Item 1. Financial Statements (Unaudited)

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Item 1. Financial Statements (Unaudited)

CISCO SYSTEMS, INC.

CONSOLIDATED BALANCE SHEETS

(in millions, except par value)

(Unaudited)


	April 30, 2022		July 31, 2021
ASSETS
Current assets:
Cash and cash equivalents	$	6,952	$	9,175
Investments	13,156		15,343
Accounts receivable, net of allowance of $78 at April 30, 2022 and $109 at July 31, 2021	5,783		5,766
Inventories	2,231		1,559
Financing receivables, net	3,804		4,380
Other current assets	4,055		2,889
Total current assets	35,981		39,112
Property and equipment, net	2,046		2,338
Financing receivables, net	3,959		4,884
Goodwill	38,452		38,168
Purchased intangible assets, net	2,811		3,619
Deferred tax assets	4,276		4,360
Other assets	5,272		5,016
TOTAL ASSETS	$	92,797	$	97,497
LIABILITIES AND EQUITY
Current liabilities:
Short-term debt	$	1,000	$	2,508
Accounts payable	2,289		2,362
Income taxes payable	852		801
Accrued compensation	3,032		3,818
Deferred revenue	12,249		12,148
Other current liabilities	4,728		4,620
Total current liabilities	24,150		26,257
Long-term debt	8,418		9,018
Income taxes payable	7,689		8,538
Deferred revenue	10,044		10,016
Other long-term liabilities	2,096		2,393
Total liabilities	52,397		56,222
Commitments and contingencies (Note 14)
Equity:
Cisco stockholders’ equity:
Preferred stock, $0.001 par value: 5 shares authorized; none issued and outstanding	—		—
Common stock and additional paid-in capital, $0.001 par value: 20,000 shares authorized; 4,149 and 4,217 shares issued and outstanding at April 30, 2022 and July 31, 2021, respectively	42,587		42,346
Accumulated deficit	(724)		(654)
Accumulated other comprehensive loss	(1,463)		(417)
Total equity	40,400		41,275
TOTAL LIABILITIES AND EQUITY	$	92,797	$	97,497

See Notes to Consolidated Financial Statements.

CISCO SYSTEMS, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(in millions, except per-share amounts)

(Unaudited)


	Three Months Ended				Nine Months Ended
	April 30, 2022		May 1, 2021		April 30, 2022		May 1, 2021
REVENUE:
Product	$	9,448	$	9,139	$	28,330	$	26,298
Service	3,387		3,664		10,125		10,394
Total revenue	12,835		12,803		38,455		36,692
COST OF SALES:
Product	3,606		3,422		10,848		9,672
Service	1,108		1,196		3,384		3,470
Total cost of sales	4,714		4,618		14,232		13,142
GROSS MARGIN	8,121		8,185		24,223		23,550
OPERATING EXPENSES:
Research and development	1,708		1,697		5,092		4,836
Sales and marketing	2,209		2,317		6,736		6,811
General and administrative	517		603		1,612		1,631
Amortization of purchased intangible assets	77		61		240		136
Restructuring and other charges	—		42		8		878
Total operating expenses	4,511		4,720		13,688		14,292
OPERATING INCOME	3,610		3,465		10,535		9,258
Interest income	115		153		347		488
Interest expense	(90)		(111)		(267)		(336)
Other income (loss), net	166		84		446		117
Interest and other income (loss), net	191		126		526		269
INCOME BEFORE PROVISION FOR INCOME TAXES	3,801		3,591		11,061		9,527
Provision for income taxes	757		728		2,064		1,945
NET INCOME	$	3,044	$	2,863	$	8,997	$	7,582

Net income per share:
Basic	$	0.73	$	0.68	$	2.15	$	1.79
Diluted	$	0.73	$	0.68	$	2.14	$	1.79
Shares used in per-share calculation:
Basic	4,152		4,219		4,184		4,224
Diluted	4,170		4,238		4,204		4,237

See Notes to Consolidated Financial Statements.

CISCO SYSTEMS, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(in millions)

(Unaudited)


	Three Months Ended				Nine Months Ended
	April 30, 2022		May 1, 2021		April 30, 2022		May 1, 2021
Net income	$	3,044	$	2,863	$	8,997	$	7,582
Available-for-sale investments:
Change in net unrealized gains and losses, net of tax benefit (expense) of $45 and $120 for the third quarter and first nine months of fiscal 2022, respectively, and $30 and $47 for the corresponding periods of fiscal 2021, respectively	(376)		(85)		(597)		(103)
Net (gains) losses reclassified into earnings, net of tax (benefit) expense of $2 and $7 for the third quarter and first nine months of fiscal 2022, respectively, and $5 and $12 for the corresponding periods of fiscal 2021, respectively	—		(17)		(11)		(34)
	(376)		(102)		(608)		(137)
Cash flow hedging instruments:
Change in unrealized gains and losses, net of tax benefit (expense) of $(10) and $(14) for the third quarter and first nine months of fiscal 2022, respectively, and $(5) and $(4) for the corresponding periods of fiscal 2021, respectively	35		16		49		12
Net (gains) losses reclassified into earnings, net of tax (benefit) expense of $2 and $3 for the third quarter and first nine months of fiscal 2022, respectively, and $1 and $2 for the corresponding periods of fiscal 2021, respectively	(10)		(6)		(12)		(10)
	25		10		37		2
Net change in cumulative translation adjustment and actuarial gains and losses net of tax benefit (expense) of $0 and $9 for the third quarter and first nine months of fiscal 2022, respectively, and $2 and $(1) for the corresponding periods of fiscal 2021, respectively	(323)		22		(475)		366
Other comprehensive income (loss)	(674)		(70)		(1,046)		231
Comprehensive income	$	2,370	$	2,793	$	7,951	$	7,813

See Notes to Consolidated Financial Statements.

CISCO SYSTEMS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in millions)

(Unaudited)


	Nine Months Ended
	April 30, 2022		May 1, 2021
Cash flows from operating activities:
Net income	$	8,997	$	7,582
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation, amortization, and other	1,527		1,373
Share-based compensation expense	1,407		1,337
Provision (benefit) for receivables	49		(4)
Deferred income taxes	(167)		(89)
(Gains) losses on divestitures, investments and other, net	(470)		(201)
Change in operating assets and liabilities, net of effects of acquisitions and divestitures:
Accounts receivable	(134)		1,250
Inventories	(683)		(260)
Financing receivables	1,431		1,160
Other assets	(1,295)		(233)
Accounts payable	(54)		24
Income taxes, net	(730)		(828)
Accrued compensation	(730)		145
Deferred revenue	292		263
Other liabilities	109		(569)
Net cash provided by operating activities	9,549		10,950
Cash flows from investing activities:
Purchases of investments	(5,383)		(7,855)
Proceeds from sales of investments	2,488		2,724
Proceeds from maturities of investments	4,308		6,445
Acquisitions, net of cash and cash equivalents acquired and divestitures	(373)		(6,333)
Purchases of investments in privately held companies	(158)		(138)
Return of investments in privately held companies	149		96
Acquisition of property and equipment	(338)		(530)
Proceeds from sales of property and equipment	6		14
Other	(15)		(56)
Net cash provided by (used in) investing activities	684		(5,633)
Cash flows from financing activities:
Issuances of common stock	306		307
Repurchases of common stock—repurchase program	(5,347)		(2,096)
Shares repurchased for tax withholdings on vesting of restricted stock units	(546)		(419)
Short-term borrowings, original maturities of 90 days or less, net	9		—
Issuances of debt	1,049		—
Repayments of debt	(3,050)		(3,000)
Dividends paid	(4,657)		(4,601)
Other	(230)		39
Net cash used in financing activities	(12,466)		(9,770)
Net decrease in cash, cash equivalents, restricted cash and restricted cash equivalents	(2,233)		(4,453)
Cash, cash equivalents, restricted cash and restricted cash equivalents, beginning of period	9,942		11,812
Cash, cash equivalents, restricted cash and restricted cash equivalents, end of period	$	7,709	$	7,359

Supplemental cash flow information:
Cash paid for interest	$	292	$	377
Cash paid for income taxes, net	$	2,960	$	2,862

See Notes to Consolidated Financial Statements.

CISCO SYSTEMS, INC.

CONSOLIDATED STATEMENTS OF EQUITY

(in millions, except per-share amounts)

(Unaudited)


Three Months Ended April 30, 2022	Shares of Common Stock	Common Stock and Additional Paid-In Capital		Accumulated Deficit		Accumulated Other Comprehensive Loss		Total Equity
Balance at January 29, 2022	4,151	$	42,291	$	(2,006)	$	(789)	$	39,496
Net income				3,044				3,044
Other comprehensive loss						(674)		(674)
Issuance of common stock	7							—
Repurchase of common stock	(5)	(47)		(205)				(252)
Shares repurchased for tax withholdings on vesting of restricted stock units	(2)	(135)						(135)
Cash dividends declared ($0.38 per common share)				(1,555)				(1,555)
Share-based compensation		477						477
Other	(2)	1		(2)				(1)
Balance at April 30, 2022	4,149	$	42,587	$	(724)	$	(1,463)	$	40,400


Nine Months Ended April 30, 2022	Shares of Common Stock	Common Stock and Additional Paid-In Capital		Accumulated Deficit		Accumulated Other Comprehensive Loss		Total Equity
Balance at July 31, 2021	4,217	$	42,346	$	(654)	$	(417)	$	41,275
Net income				8,997				8,997
Other comprehensive loss						(1,046)		(1,046)
Issuance of common stock	36	306						306
Repurchase of common stock	(92)	(929)		(4,403)				(5,332)
Shares repurchased for tax withholdings on vesting of restricted stock units	(10)	(546)						(546)
Cash dividends declared ($1.12 per common share)				(4,657)				(4,657)
Share-based compensation		1,407						1,407
Other	(2)	3		(7)				(4)
Balance at April 30, 2022	4,149	$	42,587	$	(724)	$	(1,463)	$	40,400

CISCO SYSTEMS, INC.

CONSOLIDATED STATEMENTS OF EQUITY

(in millions, except per-share amounts)

(Unaudited)


Three Months Ended May 1, 2021	Shares of Common Stock	Common Stock and Additional Paid-In Capital		Accumulated Deficit		Accumulated Other Comprehensive Loss		Total Equity
Balance at January 23, 2021	4,221	$	41,690	$	(2,351)	$	(218)	$	39,121
Net income				2,863				2,863
Other comprehensive loss						(70)		(70)
Issuance of common stock	6	1						1
Repurchase of common stock	(10)	(103)		(407)				(510)
Shares repurchased for tax withholdings on vesting of restricted stock units	(2)	(102)						(102)
Cash dividends declared ($0.37 per common share)				(1,561)				(1,561)
Share-based compensation		463						463
Balance at May 1, 2021	4,215	$	41,949	$	(1,456)	$	(288)	$	40,205


Nine Months Ended May 1, 2021	Shares of Common Stock	Common Stock and Additional Paid-In Capital		Accumulated Deficit		Accumulated Other Comprehensive Loss		Total Equity
Balance at July 25, 2020	4,237	$	41,202	$	(2,763)	$	(519)	$	37,920
Net income				7,582				7,582
Other comprehensive income						231		231
Issuance of common stock	37	307						307
Repurchase of common stock	(49)	(478)		(1,633)				(2,111)
Shares repurchased for tax withholdings on vesting of restricted stock units	(10)	(419)						(419)
Cash dividends declared ($1.09 per common share)				(4,604)				(4,604)
Effect of adoption of accounting standard				(38)				(38)
Share-based compensation		1,337						1,337
Balance at May 1, 2021	4,215	$	41,949	$	(1,456)	$	(288)	$	40,205

CISCO SYSTEMS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

**1.**Organization and Basis of Presentation

The fiscal year for Cisco Systems, Inc. (the “Company,” “Cisco,” “we,” “us,” or “our”) is the 52 or 53 weeks ending on the last Saturday in July. Fiscal 2022 is a 52-week fiscal year and fiscal 2021 was a 53-week fiscal year. The Consolidated Financial Statements include our accounts and those of our subsidiaries. All intercompany accounts and transactions have been eliminated. We conduct business globally and are primarily managed on a geographic basis in the following three geographic segments: the Americas; Europe, Middle East, and Africa (EMEA); and Asia Pacific, Japan, and China (APJC).

We have prepared the accompanying financial data as of April 30, 2022 and for the third quarter and first nine months of fiscal 2022 and 2021, without audit, pursuant to the rules and regulations of the U.S. Securities and Exchange Commission (SEC). Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles in the United States (GAAP) have been condensed or omitted pursuant to such rules and regulations. The July 31, 2021 Consolidated Balance Sheet was derived from audited financial statements, but does not include all disclosures required by accounting principles generally accepted in the United States. However, we believe that the disclosures are adequate to make the information presented not misleading. These Consolidated Financial Statements should be read in conjunction with the Consolidated Financial Statements and the notes thereto included in our Annual Report on Form 10-K for the fiscal year ended July 31, 2021.

The preparation of financial statements and related disclosures in conformity with GAAP requires us to make judgments, assumptions, and estimates that affect the amounts reported in the Consolidated Financial Statements and accompanying notes. The inputs into certain of our judgments, assumptions, and estimates considered the economic implications of the COVID-19 pandemic, including the associated impact of supply constraints, on our critical and significant accounting estimates. The actual results that we experience may differ materially from our estimates. As these events continue, many of our estimates could require increased judgment and carry a higher degree of variability and volatility. As events continue to evolve our estimates may change materially in future periods.

In the opinion of management, all normal recurring adjustments necessary to state fairly the consolidated balance sheet as of April 30, 2022, the results of operations, the statements of comprehensive income and the statements of equity for the third quarter and first nine months of fiscal 2022 and 2021, and the statements of cash flows for the first nine months of fiscal 2022 and 2021, as applicable, have been made. The results of operations for the third quarter and first nine months of fiscal 2022 are not necessarily indicative of the operating results for the full fiscal year or any future periods.

Our consolidated financial statements include our accounts and entities consolidated under the variable interest and voting models. The noncontrolling interests attributed to these investments, if material, are presented as a separate component from our equity in the equity section of the Consolidated Balance Sheets. The share of earnings attributable to the noncontrolling interests are not presented separately in the Consolidated Statements of Operations as these amounts are not material for any of the fiscal periods presented.

Certain reclassifications have been made to the amounts in prior periods in order to conform to the current period’s presentation. We have evaluated subsequent events through the date that the financial statements were issued.

**2.**Recent Accounting Pronouncements

**(a)**New Accounting Updates Recently Adopted

Acquired Revenue Contracts with Customers in Business Combination In October 2021, the Financial Accounting Standards Board (FASB) issued an accounting standard update that requires companies to apply Accounting Standards Codification 606 to recognize and measure contract assets and contract liabilities from contracts with customers acquired in a business combination. We early adopted this accounting standard update beginning in the first quarter of fiscal 2022 and it did not have a material impact on our Consolidated Financial Statements. The ongoing impact of this standard will be fact dependent on the transactions within its scope.

**(b)**Recent Accounting Standards or Updates Not Yet Effective

Reference Rate Reform In March 2020, the FASB issued an accounting standard update and subsequent amendments that provide optional expedients and exceptions to the current guidance on contract modification and hedging relationships to ease the financial reporting burden of the expected market transition from the London InterBank Offered Rate (LIBOR) and other

CISCO SYSTEMS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

interbank offered rates to alternative reference rates. This accounting standard update was effective upon issuance and may be applied prospectively through December 31, 2022. We are currently evaluating the impact of this accounting standard update on our Consolidated Financial Statements.

**3.**Revenue

We enter into contracts with customers that can include various combinations of products and services which are generally distinct and accounted for as separate performance obligations. As a result, our contracts may contain multiple performance obligations. We determine whether arrangements are distinct based on whether the customer can benefit from the product or service on its own or together with other resources that are readily available and whether our commitment to transfer the product or service to the customer is separately identifiable from other obligations in the contract. We classify our hardware, perpetual software licenses, and software-as-a-service (SaaS) as distinct performance obligations. Term software licenses represent multiple obligations, which include software licenses and software maintenance. In transactions where we deliver hardware or software, we are typically the principal and we record revenue and costs of goods sold on a gross basis. We refer to our term software licenses, security software licenses, SaaS, and associated service arrangements as subscription offers.

We recognize revenue upon transfer of control of promised goods or services in a contract with a customer in an amount that reflects the consideration we expect to receive in exchange for those products or services. Transfer of control occurs once the customer has the contractual right to use the product, generally upon shipment, electronic delivery (or when the software is available for download by the customer), or once title and risk of loss has transferred to the customer. Transfer of control can also occur over time for software maintenance and services as the customer receives the benefit over the contract term. Our hardware and perpetual software licenses are distinct performance obligations where revenue is recognized upfront upon transfer of control. Term software licenses include multiple performance obligations where the term licenses are recognized upfront upon transfer of control, with the associated software maintenance revenue recognized ratably over the contract term as services and software updates are provided. SaaS arrangements do not include the right for the customer to take possession of the software during the term, and therefore have one distinct performance obligation which is satisfied over time with revenue recognized ratably over the contract term as the customer consumes the services. On our product sales, we record consideration from shipping and handling on a gross basis within net product sales. We record our revenue net of any associated sales taxes.

An allowance for future sales returns is established based on historical trends in product return rates. The allowance for future sales returns as of April 30, 2022 and July 31, 2021 was $42 million and $55 million, respectively, and was recorded as a reduction of our accounts receivable and revenue.

Significant Judgments

Revenue is allocated among these performance obligations in a manner that reflects the consideration that we expect to be entitled to for the promised goods or services based on standalone selling prices (SSP). SSP is estimated for each distinct performance obligation and judgment may be required in their determination. The best evidence of SSP is the observable price of a product or service when we sell the goods separately in similar circumstances and to similar customers. In instances where SSP is not directly observable, we determine SSP using information that may include market conditions and other observable inputs.

We assess relevant contractual terms in our customer contracts to determine the transaction price. We apply judgment in identifying contractual terms and determining the transaction price as we may be required to estimate variable consideration when determining the amount of revenue to recognize. Variable consideration includes potential contractual penalties and various rebate, cooperative marketing and other incentive programs that we offer to our distributors, channel partners and customers. When determining the amount of revenue to recognize, we estimate the expected usage of these programs, applying the expected value or most likely estimate and update the estimate at each reporting period as actual utilization becomes available. We also consider the customers’ right of return in determining the transaction price, where applicable.

We assess certain software licenses, such as for security software, that contain critical updates or upgrades which customers can download throughout the contract term. Without these updates or upgrades, the functionality of the software would diminish over a relatively short time period. These updates or upgrades provide the customer the full functionality of the purchased security software licenses and are required to maintain the security license’s utility as the risks and threats in the environment are rapidly changing. In these circumstances, the revenue from these software arrangements is recognized as a single performance obligation satisfied over the contract term.

CISCO SYSTEMS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

**(a)**Disaggregation of Revenue

We disaggregate our revenue into groups of similar products and services that depict the nature, amount, and timing of revenue and cash flows for our various offerings. The sales cycle, contractual obligations, customer requirements, and go-to-market strategies differ for each of our product categories, resulting in different economic risk profiles for each category. Effective fiscal 2022, we began reporting our product and service revenue in the following categories: Secure, Agile Networks; Internet for the Future; Collaboration; End-to-End Security; Optimized Application Experiences; Other Products; and Services. This change will better align our product categories with our strategic priorities. The following table presents this disaggregation of revenue (in millions):


	Three Months Ended				Nine Months Ended
	April 30, 2022		May 1, 2021		April 30, 2022		May 1, 2021
Product revenue:
Secure, Agile Networks	$	5,869	$	5,620	$	17,735	$	16,543
Internet for the Future	1,324		1,249		4,021		3,121
Collaboration	1,132		1,220		3,308		3,580
End-to-End Security	938		876		2,716		2,559
Optimized Application Experiences	183		170		544		483
Other Products	2		5		7		11
Total Product	9,448		9,139		28,330		26,298
Services	3,387		3,664		10,125		10,394
Total	$	12,835	$	12,803	$	38,455	$	36,692

Amounts may not sum due to rounding.

Secure, Agile Networks consists of our core networking technologies of switching, enterprise routing, wireless, and compute products. These technologies consist of both hardware and software offerings, including software licenses and SaaS, that help our customers build networks, automate, orchestrate, integrate, and digitize data. Our hardware and perpetual software in this category are distinct performance obligations where revenue is recognized upfront upon transfer of control. Term software licenses are multiple performance obligations where the term license is recognized upfront upon transfer of control with the associated software maintenance revenue recognized ratably over the contract term. SaaS arrangements in this category have one distinct performance obligation which is satisfied over time with revenue recognized ratably over the contract term.

Internet for the Future consists of our routed optical networking, public 5G, silicon, and optics offerings. These products consist primarily of both hardware and software offerings, including software licenses and SaaS. Our hardware and perpetual software in this category are distinct performance obligations where revenue is recognized upfront upon transfer of control. Term software licenses are multiple performance obligations where the term license is recognized upfront upon transfer of control with the associated software maintenance revenue recognized ratably over the contract term. SaaS arrangements in this category have one distinct performance obligation which is satisfied over time with revenue recognized ratably over the contract term.

Collaboration consists of our Collaboration Devices, Meetings, Calling and contact center offerings. These products consist primarily of software offerings, including software licenses and SaaS, as well as hardware. Our perpetual software and hardware in this category are distinct performance obligations where revenue is recognized upfront upon transfer of control. Term software licenses are multiple performance obligations where the term license is recognized upfront upon transfer of control with the associated software maintenance revenue recognized ratably over the contract term. SaaS arrangements in this category have one distinct performance obligation which is satisfied over time with revenue recognized ratably over the contract term.

End-to-End Security consists of our overall security offerings. These products consist of both hardware and software offerings, including software licenses and SaaS. Updates and upgrades for the term software licenses are critical for our software to perform its intended commercial purpose because of the continuous need for our software to secure our customers’ network environments against frequent threats. Therefore, security software licenses are generally represented by a single distinct performance obligation with revenue recognized ratably over the contract term. Our hardware and perpetual software in this category are distinct performance obligations where revenue is recognized upfront upon transfer of control. SaaS arrangements

CISCO SYSTEMS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

in this category have one distinct performance obligation which is satisfied over time with revenue recognized ratably over the contract term.

Optimized Application Experiences consists of our full stack observability and cloud-native platform offerings. These products consist primarily of software offerings, including software licenses and SaaS. Our perpetual software in this category are distinct performance obligations where revenue is recognized upfront upon transfer of control. Term software licenses are multiple performance obligations where the term license is recognized upfront upon transfer of control with the associated software maintenance revenue recognized ratably over the contract term. SaaS arrangements in this category have one distinct performance obligation which is satisfied over time with revenue recognized ratably over the contract term.

In addition to our product offerings, we provide a broad range of service and support options for our customers, including technical support services and advanced services. Technical support services represent the majority of these offerings which are distinct performance obligations that are satisfied over time with revenue recognized ratably over the contract term. Advanced services are distinct performance obligations that are satisfied over time with revenue recognized as services are delivered.

The sales arrangements as discussed above are typically made pursuant to customer purchase orders based on master purchase or partner agreements. Cash is received based on our standard payment terms which is typically 30 days. We provide financing arrangements to customers for all of our hardware, software and service offerings. Refer to Note 9 for additional information. For these arrangements, cash is typically received over time.

**(b)**Contract Balances

Accounts Receivable

Accounts receivable, net was $5.8 billion as of each of April 30, 2022 and July 31, 2021, as reported on the Consolidated Balance Sheets.

The allowances for credit loss for our accounts receivable are summarized as follows (in millions):


	Three Months Ended				Nine Months Ended
	April 30, 2022		May 1, 2021		April 30, 2022		May 1, 2021
Allowance for credit loss at beginning of period	$	70	$	102	$	109	$	143
Provisions (benefits)	17		16		53		15
Recoveries (write-offs), net	(9)		(8)		(75)		(22)
Foreign exchange and other	—		—		(9)		(26)
Allowance for credit loss at end of period	$	78	$	110	$	78	$	110

Contract Assets and Liabilities

Gross contract assets by our internal risk ratings are summarized as follows (in millions):


	April 30, 2022		July 31, 2021
1 to 4	$	422	$	521
5 to 6	807		770
7 and Higher	169		166
Total	$	1,398	$	1,457

Contract assets consist of unbilled receivables and are recorded when revenue is recognized in advance of scheduled billings to our customers. These amounts are primarily related to software and service arrangements where transfer of control has occurred but we have not yet invoiced. Our contract assets for these unbilled receivables, net of allowances, was $1.3 billion and $1.4 billion as of April 30, 2022 and July 31, 2021, respectively, and were included in other current assets and other assets.

Contract liabilities consist of deferred revenue. Deferred revenue was $22.3 billion as of April 30, 2022 compared to $22.2 billion as of July 31, 2021. We recognized approximately $2.5 billion and $9.9 billion of revenue during the third quarter and first nine months of fiscal 2022, respectively, that was included in the deferred revenue balance at July 31, 2021.

CISCO SYSTEMS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

**(c)**Capitalized Contract Acquisition Costs

We capitalize direct and incremental costs incurred to acquire contracts, primarily sales commissions, for which the associated revenue is expected to be recognized in future periods. We incur these costs in connection with both initial contracts and renewals. These costs are initially deferred and typically amortized over the term of the customer contract which corresponds to the period of benefit. Deferred sales commissions were $1.0 billion and $967 million as of April 30, 2022 and July 31, 2021, respectively, and were included in other current assets and other assets. The amortization expense associated with these costs was $175 million and $492 million for the third quarter and first nine months of fiscal 2022, respectively, and $134 million and $386 million for the corresponding periods of fiscal 2021, respectively, and was included in sales and marketing expenses.

**4.**Acquisitions and Divestitures

We completed three acquisitions during the first nine months of fiscal 2022. A summary of the allocation of the total purchase consideration is presented as follows (in millions):


			Purchase Consideration						Net Tangible Assets Acquired (Liabilities Assumed)						Purchased Intangible Assets						Goodwill
Total acquisitions (three in total)			$	364					$	12					$	20					$	332

The total purchase consideration related to our acquisitions completed during the first nine months of fiscal 2022 consisted of cash consideration and vested share-based awards assumed. The total cash and cash equivalents acquired from these acquisitions was approximately $7 million. Total transaction costs related to acquisition and divestiture activities were $44 million and $30 million for the first nine months of fiscal 2022 and 2021, respectively. These transaction costs were expensed as incurred in general and administrative expenses (“G&A”) in the Consolidated Statements of Operations.

The goodwill generated from acquisitions completed during the first nine months of fiscal 2022 is primarily related to expected synergies. The goodwill is generally not deductible for income tax purposes.

The Consolidated Financial Statements include the operating results of each acquisition from the date of acquisition. Pro forma results of operations and the revenue and net income subsequent to the acquisition date for the acquisitions completed during the first nine months of fiscal 2022 have not been presented because the effects of the acquisitions, individually and in the aggregate, were not material to our financial results.

**5.**Goodwill and Purchased Intangible Assets

**(a)**Goodwill

The following table presents the goodwill allocated to our reportable segments as of April 30, 2022 and during the first nine months of fiscal 2022 (in millions):



	Balance at July 31, 2021		Acquisitions & Divestitures		Other		Balance at April 30, 2022
Americas	$	23,673	$	222	$	79	$	23,974
EMEA	9,094		83		(80)		9,097
APJC	5,401		27		(47)		5,381
Total	$	38,168	$	332	$	(48)	$	38,452

“Other” in the table above consists of foreign currency translation as well as purchase accounting adjustments.

CISCO SYSTEMS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

**(b)**Purchased Intangible Assets

The following table presents details of our intangible assets acquired through acquisitions completed during the first nine months of fiscal 2022 (in millions, except years):


	FINITE LIVES									INDEFINITE LIVES		TOTAL
	TECHNOLOGY			CUSTOMER RELATIONSHIPS			OTHER			IPR&D
	Weighted- Average Useful Life (in Years)	Amount		Weighted- Average Useful Life (in Years)	Amount		Weighted- Average Useful Life (in Years)	Amount		Amount		Amount
Total acquisitions (three in total)	2.7	$	16	2.0	$	4	—	$	—	$	—	$	20

The following tables present details of our purchased intangible assets (in millions):


April 30, 2022	Gross		Accumulated Amortization		Net
Purchased intangible assets with finite lives:
Technology	$	2,837	$	(1,140)	$	1,697
Customer relationships	1,355		(701)		654
Other	54		(24)		30
Total purchased intangible assets with finite lives	4,246		(1,865)		2,381
In-process research and development, with indefinite lives	430		—		430
Total	$	4,676	$	(1,865)	$	2,811


July 31, 2021	Gross		Accumulated Amortization		Net
Purchased intangible assets with finite lives:
Technology	$	3,629	$	(1,437)	$	2,192
Customer relationships	1,387		(523)		864
Other	71		(13)		58
Total purchased intangible assets with finite lives	5,087		(1,973)		3,114
In-process research and development, with indefinite lives	505		—		505
Total	$	5,592	$	(1,973)	$	3,619

Purchased intangible assets include intangible assets acquired through acquisitions as well as through direct purchases or licenses.

Impairment charges related to purchased intangible assets for the third quarter and first nine months of fiscal 2022 were $15 million. Impairment charges are primarily a result of declines in estimated fair values of certain purchased intangible assets resulting from the reduction or elimination of expected future cash flows associated with certain of our technology and in-process research and development (IPR&D) intangible assets.

The following table presents the amortization of purchased intangible assets, including impairment charges (in millions):


	Three Months Ended				Nine Months Ended
	April 30, 2022		May 1, 2021		April 30, 2022		May 1, 2021
Amortization of purchased intangible assets:
Cost of sales	$	180	$	187	$	583	$	513
Operating expenses	92		61		255		136
Total	$	272	$	248	$	838	$	649

CISCO SYSTEMS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

The estimated future amortization expense of purchased intangible assets with finite lives as of April 30, 2022 is as follows (in millions):


Fiscal Year	Amount
2022 (remaining three months)	$	238
2023	$	902
2024	$	774
2025	$	404
2026	$	61
Thereafter	$	2

**6.**Restructuring and Other Charges

We initiated a restructuring plan in fiscal 2021 (the “Fiscal 2021 Plan”), which included a voluntary early retirement program, in order to realign the organization and enable further investment in key priority areas. The total pretax charges were estimated to be approximately $900 million. In connection with the Fiscal 2021 Plan, we have incurred cumulative charges of $894 million and completed this plan in fiscal 2022.

We initiated a restructuring plan in fiscal 2020 (the “Fiscal 2020 Plan”) in order to realign the organization and enable further investment in key priority areas. In connection with the Fiscal 2020 Plan, we incurred cumulative charges of $255 million. We completed the Fiscal 2020 Plan in fiscal 2021.

The aggregate pretax charges related to these plans are primarily cash-based and consist of severance and other one-time termination benefits, and other costs.

The following tables summarize the activities related to the restructuring and other charges (in millions):


	FISCAL 2020 AND PRIOR PLANS				FISCAL 2021 PLAN
	Employee Severance		Other		Employee Severance		Other		Total
Liability as of July 31, 2021	$	—	$	10	$	16	$	8	$	34
Charges	—		(5)		10		3		8
Cash payments	—		(1)		(21)		(1)		(23)
Non-cash items	—		—		—		(5)		(5)
Liability as of April 30, 2022	$	—	$	4	$	5	$	5	$	14


	FISCAL 2020 AND PRIOR PLANS				FISCAL 2021 PLAN
	Employee Severance		Other		Employee Severance		Other		Total
Liability as of July 25, 2020	$	58	$	14	$	—	$	—	$	72
Charges	—		9		828		41		878
Cash payments	(58)		(5)		(801)		(4)		(868)
Non-cash items	—		(1)		—		(31)		(32)
Liability as of May 1, 2021	$	—	$	17	$	27	$	6	$	50

CISCO SYSTEMS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

**7.**Balance Sheet and Other Details

The following tables provide details of selected balance sheet and other items (in millions):

Cash, Cash Equivalents, Restricted Cash and Restricted Cash Equivalents


	April 30, 2022		July 31, 2021
Cash and cash equivalents	$	6,952	$	9,175
Restricted cash and restricted cash equivalents included in other current assets	7		14
Restricted cash and restricted cash equivalents included in other assets	750		753
Total	$	7,709	$	9,942

Our restricted cash equivalents are funds primarily related to contractual obligations with suppliers.

Inventories


	April 30, 2022		July 31, 2021
Raw materials	$	1,414	$	801
Work in process	165		54
Finished goods:
Deferred cost of sales	80		97
Manufactured finished goods	462		422
Total finished goods	542		519
Service-related spares	103		174
Demonstration systems	7		11
Total	$	2,231	$	1,559

Property and Equipment, Net


	April 30, 2022		July 31, 2021
Gross property and equipment:
Land, buildings, and building and leasehold improvements	$	4,243	$	4,304
Computer equipment and related software	834		858
Production, engineering, and other equipment	4,733		5,106
Operating lease assets	205		273
Furniture, fixtures and other	345		377
Total gross property and equipment	10,360		10,918
Less: accumulated depreciation and amortization	(8,314)		(8,580)
Total	$	2,046	$	2,338

CISCO SYSTEMS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

Remaining Performance Obligations (RPO)


	April 30, 2022			July 31, 2021
Product	$	13,416		$	13,270
Service	16,789			17,623
Total	$	30,205		$	30,893

Short-term RPO	$	16,241		$	16,289
Long-term RPO	13,964			14,604
Total	$	30,205		$	30,893

Amount to be recognized as revenue over next 12 months	54		%	53		%

Deferred revenue	$	22,293		$	22,164
Unbilled contract revenue	7,912			8,729
Total	$	30,205		$	30,893

Unbilled contract revenue represents noncancelable contracts for which we have not invoiced, have an obligation to perform, and revenue has not yet been recognized in the financial statements.

Deferred Revenue


	April 30, 2022		July 31, 2021
Product	$	9,835	$	9,416
Service	12,458		12,748
Total	$	22,293	$	22,164
Reported as:
Current	$	12,249	$	12,148
Noncurrent	10,044		10,016
Total	$	22,293	$	22,164

**8.**Leases

**(a)**Lessee Arrangements

The following table presents our operating lease balances (in millions):


	Balance Sheet Line Item	April 30, 2022		July 31, 2021
Operating lease right-of-use assets	Other assets	$	1,024	$	1,095

Operating lease liabilities	Other current liabilities	$	334	$	337
Operating lease liabilities	Other long-term liabilities	739		831
Total operating lease liabilities		$	1,073	$	1,168

CISCO SYSTEMS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

The components of our lease expenses were as follows (in millions):


	Three Months Ended				Nine Months Ended
	April 30, 2022		May 1, 2021		April 30, 2022		May 1, 2021
Operating lease expense	$	99	$	105	$	292	$	306
Short-term lease expense	17		14		49		49
Variable lease expense	37		42		127		131
Total lease expense	$	153	$	161	$	468	$	486

Supplemental information related to our operating leases is as follows (in millions):


	Nine Months Ended
	April 30, 2022		May 1, 2021
Cash paid for amounts included in the measurement of lease liabilities — operating cash flows	$	306	$	306
Right-of-use assets obtained in exchange for operating leases liabilities	$	237	$	270

The weighted-average lease term was 4.6 years and 5.2 years as of April 30, 2022 and July 31, 2021, respectively. The weighted-average discount rate was 1.8% and 1.7% as of April 30, 2022 and July 31, 2021, respectively.

The maturities of our operating leases (undiscounted) as of April 30, 2022 are as follows (in millions):


Fiscal Year	Amount
2022 (remaining three months)	$	99
2023	328
2024	242
2025	166
2026	92
Thereafter	216
Total lease payments	1,143
Less interest	(70)
Total	$	1,073

**(b)**Lessor Arrangements

Our leases primarily represent sales-type leases with terms of four years on average. We provide leasing of our equipment and complementary third-party products primarily through our channel partners and distributors, for which the income arising from these leases is recognized through interest income. Interest income for the third quarter and first nine months of fiscal 2022 was $13 million and $42 million, respectively, and $19 million and $59 million for the corresponding periods of fiscal 2021, respectively, and was included in interest income in the Consolidated Statement of Operations. The net investment of our lease receivables is measured at the commencement date as the gross lease receivable, residual value less unearned income and allowance for credit loss. For additional information, see Note 9.

CISCO SYSTEMS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

Future minimum lease payments on our lease receivables as of April 30, 2022 are summarized as follows (in millions):


Fiscal Year	Amount
2022 (remaining three months)	$	249
2023	502
2024	317
2025	154
2026	65
Thereafter	17
Total	1,304
Less: Present value of lease payments	1,245
Unearned income	$	59

Actual cash collections may differ from the contractual maturities due to early customer buyouts, refinancings, or defaults.

We provide financing of certain equipment through operating leases, and the amounts are included in property and equipment in the Consolidated Balance Sheets. Amounts relating to equipment on operating lease assets held by us and the associated accumulated depreciation are summarized as follows (in millions):


	April 30, 2022		July 31, 2021
Operating lease assets	$	205	$	273
Accumulated depreciation	(119)		(165)
Operating lease assets, net	$	86	$	108

Our operating lease income for the third quarter and first nine months of fiscal 2022 was $26 million and $87 million, respectively, and $36 million and $119 million for the corresponding periods of fiscal 2021, respectively, and was included in product revenue in the Consolidated Statement of Operations.

Minimum future rentals on noncancelable operating leases as of April 30, 2022 are summarized as follows (in millions):


Fiscal Year	Amount
2022 (remaining three months)	$	11
2023	32
2024	15
2025	4
Total	$	62

**9.**Financing Receivables

**(a)**Financing Receivables

Financing receivables primarily consist of lease receivables, loan receivables, and financed service contracts. Lease receivables represent sales-type leases resulting from the sale of Cisco’s and complementary third-party products and are typically collateralized by a security interest in the underlying assets. Lease receivables consist of arrangements with terms of four years on average. Loan receivables represent financing arrangements related to the sale of our hardware, software, and services, which may include additional funding for other costs associated with network installation and integration of our products and services. Loan receivables have terms of three years on average. Financed service contracts include financing receivables related to technical support and advanced services. Revenue related to the technical support services is typically deferred and included in deferred service revenue and is recognized ratably over the period during which the related services are to be performed, which typically ranges from one year to three years.

CISCO SYSTEMS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

A summary of our financing receivables is presented as follows (in millions):


April 30, 2022	Lease Receivables		Loan Receivables		Financed Service Contracts		Total
Gross	$	1,304	$	4,509	$	2,051	$	7,864
Residual value	82		—		—		82
Unearned income	(59)		—		—		(59)
Allowance for credit loss	(25)		(97)		(2)		(124)
Total, net	$	1,302	$	4,412	$	2,049	$	7,763
Reported as:
Current	$	623	$	2,144	$	1,037	$	3,804
Noncurrent	679		2,268		1,012		3,959
Total, net	$	1,302	$	4,412	$	2,049	$	7,763


July 31, 2021	Lease Receivables		Loan Receivables		Financed Service Contracts		Total
Gross	$	1,710	$	5,203	$	2,453	$	9,366
Residual value	103		—		—		103
Unearned income	(78)		—		—		(78)
Allowance for credit loss	(38)		(86)		(3)		(127)
Total, net	$	1,697	$	5,117	$	2,450	$	9,264
Reported as:
Current	$	780	$	2,372	$	1,228	$	4,380
Noncurrent	917		2,745		1,222		4,884
Total, net	$	1,697	$	5,117	$	2,450	$	9,264

**(b)**Credit Quality of Financing Receivables

The tables below present our gross financing receivables, excluding residual value, less unearned income, categorized by our internal credit risk rating by period of origination (in millions):


April 30, 2022			Fiscal Year								Nine Months Ended
Internal Credit Risk Rating	Prior		July 28, 2018		July 27, 2019		July 25, 2020		July 31, 2021		April 30, 2022		Total
Lease Receivables:
1 to 4	$	3	$	38	$	90	$	144	$	192	$	152	$	619
5 to 6	3		18		83		176		183		129		592
7 and Higher	1		1		5		13		3		11		34
Total Lease Receivables	$	7	$	57	$	178	$	333	$	378	$	292	$	1,245
Loan Receivables:
1 to 4	$	6	$	63	$	173	$	565	$	1,018	$	979	$	2,804
5 to 6	2		22		94		289		547		637		1,591
7 and Higher	1		1		26		40		36		10		114
Total Loan Receivables	$	9	$	86	$	293	$	894	$	1,601	$	1,626	$	4,509
Financed Service Contracts:
1 to 4	$	1	$	5	$	52	$	99	$	624	$	567	$	1,348
5 to 6	1		12		47		135		292		202		689
7 and Higher	—		—		3		5		3		3		14
Total Financed Service Contracts	$	2	$	17	$	102	$	239	$	919	$	772	$	2,051
Total	$	18	$	160	$	573	$	1,466	$	2,898	$	2,690	$	7,805

CISCO SYSTEMS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)


July 31, 2021			Fiscal Year
Internal Credit Risk Rating	Prior		July 29, 2017		July 28, 2018		July 27, 2019		July 25, 2020		July 31, 2021		Total
Lease Receivables:
1 to 4	$	2	$	20	$	100	$	168	$	282	$	227	$	799
5 to 6	1		17		65		187		285		231		786
7 and Higher	—		2		6		12		23		4		47
Total Lease Receivables	$	3	$	39	$	171	$	367	$	590	$	462	$	1,632
Loan Receivables:
1 to 4	$	4	$	86	$	134	$	577	$	990	$	1,552	$	3,343
5 to 6	—		19		75		202		505		925		1,726
7 and Higher	1		2		4		50		43		34		134
Total Loan Receivables	$	5	$	107	$	213	$	829	$	1,538	$	2,511	$	5,203
Financed Service Contracts:
1 to 4	$	—	$	38	$	26	$	106	$	252	$	1,053	$	1,475
5 to 6	—		6		26		105		302		520		959
7 and Higher	—		—		1		6		7		5		19
Total Financed Service Contracts	$	—	$	44	$	53	$	217	$	561	$	1,578	$	2,453
Total	$	8	$	190	$	437	$	1,413	$	2,689	$	4,551	$	9,288

The following tables present the aging analysis of gross receivables as of April 30, 2022 and July 31, 2021 (in millions):


	DAYS PAST DUE (INCLUDES BILLED AND UNBILLED)
April 30, 2022	31-60		61-90		91+		Total Past Due		Current		Total		120+ Still Accruing		Nonaccrual Financing Receivables		Impaired Financing Receivables
Lease receivables	$	26	$	10	$	24	$	60	$	1,185	$	1,245	$	7	$	14	$	14
Loan receivables	87		38		25		150		4,359		4,509		6		53		53
Financed service contracts	45		16		23		84		1,967		2,051		5		2		2
Total	$	158	$	64	$	72	$	294	$	7,511	$	7,805	$	18	$	69	$	69


	DAYS PAST DUE (INCLUDES BILLED AND UNBILLED)
July 31, 2021	31-60		61-90		91+		Total Past Due		Current		Total		120+ Still Accruing		Nonaccrual Financing Receivables		Impaired Financing Receivables
Lease receivables	$	21	$	17	$	29	$	67	$	1,565	$	1,632	$	1	$	33	$	26
Loan receivables	71		17		35		123		5,080		5,203		4		33		33
Financed service contracts	18		13		18		49		2,404		2,453		3		3		3
Total	$	110	$	47	$	82	$	239	$	9,049	$	9,288	$	8	$	69	$	62

Past due financing receivables are those that are 31 days or more past due according to their contractual payment terms. The data in the preceding tables is presented by contract, and the aging classification of each contract is based on the oldest outstanding receivable, and therefore past due amounts also include unbilled and current receivables within the same contract.

CISCO SYSTEMS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

**(c)**Allowance for Credit Loss Rollforward

The allowances for credit loss and the related financing receivables are summarized as follows (in millions):


Three months ended April 30, 2022	CREDIT LOSS ALLOWANCES
	Lease Receivables		Loan Receivables		Financed Service Contracts		Total
Allowance for credit loss as of January 29, 2022	$	27	$	67	$	3	$	97
Provisions (benefits)	(2)		27		(1)		24
Other	—		3		—		3
Allowance for credit loss as of April 30, 2022	$	25	$	97	$	2	$	124


Three Months Ended May 1, 2021	CREDIT LOSS ALLOWANCES
	Lease Receivables		Loan Receivables		Financed Service Contracts		Total
Allowance for credit loss as of January 23, 2021	$	43	$	96	$	9	$	148
Provisions (benefits)	(2)		(4)		(4)		(10)
Recoveries (write-offs), net	(1)		(1)		—		(2)
Allowance for credit loss as of May 1, 2021	$	40	$	91	$	5	$	136


Nine months ended April 30, 2022	CREDIT LOSS ALLOWANCES
	Lease Receivables		Loan Receivables		Financed Service Contracts		Total
Allowance for credit loss as of July 31, 2021	$	38	$	86	$	3	$	127
Provisions (benefits)	(11)		8		(1)		(4)
Recoveries (write-offs), net	(2)		—		—		(2)
Other	—		3		—		3
Allowance for credit loss as of April 30, 2022	$	25	$	97	$	2	$	124


Nine months ended May 1, 2021	CREDIT LOSS ALLOWANCES
	Lease Receivables		Loan Receivables		Financed Service Contracts		Total
Allowance for credit loss as of July 25, 2020	$	48	$	81	$	9	$	138
Provisions (benefits)	(9)		(7)		(3)		(19)
Recoveries (write-offs), net	(1)		(1)		—		(2)
Other	2		18		(1)		19
Allowance for credit loss as of May 1, 2021	$	40	$	91	$	5	$	136

CISCO SYSTEMS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

**10.**Available-for-Sale Debt and Equity Investments

**(a)**Summary of Available-for-Sale Debt Investments

The following tables summarize our available-for-sale debt investments (in millions):


April 30, 2022	Amortized Cost		Gross Unrealized Gains		Gross Unrealized and Credit Losses		Fair Value
U.S. government securities	$	1,346	$	—	$	(46)	$	1,300
U.S. government agency securities	150		—		(4)		146
Non-U.S. government and agency securities	171		—		—		171
Corporate debt securities	8,770		5		(296)		8,479
U.S. agency mortgage-backed securities	2,234		—		(176)		2,058
Commercial paper	548		—		—		548
Certificates of deposit	212		—		—		212
Total	$	13,431	$	5	$	(522)	$	12,914


July 31, 2021	Amortized Cost		Gross Unrealized Gains		Gross Unrealized and Credit Losses		Fair Value
U.S. government securities	$	1,773	$	21	$	—	$	1,794
U.S. government agency securities	152		—		—		152
Non-U.S. government and agency securities	3		—		—		3
Corporate debt securities	8,727		213		(30)		8,910
U.S. agency mortgage-backed securities	2,838		34		(10)		2,862
Commercial paper	1,190		—		—		1,190
Certificates of deposit	295		—		—		295
Total	$	14,978	$	268	$	(40)	$	15,206

The following table presents the gross realized gains and gross realized losses related to available-for-sale debt investments (in millions):


	Three Months Ended				Nine Months Ended
	April 30, 2022		May 1, 2021		April 30, 2022		May 1, 2021
Gross realized gains	$	8	$	24	$	27	$	48
Gross realized losses	(6)		(2)		(9)		(2)
Total	$	2	$	22	$	18	$	46

CISCO SYSTEMS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

The following tables present the breakdown of the available-for-sale debt investments with gross unrealized losses and the duration that those losses had been unrealized at April 30, 2022 and July 31, 2021 (in millions):


	UNREALIZED LOSSES LESS THAN 12 MONTHS				UNREALIZED LOSSES 12 MONTHS OR GREATER				TOTAL
April 30, 2022	Fair Value		Gross Unrealized Losses		Fair Value		Gross Unrealized Losses		Fair Value		Gross Unrealized Losses
U.S. government securities	$	1,185	$	(43)	$	96	$	(3)	$	1,281	$	(46)
U.S. government agency securities	121		(2)		24		(2)		145		(4)
Non-U.S. government and agency securities	171		—		—		—		171		—
Corporate debt securities	6,185		(225)		367		(35)		6,552		(260)
U.S. agency mortgage-backed securities	1,505		(118)		547		(58)		2,052		(176)
Total	$	9,167	$	(388)	$	1,034	$	(98)	$	10,201	$	(486)


	UNREALIZED LOSSES LESS THAN 12 MONTHS				UNREALIZED LOSSES 12 MONTHS OR GREATER				TOTAL
July 31, 2021	Fair Value		Gross Unrealized Losses		Fair Value		Gross Unrealized Losses		Fair Value		Gross Unrealized Losses
U.S. government securities	$	468	$	—	$	—	$	—	$	468	$	—
U.S. government agency securities	26		—		—		—		26		—
Corporate debt securities	1,086		(5)		6		—		1,092		(5)
U.S. agency mortgage-backed securities	1,293		(10)		13		—		1,306		(10)
Commercial paper	37		—		—		—		37		—
Total	$	2,910	$	(15)	$	19	$	—	$	2,929	$	(15)

The following table summarizes the maturities of our available-for-sale debt investments as of April 30, 2022 (in millions):


	Amortized Cost		Fair Value
Within 1 year	$	3,431	$	3,397
After 1 year through 5 years	7,619		7,319
After 5 years through 10 years	146		139
After 10 years	1		1
Mortgage-backed securities with no single maturity	2,234		2,058
Total	$	13,431	$	12,914

Actual maturities may differ from the contractual maturities because borrowers may have the right to call or prepay certain obligations.

**(b)**Summary of Equity Investments

We held marketable equity securities of $242 million and $137 million as of April 30, 2022 and July 31, 2021, respectively. We recognized a net unrealized loss of $19 million and $32 million during the third quarter and first nine months of fiscal 2022, respectively, and net unrealized gains of $3 million for each of the third quarter and first nine months of fiscal 2021, on our marketable securities still held as of the reporting date. Our net adjustments to non-marketable equity securities measured using the measurement alternative still held was a net gain of $11 million and $28 million for the third quarter and first nine months of fiscal 2022, respectively. These adjustments were a net loss of $3 million and a net gain of $1 million for the corresponding periods of fiscal 2021, respectively. We held equity interests in certain private equity funds of $1.2 billion and $0.9 billion as of April 30, 2022 and July 31, 2021, respectively, which are accounted for under the NAV practical expedient.

In the ordinary course of business, we have investments in privately held companies and provide financing to certain customers. These privately held companies and customers are evaluated for consolidation under the variable interest or voting interest

CISCO SYSTEMS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

entity models. We evaluate on an ongoing basis our investments in these privately held companies and our customer financings, and have determined that as of April 30, 2022, there were no significant variable interest or voting interest entities required to be consolidated in our Consolidated Financial Statements.

The carrying value of our investments in privately held companies was $1.9 billion and $1.5 billion as of April 30, 2022 and July 31, 2021, respectively. Of the total carrying value of our investments in privately held companies as of April 30, 2022, $1.2 billion of such investments are considered to be in variable interest entities which are unconsolidated. As of April 30, 2022, we have total funding commitments of $0.4 billion related to privately held investments, some of which may be based on the achievement of certain agreed-upon milestones or are required to be funded on demand. The carrying value of these investments and the additional funding commitments, collectively, represent our maximum exposure related to privately held investments.

11. Fair Value

Fair value is defined as the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. When determining the fair value measurements for assets and liabilities required or permitted to be either recorded or disclosed at fair value, we consider the principal or most advantageous market in which we would transact, and we also consider assumptions that market participants would use when pricing the asset or liability.

**(a)**Fair Value Hierarchy

The accounting guidance for fair value measurement requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The standard establishes a fair value hierarchy based on the level of independent, objective evidence surrounding the inputs used to measure fair 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 value measurement. The fair value hierarchy is as follows:

Level 1 applies to assets or liabilities for which there are quoted prices in active markets for identical assets or liabilities.

Level 2 applies to assets or liabilities for which there are inputs other than quoted prices that are observable for the asset or liability, such as quoted prices for similar assets or liabilities in active markets; quoted prices for identical assets or liabilities in markets with insufficient volume or infrequent transactions (less active markets); or model-derived valuations in which significant inputs are observable or can be derived principally from, or corroborated by, observable market data.

Level 3 applies to assets or liabilities for which there are unobservable inputs to the valuation methodology that are significant to the measurement of the fair value of the assets or liabilities.

CISCO SYSTEMS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

**(b)**Assets and Liabilities Measured at Fair Value on a Recurring Basis

Assets and liabilities measured at fair value on a recurring basis were as follows (in millions):


	APRIL 30, 2022						JULY 31, 2021
	FAIR VALUE MEASUREMENTS						FAIR VALUE MEASUREMENTS
	Level 1		Level 2		Total Balance		Level 1		Level 2		Total Balance
Assets:
Cash equivalents:
Money market funds	$	3,119	$	—	$	3,119	$	5,694	$	—	$	5,694
U.S. government securities	—		50		50		—		300		300
Non-U.S. government and agency securities	—		23		23		—		—		—
Corporate debt securities	—		43		43		—		—		—
Commercial paper	—		238		238		—		114		114
Certificates of deposit	—		40		40		—		—		—
Available-for-sale debt investments:
U.S. government securities	—		1,300		1,300		—		1,794		1,794
U.S. government agency securities	—		146		146		—		152		152
Non-U.S. government and agency securities	—		171		171		—		3		3
Corporate debt securities	—		8,479		8,479		—		8,910		8,910
U.S. agency mortgage-backed securities	—		2,058		2,058		—		2,862		2,862
Commercial paper	—		548		548		—		1,190		1,190
Certificates of deposit	—		212		212		—		295		295
Equity investments:
Marketable equity securities	242		—		242		137		—		137
Other assets:
Money market funds	750		—		750		750		—		750
Derivative assets	—		65		65		—		126		126
Total	$	4,111	$	13,373	$	17,484	$	6,581	$	15,746	$	22,327
Liabilities:
Derivative liabilities	$	—	$	87	$	87	$	—	$	20	$	20
Total	$	—	$	87	$	87	$	—	$	20	$	20

Level 1 marketable equity securities are determined by using quoted prices in active markets for identical assets. Level 2 available-for-sale debt investments are priced using quoted market prices for similar instruments or nonbinding market prices that are corroborated by observable market data. We use inputs such as actual trade data, benchmark yields, broker/dealer quotes, and other similar data, which are obtained from quoted market prices, independent pricing vendors, or other sources, to determine the ultimate fair value of these assets and liabilities. We use such pricing data as the primary input to make our assessments and determinations as to the ultimate valuation of our investment portfolio and have not made, during the periods presented, any material adjustments to such inputs. We are ultimately responsible for the financial statements and underlying estimates. Our derivative instruments are primarily classified as Level 2, as they are not actively traded and are valued using pricing models that use observable market inputs. We did not have any transfers between Level 1 and Level 2 fair value measurements during the periods presented.

CISCO SYSTEMS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

**(c)**Assets Measured at Fair Value on a Nonrecurring Basis

Our non-marketable equity securities using the measurement alternative are adjusted to fair value on a non-recurring basis. Adjustments are made when observable transactions for identical or similar investments of the same issuer occur, or due to impairment. These securities are classified as Level 3 in the fair value hierarchy because we estimate the value based on valuation methods using the observable transaction price at the transaction date and other unobservable inputs such as volatility, rights, and obligations of the securities we hold.

(d) Other Fair Value Disclosures

The fair value of our short-term loan receivables and financed service contracts approximates their carrying value due to their short duration. The aggregate carrying value of our long-term loan receivables and financed service contracts as of April 30, 2022 and July 31, 2021 was $3.3 billion and $4.0 billion, respectively. The estimated fair value of our long-term loan receivables and financed service contracts approximates their carrying value. We use significant unobservable inputs in determining discounted cash flows to estimate the fair value of our long-term loan receivables and financed service contracts, and therefore they are categorized as Level 3.

As of April 30, 2022, the estimated fair value of our short-term debt approximates its carrying value due to the short maturities. As of April 30, 2022, the fair value of our senior notes was $10.1 billion with a carrying amount of $9.4 billion. This compares to a fair value of $13.7 billion and a carrying amount of $11.5 billion as of July 31, 2021. The fair value of the senior notes was determined based on observable market prices in a less active market and was categorized as Level 2 in the fair value hierarchy.

**12.**Borrowings

**(a)**Short-Term Debt

The following table summarizes our short-term debt (in millions, except percentages):


	April 30, 2022				July 31, 2021
	Amount		Effective Rate		Amount		Effective Rate
Current portion of long-term debt	$	1,000	2.13	%	$	2,508	1.75	%

We have a short-term debt financing program of up to $10.0 billion through the issuance of commercial paper notes. We use the proceeds from the issuance of commercial paper notes for general corporate purposes. We had no commercial paper outstanding as of April 30, 2022 and July 31, 2021.

The effective rates for the short- and long-term debt include the interest on the notes, the accretion of the discount, the issuance costs, and, if applicable, adjustments related to hedging.

CISCO SYSTEMS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

**(b)**Long-Term Debt

The following table summarizes our long-term debt (in millions, except percentages):


		April 30, 2022			July 31, 2021
	Maturity Date	Amount		Effective Rate	Amount		Effective Rate
Senior notes:
Fixed-rate notes:
1.85%	September 20, 2021	$	—	—	$	2,000	1.90%
3.00%	June 15, 2022	500		1.59%	500		1.13%
2.60%	February 28, 2023	500		2.68%	500		2.68%
2.20%	September 20, 2023	750		2.27%	750		2.27%
3.625%	March 4, 2024	1,000		1.35%	1,000		1.00%
3.50%	June 15, 2025	500		1.75%	500		1.29%
2.95%	February 28, 2026	750		3.01%	750		3.01%
2.50%	September 20, 2026	1,500		2.55%	1,500		2.55%
5.90%	February 15, 2039	2,000		6.11%	2,000		6.11%
5.50%	January 15, 2040	2,000		5.67%	2,000		5.67%
Total		9,500			11,500
Unaccreted discount/issuance costs		(76)			(80)
Hedge accounting fair value adjustments		(6)			106
Total		$	9,418		$	11,526

Reported as:
Current portion of long-term debt		$	1,000		$	2,508
Long-term debt		8,418			9,018
Total		$	9,418		$	11,526

We have entered into interest rate swaps in prior periods with an aggregate notional amount of $2.0 billion designated as fair value hedges of certain of our fixed-rate senior notes. These swaps convert the fixed interest rates of the fixed-rate notes to floating interest rates based on the London InterBank Offered Rate (LIBOR). The gains and losses related to changes in the fair value of the interest rate swaps substantially offset changes in the fair value of the hedged portion of the underlying debt that are attributable to the changes in market interest rates. For additional information, see Note 13.

Interest is payable semiannually on each class of the senior fixed-rate notes. Each of the senior fixed-rate notes is redeemable by us at any time, subject to a make-whole premium. The senior notes rank at par with the commercial paper notes that may be issued in the future pursuant to our short-term debt financing program, as discussed above under “(a) Short-Term Debt.” As of April 30, 2022, we were in compliance with all debt covenants.

As of April 30, 2022, future principal payments for long-term debt, including the current portion, are summarized as follows (in millions):


Fiscal Year	Amount
2022 (remaining three months)	$	500
2023	500
2024	1,750
2025	500
2026	750
Thereafter	5,500
Total	$	9,500

CISCO SYSTEMS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

**(c)**Credit Facility

On May 13, 2021, we entered into a 5-year credit agreement with certain institutional lenders that provides for a $3.0 billion unsecured revolving credit facility that is scheduled to expire on May 13, 2026. As of April 30, 2022, we were in compliance with the required interest coverage ratio and the other covenants, and we had not borrowed any funds under the credit agreement.

Any advances under the 5-year credit agreement will accrue interest at rates that are equal to, based on certain conditions, either (a) with respect to loans in U.S. dollars, (i) LIBOR or (ii) the Base Rate (to be defined as the highest of (x) the Bank of America prime rate, (y) the Federal Funds rate plus 0.50% and (z) a daily rate equal to one-month LIBOR plus 1.0%), (b) with respect to loans in Euros, EURIBOR, (c) with respect to loans in Yen, TIBOR and (d) with respect to loans in Pounds Sterling, SONIA plus a credit spread adjustment, plus a margin that is based on our senior debt credit ratings as published by Standard & Poor’s Financial Services, LLC and Moody’s Investors Service, Inc., provided that in no event will the interest rate be less than 0.0%. We will pay a quarterly commitment fee during the term of the 5-year credit agreement which may vary depending on our senior debt credit ratings. In addition, the 5-year credit agreement incorporates certain sustainability-linked metrics. Specifically, our applicable interest rate and commitment fee are subject to upward or downward adjustments if we achieve, or fail to achieve, certain specified targets based on two key performance indicator metrics: (i) social impact and (ii) foam reduction. We may also, upon the agreement of either the then-existing lenders or additional lenders not currently parties to the agreement, increase the commitments under the credit facility by up to an additional $2.0 billion and, at our option, extend the maturity of the facility for an additional year up to two times. The credit agreement requires that we comply with certain covenants, including that we maintain an interest coverage ratio as defined in the agreement.

CISCO SYSTEMS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

**13.**Derivative Instruments

**(a)**Summary of Derivative Instruments

We use derivative instruments primarily to manage exposures to foreign currency exchange rate, interest rate, and equity price risks. Our primary objective in holding derivatives is to reduce the volatility of earnings and cash flows associated with changes in foreign currency exchange rates, interest rates, and equity prices. Our derivatives expose us to credit risk to the extent that the counterparties may be unable to meet the terms of the agreement. We do, however, seek to mitigate such risks by limiting our counterparties to major financial institutions and requiring collateral in certain cases. In addition, the potential risk of loss with any one counterparty resulting from this type of credit risk is monitored. Management does not expect material losses as a result of defaults by counterparties.

The fair values of our derivative instruments and the line items on the Consolidated Balance Sheets to which they were recorded are summarized as follows (in millions):


	DERIVATIVE ASSETS					DERIVATIVE LIABILITIES
	Balance Sheet Line Item	April 30, 2022		July 31, 2021		Balance Sheet Line Item	April 30, 2022		July 31, 2021
Derivatives designated as hedging instruments:
Foreign currency derivatives	Other current assets	$	48	$	14	Other current liabilities	$	1	$	3
Foreign currency derivatives	Other assets	7		1		Other long-term liabilities	—		—
Interest rate derivatives	Other current assets	1		9		Other current liabilities	—		—
Interest rate derivatives	Other assets	—		99		Other long-term liabilities	7		—
Total		56		123			8		3
Derivatives not designated as hedging instruments:
Foreign currency derivatives	Other current assets	9		3		Other current liabilities	68		16
Foreign currency derivatives	Other assets	—		—		Other long-term liabilities	7		1
Equity derivatives	Other current assets	—		—		Other current liabilities	4		—
Total		9		3			79		17
Total		$	65	$	126		$	87	$	20

The following amounts were recorded on the Consolidated Balance Sheets related to cumulative basis adjustments for our fair value hedges (in millions):


	CARRYING AMOUNT OF THE HEDGED ASSETS/(LIABILITIES)				CUMULATIVE AMOUNT OF FAIR VALUE HEDGING ADJUSTMENT INCLUDED IN THE CARRYING AMOUNT OF THE HEDGED ASSETS/LIABILITIES
Balance Sheet Line Item of Hedged Item	April 30, 2022		July 31, 2021		April 30, 2022		July 31, 2021
Short-term debt	$	(501)	$	(508)	$	(1)	$	(9)
Long-term debt	$	(1,490)	$	(1,594)	$	7	$	(97)

CISCO SYSTEMS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

The effect of derivative instruments designated as fair value hedges, recognized in interest and other income (loss), net is summarized as follows (in millions):


	Three Months Ended				Nine Months Ended
	April 30, 2022		May 1, 2021		April 30, 2022		May 1, 2021
Interest rate derivatives:
Hedged items	$	54	$	25	$	112	$	58
Derivatives designated as hedging instruments	(55)		(25)		(114)		(59)
Total	$	(1)	$	—	$	(2)	$	(1)

The effect on the Consolidated Statements of Operations of derivative instruments not designated as hedges is summarized as follows (in millions):


		GAINS (LOSSES) FOR THE THREE MONTHS ENDED				GAINS (LOSSES) FOR THE NINE MONTHS ENDED
Derivatives Not Designated as Hedging Instruments	Line Item in Statements of Operations	April 30, 2022		May 1, 2021		April 30, 2022		May 1, 2021
Foreign currency derivatives	Other income (loss), net	$	(99)	$	(12)	$	(155)	$	35
Total return swaps—deferred compensation	Operating expenses and other	(38)		45		(58)		144
Equity derivatives	Other income (loss), net	5		5		6		19
Total		$	(132)	$	38	$	(207)	$	198

The notional amounts of our outstanding derivatives are summarized as follows (in millions):


	April 30, 2022		July 31, 2021
Foreign currency derivatives	$	4,501	$	4,139
Interest rate derivatives	2,000		2,000
Total return swaps—deferred compensation	689		730
Total	$	7,190	$	6,869

**(b)**Offsetting of Derivative Instruments

We present our derivative instruments at gross fair values in the Consolidated Balance Sheets. However, our master netting and other similar arrangements with the respective counterparties allow for net settlement under certain conditions, which are designed to reduce credit risk by permitting net settlement with the same counterparty. As of April 30, 2022 and July 31, 2021, the potential effects of these rights of set-off associated with the derivative contracts would be a reduction to both derivative assets and derivative liabilities of $66 million and $17 million, respectively.

To further limit credit risk, we also enter into collateral security arrangements related to certain derivative instruments whereby cash is posted as collateral between the counterparties based on the fair market value of the derivative instrument. Under these collateral security arrangements, the net cash collateral provided for was $3 million as of April 30, 2022 and the net cash collateral received as of July 31, 2021 was $109 million. Including the effects of collateral, this results in a net derivative liability of $19 million and $3 million as of April 30, 2022 and July 31, 2021, respectively.

**(c)**Foreign Currency Exchange Risk

We conduct business globally in numerous currencies. Therefore, we are exposed to adverse movements in foreign currency exchange rates. To limit the exposure related to foreign currency changes, we enter into foreign currency contracts. We do not enter into such contracts for speculative purposes.

We hedge forecasted foreign currency transactions related to certain revenues, operating expenses and service cost of sales with currency options and forward contracts. These currency options and forward contracts, designated as cash flow hedges, generally have maturities of less than 24 months. The derivative instrument’s gain or loss is initially reported as a component of accumulated other comprehensive income (AOCI) and subsequently reclassified into earnings when the hedged exposure affects earnings.

CISCO SYSTEMS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

We enter into foreign exchange forward and option contracts to reduce the short-term effects of foreign currency fluctuations on assets and liabilities such as foreign currency receivables, long-term customer financings and payables. These derivatives are not designated as hedging instruments. Gains and losses on the contracts are included in other income (loss), net, and substantially offset foreign exchange gains and losses from the remeasurement of intercompany balances, other current assets, or liabilities denominated in currencies other than the functional currency of the reporting entity.

We hedge certain net investments in our foreign operations with forward contracts to reduce the effects of foreign currency fluctuations on our net investment in those foreign subsidiaries. These derivative instruments generally have maturities of up to six months.

**(d)**Interest Rate Risk

We hold interest rate swaps designated as fair value hedges related to fixed-rate senior notes that are due in fiscal 2022 through 2025. Under these interest rate swaps, we receive fixed-rate interest payments and make interest payments based on LIBOR plus a fixed number of basis points. The effect of such swaps is to convert the fixed interest rates of the senior fixed-rate notes to floating interest rates based on LIBOR. The gains and losses related to changes in the fair value of the interest rate swaps are included in interest expense and substantially offset changes in the fair value of the hedged portion of the underlying debt that are attributable to the changes in market interest rates.

**(e)**Equity Price Risk

We hold marketable equity securities in our portfolio that are subject to price risk. To diversify our overall portfolio, we also hold equity derivatives that are not designated as accounting hedges. The change in the fair value of each of these investment types are included in other income (loss), net.

We are also exposed to variability in compensation charges related to certain deferred compensation obligations to employees. Although not designated as accounting hedges, we utilize derivatives such as total return swaps to economically hedge this exposure and offset the related compensation expense.

**14.**Commitments and Contingencies

**(a)**Purchase Commitments with Contract Manufacturers and Suppliers

We purchase components from a variety of suppliers and use several contract manufacturers to provide manufacturing services for our products. During the normal course of business, in order to manage manufacturing lead times and help ensure adequate component supply, we enter into agreements with contract manufacturers and suppliers that allow them to procure inventory based upon criteria as defined by us or establish the parameters defining our requirements. A significant portion of our reported purchase commitments arising from these agreements consists of firm, noncancelable, and unconditional commitments. Certain of these inventory purchase commitments with contract manufacturers and suppliers relate to arrangements to secure supply and pricing for certain product components for multi-year periods. In certain instances, these agreements allow us the option to cancel, reschedule, and adjust our requirements based on our business needs prior to firm orders being placed.

The following table summarizes our inventory purchase commitments with contract manufacturers and suppliers by period (in millions):


	April 30, 2022		July 31, 2021
Less than 1 year	$	10,698	$	6,903
1 to 3 years	2,401		1,806
3 to 5 years	—		1,545
Total	$	13,099	$	10,254

We record a liability for firm, noncancelable, and unconditional purchase commitments for quantities in excess of our future demand forecasts consistent with the valuation of our excess and obsolete inventory. As of April 30, 2022 and July 31, 2021, the liability for these purchase commitments was $236 million and $151 million, respectively, and was included in other current liabilities. For further discussion around the Supply Constraints Impacts and Risks, see Result of Operations—Product Gross Margin and Liquidity and Capital Resources—Inventory Supply Chain.

CISCO SYSTEMS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

**(b)**Other Commitments

In connection with our acquisitions, we have agreed to pay certain additional amounts contingent upon the achievement of certain agreed-upon technology, development, product, or other milestones or upon the continued employment with Cisco of certain employees of the acquired entities.

The following table summarizes the compensation expense related to acquisitions (in millions):


	Three Months Ended				Nine Months Ended
	April 30, 2022		May 1, 2021		April 30, 2022		May 1, 2021
Compensation expense related to acquisitions	$	56	$	66	$	220	$	182

As of April 30, 2022, we estimated that future cash compensation expense of up to $534 million may be required to be recognized pursuant to the applicable business combination agreements.

We also have certain funding commitments, primarily related to our privately held investments, some of which are based on the achievement of certain agreed-upon milestones or are required to be funded on demand. The funding commitments were $0.4 billion and $0.2 billion as of April 30, 2022 and July 31, 2021, respectively.

**(c)**Product Warranties

The following table summarizes the activity related to the product warranty liability (in millions):


	Nine Months Ended
	April 30, 2022		May 1, 2021
Balance at beginning of period	$	336	$	331
Provisions for warranties issued	320		382
Adjustments for pre-existing warranties	1		1
Settlements	(322)		(373)
Balance at end of period	$	335	$	341

We accrue for warranty costs as part of our cost of sales based on associated material product costs, labor costs for technical support staff, and associated overhead. Our products are generally covered by a warranty for periods ranging from 90 days to five years, and for some products we provide a limited lifetime warranty.

**(d)**Financing and Other Guarantees

In the ordinary course of business, we provide financing guarantees for various third-party financing arrangements extended to channel partners and end-user customers. Payments under these financing guarantee arrangements were not material for the periods presented.

Channel Partner Financing Guarantees We facilitate arrangements for third-party financing extended to channel partners, consisting of revolving short-term financing, with payment terms generally ranging from 60 to 90 days. These financing arrangements facilitate the working capital requirements of the channel partners, and, in some cases, we guarantee a portion of these arrangements. The volume of channel partner financing was $6.9 billion and $6.6 billion for the third quarter of fiscal 2022 and 2021, respectively, and was $20.3 billion and $19.5 billion for the first nine months of fiscal 2022 and 2021, respectively. The balance of the channel partner financing subject to guarantees was $1.3 billion as of each of April 30, 2022 and July 31, 2021.

End-User Financing Guarantees We also provide financing guarantees for third-party financing arrangements extended to end-user customers related to 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 we had provided guarantees was $3 million and $1 million for the third quarter of fiscal 2022 and 2021, respectively, and was $9 million and $8 million for the first nine months of fiscal 2022 and 2021, respectively.

CISCO SYSTEMS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

Financing Guarantee Summary The aggregate amounts of financing guarantees outstanding at April 30, 2022 and July 31, 2021, representing the total maximum potential future payments under financing arrangements with third parties along with the related deferred revenue, are summarized in the following table (in millions):


	April 30, 2022		July 31, 2021
Maximum potential future payments relating to financing guarantees:
Channel partner	$	144	$	155
End user	4		5
Total	$	148	$	160
Deferred revenue associated with financing guarantees:
Channel partner	$	(15)	$	(16)
End user	(4)		(5)
Total	$	(19)	$	(21)
Total	$	129	$	139

**(e)**Indemnifications

In the normal course of business, we have indemnification obligations to other parties, including customers, lessors, and parties to other transactions with us, with respect to certain matters. We have agreed to indemnify against losses arising from a breach of representations or covenants or out of intellectual property infringement or other claims made against certain parties. These agreements may limit the time or circumstances within which an indemnification claim can be made and the amount of the claim.

It is not possible to determine the maximum potential amount for claims made under the indemnification obligations discussed in this section (e) due to uncertainties in the litigation process, coordination with and contributions by other parties and the defendants in these cases, and the unique facts and circumstances involved in each particular case and agreement. We are unable to reasonably estimate the ultimate outcome of the cases discussed below in this section (e), but we do not believe that any potential indemnity liability would be material, and historically, indemnity payments made by us have not had a material effect on our Consolidated Financial Statements.

We were asked by seven of our customers to indemnify them in connection with patent infringement claims asserted against them by Estech Systems, Inc. (“Estech”) in the Eastern District of Texas (“E.D. Tex.”) court and the Western District of Texas court between April 24, 2020 and August 25, 2020. Estech alleged that the customer defendants infringe three patents generally related to IP telephony by using collaboration technology from us and other providers. Estech was seeking monetary damages from the customer defendants. Estech and the customer defendants resolved Estech’s claims, and we resolved the customer defendants’ indemnity claims for an amount that did not have a material effect on our Consolidated Financial Statements.

In addition, we have entered into indemnification agreements with our officers and directors, and our Amended and Restated Bylaws contain similar indemnification obligations to our agents.

CISCO SYSTEMS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

**(f)**Legal Proceedings

Brazil Brazilian authorities have investigated our Brazilian subsidiary and certain of its former employees, as well as a Brazilian importer of our products, and its affiliates and employees, relating to alleged evasion of import taxes and alleged improper transactions involving the subsidiary and the importer. 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, and penalties. In addition to claims asserted by the Brazilian federal tax authorities in prior fiscal years, tax authorities from the Brazilian state of Sao Paulo have asserted similar claims on the same legal basis in prior fiscal years. The asserted claims by Brazilian federal tax authorities are for calendar years 2003 through 2007, and the asserted claims by the tax authorities from the state of Sao Paulo are for calendar years 2005 through 2007. The total asserted claims by Brazilian state and federal tax authorities aggregate to $163 million for the alleged evasion of import and other taxes, $840 million for interest, and $402 million for various penalties, all determined using an exchange rate as of April 30, 2022.

We have completed a thorough review of the matters and believe the asserted claims against our Brazilian subsidiary are without merit, and we are defending the claims vigorously. While we believe there is no legal basis for the alleged liability, due to the complexities and uncertainty surrounding the judicial process in Brazil and the nature of the claims asserting joint liability with the importer, we are unable to determine the likelihood of an unfavorable outcome against our Brazilian subsidiary and are unable to reasonably estimate a range of loss, if any. We do not expect a final judicial determination for several years.

China We have completed our investigation into allegations of a self-enrichment scheme involving now-former employees in China, and shared the results of the investigation with the Securities and Exchange Commission (“SEC”) and the Department of Justice (“DOJ”). Based on the investigation results, both the SEC and the DOJ have informed the Company that they do not plan to take any action against the Company in connection with these allegations.

SRI International On September 4, 2013, SRI International, Inc. (“SRI”) asserted claims against us in the U.S. District Court for the District of Delaware (“D. Del.”), accusing our products and services related to network intrusion detection of infringing two patents. After a trial, SRI obtained a verdict against us, and we appealed to the United States Court of Appeals for the Federal Circuit (“Federal Circuit”) which was ultimately unsuccessful. In resolution of this matter, we have paid the SRI judgments, including attorneys’ fees and post-judgment royalties and interest, in the aggregate amount of approximately $60 million. On May 17, 2022, the District Court entered a final order in the case requiring us to pay SRI additional post-judgment interest of approximately $1 million. We made the payment and the case is now concluded.

Centripetal On February 13, 2018, Centripetal Networks, Inc. (“Centripetal”) asserted patent infringement claims against us in the U.S. District Court for the Eastern District of Virginia, alleging that several of our products and services (including our Catalyst switches, ASR and ISR series routers, ASAs with FirePOWER services, and Stealthwatch products) infringe eleven Centripetal U.S. patents. We thereafter petitioned the Patent Trial and Appeal Board (“PTAB”) of the United States Patent and Trademark Office (“PTO”) to review the validity of nine of the asserted patents. The PTAB instituted inter partes review proceedings (“IPR Proceedings”) on six asserted patents and certain claims of another asserted patent. The PTAB has issued Final Written Decisions for seven patents in the instituted IPR Proceedings, and all claims of five patents have been found unpatentable and several of the claims of the other two patents have been found unpatentable. The PTAB’s findings of unpatentability have been affirmed on appeal.

For the five asserted U.S. patents not subject to the IPR Proceedings, the district court conducted a bench trial by videoconference from May 6, 2020 to June 25, 2020. On October 5, 2020, the district court issued a judgment finding validity and willful infringement of four of the asserted patents and non-infringement of the fifth patent. The district court awarded Centripetal $1.9 billion, comprised of $756 million in damages, $1.1 billion in enhanced damages for willful infringement, and pre-judgment interest in the amount of $14 million. The district court declined to issue an injunction but, instead, awarded Centripetal a running royalty against revenue from the products found to infringe for an initial three-year term at a rate of 10%, with a minimum annual royalty of $168 million and a maximum annual royalty of $300 million, and for a second three-year term at a rate of 5%, with a minimum annual royalty of $84 million and a maximum annual royalty of $150 million. We believe that the district court’s findings of validity, infringement, and willful infringement, its award of damages, including enhanced damages, and its award of an ongoing royalty are not supported by either the law or the evidence presented at trial. We have appealed the district court’s judgment as to the four patents found valid and infringed to the Federal Circuit. On October 28, 2020, by agreement of the parties, the district court stayed execution of the judgment until after resolution of any appeal in the matter and waived the requirement of any bond or security; accordingly, no money is currently due under the judgment.

Centripetal has submitted complaints in the District Court of Dusseldorf in Germany (“German Court”) against Cisco Systems GmbH and Cisco Systems, Inc., asserting a total of six patents. On April 29, 2020 and April 30, 2020, Centripetal asserted three European patents, seeking both injunctive relief and damages. Two of the three European patents are counterparts to two U.S. patents Centripetal asserted against us in the U.S. district court proceedings, one of which has been invalidated by the PTAB.

CISCO SYSTEMS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

On June 22, 2021, Centripetal amended one of its complaints to assert one additional European patent and one additional German Utility Model patent. On December 10, 2021, the German Court rejected Centripetal’s complaints on two patents. Centripetal has appealed. On December 21, 2021, the German Court stayed its decision on infringement of the third patent pending a decision by the Federal Patent Court in a related nullity proceeding. On May 17, 2022, Centripetal withdrew its complaint for infringement of the German Utility Model patent. The proceedings on Centripetal’s European patent filed on June 22, 2021 remains pending.

On February 14, 2022, Centripetal filed an additional complaint asserting infringement of a sixth patent issued by the European Patent Office. Centripetal seeks both injunctive relief and damages on these patents. We are assessing the complaint and are preparing our defense.

Due to uncertainty surrounding patent litigation processes in the U.S. and Europe, we are unable to reasonably estimate the ultimate outcome of either litigation at this time. If we do not prevail in either litigation, we believe that any damages ultimately assessed would not have a material effect on our Consolidated Financial Statements.

Ramot On June 12, 2019, Ramot at Tel Aviv University Ltd. (“Ramot”) asserted patent infringement claims against us in E.D. Tex., seeking damages, including enhanced damages for allegations of willful infringement, and a running royalty on future sales. Ramot alleges that certain Cisco optical transceiver modules and line cards infringe three patents. As of November 27, 2020, the PTO preliminarily found all asserted claims unpatentable in ex parte reexamination proceedings. On January 13, 2021, the court entered an order staying the case pending the conclusion of the ex parte reexamination proceedings (“Reexamination Proceedings”). While we believe that we have strong non-infringement and invalidity arguments, and that Ramot’s damages theories are not supported by prevailing law, we are unable to reasonably estimate the ultimate outcome of this litigation at this time due to uncertainties in the litigation processes. If we do not prevail in court, we believe that any damages ultimately assessed would not have a material effect on our Consolidated Financial Statements.

On February 26, 2021, Ramot asserted patent infringement claims against Acacia Communications, Inc. (“Acacia”) (which we subsequently acquired) in D. Del, seeking damages, including enhanced damages for allegations of willful infringement, and a running royalty on future sales. Ramot alleges that certain Acacia optical transceiver modules and integrated circuits infringe two of the three patents that Ramot has asserted in its E.D. Tex. case. On September 3, 2021, the court stayed the case pending the ultimate resolution of the Reexamination Proceedings. Due to the early stage of the litigation as well as uncertainties in the litigation processes, we are unable, at this time, to reasonably estimate a potential range of loss, if any, or the ultimate outcome of this litigation.

Viasat On January 21, 2016, Viasat, Inc. (“Viasat”) filed suit against Acacia (which we subsequently acquired) in the California Superior Court for San Diego County (“SDSC”) seeking unpaid royalties for breach of contract and the implied covenant of good faith and fair dealing, and damages for trade secret misappropriation for certain products (“Viasat 1”). Acacia counterclaimed for patent and trade secret misappropriation, contract, and unfair competition claims. On July 17, 2019, the jury found for Viasat on its contract claims, and awarded Viasat approximately $49 million for unpaid royalties through 2018. The jury further found that Acacia willfully misappropriated Viasat’s trade secrets and awarded Viasat $1. On Acacia’s counterclaims, the jury found for Acacia on its contract and trade secret claims and awarded Acacia $1. Both Acacia and Viasat appealed to the California Court of Appeal, Fourth Appellate District (“CCA”). On May 23, 2022, the CCA affirmed the judgment of approximately $49 million, plus post-judgment interest and costs, for Viasat on its breach of contract claim for unpaid royalties, but reversed the judgments for Viasat for breach of the implied covenant of good faith and fair dealing, and for trade secret misappropriation. We are currently reviewing the decision of the CCA and assessing whether to seek additional appellate review.

On November 6, 2019, Viasat filed a second suit in SDSC, alleging contract and trade secret claims for Acacia products sold from January 1, 2019 forward (“Viasat 2”). On February 28, 2020, the court stayed Viasat 2 pending the appeal in Viasat 1. On June 9, 2020, Viasat filed a third suit in SDSC (“Viasat 3”). In Viasat 3, Viasat alleges contract and trade secrets claims for sales of additional Acacia products. On August 11, 2020, the court stayed Viasat 3 pending the appeal in Viasat 1.

On July 28, 2017, Acacia filed suit in the Commonwealth of Massachusetts Superior Court - Business Litigation Session against ViaSat alleging claims for defamation, unfair competition, business torts, and declaratory judgment of no trade secret misappropriation. On April 5, 2018, ViaSat counterclaimed with contract, trade secret, and unfair competition claims (collectively, with Viasat 2 and Viasat 3, the “Viasat Cases”). On December 13, 2018, the Massachusetts court entered an order staying the Massachusetts litigation, which has been extended to June 30, 2022.

While we believe Acacia has strong defenses in each of the Viasat Cases, we are unable to reasonably estimate the ultimate outcome of any of the Viasat Cases at this time due to uncertainties in the litigation processes. If Acacia does not prevail, we

CISCO SYSTEMS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

believe that any relief ultimately assessed in any of the Viasat Cases would not have a material effect on our Consolidated Financial Statements.

Egenera On August 8, 2016, Egenera, Inc. (“Egenera”) asserted infringement claims against us in the U.S. District Court for the District of Massachusetts, alleging that Cisco’s Unified Computing System Manager product infringes three U.S. patents. Egenera seeks damages, including enhanced damages for allegations of willful infringement, and an injunction. Two of the asserted patents have been dismissed, leaving Egenera’s infringement claim based on one asserted patent. The court has scheduled a jury trial on the remaining patent to commence on August 2, 2022. On March 25, 2022, the PTO preliminarily found all of the asserted claims of the remaining patent unpatentable in ex parte reexamination proceedings. While we believe that we have strong non-infringement and invalidity arguments, and that Egenera’s damages theories are not supported by prevailing law, we are unable to reasonably estimate the ultimate outcome of this litigation at this time due to uncertainties in the litigation process. If we do not prevail in court, we believe at this time that any damages ultimately assessed would not have a material effect on our Consolidated Financial Statements.

In addition, we are subject to other legal proceedings, claims, and litigation arising in the ordinary course of business, including intellectual property litigation. While the outcome of these matters is currently not determinable, we do not believe that the ultimate costs to resolve these matters will have a material effect on our Consolidated Financial Statements. For additional information regarding intellectual property litigation, see “Part II, Item 1A. Risk Factors—We may be found to infringe on intellectual property rights of others” herein.

**15.**Stockholders’ Equity

**(a)**Cash Dividends on Shares of Common Stock

We declared and paid cash dividends of $0.38 and $0.37 per common share, or $1.6 billion, on our outstanding common stock for each of the third quarters of fiscal 2022 and 2021. We declared and paid cash dividends of $1.12 and $1.09 per common share, or $4.7 billion and $4.6 billion, on our outstanding common stock for the first nine months of fiscal 2022 and 2021, respectively.

Any future dividends will be subject to the approval of our Board of Directors.

**(b)**Stock Repurchase Program

In September 2001, our Board of Directors authorized a stock repurchase program. As of April 30, 2022, the remaining authorized amount for stock repurchases under this program was approximately $17.6 billion with no termination date. A summary of the stock repurchase activity for fiscal 2022 and 2021 under the stock repurchase program, reported based on the trade date, is summarized as follows (in millions, except per-share amounts):


Quarter Ended	Shares	Weighted-Average Price per Share		Amount
Fiscal 2022
April 30, 2022	5	$	54.20	$	252
January 29, 2022	82	$	58.36	$	4,824
October 30, 2021	5	$	56.49	$	256

Fiscal 2021
July 31, 2021	15	$	53.30	$	791
May 1, 2021	10	$	48.71	$	510
January 23, 2021	19	$	42.82	$	801
October 24, 2020	20	$	40.44	$	800

There were stock repurchases of $10 million and $25 million that were pending settlement as of April 30, 2022 and July 31, 2021, respectively.

The purchase price for the shares of our stock repurchased is reflected as a reduction to stockholders’ equity. We are required to allocate the purchase price of the repurchased shares as (i) a reduction to retained earnings or an increase to accumulated deficit and (ii) a reduction of common stock and additional paid-in capital.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

(c) Preferred Stock

Under the terms of our Amended and Restated Certificate of Incorporation, the Board of Directors is authorized to issue preferred stock of one or more series and, in connection with the creation of such series, to fix by resolution the designation, powers (including voting powers (if any)), preferences and relative, participating, optional or other special rights of such series, and any qualification, limitations or restrictions thereof, of the shares of such series. As of April 30, 2022, we had not issued any shares of preferred stock.

**16.**Employee Benefit Plans

**(a)**Employee Stock Incentive Plans

We have one stock incentive plan: the 2005 Stock Incentive Plan (the “2005 Plan”). In addition, we have, in connection with our acquisitions of various companies, assumed the share-based awards granted under stock incentive plans of the acquired companies or issued share-based awards in replacement thereof. Share-based awards are designed to reward employees for their long-term contributions to us and provide incentives for them to remain with us. The number and frequency of share-based awards are based on competitive practices, our operating results, government regulations, and other factors. Our primary stock incentive plan is summarized as follows:

The 2005 Plan provides for the granting of stock options, stock grants, stock units and stock appreciation rights (SARs), the vesting of which may be time-based or upon satisfaction of performance goals, or both, and/or other conditions. Employees (including employee directors and executive officers) and consultants of Cisco and its subsidiaries and affiliates and non-employee directors of Cisco are eligible to participate in the 2005 Plan. As of April 30, 2022, the maximum number of shares issuable under the 2005 Plan over its term was 790 million shares. The 2005 Plan may be terminated by our Board of Directors at any time and for any reason, and is currently set to terminate at the 2030 Annual Meeting unless re-adopted or extended by our stockholders prior to or on such date.

Under the 2005 Plan’s share reserve feature, a distinction is made between the number of shares in the reserve attributable to (i) stock options and SARs and (ii) “full value” awards (i.e., stock grants and stock units). Shares issued as stock grants, pursuant to stock units or pursuant to the settlement of dividend equivalents are counted against shares available for issuance under the 2005 Plan on a 1.5-to-1 ratio. For each share awarded as restricted stock or a restricted stock unit award under the 2005 Plan, 1.5 shares was deducted from the available share-based award balance. If awards issued under the 2005 Plan are forfeited or terminated for any reason before being exercised or settled, then the shares underlying such awards, plus the number of additional shares, if any, that counted against shares available for issuance under the 2005 Plan at the time of grant as a result of the application of the share ratio described above, will become available again for issuance under the 2005 Plan. As of April 30, 2022, 219 million shares were authorized for future grant under the 2005 Plan.

**(b)**Employee Stock Purchase Plan

We have an Employee Stock Purchase Plan under which 721 million shares of our common stock have been reserved for issuance as of April 30, 2022. Eligible employees are offered shares through a 24-month offering period, which consists of four consecutive 6-month purchase periods. Employees may purchase a limited amount of shares of our stock at a discount of up to 15% of the lesser of the fair market value at the beginning of the offering period or the end of each 6-month purchase period. The Employee Stock Purchase Plan is scheduled to terminate on the earlier of (i) January 3, 2030 and (ii) the date on which all shares available for issuance under the Employee Stock Purchase Plan are sold pursuant to exercised purchase rights. No shares were issued under the Employee Stock Purchase Plan during each of the third quarters of fiscal 2022 and 2021. We issued 8 million shares during each of the first nine months of fiscal 2022 and 2021. As of April 30, 2022, 117 million shares were available for issuance under the Employee Stock Purchase Plan.

CISCO SYSTEMS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

**(c)**Summary of Share-Based Compensation Expense

Share-based compensation expense consists primarily of expenses for RSUs, stock purchase rights, and stock options, granted to employees or assumed from acquisitions. The following table summarizes share-based compensation expense (in millions):


	Three Months Ended				Nine Months Ended
	April 30, 2022		May 1, 2021		April 30, 2022		May 1, 2021
Cost of sales—product	$	30	$	26	$	84	$	75
Cost of sales—service	53		49		149		133
Share-based compensation expense in cost of sales	83		75		233		208
Research and development	205		184		591		522
Sales and marketing	139		140		421		402
General and administrative	50		59		161		179
Restructuring and other charges	—		5		1		26
Share-based compensation expense in operating expenses	394		388		1,174		1,129
Total share-based compensation expense	$	477	$	463	$	1,407	$	1,337
Income tax benefit for share-based compensation	$	122	$	88	$	378	$	264

As of April 30, 2022, the total compensation cost related to unvested share-based awards not yet recognized was $4.0 billion which is expected to be recognized over approximately 2.7 years on a weighted-average basis.

**(d)**Restricted Stock Unit Awards

A summary of the restricted stock and stock unit activity, which includes time-based and performance-based or market-based RSUs, is as follows (in millions, except per-share amounts):


	Restricted Stock/ Stock Units	Weighted-Average Grant Date Fair Value per Share		Aggregate Fair Value
Unvested balance at July 25, 2020	96	$	42.03
Granted and assumed	51	41.89
Vested	(39)	39.63		$	1,813
Canceled/forfeited/other	(14)	42.13
Unvested balance at July 31, 2021	94	$	42.93
Granted and assumed	37	53.63
Vested	(27)	41.45		$	1,560
Canceled/forfeited/other	(10)	45.52
Unvested balance at April 30, 2022	94	$	47.33

CISCO SYSTEMS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

**17.**Comprehensive Income (Loss)

The components of AOCI, net of tax, and the other comprehensive income (loss), for the first nine months of fiscal 2022 and 2021 are summarized as follows (in millions):


	Net Unrealized Gains (Losses) on Available-for-Sale Investments		Net Unrealized Gains (Losses) Cash Flow Hedging Instruments		Cumulative Translation Adjustment and Actuarial Gains (Losses)		Accumulated Other Comprehensive Income (Loss)
Balance at July 31, 2021	$	182	$	(1)	$	(598)	$	(417)
Other comprehensive income (loss) before reclassifications	(717)		63		(485)		(1,139)
(Gains) losses reclassified out of AOCI	(18)		(15)		1		(32)
Tax benefit (expense)	127		(11)		9		125
Balance at April 30, 2022	$	(426)	$	36	$	(1,073)	$	(1,463)


	Net Unrealized Gains (Losses) on Available-for-Sale Investments		Net Unrealized Gains (Losses) Cash Flow Hedging Instruments		Cumulative Translation Adjustment and Actuarial Gains (Losses)		Accumulated Other Comprehensive Income (Loss)
Balance at July 25, 2020	$	315	$	(6)	$	(828)	$	(519)
Other comprehensive income (loss) before reclassifications	(150)		16		364		230
(Gains) losses reclassified out of AOCI	(46)		(12)		3		(55)
Tax benefit (expense)	59		(2)		(1)		56
Balance at May 1, 2021	$	178	$	(4)	$	(462)	$	(288)

**18.**Income Taxes

The following table provides details of income taxes (in millions, except percentages):


	Three Months Ended						Nine Months Ended
	April 30, 2022			May 1, 2021			April 30, 2022			May 1, 2021
Income before provision for income taxes	$	3,801		$	3,591		$	11,061		$	9,527
Provision for income taxes	$	757		$	728		$	2,064		$	1,945
Effective tax rate	19.9		%	20.3		%	18.7		%	20.4		%

As of April 30, 2022, we had $3.1 billion of unrecognized tax benefits, of which $2.3 billion, if recognized, would favorably impact the effective tax rate. We regularly engage in discussions and negotiations with tax authorities regarding tax matters in various jurisdictions. We believe it is reasonably possible that certain federal, foreign, and state tax matters may be concluded in the next 12 months. Specific positions that may be resolved include issues involving transfer pricing and various other matters.

CISCO SYSTEMS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

**19.**Segment Information and Major Customers

**(a)**Revenue and Gross Margin by Segment

We conduct business globally and are primarily managed on a geographic basis consisting of three segments: the Americas, EMEA, and APJC. Our management makes financial decisions and allocates resources based on the information it receives from our internal management system. Sales are attributed to a segment based on the ordering location of the customer. We do not allocate research and development, sales and marketing, or general and administrative expenses to our segments in this internal management system because management does not include the information in our measurement of the performance of the operating segments. In addition, we do not allocate amortization and impairment of acquisition-related intangible assets, share-based compensation expense, significant litigation settlements and other contingencies, charges related to asset impairments and restructurings, and certain other charges to the gross margin for each segment because management does not include this information in our measurement of the performance of the operating segments.

Summarized financial information by segment for the third quarter and first nine months of fiscal 2022 and 2021, based on our internal management system and as utilized by our Chief Operating Decision Maker (“CODM”), is as follows (in millions):


	Three Months Ended				Nine Months Ended
	April 30, 2022		May 1, 2021		April 30, 2022		May 1, 2021
Revenue:
Americas	$	7,638	$	7,262	$	22,344	$	21,430
EMEA	3,271		3,483		10,138		9,654
APJC	1,926		2,057		5,972		5,608
Total	$	12,835	$	12,803	$	38,455	$	36,692
Gross margin:
Americas	$	4,952	$	4,831	$	14,438	$	14,383
EMEA	2,154		2,283		6,664		6,322
APJC	1,279		1,331		3,934		3,599
Segment total	8,386		8,445		25,035		24,303
Unallocated corporate items	(265)		(260)		(812)		(753)
Total	$	8,121	$	8,185	$	24,223	$	23,550

Amounts may not sum and percentages may not recalculate due to rounding.

Revenue in the United States was $6.9 billion and $6.4 billion for the third quarter of fiscal 2022 and 2021, respectively, and $20.1 billion and $19.1 billion for the first nine months of fiscal 2022 and 2021, respectively.

CISCO SYSTEMS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

**(b)**Revenue for Groups of Similar Products and Services

We design and sell Internet Protocol (IP)-based networking and other products related to the communications and IT industry and provide services associated with these products and their use. Effective fiscal 2022, we began reporting our product and service revenue in the following categories: Secure, Agile Networks; Internet for the Future; Collaboration; End-to-End Security; Optimized Application Experiences; Other Products; and Services. This change will better align our product categories with our strategic priorities.

The following table presents revenue for groups of similar products and services (in millions):


	Three Months Ended				Nine Months Ended
	April 30, 2022		May 1, 2021		April 30, 2022		May 1, 2021
Revenue:
Secure, Agile Networks	$	5,869	$	5,620	$	17,735	$	16,543
Internet for the Future	1,324		1,249		4,021		3,121
Collaboration	1,132		1,220		3,308		3,580
End-to-End Security	938		876		2,716		2,559
Optimized Application Experiences	183		170		544		483
Other Products	2		5		7		11
Total Product	9,448		9,139		28,330		26,298
Services	3,387		3,664		10,125		10,394
Total	$	12,835	$	12,803	$	38,455	$	36,692

Amounts may not sum due to rounding.

**20.**Net Income per Share

The following table presents the calculation of basic and diluted net income per share (in millions, except per-share amounts):


	Three Months Ended				Nine Months Ended
	April 30, 2022		May 1, 2021		April 30, 2022		May 1, 2021
Net income	$	3,044	$	2,863	$	8,997	$	7,582
Weighted-average shares—basic	4,152		4,219		4,184		4,224
Effect of dilutive potential common shares	18		19		20		13
Weighted-average shares—diluted	4,170		4,238		4,204		4,237
Net income per share—basic	$	0.73	$	0.68	$	2.15	$	1.79
Net income per share—diluted	$	0.73	$	0.68	$	2.14	$	1.79
Antidilutive employee share-based awards, excluded	11		15		46		55

Employee equity share options, unvested shares, and similar equity instruments granted and assumed by us are treated as potential common shares outstanding in computing diluted earnings per share. Diluted shares outstanding include the dilutive effect of in-the-money options, unvested restricted stock, and restricted stock units. The dilutive effect of such equity awards is calculated based on the average share price for each fiscal period using the treasury stock method. Under the treasury stock method, the amount the employee must pay for exercising stock options and the amount of compensation cost for future service that has not yet been recognized are collectively assumed to be used to repurchase shares.

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