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 24, 2026		July 26, 2025
ASSETS
Current assets:
Cash and cash equivalents	$	7,458	$	8,346
Investments	8,319		7,764
Accounts receivable, net of allowance of $76 at January 24, 2026 and $69 at July 26, 2025	6,606		6,701
Inventories	3,920		3,164
Financing receivables, net	2,944		3,061
Other current assets	5,884		5,950
Total current assets	35,131		34,986
Property and equipment, net	2,351		2,113
Financing receivables, net	3,698		3,466
Goodwill	59,234		59,136
Purchased intangible assets, net	8,307		9,175
Deferred tax assets	7,399		7,356
Other assets	7,251		6,059
TOTAL ASSETS	$	123,371	$	122,291
LIABILITIES AND EQUITY
Current liabilities:
Short-term debt	$	8,719	$	5,232
Accounts payable	2,762		2,528
Income taxes payable	195		1,857
Accrued compensation	3,494		3,611
Deferred revenue	16,199		16,416
Other current liabilities	5,417		5,420
Total current liabilities	36,786		35,064
Long-term debt	21,367		22,861
Income taxes payable	2,124		2,165
Deferred revenue	12,204		12,363
Other long-term liabilities	3,167		2,995
Total liabilities	75,648		75,448
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; 3,949 and 3,960 shares issued and outstanding at January 24, 2026 and July 26, 2025, respectively	48,493		47,747
Retained earnings	66		50
Accumulated other comprehensive loss	(836)		(954)
Total equity	47,723		46,843
TOTAL LIABILITIES AND EQUITY	$	123,371	$	122,291

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 24, 2026		January 25, 2025		January 24, 2026		January 25, 2025
REVENUE:
Product	$	11,642	$	10,234	$	22,719	$	20,348
Services	3,707		3,757		7,513		7,484
Total revenue	15,349		13,991		30,232		27,832
COST OF SALES:
Product	4,205		3,713		8,139		7,239
Services	1,172		1,167		2,376		2,361
Total cost of sales	5,377		4,880		10,515		9,600
GROSS MARGIN	9,972		9,111		19,717		18,232
OPERATING EXPENSES:
Research and development	2,355		2,299		4,755		4,585
Sales and marketing	2,881		2,672		5,752		5,424
General and administrative	688		752		1,421		1,547
Amortization of purchased intangible assets	231		265		462		530
Restructuring and other charges	36		10		183		675
Total operating expenses	6,191		5,998		12,573		12,761
OPERATING INCOME	3,781		3,113		7,144		5,471
Interest income	210		238		432		524
Interest expense	(370)		(404)		(720)		(822)
Other income (loss), net	25		(60)		181		(19)
Interest and other income (loss), net	(135)		(226)		(107)		(317)
INCOME BEFORE PROVISION FOR INCOME TAXES	3,646		2,887		7,037		5,154
Provision for income taxes	471		459		1,002		15
NET INCOME	$	3,175	$	2,428	$	6,035	$	5,139

Net income per share:
Basic	$	0.80	$	0.61	$	1.53	$	1.29
Diluted	$	0.80	$	0.61	$	1.51	$	1.28
Shares used in per-share calculation:
Basic	3,955		3,981		3,955		3,986
Diluted	3,984		4,005		3,987		4,008

See Notes to Consolidated Financial Statements.

CISCO SYSTEMS, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(in millions)

(Unaudited)


	Three Months Ended				Six Months Ended
	January 24, 2026		January 25, 2025		January 24, 2026		January 25, 2025
Net income	$	3,175	$	2,428	$	6,035	$	5,139
Available-for-sale investments:
Change in net unrealized gains and losses, net of tax benefit (expense) of $3 and $(7) for the second quarter and first six months of fiscal 2026, respectively, and $0 and $(17) for the corresponding periods of fiscal 2025, respectively	1		4		39		58
Net (gains) losses reclassified into earnings, net of tax (benefit) expense of $(1) and $(2) for the second quarter and first six months of fiscal 2026, respectively, and $(17) and $(23) for the corresponding periods of fiscal 2025, respectively	3		3		6		22
	4		7		45		80
Cash flow hedging instruments:
Change in unrealized gains and losses, net of tax benefit (expense) of $(8) and $(18) for the second quarter and first six months of fiscal 2026, respectively, and $(13) and $(15) for the corresponding periods of fiscal 2025, respectively	26		43		58		50
Net (gains) losses reclassified into earnings, net of tax (benefit) expense of $3 and $5 for the second quarter and first six months of fiscal 2026, respectively, and $3 and $5 for the corresponding periods of fiscal 2025, respectively	(10)		(12)		(17)		(19)
	16		31		41		31
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 2026, respectively, and $0 for each of the corresponding periods of fiscal 2025	74		(155)		32		(174)
Other comprehensive income (loss)	94		(117)		118		(63)
Comprehensive income	$	3,269	$	2,311	$	6,153	$	5,076

See Notes to Consolidated Financial Statements.

CISCO SYSTEMS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in millions)

(Unaudited)


	Six Months Ended
	January 24, 2026		January 25, 2025
Cash flows from operating activities:
Net income	$	6,035	$	5,139
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation, amortization, and other	1,265		1,550
Share-based compensation expense	1,989		1,748
Provision for receivables	9		7
Deferred income taxes	(64)		(382)
(Gains) losses on divestitures, investments and other, net	(237)		(5)
Change in operating assets and liabilities, net of effects of acquisitions and divestitures:
Accounts receivable	54		969
Inventories	(761)		441
Financing receivables	(120)		330
Other assets	(642)		(427)
Accounts payable	236		(359)
Income taxes, net	(2,503)		(2,285)
Accrued compensation	(120)		(293)
Deferred revenue	(290)		(555)
Other liabilities	183		24
Net cash provided by operating activities	5,034		5,902
Cash flows from investing activities:
Purchases of investments	(4,228)		(2,261)
Proceeds from sales of investments	1,445		1,791
Proceeds from maturities of investments	2,303		2,703
Acquisitions, net of cash and cash equivalents acquired and divestitures	(46)		(257)
Purchases of investments in privately held companies	(65)		(137)
Return of investments in privately held companies	55		94
Acquisition of property and equipment	(606)		(427)
Other	(8)		(5)
Net cash provided by (used in) investing activities	(1,150)		1,501
Cash flows from financing activities:
Issuances of common stock	354		320
Repurchases of common stock—repurchase program	(3,355)		(3,243)
Shares repurchased for tax withholdings on vesting of restricted stock units	(1,068)		(655)
Short-term borrowings, original maturities of 90 days or less, net	750		1,012
Issuances of debt	4,241		10,406
Repayments of debt	(2,992)		(11,382)
Dividends paid	(3,234)		(3,185)
Other	2		(2)
Net cash used in financing activities	(5,302)		(6,729)
Effect of foreign currency exchange rate changes on cash, cash equivalents, restricted cash and restricted cash equivalents	(33)		(8)
Net increase (decrease) in cash, cash equivalents, restricted cash and restricted cash equivalents	(1,451)		666
Cash, cash equivalents, restricted cash and restricted cash equivalents, beginning of period	8,910		8,842
Cash, cash equivalents, restricted cash and restricted cash equivalents, end of period	$	7,459	$	9,508

Supplemental cash flow information:
Cash paid for interest	$	701	$	769
Cash paid for income taxes, net	$	3,569	$	2,682

See Notes to Consolidated Financial Statements.

CISCO SYSTEMS, INC.

CONSOLIDATED STATEMENTS OF EQUITY

(in millions, except per-share amounts)

(Unaudited)


Three Months Ended January 24, 2026	Shares of Common Stock	Common Stock and Additional Paid-In Capital		Retained Earnings (Accumulated Deficit)		Accumulated Other Comprehensive Loss		Total Equity
Balance at October 25, 2025	3,938	$	48,167	$	(364)	$	(930)	$	46,873
Net income				3,175				3,175
Other comprehensive income (loss)						94		94
Issuance of common stock	39	354						354
Repurchase of common stock	(18)	(217)		(1,134)				(1,351)
Shares repurchased for tax withholdings on vesting of restricted stock units and other	(10)	(745)		6				(739)
Cash dividends declared ($0.41 per common share)				(1,617)				(1,617)
Share-based compensation		934						934
Balance at January 24, 2026	3,949	$	48,493	$	66	$	(836)	$	47,723


Six Months Ended January 24, 2026	Shares of Common Stock	Common Stock and Additional Paid-In Capital		Retained Earnings		Accumulated Other Comprehensive Loss		Total Equity
Balance at July 26, 2025	3,960	$	47,747	$	50	$	(954)	$	46,843
Net income				6,035				6,035
Other comprehensive income (loss)						118		118
Issuance of common stock	51	354						354
Repurchase of common stock	(47)	(571)		(2,781)				(3,352)
Shares repurchased for tax withholdings on vesting of restricted stock units and other	(15)	(1,026)		(4)				(1,030)
Cash dividends declared ($0.82 per common share)				(3,234)				(3,234)
Share-based compensation		1,989						1,989
Balance at January 24, 2026	3,949	$	48,493	$	66	$	(836)	$	47,723

See Notes to Consolidated Financial Statements.

CISCO SYSTEMS, INC.

CONSOLIDATED STATEMENTS OF EQUITY

(in millions, except per-share amounts)

(Unaudited)


Three Months Ended January 25, 2025	Shares of Common Stock	Common Stock and Additional Paid-In Capital		Retained Earnings		Accumulated Other Comprehensive Loss		Total Equity
Balance at October 26, 2024	3,974	$	45,991	$	662	$	(1,376)	$	45,277
Net income				2,428				2,428
Other comprehensive income (loss)						(117)		(117)
Issuance of common stock	33	320						320
Repurchase of common stock	(21)	(244)		(992)				(1,236)
Shares repurchased for tax withholdings on vesting of restricted stock units and other	(9)	(467)		(3)				(470)
Cash dividends declared ($0.40 per common share)				(1,593)				(1,593)
Share-based compensation		921						921
Balance at January 25, 2025	3,977	$	46,521	$	502	$	(1,493)	$	45,530


Six Months Ended January 25, 2025	Shares of Common Stock	Common Stock and Additional Paid-In Capital		Retained Earnings		Accumulated Other Comprehensive Loss		Total Equity
Balance at July 27, 2024	4,007	$	45,800	$	1,087	$	(1,430)	$	45,457
Net income				5,139				5,139
Other comprehensive income (loss)						(63)		(63)
Issuance of common stock	44	320						320
Repurchase of common stock	(61)	(706)		(2,533)				(3,239)
Shares repurchased for tax withholdings on vesting of restricted stock units and other	(13)	(641)		(6)				(647)
Cash dividends declared ($0.80 per common share)				(3,185)				(3,185)
Share-based compensation		1,748						1,748
Balance at January 25, 2025	3,977	$	46,521	$	502	$	(1,493)	$	45,530

See Notes to Consolidated Financial Statements.

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 2026 and fiscal 2025 are each 52-week fiscal years. The Consolidated Financial Statements include our accounts and those of our subsidiaries and those of our investments consolidated under the voting interest method. 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 24, 2026 and for the second quarter and first six months of fiscal 2026 and 2025, 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 26, 2025 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 26, 2025.

In the opinion of management, all normal recurring adjustments necessary to state fairly the consolidated balance sheet as of January 24, 2026, the results of operations, the statements of comprehensive income and the statements of equity for the second quarter and first six months of fiscal 2026 and 2025, and the statements of cash flows for the first six months of fiscal 2026 and 2025, as applicable, have been made. The results of operations for the second quarter and first six months of fiscal 2026 are not necessarily indicative of the operating results for the full fiscal year or any future periods.

Certain reclassifications have been made to the amounts in prior periods in order to conform to the current period’s presentation.

**2.**Recent Accounting Pronouncements

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

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.

Disaggregation of Income Statement Expenses In November 2024, the FASB issued an accounting standard update expanding the disclosure requirements about specific expense categories, primarily through disaggregated information on income statement line items. The accounting standard update will be effective for our fiscal 2028 Form 10-K, and early adoption is permitted. We are currently evaluating the impact of this accounting standard update on our Consolidated Financial Statements.

Targeted Improvements to the Accounting for Internal-Use Software In September 2025, the FASB issued an accounting standard update to modernize the accounting for internal-use software costs and clarify the criteria for capitalization. The accounting standard update will be effective for our interim and annual reporting periods of fiscal 2029, with early adoption permitted. We are currently evaluating the impact of this accounting standard update on our Consolidated Financial Statements.

**3.**Revenue

We enter into contracts with customers that can include various combinations of products and services which are generally distinct and accounted for as separate performance obligations. As a result, our contracts may contain multiple performance obligations. We determine whether arrangements are distinct based on whether the customer can benefit from the product or service on its own or together with other resources that are readily available and whether our commitment to transfer the product or service to the customer is separately identifiable from other obligations in the contract. We classify our hardware, perpetual software licenses, and software-as-a-service (SaaS) as distinct performance obligations. Term software licenses

CISCO SYSTEMS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

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. Revenue from subscription offers includes revenue recognized over time as well as upfront.

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 and the related provision is recorded as a reduction to 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 direct sale customers. When determining the amount of revenue to recognize, we estimate the expected usage of these programs, applying the expected value or most likely estimate and update the estimate at each reporting period as actual utilization becomes available. We also consider the customers’ right of return in determining the transaction price, where applicable.

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

CISCO SYSTEMS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

**(a)**Disaggregation of Revenue

We disaggregate our revenue into groups of similar products and services that depict the nature, amount, and timing of revenue and cash flows for our various offerings. The sales cycle, contractual obligations, customer requirements, and go-to-market strategies differ for each of our product categories, resulting in different economic risk profiles for each category. The following table presents this disaggregation of revenue (in millions):


	Three Months Ended				Six Months Ended
	January 24, 2026		January 25, 2025		January 24, 2026		January 25, 2025
Product revenue:
Networking	$	8,294	$	6,850	$	16,061	$	13,603
Security	2,018		2,111		3,998		4,129
Collaboration	1,054		996		2,109		2,081
Observability	277		277		550		535
Total Product	11,642		10,234		22,719		20,348
Services	3,707		3,757		7,513		7,484
Total revenue	$	15,349	$	13,991	$	30,232	$	27,832

Amounts may not sum due to rounding.

Networking consists of our core networking technologies of switching, routing, wireless, and servers. 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 Network Security, Identity and Access Management, Secure Access Service Edge (SASE) and Threat Intelligence, Detection, and Response 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 Webex Suite, Collaboration Devices, 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 network assurance, monitoring and analytics and observability suite offerings. These products consist primarily of software offerings, including software licenses and SaaS. Our perpetual software in this category are distinct performance obligations where revenue is recognized upfront upon transfer of control. Term software licenses are multiple performance obligations where the term license is recognized upfront upon transfer of control with the associated software maintenance revenue recognized ratably over the contract term. SaaS arrangements in this category have one distinct performance obligation which is satisfied over time with revenue recognized ratably over the contract term.

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

CISCO SYSTEMS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

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 our hardware, software and service offerings. Refer to Note 9 for additional information. For these arrangements, cash is typically received over time.

Subscription revenue includes revenue recognized from our term software licenses, security software licenses, SaaS, and associated service arrangements. Our subscription revenue is recorded in product and services revenue in our Consolidated Statements of Operations as follows (in millions):


	Three Months Ended				Six Months Ended
	January 24, 2026		January 25, 2025		January 24, 2026		January 25, 2025
Product	$	4,474	$	4,432	$	8,974	$	8,851
Services	3,362		3,430		6,862		6,855
Total	$	7,836	$	7,862	$	15,836	$	15,706

The majority of our product subscription revenue is recognized over time and the remainder is recognized upfront. Substantially all of our services subscription revenue is recognized over time based on the contract term.

**(b)**Contract Balances

Accounts Receivable

Accounts receivable, net was $6.6 billion as of January 24, 2026 compared to $6.7 billion as of July 26, 2025, 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 24, 2026		January 25, 2025		January 24, 2026		January 25, 2025
Allowance for credit loss at beginning of period	$	62	$	78	$	69	$	87
Provisions	18		12		14		12
Write-offs, net of recoveries	(4)		(10)		(7)		(19)
Allowance for credit loss at end of period	$	76	$	80	$	76	$	80

Contract Assets and Liabilities

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


	January 24, 2026		July 26, 2025
1 to 4	$	1,326	$	1,358
5 to 6	2,004		1,868
7 and Higher	84		73
Total	$	3,414	$	3,299

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 $3.4 billion as of January 24, 2026 and $3.2 billion as of July 26, 2025, of which $1.8 billion and $1.7 billion, respectively, were included in other current assets, with remaining balances included in other assets.

Contract liabilities consist of deferred revenue. Deferred revenue was $28.4 billion as of January 24, 2026 compared to $28.8 billion as of July 26, 2025. We recognized approximately $4.5 billion and $9.9 billion of revenue during the second quarter and first six months of fiscal 2026 that was included in the deferred revenue balance at July 26, 2025.

**(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

CISCO SYSTEMS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

the period of benefit. Capitalized contract acquisition costs were $1.5 billion as of each of January 24, 2026 and July 26, 2025, and were included in other current assets and other assets. The amortization expense associated with these costs was $249 million and $483 million for the second quarter and first six months of fiscal 2026, respectively, and $238 million and $446 million for the corresponding periods of fiscal 2025, respectively, and was included in sales and marketing expenses.

**4.**Acquisitions

Allocation of the total purchase consideration for acquisitions we completed during the first six months of fiscal 2026 is summarized as follows (in millions):


			Purchase Consideration						Net Tangible Assets Acquired (Liabilities Assumed)						Purchased Intangible Assets						Goodwill
Total acquisitions			$	49					$	—					$	14					$	35

The total purchase consideration related to acquisitions consisted primarily of cash consideration. Total transaction costs related to acquisition activities were $9 million and $11 million for the first six months of fiscal 2026 and 2025, 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 is currently 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 the acquisitions completed during the first six months of fiscal 2026 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 2026 have not been presented because the effects of the acquisitions were not material to our financial results.

Compensation Expense Related to Acquisitions

In connection with our acquisitions, we have agreed to pay certain additional amounts contingent 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 24, 2026		January 25, 2025		January 24, 2026		January 25, 2025
Compensation expense related to acquisitions	$	98	$	222	$	208	$	519

As of January 24, 2026, we estimated that future cash compensation expense of up to $400 million may be required to be recognized pursuant to applicable acquisition agreements.

CISCO SYSTEMS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

**5.**Goodwill and Purchased Intangible Assets

**(a)**Goodwill

The following table presents the goodwill allocated to our reportable segments as of January 24, 2026 and changes to goodwill during the first six months of fiscal 2026 (in millions):


	Balance at July 26, 2025		Acquisitions		Foreign Currency Translation and Other		Balance at January 24, 2026
Americas	$	36,468	$	21	$	39	$	36,528
EMEA	14,397		9		15		14,421
APJC	8,271		5		9		8,285
Total	$	59,136	$	35	$	63	$	59,234

**(b)**Purchased Intangible Assets

The following table presents details of our intangible assets acquired through acquisitions completed during the first six months of fiscal 2026 (in millions, except years):


	FINITE LIVES									INDEFINITE LIVES		TOTAL
	CUSTOMER RELATED			TECHNOLOGY			TRADE NAME			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	—	$	—	2.5	$	14	—	$	—	$	—	$	14

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


January 24, 2026	Gross		Accumulated Amortization		Net
Customer related	$	6,340	$	(1,707)	$	4,633
Technology	5,213		(1,970)		3,243
Trade name	526		(95)		431
Total	$	12,079	$	(3,772)	$	8,307


July 26, 2025	Gross		Accumulated Amortization		Net
Customer related	$	6,341	$	(1,268)	$	5,073
Technology	5,254		(1,606)		3,648
Trade name	526		(72)		454
Total	$	12,121	$	(2,946)	$	9,175

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

Impairment charges related to purchased intangible assets were $19 million for the second quarter and first six months of fiscal 2025. Impairment charges were as a result of declines in estimated fair value resulting from the reductions in or the elimination of expected future cash flows associated with certain technology intangible assets.

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


	Three Months Ended				Six Months Ended
	January 24, 2026		January 25, 2025		January 24, 2026		January 25, 2025
Amortization of purchased intangible assets:
Cost of sales	$	235	$	340	$	475	$	665
Operating expenses	231		265		462		530
Total	$	466	$	605	$	937	$	1,195

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 24, 2026 is as follows (in millions):


Fiscal Year	Amount
2026 (remaining six months)	$	904
2027	1,495
2028	1,415
2029	1,287
2030	1,003
Thereafter	2,203
Total	$	8,307

**6.**Restructuring and Other Charges

In the first quarter of fiscal 2025, we announced a restructuring plan (the “Fiscal 2025 Plan”), in order to allow us to invest in key growth opportunities and drive more efficiencies in our business. In connection with the Fiscal 2025 Plan, we incurred charges of $36 million and $183 million in the second quarter and first six months of fiscal 2026. These aggregate pre-tax charges were primarily cash-based and consisted of severance and other one-time termination benefits, and other costs. In connection with the Fiscal 2025 Plan, we incurred cumulative charges of $927 million and completed the plan in the second quarter of fiscal 2026.

The following table summarizes the activities related to our restructuring liability, which was included in other current liabilities on our Consolidated Balance Sheets (in millions):


	FISCAL 2025 PLAN
	Employee Severance		Other		Total
Liability as of July 26, 2025	$	66	$	46	$	112
Charges	142		41		183
Cash payments	(143)		(25)		(168)
Non-cash and other	(1)		(38)		(39)
Liability as of January 24, 2026	$	64	$	24	$	88

**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 24, 2026		July 26, 2025
Cash and cash equivalents	$	7,458	$	8,346
Restricted cash and restricted cash equivalents included in other current assets	1		564
Total	$	7,459	$	8,910

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

Inventories


	January 24, 2026		July 26, 2025
Raw materials	$	2,016	$	1,744
Work in process	684		261
Finished goods	987		933
Service-related spares	227		220
Demonstration systems	6		6
Total	$	3,920	$	3,164

CISCO SYSTEMS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

Property and Equipment, Net


	January 24, 2026		July 26, 2025
Gross property and equipment:
Land, buildings, and building and leasehold improvements	$	4,060	$	4,045
Production, engineering, computer and other equipment and related software	5,293		5,178
Operating lease assets	51		51
Furniture, fixtures and other	301		316
Total gross property and equipment	9,705		9,590
Less: accumulated depreciation and amortization	(7,354)		(7,477)
Total	$	2,351	$	2,113

Remaining Performance Obligations (RPO)


	January 24, 2026			July 26, 2025
Product	$	21,977		$	21,572
Services	21,429			21,961
Total	$	43,406		$	43,533

Short-term RPO	$	21,370		$	21,723
Long-term RPO	22,036			21,810
Total	$	43,406		$	43,533

Amount to be recognized as revenue over the next 12 months	49		%	50		%

Deferred revenue	$	28,403		$	28,779
Unbilled contract revenue	15,003			14,754
Total	$	43,406		$	43,533

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 24, 2026		July 26, 2025
Product	$	13,371	$	13,490
Services	15,032		15,289
Total	$	28,403	$	28,779
Reported as:
Current	$	16,199	$	16,416
Noncurrent	12,204		12,363
Total	$	28,403	$	28,779

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 24, 2026		July 26, 2025
Operating lease right-of-use assets	Other assets	$	1,408	$	1,301

Operating lease liabilities	Other current liabilities	$	405	$	375
Operating lease liabilities	Other long-term liabilities	1,249		1,175
Total operating lease liabilities		$	1,654	$	1,550

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


	Three Months Ended				Six Months Ended
	January 24, 2026		January 25, 2025		January 24, 2026		January 25, 2025
Operating lease expense	$	132	$	149	$	263	$	263
Short-term lease expense	26		16		51		34
Variable lease expense	77		47		149		93
Total lease expense	$	235	$	212	$	463	$	390

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


	Six Months Ended
	January 24, 2026		January 25, 2025
Cash paid for amounts included in the measurement of lease liabilities — operating cash flows	$	259	$	228
Right-of-use assets obtained in exchange for operating leases liabilities	$	351	$	326

The weighted-average lease term was 5.8 years and 5.7 years as of January 24, 2026 and July 26, 2025, respectively. The weighted-average discount rate was 4.0% and 4.1% as of January 24, 2026 and July 26, 2025, respectively.

The maturities of our operating leases (undiscounted) as of January 24, 2026 are as follows (in millions):


Fiscal Year	Amount
2026 (remaining six months)	$	256
2027	385
2028	286
2029	228
2030	198
Thereafter	536
Total lease payments	1,889
Less: interest	(235)
Total	$	1,654

**(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 $15 million and $31 million for the second quarter and first six months of fiscal 2026, respectively, and $16 million and $33 million for the corresponding periods of fiscal 2025, 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 24, 2026 are summarized as follows (in millions):


Fiscal Year	Amount
2026 (remaining six months)	$	157
2027	310
2028	125
2029	151
2030	144
Total	887
Less: Present value of lease payments	(795)
Unearned income	$	92

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

**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.

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


January 24, 2026	Loan Receivables		Lease Receivables		Total
Gross	$	5,825	$	887	$	6,712
Residual value	—		67		67
Unearned income	—		(92)		(92)
Allowance for credit loss	(34)		(11)		(45)
Total, net	$	5,791	$	851	$	6,642
Reported as:
Current	$	2,634	$	310	$	2,944
Noncurrent	3,157		541		3,698
Total, net	$	5,791	$	851	$	6,642


July 26, 2025	Loan Receivables		Lease Receivables		Total
Gross	$	5,628	$	982	$	6,610
Residual value	—		66		66
Unearned income	—		(99)		(99)
Allowance for credit loss	(37)		(13)		(50)
Total, net	$	5,591	$	936	$	6,527
Reported as:
Current	$	2,715	$	346	$	3,061
Noncurrent	2,876		590		3,466
Total, net	$	5,591	$	936	$	6,527

CISCO SYSTEMS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

**(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 24, 2026			Fiscal Year								Six Months Ended
Internal Credit Risk Rating	Prior		July 30, 2022		July 29, 2023		July 27, 2024		July 26, 2025		January 24, 2026		Total
Loan Receivables:
1 to 4	$	45	$	112	$	273	$	937	$	1,391	$	1,116	$	3,874
5 to 6	22		20		89		283		862		647		1,923
7 and Higher	—		2		2		4		18		2		28
Total Loan Receivables	$	67	$	134	$	364	$	1,224	$	2,271	$	1,765	$	5,825
Lease Receivables:
1 to 4	$	2	$	13	$	81	$	150	$	176	$	67	$	489
5 to 6	2		13		51		89		80		61		296
7 and Higher	—		1		2		6		1		—		10
Total Lease Receivables	$	4	$	27	$	134	$	245	$	257	$	128	$	795
Total	$	71	$	161	$	498	$	1,469	$	2,528	$	1,893	$	6,620


July 26, 2025			Fiscal Year
Internal Credit Risk Rating	Prior		July 31, 2021		July 30, 2022		July 29, 2023		July 27, 2024		July 26, 2025		Total
Loan Receivables:
1 to 4	$	2	$	83	$	236	$	371	$	1,258	$	1,556	$	3,506
5 to 6	2		56		53		167		561		1,248		2,087
7 and Higher	—		—		6		9		4		16		35
Total Loan Receivables	$	4	$	139	$	295	$	547	$	1,823	$	2,820	$	5,628
Lease Receivables:
1 to 4	$	—	$	9	$	23	$	112	$	187	$	207	$	538
5 to 6	—		6		25		77		120		103		331
7 and Higher	—		—		1		3		8		2		14
Total Lease Receivables	$	—	$	15	$	49	$	192	$	315	$	312	$	883
Total	$	4	$	154	$	344	$	739	$	2,138	$	3,132	$	6,511

The following tables present the aging analysis of gross receivables as of January 24, 2026 and July 26, 2025 (in millions):


	DAYS PAST DUE (INCLUDES BILLED AND UNBILLED)
January 24, 2026	31-60		61-90		91+		Total Past Due		Current		Total		120+ Still Accruing		Nonaccrual Financing Receivables		Impaired Financing Receivables
Loan receivables	$	31	$	18	$	53	$	102	$	5,723	$	5,825	$	4	$	1	$	1
Lease receivables	13		8		6		27		768		795		5		1		1
Total	$	44	$	26	$	59	$	129	$	6,491	$	6,620	$	9	$	2	$	2


	DAYS PAST DUE (INCLUDES BILLED AND UNBILLED)
July 26, 2025	31-60		61-90		91+		Total Past Due		Current		Total		120+ Still Accruing		Nonaccrual Financing Receivables		Impaired Financing Receivables
Loan receivables	$	18	$	18	$	16	$	52	$	5,576	$	5,628	$	4	$	5	$	5
Lease receivables	7		3		6		16		867		883		4		1		1
Total	$	25	$	21	$	22	$	68	$	6,443	$	6,511	$	8	$	6	$	6

CISCO SYSTEMS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

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 24, 2026	CREDIT LOSS ALLOWANCES
	Loan Receivables		Lease Receivables		Total
Allowance for credit loss as of October 25, 2025	$	37	$	14	$	51
Provisions (benefits)	(3)		(3)		(6)
Allowance for credit loss as of January 24, 2026	$	34	$	11	$	45


Three Months Ended January 25, 2025	CREDIT LOSS ALLOWANCES
	Loan Receivables		Lease Receivables		Total
Allowance for credit loss as of October 26, 2024	$	49	$	15	$	64
Provisions (benefits)	(2)		(2)		(4)
Recoveries (write-offs), net	(3)		—		(3)
Foreign exchange and other	1		1		2
Allowance for credit loss as of January 25, 2025	$	45	$	14	$	59


Six Months Ended January 24, 2026	CREDIT LOSS ALLOWANCES
	Loan Receivables		Lease Receivables		Total
Allowance for credit loss as of July 26, 2025	$	37	$	13	$	50
Provisions (benefits)	(3)		(2)		(5)
Allowance for credit loss as of January 24, 2026	$	34	$	11	$	45


Six Months Ended January 25, 2025	CREDIT LOSS ALLOWANCES
	Loan Receivables		Lease Receivables		Total
Allowance for credit loss as of July 27, 2024	$	50	$	15	$	65
Provisions (benefits)	(3)		(2)		(5)
Recoveries (write-offs), net	(3)		—		(3)
Foreign exchange and other	1		1		2
Allowance for credit loss as of January 25, 2025	$	45	$	14	$	59

**10.**Investments

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

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


January 24, 2026	Amortized Cost		Gross Unrealized Gains		Gross Unrealized and Credit Losses		Fair Value
U.S. government securities	$	1,756	$	4	$	(4)	$	1,756
U.S. government agency securities	49		—		—		49
Non-U.S. government and agency securities	442		1		—		443
Corporate debt securities	3,106		10		(37)		3,079
Mortgage- and asset-backed securities	247		—		(11)		236
Commercial paper	1,337		—		—		1,337
Certificates of deposit	1,060		—		—		1,060
Total	$	7,997	$	15	$	(52)	$	7,960

CISCO SYSTEMS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)


July 26, 2025	Amortized Cost		Gross Unrealized Gains		Gross Unrealized and Credit Losses		Fair Value
U.S. government securities	$	1,971	$	2	$	(12)	$	1,961
U.S. government agency securities	67		—		—		67
Non-U.S. government and agency securities	458		—		—		458
Corporate debt securities	3,138		13		(61)		3,090
Mortgage- and asset-backed securities	320		—		(34)		286
Commercial paper	950		—		—		950
Certificates of deposit	569		—		—		569
Total	$	7,473	$	15	$	(107)	$	7,381

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 24, 2026		January 25, 2025		January 24, 2026		January 25, 2025
Gross realized gains	$	1	$	—	$	11	$	8
Gross realized losses	(5)		(20)		(19)		(53)
Total	$	(4)	$	(20)	$	(8)	$	(45)

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 24, 2026 and July 26, 2025 (in millions):


	UNREALIZED LOSSES LESS THAN 12 MONTHS				UNREALIZED LOSSES 12 MONTHS OR GREATER				TOTAL
January 24, 2026	Fair Value		Gross Unrealized Losses		Fair Value		Gross Unrealized Losses		Fair Value		Gross Unrealized Losses
U.S. government securities	$	710	$	(2)	$	244	$	(2)	$	954	$	(4)
Non-U.S. government and agency securities	116		—		—		—		116		—
Corporate debt securities	422		(1)		1,409		(10)		1,831		(11)
Mortgage- and asset-backed securities	33		—		105		(11)		138		(11)
Total	$	1,281	$	(3)	$	1,758	$	(23)	$	3,039	$	(26)


	UNREALIZED LOSSES LESS THAN 12 MONTHS				UNREALIZED LOSSES 12 MONTHS OR GREATER				TOTAL
July 26, 2025	Fair Value		Gross Unrealized Losses		Fair Value		Gross Unrealized Losses		Fair Value		Gross Unrealized Losses
U.S. government securities	$	1,076	$	(6)	$	302	$	(6)	$	1,378	$	(12)
U.S. government agency securities	8		—		21		—		29		—
Non-U.S. government and agency securities	292		—		—		—		292		—
Corporate debt securities	106		—		1,800		(35)		1,906		(35)
Mortgage- and asset-backed securities	5		—		279		(34)		284		(34)
Commercial paper	30		—		—		—		30		—
Total	$	1,517	$	(6)	$	2,402	$	(75)	$	3,919	$	(81)

CISCO SYSTEMS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

The following table summarizes the maturities of our available-for-sale debt investments as of January 24, 2026 (in millions):


	Amortized Cost		Fair Value
Within 1 year	$	4,696	$	4,660
After 1 year through 5 years	2,982		2,992
After 5 years through 10 years	72		72
Mortgage- and asset-backed securities with no single maturity	247		236
Total	$	7,997	$	7,960

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

**(b)**Marketable Equity Securities

We held marketable equity securities of $359 million and $383 million as of January 24, 2026 and July 26, 2025, respectively. We recognized net unrealized losses of $34 million and $4 million during the second quarter and first six months of fiscal 2026, respectively, and net unrealized gains of $16 million and $36 million for the corresponding periods of fiscal 2025, respectively, on our marketable securities still held as of the reporting date.

**(c)**Investments in Privately Held Companies

The carrying value of our investments in privately held companies was $2.1 billion and $1.9 billion as of January 24, 2026 and July 26, 2025, respectively. As of January 24, 2026, we have total funding commitments of $0.7 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.

Investments in privately held companies measured using the measurement alternative had a carrying value of $0.7 billion and $0.6 billion as of January 24, 2026 and July 26, 2025, respectively. We have recorded cumulative adjustments to the carrying value of our investments in privately held companies measured using the measurement alternative as follows (in millions):


	January 24, 2026		July 26, 2025
Cumulative upward adjustments	$	278	$	195
Cumulative downward adjustments, including impairments	(601)		(597)
Net adjustments	$	(323)	$	(402)

We held equity interests in certain private equity funds of $0.7 billion as of each of January 24, 2026 and July 26, 2025, which are accounted for under the NAV practical expedient.

Of the total carrying value of our investments in privately held companies as of January 24, 2026, $0.8 billion of such investments are considered to be in variable interest entities which are unconsolidated.

Certain of our investments in privately held companies are required to be consolidated under the voting interest entity model. The noncontrolling interest attributed to these investments was $221 million and $162 million as of January 24, 2026 and July 26, 2025, respectively, and is included in the equity section of the Consolidated Balance Sheets. The share of earnings attributable to the noncontrolling interest attributed to these investments is not material for any of the periods presented and is included in other income (loss), net in the Consolidated Statements of Operations.

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 24, 2026						JULY 26, 2025
	FAIR VALUE MEASUREMENTS						FAIR VALUE MEASUREMENTS
	Level 1		Level 2		Total Balance		Level 1		Level 2		Total Balance
Assets:
Cash equivalents:
Money market funds	$	5,348	$	—	$	5,348	$	5,885	$	—	$	5,885
Commercial paper	—		134		134		—		336		336
Corporate debt securities	—		—		—		—		1		1
Available-for-sale debt investments:
U.S. government securities	—		1,756		1,756		—		1,961		1,961
U.S. government agency securities	—		49		49		—		67		67
Non-U.S. government and agency securities	—		443		443		—		458		458
Corporate debt securities	—		3,079		3,079		—		3,090		3,090
Mortgage- and asset-backed securities	—		236		236		—		286		286
Commercial paper	—		1,337		1,337		—		950		950
Certificates of deposit	—		1,060		1,060		—		569		569
Equity investments:
Marketable equity securities	359		—		359		383		—		383
Other current assets:
Money market funds	—		—		—		563		—		563
Derivative assets	—		90		90		—		32		32
Total	$	5,707	$	8,184	$	13,891	$	6,831	$	7,750	$	14,581
Liabilities:
Derivative liabilities	$	—	$	83	$	83	$	—	$	31	$	31
Total	$	—	$	83	$	83	$	—	$	31	$	31

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.

**(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.

CISCO SYSTEMS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

The fair value for purchased intangible assets measured at fair value on a nonrecurring basis was categorized as Level 3 due to the use of significant unobservable inputs in the valuation. Significant unobservable inputs that were used included expected revenues and net income related to the assets and the expected life of the assets. The difference between the estimated fair value and the carrying value of the assets was recorded as an impairment charge, which was included in product cost of sales. See Note 5.

(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 was $3.2 billion and $2.9 billion as of January 24, 2026 and July 26, 2025, 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 24, 2026, the estimated fair value of our short-term debt approximates its carrying value due to the short maturities. As of January 24, 2026, the fair value of our senior fixed-rate notes was $25.2 billion, with a carrying amount of $24.6 billion. This compares to a fair value of $25.0 billion and a carrying amount of $24.6 billion as of July 26, 2025. The fair value of the senior fixed-rate 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 24, 2026				July 26, 2025
	Amount		Effective Rate		Amount		Effective Rate
Current portion of senior fixed-rate notes	$	3,250	3.41	%	$	1,749	4.15	%
Commercial paper	5,469		3.88	%	3,482		4.37	%
Current portion of other debt	—		—		1		1.13	%
Total	$	8,719			$	5,232

We have a short-term debt financing program of up to $15.0 billion through the issuance of commercial paper notes. We use the proceeds from the issuance of commercial paper notes for general corporate purposes.

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

CISCO SYSTEMS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

**(b)**Long-Term Debt

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


		January 24, 2026			July 26, 2025
	Maturity Date	Amount		Effective Rate	Amount		Effective Rate
Senior fixed-rate notes:
4.90%	February 26, 2026	$	1,000	5.00%	$	1,000	5.00%
2.95%	February 28, 2026	750		3.01%	750		3.01%
2.50%	September 20, 2026	1,500		2.55%	1,500		2.55%
4.80%	February 26, 2027	2,000		4.90%	2,000		4.90%
4.55%	February 24, 2028	1,000		4.61%	1,000		4.61%
4.85%	February 26, 2029	2,500		4.91%	2,500		4.91%
4.75%	February 24, 2030	1,000		4.73%	1,000		4.73%
4.95%	February 26, 2031	2,500		5.04%	2,500		5.04%
4.95%	February 24, 2032	1,000		4.94%	1,000		4.94%
5.05%	February 26, 2034	2,500		4.97%	2,500		4.97%
5.10%	February 24, 2035	1,250		5.11%	1,250		5.11%
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%
5.30%	February 26, 2054	2,000		5.28%	2,000		5.28%
5.50%	February 24, 2055	750		5.49%	750		5.49%
5.35%	February 26, 2064	1,000		5.42%	1,000		5.42%
Other debt		2		1.13%	3		1.13%
Total		24,752			24,753
Unaccreted discount/issuance costs		(135)			(142)
Total		$	24,617		$	24,611

Reported as:
Current portion of long-term debt		$	3,250		$	1,750
Long-term debt		21,367			22,861
Total		$	24,617		$	24,611

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 fixed-rate notes rank at par with the commercial paper notes that have been issued pursuant to our short-term debt financing program, as discussed above under “(a) Short-Term Debt.” As of January 24, 2026, we were in compliance with all debt covenants.

As of January 24, 2026, future principal payments for long-term debt, including the current portion, are summarized as follows (in millions):


Fiscal Year	Amount
2026 (remaining six months)	$	1,750
2027	3,502
2028	1,000
2029	2,500
2030	1,000
Thereafter	15,000
Total	$	24,752

CISCO SYSTEMS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

**(c)**Credit Facility

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 24, 2026, we were in compliance with all associated covenants and we had not borrowed any funds under our credit agreement.

**13.**Derivative Instruments

**(a)**Summary of Derivative Instruments

We use derivative instruments primarily to manage exposures to foreign currency exchange rate, interest rate, and equity price risks. Our primary objective in holding derivatives is to reduce the volatility of earnings and cash flows associated with changes in foreign currency exchange rates, interest rates, and equity prices. Our derivatives expose us to credit risk to the extent that the counterparties may be unable to meet the terms of the agreement. We 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 24, 2026		July 26, 2025		Balance Sheet Line Item	January 24, 2026		July 26, 2025
Derivatives designated as hedging instruments:
Foreign currency derivatives	Other current assets	$	40	$	17	Other current liabilities	$	4	$	2
Foreign currency derivatives	Other assets	43		10		Other long-term liabilities	—		2
Total		83		27			4		4
Derivatives not designated as hedging instruments:
Foreign currency derivatives	Other current assets	7		3		Other current liabilities	36		17
Foreign currency derivatives	Other assets	—		2		Other long-term liabilities	43		10
Total		7		5			79		27
Total		$	90	$	32		$	83	$	31

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 24, 2026		January 25, 2025		January 24, 2026		January 25, 2025
Foreign currency derivatives	Other income (loss), net	$	(3)	$	(63)	$	(49)	$	(95)
Total return swaps—deferred compensation	Operating expenses and other	14		11		68		33
Total		$	11	$	(52)	$	19	$	(62)

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


	January 24, 2026		July 26, 2025
Foreign currency derivatives	$	8,518	$	8,978
Total return swaps—deferred compensation	1,202		1,087
Total	$	9,720	$	10,065

CISCO SYSTEMS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

**(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.

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

We enter into foreign exchange forward and option contracts to reduce the short-term effects of foreign currency fluctuations on assets and liabilities such as foreign currency receivables, long-term customer financings and payables. These derivatives are not designated as hedging instruments. Gains and losses on the contracts are included in other income (loss), net, and substantially offset foreign exchange gains and losses from the remeasurement of 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 periodically enter into treasury lock agreements, designated as cash flow hedges, in order to hedge the impact of changes in the U.S. benchmark interest rate on future interest payments in anticipation of future debt offerings. Changes in the fair value of treasury lock agreements are recorded to AOCI and reclassified into earnings when the hedged exposure affects earnings.

**(e)**Equity Price Risk

We are 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 are directly with suppliers, and relate to fixed-dollar commitments 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 24, 2026		July 26, 2025
Less than 1 year	$	9,615	$	7,202
1 to 3 years	417		320
3 to 5 years	23		77
Total	$	10,055	$	7,599

CISCO SYSTEMS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

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 24, 2026 and July 26, 2025, the liability for these purchase commitments was $185 million and $206 million, respectively, and was included in other current liabilities.

**(b)**Other Commitments

We have certain funding commitments, primarily related to our privately held investments. The funding commitments were $0.7 billion and $0.3 billion as of January 24, 2026 and July 26, 2025, respectively.

**(c)**Product Warranties

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


	Six Months Ended
	January 24, 2026		January 25, 2025
Balance at beginning of period	$	399	$	362
Provisions for warranties issued	209		198
Adjustments for pre-existing warranties	—		37
Settlements	(231)		(203)
Balance at end of period	$	377	$	394

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

**(d)**Financing and Other Guarantees

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

Channel Partner Financing Guarantees We facilitate arrangements for third-party financing extended to channel partners, consisting of revolving short-term financing, with payment terms generally ranging from 60 to 90 days. These financing arrangements facilitate the working capital requirements of the channel partners, and, in some cases, we guarantee a portion of these arrangements. The volume of channel partner financing was $7.4 billion and $6.2 billion for the second quarter of fiscal 2026 and 2025, respectively, and $14.0 billion and $12.2 billion for the first six months of fiscal 2026 and 2025, respectively. The balance of the channel partner financing subject to guarantees was $1.3 billion as of each of January 24, 2026 and July 26, 2025.

Financing Guarantee Summary The aggregate amounts of channel partner financing guarantees outstanding at January 24, 2026 and July 26, 2025, 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 24, 2026		July 26, 2025
Maximum potential future payments	$	126	$	123
Deferred revenue	(13)		(13)
Total	$	113	$	110

**(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.

CISCO SYSTEMS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

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 remaining asserted claims by Brazilian federal tax authorities are for calendar years 2004 through 2007, and the remaining asserted claims by the tax authorities from the state of Sao Paulo are for calendar years 2005 through 2007. The total remaining asserted claims by Brazilian state and federal tax authorities aggregate to $148 million for the alleged evasion of import and other taxes, $902 million for interest, and $303 million for various penalties, all determined using an exchange rate as of January 24, 2026.

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 Centripetal Networks, Inc. (“Centripetal”) filed various patent litigations in the U.S., Germany, and France. These cases have either concluded with findings of non-infringement or invalidity or are in various stages of appeals. In the U.S., there is an appeal from our win in the Eastern District of Virginia that is pending in the Federal Circuit Court of Appeals, and one Patent Trial and Appeal Board ("PTAB") inter partes review decision that was remanded to the PTAB for further proceedings. In Germany, there is an infringement hearing on one patent set for April 2, 2026, and an appeal hearing in a related invalidity proceeding set for November 10, 2026. In France, Centripetal also filed an infringement case alleging infringement of the French counterpart to U.S. and German patents previously found to not be infringed. Those proceedings are ongoing and a final hearing date has not been set.

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 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 Court rescheduled the trial date in the D. Del. cases for December 1, 2025. Prior to trial, the D. Del. Court granted our motion for summary judgment of non-infringement of all patents-in suit. Ramot appealed that decision to the Federal Circuit and those proceedings are ongoing.

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.

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.

CISCO SYSTEMS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

**15.**Stockholders’ Equity

**(a)**Stock Repurchase Program

In September 2001, our Board of Directors authorized a stock repurchase program. As of January 24, 2026, the remaining authorized amount for stock repurchases under this program was approximately $10.8 billion, with no termination date. The stock repurchase activity for fiscal 2026 and 2025 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 2026
January 24, 2026	18	$	76.29	$	1,351
October 25, 2025	29	$	68.28	$	2,001

Fiscal 2025
July 26, 2025	19	$	64.65	$	1,252
April 26, 2025	25	$	59.78	$	1,504
January 25, 2025	21	$	58.58	$	1,236
October 26, 2024	40	$	49.56	$	2,003

There were stock repurchases of $17 million and $20 million that were pending settlement January 24, 2026 and July 26, 2025, 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.

(b) Dividends Declared

On February 11, 2026, our Board of Directors declared a quarterly dividend of $0.42 per common share to be paid on April 22, 2026, to all stockholders of record as of the close of business on April 2, 2026. 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 24, 2026, we have 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.

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. Time-based and performance-based RSUs generally vest over three years with certain awards containing retirement eligible provisions. 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.

CISCO SYSTEMS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

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 24, 2026, 124 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 8 million shares during each of the second quarters and first six months of fiscal 2026 and fiscal 2025. As of January 24, 2026, 42 million shares were available for issuance under the Employee Stock Purchase Plan.

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

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


	Three Months Ended				Six Months Ended
	January 24, 2026		January 25, 2025		January 24, 2026		January 25, 2025
Cost of sales—product	$	63	$	65	$	131	$	122
Cost of sales—services	88		86		170		160
Share-based compensation expense in cost of sales	151		151		301		282
Research and development	420		413		904		767
Sales and marketing	244		231		513		441
General and administrative	118		121		249		236
Restructuring and other charges	1		5		22		22
Share-based compensation expense in operating expenses	783		770		1,688		1,466
Total share-based compensation expense	$	934	$	921	$	1,989	$	1,748
Income tax benefit for share-based compensation	$	298	$	224	$	539	$	398

As of January 24, 2026, 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 1.9 years on a weighted-average basis.

CISCO SYSTEMS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

**(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 27, 2024	117	$	46.86
Granted and assumed	70	55.73
Vested	(65)	46.95		$	3,707
Canceled/forfeited/other	(9)	48.04
Unvested balance at July 26, 2025	113	52.26
Granted and assumed	44	68.04
Vested	(43)	49.40		$	3,047
Canceled/forfeited/other	3	40.84
Unvested balance at January 24, 2026	117	$	58.94

**17.**Accumulated Other Comprehensive Income (Loss)

The components of AOCI, net of tax, and the other comprehensive income (loss), for the first six months of fiscal 2026 and 2025 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 26, 2025	$	(57)	$	65	$	(962)	$	(954)
Other comprehensive income (loss) before reclassifications	46		76		33		155
(Gains) losses reclassified out of AOCI	8		(22)		—		(14)
Tax benefit (expense)	(9)		(13)		(1)		(23)
Balance at January 24, 2026	$	(12)	$	106	$	(930)	$	(836)


	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 27, 2024	$	(241)	$	79	$	(1,268)	$	(1,430)
Other comprehensive income (loss) before reclassifications	75		65		(174)		(34)
(Gains) losses reclassified out of AOCI	45		(24)		—		21
Tax benefit (expense)	(40)		(10)		—		(50)
Balance at January 25, 2025	$	(161)	$	110	$	(1,442)	$	(1,493)

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 24, 2026			January 25, 2025			January 24, 2026			January 25, 2025
Income before provision for income taxes	$	3,646		$	2,887		$	7,037		$	5,154
Provision for income taxes	471			459			1,002			15
Effective tax rate	12.9		%	15.9		%	14.2		%	0.3		%

As of January 24, 2026, we had $2.4 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.

We made our final transition tax payment of $2.3 billion in the second quarter of fiscal 2026 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. On August 26, 2024, the U.S. Tax Court issued an opinion in Varian Medical Systems, Inc. v. Commissioner. The opinion related to the U.S. taxation of deemed foreign dividends in the transition year of the Tax Cuts and Jobs Act (our fiscal 2018). While we were not a party to the case, the opinion resulted in a change to our tax position. As such, we recorded a tax benefit of $720 million as a reduction to the provision for income taxes in the first quarter of fiscal 2025 due to this U.S. Tax Court opinion. The income tax receivable associated with this tax benefit was included in other assets in the Consolidated Balance Sheets.

**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 chief executive officer is the chief operating decision maker (CODM). The CODM reviews certain financial information for each segment, to evaluate performance and allocate resources by comparing actual performance to our annual targets. Performance of each segment is measured based on segment revenue and segment gross margin. Sales are attributed to a segment based on the location of the customer.

We do not allocate research and development, sales and marketing, or general and administrative expenses to our segments because the CODM does not include this information in our measurement of 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 cost of sales and gross margin for each segment because the CODM does not include this information in the measurement of the performance of our operating segments.

CISCO SYSTEMS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

The following summarizes our revenue and gross margin by segment and the significant expenses by each segment (in millions):


	Three Months Ended				Six Months Ended
	January 24, 2026		January 25, 2025		January 24, 2026		January 25, 2025
Revenue:
Americas	$	8,845	$	8,202	$	17,834	$	16,454
EMEA	4,425		3,855		8,208		7,444
APJC	2,080		1,934		4,191		3,934
Total	$	15,349	$	13,991	$	30,232	$	27,832
Gross margin:
Americas	$	5,816	$	5,545	$	11,817	$	11,285
EMEA	3,173		2,750		5,895		5,272
APJC	1,368		1,320		2,781		2,648
Segment total	10,357		9,614		20,493		19,204
Unallocated corporate items	(385)		(503)		(776)		(972)
Total	$	9,972	$	9,111	$	19,717	$	18,232

Supplemental information about our significant expenses:
Americas:
Cost of sales — product	$	2,416	$	1,877	$	4,765	$	3,928
Cost of sales — services	612		635		1,251		1,242
Segment total	$	3,029	$	2,512	$	6,016	$	5,170
EMEA:
Cost of sales — product	$	962	$	778	$	1,730	$	1,602
Cost of sales — services	289		288		583		570
Segment total	$	1,252	$	1,066	$	2,314	$	2,172
APJC:
Cost of sales — product	$	533	$	490	$	1,047	$	926
Cost of sales — services	179		183		362		360
Segment total	$	712	$	673	$	1,410	$	1,286

Amounts may not sum due to rounding.

Revenue in the United States was $8.0 billion and $7.4 billion for the second quarter of fiscal 2026 and 2025, respectively, and $16.1 billion and $14.8 billion for the first six months of fiscal 2026 and 2025, respectively.

CISCO SYSTEMS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

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

We design and sell Internet Protocol (IP)-based networking and other products related to the communications and IT industry and provide services associated with these products and their use.

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


	Three Months Ended				Six Months Ended
	January 24, 2026		January 25, 2025		January 24, 2026		January 25, 2025
Revenue:
Networking	$	8,294	$	6,850	$	16,061	$	13,603
Security	2,018		2,111		3,998		4,129
Collaboration	1,054		996		2,109		2,081
Observability	277		277		550		535
Total Product	11,642		10,234		22,719		20,348
Services	3,707		3,757		7,513		7,484
Total	$	15,349	$	13,991	$	30,232	$	27,832

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 24, 2026		January 25, 2025		January 24, 2026		January 25, 2025
Net income	$	3,175	$	2,428	$	6,035	$	5,139
Weighted-average shares—basic	3,955		3,981		3,955		3,986
Effect of dilutive potential common shares	29		24		32		22
Weighted-average shares—diluted	3,984		4,005		3,987		4,008
Net income per share—basic	$	0.80	$	0.61	$	1.53	$	1.29
Net income per share—diluted	$	0.80	$	0.61	$	1.51	$	1.28
Antidilutive employee share-based awards, excluded	—		22		—		59

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