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1、UNITED STATES SECURITIES AND EXCHANGE COMMISSIONWASHINGTON,D.C.20549 _FORM 10-Q(Mark One)QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)OF THE SECURITIES EXCHANGE ACT OF 1934For the quarterly period ended January 27,2024 orTRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)OF THE SECURITIES EXCHANGE
2、ACT OF 1934 For the transition period from to Commission file number 001-39940 _CISCO SYSTEMS,INC.(Exact name of registrant as specified in its charter)Delaware 77-0059951(State or other jurisdiction ofincorporation or organization)(I.R.S.EmployerIdentification Number)170 West Tasman Drive San Jose,
3、California 95134(Address of principal executive office and zip code)(408)526-4000(Registrants telephone number,including area code)Not Applicable(Former name,former address and formal fiscal year,if changed since last report.)_ Securities registered pursuant to Section 12(b)of the Act:Title of each
4、classTrading Symbol(s)Name of each exchange on which registeredCommon Stock,par value$0.001 per shareCSCOThe Nasdaq Stock Market LLCIndicate by check mark whether the registrant(1)has filed all reports required to be filed by Section 13 or 15(d)of the Securities Exchange Act of 1934 during the prece
5、ding 12 months(or for such shorter period that the registrant was required to file such reports),and(2)has been subject to such filing requirements for the past 90 days.Yes No Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submit
6、ted pursuant to Rule 405 of Regulation S-T(232.405 of this chapter)during the preceding 12 months(or for such shorter period that the registrant was required to submit such files).Yes No Indicate by check mark whether the registrant is a large accelerated filer,an accelerated filer,a non-accelerated
7、 filer,a smaller reporting company,or an emerging growth company.See the definitions of“large accelerated filer,”“accelerated filer,”“smaller reporting company,”and“emerging growth company”in Rule 12b-2 of the Exchange Act.Large accelerated filerAccelerated filer Non-accelerated filerSmaller reporti
8、ng company Emerging growth companyIf an emerging growth company,indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a)of the Exchange Act.Indicate by check
9、mark whether the registrant is a shell company(as defined in Rule 12b-2 of the Exchange Act).Yes No Number of shares of the registrants common stock outstanding as of February 15,2024:4,049,187,080_ Table of Contents1Cisco Systems,Inc.Form 10-Q for the Quarter Ended January 27,2024 INDEXPagePart IFi
10、nancial Information3Item 1.Financial Statements(Unaudited)3Consolidated Balance Sheets at January 27,2024 and July 29,20233Consolidated Statements of Operations for the Three and Six Months Ended January 27,2024 and January 28,20234Consolidated Statements of Comprehensive Income for the Three and Si
11、x Months Ended January 27,2024 and January 28,20235Consolidated Statements of Cash Flows for the Six Months Ended January 27,2024 and January 28,20236Consolidated Statements of Equity for the Three and Six Months Ended January 27,2024 and January 28,20237Notes to Consolidated Financial Statements9It
12、em 2.Managements Discussion and Analysis of Financial Condition and Results of Operations39Item 3.Quantitative and Qualitative Disclosures About Market Risk60Item 4.Controls and Procedures61Part II.Other Information61Item 1.Legal Proceedings61Item 1A.Risk Factors62Item 2.Unregistered Sales of Equity
13、 Securities,Use of Proceeds,and Issuer Purchases of Equity Securities77Item 3.Defaults Upon Senior Securities77Item 4.Mine Safety Disclosures77Item 5.Other Information77Item 6.Exhibits78Signature79Table of Contents2PART I.FINANCIAL INFORMATION Item 1.Financial Statements(Unaudited)CISCO SYSTEMS,INC.
14、CONSOLIDATED BALANCE SHEETS(in millions,except par value)(Unaudited)January 27,2024July 29,2023ASSETSCurrent assets:Cash and cash equivalents .$13,715$10,123 Investments .11,956 16,023 Accounts receivable,net of allowance of$79 at January 27,2024 and$85 at July 29,2023 .4,884 5,854 Inventories .3,20
15、9 3,644 Financing receivables,net .3,476 3,352 Other current assets .4,887 4,352 Total current assets .42,127 43,348 Property and equipment,net .2,005 2,085 Financing receivables,net .3,364 3,483 Goodwill .39,087 38,535 Purchased intangible assets,net .1,678 1,818 Deferred tax assets .7,338 6,576 Ot
16、her assets .5,575 6,007 TOTAL ASSETS .$101,174$101,852 LIABILITIES AND EQUITYCurrent liabilities:Short-term debt .$4,936$1,733 Accounts payable .1,848 2,313 Income taxes payable .1,876 4,235 Accrued compensation .3,216 3,984 Deferred revenue .14,011 13,908 Other current liabilities .4,964 5,136 Tota
17、l current liabilities .30,851 31,309 Long-term debt .6,669 6,658 Income taxes payable .3,390 5,756 Deferred revenue .11,760 11,642 Other long-term liabilities .2,253 2,134 Total liabilities .54,923 57,499 Commitments and contingencies(Note 14)Equity:Cisco stockholders equity:Preferred stock,$0.001 p
18、ar value:5 shares authorized;none issued and outstanding .Common stock and additional paid-in capital,$0.001 par value:20,000 shares authorized;4,050 and 4,066 shares issued and outstanding at January 27,2024 and July 29,2023,respectively .45,002 44,289 Retained earnings .2,761 1,639 Accumulated oth
19、er comprehensive loss .(1,512)(1,575)Total equity .46,251 44,353 TOTAL LIABILITIES AND EQUITY .$101,174$101,852 See Notes to Consolidated Financial Statements.Table of Contents3CISCO SYSTEMS,INC.CONSOLIDATED STATEMENTS OF OPERATIONS(in millions,except per-share amounts)(Unaudited)Three Months EndedS
20、ix Months EndedJanuary 27,2024January 28,2023January 27,2024January 28,2023REVENUE:Product .$9,232$10,155$20,371$20,400 Service .3,559 3,437 7,088 6,824 Total revenue .12,791 13,592 27,459 27,224 COST OF SALES:Product .3,443 4,038 7,400 8,217 Service .1,131 1,127 2,285 2,234 Total cost of sales .4,5
21、74 5,165 9,685 10,451 GROSS MARGIN .8,217 8,427 17,774 16,773 OPERATING EXPENSES:Research and development .1,943 1,855 3,856 3,636 Sales and marketing .2,458 2,384 4,964 4,775 General and administrative.642 582 1,314 1,147 Amortization of purchased intangible assets .66 71 133 142 Restructuring and
22、other charges .12 243 135 241 Total operating expenses .5,121 5,135 10,402 9,941 OPERATING INCOME .3,096 3,292 7,372 6,832 Interest income .324 219 684 388 Interest expense .(120)(107)(231)(207)Other income(loss),net .(139)11 (222)(123)Interest and other income(loss),net .65 123 231 58 INCOME BEFORE
23、 PROVISION FOR INCOME TAXES .3,161 3,415 7,603 6,890 Provision for income taxes .527 642 1,331 1,447 NET INCOME .$2,634$2,773$6,272$5,443 Net income per share:Basic .$0.65$0.68$1.55$1.33 Diluted .$0.65$0.67$1.54$1.32 Shares used in per-share calculation:Basic .4,055 4,103 4,056 4,105 Diluted .4,073
24、4,116 4,079 4,115 See Notes to Consolidated Financial Statements.Table of Contents4CISCO SYSTEMS,INC.CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME(in millions)(Unaudited)Three Months EndedSix Months EndedJanuary 27,2024January 28,2023January 27,2024January 28,2023Net income .$2,634$2,773$6,272$5,4
25、43 Available-for-sale investments:Change in net unrealized gains and losses,net of tax benefit(expense)of$(73)and$(33)for the second quarter and first six months of fiscal 2024,respectively,and$(66)and$12 for the corresponding periods of fiscal 2023,respectively .229 187 99 (64)Net(gains)losses recl
26、assified into earnings,net of tax(benefit)expense of$(5)and$(9)for the second quarter and first six months of fiscal 2024,respectively,and$0 and$(1)for the corresponding periods of fiscal 2023,respectively .18 3 34 8 247 190 133 (56)Cash flow hedging instruments:Change in unrealized gains and losses
27、,net of tax benefit(expense)of$0 and$(9)for the second quarter and first six months of fiscal 2024,respectively,and$11 and$3 for the corresponding periods of fiscal 2023,respectively .1 (33)30 (9)Net(gains)losses reclassified into earnings,net of tax(benefit)expense of$2 and$5 for the second quarter
28、 and first six months of fiscal 2024,respectively,and$4 and$9 for the corresponding periods of fiscal 2023,respectively .(9)(14)(18)(28)(8)(47)12 (37)Net change in cumulative translation adjustment and actuarial gains and losses net of tax benefit(expense)of$0 and$1 for the second quarter and first
29、six months of fiscal 2024,respectively,and$2 and$24 for the corresponding periods of fiscal 2023,respectively .274 389 (82)129 Other comprehensive income .513 532 63 36 Comprehensive income .$3,147$3,305$6,335$5,479 See Notes to Consolidated Financial Statements.Table of Contents5CISCO SYSTEMS,INC.C
30、ONSOLIDATED STATEMENTS OF CASH FLOWS(in millions)(Unaudited)Six Months EndedJanuary 27,2024January 28,2023Cash flows from operating activities:Net income.$6,272$5,443 Adjustments to reconcile net income to net cash provided by operating activities:Depreciation,amortization,and other .823 853 Share-b
31、ased compensation expense .1,463 1,097 Provision(benefit)for receivables .12 6 Deferred income taxes .(816)(845)(Gains)losses on divestitures,investments and other,net .205 109 Change in operating assets and liabilities,net of effects of acquisitions and divestitures:Accounts receivable .941 1,393 I
32、nventories .442 (569)Financing receivables .(33)834 Other assets .(403)(210)Accounts payable .(476)42 Income taxes,net .(4,656)118 Accrued compensation .(763)(146)Deferred revenue .293 633 Other liabilities .(125)(57)Net cash provided by operating activities .3,179 8,701 Cash flows from investing ac
33、tivities:Purchases of investments .(2,253)(3,797)Proceeds from sales of investments .2,484 587 Proceeds from maturities of investments .4,044 2,316 Acquisitions,net of cash and cash equivalents acquired.(878)(3)Purchases of investments in privately held companies .(50)(70)Return of investments in pr
34、ivately held companies .123 39 Acquisition of property and equipment .(304)(346)Other .(1)(19)Net cash provided by(used in)investing activities .3,165 (1,293)Cash flows from financing activities:Issuances of common stock .349 316 Repurchases of common stockrepurchase program .(2,504)(1,760)Shares re
35、purchased for tax withholdings on vesting of restricted stock units.(581)(310)Short-term borrowings,original maturities of 90 days or less,net .1,398 (602)Issuances of debt .2,537 Repayments of debt.(750)Dividends paid .(3,163)(3,120)Other .(7)(5)Net cash used in financing activities .(2,721)(5,481)
36、Effect of foreign currency exchange rate changes on cash,cash equivalents,restricted cash and restricted cash equivalents .(32)3 Net increase(decrease)in cash,cash equivalents,restricted cash and restricted cash equivalents 3,591 1,930 Cash,cash equivalents,restricted cash and restricted cash equiva
37、lents,beginning of period .11,627 8,579 Cash,cash equivalents,restricted cash and restricted cash equivalents,end of period .$15,218$10,509 Supplemental cash flow information:Cash paid for interest .$203$178 Cash paid for income taxes,net .$6,804$2,172 See Notes to Consolidated Financial Statements.
38、Table of Contents6CISCO SYSTEMS,INC.CONSOLIDATED STATEMENTS OF EQUITY(in millions,except per-share amounts)(Unaudited)Three Months Ended January 27,2024Shares ofCommonStockCommon StockandAdditionalPaid-In CapitalRetained EarningsAccumulatedOtherComprehensive LossTotalEquityBalance at October 28,2023
39、 .4,049$44,546$2,689$(2,025)$45,210 Net income .2,634 2,634 Other comprehensive income(loss).513 513 Issuance of common stock .34 349 349 Repurchase of common stock .(25)(279)(975)(1,254)Shares repurchased for tax withholdings on vesting of restricted stock units and other .(8)(425)(425)Cash dividen
40、ds declared($0.39 per common share).(1,583)(1,583)Share-based compensation .802 802 Other .9 (4)5 Balance at January 27,2024 .4,050$45,002$2,761$(1,512)$46,251 Six Months Ended January 27,2024Shares ofCommonStockCommon StockandAdditionalPaid-In CapitalRetained EarningsAccumulatedOtherComprehensive L
41、ossTotalEquityBalance at July 29,2023 .4,066$44,289$1,639$(1,575)$44,353 Net income .6,272 6,272 Other comprehensive income(loss).63 63 Issuance of common stock .43 349 349 Repurchase of common stock .(48)(528)(1,978)(2,506)Shares repurchased for tax withholdings on vesting of restricted stock units
42、 and other .(11)(581)(581)Cash dividends declared($0.78 per common share).(3,163)(3,163)Share-based compensation .1,463 1,463 Other .10 (9)1 Balance at January 27,2024 .4,050$45,002$2,761$(1,512)$46,251 Table of Contents7CISCO SYSTEMS,INC.CONSOLIDATED STATEMENTS OF EQUITY(in millions,except per-shar
43、e amounts)(Unaudited)Three Months Ended January 28,2023Shares ofCommonStockCommon StockandAdditionalPaid-In CapitalAccumulated DeficitAccumulatedOtherComprehensive LossTotalEquityBalance at October 29,2022 .4,103$42,984$(594)$(2,118)$40,272 Net income .2,773 2,773 Other comprehensive income(loss).53
44、2 532 Issuance of common stock .23 316 316 Repurchase of common stock .(26)(276)(980)(1,256)Shares repurchased for tax withholdings on vesting of restricted stock units and other .(5)(202)(202)Cash dividends declared($0.38 per common share).(1,560)(1,560)Share-based compensation .601 601 Other .1 (3
45、)(2)Balance at January 28,2023 .4,095$43,424$(364)$(1,586)$41,474 Six Months Ended January 28,2023Shares ofCommonStockCommon StockandAdditionalPaid-In CapitalAccumulated DeficitAccumulatedOtherComprehensive LossTotalEquityBalance at July 30,2022 .4,110$42,714$(1,319)$(1,622)$39,773 Net income .5,443
46、 5,443 Other comprehensive income(loss).36 36 Issuance of common stock .30 316 316 Repurchase of common stock .(38)(394)(1,364)(1,758)Shares repurchased for tax withholdings on vesting of restricted stock units and other .(7)(310)(310)Cash dividends declared($0.76 per common share).(3,120)(3,120)Sha
47、re-based compensation .1,097 1,097 Other .1 (4)(3)Balance at January 28,2023 .4,095$43,424$(364)$(1,586)$41,474 Table of Contents8CISCO SYSTEMS,INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Unaudited)1.Organization and Basis of PresentationThe fiscal year for Cisco Systems,Inc.(the“Company,”“Cisco,
48、”“we,”“us,”or“our”)is the 52 or 53 weeks ending on the last Saturday in July.Fiscal 2024 and fiscal 2023 are each 52-week fiscal years.The Consolidated Financial Statements include our accounts and those of our subsidiaries.All intercompany accounts and transactions have been eliminated.We conduct b
49、usiness globally and are primarily managed on a geographic basis in the following three geographic segments:the Americas;Europe,Middle East,and Africa(EMEA);and Asia Pacific,Japan,and China(APJC).We have prepared the accompanying financial data as of January 27,2024 and for the second quarter and fi
50、rst six months of fiscal 2024 and 2023,without audit,pursuant to the rules and regulations of the U.S.Securities and Exchange Commission(SEC).Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles in
51、 the United States(GAAP)have been condensed or omitted pursuant to such rules and regulations.The July 29,2023 Consolidated Balance Sheet was derived from audited financial statements,but does not include all disclosures required by accounting principles generally accepted in the United States.Howev
52、er,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
53、 July 29,2023.In the opinion of management,all normal recurring adjustments necessary to state fairly the consolidated balance sheet as of January 27,2024,the results of operations,the statements of comprehensive income and the statements of equity for the second quarter and first six months of fisc
54、al 2024 and 2023,and the statements of cash flows for the first six months of fiscal 2024 and 2023,as applicable,have been made.The results of operations for the second quarter and first six months of fiscal 2024 are not necessarily indicative of the operating results for the full fiscal year or any
55、 future periods.Our consolidated financial statements include our accounts and investments consolidated under the voting interest model.The noncontrolling interests attributed to these investments are not presented as a separate component in the equity section of the Consolidated Balance Sheets as t
56、hese amounts are not material for any of the fiscal periods presented.The share of earnings attributable to the noncontrolling interests are not presented separately in the Consolidated Statements of Operations as these amounts are not material for any of the fiscal periods presented.Certain reclass
57、ifications have been made to the amounts in prior periods in order to conform to the current periods presentation.We have evaluated subsequent events through the date that the financial statements were issued.2.Recent Accounting Pronouncements(a)Recent Accounting Standards or Updates Not Yet Effecti
58、veSegment Reporting In November 2023,the Financial Accounting Standards Board(FASB)issued an accounting standard update that expands the disclosure requirements for reportable segments,primarily through enhanced disclosures around significant segment expenses.The accounting standard update will be e
59、ffective for our fiscal 2025 Form 10-K on a retrospective basis,and early adoption is permitted.We are currently evaluating the impact of this accounting standard update on our segment disclosures.Improvements on Income Tax Disclosures In December 2023,the FASB issued an accounting standard update e
60、xpanding 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 inco
61、me tax disclosures.Table of Contents93.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 obligatio
62、ns.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
63、 other obligations in the contract.We classify our hardware,perpetual software licenses,and software-as-a-service(SaaS)as distinct performance obligations.Term software licenses represent multiple obligations,which include software licenses and software maintenance.In transactions where we deliver h
64、ardware or software,we are typically the principal and we record revenue and costs of goods sold on a gross basis.We refer to our term software licenses,security software licenses,SaaS,and associated service arrangements as subscription offers.We recognize revenue upon transfer of control of promise
65、d 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
66、 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 l
67、icenses 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 recognize
68、d 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 ra
69、tably 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 h
70、istorical trends in product return rates.The allowance for future sales returns as of January 27,2024 and July 29,2023 was$36 million and$39 million,respectively,and was recorded as a reduction of our accounts receivable and revenue.Significant Judgments Revenue is allocated among these performance
71、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 i
72、s 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 co
73、ntractual 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 in
74、cludes potential contractual penalties and various rebate,cooperative marketing and other incentive programs that we offer to our distributors,channel partners and customers.When determining the amount of revenue to recognize,we estimate the expected usage of these programs,applying the expected val
75、ue 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 crit
76、ical 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 so
77、ftware licenses and are required to maintain the security licenses 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.Table of C
78、ontentsCISCO SYSTEMS,INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)(Unaudited)10(a)Disaggregation of RevenueWe 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
79、,contractual obligations,customer requirements,and go-to-market strategies differ for each of our product categories,resulting in different economic risk profiles for each category.Effective in the first quarter of fiscal 2024,we began reporting our product and service revenue in the following categ
80、ories:Networking,Security,Collaboration,Observability,and Services and conformed our product revenue for prior periods to the current period presentation.The following table presents this disaggregation of revenue(in millions):Three Months EndedSix Months EndedJanuary 27,2024January 28,2023January 2
81、7,2024January 28,2023Product revenue:Networking .$7,081$8,092$15,904$16,123 Security .973 943 1,984 1,914 Collaboration .989 958 2,106 2,044 Observability .188 162 378 319 Total Product .9,232 10,155 20,371 20,400 Services .3,559 3,437 7,088 6,824 Total .$12,791$13,592 27,459 27,224 Amounts may not
82、sum due to rounding.Networking consists of our core networking technologies of switching,routing,wireless,5G,silicon,optics solutions and compute products.These technologies consist of both hardware and software offerings,including software licenses and SaaS.Our hardware and perpetual software in th
83、is 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
84、ratably over the contract term.SaaS arrangements in this category have one distinct performance obligation which is satisfied over time with revenue recognized ratably over the contract term.Security consists of our Cloud and Application Security,Industrial Security,Network Security,and User and Dev
85、ice Security offerings.These products consist of both hardware and software offerings,including software licenses and SaaS.Updates and upgrades for the term software licenses are critical for our software to perform its intended commercial purpose because of the continuous need for our software to s
86、ecure 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 perfor
87、mance obligations where revenue is recognized upfront upon transfer of control.SaaS arrangements in this category have one distinct performance obligation which is satisfied over time with revenue recognized ratably over the contract term.Collaboration consists of our Meetings,Collaboration Devices,
88、Calling,Contact Center and Communication Platform as a Service(CPaaS)offerings.These products consist primarily of software offerings,including software licenses and SaaS,as well as hardware.Our perpetual software and hardware in this category are distinct performance obligations where revenue is re
89、cognized 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 ha
90、ve one distinct performance obligation which is satisfied over time with revenue recognized ratably over the contract term.Observability consists of our full stack observability offerings.These products consist primarily of software offerings,including software licenses and SaaS.Our perpetual softwa
91、re 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 rec
92、ognized 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.Table of ContentsCISCO SYSTEMS,INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)(Unaudited)11
93、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
94、 over time with revenue recognized ratably over the contract term.Advanced services are distinct performance obligations that are satisfied over time with revenue recognized as services are delivered.The sales arrangements as discussed above are typically made pursuant to customer purchase orders ba
95、sed on master purchase or partner agreements.Cash is received based on our standard payment terms which is typically 30 days.We provide financing arrangements to customers for all of our hardware,software and service offerings.Refer to Note 9 for additional information.For these arrangements,cash is
96、 typically received over time.(b)Contract BalancesAccounts ReceivableAccounts receivable,net was$4.9 billion as of January 27,2024 compared to$5.9 billion as of July 29,2023,as reported on the Consolidated Balance Sheets.The allowances for credit loss for our accounts receivable are summarized as fo
97、llows(in millions):Three Months EndedSix Months EndedJanuary 27,2024January 28,2023January 27,2024January 28,2023Allowance for credit loss at beginning of period .$82$88$85$83 Provisions(benefits).9 3 11 14 Recoveries(write-offs),net .(12)(5)(17)(11)Allowance for credit loss at end of period .$79$86
98、$79$86 Contract Assets and LiabilitiesGross contract assets by our internal risk ratings are summarized as follows(in millions):January 27,2024July 29,20231 to 4 .$693$672 5 to 6 .1,042 954 7 and Higher .62 60 Total .$1,797$1,686 Contract assets consist of unbilled receivables and are recorded when
99、revenue is recognized in advance of scheduled billings to our customers.These amounts are primarily related to software and service arrangements where transfer of control has occurred but we have not yet invoiced.Our contract assets for these unbilled receivables,net of allowances,were$1.8 billion a
100、s of January 27,2024 and$1.6 billion as of July 29,2023,and were included in other current assets and other assets.Contract liabilities consist of deferred revenue.Deferred revenue was$25.8 billion as of January 27,2024 compared to$25.6 billion as of July 29,2023.We recognized approximately$3.8 bill
101、ion and$8.4 billion of revenue during the second quarter and first six months of fiscal 2024 that was included in the deferred revenue balance at July 29,2023.(c)Capitalized Contract Acquisition CostsWe capitalize direct and incremental costs incurred to acquire contracts,primarily sales commissions
102、,for which the associated revenue is expected to be recognized in future periods.We incur these costs in connection with both initial contracts and renewals.These costs are initially deferred and typically amortized over the term of the customer contract which corresponds to the period of benefit.Ca
103、pitalized contract acquisition costs were$1.2 billion and$1.1 billion as of January 27,2024 and July 29,2023,respectively,and were included in other current assets and other assets.The amortization expense associated with these costs was$166 million and$324 million for the second quarter and first s
104、ix months fiscal 2024,respectively,and$201 million and$377 million for the corresponding periods of fiscal 2023,respectively,and was included in sales and marketing expenses.Table of ContentsCISCO SYSTEMS,INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)(Unaudited)124.Acquisitions and Divest
105、ituresA summary of the allocation of the total purchase consideration of our completed acquisitions during the first six months of fiscal 2024 is presented as follows(in millions):Purchase ConsiderationNet Tangible Assets Acquired(Liabilities Assumed)Purchased Intangible AssetsGoodwillTotal acquisit
106、ions .$896$(50)$354$592 The total purchase consideration related to our acquisitions completed during the first six months of fiscal 2024 consisted primarily of cash consideration.The total cash and cash equivalents acquired from these acquisitions was approximately$17 million.Total transaction cost
107、s related to acquisition and divestiture activities were$51 million and$3 million for the first six months of fiscal 2024 and 2023,respectively.These transaction costs were expensed as incurred in general and administrative expenses(“G&A”)in the Consolidated Statements of Operations.The purchase pri
108、ce allocation for acquisitions completed during recent periods is preliminary and subject to revision as additional information about fair value of assets and liabilities becomes available.Additional information that existed as of the acquisition date but at that time was unknown to us may become kn
109、own during the remainder of the measurement period,a period not to exceed 12 months from the acquisition date.The goodwill generated from acquisitions completed during the first six months of fiscal 2024 is primarily related to expected synergies.The goodwill is generally not deductible for income t
110、ax purposes.The Consolidated Financial Statements include the operating results of each acquisition from the date of acquisition.Pro forma results of operations and the revenue and net income subsequent to the acquisition date for the acquisitions completed during the first six months of fiscal 2024
111、 have not been presented because the effects of the acquisitions were not material to our financial results.Intent to Acquire Splunk On September 21,2023,we announced our intent to acquire Splunk Inc.(“Splunk”),a public cybersecurity and observability company.Under the terms of the agreement,we have
112、 agreed to pay$157 per share in cash,representing approximately$28 billion in equity value.The acquisition is expected to close late in the first quarter or early in the second quarter of calendar year 2024,subject to regulatory approval and other customary closing conditions.We anticipate this tran
113、saction will be financed with a combination of cash and debt.5.Goodwill and Purchased Intangible Assets(a)Goodwill The following table presents the goodwill allocated to our reportable segments as of January 27,2024 and during the first six months of fiscal 2024(in millions):Balance at July 29,2023A
114、cquisitionsForeign Currency Translation and OtherBalance at January 27,2024Americas .$24,035$367$(25)$24,377 EMEA .9,118 121 (10)9,229 APJC .5,382 104 (5)5,481 Total .$38,535$592$(40)$39,087 Table of ContentsCISCO SYSTEMS,INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)(Unaudited)13(b)Purch
115、ased Intangible AssetsThe following table presents details of our intangible assets acquired through acquisitions completed during the first six months of fiscal 2024(in millions,except years):FINITE LIVESINDEFINITE LIVESTOTAL TECHNOLOGYCUSTOMERRELATIONSHIPSOTHERIPR&DWeighted-Average UsefulLife(in Y
116、ears)AmountWeighted-Average UsefulLife(in Years)AmountWeighted-Average UsefulLife(in Years)AmountAmountAmountTotal acquisitions .4.8$280 4.8$58 1.0$2$14$354 The following tables present details of our purchased intangible assets(in millions):January 27,2024GrossAccumulated AmortizationNetPurchased i
117、ntangible assets with finite lives:Technology.$3,020$(1,791)$1,229 Customer relationships .963 (709)254 Other .42 (27)15 Total purchased intangible assets with finite lives .4,025 (2,527)1,498 In-process research and development,with indefinite lives .180 180 Total .$4,205$(2,527)$1,678 July 29,2023
118、GrossAccumulated AmortizationNetPurchased intangible assets with finite lives:Technology .$2,998$(1,691)$1,307 Customer relationships .1,228 (905)323 Other .40 (22)18 Total purchased intangible assets with finite lives .4,266 (2,618)1,648 In-process research and development,with indefinite lives .17
119、0 170 Total .$4,436$(2,618)$1,818 Purchased intangible assets include intangible assets acquired through acquisitions as well as through direct purchases or licenses.The following table presents the amortization of purchased intangible assets,including impairment charges(in millions):Three Months En
120、dedSix Months EndedJanuary 27,2024January 28,2023January 27,2024January 28,2023Amortization of purchased intangible assets:Cost of sales .$180$158$366$316 Operating expenses .66 71 133 142 Total .$246$229$499$458 Table of ContentsCISCO SYSTEMS,INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued
121、)(Unaudited)14The estimated future amortization expense of purchased intangible assets with finite lives as of January 27,2024 is as follows(in millions):Fiscal YearAmount2024(remaining six months).$440 2025 .$576 2026 .$228 2027 .$143 2028 .$100 Thereafter .$11 6.Restructuring and Other ChargesIn t
122、he third quarter of fiscal 2024,we initiated a restructuring plan(the“Fiscal 2024 Plan”)in order to realign the organization and enable further investment in key priority areas.The Fiscal 2024 Plan will impact approximately 5%of our global workforce,with estimated pretax charges of approximately$800
123、 million.These aggregate pretax charges will be primarily cash-based and consist of severance and other one-time termination benefits and other costs.We expect this plan to be substantially completed during the first half of fiscal 2025.In the second quarter of fiscal 2023,we announced a restructuri
124、ng plan(the“Fiscal 2023 Plan”)in order to rebalance the organization and enable further investment in key priority areas.In connection with the Fiscal 2023 Plan,we incurred charges of$12 million and$135 million for the second quarter and first six months of fiscal 2024,respectively.We incurred charg
125、es of$243 million for the second quarter and first six months of fiscal 2023.Total cumulative charges of$670 million have been recognized to date.These aggregate pretax charges were primarily cash-based and consist of severance and other one-time termination benefits,real estate-related charges,and
126、other costs.We completed the Fiscal 2023 Plan in the second quarter of fiscal 2024.The following table summarizes the activities related to the Fiscal 2023 Plan(in millions):FISCAL 2023 PLANEmployeeSeveranceOtherTotalLiability as of July 29,2023 .$166$44$210 Charges .104 31 135 Cash payments .(222)(
127、8)(230)Non-cash items .(15)(15)Liability as of January 27,2024 .$48$52$100 Table of ContentsCISCO SYSTEMS,INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)(Unaudited)157.Balance Sheet and Other Details The following tables provide details of selected balance sheet and other items(in millions
128、,except percentages):Cash,Cash Equivalents,Restricted Cash and Restricted Cash EquivalentsJanuary 27,2024July 29,2023Cash and cash equivalents .$13,715$10,123 Restricted cash and restricted cash equivalents included in other current assets .565 191 Restricted cash and restricted cash equivalents inc
129、luded in other assets .938 1,313 Total .$15,218$11,627 Our restricted cash and restricted cash equivalents are funds primarily related to contractual obligations with suppliers.InventoriesJanuary 27,2024July 29,2023Raw materials .$1,784$1,685 Work in process .165 264 Finished goods .1,047 1,493 Serv
130、ice-related spares .200 186 Demonstration systems .13 16 Total .$3,209$3,644 Property and Equipment,NetJanuary 27,2024July 29,2023Gross property and equipment:Land,buildings,and building and leasehold improvements .$4,214$4,229 Computer equipment and related software .691 744 Production,engineering,
131、and other equipment .4,466 4,611 Operating lease assets .125 135 Furniture,fixtures and other .339 339 Total gross property and equipment .9,835 10,058 Less:accumulated depreciation and amortization .(7,830)(7,973)Total .$2,005$2,085 Table of ContentsCISCO SYSTEMS,INC.NOTES TO CONSOLIDATED FINANCIAL
132、 STATEMENTS(Continued)(Unaudited)16Remaining Performance Obligations(RPO)January 27,2024July 29,2023Product .$16,249$15,802 Service .19,407 19,066 Total .$35,656$34,868 Short-term RPO .$17,930$17,910 Long-term RPO.17,726 16,958 Total .$35,656$34,868 Amount to be recognized as revenue over the next 1
133、2 months .50%51%Deferred revenue .$25,771$25,550 Unbilled contract revenue .9,885 9,318 Total .$35,656$34,868 Unbilled contract revenue represents noncancelable contracts for which we have not invoiced,have an obligation to perform,and revenue has not yet been recognized in the financial statements.
134、Deferred RevenueJanuary 27,2024July 29,2023Product .$11,640$11,505 Service.14,131 14,045 Total .$25,771$25,550 Reported as:Current .$14,011$13,908 Noncurrent .11,760 11,642 Total .$25,771$25,550 Transition Tax PayableOur income tax payable associated with the one-time U.S.transition tax on accumulat
135、ed earnings for foreign subsidiaries as a result of the Tax Cuts and Jobs Act is as follows(in millions):January 27,2024July 29,2023Current .$1,819$1,364 Noncurrent .2,273 4,092 Total .$4,092$5,456 Table of ContentsCISCO SYSTEMS,INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)(Unaudited)178
136、.Leases(a)Lessee ArrangementsThe following table presents our operating lease balances(in millions):Balance Sheet Line ItemJanuary 27,2024July 29,2023Operating lease right-of-use assets .Other assets$978$971 Operating lease liabilities .Other current liabilities$330$313 Operating lease liabilities .
137、Other long-term liabilities 703 707 Total operating lease liabilities .$1,033$1,020 The components of our lease expenses were as follows(in millions):Three Months EndedSix Months EndedJanuary 27,2024January 28,2023January 27,2024January 28,2023Operating lease expense .$103$98$203$194 Short-term leas
138、e expense .25 17 36 34 Variable lease expense .50 63 106 121 Total lease expense .$178$178$345$349 Supplemental information related to our operating leases is as follows(in millions):Six Months EndedJanuary 27,2024January 28,2023Cash paid for amounts included in the measurement of lease liabilities
139、operating cash flows .$178$192 Right-of-use assets obtained in exchange for operating leases liabilities .$182$149 The weighted-average lease term was 4.6 years as of each of January 27,2024 and July 29,2023.The weighted-average discount rate was 3.7%and 3.1%as of January 27,2024 and July 29,2023,re
140、spectively.The maturities of our operating leases(undiscounted)as of January 27,2024 are as follows(in millions):Fiscal YearAmount2024(remaining six months).$183 2025 .303 2026 .206 2027 .129 2028 .94 Thereafter .231 Total lease payments .1,146 Less interest.(113)Total .$1,033(b)Lessor ArrangementsO
141、ur 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.
142、Interest income was$16 million and$30 million for the second quarter and the first six months of fiscal 2024,respectively,and$12 million and$24 million for the corresponding periods of fiscal 2023,respectively,and was included in interest income in the Consolidated Statement of Operations.The net in
143、vestment 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.Table of ContentsCISCO SYSTEMS,INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)(Unaudi
144、ted)18Future minimum lease payments on our lease receivables as of January 27,2024 are summarized as follows(in millions):Fiscal YearAmount2024(remaining six months).$401 2025 .369 2026 .125 2027 .91 2028 .68 Thereafter .45 Total .1,099 Less:Present value of lease payments .(989)Unearned income .$11
145、0 Actual cash collections may differ from the contractual maturities due to early customer buyouts,refinancings,or defaults.We provide financing of certain equipment through operating leases,and the amounts are included in property and equipment in the Consolidated Balance Sheets.Amounts relating to
146、 equipment on operating lease assets held by us and the associated accumulated depreciation are summarized as follows(in millions):January 27,2024July 29,2023Operating lease assets .$125$135 Accumulated depreciation .(72)(78)Operating lease assets,net .$53$57 Our operating lease income was$15 millio
147、n and$31 million for the second quarter and first six months of fiscal 2024,respectively,and$18 million and$39 million for the corresponding periods of fiscal 2023,respectively,and was included in product revenue in the Consolidated Statements of Operations.Minimum future rentals on noncancelable op
148、erating leases as of January 27,2024 are summarized as follows(in millions):Fiscal YearAmount2024(remaining six months).$12 2025 .16 2026 .9 2027 .1 Total .$38 9.Financing Receivables(a)Financing Receivables Financing receivables primarily consist of loan receivables and lease receivables.Loan recei
149、vables 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 receivab
150、les have terms of one year to three years on average.Lease receivables represent sales-type leases resulting from the sale of Ciscos and complementary third-party products and are typically collateralized by a security interest in the underlying assets.Lease receivables consist of arrangements with
151、terms of four years on average.Table of ContentsCISCO SYSTEMS,INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)(Unaudited)19A summary of our financing receivables is presented as follows(in millions):January 27,2024Loan ReceivablesLease ReceivablesTotalGross.$5,850$1,099$6,949 Residual value
152、 .70 70 Unearned income .(110)(110)Allowance for credit loss .(53)(16)(69)Total,net .$5,797$1,043$6,840 Reported as:Current .$3,066$410$3,476 Noncurrent .2,731 633 3,364 Total,net .$5,797$1,043$6,840 July 29,2023Loan ReceivablesLease ReceivablesTotalGross.$5,910$1,015$6,925 Residual value .70 70 Une
153、arned income .(88)(88)Allowance for credit loss .(53)(19)(72)Total,net .$5,857$978$6,835 Reported as:Current .$2,988$364$3,352 Noncurrent .2,869 614 3,483 Total,net .$5,857$978$6,835(b)Credit Quality of Financing ReceivablesThe tables below present our gross financing receivables,excluding residual
154、value,less unearned income,categorized by our internal credit risk rating by period of origination(in millions):January 27,2024Fiscal YearSix Months EndedInternal Credit Risk RatingPriorJuly 25,2020July 31,2021July 30,2022July 29,2023January 27,2024TotalLoan Receivables:1 to 4 .$24$164$552$783$1,243
155、$1,008$3,774 5 to 6 .6 67 169 256 629 821 1,948 7 and Higher .4 4 12 87 18 3 128 Total Loan Receivables .$34$235$733$1,126$1,890$1,832$5,850 Lease Receivables:1 to 4 .$6$31$71$71$224$215$618 5 to 6 .4 28 41 71 158 53 355 7 and Higher .1 1 2 4 5 3 16 Total Lease Receivables .$11$60$114$146$387$271$98
156、9 Total .$45$295$847$1,272$2,277$2,103$6,839 Table of ContentsCISCO SYSTEMS,INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)(Unaudited)20July 29,2023Fiscal YearInternal Credit Risk RatingPriorJuly 27,2019July 25,2020July 31,2021July 30,2022July 29,2023TotalLoan Receivables:1 to 4 .$10$53$25
157、1$791$1,077$1,784$3,966 5 to 6 .3 14 131 287 465 936 1,836 7 and Higher .1 7 15 17 29 39 108 Total Loan Receivables .$14$74$397$1,095$1,571$2,759$5,910 Lease Receivables:1 to 4 .$2$20$57$111$84$235$509 5 to 6 .2 13 44 58 87 191 395 7 and Higher .1 2 4 5 11 23 Total Lease Receivables .$4$34$103$173$1
158、76$437$927 Total .$18$108$500$1,268$1,747$3,196$6,837 The following tables present the aging analysis of gross receivables as of January 27,2024 and July 29,2023(in millions):DAYS PAST DUE(INCLUDES BILLED AND UNBILLED)January 27,202431-6061-90 91+TotalPast DueCurrentTotal120+Still AccruingNonaccrual
159、FinancingReceivablesImpairedFinancingReceivablesLoan receivables .$55$32$74$161$5,689$5,850$23$8$8 Lease receivables .19 8 21 48 941 989 11 2 2 Total .$74$40$95$209$6,630$6,839$34$10$10 DAYS PAST DUE(INCLUDES BILLED AND UNBILLED)July 29,202331-6061-90 91+TotalPast DueCurrentTotal120+Still AccruingNo
160、naccrualFinancingReceivablesImpairedFinancingReceivablesLoan receivables .$47$20$37$104$5,806$5,910$17$12$12 Lease receivables .16 4 23 43 884 927 6 3 3 Total .$63$24$60$147$6,690$6,837$23$15$15 Past due financing receivables are those that are 31 days or more past due according to their contractual
161、 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 Roll
162、forward The allowances for credit loss and the related financing receivables are summarized as follows(in millions):Three Months Ended January 27,2024CREDIT LOSS ALLOWANCESLoan ReceivablesLease ReceivablesTotalAllowance for credit loss as of October 28,2023 .$58$16$74 Provisions(benefits).(1)(1)Reco
163、veries(write-offs),net .(4)(4)Allowance for credit loss as of January 27,2024 .$53$16$69 Table of ContentsCISCO SYSTEMS,INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)(Unaudited)21Three Months Ended January 28,2023CREDIT LOSS ALLOWANCESLoan ReceivablesLease ReceivablesTotalAllowance for cr
164、edit loss as of October 29,2022 .$101$19$120 Provisions(benefits).(3)(1)(4)Other.(4)1 (3)Allowance for credit loss as of January 28,2023 .$94$19$113 Six Months Ended January 27,2024CREDIT LOSS ALLOWANCESLoan ReceivablesLease ReceivablesTotalAllowance for credit loss as of July 29,2023 .$53$19$72 Pro
165、visions(benefits).4 (3)1 Recoveries(write-offs),net .(4)(4)Allowance for credit loss as of January 27,2024 .$53$16$69 Six Months Ended January 28,2023CREDIT LOSS ALLOWANCESLoan ReceivablesLease ReceivablesTotalAllowance for credit loss as of July 30,2022 .$103$23$126 Provisions(benefits).(4)(4)(8)Ot
166、her.(5)(5)Allowance for credit loss as of January 28,2023 .$94$19$113 10.Investments(a)Summary of Available-for-Sale Debt InvestmentsThe following tables summarize our available-for-sale debt investments(in millions):January 27,2024AmortizedCostGrossUnrealizedGainsGrossUnrealized and Credit LossesFa
167、irValueU.S.government securities .$2,428$3$(34)$2,397 U.S.government agency securities .354 (2)352 Non-U.S.government and agency securities .364 364 Corporate debt securities .5,343 7 (210)5,140 U.S.agency mortgage-backed securities .2,127 1 (197)1,931 Commercial paper .828 828 Certificates of depos
168、it .518 518 Total .$11,962$11$(443)$11,530 Table of ContentsCISCO SYSTEMS,INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)(Unaudited)22July 29,2023AmortizedCostGrossUnrealizedGainsGrossUnrealized and Credit LossesFairValueU.S.government securities .$3,587$1$(62)$3,526 U.S.government agency
169、securities .428 (5)423 Non-U.S.government and agency securities .364 (1)363 Corporate debt securities .7,238 3 (327)6,914 U.S.agency mortgage-backed securities .2,421 14 (230)2,205 Commercial paper .1,484 1,484 Certificates of deposit .677 677 Total .$16,199$18$(625)$15,592 The following table prese
170、nts the gross realized gains and gross realized losses related to available-for-sale debt investments(in millions):Three Months EndedSix Months EndedJanuary 27,2024January 28,2023January 27,2024January 28,2023Gross realized gains .$5$3$5$3 Gross realized losses .(28)(6)(48)(12)Total .$(23)$(3)$(43)$
171、(9)The following tables present the breakdown of the available-for-sale debt investments with gross unrealized losses and the duration that those losses had been unrealized at January 27,2024 and July 29,2023(in millions):UNREALIZED LOSSESLESS THAN 12 MONTHSUNREALIZED LOSSES12 MONTHS OR GREATERTOTAL
172、January 27,2024Fair ValueGrossUnrealizedLossesFair ValueGrossUnrealizedLossesFair ValueGross Unrealized LossesU.S.government securities .$1,145$(9)$550$(25)$1,695$(34)U.S.government agency securities .224 39 (2)263 (2)Non-U.S.government and agency securities .200 200 Corporate debt securities .557 (
173、2)3,527 (178)4,084 (180)U.S.agency mortgage-backed securities .415 (6)1,320 (191)1,735 (197)Commercial paper .10 10 Total .$2,551$(17)$5,436$(396)$7,987$(413)Table of ContentsCISCO SYSTEMS,INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)(Unaudited)23 UNREALIZED LOSSESLESS THAN 12 MONTHSUNRE
174、ALIZED LOSSES12 MONTHS OR GREATERTOTALJuly 29,2023Fair ValueGrossUnrealizedLossesFair ValueGrossUnrealizedLossesFair ValueGross Unrealized LossesU.S.government securities .$2,394$(26)$931$(36)$3,325$(62)U.S.government agency securities .343 (2)72 (3)415 (5)Non-U.S.government and agency securities .3
175、63 (1)363 (1)Corporate debt securities .1,736 (22)4,315 (275)6,051 (297)U.S.agency mortgage-backed securities .658 (13)1,438 (217)2,096 (230)Commercial paper .97 97 Certificates of deposit .2 2 Total .$5,593$(64)$6,756$(531)$12,349$(595)The following table summarizes the maturities of our available-
176、for-sale debt investments as of January 27,2024(in millions):Amortized CostFair ValueWithin 1 year .$3,686$3,642 After 1 year through 5 years .6,149 5,957 Mortgage-backed securities with no single maturity .2,127 1,931 Total .$11,962$11,530 Actual maturities may differ from the contractual maturitie
177、s because borrowers may have the right to call or prepay certain obligations.(b)Summary of Equity InvestmentsWe held marketable equity securities of$426 million and$431 million as of January 27,2024 and July 29,2023,respectively.We recognized a net unrealized gain of$55 million and$17 million during
178、 the second quarter and first six months of fiscal 2024,respectively,and a net unrealized gain of$11 million and a net unrealized loss of$9 million during the corresponding periods of fiscal 2023,respectively,on our marketable securities still held as of the reporting date.Our net adjustments to non
179、-marketable equity securities measured using the measurement alternative still held was a net loss of$134 million for the second quarter and first six months of fiscal 2024,and a net gain of$3 million and a net loss of$8 million for the corresponding periods of fiscal 2023,respectively.We held equit
180、y interests in certain private equity funds of$0.8 billion and$0.9 billion as of January 27,2024 and July 29,2023,respectively,which are accounted for under the NAV practical expedient.In the ordinary course of business,we have investments in privately held companies and provide financing to certain
181、 customers.These privately held companies and customers are evaluated for consolidation under the variable interest or voting interest entity models.We evaluate on an ongoing basis our investments in these privately held companies and our customer financings,and have determined that as of January 27
182、,2024,there were no additional significant variable interest or voting interest entities required to be consolidated in our Consolidated Financial Statements.The carrying value of our investments in privately held companies was$1.6 billion and$1.8 billion as of January 27,2024 and July 29,2023,respe
183、ctively.Of the total carrying value of our investments in privately held companies as of January 27,2024,$0.9 billion of such investments are considered to be in variable interest entities which are unconsolidated.As of January 27,2024,we have total funding commitments of$0.2 billion related to priv
184、ately held investments.The carrying value of these investments and the additional funding commitments,collectively,represent our maximum exposure related to privately held investments.Table of ContentsCISCO SYSTEMS,INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)(Unaudited)2411.Fair Value(a
185、)Assets and Liabilities Measured at Fair Value on a Recurring BasisAssets and liabilities measured at fair value on a recurring basis were as follows(in millions):FAIR VALUE MEASUREMENTSFAIR VALUE MEASUREMENTS Level 1Level 2TotalBalanceLevel 1Level 2TotalBalanceAssets:Cash equivalents:Money market f
186、unds .$10,103$10,103$6,496$6,496 Commercial paper .1,023 1,023 1,090 1,090 Certificates of deposit .2 2 47 47 Corporate debt securities .30 30 25 25 Non-U.S.government and agency securities .7 7 Available-for-sale debt investments:U.S.government securities .2,397 2,397 3,526 3,526 U.S.government age
187、ncy securities .352 352 423 423 Non-U.S.government and agency securities .364 364 363 363 Corporate debt securities .5,140 5,140 6,914 6,914 U.S.agency mortgage-backed securities .1,931 1,931 2,205 2,205 Commercial paper .828 828 1,484 1,484 Certificates of deposit .518 518 677 677 Equity investment
188、s:Marketable equity securities .426 426 431 431 Other current assets:Money market funds .563 563 188 188 Other assets:Money market funds .938 938 1,313 1,313 Derivative assets .50 50 32 32 Total .$12,030$12,642$24,672$8,428$16,786$25,214 Liabilities:Derivative liabilities .$70$70$75$75 Total .$70$70
189、$75$75 JANUARY 27,2024JULY 29,2023Level 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 corrobora
190、ted 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 suc
191、h 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 est
192、imates.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.Table of Contents
193、CISCO SYSTEMS,INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)(Unaudited)25(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
194、 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 un
195、observable inputs such as volatility,rights,and obligations of the securities we hold.(c)Other Fair Value Disclosures The fair value of our short-term loan receivables approximates their carrying value due to their short duration.The aggregate carrying value of our long-term loan receivables as of J
196、anuary 27,2024 and July 29,2023 was$2.7 billion and$2.9 billion,respectively.The estimated fair value of our long-term loan receivables approximates their carrying value.We use unobservable inputs in determining discounted cash flows to estimate the fair value of our long-term loan receivables,and t
197、herefore they are categorized as Level 3.As of January 27,2024,the estimated fair value of our short-term debt approximates its carrying value due to the short maturities.As of January 27,2024,the fair value of our senior notes was$7.9 billion with a carrying amount of$7.7 billion.This compares to a
198、 fair value of$8.7 billion and a carrying amount of$8.4 billion as of July 29,2023.The fair value of the senior notes was determined based on observable market prices in a less active market and was categorized as Level 2.12.Borrowings(a)Short-Term DebtThe following table summarizes our short-term d
199、ebt(in millions,except percentages):January 27,2024July 29,2023 AmountEffective RateAmountEffective RateCurrent portion of long-term debt .$997 6.35%$1,733 4.45%Commercial paper .3,939 5.39%Total .$4,936$1,733 Effective February 6,2024,we increased our borrowing capacity under our existing commercia
200、l paper program from$10.0 billion to$15.0 billion.We use the proceeds from the issuance of commercial paper notes for general corporate purposes.As of February 19,2024,we had approximately$6.9 billion of commercial paper notes outstanding.The effective rates for the short-and long-term debt include
201、the interest on the notes,the accretion of the discount,the issuance costs,and,if applicable,adjustments related to hedging.Table of ContentsCISCO SYSTEMS,INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)(Unaudited)26(b)Long-Term DebtThe following table summarizes our long-term debt(in milli
202、ons,except percentages):January 27,2024July 29,2023 Maturity DateAmountEffective RateAmountEffective RateSenior notes:Fixed-rate notes:2.20%.September 20,2023$750 2.27%3.625%.March 4,2024 1,000 6.35%1,000 6.08%3.50%.June 15,2025 500 6.66%500 6.38%2.95%.February 28,2026 750 3.01%750 3.01%2.50%.Septem
203、ber 20,2026 1,500 2.55%1,500 2.55%5.90%.February 15,2039 2,000 6.11%2,000 6.11%5.50%.January 15,2040 2,000 5.67%2,000 5.67%Total .7,750 8,500 Unaccreted discount/issuance costs .(66)(68)Hedge accounting fair value adjustments .(18)(41)Total .$7,666$8,391 Reported as:Current portion of long-term debt
204、 .$997$1,733 Long-term debt .6,669 6,658 Total .$7,666$8,391 We have entered into interest rate swaps in prior periods with an aggregate notional amount of$1.5 billion designated as fair value hedges of certain of our fixed-rate senior notes.These swaps convert the fixed interest rates of the fixed-
205、rate notes to floating interest rates based on Secured Overnight Financing Rate(SOFR).The gains and losses related to changes in the fair value of the interest rate swaps substantially offset changes in the fair value of the hedged portion of the underlying debt that are attributable to the changes
206、in market interest rates.For additional information,see Note 13.Interest is payable semiannually on each class of the senior fixed-rate notes.Each of the senior fixed-rate notes is redeemable by us at any time,subject to a make-whole premium.The senior notes rank at par with the commercial paper not
207、es that may be issued in the future pursuant to our short-term debt financing program,as discussed above under“(a)Short-Term Debt.”As of January 27,2024,we were in compliance with all debt covenants.As of January 27,2024,future principal payments for long-term debt,including the current portion,are
208、summarized as follows(in millions):Fiscal YearAmount2024(remaining six months).$1,000 2025 .500 2026 .750 2027 .1,500 Thereafter .4,000 Total .$7,750(c)Credit FacilityOn May 13,2021,we entered into a 5-year$3.0 billion unsecured revolving credit agreement,as amended on April 18,2023.On February 2,20
209、24,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
210、interest coverage ratio(defined in the agreement as the ratio of consolidated EBITDA to consolidated interest expense)of not less than 3.0 to 1.0.As of January 27,2024,we were in compliance with all associated covenants and we had not borrowed any funds under our credit agreement.Table of ContentsCI
211、SCO SYSTEMS,INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)(Unaudited)2713.Derivative Instruments(a)Summary of Derivative InstrumentsWe use derivative instruments primarily to manage exposures to foreign currency exchange rate,interest rate,and equity price risks.Our primary objective in h
212、olding 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 see
213、k 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 default
214、s 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 ASSETSDERIVATIVE LIABILITIES Balance Sheet Line ItemJanuary 27,2024July 29,2023Balance Sheet Line Item
215、January 27,2024July 29,2023Derivatives designated as hedging instruments:Foreign currency derivatives .Other current assets$35$22 Other current liabilities$2$Foreign currency derivatives .Other assets 13 9 Other long-term liabilities Interest rate derivatives .Other current assets Other current liab
216、ilities 3 17 Interest rate derivatives .Other assets Other long-term liabilities 15 24 Total .48 31 20 41 Derivatives not designated as hedging instruments:Foreign currency derivatives .Other current assets 2 1 Other current liabilities 37 25 Foreign currency derivatives .Other assets Other long-ter
217、m liabilities 13 9 Total .2 1 50 34 Total .$50$32$70$75 The following amounts were recorded on the Consolidated Balance Sheets related to cumulative basis adjustments for our fair value hedges(in millions):CARRYING AMOUNT OF THE HEDGED ASSETS/(LIABILITIES)CUMULATIVE AMOUNT OF FAIR VALUE HEDGING ADJU
218、STMENT INCLUDED IN THE CARRYING AMOUNT OF THE HEDGED ASSETS/LIABILITIESBalance Sheet Line Item of Hedged ItemJanuary 27,2024July 29,2023January 27,2024July 29,2023Short-term debt .$(997)$(983)$3$17 Long-term debt .$(485)$(476)$15$24 Table of ContentsCISCO SYSTEMS,INC.NOTES TO CONSOLIDATED FINANCIAL
219、STATEMENTS(Continued)(Unaudited)28The effect of derivative instruments designated as fair value hedges,recognized in interest and other income(loss),net is summarized as follows(in millions):Three Months EndedSix Months EndedJanuary 27,2024January 28,2023January 27,2024January 28,2023Interest rate d
220、erivatives:Hedged items .$(14)$(7)$(23)$32 Derivatives designated as hedging instruments .14 7 23 (32)Total .$The effect on the Consolidated Statements of Operations of derivative instruments not designated as hedges is summarized as follows(in millions):GAINS(LOSSES)FOR THE THREE MONTHS ENDEDGAINS(
221、LOSSES)FOR THE SIX MONTHS ENDEDDerivatives Not Designated as Hedging InstrumentsLine Item in Statements of OperationsJanuary 27,2024January 28,2023January 27,2024January 28,2023Foreign currency derivatives .Other income(loss),net$53$140$(77)$68 Total return swapsdeferred compensation .Operating expe
222、nses and other 93 44 16 19 Equity derivatives .Other income(loss),net 5 2 4 Total .$146$189$(59)$91 The notional amounts of our outstanding derivatives are summarized as follows(in millions):January 27,2024July 29,2023Foreign currency derivatives .$6,207$5,419 Interest rate derivatives .1,500 1,500
223、Total return swapsdeferred compensation .879 792 Total .$8,586$7,711(b)Offsetting of Derivative InstrumentsWe 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
224、for net settlement under certain conditions,which are designed to reduce credit risk by permitting net settlement with the same counterparty.To further limit credit risk,we also enter into collateral security arrangements related to certain derivative instruments whereby cash is posted as collateral
225、 between the counterparties based on the fair market value of the derivative instrument.Under these collateral security arrangements,the net cash collateral provided for was$13 million and$40 million as of January 27,2024 and July 29,2023,respectively.(c)Foreign Currency Exchange RiskWe conduct busi
226、ness globally in numerous currencies.Therefore,we are exposed to adverse movements in foreign currency exchange rates.To limit the exposure related to foreign currency changes,we enter into foreign currency contracts.We do not enter into such contracts for speculative purposes.We hedge forecasted fo
227、reign 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 instruments gai
228、n 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.Table of ContentsCISCO SYSTEMS,INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)(Unaudited)29We enter into forei
229、gn 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 con
230、tracts 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 oper
231、ations 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 RiskWe hold interest rate swaps designated as fair value hedges related
232、 to fixed-rate senior notes that are due in fiscal 2024 through 2025.Under these interest rate swaps,we receive fixed-rate interest payments and make interest payments based on SOFR plus a fixed number of basis points.The effect of such swaps is to convert the fixed interest rates of the senior fixe
233、d-rate notes to floating interest rates based on SOFR.The gains and losses related to changes in the fair value of the interest rate swaps are included in interest expense and substantially offset changes in the fair value of the hedged portion of the underlying debt that are attributable to the cha
234、nges in market interest rates.(e)Equity Price Risk We hold marketable equity securities in our portfolio that are subject to price risk.To diversify our overall portfolio,we also hold equity derivatives that are not designated as accounting hedges.The change in the fair value of each of these invest
235、ment types are included in other income(loss),net.We are also exposed to variability in compensation charges related to certain deferred compensation obligations to employees and directors.Although not designated as accounting hedges,we utilize derivatives such as total return swaps to economically
236、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 produc
237、ts.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 defin
238、ing our requirements.A significant portion of our reported purchase commitments arising from these agreements consists of firm,noncancelable,and unconditional commitments.Certain of these inventory purchase commitments with contract manufacturers and suppliers relate to arrangements to secure supply
239、 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 commitment
240、s with contract manufacturers and suppliers by period(in millions):January 27,2024July 29,2023Less than 1 year .$4,711$5,270 1 to 3 years .1,456 1,783 3 to 5 years .26 200 Total .$6,193$7,253 We record a liability for firm,noncancelable,and unconditional purchase commitments for quantities in excess
241、 of our future demand forecasts consistent with the valuation of our excess and obsolete inventory.As of January 27,2024 and July 29,2023,the liability for these purchase commitments was$538 million and$529 million,respectively,and was included in other current liabilities.Table of ContentsCISCO SYS
242、TEMS,INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)(Unaudited)30(b)Other CommitmentsIn connection with our acquisitions,we have agreed to pay certain additional amounts contingent upon the achievement of certain agreed-upon technology,development,product,or other milestones or upon the co
243、ntinued employment with Cisco of certain employees of the acquired entities.The following table summarizes the compensation expense related to acquisitions(in millions):Three Months EndedSix Months EndedJanuary 27,2024January 28,2023January 27,2024January 28,2023Compensation expense related to acqui
244、sitions .$45$49$94$123 As of January 27,2024,we estimated that future cash compensation expense of up to$397 million may be required to be recognized pursuant to the applicable business combination agreements.We also have certain funding commitments,primarily related to our privately held investment
245、s.The funding commitments were$0.2 billion and$0.3 billion as of January 27,2024 and July 29,2023,respectively.(c)Product WarrantiesThe following table summarizes the activity related to the product warranty liability(in millions):Six Months EndedJanuary 27,2024January 28,2023Balance at beginning of
246、 period .$329$333 Provisions for warranties issued .198 188 Adjustments for pre-existing warranties.5 13 Settlements .(205)(218)Balance at end of period .$327$316 We accrue for warranty costs as part of our cost of sales based on associated material product costs,labor costs for technical support st
247、aff,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 GuaranteesIn the ordinary course of business,we provide financing guarantees for various thi
248、rd-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 o
249、f revolving short-term financing,with payment terms generally ranging from 60 to 90 days.These financing arrangements facilitate the working capital requirements of the channel partners,and,in some cases,we guarantee a portion of these arrangements.The volume of channel partner financing was$6.6 bil
250、lion and$7.5 billion for the second quarter of fiscal 2024 and 2023,respectively,and$14.8 billion and$15.1 billion for the first six months of fiscal 2024 and 2023,respectively.The balance of the channel partner financing subject to guarantees was$1.3 billion and$1.7 billion as of January 27,2024 an
251、d July 29,2023,respectively.Financing Guarantee Summary The aggregate amounts of channel partner financing guarantees outstanding at January 27,2024 and July 29,2023,representing the total maximum potential future payments under financing arrangements with third parties along with the related deferr
252、ed revenue,are summarized in the following table(in millions):January 27,2024July 29,2023Maximum potential future payments .$138$159 Deferred revenue .(23)(34)Total .$115$125 Table of ContentsCISCO SYSTEMS,INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)(Unaudited)31(e)IndemnificationsIn th
253、e 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 intellectu
254、al 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 indemnificat
255、ion 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
256、 a material effect on our Consolidated Financial Statements.In addition,we have entered into indemnification agreements with our officers and directors,and our Amended and Restated Bylaws contain similar indemnification obligations to our agents.(f)Legal ProceedingsBrazil Brazilian authorities have
257、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
258、 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 Sa
259、o Paulo have asserted similar claims on the same legal basis in prior fiscal years.The asserted claims by Brazilian federal tax authorities are for calendar years 2003 through 2007,and the asserted claims by the tax authorities from the state of Sao Paulo are for calendar years 2005 through 2007.The
260、 total asserted claims by Brazilian state and federal tax authorities aggregate to$165 million for the alleged evasion of import and other taxes,$929 million for interest,and$373 million for various penalties,all determined using an exchange rate as of January 27,2024.We have completed a thorough re
261、view 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
262、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.Cen
263、tripetal On February 13,2018,Centripetal Networks,Inc.(“Centripetal”)asserted patent infringement claims against us in the U.S.District Court for the Eastern District of Virginia,alleging that several of our products and services infringe eleven Centripetal U.S.patents.After two bench trials and var
264、ious administrative actions and appeals,we have been found either to not have infringed any of the patents or the patents have been invalidated.There is an appeal of one of the invalidity decisions and we expect a further appeal by Centripetal.Between April 2020 and February 2022,Centripetal also fi
265、led complaints in the District Court of Dusseldorf in Germany(“German Court”),asserting a total of five patents and one utility model.Centripetal sought damages and injunctive relief in all cases.In various proceedings in 2021,2022,and 2023,we have been found to have not infringe three patents,one p
266、atent was invalidated,the utility model was invalidated,and the infringement action on the final patent is stayed due to a pending invalidity action.There are appeals pending and the next proceeding is expected in the second half of fiscal 2024.On July 10,2023,Centripetal filed a complaint in the Pa
267、ris Judiciary Court asserting the French counterpart of a European Patent.Centripetal seeks damages and injunctive relief in the case.Centripetal previously asserted the German counterpart of the same European Patent in Germany and the German Court rejected Centripetals complaint finding no infringe
268、ment.We have filed our response and defenses to the complaint and the next proceedings are expected in the second half of fiscal 2024.Due to uncertainty surrounding patent litigation processes in the U.S.and Europe,we are unable to reasonably estimate the ultimate outcome of the litigations at this
269、time.If we do not prevail in these litigations,we believe that any damages ultimately assessed would not have a material effect on our Consolidated Financial Statements.Ramot On June 12,2019 and on February 26,2021,Ramot at Tel Aviv University Ltd.(“Ramot”)asserted patent infringement claims against
270、 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 infr
271、inge three patents.We challenged the Table of ContentsCISCO SYSTEMS,INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)(Unaudited)32validity 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,Ci
272、sco and Acacia filed two declaratory judgment actions of noninfringement against Ramot in D.Del on other Ramot patents.The next proceedings are expected in the first half of fiscal 2025.While we believe that we have strong non-infringement and invalidity arguments in these litigations,and that Ramot
273、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 asses
274、sed would not have a material effect on our Consolidated Financial Statements.Egenera On August 8,2016,Egenera,Inc.(“Egenera”)asserted infringement claims against us in the U.S.District Court for the District of Massachusetts,alleging that Ciscos Unified Computing System Manager infringes three pate
275、nts.Egenera sought damages,including enhanced damages,and an injunction.Two of the asserted patents were dismissed,leaving Egeneras infringement claim based on one asserted patent.On March 25,2022,the PTO preliminarily found all of the asserted claims of the remaining patent unpatentable in ex parte
276、 reexamination proceedings.On August 15,2022,after a jury trial for the remaining patent,the jury returned a verdict in favor of Cisco.The District Court denied Egeneras post-trial motions,and Egenera filed an appeal to the Federal Circuit on January 13,2023 and the next proceedings are expected in
277、the second half of fiscal 2024.Viasat On November 6,2019,Viasat,Inc.(“Viasat”)filed suit against Acacia in the California Superior Court for San Diego County(“SDSC”),alleging contract and trade secret claims for certain Acacia products sold from January 1,2019 forward.On June 9,2020,Viasat filed ano
278、ther suit in SDSC alleging contract and trade secret claims for sales of additional Acacia products.Both matters have been formally dismissed and resolved through a settlement for an amount that did not have a material effect on our Consolidated Financial Statements.In addition to the above matters,
279、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 materi
280、al effect on our Consolidated Financial Statements.For additional information regarding intellectual property litigation,see“Part II,Item 1A.Risk FactorsWe may be found to infringe on intellectual property rights of others”herein.15.Stockholders Equity(a)Stock Repurchase ProgramIn September 2001,our
281、 Board of Directors authorized a stock repurchase program.As of January 27,2024,the remaining authorized amount for stock repurchases under this program was approximately$8.4 billion with no termination date.The stock repurchase activity for fiscal 2024 and 2023 under the stock repurchase program,re
282、ported based on the trade date,is summarized as follows(in millions,except per-share amounts):Quarter EndedSharesWeighted-Average Price per ShareAmountFiscal 2024January 27,2024 .25$49.54$1,254 October 28,2023 .23$54.53$1,252 Fiscal 2023July 29,2023 .25$50.49$1,254 April 29,2023 .25$49.45$1,259 Janu
283、ary 28,2023 .26$47.72$1,256 October 29,2022 .12$43.76$502 There were stock repurchases of$50 million and$48 million that were pending settlement as of January 27,2024 and July 29,2023,respectively.The purchase price for the shares of our stock repurchased is reflected as a reduction to stockholders
284、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.Table of ContentsCISCO SYSTEMS,INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(
285、Continued)(Unaudited)33(b)Dividends DeclaredOn February 14,2024,our Board of Directors declared a quarterly dividend of$0.40 per common share to be paid on April 24,2024,to all stockholders of record as of the close of business on April 4,2024.Future dividends will be subject to the approval of our
286、Board of Directors.(c)Preferred StockUnder 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 v
287、oting powers(if any),preferences and relative,participating,optional or other special rights,if any,of such series,and any qualifications,limitations or restrictions thereof,of the shares of such series.As of January 27,2024,we had not issued any shares of preferred stock.16.Employee Benefit Plans (
288、a)Employee Stock Incentive PlansWe 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-bas
289、ed 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 regulation
290、s,and other factors.Our primary stock incentive plan is summarized as follows:The 2005 Plan provides for the granting of stock options,stock grants,stock units and stock appreciation rights(SARs),the vesting of which may be time-based or upon satisfaction of performance goals,or both,and/or other co
291、nditions.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 reaso
292、n,and is currently set to terminate at the 2030 Annual Meeting unless re-adopted or extended by our stockholders prior to or on such date.Under the 2005 Plans 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
293、 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 restr
294、icted 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 share
295、s,if any,that counted against shares available for issuance under the 2005 Plan at the time of grant as a result of the application of the share ratio described above,will become available again for issuance under the 2005 Plan.As of January 27,2024,156 million shares were authorized for future gran
296、t under the 2005 Plan.(b)Employee Stock Purchase PlanWe 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
297、 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 issuanc
298、e under the Employee Stock Purchase Plan are sold pursuant to exercised purchase rights.Under the Employee Stock Purchase Plan,we issued 10 million shares during the second quarter and first six months of fiscal 2024 and 9 million shares during the second quarter and first six months of fiscal 2023.
299、As of January 27,2024,78 million shares were available for issuance under the Employee Stock Purchase Plan.Table of ContentsCISCO SYSTEMS,INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)(Unaudited)34(c)Summary of Share-Based Compensation ExpenseShare-based compensation expense consists prim
300、arily of expenses for RSUs and stock purchase rights,granted to employees or assumed from acquisitions.The following table summarizes share-based compensation expense(in millions):Three Months EndedSix Months EndedJanuary 27,2024January 28,2023January 27,2024January 28,2023Cost of salesproduct .$58$
301、40$100$71 Cost of salesservice .81 66 142 116 Share-based compensation expense in cost of sales .139 106 242 187 Research and development .344 261 618 465 Sales and marketing .221 166 407 319 General and administrative .97 71 187 129 Restructuring and other charges .1 (3)9 (3)Share-based compensatio
302、n expense in operating expenses .663 495 1,221 910 Total share-based compensation expense .$802$601$1,463$1,097 Income tax benefit for share-based compensation .$202$109$345$208 As of January 27,2024,the total compensation cost related to unvested share-based awards not yet recognized was$5.4 billio
303、n which is expected to be recognized over approximately 2.2 years on a weighted-average basis.(d)Restricted Stock Unit Awards A summary of the restricted stock and stock unit activity,which includes time-based and performance-based or market-based RSUs,is as follows(in millions,except per-share amou
304、nts):Unvested balance at July 30,2022 .97$46.67 Granted and assumed .72 42.08 Vested .(39)46.69$1,746 Canceled/forfeited/other .(8)45.17 Unvested balance at July 29,2023 .122$44.04 Granted and assumed .48 50.58 Vested .(34)42.87$1,733 Canceled/forfeited/other .(4)44.50 Unvested balance at January 27
305、,2024 .132$46.69 Restricted Stock/Stock UnitsWeighted-AverageGrant Date FairValue per ShareAggregate Fair ValueTable of ContentsCISCO SYSTEMS,INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)(Unaudited)3517.Comprehensive Income(Loss)The components of AOCI,net of tax,and the other comprehensi
306、ve income(loss),for the first six months of fiscal 2024 and 2023 are summarized as follows(in millions):Net Unrealized Gains(Losses)on Available-for-Sale InvestmentsNet Unrealized Gains(Losses)Cash Flow Hedging InstrumentsCumulative Translation Adjustment and Actuarial Gains(Losses)Accumulated Other
307、 Comprehensive Income(Loss)Balance at July 29,2023 .$(440)$18$(1,153)$(1,575)Other comprehensive income(loss)before reclassifications .132 39 (81)90(Gains)losses reclassified out of AOCI .43 (23)(2)18 Tax benefit(expense).(42)(4)1 (45)Balance at January 27,2024 .$(307)$30$(1,235)$(1,512)Net Unrealiz
308、ed Gains(Losses)on Available-for-Sale InvestmentsNet Unrealized Gains(Losses)Cash Flow Hedging InstrumentsCumulative Translation Adjustment and Actuarial Gains(Losses)Accumulated Other Comprehensive Income(Loss)Balance at July 30,2022 .$(379)$44$(1,287)$(1,622)Other comprehensive income(loss)before
309、reclassifications .(76)(12)106 18(Gains)losses reclassified out of AOCI .9 (37)(1)(29)Tax benefit(expense).11 12 24 47 Balance at January 28,2023 .$(435)$7$(1,158)$(1,586)Table of ContentsCISCO SYSTEMS,INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)(Unaudited)3618.Income TaxesThe following
310、 table provides details of income taxes(in millions,except percentages):Three Months EndedSix Months EndedJanuary 27,2024January 28,2023January 27,2024January 28,2023Income before provision for income taxes .$3,161$3,415$7,603$6,890 Provision for income taxes .$527$642$1,331$1,447 Effective tax rate
311、 .16.7%18.8%17.5%21.0%As of January 27,2024,we had$2.0 billion of unrecognized tax benefits,of which$1.6 billion,if recognized,would favorably impact the effective tax rate.We regularly engage in discussions and negotiations with tax authorities regarding tax matters in various jurisdictions.We beli
312、eve it is reasonably possible that certain federal,foreign,and state tax matters may be concluded in the next 12 months.Specific positions that may be resolved include issues involving transfer pricing and various other matters.19.Segment Information and Major Customers(a)Revenue and Gross Margin by
313、 SegmentWe conduct business globally and are primarily managed on a geographic basis consisting of three segments:the Americas,EMEA,and APJC.Our management makes financial decisions and allocates resources based on the information it receives from our internal management system.Sales are attributed
314、to a segment based on the ordering location of the customer.We do not allocate research and development,sales and marketing,or general and administrative expenses to our segments in this internal management system because management does not include the information in our measurement of the performa
315、nce 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 char
316、ges to the gross margin for each segment because management does not include this information in our measurement of the performance of the operating segments.Summarized financial information by segment for the second quarter and first six months of fiscal 2024 and 2023,based on our internal manageme
317、nt system and as utilized by our Chief Operating Decision Maker(“CODM”),is as follows(in millions):Three Months EndedSix Months EndedJanuary 27,2024January 28,2023January 27,2024January 28,2023Revenue:Americas .$7,510$7,825$16,532$15,738 EMEA .3,484 3,728 7,148 7,404 APJC.1,798 2,039 3,779 4,082 Tot
318、al .$12,791$13,592$27,459$27,224 Gross margin:Americas .$4,932$4,920$10,901$9,904 EMEA .2,373 2,469 4,919 4,795 APJC.1,226 1,298 2,554 2,571 Segment total .8,532 8,687 18,373 17,269 Unallocated corporate items .(315)(260)(599)(496)Total .$8,217$8,427$17,774$16,773 Amounts may not sum due to rounding
319、.Revenue in the United States was$6.7 billion and$7.0 billion for the second quarter of fiscal 2024 and 2023,respectively and$14.9 billion and$14.0 billion for the first six months of fiscal 2024 and 2023,respectively.Table of ContentsCISCO SYSTEMS,INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Cont
320、inued)(Unaudited)37(b)Revenue for Groups of Similar Products and ServicesWe design and sell Internet Protocol(IP)-based networking and other products related to the communications and IT industry and provide services associated with these products and their use.Effective in the first quarter of fisc
321、al 2024,we began reporting our product and service revenue in the following categories:Networking,Security,Collaboration,Observability,and Services and conformed our product revenue for prior periods to the current period presentation.The following table presents revenue for groups of similar produc
322、ts and services(in millions):Three Months EndedSix Months EndedJanuary 27,2024January 28,2023January 27,2024January 28,2023Revenue:Networking .$7,081$8,092$15,904$16,123 Security .973 943 1,984 1,914 Collaboration .989 958 2,106 2,044 Observability .188 162 378 319 Total Product .9,232 10,155 20,371
323、 20,400 Services .3,559 3,437 7,088 6,824 Total .$12,791$13,592$27,459$27,224 Amounts may not sum due to rounding.20.Net Income per ShareThe following table presents the calculation of basic and diluted net income per share(in millions,except per-share amounts):Three Months EndedSix Months EndedJanu
324、ary 27,2024January 28,2023January 27,2024January 28,2023Net income .$2,634$2,773$6,272$5,443 Weighted-average sharesbasic .4,055 4,103 4,056 4,105 Effect of dilutive potential common shares .18 13 23 10 Weighted-average sharesdiluted .4,073 4,116 4,079 4,115 Net income per sharebasic .$0.65$0.68$1.5
325、5$1.33 Net income per sharediluted .$0.65$0.67$1.54$1.32 Antidilutive employee share-based awards,excluded .58 17 56 91 Table of ContentsCISCO SYSTEMS,INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)(Unaudited)38Item 2.Managements Discussion and Analysis of Financial Condition and Results o
326、f OperationsForward-Looking StatementsThis Quarterly Report on Form 10-Q,including this Managements Discussion and Analysis of Financial Condition and Results of Operations,contains forward-looking statements regarding future events and our future results that are subject to the safe harbors created
327、 under the Securities Act of 1933,as amended(the“Securities Act”),and the Securities Exchange Act of 1934,as amended(the“Exchange Act”).All statements other than statements of historical facts are statements that could be deemed forward-looking statements.These statements are based on current expect
328、ations,estimates,forecasts,and projections about the industries in which we operate and the beliefs and assumptions of our management.Words such as“expects,”“anticipates,”“targets,”“goals,”“projects,”“intends,”“plans,”“believes,”“momentum,”“seeks,”“estimates,”“continues,”“endeavors,”“strives,”“may,”
329、variations of such words,and similar expressions are intended to identify such forward-looking statements.In addition,any statements that refer to projections of our future financial performance,our anticipated growth and trends in our businesses,and other characterizations of future events or circu
330、mstances are forward-looking statements.Readers are cautioned that these forward-looking statements are only predictions and are subject to risks,uncertainties,and assumptions that are difficult to predict,including those under“Part II,Item 1A.Risk Factors,”and elsewhere herein.Therefore,actual resu
331、lts may differ materially and adversely from those expressed in any forward-looking statements.We undertake no obligation to revise or update any forward-looking statements for any reason.OVERVIEWCisco designs and sells a broad range of technologies that power the Internet.We are integrating our pro
332、duct portfolios across networking,security,collaboration,applications and the cloud to create highly secure,intelligent platforms for our customers digital businesses.These platforms are designed to help our customers manage more users,devices and things connecting to their networks.This will enable
333、 us to provide customers with a highly secure,intelligent platform for their digital business.A summary of our results is as follows(in millions,except percentages and per-share amounts):Three Months EndedSix Months EndedJanuary 27,2024January 28,2023%VarianceJanuary 27,2024January 28,2023%VarianceRevenue .$12,791$13,592 (6)%$27,459$27,224 1%Gross margin percentage .64.2%62.0%2.2 pts 64.7%61.6%3.1