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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-Q
(Mark One)
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 |
For the quarterly period ended October 30, 2021
or
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 |
For the transition period from
to
Commission file number 001-39940
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CISCO SYSTEMS, INC.
(Exact name of registrant as specified in its charter)
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Delaware |
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77-0059951 |
(State or other jurisdiction of
incorporation or organization) |
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(I.R.S. Employer
Identification Number) |
170 West Tasman Drive
San Jose, California 95134
(Address of principal executive office and zip code)
(408) 526-4000
(Registrant’s 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:
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Title of each class |
Trading Symbol(s) |
Name of each exchange on which registered |
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Common Stock, par value $0.001 per share |
CSCO |
The Nasdaq Stock Market LLC |
Indicate 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 preceding 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 submitted
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 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.
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Large accelerated filer |
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☒ |
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Accelerated filer |
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☐ |
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Non-accelerated filer |
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☐ |
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Smaller reporting company |
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☐ |
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Emerging growth company |
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☐ |
If 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 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 registrant’s common stock outstanding as of
November 18, 2021: 4,217,606,555
____________________________________
Cisco Systems, Inc.
Form 10-Q for the Quarter Ended October 30, 2021
INDEX
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Page |
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Part I |
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Item 1. |
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Item 2. |
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Item 3. |
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Item 4. |
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Part II. |
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Item 1. |
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Item 1A. |
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Item 2. |
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Item 3. |
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Item 4. |
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Item 5. |
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Item 6. |
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PART I. FINANCIAL INFORMATION
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Item 1. |
Financial Statements (Unaudited) |
CISCO SYSTEMS, INC.
CONSOLIDATED BALANCE SHEETS
(in millions, except par value)
(Unaudited)
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October 30, 2021 |
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July 31, 2021 |
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ASSETS |
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Current assets: |
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Cash and cash equivalents |
$ |
7,619 |
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$ |
9,175 |
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Investments |
15,727 |
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|
15,343 |
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Accounts receivable, net of allowance of $114 at October 30,
2021 and $109 at July 31, 2021
|
5,306 |
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5,766 |
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Inventories |
1,832 |
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|
1,559 |
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Financing receivables, net |
4,070 |
|
|
4,380 |
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Other current assets |
3,034 |
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|
2,889 |
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Total current assets |
37,588 |
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|
39,112 |
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Property and equipment, net |
2,238 |
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|
2,338 |
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Financing receivables, net |
4,546 |
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|
4,884 |
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Goodwill |
38,802 |
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38,168 |
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Purchased intangible assets, net |
3,350 |
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3,619 |
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Deferred tax assets |
4,198 |
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4,360 |
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Other assets |
5,259 |
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|
5,016 |
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TOTAL ASSETS |
$ |
95,981 |
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$ |
97,497 |
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LIABILITIES AND EQUITY |
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Current liabilities: |
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Short-term debt |
$ |
506 |
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$ |
2,508 |
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Accounts payable |
2,261 |
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2,362 |
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Income taxes payable |
816 |
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|
801 |
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Accrued compensation |
3,231 |
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|
3,818 |
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Deferred revenue |
12,017 |
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|
12,148 |
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Other current liabilities |
4,407 |
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|
4,620 |
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Total current liabilities |
23,238 |
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26,257 |
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Long-term debt |
8,996 |
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9,018 |
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Income taxes payable |
8,553 |
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8,538 |
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Deferred revenue |
10,055 |
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|
10,016 |
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Other long-term liabilities |
2,438 |
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|
2,393 |
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Total liabilities |
53,280 |
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|
56,222 |
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Commitments and contingencies (Note 14) |
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Equity: |
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Cisco stockholders’ equity: |
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Preferred stock, $0.001 par value: 5 shares authorized; none issued
and outstanding
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— |
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— |
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Common stock and additional paid-in capital, $0.001 par value:
20,000 shares authorized; 4,217 shares issued and outstanding
as of each of October 30, 2021 and July 31,
2021
|
42,621 |
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42,346 |
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Retained earnings (Accumulated deficit) |
553 |
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(654) |
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Accumulated other comprehensive loss |
(473) |
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(417) |
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Total equity |
42,701 |
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|
41,275 |
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TOTAL LIABILITIES AND EQUITY |
$ |
95,981 |
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$ |
97,497 |
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See Notes to Consolidated Financial Statements.
CISCO SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in millions, except per-share amounts)
(Unaudited)
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Three Months Ended |
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October 30, 2021 |
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October 24, 2020 |
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REVENUE: |
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Product |
$ |
9,529 |
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$ |
8,587 |
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Service |
3,371 |
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3,342 |
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Total revenue |
12,900 |
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11,929 |
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COST OF SALES: |
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Product |
3,673 |
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3,206 |
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Service |
1,174 |
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1,142 |
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Total cost of sales |
4,847 |
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|
4,348 |
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GROSS MARGIN |
8,053 |
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7,581 |
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OPERATING EXPENSES: |
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Research and development |
1,714 |
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|
1,612 |
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Sales and marketing |
2,261 |
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2,217 |
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General and administrative |
551 |
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544 |
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Amortization of purchased intangible assets |
84 |
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36 |
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Restructuring and other charges |
5 |
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602 |
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Total operating expenses |
4,615 |
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|
5,011 |
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OPERATING INCOME |
3,438 |
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2,570 |
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Interest income |
121 |
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|
174 |
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Interest expense |
(89) |
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(112) |
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Other income (loss), net |
187 |
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49 |
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Interest and other income (loss), net |
219 |
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111 |
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INCOME BEFORE PROVISION FOR INCOME TAXES |
3,657 |
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2,681 |
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Provision for income taxes |
677 |
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|
507 |
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NET INCOME |
$ |
2,980 |
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$ |
2,174 |
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Net income per share: |
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Basic |
$ |
0.71 |
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$ |
0.51 |
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Diluted |
$ |
0.70 |
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$ |
0.51 |
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Shares used in per-share calculation: |
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Basic |
4,218 |
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4,230 |
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Diluted |
4,243 |
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4,244 |
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See Notes to Consolidated Financial Statements.
CISCO SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(in millions)
(Unaudited)
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Three Months Ended |
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October 30, 2021 |
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October 24, 2020 |
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Net income |
$ |
2,980 |
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$ |
2,174 |
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Available-for-sale investments: |
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Change in net unrealized gains and losses, net of tax benefit
(expense) of $28 and $17 for the first quarter of fiscal 2022 and
2021, respectively
|
(83) |
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(24) |
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Net (gains) losses reclassified into earnings, net of tax (benefit)
expense of $2 and $5 for the first quarter of fiscal 2022 and 2021,
respectively
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(4) |
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(10) |
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(87) |
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(34) |
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Cash flow hedging instruments: |
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Change in unrealized gains and losses, net of tax benefit (expense)
of $(1) and $0 for the first quarter of fiscal 2022 and 2021,
respectively
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7 |
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(2) |
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Net (gains) losses reclassified into earnings, net of tax (benefit)
expense of $0 and $1 for the first quarter of fiscal 2022 and 2021,
respectively
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(1) |
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(1) |
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6 |
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(3) |
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Net change in cumulative translation adjustment and actuarial gains
and losses net of tax benefit (expense) of $9 and $(1) for the
first quarter of fiscal 2022 and 2021, respectively
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25 |
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|
109 |
|
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Other comprehensive income (loss) |
(56) |
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|
72 |
|
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Comprehensive income |
$ |
2,924 |
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$ |
2,246 |
|
See Notes to Consolidated Financial Statements.
CISCO SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in millions)
(Unaudited)
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Three Months Ended |
|
October 30, 2021 |
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October 24, 2020 |
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Cash flows from operating activities: |
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Net income |
$ |
2,980 |
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$ |
2,174 |
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Adjustments to reconcile net income to net cash provided by
operating activities: |
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Depreciation, amortization, and other |
533 |
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|
451 |
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Share-based compensation expense |
453 |
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|
438 |
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Provision (benefit) for receivables |
1 |
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13 |
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Deferred income taxes |
(98) |
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(120) |
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(Gains) losses on divestitures, investments and other,
net |
(211) |
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(59) |
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Change in operating assets and liabilities, net of effects of
acquisitions and divestitures: |
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Accounts receivable |
427 |
|
|
1,526 |
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Inventories |
(275) |
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|
(21) |
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Financing receivables |
672 |
|
|
167 |
|
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Other assets |
(170) |
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(259) |
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Accounts payable |
(93) |
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73 |
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Income taxes, net |
17 |
|
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(84) |
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Accrued compensation |
(585) |
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|
(165) |
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Deferred revenue |
(95) |
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|
(45) |
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Other liabilities |
(129) |
|
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7 |
|
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Net cash provided by operating activities |
3,427 |
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|
4,096 |
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Cash flows from investing activities: |
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Purchases of investments |
(2,951) |
|
|
(3,756) |
|
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Proceeds from sales of investments |
580 |
|
|
657 |
|
|
Proceeds from maturities of investments |
1,856 |
|
|
1,425 |
|
|
Acquisitions, net of cash and cash equivalents acquired and
divestitures |
(336) |
|
|
(830) |
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Purchases of investments in privately held companies |
(101) |
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|
(68) |
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Return of investments in privately held companies |
53 |
|
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29 |
|
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Acquisition of property and equipment |
(122) |
|
|
(171) |
|
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Proceeds from sales of property and equipment |
1 |
|
|
4 |
|
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Net cash used in by investing activities |
(1,020) |
|
|
(2,710) |
|
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Cash flows from financing activities: |
|
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Issuances of common stock |
— |
|
|
1 |
|
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Repurchases of common stock—repurchase
program
|
(273) |
|
|
(800) |
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Shares repurchased for tax withholdings on vesting of restricted
stock units |
(133) |
|
|
(89) |
|
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Repayments of debt |
(2,000) |
|
|
— |
|
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Dividends paid |
(1,561) |
|
|
(1,520) |
|
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Other |
(3) |
|
|
35 |
|
|
Net cash used in financing activities |
(3,970) |
|
|
(2,373) |
|
|
Net decrease in cash, cash equivalents, and restricted
cash |
(1,563) |
|
|
(987) |
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Cash, cash equivalents, and restricted cash, beginning of
period |
9,942 |
|
|
11,812 |
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Cash, cash equivalents, and restricted cash, end of
period |
$ |
8,379 |
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|
$ |
10,825 |
|
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|
Supplemental cash flow information: |
|
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Cash paid for interest |
$ |
124 |
|
|
$ |
160 |
|
|
Cash paid for income taxes, net |
$ |
758 |
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|
$ |
710 |
|
See Notes to Consolidated Financial Statements.
CISCO SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF EQUITY
(in millions, except per-share amounts)
(Unaudited)
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|
Three Months Ended October 30, 2021 |
Shares of
Common
Stock |
|
Common Stock
and
Additional
Paid-In Capital |
|
Retained Earnings (Accumulated Deficit) |
|
Accumulated
Other
Comprehensive Loss |
|
Total
Equity |
|
Balance at July 31, 2021 |
4,217 |
|
|
$ |
42,346 |
|
|
$ |
(654) |
|
|
$ |
(417) |
|
|
$ |
41,275 |
|
|
Net income |
|
|
|
|
2,980 |
|
|
|
|
2,980 |
|
|
Other comprehensive loss |
|
|
|
|
|
|
(56) |
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|
(56) |
|
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Issuance of common stock |
7 |
|
|
|
|
|
|
|
|
— |
|
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Repurchase of common stock |
(5) |
|
|
(46) |
|
|
(210) |
|
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|
(256) |
|
|
Shares repurchased for tax withholdings on vesting of restricted
stock units |
(2) |
|
|
(133) |
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|
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|
(133) |
|
|
Cash dividends declared ($0.37 per common share)
|
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|
(1,561) |
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|
(1,561) |
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Share-based compensation |
|
|
453 |
|
|
|
|
|
|
453 |
|
|
Other |
|
|
1 |
|
|
(2) |
|
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|
|
(1) |
|
|
Balance at October 30, 2021 |
4,217 |
|
|
$ |
42,621 |
|
|
$ |
553 |
|
|
$ |
(473) |
|
|
$ |
42,701 |
|
|
|
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|
|
|
|
|
|
|
|
|
Three Months Ended October 24, 2020 |
Shares of
Common
Stock |
|
Common Stock
and
Additional
Paid-In Capital |
|
Accumulated Deficit |
|
Accumulated
Other
Comprehensive
Loss |
|
Total
Equity |
|
Balance at July 25, 2020 |
4,237 |
|
|
$ |
41,202 |
|
|
$ |
(2,763) |
|
|
$ |
(519) |
|
|
$ |
37,920 |
|
|
Net income |
|
|
|
|
2,174 |
|
|
|
|
2,174 |
|
|
Other comprehensive income |
|
|
|
|
|
|
72 |
|
|
72 |
|
|
Issuance of common stock |
7 |
|
|
1 |
|
|
|
|
|
|
1 |
|
|
Repurchase of common stock |
(20) |
|
|
(192) |
|
|
(608) |
|
|
|
|
(800) |
|
|
Shares repurchased for tax withholdings on vesting of restricted
stock units |
(2) |
|
|
(89) |
|
|
|
|
|
|
(89) |
|
|
Cash dividends declared ($0.36 per common share)
|
|
|
|
|
(1,521) |
|
|
|
|
(1,521) |
|
|
Effect of adoption of accounting standard |
|
|
|
|
(38) |
|
|
|
|
(38) |
|
|
Share-based compensation |
|
|
438 |
|
|
|
|
|
|
438 |
|
|
Balance at October 24, 2020 |
4,222 |
|
|
$ |
41,360 |
|
|
$ |
(2,756) |
|
|
$ |
(447) |
|
|
$ |
38,157 |
|
CISCO SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1.Organization
and Basis of Presentation
The fiscal year for Cisco Systems, Inc. (the “Company,” “Cisco,”
“we,” “us,” or “our”) is the 52 or 53 weeks ending on the last
Saturday in July. Fiscal 2022 is a 52-week fiscal year and fiscal
2021 was a 53-week fiscal year. The Consolidated Financial
Statements include our accounts and those of our subsidiaries. All
intercompany accounts and transactions have been eliminated. We
conduct business globally and are primarily managed on a geographic
basis in the following three geographic segments: the Americas;
Europe, Middle East, and Africa (EMEA); and Asia Pacific, Japan,
and China (APJC).
We have prepared the accompanying financial data as of
October 30, 2021 and for the first quarter of fiscal 2022 and
2021, without audit, pursuant to the rules and regulations of the
U.S. Securities and Exchange Commission (SEC). Certain information
and footnote disclosures normally included in financial statements
prepared in accordance with generally accepted accounting
principles in the United States (GAAP) have been condensed or
omitted pursuant to such rules and regulations. The July 31,
2021 Consolidated Balance Sheet was derived from audited financial
statements, but does not include all disclosures required by
accounting principles generally accepted in the United States.
However, we believe that the disclosures are adequate to make the
information presented not misleading. These Consolidated Financial
Statements should be read in conjunction with the Consolidated
Financial Statements and the notes thereto included in our Annual
Report on Form 10-K for the fiscal year ended July 31,
2021.
The preparation of financial statements and related disclosures in
conformity with GAAP requires us to make judgments, assumptions,
and estimates that affect the amounts reported in the Consolidated
Financial Statements and accompanying notes. The inputs into
certain of our judgments, assumptions, and estimates considered the
economic implications of the COVID-19 pandemic on our critical and
significant accounting estimates. The actual results that we
experience may differ materially from our estimates. As the
COVID-19 pandemic continues to develop, many of our estimates could
require increased judgment and carry a higher degree of variability
and volatility. As events continue to evolve our estimates may
change materially in future periods.
In the opinion of management, all normal recurring adjustments
necessary to present fairly the consolidated balance sheet as of
October 30, 2021, the results of operations, the statements of
comprehensive income, the statements of cash flows and the
statements of equity for the first quarter of fiscal 2022 and 2021,
as applicable, have been made. The results of operations for the
first quarter of fiscal 2022 are not necessarily indicative of the
operating results for the full fiscal year or any future
periods.
Our consolidated financial statements include our accounts and
entities consolidated under the variable interest and voting
models. The noncontrolling interests attributed to these
investments, if material, are presented as a separate component
from our equity in the equity section of the Consolidated Balance
Sheets. The share of earnings attributable to the noncontrolling
interests are not presented separately in the Consolidated
Statements of Operations as these amounts are not material for any
of the fiscal periods presented.
Certain reclassifications have been made to the amounts in prior
periods in order to conform to the current period’s presentation.
We have evaluated subsequent events through the date that the
financial statements were issued.
2.Recent
Accounting Pronouncements
(a)New
Accounting Updates Recently Adopted
Acquired Revenue Contracts with Customers in Business
Combination
In October 2021, the Financial Accounting Standards Board (FASB)
issued an accounting standard update that requires companies to
apply Accounting Standards Codification 606 to recognize and
measure contract assets and contract liabilities from contracts
with customers acquired in a business combination. We early adopted
this accounting standard update beginning in the first quarter of
fiscal 2022 and did not have a material impact on our Consolidated
Financial Statements. The ongoing impact of this standard will be
fact dependent on the transactions within its scope.
(b)Recent
Accounting Standards or Updates Not Yet Effective
Reference Rate Reform
In March 2020, the FASB issued an accounting standard update and
subsequent amendments that provide optional expedients and
exceptions to the current guidance on contract modification and
hedging relationships to ease the financial reporting burden of the
expected market transition from the London InterBank Offered Rate
(LIBOR) and other interbank offered rates to alternative reference
rates. This accounting standard update was effective upon issuance
and may be
CISCO SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
applied prospectively through December 31, 2022. We are currently
evaluating the impact of this accounting standard update on our
Consolidated Financial Statements.
3.Revenue
We enter into contracts with customers that can include various
combinations of products and services which are generally distinct
and accounted for as separate performance obligations. As a result,
our contracts may contain multiple performance obligations. We
determine whether arrangements are distinct based on whether the
customer can benefit from the product or service on its own or
together with other resources that are readily available and
whether our commitment to transfer the product or service to the
customer is separately identifiable from other obligations in the
contract. We classify our hardware, perpetual software licenses,
and software-as-a-service (SaaS) as distinct performance
obligations. Term software licenses represent multiple obligations,
which include software licenses and software maintenance. In
transactions where we deliver hardware or software, we are
typically the principal and we record revenue and costs of goods
sold on a gross basis. We refer to our term software licenses,
security software licenses, SaaS, and associated service
arrangements as subscription offers.
We recognize revenue upon transfer of control of promised goods or
services in a contract with a customer in an amount that reflects
the consideration we expect to receive in exchange for those
products or services. Transfer of control occurs once the customer
has the contractual right to use the product, generally upon
shipment, electronic delivery (or when the software is available
for download by the customer), or once title and risk of loss has
transferred to the customer. Transfer of control can also occur
over time for software maintenance and services as the customer
receives the benefit over the contract term. Our hardware and
perpetual software licenses are distinct performance obligations
where revenue is recognized upfront upon transfer of control. Term
software licenses include multiple performance obligations where
the term licenses are recognized upfront upon transfer of control,
with the associated software maintenance revenue recognized ratably
over the contract term as services and software updates are
provided. SaaS arrangements do not include the right for the
customer to take possession of the software during the term, and
therefore have one distinct performance obligation which is
satisfied over time with revenue recognized ratably over the
contract term as the customer consumes the services. On our product
sales, we record consideration from shipping and handling on a
gross basis within net product sales. We record our revenue net of
any associated sales taxes.
An allowance for future sales returns is established based on
historical trends in product return rates. The allowance for future
sales returns as of October 30, 2021 and July 31, 2021
was $49 million and $55 million, respectively, and was recorded as
a reduction of our accounts receivable and revenue.
Significant Judgments
Revenue is allocated among these performance obligations in a
manner that reflects the consideration that we expect to be
entitled to for the promised goods or services based on standalone
selling prices (SSP). SSP is estimated for each distinct
performance obligation and judgment may be required in their
determination. The best evidence of SSP is the observable price of
a product or service when we sell the goods separately in similar
circumstances and to similar customers. In instances where SSP is
not directly observable, we determine SSP using information that
may include market conditions and other observable
inputs.
We assess relevant contractual terms in our customer contracts to
determine the transaction price. We apply judgment in identifying
contractual terms and determining the transaction price as we may
be required to estimate variable consideration when determining the
amount of revenue to recognize. Variable consideration includes
potential contractual penalties and various rebate, cooperative
marketing and other incentive programs that we offer to our
distributors, channel partners and customers. When determining the
amount of revenue to recognize, we estimate the expected usage of
these programs, applying the expected value or most likely estimate
and update the estimate at each reporting period as actual
utilization becomes available. We also consider the customers’
right of return in determining the transaction price, where
applicable.
We assess certain software licenses, such as for security software,
that contain critical updates or upgrades which customers can
download throughout the contract term. Without these updates or
upgrades, the functionality of the software would diminish over a
relatively short time period. These updates or upgrades provide the
customer the full functionality of the purchased security software
licenses and are required to maintain the security license’s
utility as the risks and threats in the environment are rapidly
changing. In these circumstances, the revenue from these software
arrangements is recognized as a single performance obligation
satisfied over the contract term.
CISCO SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
(a)Disaggregation
of Revenue
We disaggregate our revenue into groups of similar products and
services that depict the nature, amount, and timing of revenue and
cash flows for our various offerings. The sales cycle, contractual
obligations, customer requirements, and go-to-market strategies
differ for each of our product categories, resulting in different
economic risk profiles for each category. Effective in the first
quarter of fiscal 2022, we began reporting our product and service
revenue in the following categories: Secure, Agile Networks; Hybrid
Work; End-to-End Security; Internet for the Future; Optimized
Application Experiences; Other Products; and Services. This change
will better align our product categories with our strategic
priorities. The following table presents this disaggregation of
revenue (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
October 30,
2021 |
|
October 24,
2020 |
|
Product revenue: |
|
|
|
|
Secure, Agile Networks |
$ |
5,967 |
|
|
$ |
5,434 |
|
|
Hybrid Work |
1,109 |
|
|
1,193 |
|
|
End-to-End Security |
895 |
|
|
861 |
|
|
Internet for the Future |
1,374 |
|
|
942 |
|
|
Optimized Application Experiences |
181 |
|
|
153 |
|
|
Other Products |
3 |
|
|
3 |
|
|
Total Product |
9,529 |
|
|
8,587 |
|
|
Services |
3,371 |
|
|
3,342 |
|
|
Total |
$ |
12,900 |
|
|
$ |
11,929 |
|
Amounts may not sum due to rounding.
Secure, Agile Networks consists of our core networking technologies
of switching, enterprise routing, wireless, and compute products.
These technologies consist of both hardware and software offerings,
including software licenses and SaaS, that help our customers build
networks, automate, orchestrate, integrate, and digitize data. Our
hardware and perpetual software in this category are distinct
performance obligations where revenue is recognized upfront upon
transfer of control. Term software licenses are multiple
performance obligations where the term license is recognized
upfront upon transfer of control with the associated software
maintenance revenue recognized ratably over the contract term. SaaS
arrangements in this category have one distinct performance
obligation which is satisfied over time with revenue recognized
ratably over the contract term.
Hybrid Work consists of our collaboration offerings. These products
consist primarily of software offerings, including software
licenses and SaaS, as well as hardware. Our perpetual software and
hardware in this category are distinct performance obligations
where revenue is recognized upfront upon transfer of control. Term
software licenses are multiple performance obligations where the
term license is recognized upfront upon transfer of control with
the associated software maintenance revenue recognized ratably over
the contract term. SaaS arrangements in this category have one
distinct performance obligation which is satisfied over time with
revenue recognized ratably over the contract term.
End-to-End Security consists of our overall security offerings.
These products consist of both hardware and software offerings,
including software licenses and SaaS. Updates and upgrades for the
term software licenses are critical for our software to perform its
intended commercial purpose because of the continuous need for our
software to secure our customers’ network environments against
frequent threats. Therefore, security software licenses are
generally represented by a single distinct performance obligation
with revenue recognized ratably over the contract term. Our
hardware and perpetual software in this category are distinct
performance obligations where revenue is recognized upfront upon
transfer of control. SaaS arrangements in this category have one
distinct performance obligation which is satisfied over time with
revenue recognized ratably over the contract term.
Internet for the Future consists of our routed optical networking,
public 5G, silicon, and optics offerings. These products consist
primarily of both hardware and software offerings, including
software licenses and SaaS. Our hardware and perpetual software in
this category are distinct performance obligations where revenue is
recognized upfront upon transfer of control. Term software licenses
are multiple performance obligations where the term license is
recognized upfront upon transfer of control with the associated
software maintenance revenue recognized ratably over the contract
term. SaaS arrangements in this category have one distinct
performance obligation which is satisfied over time with revenue
recognized ratably over the contract term.
CISCO SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
Optimized Application Experiences consists of our full stack
observability and cloud-native platform offerings. These products
consist primarily of software offerings, including software
licenses and SaaS. Our perpetual software in this category are
distinct performance obligations where revenue is recognized
upfront upon transfer of control. Term software licenses are
multiple performance obligations where the term license is
recognized upfront upon transfer of control with the associated
software maintenance revenue recognized ratably over the contract
term. SaaS arrangements in this category have one distinct
performance obligation which is satisfied over time with revenue
recognized ratably over the contract term.
In addition to our product offerings, we provide a broad range of
service and support options for our customers, including technical
support services and advanced services. Technical support services
represent the majority of these offerings which are distinct
performance obligations that are satisfied over time with revenue
recognized ratably over the contract term. Advanced services are
distinct performance obligations that are satisfied over time with
revenue recognized as services are delivered.
The sales arrangements as discussed above are typically made
pursuant to customer purchase orders based on master purchase or
partner agreements. Cash is received based on our standard payment
terms which is typically 30 days. We provide financing arrangements
to customers for all of our hardware, software and service
offerings. Refer to Note 9 for additional information. For these
arrangements, cash is typically received over time.
(b)Contract
Balances
Accounts receivable, net was $5.3 billion as of October 30,
2021 compared to $5.8 billion as of July 31, 2021, as reported
on the Consolidated Balance Sheets.
The allowances for credit loss for our accounts receivable are
summarized as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
October 30, 2021 |
|
October 24, 2020 |
|
Allowance for credit loss at beginning of period |
$ |
109 |
|
|
$ |
143 |
|
|
Provisions (benefits) |
19 |
|
|
14 |
|
|
Recoveries (write-offs), net |
(14) |
|
|
(6) |
|
|
Foreign exchange and other |
— |
|
|
(26) |
|
|
Allowance for credit loss at end of period |
$ |
114 |
|
|
$ |
125 |
|
Contract assets consist of unbilled receivables and are recorded
when revenue is recognized in advance of scheduled billings to our
customers. These amounts are primarily related to software and
service arrangements where transfer of control has occurred but we
have not yet invoiced. Our contract assets for these unbilled
receivables, net of allowances, were $1.4 billion as of each
of October 30, 2021 and July 31, 2021, and were included
in other current assets and other assets.
Gross contract assets by our internal risk ratings are summarized
as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
October 30,
2021 |
|
July 31,
2021 |
|
1 to 4 |
$ |
445 |
|
|
$ |
521 |
|
|
5 to 6 |
839 |
|
|
770 |
|
|
7 and Higher |
154 |
|
|
166 |
|
|
Total |
$ |
1,438 |
|
|
$ |
1,457 |
|
Contract liabilities consist of deferred revenue. Deferred revenue
was $22.1 billion as of October 30, 2021 compared to $22.2
billion as of July 31, 2021. We recognized approximately
$4.1 billion of revenue during the first quarter of fiscal
2022 that was included in the deferred revenue balance at
July 31, 2021.
(c)Capitalized
Contract Acquisition Costs
We capitalize direct and incremental costs incurred to acquire
contracts, primarily sales commissions, for which the associated
revenue is expected to be recognized in future periods. We incur
these costs in connection with both initial contracts and renewals.
These costs are initially deferred and typically amortized over the
term of the customer contract which corresponds to the period of
benefit. Deferred sales commissions were $994 million and $967
million as of October 30, 2021 and July 31, 2021,
respectively, and were included in other current assets and other
assets. The amortization expense associated with these costs was
$187 million and $123 million for the first quarter of
fiscal 2022 and 2021, respectively, and was included in sales and
marketing expenses.
CISCO SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
4.Acquisitions
and Divestitures
We completed one acquisition during the first quarter of fiscal
2022. A summary of the allocation of the total purchase
consideration is presented as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase Consideration |
|
Net Tangible Assets Acquired (Liabilities Assumed) |
|
Purchased Intangible Assets |
|
Goodwill |
|
Total acquisitions (one in total)
|
$ |
323 |
|
|
$ |
8 |
|
|
$ |
10 |
|
|
$ |
305 |
|
The total purchase consideration related to our acquisitions
completed during the first quarter of fiscal 2022 consisted of cash
consideration and vested share-based awards assumed. The total cash
and cash equivalents acquired from these acquisitions was
approximately $6 million. Total transaction costs related to
acquisition and divestiture activities were $19 million and $4
million for the first quarter of fiscal 2022 and 2021,
respectively. These transaction costs were expensed as incurred in
general and administrative expenses (“G&A”) in the Consolidated
Statements of Operations.
The goodwill generated from acquisitions completed during the first
quarter of fiscal 2022 is primarily related to expected synergies.
The goodwill is generally not deductible for income tax
purposes.
The Consolidated Financial Statements include the operating results
of each acquisition from the date of acquisition. Pro forma results
of operations and the revenue and net income subsequent to the
acquisition date for the acquisitions completed during the first
quarter of fiscal 2022 have not been presented because the effects
of the acquisitions, individually and in the aggregate, were not
material to our financial results.
5.Goodwill
and Purchased Intangible Assets
(a)Goodwill
The following table presents the goodwill allocated to our
reportable segments as of October 30, 2021 and during the
first quarter of fiscal 2022 (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at July 31, 2021 |
|
Acquisitions & Divestitures |
|
Foreign Currency Translation and Other |
|
Balance at October 30, 2021 |
|
Americas |
$ |
23,673 |
|
|
$ |
204 |
|
|
$ |
315 |
|
|
$ |
24,192 |
|
|
EMEA |
9,094 |
|
|
77 |
|
|
9 |
|
|
9,180 |
|
|
APJC |
5,401 |
|
|
24 |
|
|
5 |
|
|
5,430 |
|
|
Total |
$ |
38,168 |
|
|
$ |
305 |
|
|
$ |
329 |
|
|
$ |
38,802 |
|
(b)Purchased
Intangible Assets
The following table presents details of our intangible assets
acquired through acquisitions completed during the first quarter of
fiscal 2022 (in millions, except years):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FINITE LIVES |
|
INDEFINITE LIVES |
|
TOTAL |
|
|
TECHNOLOGY |
|
CUSTOMER
RELATIONSHIPS |
|
OTHER |
|
IPR&D |
|
|
Weighted-
Average Useful
Life (in Years) |
|
Amount |
|
Weighted-
Average Useful
Life (in Years) |
|
Amount |
|
Weighted-
Average Useful
Life (in Years) |
|
Amount |
|
Amount |
|
Amount |
|
Total acquisitions (one in total)
|
2.0 |
|
$ |
6 |
|
|
2.0 |
|
$ |
4 |
|
|
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
10 |
|
CISCO SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
The following tables present details of our purchased intangible
assets (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
October 30, 2021 |
|
Gross |
|
Accumulated Amortization |
|
Net |
|
Purchased intangible assets with finite lives: |
|
|
|
|
|
|
|
Technology |
|
$ |
3,485 |
|
|
$ |
(1,482) |
|
|
$ |
2,003 |
|
|
Customer relationships |
|
1,391 |
|
|
(597) |
|
|
794 |
|
|
Other |
|
71 |
|
|
(23) |
|
|
48 |
|
|
Total purchased intangible assets with finite lives |
|
4,947 |
|
|
(2,102) |
|
|
2,845 |
|
|
In-process research and development, with indefinite
lives |
|
505 |
|
|
— |
|
|
505 |
|
|
Total |
|
$ |
5,452 |
|
|
$ |
(2,102) |
|
|
$ |
3,350 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
July 31, 2021 |
|
Gross |
|
Accumulated Amortization |
|
Net |
|
Purchased intangible assets with finite lives: |
|
|
|
|
|
|
|
Technology |
|
$ |
3,629 |
|
|
$ |
(1,437) |
|
|
$ |
2,192 |
|
|
Customer relationships |
|
1,387 |
|
|
(523) |
|
|
864 |
|
|
Other |
|
71 |
|
|
(13) |
|
|
58 |
|
|
Total purchased intangible assets with finite lives |
|
5,087 |
|
|
(1,973) |
|
|
3,114 |
|
|
In-process research and development, with indefinite
lives |
|
505 |
|
|
— |
|
|
505 |
|
|
Total |
|
$ |
5,592 |
|
|
$ |
(1,973) |
|
|
$ |
3,619 |
|
Purchased intangible assets include intangible assets acquired
through acquisitions as well as through direct purchases or
licenses.
The following table presents the amortization of purchased
intangible assets, including impairment charges (in
millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
October 30, 2021 |
|
October 24, 2020 |
|
Amortization of purchased intangible assets: |
|
|
|
|
Cost of sales |
$ |
202 |
|
|
$ |
170 |
|
|
Operating expenses |
84 |
|
|
36 |
|
|
Total |
$ |
286 |
|
|
$ |
206 |
|
The estimated future amortization expense of purchased intangible
assets with finite lives as of October 30, 2021 is as follows
(in millions):
|
|
|
|
|
|
|
Fiscal Year |
Amount |
|
2022 (remaining nine months) |
$ |
763 |
|
|
2023 |
$ |
879 |
|
|
2024 |
$ |
750 |
|
|
2025 |
$ |
394 |
|
|
2026 |
$ |
58 |
|
|
Thereafter |
$ |
1 |
|
6.Restructuring
and Other Charges
We initiated a restructuring plan in fiscal 2021 (the “Fiscal 2021
Plan”), which included a voluntary early retirement program, in
order to realign the organization and enable further investment in
key priority areas. The total pretax charges are estimated to be
approximately $900 million. In connection with the Fiscal 2021
Plan, we have incurred cumulative charges of $887 million and
substantially completed this plan in fiscal 2021.
We initiated a restructuring plan in fiscal 2020 (the “Fiscal 2020
Plan”) in order to realign the organization and enable further
investment in key priority areas. In connection with the Fiscal
2020 Plan, we incurred cumulative charges of $259 million. We
completed the Fiscal 2020 Plan in fiscal 2021.
CISCO SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
The aggregate pretax charges related to these plans are primarily
cash-based and consist of severance and other one-time termination
benefits, and other costs.
The following tables summarize the activities related to the
restructuring and other charges (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FISCAL 2020 AND PRIOR PLANS |
|
FISCAL 2021 PLAN |
|
|
|
|
Employee
Severance |
|
Other |
|
Employee
Severance |
|
Other |
|
Total |
|
Liability as of July 31, 2021 |
|
$ |
— |
|
|
$ |
10 |
|
|
$ |
16 |
|
|
$ |
8 |
|
|
$ |
34 |
|
|
Charges |
|
— |
|
|
(1) |
|
|
4 |
|
|
2 |
|
|
5 |
|
|
Cash payments |
|
— |
|
|
(1) |
|
|
(8) |
|
|
— |
|
|
(9) |
|
|
Non-cash items |
|
— |
|
|
— |
|
|
— |
|
|
(4) |
|
|
(4) |
|
|
Liability as of October 30, 2021 |
|
$ |
— |
|
|
$ |
8 |
|
|
$ |
12 |
|
|
$ |
6 |
|
|
$ |
26 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FISCAL 2020 AND PRIOR PLANS |
|
FISCAL 2021 PLAN |
|
|
|
|
Employee
Severance |
|
Other |
|
Employee Severance |
|
Other |
|
Total |
|
Liability as of July 25, 2020 |
|
$ |
58 |
|
|
$ |
14 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
72 |
|
|
Charges |
|
— |
|
|
— |
|
|
590 |
|
|
12 |
|
|
602 |
|
|
Cash payments |
|
(58) |
|
|
— |
|
|
(272) |
|
|
— |
|
|
(330) |
|
|
Non-cash items |
|
— |
|
|
— |
|
|
— |
|
|
(11) |
|
|
(11) |
|
|
Liability as of October 24, 2020 |
|
$ |
— |
|
|
$ |
14 |
|
|
$ |
318 |
|
|
$ |
1 |
|
|
$ |
333 |
|
7.Balance
Sheet and Other Details
The following tables provide details of selected balance sheet and
other items (in millions):
Cash, Cash Equivalents, and Restricted Cash
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
October 30,
2021 |
|
July 31,
2021 |
|
Cash and cash equivalents |
|
$ |
7,619 |
|
|
$ |
9,175 |
|
|
Restricted cash included in other current assets |
|
10 |
|
|
14 |
|
|
Restricted cash included in other assets |
|
750 |
|
|
753 |
|
|
Total cash, cash equivalents, and restricted cash |
|
$ |
8,379 |
|
|
$ |
9,942 |
|
Our restricted cash balances are funds primarily related to
contractual obligations with suppliers.
Inventories
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
October 30,
2021 |
|
July 31,
2021 |
|
Raw materials |
|
$ |
1,090 |
|
|
$ |
801 |
|
|
Work in process |
|
41 |
|
|
54 |
|
|
Finished goods: |
|
|
|
|
|
Deferred cost of sales |
|
85 |
|
|
97 |
|
|
Manufactured finished goods |
|
465 |
|
|
422 |
|
|
Total finished goods |
|
550 |
|
|
519 |
|
|
Service-related spares |
|
142 |
|
|
174 |
|
|
Demonstration systems |
|
9 |
|
|
11 |
|
|
Total |
|
$ |
1,832 |
|
|
$ |
1,559 |
|
CISCO SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
Property and Equipment, Net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
October 30,
2021 |
|
July 31,
2021 |
|
Gross property and equipment: |
|
|
|
|
|
Land, buildings, and building and leasehold
improvements |
|
$ |
4,310 |
|
|
$ |
4,304 |
|
|
Computer equipment and related software |
|
861 |
|
|
858 |
|
|
Production, engineering, and other equipment |
|
5,023 |
|
|
5,106 |
|
|
Operating lease assets |
|
250 |
|
|
273 |
|
|
Furniture, fixtures and other |
|
377 |
|
|
377 |
|
|
Total gross property and equipment |
|
10,821 |
|
|
10,918 |
|
|
Less: accumulated depreciation and amortization
|
|
(8,583) |
|
|
(8,580) |
|
|
Total |
|
$ |
2,238 |
|
|
$ |
2,338 |
|
Remaining Performance Obligations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
October 30,
2021 |
|
July 31,
2021 |
|
Product |
|
$ |
13,384 |
|
|
$ |
13,270 |
|
|
Service |
|
16,751 |
|
|
17,623 |
|
|
Total |
|
$ |
30,135 |
|
|
$ |
30,893 |
|
|
|
|
|
|
|
|
Current |
|
$ |
15,941 |
|
|
$ |
16,289 |
|
|
Noncurrent |
|
14,194 |
|
|
14,604 |
|
|
Total |
|
$ |
30,135 |
|
|
$ |
30,893 |
|
Remaining Performance Obligations (RPO) are comprised of deferred
revenue plus unbilled contract revenue. As of October 30,
2021, the aggregate amount of RPO was comprised of
$22.1 billion of deferred revenue and $8.1 billion of unbilled
contract revenue. We expect approximately 53% of this amount to be
recognized as revenue over the next 12 months. As of July 31,
2021, the aggregate amount of RPO was comprised of $22.2 billion of
deferred revenue and
$8.7 billion of unbilled contract revenue. Unbilled contract
revenue represents noncancelable contracts for which we have not
invoiced, have an obligation to perform, and revenue has not yet
been recognized in the financial statements.
Deferred Revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
October 30,
2021 |
|
July 31,
2021 |
|
Product |
|
$ |
9,681 |
|
|
$ |
9,416 |
|
|
Service |
|
12,391 |
|
|
12,748 |
|
|
Total |
|
$ |
22,072 |
|
|
$ |
22,164 |
|
|
Reported as: |
|
|
|
|
|
Current |
|
$ |
12,017 |
|
|
$ |
12,148 |
|
|
Noncurrent |
|
10,055 |
|
|
10,016 |
|
|
Total |
|
$ |
22,072 |
|
|
$ |
22,164 |
|
CISCO SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
8.Leases
(a)Lessee
Arrangements
The following table presents our operating lease balances (in
millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance Sheet Line Item |
|
October 30, 2021 |
|
July 31, 2021 |
|
Operating lease right-of-use assets |
Other assets |
|
$ |
1,118 |
|
|
$ |
1,095 |
|
|
|
|
|
|
|
|
|
Operating lease liabilities |
Other current liabilities |
|
$ |
353 |
|
|
$ |
337 |
|
|
Operating lease liabilities |
Other long-term liabilities |
|
834 |
|
|
831 |
|
|
Total operating lease liabilities |
|
|
$ |
1,187 |
|
|
$ |
1,168 |
|
The components of our lease expenses were as follows (in
millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
October 30, 2021 |
|
October 24, 2020 |
|
Operating lease expense |
$ |
95 |
|
|
$ |
98 |
|
|
Short-term lease expense |
17 |
|
|
18 |
|
|
Variable lease expense |
49 |
|
|
46 |
|
|
Total lease expense |
$ |
161 |
|
|
$ |
162 |
|
Supplemental information related to our operating leases is as
follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
October 30, 2021 |
|
October 24, 2020 |
|
Cash paid for amounts included in the measurement of lease
liabilities — operating cash flows |
$ |
98 |
|
|
$ |
105 |
|
|
Right-of-use assets obtained in exchange for operating leases
liabilities |
$ |
120 |
|
|
$ |
115 |
|
The weighted-average lease term was
4.9 years and 5.2 years as of October 30, 2021 and
July 31, 2021, respectively. The weighted-average discount
rate was 1.7% as of each of October 30, 2021 and July 31,
2021.
The maturities of our operating leases (undiscounted) as of
October 30, 2021 are as follows (in millions):
|
|
|
|
|
|
|
Fiscal Year |
Amount |
|
2022 (remaining nine months) |
$ |
283 |
|
|
2023 |
307 |
|
|
2024 |
224 |
|
|
2025 |
145 |
|
|
2026 |
84 |
|
|
Thereafter |
218 |
|
|
Total lease payments |
1,261 |
|
|
Less interest |
(74) |
|
|
Total |
$ |
1,187 |
|
(b)Lessor
Arrangements
Our leases primarily represent sales-type leases with terms of four
years
on average. We provide leasing of our equipment and complementary
third-party products primarily through our channel partners and
distributors, for which the income arising from these leases is
recognized through interest income. Interest income was
$15 million and $21 million for the first quarter of
fiscal 2022 and 2021, respectively, and was included in interest
income in the Consolidated Statement of Operations. The net
investment of our lease receivables is measured at the commencement
date as the gross lease receivable, residual value less unearned
income and allowance for credit loss. For additional information,
see Note 9.
CISCO SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
Future minimum lease payments on our lease receivables as of
October 30, 2021 are summarized as follows (in
millions):
|
|
|
|
|
|
|
Fiscal Year |
Amount |
|
2022 (remaining nine months) |
$ |
557 |
|
|
2023 |
514 |
|
|
2024 |
290 |
|
|
2025 |
146 |
|
|
2026 |
48 |
|
|
Thereafter |
5 |
|
|
Total |
1,560 |
|
|
Less: Present value of lease payments |
1,490 |
|
|
Unearned income |
$ |
70 |
|
Actual cash collections may differ from the contractual maturities
due to early customer buyouts, refinancings, or
defaults.
We provide financing of certain equipment through operating leases,
and the amounts are included in property and equipment in the
Consolidated Balance Sheets. Amounts relating to equipment on
operating lease assets held by us and the associated accumulated
depreciation are summarized as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
October 30, 2021 |
|
July 31, 2021 |
|
Operating lease assets |
$ |
250 |
|
|
$ |
273 |
|
|
Accumulated depreciation |
(156) |
|
|
(165) |
|
|
Operating lease assets, net |
$ |
94 |
|
|
$ |
108 |
|
Our operating lease income was $32 million and
$43 million for the first quarter of fiscal 2022 and 2021,
respectively, and was included in product revenue in the
Consolidated Statement of Operations.
Minimum future rentals on noncancelable operating leases as of
October 30, 2021 are summarized as follows (in
millions):
|
|
|
|
|
|
|
Fiscal Year |
Amount |
|
2022 (remaining nine months) |
$ |
35 |
|
|
2023 |
25 |
|
|
2024 |
7 |
|
|
2025 |
1 |
|
|
Total |
$ |
68 |
|
9.Financing
Receivables
(a)Financing
Receivables
Financing receivables primarily consist of lease receivables, loan
receivables, and financed service contracts. Lease receivables
represent sales-type leases resulting from the sale of Cisco’s and
complementary third-party products and are typically collateralized
by a security interest in the underlying assets. Lease receivables
consist of arrangements with terms of four years on average. Loan
receivables represent financing arrangements related to the sale of
our hardware, software, and services, which may include additional
funding for other costs associated with network installation and
integration of our products and services. Loan receivables have
terms of three years on average. Financed service contracts include
financing receivables related to technical support and advanced
services. Revenue related to the technical support services is
typically deferred and included in deferred service revenue and is
recognized ratably over the period during which the related
services are to be performed, which typically ranges from one year
to three years.
CISCO SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
A summary of our financing receivables is presented as follows (in
millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
October 30, 2021 |
Lease
Receivables |
|
Loan
Receivables |
|
Financed Service
Contracts |
|
Total |
|
Gross |
$ |
1,560 |
|
|
$ |
4,809 |
|
|
$ |
2,329 |
|
|
$ |
8,698 |
|
|
Residual value |
97 |
|
|
— |
|
|
— |
|
|
97 |
|
|
Unearned income |
(70) |
|
|
— |
|
|
— |
|
|
(70) |
|
|
Allowance for credit loss |
(33) |
|
|
(74) |
|
|
(2) |
|
|
(109) |
|
|
Total, net |
$ |
1,554 |
|
|
$ |
4,735 |
|
|
$ |
2,327 |
|
|
$ |
8,616 |
|
|
Reported as: |
|
|
|
|
|
|
|
|
Current |
$ |
736 |
|
|
$ |
2,198 |
|
|
$ |
1,136 |
|
|
$ |
4,070 |
|
|
Noncurrent |
818 |
|
|
2,537 |
|
|
1,191 |
|
|
4,546 |
|
|
Total, net |
$ |
1,554 |
|
|
$ |
4,735 |
|
|
$ |
2,327 |
|
|
$ |
8,616 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
July 31, 2021 |
Lease
Receivables |
|
Loan
Receivables |
|
Financed Service
Contracts |
|
Total |
|
Gross |
$ |
1,710 |
|
|
$ |
5,203 |
|
|
$ |
2,453 |
|
|
$ |
9,366 |
|
|
Residual value |
103 |
|
|
— |
|
|
— |
|
|
103 |
|
|
Unearned income |
(78) |
|
|
— |
|
|
— |
|
|
(78) |
|
|
Allowance for credit loss |
(38) |
|
|
(86) |
|
|
(3) |
|
|
(127) |
|
|
Total, net |
$ |
1,697 |
|
|
$ |
5,117 |
|
|
$ |
2,450 |
|
|
$ |
9,264 |
|
|
Reported as: |
|
|
|
|
|
|
|
|
Current |
$ |
780 |
|
|
$ |
2,372 |
|
|
$ |
1,228 |
|
|
$ |
4,380 |
|
|
Noncurrent |
917 |
|
|
2,745 |
|
|
1,222 |
|
|
4,884 |
|
|
Total, net |
$ |
1,697 |
|
|
$ |
5,117 |
|
|
$ |
2,450 |
|
|
$ |
9,264 |
|
(b)Credit
Quality of Financing Receivables
Gross financing receivables(1)
categorized by our internal credit risk rating by period of
origination as of October 30, 2021 and July 31, 2021 are
summarized as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year |
|
Three Months Ended |
|
|
|
Internal Credit Risk Rating |
Prior |
|
July 28, 2018 |
|
July 27, 2019 |
|
July 25, 2020 |
|
July 31, 2021 |
|
October 30, 2021 |
|
Total |
|
Lease Receivables: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1 to 4 |
$ |
11 |
|
|
$ |
75 |
|
|
$ |
134 |
|
|
$ |
204 |
|
|
$ |
244 |
|
|
$ |
58 |
|
|
$ |
726 |
|
|
5 to 6 |
10 |
|
|
44 |
|
|
141 |
|
|
258 |
|
|
247 |
|
|
15 |
|
|
715 |
|
|
7 and Higher |
1 |
|
|
4 |
|
|
9 |
|
|
19 |
|
|
4 |
|
|
12 |
|
|
49 |
|
|
Total Lease Receivables |
$ |
22 |
|
|
$ |
123 |
|
|
$ |
284 |
|
|
$ |
481 |
|
|
$ |
495 |
|
|
$ |
85 |
|
|
$ |
1,490 |
|
|
Loan Receivables: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1 to 4 |
$ |
27 |
|
|
$ |
108 |
|
|
$ |
265 |
|
|
$ |
733 |
|
|
$ |
1,299 |
|
|
$ |
503 |
|
|
$ |
2,935 |
|
|
5 to 6 |
11 |
|
|
55 |
|
|
170 |
|
|
439 |
|
|
764 |
|
|
307 |
|
|
1,746 |
|
|
7 and Higher |
2 |
|
|
3 |
|
|
41 |
|
|
40 |
|
|
28 |
|
|
14 |
|
|
128 |
|
|
Total Loan Receivables |
$ |
40 |
|
|
$ |
166 |
|
|
$ |
476 |
|
|
$ |
1,212 |
|
|
$ |
2,091 |
|
|
$ |
824 |
|
|
$ |
4,809 |
|
|
Financed Service Contracts: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1 to 4 |
$ |
3 |
|
|
$ |
20 |
|
|
$ |
85 |
|
|
$ |
189 |
|
|
$ |
824 |
|
|
$ |
334 |
|
|
$ |
1,455 |
|
|
5 to 6 |
3 |
|
|
19 |
|
|
90 |
|
|
257 |
|
|
370 |
|
|
116 |
|
|
855 |
|
|
7 and Higher |
— |
|
|
1 |
|
|
4 |
|
|
7 |
|
|
4 |
|
|
3 |
|
|
19 |
|
|
Total Financed Service Contracts |
$ |
6 |
|
|
$ |
40 |
|
|
$ |
179 |
|
|
$ |
453 |
|
|
$ |
1,198 |
|
|
$ |
453 |
|
|
$ |
2,329 |
|
|
Total |
$ |
68 |
|
|
$ |
329 |
|
|
$ |
939 |
|
|
$ |
2,146 |
|
|
$ |
3,784 |
|
|
$ |
1,362 |
|
|
$ |
8,628 |
|
CISCO SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year |
|
|
|
Internal Credit Risk Rating |
Prior |
|
July 29, 2017 |
|
July 28, 2018 |
|
July 27, 2019 |
|
July 25, 2020 |
|
July 31, 2021 |
|
Total |
|
Lease Receivables: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1 to 4 |
$ |
2 |
|
|
$ |
20 |
|
|
$ |
100 |
|
|
$ |
168 |
|
|
$ |
282 |
|
|
$ |
227 |
|
|
$ |
799 |
|
|
5 to 6 |
1 |
|
|
17 |
|
|
65 |
|
|
187 |
|
|
285 |
|
|
231 |
|
|
786 |
|
|
7 and Higher |
— |
|
|
2 |
|
|
6 |
|
|
12 |
|
|
23 |
|
|
4 |
|
|
47 |
|
|
Total Lease Receivables |
$ |
3 |
|
|
$ |
39 |
|
|
$ |
171 |
|
|
$ |
367 |
|
|
$ |
590 |
|
|
$ |
462 |
|
|
$ |
1,632 |
|
|
Loan Receivables: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1 to 4 |
$ |
4 |
|
|
$ |
86 |
|
|
$ |
134 |
|
|
$ |
577 |
|
|
$ |
990 |
|
|
$ |
1,552 |
|
|
$ |
3,343 |
|
|
5 to 6 |
— |
|
|
19 |
|
|
75 |
|
|
202 |
|
|
505 |
|
|
925 |
|
|
1,726 |
|
|
7 and Higher |
1 |
|
|
2 |
|
|
4 |
|
|
50 |
|
|
43 |
|
|
34 |
|
|
134 |
|
|
Total Loan Receivables |
$ |
5 |
|
|
$ |
107 |
|
|
$ |
213 |
|
|
$ |
829 |
|
|
$ |
1,538 |
|
|
$ |
2,511 |
|
|
$ |
5,203 |
|
|
Financed Service Contracts: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1 to 4 |
$ |
— |
|
|
$ |
38 |
|
|
$ |
26 |
|
|
$ |
106 |
|
|
$ |
252 |
|
|
$ |
1,053 |
|
|
$ |
1,475 |
|
|
5 to 6 |
— |
|
|
6 |
|
|
26 |
|
|
105 |
|
|
302 |
|
|
520 |
|
|
959 |
|
|
7 and Higher |
— |
|
|
— |
|
|
1 |
|
|
6 |
|
|
7 |
|
|
5 |
|
|
19 |
|
|
Total Financed Service Contracts |
$ |
— |
|
|
$ |
44 |
|
|
$ |
53 |
|
|
$ |
217 |
|
|
$ |
561 |
|
|
$ |
1,578 |
|
|
$ |
2,453 |
|
|
Total |
$ |
8 |
|
|
$ |
190 |
|
|
$ |
437 |
|
|
$ |
1,413 |
|
|
$ |
2,689 |
|
|
$ |
4,551 |
|
|
$ |
9,288 |
|
(1)
Lease receivables calculated as gross lease receivables less
unearned income.
The following tables present the aging analysis of gross
receivables as of October 30, 2021 and July 31, 2021 (in
millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
DAYS PAST DUE
(INCLUDES BILLED AND UNBILLED) |
|
|
|
|
|
|
|
|
|
|
|
October 30, 2021 |
31-60 |
|
61-90 |
|
91+ |
|
Total
Past Due |
|
Current |
|
Total |
|
120+ Still Accruing |
|
Nonaccrual
Financing
Receivables |
|
Impaired
Financing
Receivables |
|
Lease receivables |
$ |
34 |
|
|
$ |
12 |
|
|
$ |
22 |
|
|
$ |
68 |
|
|
$ |
1,422 |
|
|
$ |
1,490 |
|
|
$ |
8 |
|
|
$ |
24 |
|
|
$ |
24 |
|
|
Loan receivables |
77 |
|
|
17 |
|
|
27 |
|
|
121 |
|
|
4,688 |
|
|
4,809 |
|
|
6 |
|
|
29 |
|
|
29 |
|
|
Financed service contracts |
21 |
|
|
39 |
|
|
18 |
|
|
78 |
|
|
2,251 |
|
|
2,329 |
|
|
4 |
|
|
3 |
|
|
3 |
|
|
Total |
$ |
132 |
|
|
$ |
68 |
|
|
$ |
67 |
|
|
$ |
267 |
|
|
$ |
8,361 |
|
|
$ |
8,628 |
|
|
$ |
18 |
|
|
$ |
56 |
|
|
$ |
56 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
DAYS PAST DUE
(INCLUDES BILLED AND UNBILLED) |
|
|
|
|
|
|
|
|
|
|
|
July 31, 2021 |
31-60 |
|
61-90 |
|
91+ |
|
Total
Past Due |
|
Current |
|
Total |
|
120+ Still Accruing |
|
Nonaccrual
Financing
Receivables |
|
Impaired
Financing
Receivables |
|
Lease receivables |
$ |
21 |
|
|
$ |
17 |
|
|
$ |
29 |
|
|
$ |
67 |
|
|
$ |
1,565 |
|
|
$ |
1,632 |
|
|
$ |
1 |
|
|
$ |
33 |
|
|
$ |
26 |
|
|
Loan receivables |
71 |
|
|
17 |
|
|
35 |
|
|
123 |
|
|
5,080 |
|
|
5,203 |
|
|
4 |
|
|
33 |
|
|
33 |
|
|
Financed service contracts |
18 |
|
|
13 |
|
|
18 |
|
|
49 |
|
|
2,404 |
|
|
2,453 |
|
|
3 |
|
|
3 |
|
|
3 |
|
|
Total |
$ |
110 |
|
|
$ |
47 |
|
|
$ |
82 |
|
|
$ |
239 |
|
|
$ |
9,049 |
|
|
$ |
9,288 |
|
|
$ |
8 |
|
|
$ |
69 |
|
|
$ |
62 |
|
Past due financing receivables are those that are 31 days or more
past due according to their contractual payment terms. The data in
the preceding tables is presented by contract, and the aging
classification of each contract is based on the oldest outstanding
receivable, and therefore past due amounts also include unbilled
and current receivables within the same contract.
CISCO SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
(c)Allowance
for Credit Loss Rollforward
The allowances for credit loss and the related financing
receivables are summarized as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended October 30, 2021 |
CREDIT LOSS ALLOWANCES |
|
Lease
Receivables |
|
Loan
Receivables |
|
Financed Service
Contracts |
|
Total |
|
Allowance for credit loss as of July 31, 2021 |
$ |
38 |
|
|
$ |
86 |
|
|
$ |
3 |
|
|
$ |
127 |
|
|
Provisions (benefits) |
(5) |
|
|
(12) |
|
|
(1) |
|
|
(18) |
|
|
Allowance for credit loss as of October 30, 2021 |
$ |
33 |
|
|
$ |
74 |
|
|
$ |
2 |
|
|
$ |
109 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended October 24, 2020 |
CREDIT LOSS ALLOWANCES |
|
Lease
Receivables |
|
Loan
Receivables |
|
Financed Service
Contracts |
|
Total |
|
Allowance for credit loss as of July 25, 2020 |
$ |
48 |
|
|
$ |
81 |
|
|
$ |
9 |
|
|
$ |
138 |
|
|
Provisions (benefits) |
(3) |
|
|
3 |
|
|
(1) |
|
|
(1) |
|
|
Other |
1 |
|
|
17 |
|
|
(1) |
|
|
17 |
|
|
Allowance for credit loss as of October 24, 2020 |
$ |
46 |
|
|
$ |
101 |
|
|
$ |
7 |
|
|
$ |
154 |
|
10.Available-for-Sale
Debt and Equity Investments
(a)Summary
of Available-for-Sale Debt Investments
The following tables summarize our available-for-sale debt
investments (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
October 30, 2021 |
Amortized
Cost |
|
Gross
Unrealized
Gains |
|
Gross
Unrealized and Credit
Losses |
|
Fair
Value |
|
U.S. government securities |
$ |
2,032 |
|
|
$ |
12 |
|
|
$ |
(9) |
|
|
$ |
2,035 |
|
|
U.S. government agency securities |
142 |
|
|
— |
|
|
— |
|
|
142 |
|
|
Corporate debt securities |
9,114 |
|
|
156 |
|
|
(50) |
|
|
9,220 |
|
|
U.S. agency mortgage-backed securities |
2,790 |
|
|
24 |
|
|
(21) |
|
|
2,793 |
|
|
Commercial paper |
1,054 |
|
|
— |
|
|
— |
|
|
1,054 |
|
|
Certificates of deposit |
269 |
|
|
— |
|
|
— |
|
|
269 |
|
|
Total |
$ |
15,401 |
|
|
$ |
192 |
|
|
$ |
(80) |
|
|
$ |
15,513 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
July 31, 2021 |
Amortized
Cost |
|
Gross
Unrealized
Gains |
|
Gross
Unrealized and Credit
Losses |
|
Fair
Value |
|
U.S. government securities |
$ |
1,773 |
|
|
$ |
21 |
|
|
$ |
— |
|
|
$ |
1,794 |
|
|
U.S. government agency securities |
152 |
|
|
— |
|
|
— |
|
|
152 |
|
|
Non-U.S. government and agency securities |
3 |
|
|
— |
|
|
— |
|
|
3 |
|
|
Corporate debt securities |
8,727 |
|
|
213 |
|
|
(30) |
|
|
8,910 |
|
|
U.S. agency mortgage-backed securities |
2,838 |
|
|
34 |
|
|
(10) |
|
|
2,862 |
|
|
Commercial paper |
1,190 |
|
|
— |
|
|
— |
|
|
1,190 |
|
|
Certificates of deposit |
295 |
|
|
— |
|
|
— |
|
|
295 |
|
|
Total |
$ |
14,978 |
|
|
$ |
268 |
|
|
$ |
(40) |
|
|
$ |
15,206 |
|
CISCO SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
The following table presents the gross realized gains and gross
realized losses related to available-for-sale debt investments (in
millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
October 30, 2021 |
|
October 24, 2020 |
|
Gross realized gains |
$ |
6 |
|
|
$ |
15 |
|
|
Gross realized losses |
— |
|
|
— |
|
|
Total |
$ |
6 |
|
|
$ |
15 |
|
The following tables present the breakdown of the
available-for-sale debt investments with gross unrealized losses
and the duration that those losses had been unrealized at
October 30, 2021 and July 31, 2021 (in
millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
UNREALIZED LOSSES
LESS THAN 12 MONTHS |
|
UNREALIZED LOSSES
12 MONTHS OR GREATER |
|
TOTAL |
|
October 30, 2021 |
Fair Value |
|
Gross
Unrealized
Losses |
|
Fair Value |
|
Gross
Unrealized
Losses |
|
Fair Value |
|
Gross
Unrealized
Losses |
|
U.S. government securities
|
$ |
1,341 |
|
|
$ |
(9) |
|
|
$ |
2 |
|
|
$ |
— |
|
|
$ |
1,343 |
|
|
$ |
(9) |
|
|
U.S. government agency securities |
100 |
|
|
— |
|
|
— |
|
|
— |
|
|
100 |
|
|
— |
|
|
Corporate debt securities |
3,204 |
|
|
(24) |
|
|
27 |
|
|
(1) |
|
|
3,231 |
|
|
(25) |
|
|
U.S. agency mortgage-backed securities |
1,937 |
|
|
(20) |
|
|
52 |
|
|
(1) |
|
|
1,989 |
|
|
(21) |
|
|
Commercial paper |
25 |
|
|
— |
|
|
— |
|
|
— |
|
|
25 |
|
|
— |
|
|
Total |
$ |
6,607 |
|
|
$ |
(53) |
|
|
$ |
81 |
|
|
$ |
(2) |
|
|
$ |
6,688 |
|
|
$ |
(55) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
UNREALIZED LOSSES
LESS THAN 12 MONTHS |
|
UNREALIZED LOSSES
12 MONTHS OR GREATER |
|
TOTAL |
|
July 31, 2021 |
Fair Value |
|
Gross
Unrealized
Losses |
|
Fair Value |
|
Gross
Unrealized
Losses |
|
Fair Value |
|
Gross
Unrealized
Losses |
|
U.S. government securities |
$ |
468 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
468 |
|
|
$ |
— |
|
|
U.S. government agency securities |
26 |
|
|
— |
|
|
— |
|
|
— |
|
|
26 |
|
|
— |
|
|
Corporate debt securities |
1,086 |
|
|
(5) |
|
|
6 |
|
|
— |
|
|
1,092 |
|
|
(5) |
|
|
U.S. agency mortgage-backed securities |
1,293 |
|
|
(10) |
|
|
13 |
|
|
— |
|
|
1,306 |
|
|
(10) |
|
|
Commercial paper |
37 |
|
|
— |
|
|
— |
|
|
— |
|
|
37 |
|
|
— |
|
|
Total |
$ |
2,910 |
|
|
$ |
(15) |
|
|
$ |
19 |
|
|
$ |
— |
|
|
$ |
2,929 |
|
|
$ |
(15) |
|
The following table summarizes the maturities of our
available-for-sale debt investments as of October 30, 2021 (in
millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortized Cost |
|
Fair Value |
|
Within 1 year |
$ |
4,291 |
|
|
$ |
4,281 |
|
|
After 1 year through 5 years |
8,013 |
|
|
8,106 |
|
|
After 5 years through 10 years |
301 |
|
|
326 |
|
|
After 10 years |
6 |
|
|
7 |
|
|
Mortgage-backed securities with no single maturity |
2,790 |
|
|
2,793 |
|
|
Total |
$ |
15,401 |
|
|
$ |
15,513 |
|
Actual maturities may differ from the contractual maturities
because borrowers may have the right to call or prepay certain
obligations.
CISCO SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
(b)Summary
of Equity Investments
We recognized a net unrealized gain of $5 million during the
first quarter of fiscal 2022 on our marketable securities still
held as of the reporting date. Our net adjustments to
non-marketable equity securities measured using the measurement
alternative still held was a net gain of $2 million for the
first quarter of fiscal 2022.
We held equity interests in certain private equity funds of
$1.0 billion
and $0.9 billion as of October 30, 2021 and July 31,
2021, respectively, which are accounted for under the NAV practical
expedient.
In the ordinary course of business, we have investments in
privately held companies and provide financing to certain
customers. These privately held companies and customers are
evaluated for consolidation under the variable interest or voting
interest entity models. We evaluate on an ongoing basis our
investments in these privately held companies and our customer
financings, and have determined that as of October 30, 2021,
there were no significant variable interest or voting interest
entities required to be consolidated in our Consolidated Financial
Statements.
The carrying value of our investments in privately held companies
was $1.7 billion and $1.5 billion as of October 30,
2021 and July 31, 2021, respectively. Of the total carrying
value of our investments in privately held companies as of
October 30, 2021, $1.0 billion of such investments are
considered to be in variable interest entities which are
unconsolidated. As of October 30, 2021, we have total funding
commitments of $0.2 billion related to privately held investments,
some of which may be based on the achievement of certain
agreed-upon milestones or are required to be funded on demand. The
carrying value of these investments and the additional funding
commitments, collectively, represent our maximum exposure related
to privately held investments.
11.
Fair Value
Fair value is defined as the price that would be received from
selling an asset or paid to transfer a liability in an orderly
transaction between market participants at the measurement date.
When determining the fair value measurements for assets and
liabilities required or permitted to be either recorded or
disclosed at fair value, we consider the principal or most
advantageous market in which we would transact, and we also
consider assumptions that market participants would use when
pricing the asset or liability.
(a)Fair
Value Hierarchy
The accounting guidance for fair value measurement requires an
entity to maximize the use of observable inputs and minimize the
use of unobservable inputs when measuring fair value. The standard
establishes a fair value hierarchy based on the level of
independent, objective evidence surrounding the inputs used to
measure fair value. A financial instrument’s categorization within
the fair value hierarchy is based upon the lowest level of input
that is significant to the fair value measurement. The fair value
hierarchy is as follows:
Level 1
applies to assets or liabilities for which there are quoted prices
in active markets for identical assets or liabilities.
Level 2
applies to assets or liabilities for which there are inputs other
than quoted prices that are observable for the asset or liability,
such as quoted prices for similar assets or liabilities in active
markets; quoted prices for identical assets or liabilities in
markets with insufficient volume or infrequent transactions (less
active markets); or model-derived valuations in which significant
inputs are observable or can be derived principally from, or
corroborated by, observable market data.
Level 3
applies to assets or liabilities for which there are unobservable
inputs to the valuation methodology that are significant to the
measurement of the fair value of the assets or
liabilities.
CISCO SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
(b)Assets
and Liabilities Measured at Fair Value on a Recurring
Basis
Assets and liabilities measured at fair value on a recurring basis
were as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OCTOBER 30, 2021 |
|
JULY 31, 2021 |
|
FAIR VALUE MEASUREMENTS |
|
FAIR VALUE MEASUREMENTS |
|
|
Level 1 |
|
Level 2 |
|
Total
Balance |
|
Level 1 |
|
Level 2 |
|
Total
Balance |
|
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
Cash equivalents: |
|
|
|
|
|
|
|
|
|
|
|
|
Money market funds |
$ |
4,351 |
|
|
$ |
— |
|
|
$ |
4,351 |
|
|
$ |
5,694 |
|
|
$ |
— |
|
|
$ |
5,694 |
|
|
Commercial paper |
— |
|
|
10 |
|
|
10 |
|
|
— |
|
|
114 |
|
|
114 |
|
|
Certificates of deposit |
— |
|
|
27 |
|
|
27 |
|
|
— |
|
|
— |
|
|
— |
|
|
U.S. government securities |
— |
|
|
— |
|
|
— |
|
|
— |
|
|
300 |
|
|
300 |
|
|
Corporate debt securities |
— |
|
|
41 |
|
|
41 |
|
|
— |
|
|
— |
|
|
— |
|
|
Non-U.S. government and agency securities |
— |
|
|
30 |
|
|
30 |
|
|
— |
|
|
— |
|
|
— |
|
|
Available-for-sale debt investments: |
|
|
|
|
|
|
|
|
|
|
|
|
U.S. government securities |
— |
|
|
2,035 |
|
|
2,035 |
|
|
— |
|
|
1,794 |
|
|
1,794 |
|
|
U.S. government agency securities |
— |
|
|
142 |
|
|
142 |
|
|
— |
|
|
152 |
|
|
152 |
|
|
Corporate debt securities |
— |
|
|
9,220 |
|
|
9,220 |
|
|
— |
|
|
8,910 |
|
|
8,910 |
|
|
U.S. agency mortgage-backed securities |
— |
|
|
2,793 |
|
|
2,793 |
|
|
— |
|
|
2,862 |
|
|
2,862 |
|
|
Non-U.S. government and agency securities |
— |
|
|
— |
|
|
— |
|
|
— |
|
|
3 |
|
|
3 |
|
|
Commercial paper |
— |
|
|
1,054 |
|
|
1,054 |
|
|
— |
|
|
1,190 |
|
|
1,190 |
|
|
Certificates of deposit |
— |
|
|
269 |
|
|
269 |
|
|
— |
|
|
295 |
|
|
295 |
|
|
Equity investments: |
|
|
|
|
|
|
|
|
|
|
|
|
Marketable equity securities |
214 |
|
|
— |
|
|
214 |
|
|
137 |
|
|
— |
|
|
137 |
|
|
Other assets: |
|
|
|
|
|
|
|
|
|
|
|
|
Money market funds |
750 |
|
|
— |
|
|
750 |
|
|
750 |
|
|
— |
|
|
750 |
|
|
Derivative assets |
— |
|
|
116 |