Item 1. Financial Statements (Unaudited)

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Item 1. Financial Statements (Unaudited)

CISCO SYSTEMS, INC.

CONSOLIDATED BALANCE SHEETS

(in millions, except par value)

(Unaudited)


	January 27, 2024		July 29, 2023
ASSETS
Current assets:
Cash and cash equivalents	$	13,715	$	10,123
Investments	11,956		16,023
Accounts receivable, net of allowance of $79 at January 27, 2024 and $85 at July 29, 2023	4,884		5,854
Inventories	3,209		3,644
Financing receivables, net	3,476		3,352
Other current assets	4,887		4,352
Total current assets	42,127		43,348
Property and equipment, net	2,005		2,085
Financing receivables, net	3,364		3,483
Goodwill	39,087		38,535
Purchased intangible assets, net	1,678		1,818
Deferred tax assets	7,338		6,576
Other assets	5,575		6,007
TOTAL ASSETS	$	101,174	$	101,852
LIABILITIES AND EQUITY
Current liabilities:
Short-term debt	$	4,936	$	1,733
Accounts payable	1,848		2,313
Income taxes payable	1,876		4,235
Accrued compensation	3,216		3,984
Deferred revenue	14,011		13,908
Other current liabilities	4,964		5,136
Total current liabilities	30,851		31,309
Long-term debt	6,669		6,658
Income taxes payable	3,390		5,756
Deferred revenue	11,760		11,642
Other long-term liabilities	2,253		2,134
Total liabilities	54,923		57,499
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; 4,050 and 4,066 shares issued and outstanding at January 27, 2024 and July 29, 2023, respectively	45,002		44,289
Retained earnings	2,761		1,639
Accumulated other comprehensive loss	(1,512)		(1,575)
Total equity	46,251		44,353
TOTAL LIABILITIES AND EQUITY	$	101,174	$	101,852

See Notes to Consolidated Financial Statements.

CISCO SYSTEMS, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(in millions, except per-share amounts)

(Unaudited)


	Three Months Ended				Six Months Ended
	January 27, 2024		January 28, 2023		January 27, 2024		January 28, 2023
REVENUE:
Product	$	9,232	$	10,155	$	20,371	$	20,400
Service	3,559		3,437		7,088		6,824
Total revenue	12,791		13,592		27,459		27,224
COST OF SALES:
Product	3,443		4,038		7,400		8,217
Service	1,131		1,127		2,285		2,234
Total cost of sales	4,574		5,165		9,685		10,451
GROSS MARGIN	8,217		8,427		17,774		16,773
OPERATING EXPENSES:
Research and development	1,943		1,855		3,856		3,636
Sales and marketing	2,458		2,384		4,964		4,775
General and administrative	642		582		1,314		1,147
Amortization of purchased intangible assets	66		71		133		142
Restructuring and other charges	12		243		135		241
Total operating expenses	5,121		5,135		10,402		9,941
OPERATING INCOME	3,096		3,292		7,372		6,832
Interest income	324		219		684		388
Interest expense	(120)		(107)		(231)		(207)
Other income (loss), net	(139)		11		(222)		(123)
Interest and other income (loss), net	65		123		231		58
INCOME BEFORE PROVISION FOR INCOME TAXES	3,161		3,415		7,603		6,890
Provision for income taxes	527		642		1,331		1,447
NET INCOME	$	2,634	$	2,773	$	6,272	$	5,443

Net income per share:
Basic	$	0.65	$	0.68	$	1.55	$	1.33
Diluted	$	0.65	$	0.67	$	1.54	$	1.32
Shares used in per-share calculation:
Basic	4,055		4,103		4,056		4,105
Diluted	4,073		4,116		4,079		4,115

See Notes to Consolidated Financial Statements.

CISCO SYSTEMS, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(in millions)

(Unaudited)


	Three Months Ended				Six Months Ended
	January 27, 2024		January 28, 2023		January 27, 2024		January 28, 2023
Net income	$	2,634	$	2,773	$	6,272	$	5,443
Available-for-sale investments:
Change in net unrealized gains and losses, net of tax benefit (expense) of $(73) and $(33) for the second quarter and first six months of fiscal 2024, respectively, and $(66) and $12 for the corresponding periods of fiscal 2023, respectively	229		187		99		(64)
Net (gains) losses reclassified into earnings, net of tax (benefit) expense of $(5) and $(9) for the second quarter and first six months of fiscal 2024, respectively, and $0 and $(1) for the corresponding periods of fiscal 2023, respectively	18		3		34		8
	247		190		133		(56)
Cash flow hedging instruments:
Change in unrealized gains and losses, net of tax benefit (expense) of $0 and $(9) for the second quarter and first six months of fiscal 2024, respectively, and $11 and $3 for the corresponding periods of fiscal 2023, respectively	1		(33)		30		(9)
Net (gains) losses reclassified into earnings, net of tax (benefit) expense of $2 and $5 for the second quarter and first six months of fiscal 2024, respectively, and $4 and $9 for the corresponding periods of fiscal 2023, respectively	(9)		(14)		(18)		(28)
	(8)		(47)		12		(37)
Net change in cumulative translation adjustment and actuarial gains and losses net of tax benefit (expense) of $0 and $1 for the second quarter and first six months of fiscal 2024, respectively, and $2 and $24 for the corresponding periods of fiscal 2023, respectively	274		389		(82)		129
Other comprehensive income	513		532		63		36
Comprehensive income	$	3,147	$	3,305	$	6,335	$	5,479

See Notes to Consolidated Financial Statements.

CISCO SYSTEMS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in millions)

(Unaudited)


	Six Months Ended
	January 27, 2024		January 28, 2023
Cash flows from operating activities:
Net income	$	6,272	$	5,443
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation, amortization, and other	823		853
Share-based compensation expense	1,463		1,097
Provision (benefit) for receivables	12		6
Deferred income taxes	(816)		(845)
(Gains) losses on divestitures, investments and other, net	205		109
Change in operating assets and liabilities, net of effects of acquisitions and divestitures:
Accounts receivable	941		1,393
Inventories	442		(569)
Financing receivables	(33)		834
Other assets	(403)		(210)
Accounts payable	(476)		42
Income taxes, net	(4,656)		118
Accrued compensation	(763)		(146)
Deferred revenue	293		633
Other liabilities	(125)		(57)
Net cash provided by operating activities	3,179		8,701
Cash flows from investing activities:
Purchases of investments	(2,253)		(3,797)
Proceeds from sales of investments	2,484		587
Proceeds from maturities of investments	4,044		2,316
Acquisitions, net of cash and cash equivalents acquired	(878)		(3)
Purchases of investments in privately held companies	(50)		(70)
Return of investments in privately held companies	123		39
Acquisition of property and equipment	(304)		(346)
Other	(1)		(19)
Net cash provided by (used in) investing activities	3,165		(1,293)
Cash flows from financing activities:
Issuances of common stock	349		316
Repurchases of common stock—repurchase program	(2,504)		(1,760)
Shares repurchased for tax withholdings on vesting of restricted stock units	(581)		(310)
Short-term borrowings, original maturities of 90 days or less, net	1,398		(602)
Issuances of debt	2,537		—
Repayments of debt	(750)		—
Dividends paid	(3,163)		(3,120)
Other	(7)		(5)
Net cash used in financing activities	(2,721)		(5,481)
Effect of foreign currency exchange rate changes on cash, cash equivalents, restricted cash and restricted cash equivalents	(32)		3
Net increase (decrease) in cash, cash equivalents, restricted cash and restricted cash equivalents	3,591		1,930
Cash, cash equivalents, restricted cash and restricted cash equivalents, beginning of period	11,627		8,579
Cash, cash equivalents, restricted cash and restricted cash equivalents, end of period	$	15,218	$	10,509

Supplemental cash flow information:
Cash paid for interest	$	203	$	178
Cash paid for income taxes, net	$	6,804	$	2,172

See Notes to Consolidated Financial Statements.

CISCO SYSTEMS, INC.

CONSOLIDATED STATEMENTS OF EQUITY

(in millions, except per-share amounts)

(Unaudited)


Three Months Ended January 27, 2024	Shares of Common Stock	Common Stock and Additional Paid-In Capital		Retained Earnings		Accumulated Other Comprehensive Loss		Total Equity
Balance at October 28, 2023	4,049	$	44,546	$	2,689	$	(2,025)	$	45,210
Net income				2,634				2,634
Other comprehensive income (loss)						513		513
Issuance of common stock	34	349						349
Repurchase of common stock	(25)	(279)		(975)				(1,254)
Shares repurchased for tax withholdings on vesting of restricted stock units and other	(8)	(425)						(425)
Cash dividends declared ($0.39 per common share)				(1,583)				(1,583)
Share-based compensation		802						802
Other		9		(4)				5
Balance at January 27, 2024	4,050	$	45,002	$	2,761	$	(1,512)	$	46,251


Six Months Ended January 27, 2024	Shares of Common Stock	Common Stock and Additional Paid-In Capital		Retained Earnings		Accumulated Other Comprehensive Loss		Total Equity
Balance at July 29, 2023	4,066	$	44,289	$	1,639	$	(1,575)	$	44,353
Net income				6,272				6,272
Other comprehensive income (loss)						63		63
Issuance of common stock	43	349						349
Repurchase of common stock	(48)	(528)		(1,978)				(2,506)
Shares repurchased for tax withholdings on vesting of restricted stock units and other	(11)	(581)						(581)
Cash dividends declared ($0.78 per common share)				(3,163)				(3,163)
Share-based compensation		1,463						1,463
Other		10		(9)				1
Balance at January 27, 2024	4,050	$	45,002	$	2,761	$	(1,512)	$	46,251

CISCO SYSTEMS, INC.

CONSOLIDATED STATEMENTS OF EQUITY

(in millions, except per-share amounts)

(Unaudited)


Three Months Ended January 28, 2023	Shares of Common Stock	Common Stock and Additional Paid-In Capital		Accumulated Deficit		Accumulated Other Comprehensive Loss		Total Equity
Balance at October 29, 2022	4,103	$	42,984	$	(594)	$	(2,118)	$	40,272
Net income				2,773				2,773
Other comprehensive income (loss)						532		532
Issuance of common stock	23	316						316
Repurchase of common stock	(26)	(276)		(980)				(1,256)
Shares repurchased for tax withholdings on vesting of restricted stock units and other	(5)	(202)						(202)
Cash dividends declared ($0.38 per common share)				(1,560)				(1,560)
Share-based compensation		601						601
Other		1		(3)				(2)
Balance at January 28, 2023	4,095	$	43,424	$	(364)	$	(1,586)	$	41,474


Six Months Ended January 28, 2023	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				5,443				5,443
Other comprehensive income (loss)						36		36
Issuance of common stock	30	316						316
Repurchase of common stock	(38)	(394)		(1,364)				(1,758)
Shares repurchased for tax withholdings on vesting of restricted stock units and other	(7)	(310)						(310)
Cash dividends declared ($0.76 per common share)				(3,120)				(3,120)
Share-based compensation		1,097						1,097
Other		1		(4)				(3)
Balance at January 28, 2023	4,095	$	43,424	$	(364)	$	(1,586)	$	41,474

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 2024 and fiscal 2023 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 January 27, 2024 and for the second quarter and first six months of fiscal 2024 and 2023, 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 29, 2023 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 29, 2023.

In the opinion of management, all normal recurring adjustments necessary to state fairly the consolidated balance sheet as of January 27, 2024, the results of operations, the statements of comprehensive income and the statements of equity for the second quarter and first six months of fiscal 2024 and 2023, and the statements of cash flows for the first six months of fiscal 2024 and 2023, as applicable, have been made. The results of operations for the second quarter and first six months of fiscal 2024 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 voting interest model. 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

Segment Reporting In November 2023, the Financial Accounting Standards Board (FASB) issued an accounting standard update that expands the disclosure requirements for reportable segments, primarily through enhanced disclosures around significant segment expenses. The accounting standard update will be effective for our fiscal 2025 Form 10-K on a retrospective basis, and early adoption is permitted. We are currently evaluating the impact of this accounting standard update on our segment disclosures.

Improvements on Income Tax Disclosures In December 2023, the FASB issued an accounting standard update expanding the requirements for disclosure of disaggregated information about the effective tax rate reconciliation and income taxes paid. The accounting standard update will be effective for our fiscal 2026 Form 10-K. We are currently evaluating the impact of this accounting standard update on our income tax disclosures.

CISCO SYSTEMS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

**3.**Revenue

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

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

An allowance for future sales returns is established based on historical trends in product return rates. The allowance for future sales returns as of January 27, 2024 and July 29, 2023 was $36 million and $39 million, respectively, and was recorded as a reduction of our accounts receivable and revenue.

Significant Judgments

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

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

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

CISCO SYSTEMS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

**(a)**Disaggregation of Revenue

We disaggregate our revenue into groups of similar products and services that depict the nature, amount, and timing of revenue and cash flows for our various offerings. The sales cycle, contractual obligations, customer requirements, and go-to-market strategies differ for each of our product categories, resulting in different economic risk profiles for each category. Effective in the first quarter of fiscal 2024, we began reporting our product and service revenue in the following categories: Networking, Security, Collaboration, Observability, and Services and conformed our product revenue for prior periods to the current period presentation. The following table presents this disaggregation of revenue (in millions):


	Three Months Ended				Six Months Ended
	January 27, 2024		January 28, 2023		January 27, 2024		January 28, 2023
Product revenue:
Networking	$	7,081	$	8,092	$	15,904	$	16,123
Security	973		943		1,984		1,914
Collaboration	989		958		2,106		2,044
Observability	188		162		378		319
Total Product	9,232		10,155		20,371		20,400
Services	3,559		3,437		7,088		6,824
Total	$	12,791	$	13,592	27,459		27,224

Amounts may not sum due to rounding.

Networking consists of our core networking technologies of switching, routing, wireless, 5G, silicon, optics solutions and compute products. These technologies consist 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.

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

Observability consists of our full stack observability 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.

CISCO SYSTEMS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

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 $4.9 billion as of January 27, 2024 compared to $5.9 billion as of July 29, 2023, 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				Six Months Ended
	January 27, 2024		January 28, 2023		January 27, 2024		January 28, 2023
Allowance for credit loss at beginning of period	$	82	$	88	$	85	$	83
Provisions (benefits)	9		3		11		14
Recoveries (write-offs), net	(12)		(5)		(17)		(11)
Allowance for credit loss at end of period	$	79	$	86	$	79	$	86

Contract Assets and Liabilities

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


	January 27, 2024		July 29, 2023
1 to 4	$	693	$	672
5 to 6	1,042		954
7 and Higher	62		60
Total	$	1,797	$	1,686

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, were $1.8 billion as of January 27, 2024 and $1.6 billion as of July 29, 2023, and were included in other current assets and other assets.

Contract liabilities consist of deferred revenue. Deferred revenue was $25.8 billion as of January 27, 2024 compared to $25.6 billion as of July 29, 2023. We recognized approximately $3.8 billion and $8.4 billion of revenue during the second quarter and first six months of fiscal 2024 that was included in the deferred revenue balance at July 29, 2023.

**(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. Capitalized contract acquisition costs were $1.2 billion and $1.1 billion as of January 27, 2024 and July 29, 2023, respectively, and were included in other current assets and other assets. The amortization expense associated with these costs was $166 million and $324 million for the second quarter and first six months fiscal 2024, respectively, and $201 million and $377 million for the corresponding periods of fiscal 2023, respectively, and was included in sales and marketing expenses.

CISCO SYSTEMS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

**4.**Acquisitions and Divestitures

A summary of the allocation of the total purchase consideration of our completed acquisitions during the first six months of fiscal 2024 is presented as follows (in millions):


			Purchase Consideration						Net Tangible Assets Acquired (Liabilities Assumed)						Purchased Intangible Assets						Goodwill
Total acquisitions			$	896					$	(50)					$	354					$	592

The total purchase consideration related to our acquisitions completed during the first six months of fiscal 2024 consisted primarily of cash consideration. The total cash and cash equivalents acquired from these acquisitions was approximately $17 million. Total transaction costs related to acquisition and divestiture activities were $51 million and $3 million for the first six months of fiscal 2024 and 2023, respectively. These transaction costs were expensed as incurred in general and administrative expenses (“G&A”) in the Consolidated Statements of Operations.

The purchase price allocation for acquisitions completed during recent periods is preliminary and subject to revision as additional information about fair value of assets and liabilities becomes available. Additional information that existed as of the acquisition date but at that time was unknown to us may become known during the remainder of the measurement period, a period not to exceed 12 months from the acquisition date.

The goodwill generated from acquisitions completed during the first six months of fiscal 2024 is primarily related to expected synergies. The goodwill is generally not deductible for income tax purposes.

The Consolidated Financial Statements include the operating results of each acquisition from the date of acquisition. Pro forma results of operations and the revenue and net income subsequent to the acquisition date for the acquisitions completed during the first six months of fiscal 2024 have not been presented because the effects of the acquisitions were not material to our financial results.

Intent to Acquire Splunk On September 21, 2023, we announced our intent to acquire Splunk Inc. (“Splunk”), a public cybersecurity and observability company. Under the terms of the agreement, we have agreed to pay $157 per share in cash, representing approximately $28 billion in equity value. The acquisition is expected to close late in the first quarter or early in the second quarter of calendar year 2024, subject to regulatory approval and other customary closing conditions. We anticipate this transaction will be financed with a combination of cash and debt.

**5.**Goodwill and Purchased Intangible Assets

**(a)**Goodwill

The following table presents the goodwill allocated to our reportable segments as of January 27, 2024 and during the first six months of fiscal 2024 (in millions):



	Balance at July 29, 2023		Acquisitions		Foreign Currency Translation and Other		Balance at January 27, 2024
Americas	$	24,035	$	367	$	(25)	$	24,377
EMEA	9,118		121		(10)		9,229
APJC	5,382		104		(5)		5,481
Total	$	38,535	$	592	$	(40)	$	39,087

CISCO SYSTEMS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

**(b)**Purchased Intangible Assets

The following table presents details of our intangible assets acquired through acquisitions completed during the first six months of fiscal 2024 (in millions, except years):


	FINITE LIVES									INDEFINITE LIVES		TOTAL
	TECHNOLOGY			CUSTOMER RELATIONSHIPS			OTHER			IPR&D
	Weighted- Average Useful Life (in Years)	Amount		Weighted- Average Useful Life (in Years)	Amount		Weighted- Average Useful Life (in Years)	Amount		Amount		Amount
Total acquisitions	4.8	$	280	4.8	$	58	1.0	$	2	$	14	$	354

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


January 27, 2024	Gross		Accumulated Amortization		Net
Purchased intangible assets with finite lives:
Technology	$	3,020	$	(1,791)	$	1,229
Customer relationships	963		(709)		254
Other	42		(27)		15
Total purchased intangible assets with finite lives	4,025		(2,527)		1,498
In-process research and development, with indefinite lives	180		—		180
Total	$	4,205	$	(2,527)	$	1,678


July 29, 2023	Gross		Accumulated Amortization		Net
Purchased intangible assets with finite lives:
Technology	$	2,998	$	(1,691)	$	1,307
Customer relationships	1,228		(905)		323
Other	40		(22)		18
Total purchased intangible assets with finite lives	4,266		(2,618)		1,648
In-process research and development, with indefinite lives	170		—		170
Total	$	4,436	$	(2,618)	$	1,818

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				Six Months Ended
	January 27, 2024		January 28, 2023		January 27, 2024		January 28, 2023
Amortization of purchased intangible assets:
Cost of sales	$	180	$	158	$	366	$	316
Operating expenses	66		71		133		142
Total	$	246	$	229	$	499	$	458

CISCO SYSTEMS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

The estimated future amortization expense of purchased intangible assets with finite lives as of January 27, 2024 is as follows (in millions):


Fiscal Year	Amount
2024 (remaining six months)	$	440
2025	$	576
2026	$	228
2027	$	143
2028	$	100
Thereafter	$	11

**6.**Restructuring and Other Charges

In the third quarter of fiscal 2024, we initiated a restructuring plan (the “Fiscal 2024 Plan”) in order to realign the organization and enable further investment in key priority areas. The Fiscal 2024 Plan will impact approximately 5% of our global workforce, with estimated pretax charges of approximately $800 million. These aggregate pretax charges will be primarily cash-based and consist of severance and other one-time termination benefits and other costs. We expect this plan to be substantially completed during the first half of fiscal 2025.

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. In connection with the Fiscal 2023 Plan, we incurred charges of $12 million and $135 million for the second quarter and first six months of fiscal 2024, respectively. We incurred charges of $243 million for the second quarter and first six months of fiscal 2023. Total cumulative charges of $670 million have been recognized to date. These aggregate pretax charges were primarily cash-based and consist of severance and other one-time termination benefits, real estate-related charges, and other costs. We completed the Fiscal 2023 Plan in the second quarter of fiscal 2024.

The following table summarizes the activities related to the Fiscal 2023 Plan (in millions):


	FISCAL 2023 PLAN
	Employee Severance		Other		Total
Liability as of July 29, 2023	$	166	$	44	$	210
Charges	104		31		135
Cash payments	(222)		(8)		(230)
Non-cash items	—		(15)		(15)
Liability as of January 27, 2024	$	48	$	52	$	100

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, except percentages):

Cash, Cash Equivalents, Restricted Cash and Restricted Cash Equivalents


	January 27, 2024		July 29, 2023
Cash and cash equivalents	$	13,715	$	10,123
Restricted cash and restricted cash equivalents included in other current assets	565		191
Restricted cash and restricted cash equivalents included in other assets	938		1,313
Total	$	15,218	$	11,627

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

Inventories


	January 27, 2024		July 29, 2023
Raw materials	$	1,784	$	1,685
Work in process	165		264
Finished goods	1,047		1,493
Service-related spares	200		186
Demonstration systems	13		16
Total	$	3,209	$	3,644

Property and Equipment, Net


	January 27, 2024		July 29, 2023
Gross property and equipment:
Land, buildings, and building and leasehold improvements	$	4,214	$	4,229
Computer equipment and related software	691		744
Production, engineering, and other equipment	4,466		4,611
Operating lease assets	125		135
Furniture, fixtures and other	339		339
Total gross property and equipment	9,835		10,058
Less: accumulated depreciation and amortization	(7,830)		(7,973)
Total	$	2,005	$	2,085

CISCO SYSTEMS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

Remaining Performance Obligations (RPO)


	January 27, 2024			July 29, 2023
Product	$	16,249		$	15,802
Service	19,407			19,066
Total	$	35,656		$	34,868

Short-term RPO	$	17,930		$	17,910
Long-term RPO	17,726			16,958
Total	$	35,656		$	34,868

Amount to be recognized as revenue over the next 12 months	50		%	51		%

Deferred revenue	$	25,771		$	25,550
Unbilled contract revenue	9,885			9,318
Total	$	35,656		$	34,868

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


	January 27, 2024		July 29, 2023
Product	$	11,640	$	11,505
Service	14,131		14,045
Total	$	25,771	$	25,550
Reported as:
Current	$	14,011	$	13,908
Noncurrent	11,760		11,642
Total	$	25,771	$	25,550

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):


	January 27, 2024		July 29, 2023
Current	$	1,819	$	1,364
Noncurrent	2,273		4,092
Total	$	4,092	$	5,456

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	January 27, 2024		July 29, 2023
Operating lease right-of-use assets	Other assets	$	978	$	971

Operating lease liabilities	Other current liabilities	$	330	$	313
Operating lease liabilities	Other long-term liabilities	703		707
Total operating lease liabilities		$	1,033	$	1,020

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


	Three Months Ended				Six Months Ended
	January 27, 2024		January 28, 2023		January 27, 2024		January 28, 2023
Operating lease expense	$	103	$	98	$	203	$	194
Short-term lease expense	25		17		36		34
Variable lease expense	50		63		106		121
Total lease expense	$	178	$	178	$	345	$	349

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


	Six Months Ended
	January 27, 2024		January 28, 2023
Cash paid for amounts included in the measurement of lease liabilities — operating cash flows	$	178	$	192
Right-of-use assets obtained in exchange for operating leases liabilities	$	182	$	149

The weighted-average lease term was 4.6 years as of each of January 27, 2024 and July 29, 2023. The weighted-average discount rate was 3.7% and 3.1% as of January 27, 2024 and July 29, 2023, respectively.

The maturities of our operating leases (undiscounted) as of January 27, 2024 are as follows (in millions):


Fiscal Year	Amount
2024 (remaining six months)	$	183
2025	303
2026	206
2027	129
2028	94
Thereafter	231
Total lease payments	1,146
Less interest	(113)
Total	$	1,033

**(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 $16 million and $30 million for the second quarter and the first six months of fiscal 2024, respectively, and $12 million and $24 million for the corresponding periods of fiscal 2023, 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 January 27, 2024 are summarized as follows (in millions):


Fiscal Year	Amount
2024 (remaining six months)	$	401
2025	369
2026	125
2027	91
2028	68
Thereafter	45
Total	1,099
Less: Present value of lease payments	(989)
Unearned income	$	110

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):


	January 27, 2024		July 29, 2023
Operating lease assets	$	125	$	135
Accumulated depreciation	(72)		(78)
Operating lease assets, net	$	53	$	57

Our operating lease income was $15 million and $31 million for the second quarter and first six months of fiscal 2024, respectively, and $18 million and $39 million for the corresponding periods of fiscal 2023, respectively, and was included in product revenue in the Consolidated Statements of Operations.

Minimum future rentals on noncancelable operating leases as of January 27, 2024 are summarized as follows (in millions):


Fiscal Year	Amount
2024 (remaining six months)	$	12
2025	16
2026	9
2027	1
Total	$	38

**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):


January 27, 2024	Loan Receivables		Lease Receivables		Total
Gross	$	5,850	$	1,099	$	6,949
Residual value	—		70		70
Unearned income	—		(110)		(110)
Allowance for credit loss	(53)		(16)		(69)
Total, net	$	5,797	$	1,043	$	6,840
Reported as:
Current	$	3,066	$	410	$	3,476
Noncurrent	2,731		633		3,364
Total, net	$	5,797	$	1,043	$	6,840


July 29, 2023	Loan Receivables		Lease Receivables		Total
Gross	$	5,910	$	1,015	$	6,925
Residual value	—		70		70
Unearned income	—		(88)		(88)
Allowance for credit loss	(53)		(19)		(72)
Total, net	$	5,857	$	978	$	6,835
Reported as:
Current	$	2,988	$	364	$	3,352
Noncurrent	2,869		614		3,483
Total, net	$	5,857	$	978	$	6,835

**(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):


January 27, 2024			Fiscal Year								Six Months Ended
Internal Credit Risk Rating	Prior		July 25, 2020		July 31, 2021		July 30, 2022		July 29, 2023		January 27, 2024		Total
Loan Receivables:
1 to 4	$	24	$	164	$	552	$	783	$	1,243	$	1,008	$	3,774
5 to 6	6		67		169		256		629		821		1,948
7 and Higher	4		4		12		87		18		3		128
Total Loan Receivables	$	34	$	235	$	733	$	1,126	$	1,890	$	1,832	$	5,850
Lease Receivables:
1 to 4	$	6	$	31	$	71	$	71	$	224	$	215	$	618
5 to 6	4		28		41		71		158		53		355
7 and Higher	1		1		2		4		5		3		16
Total Lease Receivables	$	11	$	60	$	114	$	146	$	387	$	271	$	989
Total	$	45	$	295	$	847	$	1,272	$	2,277	$	2,103	$	6,839

CISCO SYSTEMS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)


July 29, 2023			Fiscal Year
Internal Credit Risk Rating	Prior		July 27, 2019		July 25, 2020		July 31, 2021		July 30, 2022		July 29, 2023		Total
Loan Receivables:
1 to 4	$	10	$	53	$	251	$	791	$	1,077	$	1,784	$	3,966
5 to 6	3		14		131		287		465		936		1,836
7 and Higher	1		7		15		17		29		39		108
Total Loan Receivables	$	14	$	74	$	397	$	1,095	$	1,571	$	2,759	$	5,910
Lease Receivables:
1 to 4	$	2	$	20	$	57	$	111	$	84	$	235	$	509
5 to 6	2		13		44		58		87		191		395
7 and Higher	—		1		2		4		5		11		23
Total Lease Receivables	$	4	$	34	$	103	$	173	$	176	$	437	$	927
Total	$	18	$	108	$	500	$	1,268	$	1,747	$	3,196	$	6,837

The following tables present the aging analysis of gross receivables as of January 27, 2024 and July 29, 2023 (in millions):


	DAYS PAST DUE (INCLUDES BILLED AND UNBILLED)
January 27, 2024	31-60		61-90		91+		Total Past Due		Current		Total		120+ Still Accruing		Nonaccrual Financing Receivables		Impaired Financing Receivables
Loan receivables	$	55	$	32	$	74	$	161	$	5,689	$	5,850	$	23	$	8	$	8
Lease receivables	19		8		21		48		941		989		11		2		2
Total	$	74	$	40	$	95	$	209	$	6,630	$	6,839	$	34	$	10	$	10


	DAYS PAST DUE (INCLUDES BILLED AND UNBILLED)
July 29, 2023	31-60		61-90		91+		Total Past Due		Current		Total		120+ Still Accruing		Nonaccrual Financing Receivables		Impaired Financing Receivables
Loan receivables	$	47	$	20	$	37	$	104	$	5,806	$	5,910	$	17	$	12	$	12
Lease receivables	16		4		23		43		884		927		6		3		3
Total	$	63	$	24	$	60	$	147	$	6,690	$	6,837	$	23	$	15	$	15

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.

**(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 January 27, 2024	CREDIT LOSS ALLOWANCES
	Loan Receivables		Lease Receivables		Total
Allowance for credit loss as of October 28, 2023	$	58	$	16	$	74
Provisions (benefits)	(1)		—		(1)
Recoveries (write-offs), net	(4)		—		(4)
Allowance for credit loss as of January 27, 2024	$	53	$	16	$	69

CISCO SYSTEMS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)


Three Months Ended January 28, 2023	CREDIT LOSS ALLOWANCES
	Loan Receivables		Lease Receivables		Total
Allowance for credit loss as of October 29, 2022	$	101	$	19	$	120
Provisions (benefits)	(3)		(1)		(4)
Other	(4)		1		(3)
Allowance for credit loss as of January 28, 2023	$	94	$	19	$	113


Six Months Ended January 27, 2024	CREDIT LOSS ALLOWANCES
	Loan Receivables		Lease Receivables		Total
Allowance for credit loss as of July 29, 2023	$	53	$	19	$	72
Provisions (benefits)	4		(3)		1
Recoveries (write-offs), net	(4)		—		(4)
Allowance for credit loss as of January 27, 2024	$	53	$	16	$	69


Six Months Ended January 28, 2023	CREDIT LOSS ALLOWANCES
	Loan Receivables		Lease Receivables		Total
Allowance for credit loss as of July 30, 2022	$	103	$	23	$	126
Provisions (benefits)	(4)		(4)		(8)
Other	(5)		—		(5)
Allowance for credit loss as of January 28, 2023	$	94	$	19	$	113

**10.**Investments

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

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


January 27, 2024	Amortized Cost		Gross Unrealized Gains		Gross Unrealized and Credit Losses		Fair Value
U.S. government securities	$	2,428	$	3	$	(34)	$	2,397
U.S. government agency securities	354		—		(2)		352
Non-U.S. government and agency securities	364		—		—		364
Corporate debt securities	5,343		7		(210)		5,140
U.S. agency mortgage-backed securities	2,127		1		(197)		1,931
Commercial paper	828		—		—		828
Certificates of deposit	518		—		—		518
Total	$	11,962	$	11	$	(443)	$	11,530

CISCO SYSTEMS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)


July 29, 2023	Amortized Cost		Gross Unrealized Gains		Gross Unrealized and Credit Losses		Fair Value
U.S. government securities	$	3,587	$	1	$	(62)	$	3,526
U.S. government agency securities	428		—		(5)		423
Non-U.S. government and agency securities	364		—		(1)		363
Corporate debt securities	7,238		3		(327)		6,914
U.S. agency mortgage-backed securities	2,421		14		(230)		2,205
Commercial paper	1,484		—		—		1,484
Certificates of deposit	677		—		—		677
Total	$	16,199	$	18	$	(625)	$	15,592

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


	Three Months Ended				Six Months Ended
	January 27, 2024		January 28, 2023		January 27, 2024		January 28, 2023
Gross realized gains	$	5	$	3	$	5	$	3
Gross realized losses	(28)		(6)		(48)		(12)
Total	$	(23)	$	(3)	$	(43)	$	(9)

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 January 27, 2024 and July 29, 2023 (in millions):


	UNREALIZED LOSSES LESS THAN 12 MONTHS				UNREALIZED LOSSES 12 MONTHS OR GREATER				TOTAL
January 27, 2024	Fair Value		Gross Unrealized Losses		Fair Value		Gross Unrealized Losses		Fair Value		Gross Unrealized Losses
U.S. government securities	$	1,145	$	(9)	$	550	$	(25)	$	1,695	$	(34)
U.S. government agency securities	224		—		39		(2)		263		(2)
Non-U.S. government and agency securities	200		—		—		—		200		—
Corporate debt securities	557		(2)		3,527		(178)		4,084		(180)
U.S. agency mortgage-backed securities	415		(6)		1,320		(191)		1,735		(197)
Commercial paper	10		—		—		—		10		—
Total	$	2,551	$	(17)	$	5,436	$	(396)	$	7,987	$	(413)

CISCO SYSTEMS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)


	UNREALIZED LOSSES LESS THAN 12 MONTHS				UNREALIZED LOSSES 12 MONTHS OR GREATER				TOTAL
July 29, 2023	Fair Value		Gross Unrealized Losses		Fair Value		Gross Unrealized Losses		Fair Value		Gross Unrealized Losses
U.S. government securities	$	2,394	$	(26)	$	931	$	(36)	$	3,325	$	(62)
U.S. government agency securities	343		(2)		72		(3)		415		(5)
Non-U.S. government and agency securities	363		(1)		—		—		363		(1)
Corporate debt securities	1,736		(22)		4,315		(275)		6,051		(297)
U.S. agency mortgage-backed securities	658		(13)		1,438		(217)		2,096		(230)
Commercial paper	97		—		—		—		97		—
Certificates of deposit	2		—		—		—		2		—
Total	$	5,593	$	(64)	$	6,756	$	(531)	$	12,349	$	(595)

The following table summarizes the maturities of our available-for-sale debt investments as of January 27, 2024 (in millions):


	Amortized Cost		Fair Value
Within 1 year	$	3,686	$	3,642
After 1 year through 5 years	6,149		5,957
Mortgage-backed securities with no single maturity	2,127		1,931
Total	$	11,962	$	11,530

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

**(b)**Summary of Equity Investments

We held marketable equity securities of $426 million and $431 million as of January 27, 2024 and July 29, 2023, respectively. We recognized a net unrealized gain of $55 million and $17 million during the second quarter and first six months of fiscal 2024, respectively, and a net unrealized gain of $11 million and a net unrealized loss of $9 million during the corresponding periods of fiscal 2023, 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 $134 million for the second quarter and first six months of fiscal 2024, and a net gain of $3 million and a net loss of $8 million for the corresponding periods of fiscal 2023, respectively. We held equity interests in certain private equity funds of $0.8 billion and $0.9 billion as of January 27, 2024 and July 29, 2023, 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 January 27, 2024, there were no additional 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 $1.6 billion and $1.8 billion as of January 27, 2024 and July 29, 2023, respectively. Of the total carrying value of our investments in privately held companies as of January 27, 2024, $0.9 billion of such investments are considered to be in variable interest entities which are unconsolidated. As of January 27, 2024, we have total funding commitments of $0.2 billion related to privately held investments. 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):


	JANUARY 27, 2024						JULY 29, 2023
	FAIR VALUE MEASUREMENTS						FAIR VALUE MEASUREMENTS
	Level 1		Level 2		Total Balance		Level 1		Level 2		Total Balance
Assets:
Cash equivalents:
Money market funds	$	10,103	$	—	$	10,103	$	6,496	$	—	$	6,496
Commercial paper	—		1,023		1,023		—		1,090		1,090
Certificates of deposit	—		2		2		—		47		47
Corporate debt securities	—		30		30		—		25		25
Non-U.S. government and agency securities	—		7		7		—		—		—
Available-for-sale debt investments:
U.S. government securities	—		2,397		2,397		—		3,526		3,526
U.S. government agency securities	—		352		352		—		423		423
Non-U.S. government and agency securities	—		364		364		—		363		363
Corporate debt securities	—		5,140		5,140		—		6,914		6,914
U.S. agency mortgage-backed securities	—		1,931		1,931		—		2,205		2,205
Commercial paper	—		828		828		—		1,484		1,484
Certificates of deposit	—		518		518		—		677		677
Equity investments:
Marketable equity securities	426		—		426		431		—		431
Other current assets:
Money market funds	563		—		563		188		—		188
Other assets:
Money market funds	938		—		938		1,313		—		1,313
Derivative assets	—		50		50		—		32		32
Total	$	12,030	$	12,642	$	24,672	$	8,428	$	16,786	$	25,214
Liabilities:
Derivative liabilities	$	—	$	70	$	70	$	—	$	75	$	75
Total	$	—	$	70	$	70	$	—	$	75	$	75

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 January 27, 2024 and July 29, 2023 was $2.7 billion and $2.9 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 January 27, 2024, the estimated fair value of our short-term debt approximates its carrying value due to the short maturities. As of January 27, 2024, the fair value of our senior notes was $7.9 billion with a carrying amount of $7.7 billion. This compares to a fair value of $8.7 billion and a carrying amount of $8.4 billion as of July 29, 2023. 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.

**12.**Borrowings

**(a)**Short-Term Debt

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


	January 27, 2024				July 29, 2023
	Amount		Effective Rate		Amount		Effective Rate
Current portion of long-term debt	$	997	6.35	%	$	1,733	4.45	%
Commercial paper	3,939		5.39	%	—		—	%
Total	$	4,936			$	1,733

Effective February 6, 2024, we increased our borrowing capacity under our existing commercial paper program from $10.0 billion to $15.0 billion. We use the proceeds from the issuance of commercial paper notes for general corporate purposes. As of February 19, 2024, we had approximately $6.9 billion of commercial paper notes outstanding.

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):


		January 27, 2024			July 29, 2023
	Maturity Date	Amount		Effective Rate	Amount		Effective Rate
Senior notes:
Fixed-rate notes:
2.20%	September 20, 2023	$	—	—	$	750	2.27%
3.625%	March 4, 2024	1,000		6.35%	1,000		6.08%
3.50%	June 15, 2025	500		6.66%	500		6.38%
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		7,750			8,500
Unaccreted discount/issuance costs		(66)			(68)
Hedge accounting fair value adjustments		(18)			(41)
Total		$	7,666		$	8,391

Reported as:
Current portion of long-term debt		$	997		$	1,733
Long-term debt		6,669			6,658
Total		$	7,666		$	8,391

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 Secured Overnight Financing Rate (SOFR). 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 January 27, 2024, we were in compliance with all debt covenants.

As of January 27, 2024, future principal payments for long-term debt, including the current portion, are summarized as follows (in millions):


Fiscal Year	Amount
2024 (remaining six months)	$	1,000
2025	500
2026	750
2027	1,500
Thereafter	4,000
Total	$	7,750

**(c)**Credit Facility

On May 13, 2021, we entered into a 5-year $3.0 billion unsecured revolving credit agreement, as amended on April 18, 2023. On February 2, 2024, we entered into an amended and restated 5-year $5.0 billion unsecured revolving credit agreement. The interest rate for the credit agreement is determined based on a formula using certain market rates. The credit agreement requires that we comply with certain covenants, including that we maintain an interest coverage ratio (defined in the agreement as the ratio of consolidated EBITDA to consolidated interest expense) of not less than 3.0 to 1.0. As of January 27, 2024, we were in compliance with all associated covenants and we had not borrowed any funds under our credit agreement.

CISCO SYSTEMS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

**13.**Derivative Instruments

**(a)**Summary of Derivative Instruments

We use derivative instruments primarily to manage exposures to foreign currency exchange rate, interest rate, and equity price risks. Our primary objective in holding derivatives is to reduce the volatility of earnings and cash flows associated with changes in foreign currency exchange rates, interest rates, and equity prices. Our derivatives expose us to credit risk to the extent that the counterparties may be unable to meet the terms of the agreement. We 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 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	January 27, 2024		July 29, 2023		Balance Sheet Line Item	January 27, 2024		July 29, 2023
Derivatives designated as hedging instruments:
Foreign currency derivatives	Other current assets	$	35	$	22	Other current liabilities	$	2	$	—
Foreign currency derivatives	Other assets	13		9		Other long-term liabilities	—		—
Interest rate derivatives	Other current assets	—		—		Other current liabilities	3		17
Interest rate derivatives	Other assets	—		—		Other long-term liabilities	15		24
Total		48		31			20		41
Derivatives not designated as hedging instruments:
Foreign currency derivatives	Other current assets	2		1		Other current liabilities	37		25
Foreign currency derivatives	Other assets	—		—		Other long-term liabilities	13		9
Total		2		1			50		34
Total		$	50	$	32		$	70	$	75

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	January 27, 2024		July 29, 2023		January 27, 2024		July 29, 2023
Short-term debt	$	(997)	$	(983)	$	3	$	17
Long-term debt	$	(485)	$	(476)	$	15	$	24

CISCO SYSTEMS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

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


	Three Months Ended				Six Months Ended
	January 27, 2024		January 28, 2023		January 27, 2024		January 28, 2023
Interest rate derivatives:
Hedged items	$	(14)	$	(7)	$	(23)	$	32
Derivatives designated as hedging instruments	14		7		23		(32)
Total	$	—	$	—	$	—	$	—

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


		GAINS (LOSSES) FOR THE THREE MONTHS ENDED				GAINS (LOSSES) FOR THE SIX MONTHS ENDED
Derivatives Not Designated as Hedging Instruments	Line Item in Statements of Operations	January 27, 2024		January 28, 2023		January 27, 2024		January 28, 2023
Foreign currency derivatives	Other income (loss), net	$	53	$	140	$	(77)	$	68
Total return swaps—deferred compensation	Operating expenses and other	93		44		16		19
Equity derivatives	Other income (loss), net	—		5		2		4
Total		$	146	$	189	$	(59)	$	91

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


	January 27, 2024		July 29, 2023
Foreign currency derivatives	$	6,207	$	5,419
Interest rate derivatives	1,500		1,500
Total return swaps—deferred compensation	879		792
Total	$	8,586	$	7,711

**(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 $13 million and $40 million as of January 27, 2024 and July 29, 2023, respectively.

**(c)**Foreign Currency Exchange Risk

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

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

CISCO SYSTEMS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

We enter into foreign exchange forward and option contracts to reduce the short-term effects of foreign currency fluctuations on assets and liabilities such as foreign currency receivables, long-term customer financings and payables. These derivatives are not designated as hedging instruments. Gains and losses on the contracts are included in other income (loss), net, and substantially offset foreign exchange gains and losses from the remeasurement of monetary assets and 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 SOFR 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 SOFR. 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 and directors. Although not designated as accounting hedges, we utilize derivatives such as total return swaps to economically hedge this exposure and offset the related compensation expense.

**14.**Commitments and Contingencies

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

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

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


	January 27, 2024		July 29, 2023
Less than 1 year	$	4,711	$	5,270
1 to 3 years	1,456		1,783
3 to 5 years	26		200
Total	$	6,193	$	7,253

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 January 27, 2024 and July 29, 2023, the liability for these purchase commitments was $538 million and $529 million, respectively, and was included in other current liabilities.

CISCO SYSTEMS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

**(b)**Other Commitments

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

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


	Three Months Ended				Six Months Ended
	January 27, 2024		January 28, 2023		January 27, 2024		January 28, 2023
Compensation expense related to acquisitions	$	45	$	49	$	94	$	123

As of January 27, 2024, we estimated that future cash compensation expense of up to $397 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. The funding commitments were $0.2 billion and $0.3 billion as of January 27, 2024 and July 29, 2023, respectively.

**(c)**Product Warranties

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


	Six Months Ended
	January 27, 2024		January 28, 2023
Balance at beginning of period	$	329	$	333
Provisions for warranties issued	198		188
Adjustments for pre-existing warranties	5		13
Settlements	(205)		(218)
Balance at end of period	$	327	$	316

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 $6.6 billion and $7.5 billion for the second quarter of fiscal 2024 and 2023, respectively, and $14.8 billion and $15.1 billion for the first six months of fiscal 2024 and 2023, respectively. The balance of the channel partner financing subject to guarantees was $1.3 billion and $1.7 billion as of January 27, 2024 and July 29, 2023, respectively.

Financing Guarantee Summary The aggregate amounts of channel partner financing guarantees outstanding at January 27, 2024 and July 29, 2023, 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):


	January 27, 2024		July 29, 2023
Maximum potential future payments	$	138	$	159
Deferred revenue	(23)		(34)
Total	$	115	$	125

CISCO SYSTEMS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

**(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.

**(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 $165 million for the alleged evasion of import and other taxes, $929 million for interest, and $373 million for various penalties, all determined using an exchange rate as of January 27, 2024.

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. After two bench trials and various administrative actions and appeals, we have been found either to not have infringed any of the patents or the patents have been invalidated. There is an appeal of one of the invalidity decisions and we expect a further appeal by Centripetal.

Between April 2020 and February 2022, Centripetal also 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. In various proceedings in 2021, 2022, and 2023, we have been found to have not infringe three patents, one patent was invalidated, the utility model was invalidated, and the infringement action on the final patent is stayed due to a pending invalidity action. There are appeals pending and the next proceeding is expected in the second half of fiscal 2024.

On July 10, 2023, Centripetal filed a complaint in the Paris Judiciary Court asserting the French counterpart of a European Patent. Centripetal seeks damages and injunctive relief in the case. Centripetal previously asserted the German counterpart of the same European Patent in Germany and the German Court rejected Centripetal’s complaint finding no infringement. We have filed our response and defenses to the complaint and the next proceedings are expected in the second half of fiscal 2024.

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

Ramot On June 12, 2019 and on February 26, 2021, Ramot at Tel Aviv University Ltd. (“Ramot”) asserted patent infringement claims against Cisco and Acacia in the U.S. District Court for the Eastern District of Texas (“E.D. Tex.”) and in the District of Delaware (“D. Del.”), respectively. Ramot is seeking damages, including enhanced damages, and a royalty on future sales. Ramot alleges that certain optical transceiver modules and line cards infringe three patents. We challenged the

CISCO SYSTEMS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

validity of the patents in the U.S. Patent and Trademark Office (“PTO”) and the pending District Court cases have been stayed. 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. The next proceedings are expected in the first half of fiscal 2025.

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 not prevail in court in these litigations, we believe any damages ultimately assessed 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. The District Court denied Egenera’s post-trial motions, and Egenera filed an appeal to the Federal Circuit on January 13, 2023 and the next proceedings are expected in the second half of fiscal 2024.

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. On June 9, 2020, Viasat filed another suit in SDSC alleging contract and trade secret claims for sales of additional Acacia products. Both matters have been formally dismissed and resolved through a settlement for an amount that did not have a material effect on our Consolidated Financial Statements.

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 January 27, 2024, the remaining authorized amount for stock repurchases under this program was approximately $8.4 billion with no termination date. The stock repurchase activity for fiscal 2024 and 2023 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 2024
January 27, 2024	25	$	49.54	$	1,254
October 28, 2023	23	$	54.53	$	1,252

Fiscal 2023
July 29, 2023	25	$	50.49	$	1,254
April 29, 2023	25	$	49.45	$	1,259
January 28, 2023	26	$	47.72	$	1,256
October 29, 2022	12	$	43.76	$	502

There were stock repurchases of $50 million and $48 million that were pending settlement as of January 27, 2024 and July 29, 2023, respectively.

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

CISCO SYSTEMS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

(b) Dividends Declared

On February 14, 2024, our Board of Directors declared a quarterly dividend of $0.40 per common share to be paid on April 24, 2024, to all stockholders of record as of the close of business on April 4, 2024. Future dividends will be subject to the approval of our Board of Directors.

(c) 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 January 27, 2024, 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 January 27, 2024, 156 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. Under the Employee Stock Purchase Plan, we issued 10 million shares during the second quarter and first six months of fiscal 2024 and 9 million shares during the second quarter and first six months of fiscal 2023. As of January 27, 2024, 78 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 and stock purchase rights, granted to employees or assumed from acquisitions. The following table summarizes share-based compensation expense (in millions):


	Three Months Ended				Six Months Ended
	January 27, 2024		January 28, 2023		January 27, 2024		January 28, 2023
Cost of sales—product	$	58	$	40	$	100	$	71
Cost of sales—service	81		66		142		116
Share-based compensation expense in cost of sales	139		106		242		187
Research and development	344		261		618		465
Sales and marketing	221		166		407		319
General and administrative	97		71		187		129
Restructuring and other charges	1		(3)		9		(3)
Share-based compensation expense in operating expenses	663		495		1,221		910
Total share-based compensation expense	$	802	$	601	$	1,463	$	1,097
Income tax benefit for share-based compensation	$	202	$	109	$	345	$	208

As of January 27, 2024, the total compensation cost related to unvested share-based awards not yet recognized was $5.4 billion which is expected to be recognized over approximately 2.2 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 30, 2022	97	$	46.67
Granted and assumed	72	42.08
Vested	(39)	46.69		$	1,746
Canceled/forfeited/other	(8)	45.17
Unvested balance at July 29, 2023	122	$	44.04
Granted and assumed	48	50.58
Vested	(34)	42.87		$	1,733
Canceled/forfeited/other	(4)	44.50
Unvested balance at January 27, 2024	132	$	46.69

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 six months of fiscal 2024 and 2023 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 29, 2023	$	(440)	$	18	$	(1,153)	$	(1,575)
Other comprehensive income (loss) before reclassifications	132		39		(81)		90
(Gains) losses reclassified out of AOCI	43		(23)		(2)		18
Tax benefit (expense)	(42)		(4)		1		(45)
Balance at January 27, 2024	$	(307)	$	30	$	(1,235)	$	(1,512)


	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	(76)		(12)		106		18
(Gains) losses reclassified out of AOCI	9		(37)		(1)		(29)
Tax benefit (expense)	11		12		24		47
Balance at January 28, 2023	$	(435)	$	7	$	(1,158)	$	(1,586)

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						Six Months Ended
	January 27, 2024			January 28, 2023			January 27, 2024			January 28, 2023
Income before provision for income taxes	$	3,161		$	3,415		$	7,603		$	6,890
Provision for income taxes	$	527		$	642		$	1,331		$	1,447
Effective tax rate	16.7		%	18.8		%	17.5		%	21.0		%

As of January 27, 2024, we had $2.0 billion of unrecognized tax benefits, of which $1.6 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 second quarter and first six months of fiscal 2024 and 2023, based on our internal management system and as utilized by our Chief Operating Decision Maker (“CODM”), is as follows (in millions):


	Three Months Ended				Six Months Ended
	January 27, 2024		January 28, 2023		January 27, 2024		January 28, 2023
Revenue:
Americas	$	7,510	$	7,825	$	16,532	$	15,738
EMEA	3,484		3,728		7,148		7,404
APJC	1,798		2,039		3,779		4,082
Total	$	12,791	$	13,592	$	27,459	$	27,224
Gross margin:
Americas	$	4,932	$	4,920	$	10,901	$	9,904
EMEA	2,373		2,469		4,919		4,795
APJC	1,226		1,298		2,554		2,571
Segment total	8,532		8,687		18,373		17,269
Unallocated corporate items	(315)		(260)		(599)		(496)
Total	$	8,217	$	8,427	$	17,774	$	16,773

Amounts may not sum due to rounding.

Revenue in the United States was $6.7 billion and $7.0 billion for the second quarter of fiscal 2024 and 2023, respectively and $14.9 billion and $14.0 billion for the first six months of fiscal 2024 and 2023, respectively.

CISCO SYSTEMS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

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

We design and sell Internet Protocol (IP)-based networking and other products related to the communications and IT industry and provide services associated with these products and their use. Effective in the first quarter of fiscal 2024, we began reporting our product and service revenue in the following categories: Networking, Security, Collaboration, Observability, and Services and conformed our product revenue for prior periods to the current period presentation.

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


	Three Months Ended				Six Months Ended
	January 27, 2024		January 28, 2023		January 27, 2024		January 28, 2023
Revenue:
Networking	$	7,081	$	8,092	$	15,904	$	16,123
Security	973		943		1,984		1,914
Collaboration	989		958		2,106		2,044
Observability	188		162		378		319
Total Product	9,232		10,155		20,371		20,400
Services	3,559		3,437		7,088		6,824
Total	$	12,791	$	13,592	$	27,459	$	27,224

Amounts may not sum due to rounding.

**20.**Net Income per Share

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


	Three Months Ended				Six Months Ended
	January 27, 2024		January 28, 2023		January 27, 2024		January 28, 2023
Net income	$	2,634	$	2,773	$	6,272	$	5,443
Weighted-average shares—basic	4,055		4,103		4,056		4,105
Effect of dilutive potential common shares	18		13		23		10
Weighted-average shares—diluted	4,073		4,116		4,079		4,115
Net income per share—basic	$	0.65	$	0.68	$	1.55	$	1.33
Net income per share—diluted	$	0.65	$	0.67	$	1.54	$	1.32
Antidilutive employee share-based awards, excluded	58		17		56		91

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