As the champion of shareholder confidence, the finance organization at Cisco has the primary objective of maximizing long-term shareholder value. We believe there are four key drivers to building value for our investors - 1) creating sustained profitable growth, 2) maintaining a disciplined approach to decision making, 3) building upon our financial health as a competitive advantage, and 4) fostering a culture of integrity and transparency.

In evaluating their investment, we believe our shareholders focus on Cisco's profit after tax, cash flow, and growth strategy. While our performance in profit after tax and cash flow have been strong over the past several quarters, a solid growth strategy is critical to delivering enhanced value to our shareholders. We need to link our investments to growth that drives profitability, thereby increasing shareholder value.

Every day Cisco makes investments that impact shareholder value. Because we have finite resources, each decision is reviewed based on its return on investment. As every investment carries a level of risk, we need to carefully manage and mitigate those risks. Ongoing monitoring allows us to halt unsuccessful projects and redeploy valuable resources to creating shareholder value.

Operational effectiveness is critical to the success of any project. Since by human nature we are inclined to focus on what we measure, we have to set the appropriate metrics to ensure we are driving each project toward success. This is not about financial controls but effective execution. It's not about limiting the investments we make but making our investments pay off.

Our financial health provides us with tremendous flexibility and agility to position ourselves competitively to enhance shareholder value. We are able to use our financial resources for stock repurchase to reduce the number of outstanding shares. Our financial stability also means we can take a long-term approach to technology innovation and development for our customers. We can fill current gaps in our technology portfolio and invest in advanced technologies for the future through acquisitions and internal R&D.

Cisco's culture of integrity and transparency is the foundational driver of shareholder value. Transparent reporting builds investor confidence about our financial situation. Not only do we need to disclose the right financial data to investors, we need to help them to understand that information.

Corporate scandals over the past two years have damaged the credibility of financial reporting in Corporate America. As a result, there has been a flurry of new legislation, regulations, and requirements to address the problem and prevent similar occurrences in the future.

While these steps are important and necessary, integrity cannot be legislated. Integrity needs to be woven into the company culture as part of its DNA. It starts with new employee orientation and continues with ongoing messaging from the leadership. Each manager needs to take personal responsibility and lead by example with an attitude of zero tolerance. Ultimately, however, senior management must assume ownership by setting the appropriate tone from the top down.

Maximizing long-term shareholder value is Cisco's primary focus. We have established a foundation of investor confidence that begins with the integrity of our financial reporting and our conservative accounting. Building on that foundation, we have demonstrated our ability to generate sustained profitable growth by turning our financial strength into a competitive advantage and making deliberate investment decisions that we believe will ultimately create additional value for our shareholders.

Dennis D. Powell
Senior Vice President and Chief Financial Officer