessarytoaccomplishtheforegoing.Furthermore,youacknowledgethatthelawsofthecountryinwhichyouareworkingatthetimeofgrant,vestingandsettlementoftheRestrictedStockUnitsorthesaleofSharesreceivedpursuanttothisAgreement(includinganyrulesorregulationsgoverningsecurities,foreignexchange,tax,labor,orothermatters)maysubjectyoutoadditionalproceduralorregulatoryrequirementsthatyouareandwillbesolelyresponsibleforandmustfulfill.
23.Acceptance of Agreement .YoumustexpresslyacceptthetermsandconditionsofyourRestrictedStockUnitsassetforthinthisAgreementbyelectronicallyacceptingthisAgreementwithin300daysaftertheCompanysendsthisAgreementtoyou.IfyoudonotacceptyourRestrictedStockUnitsinthemannerinstructedbytheCompany,yourRestrictedStockUnitswillbesubjecttocancellation.
****
YouacknowledgethatbyclickingontheI agree buttonbelow,youagreetobeboundbythetermsofthisAgreement.
PLEASE PRINT AND KEEP A COPY FOR YOUR RECORDS
PERFORMANCERSULETTER
[Date]
[Name][Address][Address]
Dear:[introductorytext]
Yourleadershipteamhasrecommendedthatyoureceiveaperformance-basedrestrictedstockunit(PRSU)rightwithatargetof[].RSUswillbegrantedaftertheendofFY[]baseduponthesatisfactionofanFY[]performancecondition.
TherighttoreceiveagrantofarestrictedstockunitdependsonCisco’ssatisfactionofcertain[]targetsforFY[].Assumingthosetargetsaremetorexceeded,therestrictedstockunitsthatyouaregrantedwillvest[]percentonthedateofgrantand[]percentoneachofthenext[]anniversariesofthedateofgrantthereafter,subjecttoyourcontinuedemploymentwithCiscooranaffiliateontheapplicablevestingdate.Oneachvestingdate,thevestedunitswillbesettledinCiscocommonstock.Inaddition,intheunlikelyeventthatacorporatetransactionorchangeincontrol(eachasdefinedinCisco’s2005StockIncentivePlan)isconsummatedduringFY[]orpriortotheCompensationandManagementDevelopmentCommittee’sCertificationregardingsatisfactionoftheFY[]performanceconditions,theperformance-basedrestrictedstockunitrightwillbedeemedfullyearnedattarget(100%)immediatelypriortotheeffectivedateofthecorporatetransactionorthechangeincontrol,asthecasemaybe,andwillbesettledinfullyvestedCiscocommonstockatthattime.
Lastly,pleasenotethat,ifyouareemployedoutsidetheUnitedStates,theCompensationandManagementDevelopmentCommitteecangrantthePRSURighttoyou,initssolediscretion,onlyifandaslongasitispermittedandfeasibletograntrestrictedstockunitsunderthelawsofthecountryinwhichyouareemployed.Iflocallawsmakethegrantofrestrictedstockunitsillegalorimpractical,Ciscowillletyouknowassoonaspossible.YouareundernoobligationtoacceptthePRSURightoranyrestrictedstockunitsthatmaysubsequentlybegrantedtoyou.
[concludingtext]
Sincerely,
A CTION R EQUIRED : M UST BE RETURNED BY [INSERT APPROPRIATE DATE]
Deferral Election for Annual Equity Award
2005 Stock Incentive Plan
Name(Last,First,MiddleInitial)
EmployeeNumber
Youmayusethisformto:
•
Indicatethepercentageofyourannualrestrictedstockunitgrantunderthe2005StockIncentivePlanthatyouwishtodefer.Yourelectedpercentagewillapplytoeachvestinginstallmentofsuchgrant.
• Designatethesettlementtimingofthedeferredportionofyourvestedannualrestrictedstockunitgrant.
PLEASE REMEMBER THAT ONCE YOU MAKE AN ELECTION TO DEFER A RESTRICTED STOCK UNIT GRANT, YOU CANNOTREVOKE THAT ELECTION.
D EFERRAL E LECTION Pleaseselectifyouwishtodeferrestrictedstockunits;fillintheappropriateblanks.
å
Restricted Stock Unit Grant
Ielecttodefer%(youmayonlyinsert25%,50%,75%,or100%)ofmyannualrestrictedstockunitawardanticipatedtobegrantedunderthe2005StockIncentivePlan(the“Plan”)on,201(subjecttomycontinuedemploymentwiththeCompanyortheEmployer).Iunderstandthatthiselectedpercentagewillapplytoeachvestinginstallmentofthisgrant.
S ETTLEMENT D ATE *
Pleasecompletethissectiontoindicatesettlementtimingforthedeferredportionofyourvestedannualrestrictedstockunitgrant.Youmayonlychooseonealternative.
åOR
Separationof Service
IelecttodeferthesettlementofthedeferredportionofmyvestedannualrestrictedstockunitgranttomySeparationfromService(asdefinedinSection409AoftheInternalRevenueCode).
å
Date Specific (subject to earlier settlement upon separation from service)
Ielecttodeferthesettlementofthedeferredportionofmyvestedannualrestrictedstockunitgranttotheearlierof(i)mySeparationfromService;or(ii)thefirstbusinessdayof20(insertayearnoearlierthan[]andnolaterthan[].
* AnyvestedportionofthedeferredportionofmyrestrictedstockunitgrantwillbesettledinsharesoftheCompany’scommonstock.
A CTION R EQUIRED : M UST BE RETURNED BY [INSERT APPROPRIATE DATE]
Deferral Election forAnnual Equity Award
2005 Stock Incentive PlanIunderstand:
•
TotheextentIdonotelecttodeferthesettlementofmyrestrictedstockunitgrant,suchportionoftherestrictedstockunitgrantwillbeautomaticallysettledinsharesoftheCompany’scommonstockuponthevestingoftherestrictedstockunitgrant(subjecttoaccelerationincertaincases),asmorefullysetforthintheStockUnitAgreement.
• AnyvestedportionofthedeferredrestrictedstockunitgrantwillbesettledinsharesoftheCompany’scommonstockaselectedbymeabove.
•
IfmySeparationfromServiceoccursbeforemyrestrictedstockunitgrantvests,anyunvestedrestrictedstockunitswillbeforfeitedasofthedatemySeparationfromServiceoccurs.
•
“SeparationfromService”isdefinedinTreasuryRegulationSection1.409A-1(h).Whileseparationfromservicegenerallymeansterminationofemployment,aSeparationfromServicecanalsooccurinthecaseofcertainleavesofabsenceoruponasignificantreductioninmyworkschedule.Theseeventscantriggera“SeparationfromService”resultingintheforfeitureofmyunvestedrestrictedstockunits.
•
Certainleavesofabsencecanresultinthesuspensionofvestingofmyunvestedrestrictedstockunits.IfItakealeaveofabsencethatsuspendsthevestingofmyrestrictedstockunitssuchthattheyareunvestedasoftheapplicabledistributionevent(whetherthatisSeparationfromServiceoradatespecificIelected),myrestrictedstockunitsthatareunvestedatthetimeofsuchdistributioneventshallbeforfeited.
•
Anyemploymenttaxesthataredueuponthevestingofmyrestrictedstockunitgrant(includingthedeferredportionofmygrant)shallbedeductedatthetimeofvestingbyoneoracombinationofthefollowing:
(1) withholdingfrommywagesorothercashcompensationpayabletomebytheCompanyortheEmployer;
(2) withholdingfromproceedsofthesaleofsharesacquireduponsettlementoftherestrictedstockunitseitherthroughavoluntarysaleor
throughamandatorysalearrangedbytheCompany(onmybehalfpursuanttothisauthorization);
(3) withholdingofsharesthatwouldotherwisebeissueduponsettlementoftherestrictedstockunits;or
(4) requiringmetosatisfytheliabilityforanyemploymenttaxesbymeansofanyotherarrangementapprovedbytheCompany.
•
ThereceiptofsharesoftheCompany’scommonstockpursuanttoanyrestrictedstockunitgrantwillbetaxedasordinaryincometomebasedonthevalueofthesharesonthedatethestockunitgrantissettledandIreceivesharesoftheCompany’scommonstock.ThisistruewhetherornotIelecttodefersettlementofmyrestrictedstockunits.
• ThesettlementofthedeferredportionofmyannualrestrictedstockunitgrantuponmySeparationfromServicewillbedelayedforsixmonths.
ACKNOWLEDGED AND AGREED:
SignatureofParticipantDate
Non-Employee Director Stock Unit(Effective for Grants on and after
the 2016 Annual Meeting of Shareholders)
CISCO SYSTEMS, INC.STOCK UNIT AGREEMENT
ThisStockUnitAgreement(the“Agreement”)ismadeandenteredintoasoftheGrantDate(asdefinedbelow)byandbetweenCiscoSystems,Inc.,aCaliforniacorporation(the“Company”),andyoupursuanttotheCiscoSystems,Inc.2005StockIncentivePlan(the“Plan”).ThematerialtermsofthisStockUnitAwardareasfollows:
Grantee:________________________
GrantDate:______________________
GrantNumber:___________________
StockUnits:_____________________
TotheextentanycapitalizedtermsusedinthisAgreementarenotdefined,theyshallhavethemeaningascribedtotheminthePlan.IntheeventofaconflictbetweenthetermsandprovisionsofthePlanandthetermsandprovisionsofthisAgreement,thePlantermsandprovisionsshallprevail.
Inconsiderationofthemutualagreementshereincontainedandintendingtobelegallyboundhereby,thepartiesagreeasfollows:
1.Stock Units .PursuanttothePlan,theCompanyherebygrantstoyou,andyouherebyacceptfromtheCompany,StockUnits,eachofwhichisabookkeepingentryrepresentingtheequivalentinvalueofone(1)Share,onthetermsandconditionssetforthhereinandinthePlan.
2.Vesting of Stock Units .One-hundredpercent(100%)ofthetotalnumberofStockUnitsgrantedpursuanttothisAgreementshallvestontheGrantDate.
3.Settlement of Stock Units .StockUnitsshallbeautomaticallysettledinSharesuponyourseparationfromservicewithinthemeaningofCodeSection409A(“SeparationfromService”),providedthattheCompanyshallhavenoobligationtoissueSharespursuanttothisAgreementunlessanduntilsuchissuancecomplieswithallapplicablelaw;providedfurther,suchsettlementshalloccurnolaterthan30daysafteryourSeparationfromService.PriortothetimethattheStockUnitsaresettledinSharesuponyourSeparationfromService,youshallhavenorightsotherthanthoseofageneralcreditoroftheCompany.TheStockUnitsrepresentanunfundedandunsecuredobligationoftheCompany.
4.Tax Advice .Yourepresent,warrantandacknowledgethattheCompanyhasmadenowarrantiesorrepresentationstoyouwithrespecttotheincometaxconsequencesofthetransactionscontemplatedbythisAgreement,andyouareinnomannerrelyingontheCompanyortheCompany’srepresentativesforanassessmentofsuchtaxconsequences.YOUUNDERSTANDTHATTHETAXLAWSANDREGULATIONSARESUBJECTTOCHANGE.YOUSHOULDCONSULTYOUROWNTAXADVISORREGARDINGANYSTOCKUNITS.NOTHINGSTATEDHEREINISINTENDEDORWRITTENTOBEUSED,ANDCANNOTBEUSED,FORTHEPURPOSEOFAVOIDINGTAXPAYERPENALTIES.
5.Non-Transferability of Stock Units .StockUnitsshallnotbeanticipated,assigned,attached,garnished,optioned,transferredormadesubjecttoanycreditor’sprocess,whethervoluntarilyorinvoluntarilyorbyoperationoflaw.
6.Restriction on Transfer .RegardlessofwhetherthetransferorissuanceoftheSharestobeissuedpursuanttotheStockUnitshasbeenregisteredundertheSecuritiesActorhasbeenregisteredorqualifiedunderthesecuritieslawsofanystate,theCompanymayimposeadditionalrestrictionsuponthesale,pledge,orothertransferoftheShares(includingtheplacementofappropriatelegendsonstockcertificatesandtheissuanceofstop-transferinstructionstotheCompany’stransferagent)if,inthejudgmentoftheCompanyandtheCompany’scounsel,such
restrictionsarenecessaryinordertoachievecompliancewiththeprovisionsoftheSecuritiesAct,thesecuritieslawsofanystate,oranyotherlaw.
7.Stock Certificate Restrictive Legends . StockcertificatesevidencingtheSharesissuedpursuanttotheStockUnitsmaybearsuchrestrictivelegendsastheCompanyandtheCompany’scounseldeemnecessaryunderapplicablelaworpursuanttothisAgreement.
8.Representations, Warranties, Covenants, and Acknowledgments .YouherebyagreethatintheeventtheCompanyandtheCompany’scounseldeemitnecessaryoradvisableintheexerciseoftheirdiscretion,thetransferorissuanceoftheSharesissuedpursuanttotheStockUnitsmaybeconditioneduponyoumakingcertainrepresentations,warranties,andacknowledgmentsrelatingtocompliancewithapplicablesecuritieslaws.
9.Voting, Dividend and Other Rights .SubjecttothetermsofthisAgreementandexceptassetforthbelow,youshallnothaveanyvotingrightsoranyotherrightsandprivilegesofashareholderoftheCompanyunlessanduntiltheStockUnitsaresettleduponyourSeparationfromService.DividendequivalentsshallaccrueandwillbesubjecttothesameconditionsandrestrictionsastheStockUnitstowhichtheyattachassetforthinthePlanorthisAgreementandwillbesettledinadditionalSharesuponyourSeparationfromService.
10.Authorization to Release Necessary Personal Information .
(a)YouherebyauthorizeanddirecttheCompanytocollect,useandtransferinelectronicorotherform,anypersonalinformation(the“Data”)regardingyourservice,thenatureandamountofyourcompensationandthefactsandconditionsofyourparticipationinthePlan(including,butnotlimitedto,yourname,homeaddress,telephonenumber,dateofbirth,socialsecuritynumber(oranyothersocialornationalidentificationnumber),compensation,nationality,jobtitle,numberofSharesheldandthedetailsofallAwardsoranyotherentitlementtoSharesawarded,cancelled,exercised,vested,unvestedoroutstanding)forthepurposeofimplementing,administeringandmanagingyourparticipationinthePlan.YouunderstandthattheDatamaybetransferredtotheCompanyoranyofitsSubsidiaries,ortoanythirdpartiesassistingintheimplementation,administrationandmanagementofthePlan,includinganyrequisitetransfertoabrokerorotherthirdpartyassistingwiththeadministrationoftheseStockUnitsunderthePlanorwithwhomSharesacquiredpursuanttotheseStockUnitsorcashfromthesaleofsuchsharesmaybedeposited.YouacknowledgethatrecipientsoftheDatamaybelocatedindifferentcountries,andthosecountriesmayhavedataprivacylawsandprotectionsdifferentfromthoseinthecountryofyourresidence.Furthermore,youacknowledgeandunderstandthatthetransferoftheDatatotheCompanyoranyofitsSubsidiaries,ortoanythirdpartiesisnecessaryforyourparticipationinthePlan.
(b)YoumayatanytimewithdrawtheconsentshereinbycontactingtheCompany’slocalhumanresourcesrepresentativeinwriting.YoufurtheracknowledgethatwithdrawalofconsentmayaffectyourabilitytoexerciseorrealizebenefitsfromtheseStockUnitsandyourabilitytoparticipateinthePlan.
11.Governing Law .ThisAgreementshallbegovernedbyandconstruedinaccordancewiththelawsoftheStateofCaliforniawithoutregardtotheconflictoflawsprinciplesthereof.
12.Notices .AnynoticerequiredorpermittedunderthetermsofthisAgreementshallbeinwritingandshallbedeemedsufficientwhendeliveredpersonallyorsentbyconfirmedemail,telegram,orfaxorforty-eight(48)hoursafterbeingdepositedintheU.S.mail,ascertifiedorregisteredmail,withpostageprepaid,andaddressedtotheCompanyattheCompany’sprincipalcorporateofficesortoyouattheaddressmaintainedforyouintheCompany'srecordsor,ineithercase,assubsequentlymodifiedbywrittennoticetotheotherparty.
13.Binding Effect .SubjecttothelimitationssetforthinthisAgreement,thisAgreementshallbebindingupon,andinuretothebenefitof,theexecutors,administrators,heirs,legalrepresentatives,successors,andassignsofthepartieshereto.
14.Severability .IfanyprovisionofthisAgreementisheldtobeunenforceableforanyreason,itshallbeadjustedratherthanvoided,ifpossible,inordertoachievetheintentofthepartiestotheextentpossible.Inanyevent,allotherprovisionsofthisAgreementshallbedeemedvalidandenforceabletothefullextentpossible.
Non-Employee Director Initial RSU Grant(For Grants Effective on and after the Date of the
Company's 2015 Annual Meeting of Shareholders until One Day Prior to the Date of the 2016 Annual Meeting of Shareholders)
CISCO SYSTEMS, INC.STOCK UNIT AGREEMENT
ThisStockUnitAgreement(the“Agreement”)ismadeandenteredintoasoftheGrantDate(asdefinedbelow)byandbetweenCiscoSystems,Inc.,aCaliforniacorporation(the“Company”),andyoupursuanttotheCiscoSystems,Inc.2005StockIncentivePlan(the“Plan”).ThematerialtermsofthisStockUnitAwardareasfollows:
Grantee:
GrantDate:
GrantNumber:
RestrictedStockUnits:
VestDate: (thedateoftheAnnualMeetingofShareholdersfollowingtheinitialelectionorappointmentdate)
TotheextentanycapitalizedtermsusedinthisAgreementarenotdefined,theyshallhavethemeaningascribedtotheminthePlan.IntheeventofaconflictbetweenthetermsandprovisionsofthePlanandthetermsandprovisionsofthisAgreement,thePlantermsandprovisionsshallprevail.
Inconsiderationofthemutualagreementshereincontainedandintendingtobelegallyboundhereby,thepartiesagreeasfollows:
1.Restricted Stock Units .PursuanttothePlan,theCompanyherebygrantstoyou,andyouherebyacceptfromtheCompany,RestrictedStockUnits,eachofwhichisabookkeepingentryrepresentingtheequivalentinvalueofone(1)Share,onthetermsandconditionssetforthhereinandinthePlan.
2.Vesting of Restricted Stock Units .SolongasyourserviceontheBoardcontinues,theRestrictedStockUnitsshallvestinaccordancewiththefollowingschedule:one-hundredpercent(100%)ofthetotalnumberofRestrictedStockUnitsgrantedpursuanttothisAgreementshallvestontheVestDate,unlessotherwiseprovidedbythePlanorSection4below.
3.Termination of Service .ExceptasprovidedinSection4below,intheeventoftheterminationofyourBoardserviceforanyreason,allunvestedRestrictedStockUnitsshallbeimmediatelyforfeitedwithoutconsideration.
4.Special Acceleration .
(a)TotheextenttheRestrictedStockUnitsareoutstandingatthetimeofaCorporateTransactionoraChangeinControl,suchRestrictedStockUnitsshallautomaticallyaccelerateimmediatelypriortotheeffectivedateoftheCorporateTransactionortheChangeinControl,asthecasemaybe,andshallbecomevestedinfullatthattime.
(b)IfyourserviceontheBoardceasesasaresultofyourdeathorDisability,totheextenttheRestrictedStockUnitsareoutstanding,suchRestrictedStockUnitsshallautomaticallyaccelerateandshallbecomevestedinfullatthattime.
(c)ThisAgreementshallnotinanywayaffecttherightoftheCompanytoadjust,reclassify,reorganizeorotherwisechangeitscapitalorbusinessstructureortomerge,consolidate,dissolve,liquidate,sellortransferalloranypartofitsbusinessorassets.
5.Settlement of Restricted Stock Units .TotheextentyouhavenotelectedtodefersettlementoftheRestrictedStockUnits,theRestrictedStockUnitsshallbeautomaticallysettledinSharesuponvestingofsuchRestrictedStockUnits,providedthattheCompanyshallhavenoobligationtoissueSharespursuanttothisAgreementunlesssuchissuancecomplieswithallapplicablelaw.TotheextentyouhaveelectedtodefersettlementoftheRestrictedStockUnits,thevestedportionoftheRestrictedStockUnitsshallbesettledinSharesuponyourseparationfromservicewithinthemeaningofCodeSection409A(“SeparationfromService”),providedthattheCompanyshallhavenoobligationtoissueSharespursuanttothisAgreementunlesssuchissuancecomplieswithallapplicablelaw.PriortothetimethattheRestrictedStockUnitsaresettled,youshallhavenorightsotherthanthoseofageneralcreditoroftheCompany.TheRestrictedStockUnitsrepresentanunfundedandunsecuredobligationoftheCompany.
6.Tax Advice .Yourepresent,warrantandacknowledgethattheCompanyhasmadenowarrantiesorrepresentationstoyouwithrespecttotheincometaxconsequencesofthetransactionscontemplatedbythisAgreement,andyouareinnomannerrelyingontheCompanyortheCompany’srepresentativesforanassessmentofsuchtaxconsequences.YOUUNDERSTANDTHATTHETAXLAWSANDREGULATIONSARESUBJECTTOCHANGE.YOUSHOULDCONSULTYOUROWNTAXADVISORREGARDING
ANYRESTRICTEDSTOCKUNITS.NOTHINGSTATEDHEREINISINTENDEDORWRITTENTOBEUSED,ANDCANNOTBEUSED,FORTHEPURPOSEOFAVOIDINGTAXPAYERPENALTIES.
7.Non-Transferability of Restricted Stock Units .RestrictedStockUnitsshallnotbeanticipated,assigned,attached,garnished,optioned,transferredormadesubjecttoanycreditor’sprocess,whethervoluntarilyorinvoluntarilyorbyoperationoflaw.
8.Restriction on Transfer .RegardlessofwhetherthetransferorissuanceoftheSharestobeissuedpursuanttotheRestrictedStockUnitshasbeenregisteredundertheSecuritiesActorhasbeenregisteredorqualifiedunderthesecuritieslawsofanystate,theCompanymayimposeadditionalrestrictionsuponthesale,pledge,orothertransferoftheShares(includingtheplacementofappropriatelegendsonstockcertificatesandtheissuanceofstop-transferinstructionstotheCompany’stransferagent)if,inthejudgmentoftheCompanyandtheCompany’scounsel,suchrestrictionsarenecessaryinordertoachievecompliancewiththeprovisionsoftheSecuritiesAct,thesecuritieslawsofanystate,oranyotherlaw.
9.Stock Certificate Restrictive Legends . StockcertificatesevidencingtheSharesissuedpursuanttotheRestrictedStockUnitsmaybearsuchrestrictivelegendsastheCompanyandtheCompany’scounseldeemnecessaryunderapplicablelaworpursuanttothisAgreement.
10.Representations, Warranties, Covenants, and Acknowledgments .YouherebyagreethatintheeventtheCompanyandtheCompany’scounseldeemitnecessaryoradvisableintheexerciseoftheirdiscretion,thetransferorissuanceoftheSharesissuedpursuanttotheRestrictedStockUnitsmaybeconditioneduponyoumakingcertainrepresentations,warranties,andacknowledgmentsrelatingtocompliancewithapplicablesecuritieslaws.
11.Voting, Dividend and Other Rights .SubjecttothetermsofthisAgreementandexceptassetforthbelow,youshallnothaveanyvotingrightsoranyotherrightsandprivilegesofashareholderoftheCompanyunlessanduntiltheRestrictedStockUnitsaresettledinShares.TotheextentyouhaveelectedtodefersettlementofRestrictedStockUnitswithaGrantDateonoraftertheCompany’s2015AnnualMeetingofShareholders,dividendequivalentsshallaccrueafterthevestingoftheRestrictedStockUnitsandwillbesubjecttothesameconditionsandrestrictionsastheRestrictedStockUnitstowhichtheyattachassetforthinthePlanorthisAgreementandwillbesettledinadditionalSharesuponyourSeparationfromService.
12.Authorization to Release Necessary Personal Information .
(a)YouherebyauthorizeanddirecttheCompanytocollect,useandtransferinelectronicorotherform,anypersonalinformation(the“Data”)regardingyourservice,thenatureandamountofyourcompensationandthefactsandconditionsofyourparticipationinthePlan(including,butnotlimitedto,yourname,homeaddress,telephonenumber,dateofbirth,socialsecuritynumber(oranyothersocialornationalidentificationnumber),compensation,nationality,jobtitle,numberofSharesheldandthedetailsofallAwardsoranyotherentitlementtoSharesawarded,cancelled,exercised,vested,unvestedoroutstanding)forthepurposeofimplementing,administeringandmanagingyourparticipationinthePlan.YouunderstandthattheDatamaybetransferredtotheCompanyoranyofitsSubsidiaries,ortoanythirdpartiesassistingintheimplementation,administrationandmanagementofthePlan,includinganyrequisitetransfertoabrokerorotherthirdpartyassistingwiththeadministrationoftheseRestrictedStockUnitsunderthePlanorwithwhomSharesacquiredpursuanttotheseRestrictedStockUnitsorcashfromthesaleofsuchsharesmaybedeposited.YouacknowledgethatrecipientsoftheDatamaybelocatedindifferentcountries,andthosecountriesmayhavedataprivacylawsandprotectionsdifferentfromthoseinthecountryofyourresidence.Furthermore,youacknowledgeandunderstandthatthetransferoftheDatatotheCompanyoranyofitsSubsidiaries,ortoanythirdpartiesisnecessaryforyourparticipationinthePlan.
(b)YoumayatanytimewithdrawtheconsentshereinbycontactingtheCompany’slocalhumanresourcesrepresentativeinwriting.YoufurtheracknowledgethatwithdrawalofconsentmayaffectyourabilitytoexerciseorrealizebenefitsfromtheseRestrictedStockUnitsandyourabilitytoparticipateinthePlan.
13.No Entitlement or Claims for Compensation .
(a)Yourrights,ifany,inrespectoforinconnectionwiththeseRestrictedStockUnitsoranyotherAwardarederivedsolelyfromthediscretionarydecisionoftheCompanytopermityoutoparticipateinthePlanandtobenefitfromadiscretionaryAward.ByacceptingtheseRestrictedStockUnits,youexpresslyacknowledgethatthereisnoobligationonthepartoftheCompanytocontinuethePlanand/orgrantanyadditionalAwardstoyou.TheseRestrictedStockUnitsarenotintendedtobecompensationofacontinuingorrecurringnature,orpartofyournormalorexpectedcompensation,andinnowayrepresentsanyportionofyourcompensationorotherremunerationforpurposesofpensionbenefits,severance,redundancy,resignationoranyotherpurpose.
(b)NeitherthePlannortheseRestrictedStockUnitsoranyotherAwardgrantedunderthePlanshallbedeemedtogiveyouarighttocontinuetoserveontheBoardoftheCompanyforanyperiodofspecificdurationorinterferewithorotherwiserestrictinanywaytherightsoftheCompanyortheCompany’sshareholders,whichrightsareherebyexpresslyreservedbyeach,toterminateyourserviceontheBoardatanytime,foranyreason,withorwithoutcause,inaccordancewiththeprovisionsofapplicablelaw,theCompany’sArticlesofIncorporationandBylaws.Youshallbedeemedirrevocablytohavewaivedanyclaimtodamagesorspecificperformanceforbreachofcontractordismissal,compensationforlossofoffice,tortorotherwisewithrespecttothePlan,theseRestrictedStockUnitsoranyoutstandingAwardthatisforfeitedand/oristerminatedbyitstermsortoanyfutureAward.
(c)Youagreethatyourrightshereundershallbesubjecttoset-offbytheCompanyforanyvaliddebtsyouowetheCompany.
14.Governing Law .ThisAgreementshallbegovernedbyandconstruedinaccordancewiththelawsoftheStateofCaliforniawithoutregardtotheconflictoflawsprinciplesthereof.
15.Notices .AnynoticerequiredorpermittedunderthetermsofthisAgreementshallbeinwritingandshallbedeemedsufficientwhendeliveredpersonallyorsentbyconfirmedemail,telegram,orfaxorforty-eight(48)hoursafterbeingdepositedintheU.S.mail,ascertifiedorregisteredmail,withpostageprepaid,andaddressedtotheCompanyattheCompany’sprincipalcorporateofficesortoyouattheaddressmaintainedforyouintheCompany’srecordsor,ineithercase,assubsequentlymodifiedbywrittennoticetotheotherparty.
16.Binding Effect .SubjecttothelimitationssetforthinthisAgreement,thisAgreementshallbebindingupon,andinuretothebenefitof,theexecutors,administrators,heirs,legalrepresentatives,successors,andassignsofthepartieshereto.
17.Severability .IfanyprovisionofthisAgreementisheldtobeunenforceableforanyreason,itshallbeadjustedratherthanvoided,ifpossible,inordertoachievetheintentofthepartiestotheextentpossible.Inanyevent,allotherprovisionsofthisAgreementshallbedeemedvalidandenforceabletothefullextentpossible.
Non-Employee Director Annual RSU Grant(For Grants Effective on and after the Date of the
Company's 2015 Annual Meeting of Shareholders until One Day Prior to the Date ofthe 2016 Annual Meeting of Shareholders)
CISCO SYSTEMS, INC.STOCK UNIT AGREEMENT
ThisStockUnitAgreement(the“Agreement”)ismadeandenteredintoasoftheGrantDate(asdefinedbelow)byandbetweenCiscoSystems,Inc.,aCaliforniacorporation(the“Company”),andyoupursuanttotheCiscoSystems,Inc.2005StockIncentivePlan(the“Plan”).ThematerialtermsofthisStockUnitAwardareasfollows:
Grantee:
GrantDate:
GrantNumber:
RestrictedStockUnits:
VestDate: Thecompletionofone(1)yearofBoardservicemeasuredfromtheGrantDate.
TotheextentanycapitalizedtermsusedinthisAgreementarenotdefined,theyshallhavethemeaningascribedtotheminthePlan.IntheeventofaconflictbetweenthetermsandprovisionsofthePlanandthetermsandprovisionsofthisAgreement,thePlantermsandprovisionsshallprevail.
Inconsiderationofthemutualagreementshereincontainedandintendingtobelegallyboundhereby,thepartiesagreeasfollows:
1.Restricted Stock Units .PursuanttothePlan,theCompanyherebygrantstoyou,andyouherebyacceptfromtheCompany,RestrictedStockUnits,eachofwhichisabookkeepingentryrepresentingtheequivalentinvalueofone(1)Share,onthetermsandconditionssetforthhereinandinthePlan.
2.Vesting of Restricted Stock Units .SolongasyourserviceontheBoardcontinues,theRestrictedStockUnitsshallvestinaccordancewiththefollowingschedule:one-hundredpercent(100%)ofthetotalnumberofRestrictedStockUnitsgrantedpursuanttothisAgreementshallvestontheVestDate,unlessotherwiseprovidedbythePlanorSection4below.
3.Termination of Service .ExceptasprovidedinSection4below,intheeventoftheterminationofyourBoardserviceforanyreason,allunvestedRestrictedStockUnitsshallbeimmediatelyforfeitedwithoutconsideration.
4.Special Acceleration .
(a)TotheextenttheRestrictedStockUnitsareoutstandingatthetimeofaCorporateTransactionoraChangeinControl,suchRestrictedStockUnitsshallautomaticallyaccelerateimmediatelypriortotheeffectivedateoftheCorporateTransactionortheChangeinControl,asthecasemaybe,andshallbecomevestedinfullatthattime.
(b)IfyourserviceontheBoardceasesasaresultofyourdeathorDisability,totheextenttheRestrictedStockUnitsareoutstanding,suchRestrictedStockUnitsshallautomaticallyaccelerateandshallbecomevestedinfullatthattime.
(c)ThisAgreementshallnotinanywayaffecttherightoftheCompanytoadjust,reclassify,reorganizeorotherwisechangeitscapitalorbusinessstructureortomerge,consolidate,dissolve,liquidate,sellortransferalloranypartofitsbusinessorassets.
5.Settlement of Restricted Stock Units .TotheextentyouhavenotelectedtodefersettlementoftheRestrictedStockUnits,theRestrictedStockUnitsshallbeautomaticallysettledinSharesuponvestingofsuchRestrictedStockUnits,providedthattheCompanyshallhavenoobligationtoissueSharespursuanttothisAgreementunlesssuchissuancecomplieswithallapplicablelaw.TotheextentyouhaveelectedtodefersettlementoftheRestrictedStockUnits,thevestedportionoftheRestrictedStockUnitsshallbesettledinSharesuponyourseparationfromservicewithinthemeaningofCodeSection409A(“SeparationfromService”),providedthattheCompanyshallhavenoobligationtoissueSharespursuanttothisAgreementunlesssuchissuancecomplieswithallapplicablelaw.PriortothetimethattheRestrictedStockUnitsaresettled,youshallhavenorightsotherthanthoseofageneralcreditoroftheCompany.TheRestrictedStockUnitsrepresentanunfundedandunsecuredobligationoftheCompany.
6.Tax Advice .Yourepresent,warrantandacknowledgethattheCompanyhasmadenowarrantiesorrepresentationstoyouwithrespecttotheincometaxconsequencesofthetransactionscontemplatedbythisAgreement,andyouare
innomannerrelyingontheCompanyortheCompany’srepresentativesforanassessmentofsuchtaxconsequences.YOUUNDERSTANDTHATTHETAXLAWSANDREGULATIONSARESUBJECTTOCHANGE.YOUSHOULDCONSULTYOUROWNTAXADVISORREGARDINGANYRESTRICTEDSTOCKUNITS.NOTHINGSTATEDHEREINISINTENDEDORWRITTENTOBEUSED,ANDCANNOTBEUSED,FORTHEPURPOSEOFAVOIDINGTAXPAYERPENALTIES.
7.Non-Transferability of Restricted Stock Units .RestrictedStockUnitsshallnotbeanticipated,assigned,attached,garnished,optioned,transferredormadesubjecttoanycreditor’sprocess,whethervoluntarilyorinvoluntarilyorbyoperationoflaw.
8.Restriction on Transfer .RegardlessofwhetherthetransferorissuanceoftheSharestobeissuedpursuanttotheRestrictedStockUnitshasbeenregisteredundertheSecuritiesActorhasbeenregisteredorqualifiedunderthesecuritieslawsofanystate,theCompanymayimposeadditionalrestrictionsuponthesale,pledge,orothertransferoftheShares(includingtheplacementofappropriatelegendsonstockcertificatesandtheissuanceofstop-transferinstructionstotheCompany’stransferagent)if,inthejudgmentoftheCompanyandtheCompany’scounsel,suchrestrictionsarenecessaryinordertoachievecompliancewiththeprovisionsoftheSecuritiesAct,thesecuritieslawsofanystate,oranyotherlaw.
9.Stock Certificate Restrictive Legends . StockcertificatesevidencingtheSharesissuedpursuanttotheRestrictedStockUnitsmaybearsuchrestrictivelegendsastheCompanyandtheCompany’scounseldeemnecessaryunderapplicablelaworpursuanttothisAgreement.
10.Representations, Warranties, Covenants, and Acknowledgments .YouherebyagreethatintheeventtheCompanyandtheCompany’scounseldeemitnecessaryoradvisableintheexerciseoftheirdiscretion,thetransferorissuanceoftheSharesissuedpursuanttotheRestrictedStockUnitsmaybeconditioneduponyoumakingcertainrepresentations,warranties,andacknowledgmentsrelatingtocompliancewithapplicablesecuritieslaws.
11.Voting, Dividend and Other Rights .SubjecttothetermsofthisAgreementandexceptassetforthbelow,youshallnothaveanyvotingrightsoranyotherrightsandprivilegesofashareholderoftheCompanyunlessanduntiltheRestrictedStockUnitsaresettledinShares.TotheextentyouhaveelectedtodefersettlementofRestrictedStockUnitswithaGrantDateonoraftertheCompany’s2015AnnualMeetingofShareholders,dividendequivalentsshallaccrueafterthevestingoftheRestrictedStockUnitsandwillbesubjecttothesameconditionsandrestrictionsastheRestrictedStockUnitstowhichtheyattachassetforthinthePlanorthisAgreementandwillbesettledinadditionalSharesuponyourSeparationfromService.
12.Authorization to Release Necessary Personal Information .
(a)YouherebyauthorizeanddirecttheCompanytocollect,useandtransferinelectronicorotherform,anypersonalinformation(the“Data”)regardingyourservice,thenatureandamountofyourcompensationandthefactsandconditionsofyourparticipationinthePlan(including,butnotlimitedto,yourname,homeaddress,telephonenumber,dateofbirth,socialsecuritynumber(oranyothersocialornationalidentificationnumber),compensation,nationality,jobtitle,numberofSharesheldandthedetailsofallAwardsoranyotherentitlementtoSharesawarded,cancelled,exercised,vested,unvestedoroutstanding)forthepurposeofimplementing,administeringandmanagingyourparticipationinthePlan.YouunderstandthattheDatamaybetransferredtotheCompanyoranyofitsSubsidiaries,ortoanythirdpartiesassistingintheimplementation,administrationandmanagementofthePlan,includinganyrequisitetransfertoabrokerorotherthirdpartyassistingwiththeadministrationoftheseRestrictedStockUnitsunderthePlanorwithwhomSharesacquiredpursuanttotheseRestrictedStockUnitsorcashfromthesaleofsuchsharesmaybedeposited.YouacknowledgethatrecipientsoftheDatamaybelocatedindifferentcountries,andthosecountriesmayhavedataprivacylawsandprotectionsdifferentfromthoseinthecountryofyourresidence.Furthermore,youacknowledgeandunderstandthatthetransferoftheDatatotheCompanyoranyofitsSubsidiaries,ortoanythirdpartiesisnecessaryforyourparticipationinthePlan.
(b)YoumayatanytimewithdrawtheconsentshereinbycontactingtheCompany’slocalhumanresourcesrepresentativeinwriting.YoufurtheracknowledgethatwithdrawalofconsentmayaffectyourabilitytoexerciseorrealizebenefitsfromtheseRestrictedStockUnitsandyourabilitytoparticipateinthePlan.
13.No Entitlement or Claims for Compensation .
(a)Yourrights,ifany,inrespectoforinconnectionwiththeseRestrictedStockUnitsoranyotherAwardarederivedsolelyfromthediscretionarydecisionoftheCompanytopermityoutoparticipateinthePlanandtobenefitfromadiscretionaryAward.ByacceptingtheseRestrictedStockUnits,youexpresslyacknowledgethatthereisnoobligationonthepartoftheCompanytocontinuethePlanand/orgrantanyadditionalAwardstoyou.TheseRestrictedStockUnitsarenotintendedtobecompensationofacontinuingorrecurringnature,orpartofyournormalorexpectedcompensation,andinnowayrepresentsanyportionofyourcompensationorotherremunerationforpurposesofpensionbenefits,severance,redundancy,resignationoranyotherpurpose.
(b)NeitherthePlannortheseRestrictedStockUnitsoranyotherAwardgrantedunderthePlanshallbedeemedtogiveyouarighttocontinuetoserveontheBoardoftheCompanyforanyperiodofspecificdurationorinterferewithor
otherwiserestrictinanywaytherightsoftheCompanyortheCompany’sshareholders,whichrightsareherebyexpresslyreservedbyeach,toterminateyourserviceontheBoardatanytime,foranyreason,withorwithoutcause,inaccordancewiththeprovisionsofapplicablelaw,theCompany’sArticlesofIncorporationandBylaws.Youshallbedeemedirrevocablytohavewaivedanyclaimtodamagesorspecificperformanceforbreachofcontractordismissal,compensationforlossofoffice,tortorotherwisewithrespecttothePlan,theseRestrictedStockUnitsoranyoutstandingAwardthatisforfeitedand/oristerminatedbyitstermsortoanyfutureAward.
(c)Youagreethatyourrightshereundershallbesubjecttoset-offbytheCompanyforanyvaliddebtsyouowetheCompany.
14.Governing Law .ThisAgreementshallbegovernedbyandconstruedinaccordancewiththelawsoftheStateofCaliforniawithoutregardtotheconflictoflawsprinciplesthereof.
15.Notices .AnynoticerequiredorpermittedunderthetermsofthisAgreementshallbeinwritingandshallbedeemedsufficientwhendeliveredpersonallyorsentbyconfirmedemail,telegram,orfaxorforty-eight(48)hoursafterbeingdepositedintheU.S.mail,ascertifiedorregisteredmail,withpostageprepaid,andaddressedtotheCompanyattheCompany’sprincipalcorporateofficesortoyouattheaddressmaintainedforyouintheCompany’srecordsor,ineithercase,assubsequentlymodifiedbywrittennoticetotheotherparty.
16.Binding Effect .SubjecttothelimitationssetforthinthisAgreement,thisAgreementshallbebindingupon,andinuretothebenefitof,theexecutors,administrators,heirs,legalrepresentatives,successors,andassignsofthepartieshereto.
(a) 17.Severability .IfanyprovisionofthisAgreementisheldtobeunenforceableforanyreason,itshallbeadjustedratherthanvoided,ifpossible,inordertoachievetheintentofthepartiestotheextentpossible.Inanyevent,allotherprovisionsofthisAgreementshallbedeemedvalidandenforceabletothefullextentpossible.
NON-EMPLOYEE DIRECTOR ANNUAL RSU GRANT(For Grants Beginning Fiscal 2009 Through the Date that is
One Day Prior to the Date of the Company's 2015 Annual Meeting of Shareholders)
CISCO SYSTEMS, INC.STOCK UNIT AGREEMENT
ThisStockUnitAgreement(the“Agreement”)ismadeandenteredintoasoftheGrantDate(asdefinedbelow)byandbetweenCiscoSystems,Inc.,aCaliforniacorporation(the“Company”),andyoupursuanttotheCiscoSystems,Inc.2005StockIncentivePlan(the“Plan”).ThematerialtermsofthisStockUnitAwardareasfollows:
Grantee:GrantDate:GrantNumber:RestrictedStockUnits:VestDate:Thecompletionofone(1)yearofBoardservicemeasuredfromtheGrantDate.
TotheextentanycapitalizedtermsusedinthisAgreementarenotdefined,theyshallhavethemeaningascribedtotheminthePlan.IntheeventofaconflictbetweenthetermsandprovisionsofthePlanandthetermsandprovisionsofthisAgreement,thePlantermsandprovisionsshallprevail.
Inconsiderationofthemutualagreementshereincontainedandintendingtobelegallyboundhereby,thepartiesagreeasfollows:
1. Restricted Stock Units .PursuanttothePlan,theCompanyherebygrantstoyou,andyouherebyacceptfromtheCompany,RestrictedStockUnits,eachofwhichisabookkeepingentryrepresentingtheequivalentinvalueofone(1)Share,onthetermsandconditionssetforthhereinandinthePlan.
2. Vesting of Restricted Stock Units .SolongasyourserviceontheBoardcontinues,theRestrictedStockUnitsshallvestinaccordancewiththefollowingschedule:one-hundredpercent(100%)ofthetotalnumberofRestrictedStockUnitsgrantedpursuanttothisAgreementshallvestontheVestDate,unlessotherwiseprovidedbythePlanorSection4below.
3. Termination of Service .ExceptasprovidedinSection4below,intheeventoftheterminationofyourBoardserviceforanyreason,allunvestedRestrictedStockUnitsshallbeimmediatelyforfeitedwithoutconsideration.
4. Special Acceleration .(a)TotheextenttheRestrictedStockUnitsareoutstandingatthetimeofaCorporateTransactionoraChangeinControl,suchRestrictedStockUnitsshallautomaticallyaccelerateimmediatelypriortotheeffectivedateoftheCorporateTransactionortheChangeinControl,asthecasemaybe,andshallbecomevestedinfullatthattime.
(b)IfyourserviceontheBoardceasesasaresultofyourdeathorDisability,totheextenttheRestrictedStockUnitsareoutstanding,suchRestrictedStockUnitsshallautomaticallyaccelerateandshallbecomevestedinfullatthattime.
(c)ThisAgreementshallnotinanywayaffecttherightoftheCompanytoadjust,reclassify,reorganizeorotherwisechangeitscapitalorbusinessstructureortomerge,consolidate,dissolve,liquidate,sellortransferalloranypartofitsbusinessorassets.
5. Settlement of Restricted Stock Units .TotheextentyouhavenotelectedtodefersettlementoftheRestrictedStockUnits,theRestrictedStockUnitsshallbeautomaticallysettledinSharesuponvestingofsuchRestrictedStockUnits,providedthattheCompanyshallhavenoobligationtoissueSharespursuanttothisAgreementunlesssuchissuancecomplieswithallapplicablelaw.TotheextentyouhaveelectedtodefersettlementoftheRestrictedStockUnits,thevestedportionoftheRestrictedStockUnitsshallbesettledinSharesuponyourseparationfromservicewithinthemeaningofCodeSection409A(“SeparationfromService”),providedthattheCompanyshallhavenoobligationtoissueSharespursuanttothisAgreementunlesssuchissuancecomplieswithallapplicablelaw.
6. Tax Advice .Yourepresent,warrantandacknowledgethattheCompanyhasmadenowarrantiesorrepresentationstoyouwithrespecttotheincometaxconsequencesofthetransactionscontemplatedbythisAgreement,andyouareinnomannerrelyingontheCompanyortheCompany’srepresentativesforanassessmentofsuchtaxconsequences.YOUUNDERSTANDTHATTHETAXLAWSANDREGULATIONSARESUBJECTTOCHANGE.YOUSHOULDCONSULTYOUROWNTAXADVISORREGARDINGANYRESTRICTEDSTOCKUNITS.NOTHINGSTATEDHEREINISINTENDEDORWRITTENTOBEUSED,ANDCANNOTBEUSED,FORTHEPURPOSEOFAVOIDINGTAXPAYERPENALTIES.
7. Non-Transferability of Restricted Stock Units .RestrictedStockUnitsshallnotbeanticipated,assigned,attached,garnished,optioned,transferredormadesubjecttoanycreditor’sprocess,whethervoluntarilyorinvoluntarilyorbyoperationoflaw.
8. Restriction on Transfer .RegardlessofwhetherthetransferorissuanceoftheSharestobeissuedpursuanttotheRestrictedStockUnitshasbeenregisteredundertheSecuritiesActorhasbeenregisteredorqualifiedunderthesecuritieslawsofanystate,theCompanymayimposeadditionalrestrictionsuponthesale,pledge,orothertransferoftheShares(includingtheplacementofappropriatelegendsonstockcertificatesandtheissuanceofstop-transferinstructionstotheCompany’stransferagent)if,inthejudgmentoftheCompanyandtheCompany’scounsel,suchrestrictionsarenecessaryinordertoachievecompliancewiththeprovisionsoftheSecuritiesAct,thesecuritieslawsofanystate,oranyotherlaw.
9. Stock Certificate Restrictive Legends . StockcertificatesevidencingtheSharesissuedpursuanttotheRestrictedStockUnitsmaybearsuchrestrictivelegendsastheCompanyandtheCompany’scounseldeemnecessaryunderapplicablelaworpursuanttothisAgreement.
10. Representations, Warranties, Covenants, and Acknowledgments .YouherebyagreethatintheeventtheCompanyandtheCompany’scounseldeemitnecessaryoradvisableintheexerciseoftheirdiscretion,thetransferorissuanceoftheSharesissuedpursuanttotheRestrictedStockUnitsmaybeconditioneduponyoumakingcertainrepresentations,warranties,andacknowledgmentsrelatingtocompliancewithapplicablesecuritieslaws.
11. Voting and Other Rights .SubjecttothetermsofthisAgreement,youshallnothaveanyvotingrightsoranyotherrightsandprivilegesofashareholderoftheCompanyunlessanduntiltheRestrictedStockUnitsaresettleduponvesting.
12. Authorization to Release Necessary Personal Information .(a)YouherebyauthorizeanddirecttheCompanytocollect,useandtransferinelectronicorotherform,anypersonalinformation(the“Data”)regardingyourservice,thenatureandamountofyourcompensationandthefactsandconditionsofyourparticipationinthePlan(including,butnotlimitedto,yourname,homeaddress,telephonenumber,dateofbirth,socialsecuritynumber(oranyothersocialornationalidentificationnumber),compensation,nationality,jobtitle,numberofSharesheldandthedetailsofallAwardsoranyotherentitlementtoSharesawarded,cancelled,exercised,vested,unvestedoroutstanding)forthepurposeofimplementing,administeringandmanagingyourparticipationinthePlan.YouunderstandthattheDatamaybetransferredtotheCompanyoranyofitsSubsidiaries,ortoanythirdpartiesassistingintheimplementation,administrationandmanagementofthePlan,includinganyrequisitetransfertoabrokerorotherthirdpartyassistingwiththeadministrationoftheseRestrictedStockUnitsunderthePlanorwithwhomSharesacquiredpursuanttotheseRestrictedStockUnitsorcashfromthesaleofsuchsharesmaybedeposited.YouacknowledgethatrecipientsoftheDatamaybelocatedindifferentcountries,andthosecountriesmayhavedataprivacylawsandprotectionsdifferentfromthoseinthecountryofyourresidence.Furthermore,youacknowledgeandunderstandthatthetransferoftheDatatotheCompanyoranyofitsSubsidiaries,ortoanythirdpartiesisnecessaryforyourparticipationinthePlan.
(b)PriortothetimethattheRestrictedStockUnitsaresettleduponvesting,youshallhavenorightsotherthanthoseofageneralcreditoroftheCompany.TheRestrictedStockUnitsrepresentanunfundedandunsecuredobligationoftheCompany.
(c)YoumayatanytimewithdrawtheconsentshereinbycontactingtheCompany’slocalhumanresourcesrepresentativeinwriting.YoufurtheracknowledgethatwithdrawalofconsentmayaffectyourabilitytoexerciseorrealizebenefitsfromtheseRestrictedStockUnits,andyourabilitytoparticipateinthePlan.
13. No Entitlement or Claims for Compensation .(a)Yourrights,ifany,inrespectoforinconnectionwiththeseRestrictedStockUnitsoranyotherAwardarederivedsolelyfromthediscretionarydecisionoftheCompanytopermityoutoparticipateinthePlanandtobenefitfromadiscretionaryAward.ByacceptingtheseRestrictedStockUnits,youexpresslyacknowledgethatthereisnoobligationonthepartoftheCompanytocontinuethePlanand/orgrantanyadditionalAwardstoyou.TheseRestrictedStockUnitsarenotintendedtobecompensationofacontinuingorrecurringnature,orpartofyournormalorexpectedcompensation,andinnowayrepresentsanyportionofayourcompensationorotherremunerationforpurposesofpensionbenefits,severance,redundancy,resignationoranyotherpurpose.
(b)NeitherthePlannortheseRestrictedStockUnitsoranyotherAwardgrantedunderthePlanshallbedeemedtogiveyouarighttocontinuetoserveontheBoardoftheCompanyforanyperiodofspecificdurationorinterferewithorotherwiserestrictinanywaytherightsoftheCompanyortheCompany’sshareholders,whichrightsareherebyexpresslyreservedbyeach,toterminateyourserviceontheBoardatanytime,foranyreason,withorwithoutcause,inaccordancewiththeprovisionsofapplicablelaw,theCompany’sArticlesofIncorporationandBylaws.Youshallbedeemedirrevocablytohavewaivedanyclaimtodamagesorspecificperformanceforbreachofcontractordismissal,compensationforlossofoffice,tortorotherwisewithrespecttothePlan,theseRestrictedStockUnitsoranyoutstandingAwardthatisforfeitedand/oristerminatedbyitstermsortoanyfutureAward.
(c)Youagreethatyourrightshereundershallbesubjecttoset-offbytheCompanyforanyvaliddebtsyouowetheCompany.
14. Governing Law .ThisAgreementshallbegovernedbyandconstruedinaccordancewiththelawsoftheStateofCaliforniawithoutregardtotheconflictoflawsprinciplesthereof.
15. Notices .AnynoticerequiredorpermittedunderthetermsofthisAgreementshallbeinwritingandshallbedeemedsufficientwhendeliveredpersonallyorsentbyconfirmedemail,telegram,orfaxorforty-eight(48)hoursafterbeingdepositedintheU.S.mail,ascertifiedor
registeredmail,withpostageprepaid,andaddressedtotheCompanyattheCompany’sprincipalcorporateofficesortoyouattheaddressmaintainedforyouintheCompany’srecordsor,ineithercase,assubsequentlymodifiedbywrittennoticetotheotherparty.
16. Binding Effect .SubjecttothelimitationssetforthinthisAgreement,thisAgreementshallbebindingupon,andinuretothebenefitof,theexecutors,administrators,heirs,legalrepresentatives,successors,andassignsofthepartieshereto.
17. Severability .IfanyprovisionofthisAgreementisheldtobeunenforceableforanyreason,itshallbeadjustedratherthanvoided,ifpossible,inordertoachievetheintentofthepartiestotheextentpossible.Inanyevent,allotherprovisionsofthisAgreementshallbedeemedvalidandenforceabletothefullextentpossible.
NON-EMPLOYEE DIRECTOR ANNUAL GRANT(For Grants Prior to Fiscal 2009)
CISCO SYSTEMS, INC.NOTICE OF GRANT OF STOCK OPTION
Noticeisherebygivenofthefollowingoptiongrant(the“Option”)madetopurchasesharesofCiscoSystems,Inc.(the“Company”)commonstock:Optionee:GrantDate:TypeofOption:NonstatutoryStockOption
Grant Number:
NumberofOptionShares:sharesExercisePrice:$pershareExpirationDate:DateExercisable:ImmediatelyExercisable
Vesting ScheduleTheOptionSharesshallinitiallybeunvestedandsubjecttorepurchasebytheCompanyattheExercisePricepaidpershare.Optioneeshallacquireavestedinterestin,andtheCompany’srepurchaserightshallaccordinglylapse,withrespectto,theOptionSharesinaseriesoftwo(2)successiveequalannualinstallmentsuponOptionee’scompletionofeachyearofserviceasamemberoftheBoardoverthetwo(2)yearperiodmeasuredfromtheGrantDate.InnoeventshallanyadditionalOptionSharesvestafterOptionee’scessationofBoardservice.
REPURCHASE RIGHT . OPTIONEE HEREBY AGREES THAT ALL UNVESTED OPTION SHARES ACQUIRED UPON THE EXERCISE OF THEOPTION SHALL NOT BE TRANSFERABLE AND SHALL BE SUBJECT TO REPURCHASE BY THE COMPANY, AT THE EXERCISE PRICEPAID PER SHARE, UPON OPTIONEE’S TERMINATION OF SERVICE AS A MEMBER OF THE BOARD PRIOR TO VESTING IN THOSESHARES. THE TERMS AND CONDITIONS OF SUCH REPURCHASE RIGHT SHALL BE SPECIFIED IN A STOCK PURCHASE AGREEMENT,IN FORM AND SUBSTANCE SATISFACTORY TO THE COMPANY, EXECUTED BY OPTIONEE AT THE TIME OF THE OPTION EXERCISE.
OptioneeunderstandsandagreesthattheOptionisofferedsubjecttoandinaccordancewiththetermsoftheCiscoSystems,Inc.2005StockIncentivePlan(the“Plan”).OptioneefurtheragreestobeboundbythetermsofthePlanandthetermsoftheOptionassetforthintheStockOptionAgreementattachedhereto.
No Service Contract .NothinginthisNoticeorintheattachedStockOptionAgreementorinthePlanshallconferuponOptioneeanyrighttocontinuetoserveontheBoardforanyperiodofspecificdurationorinterferewithorotherwiserestrictinanywaytherightsoftheCompanyortheCompany’sshareholders,whichrightsareherebyexpresslyreservedbyeach,toterminateOptionee’sserviceontheBoardatanytime,foranyreason,withorwithoutcause,andinaccordancewiththeprovisionsofapplicablelaw.
Definitions . AllcapitalizedtermsinthisNoticeshallhavethemeaningassignedtotheminthisNotice,theattachedStockOptionAgreementorthePlan.
DATED: ,
CISCO SYSTEMS, INC.
By: Title:
OPTIONEE
STOCK OPTION AGREEMENT
RecitalsA.TheBoardhasadoptedthePlanforthepurposeofretainingtheservicesofselectedEmployees,non-employeemembersoftheBoardoroftheboardofdirectorsofanyParentorSubsidiaryandConsultantsandotherindependentadvisorswhoprovideservicestotheCompany(oranyParentorSubsidiary).
B.OptioneeistorendervaluableservicestotheCompany(oraParentorSubsidiary),andthisAgreementisexecutedpursuantto,andisintendedtocarryoutthepurposesof,thePlaninconnectionwiththeCompany’sgrantofanoptiontoOptionee.
C.AllcapitalizedtermsinthisAgreementshallhavethemeaningassignedtotheminthisAgreement,theattachedNoticeofGrantofStockOption(the“Notice”),orthePlan.
NOW, THEREFORE ,itisherebyagreedasfollows:
1. Grant of Option .TheCompanyherebygrantstoOptionee,asoftheGrantDate,aNonstatutoryStockOptiontopurchaseuptothenumberofOptionSharesspecifiedintheNotice.TheOptionSharesshallbepurchasablefromtimetotimeduringtheOptiontermspecifiedinParagraph2attheExercisePricespecifiedintheNotice.
2. Option Term .ThisOptionshallhaveamaximumtermofnine(9)yearsmeasuredfromtheGrantDateandshallaccordinglyexpireatthecloseofbusinessontheExpirationDate,unlesssoonerterminatedinaccordancewithParagraph4,5,6or7.
3. Non-Transferability .ThisOptionshallnotbeanticipated,assigned,attached,garnished,optioned,transferredormadesubjecttoanycreditor’sprocess,whethervoluntarilyorinvoluntarilyorbyoperationoflaw.Notwithstandingtheforegoing,shouldtheOptioneediewhileholdingthisOption,thenthisOptionshallbetransferredinaccordancewithOptionee’swillorthelawsofdescentanddistribution.
4. Exercisability/Vesting .(a)ThisOptionshallbeimmediatelyexercisableforanyoralloftheOptionShares,whetherornottheOptionSharesarevestedinaccordancewiththeVestingSchedulesetforthintheNotice,andshallremainsoexercisableuntiltheExpirationDateorthesoonerterminationoftheOptiontermunderthisParagraph4orParagraph5,6or7.
(b)Optioneeshall,inaccordancewiththeVestingSchedulesetforthintheNotice,vestintheOptionSharesinaseriesofinstallmentsoverhisorherperiodofBoardservice.VestingintheOptionSharesmaybeacceleratedpursuanttotheprovisionsofParagraph5,6or7.Innoevent,however,shallanyadditionalOptionSharesvestfollowingOptionee’scessationofserviceasaBoardmember.
(c)Asanadministrativematter,theexercisableportionofthisOptionmayonlybeexerciseduntilthecloseoftheNasdaqGlobalSelectMarketontheExpirationDateortheearlierterminationdateunderParagraph5,6or7or,ifsuchdateisnotatradingdayontheNasdaqGlobalSelectMarket,thelasttradingdaybeforesuchdate.AnylaterattempttoexercisethisOptionwillnotbehonored.Forexample,ifOptioneeceasestoremaininserviceasprovidedinParagraph5(a)andthedatetwelve(12)monthsfromthedateofcessationisMonday,July4(aholidayonwhichtheNasdaqGlobalSelectMarketisclosed),OptioneemustexercisetheexercisableportionofthisOptionby4pmEasternDaylightTimeonFriday,July1.
5. Cessation of Board Service .ShouldOptionee’sserviceasaBoardmemberceasewhilethisOptionremainsoutstanding,thentheOptiontermspecifiedinParagraph2shallterminate(andthisOptionshallceasetobeoutstanding)priortotheExpirationDateinaccordancewiththefollowingprovisions:
(a)ShouldOptioneeceasetoserveasaBoardmemberforanyreason(otherthandeathorDisability)whilethisOptionisoutstanding,thentheperiodforexercisingthisOptionshallbereducedtoatwelve(12)-monthperiodcommencingwiththedateofsuchcessationofBoardservice,butinnoeventshallthisOptionbeexercisableatanytimeaftertheExpirationDate.Duringsuchlimitedperiodofexercisability,thisOptionmaynotbeexercisedintheaggregateformorethanthenumberofOptionShares(ifany)inwhichOptioneeisvestedonthedateofhisorhercessationofBoardservice.Upontheearlierof(i)theexpirationofsuchtwelve(12)-monthperiodor(ii)thespecifiedExpirationDate,theOptionshallterminateandceasetobeexercisablewithrespecttoanyvestedOptionSharesforwhichtheOptionhasnotbeenexercised.
(b)ShouldOptioneedieduringthetwelve(12)-monthperiodfollowinghisorhercessationofBoardserviceandholdthisOptionatthetimeofhisorherdeath,thenthepersonalrepresentativeofOptionee’sestateorthepersonorpersonstowhomtheOptionistransferredpursuanttoOptionee’swillorinaccordancewiththelawsofdescentanddistributionshallhavetherighttoexercisethisOptionforanyoralloftheOptionSharesinwhichOptioneeisvestedatthetimeofOptionee’scessationofBoardservice(lessanyOptionSharespurchasedbyOptioneeaftersuchcessationofBoardservicebutpriortodeath).Suchrightofexerciseshallterminate,andthisOptionshallaccordinglyceasetobeexercisableforsuchvestedOptionShares,upontheearlierof(i)theexpirationofthetwelve(12)-monthperiodmeasuredfromthedateofOptionee’scessationofBoardserviceor(ii)thespecifiedExpirationDate.
(c)ShouldOptioneeceaseserviceasaBoardmemberbyreasonofdeathorDisability,thenallOptionSharesatthetimesubjecttothisOptionbutnototherwisevestedshallimmediatelyvestinfullsothatOptionee(orthepersonalrepresentativeofOptionee’sestateorthe
personorpersonstowhomtheOptionistransferreduponOptionee’sdeath)shallhavetherighttoexercisethisOptionforanyoralloftheOptionSharesasfully-vestedsharesofCommonStockatanytimepriortotheearlierof(i)theexpirationofthetwelve(12)-monthperiodmeasuredfromthedateofOptionee’scessationofBoardserviceor(ii)thespecifiedExpirationDate.
(d)UponOptionee’scessationofBoardserviceforanyreasonotherthandeathorDisability,thisOptionshallimmediatelyterminateandceasetobeoutstandingwithrespecttoanyandallOptionSharesinwhichOptioneeisnototherwiseatthattimevestedinaccordancewiththenormalVestingSchedulesetforthintheNoticeorthespecialvestingaccelerationprovisionsofParagraph6or7below.
6. Corporate Transaction .(a)IntheeventofaCorporateTransaction,allOptionSharesatthetimesubjecttothisOptionbutnototherwisevestedshallautomaticallyvestsothatthisOptionshall,immediatelypriortothespecifiedeffectivedatefortheCorporateTransaction,becomefullyexercisableforalloftheOptionSharesatthetimesubjecttothisOptionandmaybeexercisedforalloranyportionofsuchsharesasfully-vestedsharesofCommonStock.ImmediatelyfollowingtheconsummationoftheCorporateTransaction,thisOptionshallterminateandceasetobeoutstanding,excepttotheextentassumedbythesuccessorcorporationoritsparentcompany.
(b)IfthisOptionisassumedinconnectionwithaCorporateTransaction,thenthisOptionshallbeappropriatelyadjusted,immediatelyaftersuchCorporateTransaction,toapplytothenumberandclassofsecuritieswhichwouldhavebeenissuabletoOptioneeinconsummationofsuchCorporateTransactionhadtheOptionbeenexercisedimmediatelypriortosuchCorporateTransaction,andappropriateadjustmentsshallalsobemadetotheExercisePrice,providedtheaggregateExercisePriceshallremainthesame.
7. Change In Control/Hostile Take-Over .(a)AllOptionSharessubjecttothisOptionatthetimeofaChangeInControlbutnototherwisevestedshallautomaticallyvestsothatthisOptionshall,immediatelypriortotheeffectivedateofsuchChangeInControl,becomefullyexercisableforalloftheOptionSharesatthetimesubjecttothisOptionandmaybeexercisedforalloranyportionofsuchsharesasfully-vestedsharesofCommonStock.ThisOptionshallremainexercisableforsuchfully-vestedOptionSharesuntiltheearliesttooccurof(i)thespecifiedExpirationDate,(ii)thesoonerterminationofthisOptioninaccordancewithParagraph4,5or6or(iii)thesurrenderofthisOptionunderParagraph7(b).
(b)Optioneeshallhaveanunconditionalright(exercisableduringthethirty(30)-dayperiodimmediatelyfollowingtheconsummationofa“HostileTake-Over”(asdefinedbelow))tosurrenderthisOptiontotheCompanyinexchangeforacashdistributionfromtheCompanyinanamountequaltotheexcessof(i)the“Take-OverPrice”(asdefinedbelow)oftheOptionSharesatthetimesubjecttothesurrenderedOption(whetherornotthoseOptionSharesareotherwiseatthetimevested)over(ii)theaggregateExercisePricepayableforsuchshares.ThisParagraph7(b)limitedstockappreciationrightshallinalleventsterminateupontheexpirationorsoonerterminationoftheOptiontermandmaynotbeassignedortransferredbyOptionee.ForpurposesofthisOption,“HostileTake-Over”shallmeantheacquisition,directlyorindirectly,byanypersonorrelatedgroupofpersons(otherthantheCompanyorapersonthatdirectlyorindirectlycontrols,iscontrolledby,orisundercommoncontrolwith,theCompany)ofbeneficialownership(withinthemeaningofRule13d-3oftheExchangeAct)ofsecuritiespossessingmorethanthirtyfivepercent(35%)ofthetotalcombinedvotingpoweroftheCompany’soutstandingsecuritiespursuanttoatenderorexchangeoffermadedirectlytotheCompany’sshareholderswhichtheBoarddoesnotrecommendsuchshareholderstoaccept.Further,forpurposesofthisOption,“Take-OverPrice”shallmeanthegreaterof(i)theFairMarketValueonthedatetheOptionissurrenderedtotheCompanyinconnectionwithaHostileTake-Over,or(ii)thehighestreportedpricepershareofCommonStockpaidbythetenderofferorineffectingtheHostileTake-Over.
(c)ToexercisetheParagraph7(b)limitedstockappreciationright,Optioneemust,duringtheapplicablethirty(30)-dayexerciseperiod,providetheCompanywithwrittennoticeoftheoptionsurrenderinwhichthereisspecifiedthenumberofOptionSharesastowhichtheOptionisbeingsurrendered.SuchnoticemustbeaccompaniedbythereturnofOptionee’scopyofthisAgreement,togetherwithanywrittenamendmentstosuchAgreement.ThecashdistributionshallbepaidtoOptioneewithinfive(5)businessdaysfollowingsuchdeliverydate.Uponreceiptofsuchcashdistribution,thisOptionshallbecancelledwithrespecttothesharessubjecttothesurrenderedOption(orthesurrenderedportion),andOptioneeshallceasetohaveanyfurtherrighttoacquirethoseOptionSharesunderthisAgreement.TheOptionshall,however,remainoutstandingforthebalanceoftheOptionShares(ifany)inaccordancewiththetermsandprovisionsofthisAgreement,andtheCompanyshallaccordinglyissueanewstockoptionagreement(substantiallyinthesameformasthisAgreement)forthoseremainingOptionShares.
8. Adjustment in Option Shares .IntheeventofasubdivisionoftheoutstandingShares,adeclarationofadividendpayableinShares,adeclarationofadividendpayableinaformotherthanSharesinanamountthathasamaterialeffectonthepriceofShares,acombinationorconsolidationoftheoutstandingShares(byreclassificationorotherwise)intoalessernumberofShares,arecapitalization,aspin-offorasimilaroccurrence,appropriateadjustmentsshallbemadeto(i)thetotalnumberand/orkindofsharesorsecuritiessubjecttothisOptionand(ii)theExercisePriceinordertoreflectsuchchangeandtherebyprecludeadilutionorenlargementofbenefitshereunder.
9. Shareholder Rights .TheholderofthisOptionshallnothaveanyshareholderrightswithrespecttotheOptionSharesuntilsuchpersonshallhaveexercisedtheOption,paidtheExercisePriceandbecomeaholderofrecordofthepurchasedShares.
10. Manner of Exercising Option .
(a)InordertoexercisethisOptionwithrespecttoalloranypartoftheOptionSharesforwhichthisOptionisatthetimeexercisable,Optionee(oranyotherpersonorpersonsexercisingtheOption)musttakethefollowingactions:
(i)PaytheaggregateExercisePriceforthepurchasedSharesinoneormoreofthefollowingforms:(A)cashorcheckwhich,intheCompany’ssolediscretion,shallbemadepayabletoaCompany-designatedbrokeragefirmortheCompany;and
(B)aspermittedbyapplicablelaw,throughaspecialsaleandremittanceprocedurepursuanttowhichOptionee(oranyotherpersonorpersonsexercisingtheOption)shallconcurrentlyprovideirrevocablewritteninstructions(I)toaCompany-designatedbrokeragefirm(orinthecaseofanexecutiveofficerorBoardmemberoftheCompany,anOptionee-designatedbrokeragefirm)toeffecttheimmediatesaleofthepurchasedSharesandremittotheCompany,outofthesaleproceedsavailableonthesettlementdate,sufficientfundstocovertheaggregateExercisePricepayableforthepurchasedSharesplus,ifapplicable,theamountnecessarytosatisfytheCompany’swithholdingobligationsattheminimumstatutorywithholdingratesand(II)totheCompanytodeliverthecertificatesforthepurchasedSharesdirectlytosuchbrokeragefirminordertocompletethesaletransaction.
(ii)FurnishtotheCompanyappropriatedocumentationthatthepersonorpersonsexercisingtheOption(ifotherthanOptionee)havetherighttoexercisethisOption.
(iii)MakeappropriatearrangementswiththeCompany(orParentorSubsidiaryemployingorretainingOptionee)forthesatisfactionofalltaxwithholdingrequirementsapplicabletotheOptionexercise.
(iv)TotheextentthattheoptionisexercisedforoneormoreunvestedOptionShares,Optionee(orotherpersonexercisingtheoption)shalldelivertotheSecretaryoftheCompanyapurchaseagreementforthoseunvestedOptionShares.
(b)Assoonaspracticalaftertheexercisedate,theCompanyshallissuetooronbehalfofOptionee(oranyotherpersonorpersonsexercisingthisOption)thepurchasedOptionShares(asevidencedbyanappropriateentryonthebooksoftheCompanyoradulyauthorizedtransferagentoftheCompany),subjecttotheappropriatelegendsand/orstoptransferinstructions.
(c)InnoeventmaythisOptionbeexercisedforanyfractionalShares.
11. No Impairment of Rights .ThisAgreementshallnotinanywayaffecttherightoftheCompanytoadjust,reclassify,reorganizeorotherwisemakechangesinitscapitalorbusinessstructureortomerge,consolidate,dissolve,liquidateorsellortransferalloranypartofitsbusinessorassets.Inaddition,nothinginthisAgreementshallinanywaybeconstruedorinterpretedsoastoaffectadverselyorotherwiseimpairtherightoftheCompanyortheshareholderstoremoveOptioneefromtheBoardatanytimeinaccordancewiththeprovisionsofapplicablelaw.
12. Compliance with Laws and Regulations .(a)TheexerciseofthisOptionandtheissuanceoftheOptionSharesuponsuchexerciseshallbesubjecttocompliancebytheCompanyandOptioneewithallapplicablelaws,regulationsandrulesrelatingthereto,includingallapplicableregulationsofanystockexchange(ortheNasdaqGlobalSelectMarket,ifapplicable)onwhichtheSharesmaybelistedfortradingatthetimeofsuchexerciseandissuance.
(b)TheinabilityoftheCompanytoobtainapprovalfromanyregulatorybodyhavingauthoritydeemedbytheCompanytobenecessarytothelawfulissuanceandsaleofanySharespursuanttothisOptionshallrelievetheCompanyofanyliabilitywithrespecttothenon-issuanceorsaleoftheSharesastowhichsuchapprovalshallnothavebeenobtained.TheCompany,however,shalluseitsbesteffortstoobtainallsuchapprovals.
13. Successors and Assigns .ExcepttotheextentotherwiseprovidedinParagraphs3,5,6and7,theprovisionsofthisAgreementshallinuretothebenefitof,andbebindingupon,theCompanyanditssuccessorsandassignsandOptionee,Optionee’sassignsandthelegalrepresentatives,heirsandlegateesofOptionee’sestate.
14. Notices .AnynoticerequiredorpermittedunderthetermsofthisAgreementshallbeinwritingandshallbedeemedsufficientwhendeliveredpersonallyorsentbyconfirmedemail,telegram,orfaxorforty-eight(48)hoursafterbeingdepositedintheU.S.mail,ascertifiedorregisteredmail,withpostageprepaid,andaddressedtotheCompanyattheCompany’sprincipalcorporateofficesortotheOptioneeattheaddressmaintainedfortheOptioneeintheCompany’srecordsor,ineithercase,assubsequentlymodifiedbywrittennoticetotheotherparty.
15. Construction .TheNotice,thisAgreement,andtheOptionevidencedhereby(a)aremadeandgrantedpursuanttothePlanandareinallrespectslimitedbyandsubjecttothetermsofthePlan,and(b)constitutetheentireagreementbetweenOptioneeandtheCompanyonthesubjectmatterhereofandsupercedeallproposals,writtenororal,andallothercommunicationsbetweenthepartiesrelatedtothesubjectmatter.AlldecisionsoftheCommitteewithrespecttoanyquestionorissuearisingundertheNotice,thisAgreementorthePlanshallbeconclusiveandbindingonallpersonshavinganinterestinthisOption.
16. Governing Law .Theinterpretation,performanceandenforcementofthisAgreementshallbegovernedbythelawsoftheStateofCaliforniawithoutresorttotheconflictoflawsprinciplesthereof.
17. Excess Shares .IftheOptionSharescoveredbythisAgreementexceed,asoftheGrantDate,thenumberofShareswhichmaywithoutshareholderapprovalbeissuedunderthePlan,thenthisOptionshallbevoidwithrespecttothoseexcessshares,unlessshareholderapprovalofanamendmentsufficientlyincreasingthenumberofSharesissuableunderthePlanisobtainedinaccordancewiththeprovisionsofthePlanandallapplicablelaws,regulationsandrules.
18. Further Instruments .ThepartiesagreetoexecutesuchfurtherinstrumentsandtotakesuchfurtheractionasmaybereasonablynecessarytocarryoutthepurposesandintentofthisAgreement.
NON-EMPLOYEE DIRECTOR STOCK UNITIN LIEU OF ANNUAL RETAINER
(For Grants Effective on and after the Date of theCompany's 2015 Annual Meeting of Shareholders and Prior to the 2016 Annual Meeting of Shareholders)
CISCO SYSTEMS, INC.STOCK UNIT AGREEMENT
ThisStockUnitAgreement(the“Agreement”)ismadeandenteredintoasoftheGrantDate(asdefinedbelow)byandbetweenCiscoSystems,Inc.,aCaliforniacorporation(the“Company”),andyoupursuanttotheCiscoSystems,Inc.2005StockIncentivePlan(the“Plan”).ThematerialtermsofthisStockUnitAwardareasfollows:
Grantee:
GrantDate:
GrantNumber:
RestrictedStockUnits:
TotheextentanycapitalizedtermsusedinthisAgreementarenotdefined,theyshallhavethemeaningascribedtotheminthePlan.IntheeventofaconflictbetweenthetermsandprovisionsofthePlanandthetermsandprovisionsofthisAgreement,thePlantermsandprovisionsshallprevail.
Inconsiderationofthemutualagreementshereincontainedandintendingtobelegallyboundhereby,thepartiesagreeasfollows:
1.Restricted Stock Units .PursuanttothePlan,theCompanyherebygrantstoyou,andyouherebyacceptfromtheCompany,RestrictedStockUnits,eachofwhichisabookkeepingentryrepresentingtheequivalentinvalueofone(1)Share,onthetermsandconditionssetforthhereinandinthePlan.
2.Vesting of Restricted Stock Units .One-hundredpercent(100%)ofthetotalnumberofRestrictedStockUnitsgrantedpursuanttothisAgreementshallvestontheGrantDate.
3.Settlement of Restricted Stock Units .RestrictedStockUnitsshallbeautomaticallysettledinSharesuponyourseparationfromservicewithinthemeaningofCodeSection409A(“SeparationfromService”),providedthattheCompanyshallhavenoobligationtoissueSharespursuanttothisAgreementunlessanduntilsuchissuancecomplieswithallapplicablelaw.PriortothetimethattheRestrictedStockUnitsaresettledinSharesuponyourSeparationfromService,youshallhavenorightsotherthanthoseofageneralcreditoroftheCompany.TheRestrictedStockUnitsrepresentanunfundedandunsecuredobligationoftheCompany.
4.Tax Advice .Yourepresent,warrantandacknowledgethattheCompanyhasmadenowarrantiesorrepresentationstoyouwithrespecttotheincometaxconsequencesofthetransactionscontemplatedbythisAgreement,andyouareinnomannerrelyingontheCompanyortheCompany’srepresentativesforanassessmentofsuchtaxconsequences.YOUUNDERSTANDTHATTHETAXLAWSANDREGULATIONSARESUBJECTTOCHANGE.YOUSHOULDCONSULTYOUROWNTAXADVISORREGARDINGANYRESTRICTEDSTOCKUNITS.NOTHINGSTATEDHEREINISINTENDEDORWRITTENTOBEUSED,ANDCANNOTBEUSED,FORTHEPURPOSEOFAVOIDINGTAXPAYERPENALTIES.
5.Non-Transferability of Restricted Stock Units .RestrictedStockUnitsshallnotbeanticipated,assigned,attached,garnished,optioned,transferredormadesubjecttoanycreditor’sprocess,whethervoluntarilyorinvoluntarilyorbyoperationoflaw.
6.Restriction on Transfer .RegardlessofwhetherthetransferorissuanceoftheSharestobeissuedpursuanttotheRestrictedStockUnitshasbeenregisteredundertheSecuritiesActorhasbeenregisteredorqualifiedunderthesecuritieslawsofanystate,theCompanymayimposeadditionalrestrictionsuponthesale,pledge,orothertransferoftheShares(includingtheplacementofappropriatelegendsonstockcertificatesandtheissuanceofstop-transferinstructionstotheCompany’stransferagent)if,inthejudgmentoftheCompanyandtheCompany’scounsel,suchrestrictionsarenecessaryinordertoachievecompliancewiththeprovisionsoftheSecuritiesAct,thesecuritieslawsofanystate,oranyotherlaw.
7.Stock Certificate Restrictive Legends . StockcertificatesevidencingtheSharesissuedpursuanttotheRestrictedStockUnitsmaybearsuchrestrictivelegendsastheCompanyandtheCompany’scounseldeemnecessaryunderapplicablelaworpursuanttothisAgreement.
8.Representations, Warranties, Covenants, and Acknowledgments .YouherebyagreethatintheeventtheCompanyandtheCompany’scounseldeemitnecessaryoradvisableintheexerciseoftheirdiscretion,thetransferorissuanceoftheSharesissuedpursuanttotheRestrictedStockUnitsmaybeconditioneduponyoumakingcertainrepresentations,warranties,andacknowledgmentsrelatingtocompliancewithapplicablesecuritieslaws.
9.Voting, Dividend and Other Rights .SubjecttothetermsofthisAgreementandexceptassetforthbelow,youshallnothaveanyvotingrightsoranyotherrightsandprivilegesofashareholderoftheCompanyunlessanduntiltheRestrictedStockUnitsaresettleduponyourSeparationfromService.DividendequivalentsshallaccrueandwillbesubjecttothesameconditionsandrestrictionsastheRestrictedStockUnitstowhichtheyattachassetforthinthePlanorthisAgreementandwillbesettledinadditionalSharesuponyourSeparationfromService.
10.Authorization to Release Necessary Personal Information .
(a)YouherebyauthorizeanddirecttheCompanytocollect,useandtransferinelectronicorotherform,anypersonalinformation(the“Data”)regardingyourservice,thenatureandamountofyourcompensationandthefactsandconditionsofyourparticipationinthePlan(including,butnotlimitedto,yourname,homeaddress,telephonenumber,dateofbirth,socialsecuritynumber(oranyothersocialornationalidentificationnumber),compensation,nationality,jobtitle,numberofSharesheldandthedetailsofallAwardsoranyotherentitlementtoSharesawarded,cancelled,exercised,vested,unvestedoroutstanding)forthepurposeofimplementing,administeringandmanagingyourparticipationinthePlan.YouunderstandthattheDatamaybetransferredtotheCompanyoranyofitsSubsidiaries,ortoanythirdpartiesassistingintheimplementation,administrationandmanagementofthePlan,includinganyrequisitetransfertoabrokerorotherthirdpartyassistingwiththeadministrationoftheseRestrictedStockUnitsunderthePlanorwithwhomSharesacquiredpursuanttotheseRestrictedStockUnitsorcashfromthesaleofsuchsharesmaybedeposited.YouacknowledgethatrecipientsoftheDatamaybelocatedindifferentcountries,andthosecountriesmayhavedataprivacylawsandprotectionsdifferentfromthoseinthecountryofyourresidence.Furthermore,youacknowledgeandunderstandthatthetransferoftheDatatotheCompanyoranyofitsSubsidiaries,ortoanythirdpartiesisnecessaryforyourparticipationinthePlan.
(b)YoumayatanytimewithdrawtheconsentshereinbycontactingtheCompany’slocalhumanresourcesrepresentativeinwriting.YoufurtheracknowledgethatwithdrawalofconsentmayaffectyourabilitytoexerciseorrealizebenefitsfromtheseRestrictedStockUnitsandyourabilitytoparticipateinthePlan.
11.Governing Law .ThisAgreementshallbegovernedbyandconstruedinaccordancewiththelawsoftheStateofCaliforniawithoutregardtotheconflictoflawsprinciplesthereof.
12.Notices .AnynoticerequiredorpermittedunderthetermsofthisAgreementshallbeinwritingandshallbedeemedsufficientwhendeliveredpersonallyorsentbyconfirmedemail,telegram,orfaxorforty-eight(48)hoursafterbeingdepositedintheU.S.mail,ascertifiedorregisteredmail,withpostageprepaid,andaddressedtotheCompanyattheCompany’sprincipalcorporateofficesortoyouattheaddressmaintainedforyouintheCompany'srecordsor,ineithercase,assubsequentlymodifiedbywrittennoticetotheotherparty.
13.Binding Effect .SubjecttothelimitationssetforthinthisAgreement,thisAgreementshallbebindingupon,andinuretothebenefitof,theexecutors,administrators,heirs,legalrepresentatives,successors,andassignsofthepartieshereto.
14.Severability .IfanyprovisionofthisAgreementisheldtobeunenforceableforanyreason,itshallbeadjustedratherthanvoided,ifpossible,inordertoachievetheintentofthepartiestotheextentpossible.Inanyevent,allotherprovisionsofthisAgreementshallbedeemedvalidandenforceabletothefullextentpossible.
NON-EMPLOYEE DIRECTOR STOCK UNITIN LIEU OF ANNUAL RETAINER
(For Grants Effective Prior to the Date of theCompany's 2015 Annual Meeting of Shareholders)
CISCO SYSTEMS, INC.STOCK UNIT AGREEMENT
ThisStockUnitAgreement(the“Agreement”)ismadeandenteredintoasoftheGrantDate(asdefinedbelow)byandbetweenCiscoSystems,Inc.,aCaliforniacorporation(the“Company”),andyoupursuanttotheCiscoSystems,Inc.2005StockIncentivePlan(the“Plan”).ThematerialtermsofthisStockUnitAwardareasfollows:
Grantee:
GrantDate:
GrantNumber:
RestrictedStockUnits: TotheextentanycapitalizedtermsusedinthisAgreementarenotdefined,theyshallhavethemeaningascribedtotheminthePlan.IntheeventofaconflictbetweenthetermsandprovisionsofthePlanandthetermsandprovisionsofthisAgreement,thePlantermsandprovisionsshallprevail.
Inconsiderationofthemutualagreementshereincontainedandintendingtobelegallyboundhereby,thepartiesagreeasfollows:1. Restricted Stock Units .PursuanttothePlan,theCompanyherebygrantstoyou,andyouherebyacceptfromtheCompany,RestrictedStockUnits,eachofwhichisabookkeepingentryrepresentingtheequivalentinvalueofone(1)Share,onthetermsandconditionssetforthhereinandinthePlan.
2. Vesting of Restricted Stock Units .One-hundredpercent(100%)ofthetotalnumberofRestrictedStockUnitsgrantedpursuanttothisAgreementshallvestontheGrantDate.
3. Settlement of Restricted Stock Units .RestrictedStockUnitsshallbeautomaticallysettledinSharesuponyourseparationfromservicewithinthemeaningofCodeSection409A(“SeparationfromService”),providedthattheCompanyshallhavenoobligationtoissueSharespursuanttothisAgreementunlessanduntilyouhavesatisfiedanyapplicabletaxwithholdingobligationsandsuchissuanceotherwisecomplieswithallapplicablelaw.
4. Tax Advice .Yourepresent,warrantandacknowledgethattheCompanyhasmadenowarrantiesorrepresentationstoyouwithrespecttotheincometaxconsequencesofthetransactionscontemplatedbythisAgreement,andyouareinnomannerrelyingontheCompanyortheCompany’srepresentativesforanassessmentofsuchtaxconsequences.YOUUNDERSTANDTHATTHETAXLAWSANDREGULATIONSARESUBJECTTOCHANGE.YOUSHOULDCONSULTYOUROWNTAXADVISORREGARDINGANYRESTRICTEDSTOCKUNITS.NOTHINGSTATEDHEREINISINTENDEDORWRITTENTOBEUSED,ANDCANNOTBEUSED,FORTHEPURPOSEOFAVOIDINGTAXPAYERPENALTIES.
5. Non-Transferability of Restricted Stock Units .RestrictedStockUnitsshallnotbeanticipated,assigned,attached,garnished,optioned,transferredormadesubjecttoanycreditor’sprocess,whethervoluntarilyorinvoluntarilyorbyoperationoflaw.However,thisSection5shallnotprecludeyoufromdesignatingabeneficiarywhowillreceivevestedSharespursuanttothisawardintheeventofyourdeath,norshallitprecludeatransferofvestedSharespursuanttothisawardbywillorbythelawsofdescentanddistribution.
6. Restriction on Transfer .RegardlessofwhetherthetransferorissuanceoftheSharestobeissuedpursuanttotheRestrictedStockUnitshasbeenregisteredundertheSecuritiesActorhasbeenregisteredorqualifiedunderthesecuritieslawsofanystate,theCompanymayimposeadditionalrestrictionsuponthesale,pledge,orothertransferoftheShares(includingtheplacementofappropriatelegendsonstockcertificatesandtheissuanceofstop-transferinstructionstotheCompany’stransferagent)if,inthejudgmentoftheCompanyandtheCompany’scounsel,suchrestrictionsarenecessaryinordertoachievecompliancewiththeprovisionsoftheSecuritiesAct,thesecuritieslawsofanystate,oranyotherlaw.
7. Stock Certificate Restrictive Legends . StockcertificatesevidencingtheSharesissuedpursuanttotheRestrictedStockUnitsmaybearsuchrestrictivelegendsastheCompanyandtheCompany’scounseldeemnecessaryunderapplicablelaworpursuanttothisAgreement.
8. Representations, Warranties, Covenants, and Acknowledgments .YouherebyagreethatintheeventtheCompanyandtheCompany’scounseldeemitnecessaryoradvisableintheexerciseoftheirdiscretion,thetransferorissuanceoftheSharesissuedpursuanttotheRestrictedStockUnitsmaybeconditioneduponyoumakingcertainrepresentations,warranties,andacknowledgmentsrelatingtocompliancewithapplicablesecuritieslaws.
9. Voting and Other Rights .SubjecttothetermsofthisAgreement,youshallnothaveanyvotingrightsoranyotherrightsandprivilegesofashareholderoftheCompanyunlessanduntiltheRestrictedStockUnitsaresettledinSharesuponyourSeparationfromService.
10. Authorization to Release Necessary Personal Information .(a)YouherebyauthorizeanddirecttheCompanytocollect,useandtransferinelectronicorotherform,anypersonalinformation(the“Data”)regardingyourservice,thenatureandamountofyourcompensationandthefactsandconditionsofyourparticipationinthePlan(including,butnotlimitedto,yourname,homeaddress,telephonenumber,dateofbirth,socialsecuritynumber(oranyothersocialornationalidentificationnumber),compensation,nationality,jobtitle,numberofSharesheldandthedetailsofallAwardsoranyotherentitlementtoSharesawarded,cancelled,exercised,vested,unvestedoroutstanding)forthepurposeofimplementing,administeringandmanagingyourparticipationinthePlan.YouunderstandthattheDatamaybetransferredtotheCompanyoranyofitsSubsidiaries,ortoanythirdpartiesassistingintheimplementation,administrationandmanagementofthePlan,includinganyrequisitetransfertoabrokerorotherthirdpartyassistingwiththeadministrationoftheseRestrictedStockUnitsunderthePlanorwithwhomSharesacquiredpursuanttotheseRestrictedStockUnitsorcashfromthesaleofsuchsharesmaybedeposited.YouacknowledgethatrecipientsoftheDatamaybelocatedindifferentcountries,andthosecountriesmayhavedataprivacylawsandprotectionsdifferentfromthoseinthecountryofyourresidence.Furthermore,youacknowledgeandunderstandthatthetransferoftheDatatotheCompanyoranyofitsSubsidiaries,ortoanythirdpartiesisnecessaryforyourparticipationinthePlan.
(b)PriortothetimethattheRestrictedStockUnitsaresettledinSharesuponyourSeparationfromService,youshallhavenorightsotherthanthoseofageneralcreditoroftheCompany.TheRestrictedStockUnitsrepresentanunfundedandunsecuredobligationoftheCompany.
(c)YoumayatanytimewithdrawtheconsentshereinbycontactingtheCompany’slocalhumanresourcesrepresentativeinwriting.YoufurtheracknowledgethatwithdrawalofconsentmayaffectyourabilitytoexerciseorrealizebenefitsfromtheseRestrictedStockUnits,andyourabilitytoparticipateinthePlan.
11. Governing Law .ThisAgreementshallbegovernedbyandconstruedinaccordancewiththelawsoftheStateofCaliforniawithoutregardtotheconflictoflawsprinciplesthereof.
12. N otices .AnynoticerequiredorpermittedunderthetermsofthisAgreementshallbeinwritingandshallbedeemedsufficientwhendeliveredpersonallyorsentbyconfirmedemail,telegram,orfaxorforty-eight(48)hoursafterbeingdepositedintheU.S.mail,ascertifiedorregisteredmail,withpostageprepaid,andaddressedtotheCompanyattheCompany’sprincipalcorporateofficesortoyouattheaddressmaintainedforyouintheCompany’srecordsor,ineithercase,assubsequentlymodifiedbywrittennoticetotheotherparty.
13. Binding Effect .SubjecttothelimitationssetforthinthisAgreement,thisAgreementshallbebindingupon,andinuretothebenefitof,theexecutors,administrators,heirs,legalrepresentatives,successors,andassignsofthepartieshereto.
14. Severability .IfanyprovisionofthisAgreementisheldtobeunenforceableforanyreason,itshallbeadjustedratherthanvoided,ifpossible,inordertoachievetheintentofthepartiestotheextentpossible.Inanyevent,allotherprovisionsofthisAgreementshallbedeemedvalidandenforceabletothefullextentpossible.
DATED:
CISCOSYSTEMS,INC.
By: Title:
GRANTEE
(Effective For Elections With Respect To Grants Made After The Date Of The Company’s
2016 Annual Meeting Of Shareholders)
NON-EMPLOYEE DIRECTOR ELECTIONS INITIAL ANNUAL RETAINER & EQUITY GRANT
INITIAL ANNUAL RETAINER
Thealternativesforthefiscal________initialannualretainerfornon-employeemembersoftheBoardofDirectorsofCiscoSystems,Inc.(the“Company”)are:
• anon-deferredcashpayment(defaultoption),
• adeferredcashpaymentundertheCompany’sDeferredCompensationPlan(the“DCP”),
• avestedstockgrantunderthe2005StockIncentivePlan(the“Plan”),and/or
• avesteddeferredstockunit(“DSU”)grantunderthePlan.
If you make no elections below, you will receive your full initial annual retainer in non-deferred cash.
I,beingaprospectivenewlyelectedorappointednon-employeememberoftheBoardofDirectorsoftheCompany,herebymakethebelowelectionswithrespecttomyinitialannualretainerforthefirstyear(orpartialyear)ofBoardservicecommencingonthedateofmyelectionorappointmentasanon-employeememberoftheBoardofDirectorsoftheCompany.(TheElectionAmountmusttotal100%.)
Alternative Election Amount(0% to 100%, in increments
of 25%)
Election under the DCPSeparation from Service
Non-Deferred Cash(defaultoption) %
(e.g.0%,25%,50%,75%or100%)
N/A
Deferred Cash under the DeferredCompensation Plan
%
IelecttoreceivemyDCPaccountbalance(chooseoneoftheoptionsbelow):
¨assoonaspracticableaftermy“SeparationfromService,”butnolaterthan30daysaftermySeparationfromService.
¨assoonaspracticableinthecalendaryearfollowingthecalendaryearofmy“SeparationfromService,”butnolaterthanJanuary31.
Vested Stock Grant%
N/A
Vested DSU Grant%
N/A
TOTAL 100%
Iunderstandthefollowing:
• IfIelecttoreceivedeferredcashundertheDCP:
o IauthorizetheCompanytosharemypersonalinformationwiththethird-partyDCPadministratorsothattheDCPadministratorcanbegintheenrollmentprocessinorderformetomakeinvestmentandbeneficiaryelectionspursuanttothetermsoftheDCP.
o IwillreceivemyDCPaccountbalanceinacashlumpsum,taxableasordinaryincome,pursuanttomyelectionabove.IfImakenoelection,IwillreceivemyDCPaccountbalanceassoonaspracticableaftermy“SeparationfromService”withinthemeaningunderSection409AoftheInternalRevenueCode,whichgenerallywillbethedatemyserviceasamemberoftheBoardofDirectorsoftheCompanyterminates;providedhowever,suchpaymentdatewillbenolaterthan30daysaftermySeparationfromService.
• IfIelecttoreceiveavestedstockgrant,theshareswillbegrantedonthedateofmyelectionorappointmentasanon-employeememberoftheBoardofDirectorsoftheCompanybasedontheclosingvalueoftheCompany’scommonstockonsuchdate(the“FairMarketValue”),theshareswillbetaxedasordinaryincometomebasedontheFairMarketValue,andIwillreceivethesharesassoonaspracticableafterthatdate.
• IfIelecttoreceiveavestedDSUgrant:
o TheDSUgrantwillbegrantedonthedateofmyelectionorappointmentasanon-employeememberoftheBoardofDirectorsoftheCompanybasedontheFairMarketValue.
o TheDSUgrantwillbesettledinsharesoftheCompany’scommonstockon,orassoonaspracticableafter,mySeparationfromService;providedhowever,suchsettlementshalloccurnolaterthan30daysaftermySeparationfromService.
o DividendequivalentswillaccrueontheDSUgrantandwillbecreditedasadditionalDSUstobesettledinadditionalsharesoftheCompany’scommonstockon,orassoonaspracticableafter,mySeparationfromService;providedhowever,suchsettlementshalloccurnolaterthan30daysaftermySeparationfromService.
o ReceiptofsharesoftheCompany’scommonstockpursuanttotheDSUgrantwillbetaxedasordinaryincometomebasedonthevalueofthesharesonthedatetheDSUgrantissettledandIreceivesharesoftheCompany’scommonstock.
[INITIAL EQUITY GRANT ELECTION ON NEXT PAGE]
INITIAL EQUITY GRANT
Ifurther(checkone)(i)¨ELECT or(ii)¨DO NOT ELECT todefertheissuanceofmyinitialstockgrantoffullyvestedsharesofstockanticipatedtobegrantedunderthe2005StockIncentivePlan(the“Plan”)onthedateofmyelectionorappointmentinconnectionwithmyinitialelectionorappointmentasanon-employeememberoftheBoardofDirectorsoftheCompanyfortheyearofBoardservicecommencingonsuchdate.
Iunderstandthefollowing:
• IfIdonotelecttodefertheissuanceofmyinitialstockgrant,theshareswillbegrantedonthedateofmyelectionorappointmentasanon-employeememberoftheBoardofDirectorsoftheCompanybasedontheclosingvalueoftheCompany’scommonstockonsuchdate(the“FairMarketValue”),theshareswillbetaxedasordinaryincometomebasedontheFairMarketValue,andIwillreceivethesharesassoonaspracticableafterthatdate.
• IfIelecttodefertheissuanceofmyinitialstockgrant:
o ThegrantwillnotbeissuedinsharesoftheCompany’scommonstockassetforthabove,butinsteadwillbegrantedasafullyvesteddeferredstockunit(“DSU”)onthedateofmyelectionorappointmentasanon-employeememberoftheBoardofDirectorsoftheCompanybasedontheFairMarketValue.
o TheDSUgrantwillbesettledinsharesoftheCompany’scommonstockon,orassoonaspracticableafter,my“SeparationfromService”withinthemeaningunderSection409AoftheInternalRevenueCode;providedhowever,suchsettlementshalloccurnolaterthan30daysaftermySeparationfromService.
o DividendequivalentswillaccrueontheDSUgrantandwillbecreditedasadditionalDSUstobesettledinadditionalsharesoftheCompany’scommonstockon,orassoonaspracticableafter,mySeparationfromService;providedhowever,suchsettlementshalloccurnolaterthan30daysaftermySeparationfromService.
o ReceiptofsharesoftheCompany’scommonstockpursuanttotheDSUgrantwillbetaxedasordinaryincometomebasedonthevalueofthesharesonthedatetheDSUgrantissettledandIreceivesharesoftheCompany’scommonstock.
*****
IunderstandthattheseelectionswillbeeffectiveonlyifreceivedbytheCompany’sLegalDepartmentonorbeforethedateofmyelectionorappointment.
SignatureofNon-EmployeeDirectorDate
* Because individual circumstances vary, Cisco Systems, Inc. cannot provide tax advice and you should consult with your own tax advisor regarding the income taxconsequences of your potential elections.
(Effective on and after the Date of the Company's 2015 Annual Meeting of Shareholders until the 2016 Annual Meeting of Shareholders)
NON-EMPLOYEE DIRECTOR ELECTION INITIAL EQUITY AWARD
I,beingaprospectivenewlyelectedorappointednon-employeememberoftheBoardofDirectorsofCiscoSystems,Inc.(the“Company”)hereby(checkone):
(i)oELECT or(ii)oDO NOT ELECT todeferthesettlementofmytotalinitialrestrictedstockunitawardanticipatedtobegrantedunderthe2005StockIncentivePlan(the“Plan”)onthedateofmyelectionorappointmentinconnectionwithmyinitialelectionorappointmentasanon-employeememberoftheBoardofDirectorsoftheCompany.
Iunderstandthefollowing:
• IfIdonotelecttodeferthesettlementofmyinitialrestrictedstockunitgrant,thegrantwillbeautomaticallysettledinsharesoftheCompany’scommonstockon,orassoonaspracticableafter,thevestingofthegrantonthedateoftheCompany’sAnnualMeetingofShareholdersfollowingthedateofgrant(subjecttoaccelerationincertaincases),asmorefullysetforthintheStockUnitAgreement.
• Ifmy“SeparationfromService”withinthemeaningunderSection409AoftheInternalRevenueCode(“SeparationfromService”)occursbeforemyinitialrestrictedstockunitgrantvests,thegrantwillbeforfeited.
• IfIelecttodeferthesettlementofmyinitialrestrictedstockunitgrant:
o ThegrantwillnotbesettledinsharesoftheCompany’scommonstockupontheabove-describedvestingdate,butinsteadwillbedeferredandsettledinsharesoftheCompany’scommonstockon,orassoonaspracticableafter,mySeparationfromService.
o DividendequivalentswillaccrueafterthedeferredstockunitgrantvestsandwillbecreditedasadditionaldeferredstockunitstobesettledinadditionalsharesoftheCompany’scommonstockon,orassoonaspracticableafter,mySeparationfromService.
o ReceiptofsharesoftheCompany’scommonstockpursuanttoanydeferredstockunitgrantwillbetaxedasordinaryincometomebasedonthevalueofthesharesonthedatethedeferredstockunitgrantissettledandIreceivesharesoftheCompany’scommonstock.
*****
IunderstandthatthiselectionwillbeeffectiveonlyifreceivedbytheCompany’sLegalDepartmentonorbeforethedateofmyelectionorappointment.
SignatureofNon-EmployeeDirectorDate
* Because individual circumstances vary, Cisco Systems, Inc. cannot provide tax advice and you should consult with your own tax advisor regarding the income taxconsequences of your potential election.
(Effective For Elections With Respect To Grants Made After The Date Of The Company’s
2016 Annual Meeting Of Shareholders)
N ON-EMPLOYEE DIRECTOR ELECTIONS ANNUAL RETAINER & EQUITY GRANT
ANNUAL RETAINER
Thealternativesforthefiscal________annualretainer(anticipatedtobe$75,000)fornon-employeemembersoftheBoardofDirectorsofCiscoSystems,Inc.(the“Company”)are:
• anon-deferredcashpayment(defaultoption),
• adeferredcashpaymentundertheCompany’sDeferredCompensationPlan(the“DCP”),
• avestedstockgrantunderthe2005StockIncentivePlan(the“Plan”),and/or
• avesteddeferredstockunit(“DSU”)grantunderthePlan.
If you make no elections below, you will receive your full annual retainer in non-deferred cash.
I,beinganon-employeememberoftheBoardofDirectorsoftheCompany,herebymakethebelowelectionswithrespecttomyannualretainerforthenextyearofBoardservicecommencingatthenextAnnualMeetingofShareholders.(TheElectionAmountmusttotal100%.)
Alternative Election Amount(0% to 100%, in
increments of 25%)
Election under the DCPSeparation from Service
Non-Deferred Cash(defaultoption) %
(e.g.0%,25%,50%,75%or100%)
N/A
Deferred Cash under the DeferredCompensation Plan
%
IelecttoreceivemyDCPaccountbalance(chooseoneoftheoptionsbelow):
assoonaspracticableaftermy“SeparationfromService,”butnolaterthan30daysaftermySeparationfromService.
assoonaspracticableinthecalendaryearfollowingthecalendaryearofmy“SeparationfromService,”butnolaterthanJanuary31.
Vested Stock Grant%
N/A
Vested DSU Grant%
N/A
TOTAL 100%
Iunderstandthefollowing:
• IfIelecttoreceivedeferredcashundertheDCP:
o IauthorizetheCompanytosharemypersonalinformationwiththethird-partyDCPadministratorsothattheDCPadministratorcanbegintheenrollmentprocessinorderformetomakeinvestmentandbeneficiaryelectionspursuanttothetermsoftheDCP.
o IwillreceivemyDCPaccountbalanceinacashlumpsum,taxableasordinaryincome,pursuanttomyelectionabove.IfImakenoelection,IwillreceivemyDCPaccountbalanceassoonaspracticableaftermy“SeparationfromService”withinthemeaningunderSection409AoftheInternalRevenueCode,whichgenerallywillbethedatemyserviceasamemberoftheBoardofDirectorsoftheCompanyterminates;providedhowever,suchpaymentdatewillbenolaterthan30daysaftermySeparationfromService.
• IfIelecttoreceiveavestedstockgrant,theshareswillbegrantedonthedateoftheAnnualMeetingofShareholdersbasedontheclosingvalueoftheCompany’scommonstockonsuchdate(the“FairMarketValue”),theshareswillbetaxedasordinaryincometomebasedontheFairMarketValue,andIwillreceivethesharesassoonaspracticableafterthatdate.
• IfIelecttoreceiveavestedDSUgrant:
o TheDSUgrantwillbegrantedonthedateoftheAnnualMeetingofShareholdersbasedontheFairMarketValue.
o TheDSUgrantwillbesettledinsharesoftheCompany’scommonstockon,orassoonaspracticableafter,mySeparationfromService;providedhowever,suchsettlementshalloccurnolaterthan30daysaftermySeparationfromService.
o DividendequivalentswillaccrueontheDSUgrantandwillbecreditedasadditionalDSUstobesettledinadditionalsharesoftheCompany’scommonstockon,orassoonaspracticableafter,mySeparationfromService;providedhowever,suchsettlementshalloccurnolaterthan30daysaftermySeparationfromService.
o ReceiptofsharesoftheCompany’scommonstockpursuanttotheDSUgrantwillbetaxedasordinaryincometomebasedonthevalueofthesharesonthedatetheDSUgrantissettledandIreceivesharesoftheCompany’scommonstock.
[ANNUAL EQUITY GRANT ELECTION ON NEXT PAGE]
ANNUAL EQUITY GRANT
Ifurther(checkone)(i)¨ELECT or(ii)¨DO NOT ELECT todefertheissuanceofmyannualstockgrantoffullyvestedsharesofstockanticipatedtobegrantedunderthe2005StockIncentivePlan(the“Plan”)onthedateofthenextAnnualMeetingofShareholdersfortheyearofBoardservicecommencingatthenextAnnualMeetingofShareholders.
Iunderstandthefollowing:
• IfIdonotelecttodefertheissuanceofmyannualstockgrant,theshareswillbegrantedonthedateoftheAnnualMeetingofShareholdersbasedontheclosingvalueoftheCompany’scommonstockonsuchdate(the“FairMarketValue”),theshareswillbetaxedasordinaryincometomebasedontheFairMarketValue,andIwillreceivethesharesassoonaspracticableafterthatdate.
• IfIelecttodefertheissuanceofmyannualstockgrant:
o ThegrantwillnotbeissuedinsharesoftheCompany’scommonstockassetforthabove,butinsteadwillbegrantedasafullyvesteddeferredstockunit(“DSU”)onthedateoftheAnnualMeetingofShareholdersbasedontheFairMarketValue.
o TheDSUgrantwillbesettledinsharesoftheCompany’scommonstockon,orassoonaspracticableafter,my“SeparationfromService”withinthemeaningunderSection409AoftheInternalRevenueCode;providedhowever,suchsettlementshalloccurnolaterthan30daysaftermySeparationfromService.
o DividendequivalentswillaccrueontheDSUgrantandwillbecreditedasadditionalDSUstobesettledinadditionalsharesoftheCompany’scommonstockon,orassoonaspracticableafter,mySeparationfromService;providedhowever,suchsettlementshalloccurnolaterthan30daysaftermySeparationfromService.
o ReceiptofsharesoftheCompany’scommonstockpursuanttotheDSUgrantwillbetaxedasordinaryincometomebasedonthevalueofthesharesonthedatetheDSUgrantissettledandIreceivesharesoftheCompany’scommonstock.
*****
Iunderstandthattheseelectionswillbeeffectiveonlyifreceivedby_______________onorbefore_________[December31,[PRECEDINGYEAR]].
SignatureofNon-EmployeeDirectorDate
* Because individual circumstances vary, Cisco Systems, Inc. cannot provide tax advice and you should consult with your own tax advisor regarding the income taxconsequences of your potential elections.
(Effective December 2014 until the 2016 Annual Meeting of Shareholders)
NON-EMPLOYEE DIRECTOR ELECTIONSANNUAL RETAINER & EQUITY AWARD
ANNUAL RETAINER
Thealternativesforthefiscal________annualretainer(anticipatedtobe$75,000)fornon-employeemembersoftheBoardofDirectorsofCiscoSystems,Inc.(the“Company”)are:
• anon-deferredcashpayment(defaultoption),• adeferredcashpaymentundertheCompany’sDeferredCompensationPlan(the“DCP”),• avestedstockgrantunderthe2005StockIncentivePlan(the“Plan”),and/or• avesteddeferredstockunitgrantunderthePlan.
If you make no elections below, you will receive your full annual retainer in non-deferred cash.
I,beinganon-employeememberoftheBoardofDirectorsoftheCompany,herebymakethebelowelectionswithrespecttomyannualretainerforthenextyearofBoardservicecommencingatthenextAnnualMeetingofShareholders.(TheElectionAmountmusttotal100%.)
Alternative
Election Amount(0% to 100%, in
increments of 25%)Election under the DCPSeparation from Service
Non-Deferred Cash(defaultoption)
%(e.g.0%,25%,50%,75%or
100%)
N/A
Deferred Cash under the DeferredCompensation Plan %
IelecttoreceivemyDCPaccountbalance(chooseoneoftheoptionsbelow):
oassoonaspracticableaftermy“SeparationfromService”
oassoonaspracticableinthecalendaryearfollowingthecalendaryearofmy“SeparationfromService”
Vested Stock Grant % N/A
Vested DeferredStock Unit Grant % N/A
TOTAL 100%
Iunderstandthefollowing:
• IfIelecttoreceivedeferredcashundertheDCP:◦ IauthorizetheCompanytosharemypersonalinformationwiththethird-partyDCPadministratorsothattheDCPadministratorcanbeginthe
enrollmentprocessinorderformetomakeinvestmentandbeneficiaryelectionspursuanttothetermsoftheDCP.◦ IwillreceivemyDCPaccountbalanceinacashlumpsum,taxableasordinaryincome,pursuanttomyelectionabove.IfImakenoelection,I
willreceivemyDCPaccountbalanceassoonaspracticableaftermy“SeparationfromService”withinthemeaningunderSection409AoftheInternalRevenueCode,whichgenerallywillbethedatemyserviceasamemberoftheBoardofDirectorsoftheCompanyterminates.
• IfIelecttoreceiveavestedstockgrant,theshareswillbegrantedonthedateoftheAnnualMeetingofShareholdersbasedontheclosingvalueoftheCompany’scommonstockonsuchdate(the“FairMarketValue”),theshareswillbetaxedasordinaryincometomebasedontheFairMarketValue,andIwillreceivethesharesassoonaspracticableafterthatdate.
• IfIelecttoreceiveavesteddeferredstockunitgrant:
◦ ThedeferredstockunitgrantwillbegrantedonthedateoftheAnnualMeetingofShareholdersbasedontheFairMarketValue.◦ ThedeferredstockunitgrantwillbesettledinsharesoftheCompany’scommonstockon,orassoonaspracticableafter,mySeparationfrom
Service.◦ Dividendequivalentswillaccrueonthevesteddeferredstockunitgrantandwillbecreditedasadditionaldeferredstockunitstobesettledin
additionalsharesoftheCompany’scommonstockon,orassoonaspracticableafter,mySeparationfromService.◦ ReceiptofsharesoftheCompany’scommonstockpursuanttothedeferredstockunitgrantwillbetaxedasordinaryincometomebasedonthe
valueofthesharesonthedatethedeferredstockunitgrantissettledandIreceivesharesoftheCompany’scommonstock.
[ANNUAL EQUITY AWARD ELECTION ON NEXT PAGE]
ANNUAL EQUITY AWARD
Ifurther(checkone)(i)oELECT or(ii)oDO NOT ELECT todeferthesettlementofmytotalannualrestrictedstockunitawardanticipatedtobegrantedunderthe2005StockIncentivePlan(the“Plan”)onthedateofthenextAnnualMeetingofShareholders.
Iunderstandthefollowing:
• IfIdonotelecttodeferthesettlementofmyannualrestrictedstockunitgrant,thegrantwillbeautomaticallysettledinsharesoftheCompany’scommonstockon,orassoonaspracticableafter,thevestingofthegrantuponthecompletionofoneyearofBoardservicefollowingthedateofgrant(subjecttoaccelerationincertaincases),asmorefullysetforthintheStockUnitAgreement.
• IfmySeparationfromServiceoccursbeforemyannualrestrictedstockunitgrantvests,thegrantwillbeforfeited.• IfIelecttodeferthesettlementofmyannualrestrictedstockunitgrant:
◦ ThegrantwillnotbesettledinsharesoftheCompany’scommonstockupontheabove-describedvestingdate,butinsteadwillbedeferredandsettledinsharesoftheCompany’scommonstockon,orassoonaspracticableafter,mySeparationfromService.
◦ DividendequivalentswillaccrueafterthedeferredstockunitgrantvestsandwillbecreditedasadditionaldeferredstockunitstobesettledinadditionalsharesoftheCompany’scommonstockon,orassoonaspracticableafter,mySeparationfromService.
◦ ReceiptofsharesoftheCompany’scommonstockpursuanttoanydeferredstockunitgrantwillbetaxedasordinaryincometomebasedonthevalueofthesharesonthedatethedeferredstockunitgrantissettledandIreceivesharesoftheCompany’scommonstock.
*****
Iunderstandthattheseelectionswillbeeffectiveonlyifreceivedby_____________________________onorbefore____________[December31,[PRECEDINGYEAR]].
SignatureofNon-EmployeeDirectorDate
* Because individual circumstances vary, Cisco Systems, Inc. cannot provide tax advice and you should consult with your own tax advisor regarding the incometax consequences of your potential elections.
CISCO SYSTEMS, INC.
VESTING ACCELERATION POLICY
FOR
DEATH AND TERMINAL ILLNESS
AS
AMENDED JANUARY 27, 2016
UnlessanduntiltheCompensation&ManagementDevelopmentCommitteeoftheBoardofDirectorsofCiscoSystems,Inc.determinesotherwise,thefollowingpolicyshallbeappliedtoalloutstandingequityawardsissuedunderanyequityplanmaintainedCiscooranyCiscosubsidiary,includingoutstandingequityawardsand/orequityplansassumedbyCiscoinconnectionwithitsacquisitionofcompanies,andheldbyanyemployeeofCiscooranyCiscosubsidiary(eachsuchawardshallbereferredtohereinasan“equityaward”),excepttotheextentthattheapplicationofsuchpolicywouldbeprohibitedanyapplicablelaw,ruleorregulationorwouldresultinadverselegalortaxconsequencesthereunder.
Forpurposesofthispolicy:
•
thevalueofstockoptionsandstockappreciationrightsisbasedonthedifferencebetweentheexercisepriceoftheequityawardsandtheclosingpriceofCisco’sstockonthedateoftheemployee’sdeathorterminalillness,asapplicable,orifsuchdayisnotatradingday,thelasttradingdaypriortothedateofdeathorterminalillness,asapplicable;
•
thevalueofstockgrants,stockunits,andunvestedsharespreviouslyacquiredpursuanttoequityawards(suchsharesarereferredtohereinas“unvestedequityawardshares”)isbasedonthedifferencebetweenthepurchaseprice,ifany,andtheclosingpriceofCisco’sstockonthedateoftheemployee’sdeathorterminalillness,asapplicable,orifsuchdayisnotatradingday,thelasttradingdaypriortothedateofdeathorterminalillness,asapplicable;
•
“unvestedequityawardshares”includesoutstandingandunvestedperformance-basedrestrictedstockorstockunitawardsandtheacceleratedvestingofsuchawardswillbedeemedtooccurattargetlevels,subjecttothespecifiedlimitsbelow;and
•
totheextentthevestingofanyperformance-basedrestrictedstockorstockunitawardisacceleratedpursuanttothispolicy,theawardwillbesettleduponthedeathorterminalillnessofanemployee,asthecasemaybe,exceptthatiftheapplicableawardissubjecttoSection409AoftheInternalRevenueCode(“CodeSection409A”)andsuchterminalillnessdoesnotqualifyasa“Disability”withinthemeaningofCodeSection409A,thentheawardwillinsteadbesettledonthefixedpaymentdatefollowingtheendoftheperformanceperiodonwhichtheapplicableawardisnormallypaidout.
ACCELERATION UPON DEATH OF EMPLOYEEUponthedeathofanemployee,Ciscowillacceleratethevestingoftheemployee’soutstandingequityawardsandanyunvestedequityawardsharesuptoaspecifiedlimitbasedonthevalueoftheequityawardsand/orsharesonthedateofdeath.Thelimitontheamountofacceleratedvestingisthegreaterof:(a)one-hundredpercent(100%)oftheunvestedequityawardsand/orunvestedequityawardsharesuptoatotalvalueof$10million;or(b)uptooneyearofvestingfromthedateofdeathastoallunvestedequityawardsand/orunvestedequityawardshares.Forexample,ifanemployeeheldunvestedoptionsfor100,000shareswithanexercisepriceof$1whichwouldvestinfourannualinstallmentsof25,000shares,andtheclosingpriceofCisco’sstockonthedateoftheemployee’sdeathwas$101,all100,000oftheshareswouldbecomevested(100,000sharesx$100(thedifferencebetween$101and$1)=$10,000,000).
ACCELERATION UPON TERMINAL ILLNESS OF EMPLOYEEUpontheterminalillnessofanemployee,Ciscowillacceleratethevestingoftheemployee’soutstandingequityawardsandanyunvestedequityawardsharesuptoaspecifiedlimitbasedonthevalueoftheequityawardsand/orsharesonthedateoftheterminalillness.AnemployeewillbeconsideredterminallyillupontheapprovalbyCisco’semployeelifeinsuranceprovideroftheacceleratedlifeinsurancebenefitwhichindicates12monthsorlesstolive.Whenarequestismadetoacceleratethevestingofanemployee’soutstandingequityawardsandearlylifeinsurancepayoutsarenotalsorequested,anemployeewillbeconsideredterminallyillupontheapprovalbyCisco’sexternal,independentmedicalreviewvendor(whichmayincludeCisco’semployeelifeinsuranceprovider).ThedateofterminalillnesswillbethedatethedeterminationismadebyCisco’semployeelifeinsuranceproviderorCisco’sexternal,independentmedicalreviewvendor.Thelimitontheamountofacceleratedvestingisthegreaterof:(a)one-hundredpercent(100%)oftheunvestedequityawardsand/orunvestedequityawardsharesuptoatotalvalueof$10million;or(b)uptooneyearofvestingfromthedateoftheterminalillnessastoallunvestedequityawardsand/orunvestedequityawardshares.Forexample,ifanemployeeholdsunvestedoptionsfor100,000shareswithanexercisepriceof$1whichwouldvestinfourannualinstallmentsof25,000shares,andtheclosingpriceofCisco’sstockonthedatethattheemployeeisdeterminedtobeterminallyillwas$101,all100,000oftheshareswouldbecomevested(100,000sharesx$100(thedifferencebetween$101and$1)=$10,000,000).
CISCO SYSTEMS, INC.
VESTING POLICY
FOR
LEAVES OF ABSENCE
AS AMENDED JANUARY 27, 2016
UnlessanduntiltheCompensation&ManagementDevelopmentCommitteeoftheBoardofDirectorsofCiscoSystems,Inc.determinesotherwise,thefollowingpolicyshallbeappliedtoalloutstandingequityawardsissuedunderanyequityplanmaintainedCiscooranyCiscosubsidiary,includingoutstandingequityawardsand/orequityplansassumedbyCiscoinconnectionwithitsacquisitionofcompanies,andheldbyanyemployeeofCiscooranyCiscosubsidiary(eachsuchawardshallbereferredtohereinasan“equityaward”),excepttotheextentthattheapplicationofsuchpolicywouldbeprohibitedbyanyapplicablelaw,ruleorregulationorwouldresultinadverselegalortaxconsequencesthereunder.90 DAYS CONTINUED VESTING ON AUTHORIZED LEAVES OF ABSENCETheexerciseorvestingscheduleineffectforanyoutstandingequityawardandanyunvestedsharespreviouslyacquiredpursuanttoanyequityaward(suchsharesreferredtohereinas“unvestedequityawardshares”)heldbyanemployeeatthetimeoftheemployee’scommencementofanauthorizedleaveofabsenceshallcontinuetovestand/orbecomeexercisableinaccordancewiththevestingschedulesetforthintheapplicableequityawardagreementduringtheperiodtheemployeeremainsonsuchauthorizedleaveofabsence;providedthat,innoeventshallanyemployeebeentitledtovestformorethan90daysofauthorizedleavesofabsenceduringanyrolling12-monthperiod(the“LOALimit”).
IfanemployeeexceedstheLOALimitduringanyrolling12-monthperiod,theunvestedequityawardsharesheldbysuchanemployeeshallbesuspendedimmediatelyfollowingtheexpirationoftheLOALimitandtheequityawardandanyunvestedequitysharesshallnotvestand/orbecomeexercisableforanyadditionalsharesduringtheremainderoftherolling12-monthperiod.
CISCO SYSTEMS, INC.TRANSFER POLICY
FORDIVORCE
UnlessanduntiltheCompensation&ManagementDevelopmentCommitteeoftheBoardofDirectorsofCiscoSystems,Inc.determinesotherwise,thefollowingpolicyshallbeappliedtoallequityawardsissuedunderanyequityplanmaintainedCiscooranyCiscosubsidiary,includingequityawardsand/orequityplansassumedbyCiscoinconnectionwithitsacquisitionofcompanies,andheldbyanyemployeeofCiscooranyCiscosubsidiary(eachsuchawardshallbereferredtohereinasan“equityaward”),excepttotheextentthattheapplicationofsuchpolicywouldbeprohibitedbytheapplicableequityplan,equityawardagreementoranyapplicablelaw,ruleorregulation.
PROHIBITION ON TRANSFER OF EQUITY AWARDS UPON DIVORCEExceptasprovidedbelow,equityawardsandanyunvestedsharesacquiredpursuanttoequityawardsshallnotbeanticipated,assigned,attached,garnished,optioned,transferredormadesubjecttoanycreditor’sprocessinconnectionwiththedivorceoftheholderofsuchequityawardorshares.EquityawardsandanyunvestedsharesacquiredpursuanttoequityawardsmaybetransferredbyanexecutiveofficerofCiscoonlytotheextentrequiredbyadomesticrelationsorder,asdefinedbytheInternalRevenueCodeorTitleIoftheEmployeeRetirementIncomeSecurityAct,ortherulesthereunder,insettlementofmaritalpropertyrightsbyanycourtofcompetentjurisdiction.
EXHIBIT 21.1SUBSIDIARIES OF THE REGISTRANT
Subsidiaries
State Or OtherJurisdiction of
Incorporation orOrganization
302DirectMediaLLC CaliforniaAcano(UK)Limited UnitedKingdomAcanoAS NorwayAcanoAsiaPacificPtyLimited AustraliaAcanoFederalLLC DelawareAcanoLLC DelawareAirespaceWirelessNetworksPrivateLimited IndiaBeaumarisNetworks,Inc. DelawareBeaumarisSoftwareResearch&Development(Beijing)Co.,Ltd. ChinaBeijingNDSInformationTechnologyCo.,Ltd. ChinaBGPmonNetworkSolutionsInc. CanadaBroadHopIndiaPrivateLimited IndiaBroadHopInternationalB.V. NetherlandsBroadHopLLC DelawareBroadHopSDN.BHD. MalaysiaCallwayLLC DelawareCastupIsraelLtd. IsraelCCDVenturesLLC DelawareCisco(SaudiArabia)SupportLimited SaudiArabiaCiscoAlbaniaSHPK AlbaniaCiscoBahrain(SPC) BahrainCiscoBilgisayarveInternetSistemleriLimitedSirketi TurkeyCiscoCapital(Dubai)Limited UnitedArabEmiratesCiscoCapitalMexico,S.deR.L.deC.V. MexicoCiscoChinaCompany,Limited ChinaCiscoChinaHoldings(HK)Limited HongKongCiscoComercioeServicosdeHardwareeSoftwaredoBrasilLtda BrazilCiscoCommerceIndiaPrivateLimited IndiaCiscoDevelopmentIndiaPrivateLimited IndiaCiscodoBrasilLtda BrazilCiscoFastData,LLC DelawareCiscoHoldingsCaymanLtd CaymanIslandsCiscoInnovationInternationalSàrl SwitzerlandCiscoInternationalHoldingsB.V. NetherlandsCiscoInternationalIsraelLimited IsraelCiscoInternationalLimited UnitedKingdomCiscoInternationalTaiwan,Ltd. TaiwanCiscoInternetworkingLimitedLiabilityCompany ArmeniaCiscoInternetworkingSystemsHellasS.A. GreeceCiscoIris,Inc. DelawareCiscoIronportSystemsLLC DelawareCiscoISHB.V. NetherlandsCiscoISHIIB.V. NetherlandsCiscoLinksysKissApS DenmarkCiscoMalaysiaManagedServicesSDN.BHD. MalaysiaCiscoManagedServicesNigeriaLimited NigeriaCiscoManagedSolutions,Inc. DelawareCiscoMorocco MoroccoCiscoNorwayAS NorwayCiscoNorwayHoldingsAS Norway
1
Subsidiaries
State Or OtherJurisdiction of
Incorporation orOrganization
CiscoOpenDNSLLC DelawareCiscoOpticalGmbH GermanyCiscoPhotonicsItalyS.r.l. ItalyCiscoQSTP-LLC QatarCiscoRavenscourtLLC DelawareCiscoRentingItalyS.r.l. ItalyCiscoRGIsraelLtd IsraelCiscoSaudiArabiaLimited SaudiArabiaCiscoSCM(Thailand)Limited ThailandCiscoSerbiadooBeograd SerbiaCiscoServices(HongKong)Limited HongKongCiscoServicesKoreaLimited Korea,RepublicofCiscoServicesMalaysiaSDNBHD MalaysiaCiscoSolutionsGmbH GermanyCiscoSolutionsGuatemala,Limitada GuatemalaCiscoSystems(Argentina)S.A. ArgentinaCiscoSystems(Bermuda)HoldingsLtd. BermudaCiscoSystems(China)InformationTechnologyServicesLimited ChinaCiscoSystems(China)NetworkingTechnologyCo.,Ltd. ChinaCiscoSystems(China)ResearchandDevelopmentCo.,Ltd. ChinaCiscoSystems(Colombia)Limitada ColombiaCiscoSystems(CzechRepublic)s.r.o. CzechRepublicCiscoSystems(Ethiopia)PLC EthiopiaCiscoSystems(HK)HoldingsLimited HongKongCiscoSystems(HK)Limited HongKongCiscoSystems(India)PrivateLimited IndiaCiscoSystems(Italy)S.r.l. ItalyCiscoSystems(Jordan) JordanCiscoSystems(Korea)Limited Korea,RepublicofCiscoSystems(Malaysia)SDN.BHD. MalaysiaCiscoSystems(Myanmar)CompanyLimited MyanmarCiscoSystems(Nigeria)Limited NigeriaCiscoSystems(PuertoRico)Corp. DelawareCiscoSystems(Scotland)Limited UnitedKingdomCiscoSystems(Senegal)SUARL SenegalCiscoSystems(Shanghai)VideoTechnologyCo.,Ltd. ChinaCiscoSystems(SouthAfrica)(Proprietary)Limited SouthAfricaCiscoSystems(Spain),S.L. SpainCiscoSystems(Sweden)AB SwedenCiscoSystems(Switzerland)GmbH SwitzerlandCiscoSystems(Switzerland)InvestmentsLtd. BermudaCiscoSystems(Thailand)Limited ThailandCiscoSystems(Trinidad&Tobago)Limited TrinidadandTobagoCiscoSystems(USA)Pte.Ltd. SingaporeCiscoSystemsAlgeriaEURL AlgeriaCiscoSystemsAustraliaPtyLimited AustraliaCiscoSystemsAustriaGmbH AustriaCiscoSystemsBelgiumSPRL BelgiumCiscoSystemsBulgariaEOOD BulgariaCiscoSystemsCanadaCo./LesSystemesCiscoCanadaCIE CanadaCiscoSystemsCapital(Australia)PtyLimited Australia
CiscoSystemsCapital(India)PrivateLimited India
2
Subsidiaries
State Or OtherJurisdiction of
Incorporation orOrganization
CiscoSystemsCapital(Korea)Limited Korea,RepublicofCiscoSystemsCapital(Thailand)Limited ThailandCiscoSystemsCapitalAsiaPte.Ltd. SingaporeCiscoSystemsCapitalCanadaCo./LesSystemesCiscoCapitalCanadaCIE CanadaCiscoSystemsCapitalChinaCorporation ChinaCiscoSystemsCapitalCorporation NevadaCiscoSystemsCapitalFranceSAS FranceCiscoSystemsCapitalGmbH GermanyCiscoSystemsCapitalItalyS.r.l. ItalyCiscoSystemsCapitalK.K. JapanCiscoSystemsCapitalNetherlandsB.V. NetherlandsCiscoSystemsCapitalSDN.BHD. MalaysiaCiscoSystemsCapitalSouthAfrica(Proprietary)Limited SouthAfricaCiscoSystemsCapitalSpain,S.L. SpainCiscoSystemsChileS.A. ChileCiscoSystemsCostaRica,SociedadAnonima CostaRicaCiscoSystemsCroatiaLtd.ForTrade CroatiaCiscoSystemsCyprusLtd. CyprusCiscoSystemsDanmarkApS DenmarkCiscoSystemsdeMexico,S.deR.L.deC.V. MexicoCiscoSystemsDominicana,S.R.L. DominicanRepublicCiscoSystemsEcuadorS.A. EcuadorCiscoSystemsEgyptLtd. EgyptCiscoSystemsElSalvador,Ltda.deC.V. ElSalvadorCiscoSystemsEstoniaOU EstoniaCiscoSystemsFinanceInternational IrelandCiscoSystemsFinanceInternationalHoldingsILimited IrelandCiscoSystemsFinanceInternationalHoldingsIILimited IrelandCiscoSystemsFinanceInternationalHoldingsIIILimited IrelandCiscoSystemsFinanceInternationalHoldingsIVLimited IrelandCiscoSystemsFinanceInternationalHoldingsVLimited IrelandCiscoSystemsFinanceInternationalHoldingsVILimited IrelandCiscoSystemsFinlandOY FinlandCiscoSystemsFranceSarl FranceCiscoSystemsG.K. JapanCiscoSystemsGmbH GermanyCiscoSystemsHoldingGmbH GermanyCiscoSystemsHoldingsUKLimited UnitedKingdomCiscoSystemsHungaryLtd./CiscoSystemsHungaryServicingandTradingLimitedLiabilityCompany HungaryCiscoSystemsInternationalB.V. NetherlandsCiscoSystemsInternationalFZ-LLC UnitedArabEmiratesCiscoSystemsInternationalSARL SwitzerlandCiscoSystemsInternetworking(Ireland)Limited IrelandCiscoSystemsInternetworkingd.o.o.ZaMarketing,TehnickeIDrugeUslugeSarajevo BosniaandHerzegovinaCiscoSystemsInternetworkingIletisimHizmetleriLimitedSirketi TurkeyCiscoSystemsIslandEhf. IcelandCiscoSystemsIsraelLtd. IsraelCiscoSystemsJamaicaLimited JamaicaCiscoSystemsLimited UnitedKingdomCiscoSystemsLLC OmanCiscoSystemsLuxembourgInternationals.àr.l. Luxembourg
CiscoSystemsLuxembourgs.àr.l. Luxembourg
3
Subsidiaries
State Or OtherJurisdiction of
Incorporation orOrganization
CiscoSystemsMacedoniaDOOELSkopje Macedonia,theformerYugoslavRepublicof
CiscoSystemsManagementB.V. NetherlandsCiscoSystemsManagementLtd. BermudaCiscoSystemsMoçambique,Limitada MozambiqueCiscoSystemsNetherlandsHoldingsB.V. NetherlandsCiscoSystemsNewZealandLimited NewZealandCiscoSystemsNorwayAS NorwayCiscoSystemsPakistan(Private)Limited PakistanCiscoSystemsPanamaS.deR.L. PanamaCiscoSystemsPeruS.A. PeruCiscoSystemsPolandSp.zo.o. PolandCiscoSystemsPortugal-SistemasInformáticos,SociedadeUnipessoal,Limitada PortugalCiscoSystemsRomaniaS.r.l. RomaniaCiscoSystemsServicesB.V. NetherlandsCiscoSystemsSlovakia,spol.s.r.o. SlovakiaCiscoSystemsTaiwan,Ltd. TaiwanCiscoSystemsUruguayS.R.L. UruguayCiscoSystemsVenezuela,C.A. theBolivarianRepublicof
VenezuelaCiscoSystemsVietnamLimited(CongTyTrachNhiemHuuHanCiscoSystemsVietnam) VietnamCiscoTechnologies(Thailand)Limited ThailandCiscoTechnologiesNewZealandLimited NewZealandCiscoTechnologiesPhilippines,Inc. PhilippinesCiscoTechnology(China)Co.,Ltd. ChinaCiscoTechnologyandServices(SouthAfrica)(Pty)Ltd. SouthAfricaCiscoTechnologyBangladeshLtd. BangladeshCiscoTechnologyBelgiumBVBA BelgiumCiscoTechnologyDenmarkApS DenmarkCiscoTechnologyServices(Dalian)Co.,Ltd. ChinaCiscoTechnology,Inc. CaliforniaCiscoTHVLLC DelawareCiscoTunisiaSARL TunisiaCiscoVideoTechnologiesFranceSAS FranceCiscoVideoTechnologiesIndiaPrivateLimited IndiaCiscoVideoTechnologiesIsraelLtd. IsraelCiscoWebExLLC DelawareCiscoWorldwideHoldingsLtd. BermudaCisco-NaviniNetworksLLC DelawareCliQrTechnologiesIndiaPvtLtd IndiaCliQrTechnologiesLLC CaliforniaCliQrTechnologiesU.K.Limited UnitedKingdomCloupiaLLC CaliforniaCloupiaSoftwareSolutionsPrivateLimited IndiaCognitiveSecuritys.r.o. CzechRepublicCompositeSoftwareLLC DelawareCompositeSoftwareUKLimited UnitedKingdomCoreOpticsLLC DelawareCSIBD(Mauritius) MauritiusCSIMauritiusInc. MauritiusCyberSecurityS.L. Spain
CyberSecuritySARL France
4
Subsidiaries
State Or OtherJurisdiction of
Incorporation orOrganization
Digi-MediaVisionLimited UnitedKingdomDivitechA/S DenmarkDocumentReadyApS DenmarkEmbraneLLC DelawareExtendMediaLLC DelawareGreenfieldNetworksLLC CaliforniaGreenfieldNetworksTechnologiesPrivateLimited IndiaInsiemeNetworks,LLC DelawareIntucellLtd. IsraelIntucellPte.Ltd. SingaporeJabberLLC DelawareJasperInternationalServicesLLC DelawareJasperNetherlandsB.V. NetherlandsJasperTechnologiesAustraliaPtyLtd AustraliaJasperTechnologiesCanadaLimited CanadaJasperTechnologiesIrelandLimited IrelandJasperTechnologiesLimited UnitedKingdomJasperTechnologiesLLC DelawareJasperTechnologiesSingaporePteLtd. SingaporeJasperTecnologiadoBrasilLtda. BrazilJouleXGK JapanJouleXGmbH GermanyJouleXLLC DelawareLancopeLLC DelawareLANCOPEMENAFZE UnitedArabEmiratesLeabaSemiconductorLtd. IsraelLimitedLiabilityCompanyCiscoCapitalCIS RussianFederationLimitedLiabilityCompanyCiscoInnovationCenter RussianFederationLimitedLiabilityCompanyCiscoSolutions RussianFederationLimitedLiabilityCompanyCiscoSystems RussianFederationMaintenanceNet(UK)Ltd. UnitedKingdomMaintenanceNetLLC DelawareMemoirSystemsIndiaPvtLtd IndiaMemoirSystemsLLC CaliforniaMerakiLimited UnitedKingdomMerakiLLC DelawareMetaCloudLLC DelawareMnemonicTechnologiesLLC DelawareNaviniNetworksPrivateLimited IndiaNDSAmericasLLC DelawareNDSDenmarkApS DenmarkNDSDenmarkHoldingsA/S DenmarkNDSFinanceLimited UnitedKingdomNDSGroupHoldingsLimited BermudaNDSGroupLimited UnitedKingdomNDSHoldings(Europe)Limited UnitedKingdomNDSHoldingsB.V. NetherlandsNDSLimited UnitedKingdomNDSMarketingIsraelLimited IsraelNDSSwedenAB SwedenNDSTreasury(Jersey)Limited Jersey
NeohapsisEMEALtd. UnitedKingdom
5
Subsidiaries
State Or OtherJurisdiction of
Incorporation orOrganization
NeohapsisInternationalLLC DelawareNeohapsisLLC DelawareNeohapsisSoftwarePrivateLimited IndiaNeohapsis,Inc. IllinoisNewsDatacomLimited UnitedKingdomnewScaleLLC CalifornianewScaleSoftwarePrivateLimited IndiaOneMainstreamLLC DelawareOnPrimeTVLLC DelawareOpenDNSCanadaULC CanadaOpenDNSUKLtd. UnitedKingdomOrativeCorporation DelawarePariNetworks(India)PrivateLimited IndiaPariNetworksLLC DelawareParStreamGmbH GermanyParStreamLLC DelawarePawaaSoftwarePrivateLimited IndiaPistonCloudComputingLLC DelawarePortcullisComputerSecurity,Ltd. UnitedKingdomPortcullisLLC CaliforniaPostpathLLC DelawarePTCiscoSystemsIndonesia IndonesiaPT.CiscoTechnologiesIndonesia IndonesiaPureDigitalTechnologiesLLC DelawarePureNetworksLLC DelawareRadiata,Inc. DelawareScansafeLimited UnitedKingdomScansafeLLC DelawareScansafeServicesLLC DelawareScientific-Atlanta,LLC GeorgiaSecurentIndiaPrivateLimited IndiaSecurentLLC DelawareSIA"CiscoLatvia" LatviaSmallWellsServicesS.A. UruguaySolveDirectServiceManagementGmbH AustriaSourcefireBrasilComércioESegurançadeRedeLtda. BrazilSourcefireFranceS.A.S. FranceSourcefireHoldingCompany(International)S.á.r.l. LuxembourgSourcefireHoldingCompany(US)LLC DelawareSourcefireLimited UnitedKingdomSourcefireLLC DelawareSourcefireSingaporePte.Ltd. SingaporeStarentInternationalLLC DelawareStarentNetworks(India)PrivateLimited IndiaStarentNetworksBeijingCo,Ltd ChinaStarentNetworksIndiaSalesandServicesPrivateLimited IndiaStarentNetworksLLC DelawareSynataLLC DelawareTail-fSystemsAB SwedenTandbergAsiaPacificPte.Ltd. SingaporeTandbergIndiaPrivateLimited India
TandbergProductsUKLimited UnitedKingdom
6
Subsidiaries
State Or OtherJurisdiction of
Incorporation orOrganization
TandbergTechnology(India)PrivateLimited IndiaTandbergTelecomUKLimited UnitedKingdomThinkSmartTechnologiesLimited IrelandThreatGRIDLLC DelawareTopspinCommunicationsLLC DelawareTopspinCommunicationsTechnologiesIndiaPrivateLimited IndiaTropo(Europe)Limited UnitedKingdomTropoLLC DelawareUAB"CiscoLT" LithuaniaUbiquisysLimited UnitedKingdomVoxeoLabs(Beijing)Technology,Ltd. ChinaWebEx(China)SoftwareCo.,Ltd. ChinaWebExAsiaLimited HongKongWebExAustraliaPtyLtd. AustraliaWebExCommunicationsB.V. NetherlandsWebExCommunicationsDeutschlandGmbH GermanyWebExCommunicationsFranceSarl FranceWebExCommunicationsIndiaPrivateLimited IndiaWebExCommunicationsJapan,K.K. JapanWebExCommunicationsUK,Ltd. UnitedKingdomWebExWorldwideB.V. NetherlandsWhiptailTechnologiesLimited UnitedKingdomWhipTailTechnologiesLLC Delaware
7
EXHIBIT 23.1
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
WeherebyconsenttotheincorporationbyreferenceintheRegistrationStatementsonFormS-3(Nos.:333-36156,333-36156,333-194090)datedMay3,2000,May9,2000,andFebruary24,2014,respectively,ofCiscoSystems,Inc.andonFormS-8(Nos.:33-63331,33-64283,333-64283[PostEff.],333-01069,333-02101,333-05447[PostEff.],333-09903,333-14383,333-14661,333-14679,333-16577,333-17287,333-24741,333-33619,333-01069[PostEff.],333-34849[PostEff.],33-40509[PostEff.],33-44221[PostEff.],33-71860[PostEff.],33-87096[PostEff.],333-42249,333-51093,333-42249[PostEff.],333-64651,333-79717,333-96203,333-56224,333-76184,333-42249[PostEff.],333-91258,333-42249[PostEff.],333-106284,333-111977,333-123872,333-128755,333-129719,333-132050,333-135687,333-137653,333-139175,333-142333,333-143389,333-143506,333-143997,333-144305,333-147522,333-147523,333-147763,333-148576,333-153248,333-153808,333-155494,333-157368,333-159679,333-159681,333-163864,333-163953,333-163954,333-167430,333-168364,333-169653,333-169655,333-171659,333-173061,333-173062,333-174715,333-176862,333-178266,333-180455,333-180458,333-181082,333-185592,333-185594,333-185597,333-185663,333-185666,333-185667,333-186100,333-187090,333-189354,333-189931,333-190733,333-191866,333-192055,333-193217,333-196968,333-196970,333-199154,333-199447,333-200775,333-201799,333-201802,333-201804,333-204764,333-205110,333-206400,333-206708,333-208348,333-208349,333-208927,333-209418,333-210395,333-210396,333-210626,333-210874,333-212776,and333-212952datedOctober11,1995,November15,1995,February20,1996,February20,1996,April1,1996,July29,1996,August9,1996,October18,1996,October23,1996,October23,1996,November21,1996,December5,1996,April8,1997,August14,1997,December10,1997,December10,1997,December10,1997,December10,1997,December10,1997,December10,1997,December15,1997,April27,1998,September28,1998,September29,1998,June1,1999,February4,2000,February26,2001,January2,2002,June25,2002,June26,2002,August20,2002,June19,2003,January16,2004,April6,2005,September30,2005,November15,2005,February27,2006,July11,2006,September28,2006,December7,2006,April24,2007,May31,2007,June5,2007,June22,2007,July3,2007,November20,2007,November20,2007,December3,2007,January10,2008,August29,2008,October2,2008,November20,2008,February17,2009,June2,2009,June2,2009,December18,2009,December23,2009,December23,2009,June10,2010,July28,2010,September29,2010,September29,2010,January12,2011,March25,2011,March25,2011,June3,2011,September16,2011,December1,2011,March29,2012,March29,2012,May1,2012,December20,2012,December20,2012,December20,2012,December24,2012,December24,2012,December24,2012,January18,2013,March6,2013,June14,2013,July12,2013,August20,2013,October23,2013,November1,2013,January7,2014,June23,2014,June23,2014,October3,2014,October17,2014,December5,2014,January30,2015,January30,2015,January30,2015,June5,2015,June19,2015,August14,2015,September1,2015,December4,2015,December4,2015,January8,2016,February5,2016,March24,2016,March24,2016,April6,2016,April22,2016,July29,2016,andAugust5,2016,respectively,ofCiscoSystems,Inc.ofourreportdatedSeptember8,2016relatingtotheconsolidatedfinancialstatements,financialstatementschedule,andtheeffectivenessofinternalcontroloverfinancialreporting,whichappearsinthisForm10-K.
/s/PRICEWATERHOUSECOOPERSLLPSanJose,CaliforniaSeptember8,2016
EXHIBIT 31.1
CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICERPURSUANT TO EXCHANGE ACT RULE 13a-14(a)/15d-14(a)
AS ADOPTED PURSUANT TO SECTION 302OF THE SARBANES-OXLEY ACT OF 2002
I,CharlesH.Robbins,certifythat:
1. IhavereviewedthisannualreportonForm10-KofCiscoSystems,Inc.;
2. Basedonmyknowledge,thisreportdoesnotcontainanyuntruestatementofamaterialfactoromittostateamaterialfactnecessarytomakethestatementsmade,inlightofthecircumstancesunderwhichsuchstatementsweremade,notmisleadingwithrespecttotheperiodcoveredbythisreport;
3. Basedonmyknowledge,thefinancialstatements,andotherfinancialinformationincludedinthisreport,fairlypresentinallmaterialrespectsthefinancialcondition,resultsofoperationsandcashflowsoftheregistrantasof,andfor,theperiodspresentedinthisreport;
4. Theregistrant’sothercertifyingofficer(s)andIareresponsibleforestablishingandmaintainingdisclosurecontrolsandprocedures(asdefinedinExchangeActRules13a-15(e)and15d-15(e))andinternalcontroloverfinancialreporting(asdefinedinExchangeActRules13a-15(f)and15d-15(f))fortheregistrantandhave:
(a) Designedsuchdisclosurecontrolsandprocedures,orcausedsuchdisclosurecontrolsandprocedurestobedesignedunderoursupervision,toensurethatmaterialinformationrelatingtotheregistrant,includingitsconsolidatedsubsidiaries,ismadeknowntousbyotherswithinthoseentities,particularlyduringtheperiodinwhichthisreportisbeingprepared;
(b) Designedsuchinternalcontroloverfinancialreporting,orcausedsuchinternalcontroloverfinancialreportingtobedesignedunderoursupervision,toprovidereasonableassuranceregardingthereliabilityoffinancialreportingandthepreparationoffinancialstatementsforexternalpurposesinaccordancewithgenerallyacceptedaccountingprinciples;
(c) Evaluatedtheeffectivenessoftheregistrant’sdisclosurecontrolsandproceduresandpresentedinthisreportourconclusionsabouttheeffectivenessofthedisclosurecontrolsandprocedures,asoftheendoftheperiodcoveredbythisreportbasedonsuchevaluation;and
(d) Disclosedinthisreportanychangeintheregistrant’sinternalcontroloverfinancialreportingthatoccurredduringtheregistrant’smostrecentfiscalquarter(theregistrant’sfourthfiscalquarterinthecaseofanannualreport)thathasmateriallyaffected,orisreasonablylikelytomateriallyaffect,theregistrant’sinternalcontroloverfinancialreporting;and
5. Theregistrant’sothercertifyingofficer(s)andIhavedisclosed,basedonourmostrecentevaluationofinternalcontroloverfinancialreporting,totheregistrant’sauditorsandtheauditcommitteeoftheregistrant’sboardofdirectors(orpersonsperformingtheequivalentfunctions):
(a) Allsignificantdeficienciesandmaterialweaknessesinthedesignoroperationofinternalcontroloverfinancialreportingwhicharereasonablylikelytoadverselyaffecttheregistrant’sabilitytorecord,process,summarize,andreportfinancialinformation;and
(b) Anyfraud,whetherornotmaterial,thatinvolvesmanagementorotheremployeeswhohaveasignificantroleintheregistrant’sinternalcontroloverfinancialreporting.
Date:September8,2016
/S/CharlesH.RobbinsCharles H. Robbins
Chief Executive Officer(Principal Executive Officer)
EXHIBIT 31.2
CERTIFICATION OF PRINCIPAL FINANCIAL OFFICERPURSUANT TO EXCHANGE ACT RULE 13a-14(a)/15d-14(a)
AS ADOPTED PURSUANT TO SECTION 302OF THE SARBANES-OXLEY ACT OF 2002
I,KellyA.Kramer,certifythat:
1. IhavereviewedthisannualreportonForm10-KofCiscoSystems,Inc.;
2. Basedonmyknowledge,thisreportdoesnotcontainanyuntruestatementofamaterialfactoromittostateamaterialfactnecessarytomakethestatementsmade,inlightofthecircumstancesunderwhichsuchstatementsweremade,notmisleadingwithrespecttotheperiodcoveredbythisreport;
3. Basedonmyknowledge,thefinancialstatements,andotherfinancialinformationincludedinthisreport,fairlypresentinallmaterialrespectsthefinancialcondition,resultsofoperationsandcashflowsoftheregistrantasof,andfor,theperiodspresentedinthisreport;
4. Theregistrant’sothercertifyingofficer(s)andIareresponsibleforestablishingandmaintainingdisclosurecontrolsandprocedures(asdefinedinExchangeActRules13a-15(e)and15d-15(e))andinternalcontroloverfinancialreporting(asdefinedinExchangeActRules13a-15(f)and15d-15(f))fortheregistrantandhave:
(a) Designedsuchdisclosurecontrolsandprocedures,orcausedsuchdisclosurecontrolsandprocedurestobedesignedunderoursupervision,toensurethatmaterialinformationrelatingtotheregistrant,includingitsconsolidatedsubsidiaries,ismadeknowntousbyotherswithinthoseentities,particularlyduringtheperiodinwhichthisreportisbeingprepared;
(b) Designedsuchinternalcontroloverfinancialreporting,orcausedsuchinternalcontroloverfinancialreportingtobedesignedunderoursupervision,toprovidereasonableassuranceregardingthereliabilityoffinancialreportingandthepreparationoffinancialstatementsforexternalpurposesinaccordancewithgenerallyacceptedaccountingprinciples;
(c) Evaluatedtheeffectivenessoftheregistrant’sdisclosurecontrolsandproceduresandpresentedinthisreportourconclusionsabouttheeffectivenessofthedisclosurecontrolsandprocedures,asoftheendoftheperiodcoveredbythisreportbasedonsuchevaluation;and
(d) Disclosedinthisreportanychangeintheregistrant’sinternalcontroloverfinancialreportingthatoccurredduringtheregistrant’smostrecentfiscalquarter(theregistrant’sfourthfiscalquarterinthecaseofanannualreport)thathasmateriallyaffected,orisreasonablylikelytomateriallyaffect,theregistrant’sinternalcontroloverfinancialreporting;and
5. Theregistrant’sothercertifyingofficer(s)andIhavedisclosed,basedonourmostrecentevaluationofinternalcontroloverfinancialreporting,totheregistrant’sauditorsandtheauditcommitteeoftheregistrant’sboardofdirectors(orpersonsperformingtheequivalentfunctions):
(a) Allsignificantdeficienciesandmaterialweaknessesinthedesignoroperationofinternalcontroloverfinancialreportingwhicharereasonablylikelytoadverselyaffecttheregistrant’sabilitytorecord,process,summarize,andreportfinancialinformation;and
(b) Anyfraud,whetherornotmaterial,thatinvolvesmanagementorotheremployeeswhohaveasignificantroleintheregistrant’sinternalcontroloverfinancialreporting.
Date:September8,2016
/S/KellyA.KramerKelly A. Kramer
Executive Vice President and Chief Financial Officer(Principal Financial Officer)
EXHIBIT 32.1
CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICERPURSUANT TO 18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO SECTION 906OF THE SARBANES-OXLEY ACT OF 2002
I,CharlesH.Robbins,doherebycertify,pursuantto18U.S.C.Section1350,asadoptedpursuanttoSection906oftheSarbanes-OxleyActof2002,that,tomyknowledge:
• TheAnnualReportonForm10-KoftheCompanyforthefiscalyearendedJuly30,2016,asfiledwiththeSecuritiesandExchangeCommission(the“Report”),fullycomplieswiththerequirementsofSection13(a)or15(d)oftheSecuritiesExchangeActof1934;and
• TheinformationcontainedintheReportfairlypresents,inallmaterialrespects,thefinancialconditionandresultsofoperationsoftheCompany.
Date:September8,2016
/S/CharlesH.RobbinsCharles H. Robbins
Chief Executive Officer (Principal Executive Officer)
EXHIBIT 32.2
CERTIFICATION OF PRINCIPAL FINANCIAL OFFICERPURSUANT TO 18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO SECTION 906OF THE SARBANES-OXLEY ACT OF 2002
I,KellyA.Kramer,doherebycertify,pursuantto18U.S.C.Section1350,asadoptedpursuanttoSection906oftheSarbanes-OxleyActof2002,that,tomyknowledge:
• TheAnnualReportonForm10-KoftheCompanyforthefiscalyearendedJuly30,2016,asfiledwiththeSecuritiesandExchangeCommission(the“Report”),fullycomplieswiththerequirementsofSection13(a)or15(d)oftheSecuritiesExchangeActof1934;and
• TheinformationcontainedintheReportfairlypresents,inallmaterialrespects,thefinancialconditionandresultsofoperationsoftheCompany.
Date:September8,2016
/S/KellyA.KramerKelly A. Kramer
Executive Vice President and Chief Financial Officer(Principal Financial Officer)
![SOLENOID VALVES SERIES · 2013. 9. 3. · 600-4E2 1140 [40.21] A600-4E1 A603-4E2 600-4A2 A600-4A2 Mass 900 [31.75] Basic model 600-4E1 603-4E2 A600-4E2 600-4A A600-4A LM A (330×n)＋640](https://static.fdocuments.us/doc/165x107/60af2ae20d9ab45ce563aca1/solenoid-valves-series-2013-9-3-600-4e2-1140-4021-a600-4e1-a603-4e2-600-4a2.jpg)
