Item 1. Financial Statements (Unaudited)

CISCO SYSTEMS, INC.

CONSOLIDATED BALANCE SHEETS

(in millions, except par value)

(Unaudited)

			October 29, 2022						July 30, 2022
ASSETS
Current assets:
Cash and cash equivalents			$	7,292					$	7,079
Investments			12,492						12,188
Accounts receivable, net of allowance of $88 at October 29, 2022 and $83 at July 30, 2022			5,439						6,622
Inventories			2,664						2,568
Financing receivables, net			3,683						3,905
Other current assets			4,571						4,355
Total current assets			36,141						36,717
Property and equipment, net			1,972						1,997
Financing receivables, net			3,618						4,009
Goodwill			38,160						38,304
Purchased intangible assets, net			2,360						2,569
Deferred tax assets			4,891						4,449
Other assets			5,912						5,957
TOTAL ASSETS			$	93,054					$	94,002
LIABILITIES AND EQUITY
Current liabilities:
Short-term debt			$	1,249					$	1,099
Accounts payable			2,316						2,281
Income taxes payable			890						961
Accrued compensation			2,907						3,316
Deferred revenue			12,578						12,784
Other current liabilities			4,956						5,199
Total current liabilities			24,896						25,640
Long-term debt			7,629						8,416
Income taxes payable			7,835						7,725
Deferred revenue			10,441						10,480
Other long-term liabilities			1,981						1,968
Total liabilities			52,782						54,229
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; 4,103 and 4,110 shares issued and outstanding at October 29, 2022 and July 30, 2022, respectively			42,984						42,714
Accumulated deficit			(594)						(1,319)
Accumulated other comprehensive loss			(2,118)						(1,622)
Total equity			40,272						39,773
TOTAL LIABILITIES AND EQUITY			$	93,054					$	94,002

See Notes to Consolidated Financial Statements.

CISCO SYSTEMS, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(in millions, except per-share amounts)

(Unaudited)

			Three Months Ended
			October 29, 2022						October 30, 2021
REVENUE:
Product			$	10,245					$	9,529
Service			3,387						3,371
Total revenue			13,632						12,900
COST OF SALES:
Product			4,179						3,673
Service			1,107						1,174
Total cost of sales			5,286						4,847
GROSS MARGIN			8,346						8,053
OPERATING EXPENSES:
Research and development			1,781						1,714
Sales and marketing			2,391						2,261
General and administrative			565						551
Amortization of purchased intangible assets			71						84
Restructuring and other charges			(2)						5
Total operating expenses			4,806						4,615
OPERATING INCOME			3,540						3,438
Interest income			169						121
Interest expense			(100)						(89)
Other income (loss), net			(134)						187
Interest and other income (loss), net			(65)						219
INCOME BEFORE PROVISION FOR INCOME TAXES			3,475						3,657
Provision for income taxes			805						677
NET INCOME			$	2,670					$	2,980
Net income per share:
Basic			$	0.65					$	0.71
Diluted			$	0.65					$	0.70
Shares used in per-share calculation:
Basic			4,108						4,218
Diluted			4,116						4,243

See Notes to Consolidated Financial Statements.

CISCO SYSTEMS, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(in millions)

(Unaudited)

			Three Months Ended
			October 29, 2022						October 30, 2021
Net income			$	2,670					$	2,980
Available-for-sale investments:
Change in net unrealized gains and losses, net of tax benefit (expense) of $78 and $28 for the first quarter of fiscal 2023 and 2022, respectively			(251)						(83)
Net (gains) losses reclassified into earnings, net of tax (benefit) expense of $(1) and $2 for the first quarter of fiscal 2023 and 2022, respectively			5						(4)
			(246)						(87)
Cash flow hedging instruments:
Change in unrealized gains and losses, net of tax benefit (expense) of $(8) and $(1) for the first quarter of fiscal 2023 and 2022, respectively			24						7
Net (gains) losses reclassified into earnings, net of tax (benefit) expense of $5 and $0 for the first quarter of fiscal 2023 and 2022, respectively			(14)						(1)
			10						6
Net change in cumulative translation adjustment and actuarial gains and losses net of tax benefit (expense) of $22 and $9 for the first quarter of fiscal 2023 and 2022, respectively			(260)						25
Other comprehensive income (loss)			(496)						(56)
Comprehensive income			$	2,174					$	2,924

See Notes to Consolidated Financial Statements.

CISCO SYSTEMS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in millions)

(Unaudited)

			Three Months Ended
			October 29, 2022						October 30, 2021
Cash flows from operating activities:
Net income			$	2,670					$	2,980
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation, amortization, and other			415						533
Share-based compensation expense			496						453
Provision (benefit) for receivables			7						1
Deferred income taxes			(366)						(98)
(Gains) losses on divestitures, investments and other, net			131						(211)
Change in operating assets and liabilities, net of effects of acquisitions and divestitures:
Accounts receivable			1,119						427
Inventories			(108)						(275)
Financing receivables			556						672
Other assets			(316)						(170)
Accounts payable			42						(93)
Income taxes, net			20						17
Accrued compensation			(384)						(585)
Deferred revenue			(78)						(95)
Other liabilities			(242)						(129)
Net cash provided by operating activities			3,962						3,427
Cash flows from investing activities:
Purchases of investments			(1,943)						(2,951)
Proceeds from sales of investments			407						580
Proceeds from maturities of investments			971						1,856
Acquisitions, net of cash and cash equivalents acquired and divestitures			—						(336)
Purchases of investments in privately held companies			(48)						(101)
Return of investments in privately held companies			10						53
Acquisition of property and equipment			(176)						(122)
Proceeds from sales of property and equipment			—						1
Other			(20)						—
Net cash used in investing activities			(799)						(1,020)
Cash flows from financing activities:
Repurchases of common stock—repurchase program			(556)						(273)
Shares repurchased for tax withholdings on vesting of restricted stock units			(108)						(133)
Short-term borrowings, original maturities of 90 days or less, net			(602)						—
Repayments of debt			—						(2,000)
Dividends paid			(1,560)						(1,561)
Other			(29)						(3)
Net cash used in financing activities			(2,855)						(3,970)
Effect of foreign currency exchange rate changes on cash, cash equivalents, restricted cash and restricted cash equivalents			(95)						—
Net increase (decrease) in cash, cash equivalents, restricted cash and restricted cash equivalents			213						(1,563)
Cash, cash equivalents, restricted cash and restricted cash equivalents, beginning of period			8,579						9,942
Cash, cash equivalents, restricted cash and restricted cash equivalents, end of period			$	8,792					$	8,379
Supplemental cash flow information:
Cash paid for interest			$	114					$	124
Cash paid for income taxes, net			$	1,150					$	758

See Notes to Consolidated Financial Statements.

CISCO SYSTEMS, INC.

CONSOLIDATED STATEMENTS OF EQUITY

(in millions, except per-share amounts)

(Unaudited)

Three Months Ended October 29, 2022			Shares of Common Stock						Common Stock and Additional Paid-In Capital						Accumulated Deficit						Accumulated Other Comprehensive Loss						Total Equity
Balance at July 30, 2022			4,110						$	42,714					$	(1,319)					$	(1,622)					$	39,773
Net income															2,670												2,670
Other comprehensive loss																					(496)						(496)
Issuance of common stock			7						—																		—
Repurchase of common stock			(12)						(118)						(384)												(502)
Shares repurchased for tax withholdings on vesting of restricted stock units			(2)						(108)																		(108)
Cash dividends declared ($0.38 per common share)															(1,560)												(1,560)
Share-based compensation									496																		496
Other									—						(1)												(1)
Balance at October 29, 2022			4,103						$	42,984					$	(594)					$	(2,118)					$	40,272

Three Months Ended October 30, 2021			Shares of Common Stock						Common Stock and Additional Paid-In Capital						Retained Earnings (Accumulated Deficit)						Accumulated Other Comprehensive Loss						Total Equity
Balance at July 31, 2021			4,217						$	42,346					$	(654)					$	(417)					$	41,275
Net income															2,980												2,980
Other comprehensive loss																					(56)						(56)
Issuance of common stock			7						—																		—
Repurchase of common stock			(5)						(46)						(210)												(256)
Shares repurchased for tax withholdings on vesting of restricted stock units			(2)						(133)																		(133)
Cash dividends declared ($0.37 per common share)															(1,561)												(1,561)
Share-based compensation									453																		453
Other									1						(2)												(1)
Balance at October 30, 2021			4,217						$	42,621					$	553					$	(473)					$	42,701

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 2023 and fiscal 2022 are each 52-week fiscal years. 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 October 29, 2022 and for the first quarter of fiscal 2023 and 2022, 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 30, 2022 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 30, 2022.

In the opinion of management, all normal recurring adjustments necessary to state fairly the consolidated balance sheet as of October 29, 2022, the results of operations, the statements of comprehensive income, the statements of cash flows and the statements of equity for the first quarter of fiscal 2023 and 2022, as applicable, have been made. The results of operations for the first quarter of fiscal 2023 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 investments consolidated under the variable interest and voting models. The noncontrolling interests attributed to these investments are not presented as a separate component in the equity section of the Consolidated Balance Sheets as these amounts are not material for any of the fiscal periods presented. 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)**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 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 do not expect this accounting standard update will have a material impact 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.

CISCO SYSTEMS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

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 October 29, 2022 and July 30, 2022 was $47 million and $43 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. The following table presents this disaggregation of revenue (in millions):

			Three Months Ended
			October 29, 2022						October 30, 2021
Product revenue:
Secure, Agile Networks			$	6,684					$	5,968
Internet for the Future			1,310						1,373
Collaboration			1,086						1,109
End-to-End Security			971						895
Optimized Application Experiences			193						181
Other Products			2						3
Total Product			10,245						9,529
Services			3,387						3,371
Total			$	13,632					$	12,900

Amounts may not sum due to rounding. We have made certain reclassifications to the product revenue amounts for prior period to conform to the current year presentation.

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, 5G, silicon, and optics solutions. 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 Meetings, Collaboration Devices, Calling, Contact Center and Communication Platform as a Service (CPaaS) 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 Network Security, Cloud Security, Security Endpoints, Unified Threat Management and Zero Trust 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 in this category have one distinct performance obligation which is satisfied over time with revenue recognized ratably over the contract term.

CISCO SYSTEMS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

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 $5.4 billion as of October 29, 2022 compared to $6.6 billion as of July 30, 2022, 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
			October 29, 2022						October 30, 2021
Allowance for credit loss at beginning of period			$	83					$	109
Provisions (benefits)			11						19
Recoveries (write-offs), net			(6)						(14)
Allowance for credit loss at end of period			$	88					$	114

Contract Assets and Liabilities

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

			October 29, 2022						July 30, 2022
1 to 4			$	356					$	414
5 to 6			898						814
7 and Higher			87						158
Total			$	1,341					$	1,386

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 as of each of October 29, 2022 and July 30, 2022, and were included in other current assets and other assets.

Contract liabilities consist of deferred revenue. Deferred revenue was $23.0 billion as of October 29, 2022 compared to $23.3 billion as of July 30, 2022. We recognized approximately $4.4 billion of revenue during the first quarter of fiscal 2023 that was included in the deferred revenue balance at July 30, 2022.

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 $1.1 billion and $1.0 billion as of October 29, 2022 and July 30, 2022, respectively, and were included in other current assets and other assets. The amortization expense associated with these costs was $176 million and $170 million for the first quarter of fiscal 2023 and 2022, respectively, and was included in sales and marketing expenses.

**4.**Acquisitions and Divestitures

Total transaction costs related to acquisition and divestiture activities were $2 million and $19 million for the first quarter of fiscal 2023 and 2022, respectively. These transaction costs were expensed as incurred in general and administrative expenses (“G&A”) in the Consolidated Statements of Operations.

**5.**Goodwill and Purchased Intangible Assets

**(a)**Goodwill

The following table presents the goodwill allocated to our reportable segments as of October 29, 2022 and during the first quarter of fiscal 2023 (in millions):

			Balance at July 30, 2022						Foreign Currency Translation and Other						Balance at October 29, 2022
Americas			$	23,882					$	(90)					$	23,792
EMEA			9,062						(34)						9,028
APJC			5,360						(20)						5,340
Total			$	38,304					$	(144)					$	38,160

**(b)**Purchased Intangible Assets

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

October 29, 2022						Gross						Accumulated Amortization						Net
Purchased intangible assets with finite lives:
Technology						$	2,642					$	(1,250)					$	1,392
Customer relationships						1,332						(819)						513
Other						40						(15)						25
Total purchased intangible assets with finite lives						4,014						(2,084)						1,930
In-process research and development, with indefinite lives						430						—						430
Total						$	4,444					$	(2,084)					$	2,360

July 30, 2022						Gross						Accumulated Amortization						Net
Purchased intangible assets with finite lives:
Technology						$	2,631					$	(1,102)					$	1,529
Customer relationships						1,354						(769)						585
Other						41						(16)						25
Total purchased intangible assets with finite lives						4,026						(1,887)						2,139
In-process research and development, with indefinite lives						430						—						430
Total						$	4,456					$	(1,887)					$	2,569

CISCO SYSTEMS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

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

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

			Three Months Ended
			October 29, 2022						October 30, 2021
Amortization of purchased intangible assets:
Cost of sales			$	158					$	202
Operating expenses			71						84
Total			$	229					$	286

The estimated future amortization expense of purchased intangible assets with finite lives as of October 29, 2022 is as follows (in millions):

Fiscal Year			Amount
2023 (remaining nine months)			$	677
2024			$	777
2025			$	406
2026			$	65
2027			$	5

**6.**Restructuring and Other Charges

In the second quarter of fiscal 2023, we announced a restructuring plan (the “Fiscal 2023 Plan”), in order to rebalance the organization and enable further investment in key priority areas. This rebalancing will include talent movement options and restructuring. Additionally, we will optimize our real estate portfolio, aligned to the broader hybrid work strategy. The total pretax charges are estimated to be approximately $600 million and is expected to impact approximately 5% of our global workforce. These aggregate pretax charges will be primarily cash-based and will consist of severance and other one-time termination benefits, real estate-related charges, and other costs. We expect the plan to be substantially completed by the end of the first quarter of fiscal 2024.

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 30, 2022						$	—					$	3					$	2					$	4					$	9
Charges						—						—						—						(2)						(2)
Cash payments						—						—						(1)						—						(1)
Liability as of October 29, 2022						$	—					$	3					$	1					$	2					$	6

						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						—						(1)						4						2						5
Cash payments						—						(1)						(8)						—						(9)
Non-cash items						—						—						—						(4)						(4)
Liability as of October 30, 2021						$	—					$	8					$	12					$	6					$	26

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

						October 29, 2022						July 30, 2022
Cash and cash equivalents						$	7,292					$	7,079
Restricted cash and restricted cash equivalents included in other assets						1,500						1,500
Total						$	8,792					$	8,579

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

Inventories

						October 29, 2022						July 30, 2022
Raw materials						$	1,458					$	1,601
Work in process						165						150
Finished goods:
Deferred cost of sales						79						86
Manufactured finished goods						850						631
Total finished goods						929						717
Service-related spares						99						90
Demonstration systems						13						10
Total						$	2,664					$	2,568

Property and Equipment, Net

						October 29, 2022						July 30, 2022
Gross property and equipment:
Land, buildings, and building and leasehold improvements						$	4,193					$	4,219
Computer equipment and related software						751						779
Production, engineering, and other equipment						4,588						4,647
Operating lease assets						161						185
Furniture, fixtures and other						334						335
Total gross property and equipment						10,027						10,165
Less: accumulated depreciation and amortization						(8,055)						(8,168)
Total						$	1,972					$	1,997

CISCO SYSTEMS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

Remaining Performance Obligations (RPO)

						October 29, 2022						July 30, 2022
Product						$	14,013					$	14,090
Service						16,897						17,449
Total						$	30,910					$	31,539
Short-term RPO						$	16,380					$	16,936
Long-term RPO						14,530						14,603
Total						$	30,910					$	31,539
Amount to be recognized as revenue over the next 12 months						53		%				54		%
Deferred revenue						$	23,019					$	23,264
Unbilled contract revenue						7,891						8,275
Total						$	30,910					$	31,539

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

						October 29, 2022						July 30, 2022
Product						$	10,404					$	10,427
Service						12,615						12,837
Total						$	23,019					$	23,264
Reported as:
Current						$	12,578					$	12,784
Noncurrent						10,441						10,480
Total						$	23,019					$	23,264

Transition Tax Payable

Our income tax payable associated with the one-time U.S. transition tax on accumulated earnings for foreign subsidiaries as a result of the Tax Cuts and Jobs Act is as follows (in millions):

						October 29, 2022						July 30, 2022
Current						$	727					$	727
Noncurrent						5,456						5,456
Total						$	6,183					$	6,183

CISCO SYSTEMS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

**8.**Leases

**(a)**Lessee Arrangements

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

			Balance Sheet Line Item						October 29, 2022						July 30, 2022
Operating lease right-of-use assets			Other assets						$	929					$	1,003
Operating lease liabilities			Other current liabilities						$	308					$	322
Operating lease liabilities			Other long-term liabilities						667						724
Total operating lease liabilities									$	975					$	1,046

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

			Three Months Ended
			October 29, 2022						October 30, 2021
Operating lease expense			$	96					$	95
Short-term lease expense			17						17
Variable lease expense			58						49
Total lease expense			$	171					$	161

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

			Three Months Ended
			October 29, 2022						October 30, 2021
Cash paid for amounts included in the measurement of lease liabilities — operating cash flows			$	96					$	98
Right-of-use assets obtained in exchange for operating leases liabilities			$	35					$	120

The weighted-average lease term was 4.6 years and 4.7 years as of October 29, 2022 and July 30, 2022, respectively. The weighted-average discount rate was 2.3% and 2.2% as of October 29, 2022 and July 30, 2022, respectively.

The maturities of our operating leases (undiscounted) as of October 29, 2022 are as follows (in millions):

Fiscal Year			Amount
2023 (remaining nine months)			$	254
2024			262
2025			183
2026			106
2027			63
Thereafter			181
Total lease payments			1,049
Less interest			(74)
Total			$	975

**(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 was $12 million and $15 million for the first quarter of fiscal 2023 and 2022, 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 October 29, 2022 are summarized as follows (in millions):

Fiscal Year			Amount
2023 (remaining nine months)			$	461
2024			329
2025			182
2026			90
2027			63
Thereafter			4
Total			1,129
Less: Present value of lease payments			1,074
Unearned income			$	55

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):

			October 29, 2022						July 30, 2022
Operating lease assets			$	161					$	185
Accumulated depreciation			(97)						(111)
Operating lease assets, net			$	64					$	74

Our operating lease income was $21 million and $32 million for the first quarter of fiscal 2023 and 2022, respectively, and was included in product revenue in the Consolidated Statement of Operations.

Minimum future rentals on noncancelable operating leases as of October 29, 2022 are summarized as follows (in millions):

Fiscal Year			Amount
2023 (remaining nine months)			$	23
2024			17
2025			5
Total			$	45

**9.**Financing Receivables

**(a)**Financing Receivables

Financing receivables primarily consist of loan receivables and lease receivables. Loan receivables represent financing arrangements related to the sale of our hardware, software, and services (including technical support and advanced services), and also may include additional funding for other costs associated with network installation and integration of our products and services. Loan receivables have terms of one year to three years on average. 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.

CISCO SYSTEMS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

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

October 29, 2022			Loan Receivables						Lease Receivables						Total
Gross			$	6,277					$	1,129					$	7,406
Residual value			—						70						70
Unearned income			—						(55)						(55)
Allowance for credit loss			(101)						(19)						(120)
Total, net			$	6,176					$	1,125					$	7,301
Reported as:
Current			$	3,144					$	539					$	3,683
Noncurrent			3,032						586						3,618
Total, net			$	6,176					$	1,125					$	7,301

July 30, 2022			Loan Receivables						Lease Receivables						Total
Gross			$	6,842					$	1,176					$	8,018
Residual value			—						76						76
Unearned income			—						(54)						(54)
Allowance for credit loss			(103)						(23)						(126)
Total, net			$	6,739					$	1,175					$	7,914
Reported as:
Current			$	3,327					$	578					$	3,905
Noncurrent			3,412						597						4,009
Total, net			$	6,739					$	1,175					$	7,914

**(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):

October 29, 2022									Fiscal Year																								Three Months Ended
Internal Credit Risk Rating			Prior						July 27, 2019						July 25, 2020						July 31, 2021						July 30, 2022						October 29, 2022						Total
Loan Receivables:
1 to 4			$	33					$	146					$	451					$	1,265					$	1,542					$	656					$	4,093
5 to 6			10						96						263						555						768						325						2,017
7 and Higher			2						19						40						38						66						2						167
Total Loan Receivables			$	45					$	261					$	754					$	1,858					$	2,376					$	983					$	6,277
Lease Receivables:
1 to 4			$	16					$	72					$	124					$	189					$	112					$	30					$	543
5 to 6			7						32						90						106						124						146						505
7 and Higher			1						3						10						2						4						6						26
Total Lease Receivables			$	24					$	107					$	224					$	297					$	240					$	182					$	1,074
Total			$	69					$	368					$	978					$	2,155					$	2,616					$	1,165					$	7,351

CISCO SYSTEMS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

July 30, 2022									Fiscal Year
Internal Credit Risk Rating			Prior						July 28, 2018						July 27, 2019						July 25, 2020						July 31, 2021						July 30, 2022						Total
Loan Receivables:
1 to 4			$	2					$	49					$	173					$	536					$	1,458					$	2,287					$	4,505
5 to 6			1						17						115						345						709						1,030						2,217
7 and Higher			1						1						22						45						39						12						120
Total Loan Receivables			$	4					$	67					$	310					$	926					$	2,206					$	3,329					$	6,842
Lease Receivables:
1 to 4			$	2					$	25					$	74					$	124					$	176					$	152					$	553
5 to 6			1						10						67						146						165						151						540
7 and Higher			—						1						4						12						2						10						29
Total Lease Receivables			$	3					$	36					$	145					$	282					$	343					$	313					$	1,122
Total			$	7					$	103					$	455					$	1,208					$	2,549					$	3,642					$	7,964

The following tables present the aging analysis of gross receivables as of October 29, 2022 and July 30, 2022 (in millions):

			DAYS PAST DUE (INCLUDES BILLED AND UNBILLED)
October 29, 2022			31-60						61-90						91+						Total Past Due						Current						Total						120+ Still Accruing						Nonaccrual Financing Receivables						Impaired Financing Receivables
Loan receivables			$	143					$	26					$	118					$	287					$	5,990					$	6,277					$	16					$	60					$	60
Lease receivables			17						14						27						58						1,016						1,074						7						10						10
Total			$	160					$	40					$	145					$	345					$	7,006					$	7,351					$	23					$	70					$	70

			DAYS PAST DUE (INCLUDES BILLED AND UNBILLED)
July 30, 2022			31-60						61-90						91+						Total Past Due						Current						Total						120+ Still Accruing						Nonaccrual Financing Receivables						Impaired Financing Receivables
Loan receivables			$	98					$	62					$	129					$	289					$	6,553					$	6,842					$	14					$	60					$	60
Lease receivables			8						6						26						40						1,082						1,122						7						11						11
Total			$	106					$	68					$	155					$	329					$	7,635					$	7,964					$	21					$	71					$	71

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 October 29, 2022			CREDIT LOSS ALLOWANCES
			Loan Receivables						Lease Receivables						Total
Allowance for credit loss as of July 30, 2022			$	103					$	23					$	126
Provisions (benefits)			(1)						(3)						(4)
Other			(1)						(1)						(2)
Allowance for credit loss as of October 29, 2022			$	101					$	19					$	120

Three Months Ended October 30, 2021			CREDIT LOSS ALLOWANCES
			Loan Receivables						Lease Receivables						Total
Allowance for credit loss as of July 31, 2021			$	89					$	38					$	127
Provisions (benefits)			(13)						(5)						(18)
Allowance for credit loss as of October 30, 2021			$	76					$	33					$	109

**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):

October 29, 2022			Amortized Cost						Gross Unrealized Gains						Gross Unrealized and Credit Losses						Fair Value
U.S. government securities			$	1,545					$	—					$	(70)					$	1,475
U.S. government agency securities			171						—						(6)						165
Non-U.S. government and agency securities			275						—						(1)						274
Corporate debt securities			7,808						—						(492)						7,316
U.S. agency mortgage-backed securities			2,071						—						(273)						1,798
Commercial paper			798						—						—						798
Certificates of deposit			421						—						—						421
Total			$	13,089					$	—					$	(842)					$	12,247

July 30, 2022			Amortized Cost						Gross Unrealized Gains						Gross Unrealized and Credit Losses						Fair Value
U.S. government securities			$	1,287					$	—					$	(49)					$	1,238
U.S. government agency securities			142						—						(4)						138
Non-U.S. government and agency securities			272						—						—						272
Corporate debt securities			8,127						2						(311)						7,818
U.S. agency mortgage-backed securities			2,134						—						(158)						1,976
Commercial paper			255						—						—						255
Certificates of deposit			250						—						—						250
Total			$	12,467					$	2					$	(522)					$	11,947

Net unsettled investment purchases were $42 million and net unsettled investment sales were $70 million as of October 29, 2022 and July 30, 2022, respectively, and were included in other current assets and other current liabilities.

CISCO SYSTEMS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

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

			Three Months Ended
			October 29, 2022						October 30, 2021
Gross realized gains			$	—					$	6
Gross realized losses			(6)						—
Total			$	(6)					$	6

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 October 29, 2022 and July 30, 2022 (in millions):

			UNREALIZED LOSSES LESS THAN 12 MONTHS												UNREALIZED LOSSES 12 MONTHS OR GREATER												TOTAL
October 29, 2022			Fair Value						Gross Unrealized Losses						Fair Value						Gross Unrealized Losses						Fair Value						Gross Unrealized Losses
U.S. government securities			$	530					$	(12)					$	944					$	(58)					$	1,474					$	(70)
U.S. government agency securities			101						(2)						64						(4)						165						(6)
Non-U.S. government and agency securities			257						(1)						—						—						257						(1)
Corporate debt securities			5,065						(252)						2,090						(206)						7,155						(458)
U.S. agency mortgage-backed securities			651						(76)						1,136						(197)						1,787						(273)
Commercial paper			45						—						—						—						45						—
Total			$	6,649					$	(343)					$	4,234					$	(465)					$	10,883					$	(808)

			UNREALIZED LOSSES LESS THAN 12 MONTHS												UNREALIZED LOSSES 12 MONTHS OR GREATER												TOTAL
July 30, 2022			Fair Value						Gross Unrealized Losses						Fair Value						Gross Unrealized Losses						Fair Value						Gross Unrealized Losses
U.S. government securities			$	1,110					$	(44)					$	120					$	(5)					$	1,230					$	(49)
U.S. government agency securities			114						(2)						24						(2)						138						(4)
Non-U.S. government and agency securities			264						—						—						—						264						—
Corporate debt securities			6,920						(240)						422						(37)						7,342						(277)
U.S. agency mortgage-backed securities			1,305						(96)						615						(62)						1,920						(158)
Total			$	9,713					$	(382)					$	1,181					$	(106)					$	10,894					$	(488)

The following table summarizes the maturities of our available-for-sale debt investments as of October 29, 2022 (in millions):

			Amortized Cost						Fair Value
Within 1 year			$	4,483					$	4,399
After 1 year through 5 years			6,478						6,002
After 5 years through 10 years			56						47
After 10 years			1						1
Mortgage-backed securities with no single maturity			2,071						1,798
Total			$	13,089					$	12,247

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

CISCO SYSTEMS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

**(b)**Summary of Equity Investments

We held marketable equity securities of $245 million and $241 million as of October 29, 2022 and July 30, 2022, respectively. We recognized a net unrealized loss of $20 million and a net unrealized gain of $5 million during the first quarter of fiscal 2023 and 2022, respectively, 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 loss of $12 million and a net gain of $2 million for the first quarter of fiscal 2023 and 2022, respectively. We held equity interests in certain private equity funds of $1.0 billion and $1.1 billion as of October 29, 2022 and July 30, 2022, 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 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 October 29, 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 $1.8 billion and $1.9 billion as of October 29, 2022 and July 30, 2022, respectively. Of the total carrying value of our investments in privately held companies as of October 29, 2022, $1.1 billion of such investments are considered to be in variable interest entities which are unconsolidated. As of October 29, 2022, we have total funding commitments of $0.3 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.

CISCO SYSTEMS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

11. Fair Value

**(a)**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):

			OCTOBER 29, 2022																		JULY 30, 2022
			FAIR VALUE MEASUREMENTS																		FAIR VALUE MEASUREMENTS
			Level 1						Level 2						Total Balance						Level 1						Level 2						Total Balance
Assets:
Cash equivalents:
Money market funds			$	3,144					$	—					$	3,144					$	3,930					$	—					$	3,930
Commercial paper			—						1,017						1,017						—						72						72
Certificates of deposit			—						215						215						—						32						32
U.S. government securities			—						47						47						—						12						12
Corporate debt securities			—						52						52						—						1						1
Available-for-sale debt investments:
U.S. government securities			—						1,475						1,475						—						1,238						1,238
U.S. government agency securities			—						165						165						—						138						138
Non-U.S. government and agency securities			—						274						274						—						272						272
Corporate debt securities			—						7,316						7,316						—						7,818						7,818
U.S. agency mortgage-backed securities			—						1,798						1,798						—						1,976						1,976
Commercial paper			—						798						798						—						255						255
Certificates of deposit			—						421						421						—						250						250
Equity investments:
Marketable equity securities			245						—						245						241						—						241
Other assets:
Money market funds			1,500						—						1,500						1,500						—						1,500
Derivative assets			—						97						97						—						78						78
Total			$	4,889					$	13,675					$	18,564					$	5,671					$	12,142					$	17,813
Liabilities:
Derivative liabilities			$	—					$	138					$	138					$	—					$	89					$	89
Total			$	—					$	138					$	138					$	—					$	89					$	89

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)

**(b)**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.

(c) Other Fair Value Disclosures

The fair value of our short-term loan receivables approximates their carrying value due to their short duration. The aggregate carrying value of our long-term loan receivables as of October 29, 2022 and July 30, 2022 was $3.0 billion and $3.4 billion, respectively. The estimated fair value of our long-term loan receivables approximates their carrying value. We use unobservable inputs in determining discounted cash flows to estimate the fair value of our long-term loan receivables, and therefore they are categorized as Level 3.

As of October 29, 2022, the estimated fair value of our short-term debt approximates its carrying value due to the short maturities. As of October 29, 2022, the fair value of our senior notes was $8.8 billion with a carrying amount of $8.9 billion. This compares to a fair value of $9.7 billion and a carrying amount of $8.9 billion as of July 30, 2022. 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):

			October 29, 2022												July 30, 2022
			Amount						Effective Rate						Amount						Effective Rate
Current portion of long-term debt			$	1,249					2.44		%				$	499					2.68		%
Commercial paper			—						—						600						2.05		%
Total			$	1,249											$	1,099

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.

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):

									October 29, 2022												July 30, 2022
			Maturity Date						Amount						Effective Rate						Amount						Effective Rate
Senior notes:
Fixed-rate notes:
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						4.04%						1,000						2.69%
3.50%			June 15, 2025						500						4.61%						500						3.20%
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									9,000												9,000
Unaccreted discount/issuance costs									(73)												(75)
Hedge accounting fair value adjustments									(49)												(10)
Total									$	8,878											$	8,915
Reported as:
Current portion of long-term debt									$	1,249											$	499
Long-term debt									7,629												8,416
Total									$	8,878											$	8,915

We have entered into interest rate swaps in prior periods with an aggregate notional amount of $1.5 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 October 29, 2022, we were in compliance with all debt covenants.

As of October 29, 2022, future principal payments for long-term debt, including the current portion, are summarized as follows (in millions):

Fiscal Year			Amount
2023 (remaining nine months)			$	500
2024			1,750
2025			500
2026			750
2027			1,500
Thereafter			4,000
Total			$	9,000

**(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 October 29, 2022, we were in compliance

CISCO SYSTEMS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

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.

**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						October 29, 2022						July 30, 2022						Balance Sheet Line Item						October 29, 2022						July 30, 2022
Derivatives designated as hedging instruments:
Foreign currency derivatives			Other current assets						$	61					$	55					Other current liabilities						$	—					$	—
Foreign currency derivatives			Other assets						15						9						Other long-term liabilities						—						—
Interest rate derivatives			Other assets						—						—						Other long-term liabilities						49						10
Total									76						64												49						10
Derivatives not designated as hedging instruments:
Foreign currency derivatives			Other current assets						21						14						Other current liabilities						73						69
Foreign currency derivatives			Other assets						—						—						Other long-term liabilities						16						9
Equity derivatives			Other current assets						—						—						Other current liabilities						—						1
Total									21						14												89						79
Total									$	97					$	78											$	138					$	89

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

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						October 29, 2022						July 30, 2022						October 29, 2022						July 30, 2022
Long-term debt						$	(1,448)					$	(1,487)					$	49					$	10

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

						GAINS (LOSSES) FOR THE THREE MONTHS ENDED
						October 29, 2022						October 30, 2021
Interest rate derivatives:
Hedged items						$	39					$	26
Derivatives designated as hedging instruments						(39)						(27)
Total						$	—					$	(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
Derivatives Not Designated as Hedging Instruments						Line Item in Statements of Operations						October 29, 2022						October 30, 2021
Foreign currency derivatives						Other income (loss), net						$	(72)					$	(20)
Total return swaps—deferred compensation						Operating expenses and other						(25)						21
Equity derivatives						Other income (loss), net						(1)						4
Total												$	(98)					$	5

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

			October 29, 2022						July 30, 2022
Foreign currency derivatives			$	4,183					$	4,521
Interest rate derivatives			1,500						1,500
Total return swaps—deferred compensation			676						651
Total			$	6,359					$	6,672

**(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.

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 $53 million and $14 million as of October 29, 2022 and July 30, 2022, respectively.

CISCO SYSTEMS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

**(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.

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 2024 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.

CISCO SYSTEMS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

**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):

			October 29, 2022						July 30, 2022
Less than 1 year			$	10,160					$	9,954
1 to 3 years			1,606						2,240
3 to 5 years			842						770
Total			$	12,608					$	12,964

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 October 29, 2022 and July 30, 2022, the liability for these purchase commitments was $380 million and $313 million, respectively, and was included in other current liabilities.

**(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
			October 29, 2022						October 30, 2021
Compensation expense related to acquisitions			$	74					$	89

As of October 29, 2022, we estimated that future cash compensation expense of up to $388 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 $0.3 billion and $0.4 billion as of October 29, 2022 and July 30, 2022, respectively.

**(c)**Product Warranties

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

			Three Months Ended
			October 29, 2022						October 30, 2021
Balance at beginning of period			$	333					$	336
Provisions for warranties issued			97						114
Adjustments for pre-existing warranties			1						2
Settlements			(108)						(111)
Balance at end of period			$	323					$	341

CISCO SYSTEMS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

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 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 $7.6 billion and $6.6 billion for the first quarter of fiscal 2023 and 2022, respectively. The balance of the channel partner financing subject to guarantees was $1.5 billion and $1.4 billion as of October 29, 2022 and July 30, 2022, respectively.

Financing Guarantee Summary The aggregate amounts of channel partner financing guarantees outstanding at October 29, 2022 and July 30, 2022, 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):

			October 29, 2022						July 30, 2022
Maximum potential future payments			$	162					$	188
Deferred revenue			(19)						(9)
Total			$	143					$	179

**(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 due to uncertainties in the litigation process, coordination with and contributions by other parties and the defendants in these types of cases, and the unique facts and circumstances involved in each particular case and agreement. Historically, indemnity payments made by us have not had 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 $153 million for the alleged evasion of import and other taxes, $820 million for interest, and $378 million for various penalties, all determined using an exchange rate as of October 29, 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.

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 infringe eleven Centripetal U.S. patents. The district court case went to trial on five asserted patents. Subsequently, 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 and awarded $1.9 billion in damages and $14 million in pre-judgment interest, declined to issue an injunction but, instead, awarded Centripetal a royalty against future revenue for an initial three-year term at a 10% rate, with a minimum and maximum annual royalty of $168 million and $300 million, respectively, and for a second three-year term at a 5% rate, with a minimum and maximum annual royalty of $84 million and $150 million, respectively. We appealed and, on June 23, 2022, the Federal Circuit vacated the district court’s final judgment, remanded the case back to the district court to be assigned to a new judge and ordered the district court to conduct additional proceedings. On August 9, 2022, Centripetal filed a petition for writ of certiorari in the U.S. Supreme Court challenging the Federal Circuit’s decision. Cisco filed its opposition brief on October 26, 2022 and the proceedings are ongoing.

Between April 2020 and February 2022, Centripetal filed complaints in the District Court of Dusseldorf in Germany (“German Court”), asserting a total of five patents and one utility model. Centripetal sought damages and injunctive relief in all cases. On December 10, 2021, the German Court rejected Centripetal’s complaints on two patents, and Centripetal appealed. A hearing for a Cisco nullity action in the Federal Patent Court in Germany on one of those two patents occurred on August 1, 2022, and we are waiting for the Court’s opinion. 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. The German Court has set a hearing on the remaining two Centripetal complaints for November 22, 2022.

Due to uncertainty surrounding patent litigation processes in the U.S. and Europe, we are unable to reasonably estimate the ultimate outcome of the litigations 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 the U.S. District Court for the Eastern District of Texas (“E.D. Tex.”), seeking damages, including enhanced damages, and a royalty on future sales. Ramot alleges that certain Cisco optical transceiver modules and line cards infringe three patents. The PTO preliminarily found all asserted claims unpatentable in ex parte reexamination proceedings and the pending District Court case has been stayed. On February 26, 2021, Ramot asserted patent infringement claims against Acacia Communications, Inc. (“Acacia”) in the District of Delaware (“D. Del.”), seeking damages, including enhanced damages, and a royalty on future sales. Ramot alleges that certain Acacia optical transceiver modules and integrated circuits infringe two of the three patents that Ramot asserted in the E.D. Tex. case and this case is also stayed pending reexamination proceedings.

On September 28, 2021 and May 24, 2022, Cisco and Acacia filed two declaratory judgment actions of noninfringement against Ramot in D. Del on other Ramot patents in the same family as those involved in the pending cases above. Ramot counterclaimed and filed another suit in E.D. Tex. for infringement of the same patents and seeks damages, including enhanced damages, and a royalty on future sales. While we believe that we have strong non-infringement and invalidity arguments in these litigations, and that Ramot’s damages theories in such cases are not supported by prevailing law, we are unable to reasonably estimate the ultimate outcome of these litigations at this time due to uncertainties in the litigation processes. If we do

CISCO SYSTEMS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

not prevail in court in these litigations, we believe any damages ultimately assessed would not have a material effect on our Consolidated Financial Statements.

Viasat On November 6, 2019, Viasat, Inc. (“Viasat”) filed suit against Acacia in the California Superior Court for San Diego County (“SDSC”), alleging contract and trade secret claims for certain Acacia products sold from January 1, 2019 forward (“Viasat 2”). Viasat 2 is similar to a previous suit Viasat filed against Acacia and which resolved in July 2022 for an immaterial amount (“Viasat 1”). On June 9, 2020, Viasat filed a third suit in SDSC alleging contract and trade secrets claims for sales of additional Acacia products (“Viasat 3”, together with Viasat 2, the “Viasat Cases”). In October 2022, an amended complaint was filed in Viasat 3 asserting the same claims but alleging additional information.

On July 28, 2017, Acacia filed suit in the Commonwealth of Massachusetts Superior Court against Viasat alleging claims for defamation, unfair competition, business torts, and declaratory judgment of no trade secret misappropriation (the “Massachusetts Action”). On April 5, 2018, Viasat counterclaimed with contract, trade secret, and unfair competition claims. Following resolution of Viasat 1, Acacia and Viasat jointly agreed to dismiss the Massachusetts Action in October 2022, thereby resolving the case.

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 we do not prevail, we 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 infringes three patents. Egenera sought damages, including enhanced damages, and an injunction. Two of the asserted patents were dismissed, leaving Egenera’s infringement claim based on one asserted patent. On March 25, 2022, the PTO preliminarily found all of the asserted claims of the remaining patent unpatentable in ex parte reexamination proceedings. On August 15, 2022, after a jury trial for the remaining patent, the jury returned a verdict in favor of Cisco. On October 27, 2022, Egenera filed a motion for judgment of infringement and a motion for new trial. Cisco opposed those motions and the post-trial proceedings are ongoing.

In addition to the above matters, 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)**Stock Repurchase Program

In September 2001, our Board of Directors authorized a stock repurchase program. As of October 29, 2022, the remaining authorized amount for stock repurchases under this program was approximately $14.7 billion with no termination date. A summary of the stock repurchase activity for fiscal 2023 and 2022 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 2023
October 29, 2022						12						$	43.76					$	502
Fiscal 2022
July 30, 2022						54						$	44.02					$	2,402
April 30, 2022						5						$	54.20					$	252
January 29, 2022						82						$	58.36					$	4,824
October 30, 2021						5						$	56.49					$	256

There were stock repurchases of $16 million and $70 million that were pending settlement as of October 29, 2022 and July 30, 2022, respectively.

CISCO SYSTEMS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

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.

(b) Preferred Stock

Under the terms of our Amended and Restated Certificate of Incorporation, the Board of Directors is authorized to issue preferred stock in 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, if any, of such series, and any qualifications, limitations or restrictions thereof, of the shares of such series. As of October 29, 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. 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 October 29, 2022, 189 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 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 first quarters of fiscal 2023 and 2022. As of October 29, 2022, 107 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
			October 29, 2022						October 30, 2021
Cost of sales—product			$	31					$	25
Cost of sales—service			50						44
Share-based compensation expense in cost of sales			81						69
Research and development			204						181
Sales and marketing			153						140
General and administrative			58						62
Restructuring and other charges			—						1
Share-based compensation expense in operating expenses			415						384
Total share-based compensation expense			$	496					$	453
Income tax benefit for share-based compensation			$	99					$	104

As of October 29, 2022, the total compensation cost related to unvested share-based awards not yet recognized was $4.2 billion which is expected to be recognized over approximately 2.5 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 31, 2021			94						$	42.93
Granted and assumed			52						50.06
Vested			(37)						42.27						$	1,979
Canceled/forfeited/other			(12)						45.63
Unvested balance at July 30, 2022			97						$	46.67
Granted and assumed			13						37.70
Vested			(8)						45.28						$	321
Canceled/forfeited/other			(2)						47.09
Unvested balance at October 29, 2022			100						$	45.60

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 quarter of fiscal 2023 and 2022 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 30, 2022			$	(379)					$	44					$	(1,287)					$	(1,622)
Other comprehensive income (loss) before reclassifications			(329)						32						(282)						(579)
(Gains) losses reclassified out of AOCI			6						(19)						—						(13)
Tax benefit (expense)			77						(3)						22						96
Balance at October 29, 2022			$	(625)					$	54					$	(1,547)					$	(2,118)

			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			(111)						8						16						(87)
(Gains) losses reclassified out of AOCI			(6)						(1)						—						(7)
Tax benefit (expense)			30						(1)						9						38
Balance at October 30, 2021			$	95					$	5					$	(573)					$	(473)

CISCO SYSTEMS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

**18.**Income Taxes

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

			Three Months Ended
			October 29, 2022						October 30, 2021
Income before provision for income taxes			$	3,475					$	3,657
Provision for income taxes			$	805					$	677
Effective tax rate			23.2		%				18.5		%

As of October 29, 2022, we had $3.3 billion of unrecognized tax benefits, of which $2.4 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.

**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 first quarter of fiscal 2023 and 2022, based on our internal management system and as utilized by our Chief Operating Decision Maker (“CODM”), is as follows (in millions):

			Three Months Ended
			October 29, 2022						October 30, 2021
Revenue:
Americas			$	7,914					$	7,561
EMEA			3,675						3,303
APJC			2,043						2,036
Total			$	13,632					$	12,900
Gross margin:
Americas			$	4,984					$	4,875
EMEA			2,325						2,128
APJC			1,274						1,317
Segment total			8,582						8,321
Unallocated corporate items			(236)						(268)
Total			$	8,346					$	8,053

Amounts may not sum due to rounding.

Revenue in the United States was $7.1 billion and $6.8 billion for the first quarter of fiscal 2023 and 2022, 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.

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

			Three Months Ended
			October 29, 2022						October 30, 2021
Revenue:
Secure, Agile Networks			$	6,684					$	5,968
Internet for the Future			1,310						1,373
Collaboration			1,086						1,109
End-to-End Security			971						895
Optimized Application Experiences			193						181
Other Products			2						3
Total Product			10,245						9,529
Services			3,387						3,371
Total			$	13,632					$	12,900

Amounts may not sum due to rounding. We have made certain reclassifications to the product revenue amounts for prior period to conform to the current year presentation.

**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
			October 29, 2022						October 30, 2021
Net income			$	2,670					$	2,980
Weighted-average shares—basic			4,108						4,218
Effect of dilutive potential common shares			8						25
Weighted-average shares—diluted			4,116						4,243
Net income per share—basic			$	0.65					$	0.71
Net income per share—diluted			$	0.65					$	0.70
Antidilutive employee share-based awards, excluded			38						12