HEALTH

Net sales for the second quarter of fiscal 2004 were $5.4 billion, compared with $4.7 billion for the second quarter of fiscal 2003, an increase of 14.5 percent, and compared with $5.1 billion for the first quarter of fiscal 2004, an increase of 5.8 percent. Net income for the second quarter of fiscal 2004, on a generally accepted accounting principles (GAAP) basis, before the non-cash cumulative effect of an accounting change, was $1.3 billion or $0.18 per share, compared with $991 million or $0.14 per share for the second quarter of fiscal 2003, and compared with $1.1 billion or $0.15 per share for the first quarter of fiscal 2004. Net income on a GAAP basis, after the non-cash cumulative effect of the accounting change, was $724 million or $0.10 per share. Pro forma net income for the second quarter of fiscal 2004 was $1.3 billion or $0.18 per share, compared with $1.1 billion or $0.15 per share for the second quarter of fiscal 2003, and compared with $1.2 billion or $0.17 per share for the first quarter of fiscal 2004. A reconciliation between net income on a GAAP basis and pro forma net income is provided in a table immediately following the Pro Forma Consolidated Statements of Operations. Net sales for the first six months of fiscal 2004 were $10.5 billion, compared with $9.6 billion for the first six months of fiscal 2003, an increase of 9.8 percent. Net income for the first six months of fiscal 2004, on a GAAP basis, before the non-cash cumulative effect of the accounting change, was $2.4 billion or $0.33 per share, compared with $1.6 billion or $0.22 per share for the first six months of fiscal 2003. Net income for the first six months of fiscal 2004, on a GAAP basis, after the non-cash cumulative effect of the accounting change, was $1.8 billion or $0.25 per share. Pro forma net income for the first six months of fiscal 2004 was $2.5 billion or $0.35 per share, compared with $2.1 billion or $0.29 per share for the first six months of fiscal 2003. During the second quarter of fiscal 2004, Cisco(R) completed the acquisition of Latitude Communications, Inc. for a purchase price of approximately $86 million. "Having just met with business and government leaders from around the world at the World Economic Forum, it is becoming increasingly clear that the global economy is improving," said John Chambers, president and CEO, Cisco Systems. "As customers feel more confident to invest, we believe that we are well positioned to provide compelling value as a strategic business adviser and technology partner. Our strong position in the core switching and routing business continues to be complemented by positive momentum in our Advanced Technologies, especially this quarter in storage, security, wireless and IP telephony. The company is also gaining significant momentum in the consumer space, driven by innovative products delivered by the Linksys division." Cisco will discuss second quarter 2004 results and business outlook on a conference call and Webcast at 1:30 p.m. Pacific Time (PT) today. Call information and related charts are available at http://investor.cisco.com. Financial Highlights -- Cash flows from operations were $1.7 billion for the second quarter of fiscal 2004, compared with $1.4 billion for the second quarter of fiscal 2003, and compared with $1.0 billion for the first quarter of fiscal 2004. -- Cash and cash equivalents and total investments were $19.8 billion at the end of the second quarter of fiscal 2004, compared with $20.7 billion at the end of the fourth quarter of fiscal 2003, and compared with $19.7 billion at the end of the first quarter of fiscal 2004. -- During the second quarter of fiscal 2004, Cisco repurchased 85 million shares of common stock for an aggregate purchase price of $2.0 billion. -- Days sales outstanding (DSO) in accounts receivable at the end of the second quarter of fiscal 2004 were 34 days, compared with 26 days at the end of the fourth quarter of fiscal 2003, and compared with 25 days at the end of the first quarter of fiscal 2004. -- Inventory turns were 7.5 in the second quarter of fiscal 2004, compared with 6.8 in the fourth quarter of fiscal 2003, and compared with 7.3 in the first quarter of fiscal 2004. -- Cisco adopted an accounting change effective January 24, 2004 due to the implementation of Financial Accounting Standards Board Interpretation No. 46 (R). As a result, Cisco consolidated Andiamo Systems, Inc. and recorded a non-cash cumulative stock compensation charge of $567 million, or $0.08 per share. "Cisco saw strong profitability and operational performance, while maintaining a healthy balance sheet, with approximately $20 billion in cash and investments as well as continued productivity gains," said Dennis Powell, chief financial officer, Cisco Systems. "We are pleased with our sustained financial performance, and continued focus on core and advanced technology research that is key to future growth." Business Highlights -- Cisco announced product additions and enhancements to help service providers deploy and scale new services for revenue-generation opportunities. These include enhancements to the Cisco 12000 and 7600 series routers, the addition of the new Cisco Catalyst(R) 3750 Metro Series Access Switch, and enhancements to the Cisco Catalyst 6500 and 4500 series switches. -- Cisco saw several deployments of its high-end routing products, including the Cisco 12000, 10000 and 7600 series routers. -- Cisco introduced the Cisco Aironet(R) 1200 and 1100 series IEEE 802.11g access points for high-performance, secure, manageable and flexible wireless local-area networks. -- As part of its Self Defending Network Initiative, Cisco announced the Cisco Network Admission Control program to address the increased threat and impact of worms and viruses to networked businesses. The Cisco Network Admission Control program was developed in conjunction with leading antivirus software vendors, including Network Associates, Inc., Symantec Corporation and Trend Micro Incorporated. -- Cisco and Network Appliance, Inc. announced plans to deliver integrated storage solutions to influence adoption of a simplified, standards-based storage networking infrastructure by enterprise customers. Cisco and VERITAS Software Corporation announced the availability of network-based volume management software for networks on the Cisco MDS 9000 Series of multilayer directors and fabric switches. -- Linksys, a division of Cisco Systems, Inc., launched new home entertainment products, including a Wireless-B Media Link that enables users to listen to digital music and Internet radio on their stereo systems, and a DVD Player with Wireless-G Media Link for wireless distribution of digital video, music and pictures stored on a PC for viewing and playing on a television or stereo system. Linksys also announced a wireless Internet video camera and wireless game adapters. -- Cisco acquired Latitude Communications, Inc., a provider of enterprise conferencing products and solutions with its MeetingPlace audio- and Web-conferencing solutions. This acquisition adds rich-media conferencing, which combines voice, video and Web conferencing, to the Cisco Architecture for Voice, Video and Integrated Data (AVVID) product portfolio. -- Several educational institutions selected Cisco IP Communications to increase administrative productivity and enhance learning, including Otago University in New Zealand, State University of New York (SUNY) Cortland campus, Liberty-Eylau Independent School District in Texas and Aston University in the United Kingdom. -- Cisco launched the new IP Communications Express Specialization, designed to help channel partners capitalize on Cisco router market leadership and accelerate the adoption of Cisco IP Communication solutions in the small business and autonomous branch office market. -- The World Health Organization, in collaboration with Cisco, launched the Health Academy to provide the general public with health information and knowledge required for preventing diseases and following healthier lifestyles.