10-Q 1 csco-20140426x10qq314.htm 10-Q CSCO - 2014.04.26 - 10Q Q3'14
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549 

FORM 10-Q
(Mark one)
x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended April 26, 2014
OR
¨
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 0-18225 

CISCO SYSTEMS, INC.
(Exact name of Registrant as specified in its charter)
 
 
 
 
California
 
77-0059951
(State or other jurisdiction of
incorporation or organization)
 
(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)
 

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   x     NO   ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files).     YES   x     NO   ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer  x
 
 
Accelerated filer
o
Non-accelerated filer (Do not check if a smaller reporting company)
o
 
Smaller reporting company 
o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    YES   ¨     NO   x
Number of shares of the registrant’s common stock outstanding as of May 16, 2014: 5,122,689,670


1


Cisco Systems, Inc.
Form 10-Q for the Quarter Ended April 26, 2014
INDEX
 
 
 
 
 
Page
Part I.
 
 
Item 1.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Item 2.
 
 
Item 3.
 
 
Item 4.
 
 
Part II.
 
 
Item 1.
 
 
Item 1A.
 
 
Item 2.
 
 
Item 3.
 
 
Item 4.
 
 
Item 5.
 
 
Item 6.
 
 
 
 
 
 



2


PART 1. FINANCIAL INFORMATION
Item 1.
Financial Statements (Unaudited)
CISCO SYSTEMS, INC.
CONSOLIDATED BALANCE SHEETS
(in millions, except par value)
(Unaudited)
 
April 26,
2014
 
July 27,
2013
ASSETS
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
6,241

 
$
7,925

Investments
44,228

 
42,685

Accounts receivable, net of allowance for doubtful accounts of $247 at April 26, 2014 and $228 at July 27, 2013
4,443

 
5,470

Inventories
1,528

 
1,476

Financing receivables, net
4,071

 
4,037

Deferred tax assets
2,504

 
2,616

Other current assets
1,273

 
1,312

Total current assets
64,288

 
65,521

Property and equipment, net
3,310

 
3,322

Financing receivables, net
3,537

 
3,911

Goodwill
24,076

 
21,919

Purchased intangible assets, net
3,461

 
3,403

Other assets
3,184

 
3,115

TOTAL ASSETS
$
101,856

 
$
101,191

LIABILITIES AND EQUITY
 
 
 
Current liabilities:
 
 
 
Short-term debt
$
508

 
$
3,283

Accounts payable
1,051

 
1,029

Income taxes payable

 
192

Accrued compensation
2,813

 
3,182

Deferred revenue
9,198

 
9,262

Other current liabilities
4,945

 
5,048

Total current liabilities
18,515

 
21,996

Long-term debt
20,384

 
12,928

Income taxes payable
1,530

 
1,748

Deferred revenue
3,953

 
4,161

Other long-term liabilities
1,678

 
1,230

Total liabilities
46,060

 
42,063

Commitments and contingencies (Note 12)

 

Equity:
 
 
 
Cisco shareholders’ equity:
 
 
 
Preferred stock, no par value: 5 shares authorized; none issued and outstanding

 

Common stock and additional paid-in capital, $0.001 par value: 20,000 shares authorized; 5,116 and 5,389 shares issued and outstanding at April 26, 2014 and July 27, 2013, respectively
41,241

 
42,297

Retained earnings
13,849

 
16,215

Accumulated other comprehensive income
697

 
608

Total Cisco shareholders’ equity
55,787

 
59,120

Noncontrolling interests
9

 
8

Total equity
55,796

 
59,128

TOTAL LIABILITIES AND EQUITY
$
101,856

 
$
101,191

See Notes to Consolidated Financial Statements.

3


CISCO SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in millions, except per-share amounts)
(Unaudited) 
 
Three Months Ended
 
Nine Months Ended
 
April 26,
2014
 
April 27,
2013
 
April 26,
2014
 
April 27,
2013
REVENUE:
 
 
 
 
 
 
 
Product
$
8,820

 
$
9,559

 
$
26,640

 
$
28,293

Service
2,725

 
2,657

 
8,145

 
7,897

Total revenue
11,545

 
12,216

 
34,785

 
36,190

COST OF SALES:
 
 
 
 
 
 
 
Product
3,595

 
3,782

 
11,665

 
11,387

Service
944

 
923

 
2,756

 
2,710

Total cost of sales
4,539

 
4,705

 
14,421

 
14,097

GROSS MARGIN
7,006

 
7,511

 
20,364

 
22,093

OPERATING EXPENSES:
 
 
 
 
 
 
 
Research and development
1,565

 
1,542

 
4,701

 
4,425

Sales and marketing
2,342

 
2,375

 
7,030

 
7,178

General and administrative
460

 
530

 
1,426

 
1,674

Amortization of purchased intangible assets
71

 
89

 
207

 
329

Restructuring and other charges
26

 
33

 
336

 
105

Total operating expenses
4,464

 
4,569

 
13,700

 
13,711

OPERATING INCOME
2,542

 
2,942

 
6,664

 
8,382

Interest income
170

 
162

 
508

 
483

Interest expense
(146
)
 
(145
)
 
(422
)
 
(440
)
Other income (loss), net
76

 
(14
)
 
187

 
(69
)
Interest and other income (loss), net
100

 
3

 
273

 
(26
)
INCOME BEFORE PROVISION FOR INCOME TAXES
2,642

 
2,945

 
6,937

 
8,356

Provision for income taxes
461

 
467

 
1,331

 
643

NET INCOME
$
2,181

 
$
2,478

 
$
5,606

 
$
7,713

 
 
 
 
 
 
 
 
Net income per share:
 
 
 
 
 
 
 
Basic
$
0.42

 
$
0.47

 
$
1.06

 
$
1.45

Diluted
$
0.42

 
$
0.46

 
$
1.06

 
$
1.44

Shares used in per-share calculation:
 
 
 
 
 
 
 
Basic
5,143

 
5,329

 
5,271

 
5,316

Diluted
5,180

 
5,387

 
5,311

 
5,361

 
 
 
 
 
 
 
 
Cash dividends declared per common share
$
0.19

 
$
0.17

 
$
0.53

 
$
0.45

See Notes to Consolidated Financial Statements.

4


CISCO SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(in millions)
(Unaudited)
 
Three Months Ended
 
Nine Months Ended
 
April 26,
2014
 
April 27,
2013
 
April 26,
2014
 
April 27,
2013
Net income
$
2,181

 
$
2,478

 
$
5,606

 
$
7,713

Available-for-sale investments:
 
 
 
 
 
 
 
Change in net unrealized gains, net of tax benefit (expense) of $(8) and $(131) for the three and nine months ended April 26, 2014, respectively, and $38 and $(7) for the corresponding periods of fiscal 2013, respectively
(8
)
 
(63
)
 
209

 
10

Net gains reclassified into earnings, net of tax expense of $26 and $88 for the three and nine months ended April 26, 2014, respectively, and $2 and $16 for the corresponding periods of fiscal 2013, respectively
(43
)
 
(4
)
 
(146
)
 
(30
)
 
(51
)
 
(67
)
 
63

 
(20
)
Cash flow hedging instruments:
 
 
 
 
 
 
 
Change in unrealized gains and losses, net of tax benefit (expense) of $(1) and $(2) for the three and nine months ended April 26, 2014, respectively, and $1 and $(1) for the corresponding periods of fiscal 2013, respectively
13

 
(10
)
 
44

 
58

Net (gains) losses reclassified into earnings
(16
)
 
(4
)
 
(44
)
 
(7
)
 
(3
)
 
(14
)
 

 
51

Net change in cumulative translation adjustment and other, net of tax benefit (expense) of $(5) for each of the three and nine months ended April 26, 2014, respectively, and $1 and $(14) for the corresponding periods of fiscal 2013, respectively
42

 
(128
)
 
27

 
(8
)
Other comprehensive (loss) income
(12
)
 
(209
)
 
90

 
23

Comprehensive income
2,169

 
2,269

 
5,696

 
7,736

Comprehensive (income) loss attributable to noncontrolling interests
6

 

 
(1
)
 
5

Comprehensive income attributable to Cisco Systems, Inc.
$
2,175

 
$
2,269

 
$
5,695

 
$
7,741


See Notes to Consolidated Financial Statements.


5


CISCO SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in millions)
(Unaudited) 
 
Nine Months Ended
 
April 26,
2014
 
April 27,
2013
Cash flows from operating activities:
 
 
 
Net income
$
5,606

 
$
7,713

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Depreciation, amortization, and other
1,811

 
1,851

Share-based compensation expense
1,009

 
880

Provision for receivables
48

 
46

Deferred income taxes
(181
)
 
48

Excess tax benefits from share-based compensation
(84
)
 
(48
)
(Gains) losses on investments and other, net
(228
)
 
(68
)
               Change in operating assets and liabilities, net of effects of acquisitions and divestitures:
 
 
 
Accounts receivable
1,064

 
(439
)
Inventories
(50
)
 
238

Financing receivables
332

 
(448
)
Other assets
180

 
(41
)
Accounts payable
(2
)
 
91

Income taxes, net
(356
)
 
(642
)
Accrued compensation
(411
)
 
(48
)
Deferred revenue
(309
)
 
(169
)
Other liabilities
291

 
(56
)
Net cash provided by operating activities
8,720

 
8,908

 
 
 
 
Cash flows from investing activities:
 
 
 
Purchases of investments
(27,884
)
 
(23,969
)
Proceeds from sales of investments
14,490

 
7,279

Proceeds from maturities of investments
12,048

 
13,234

Acquisition of property and equipment
(950
)
 
(843
)
Acquisition of businesses, net of cash and cash equivalents acquired
(2,784
)
 
(6,371
)
Purchases of investments in privately held companies
(315
)
 
(140
)
Return of investments in privately held companies
119

 
110

Proceeds from sales of property and equipment
168

 
57

Other
(30
)
 
(10
)
Net cash used in investing activities
(5,138
)
 
(10,653
)
 
 
 
 
Cash flows from financing activities:
 
 
 
Issuances of common stock
1,053

 
1,193

Repurchases of common stock - repurchase program
(7,965
)
 
(1,554
)
Shares repurchased for tax withholdings on vesting of restricted stock units
(345
)
 
(249
)
Short-term borrowings, original maturities less than 90 days, net
(2
)
 
(20
)
Issuances of debt
8,001

 

Repayments of debt
(3,274
)
 

Excess tax benefits from share-based compensation
84

 
48

Dividends paid
(2,784
)
 
(2,392
)
Other
(34
)
 
42

Net cash used in financing activities
(5,266
)
 
(2,932
)
Net decrease in cash and cash equivalents
(1,684
)
 
(4,677
)
Cash and cash equivalents, beginning of period
7,925

 
9,799

Cash and cash equivalents, end of period
$
6,241

 
$
5,122

 
 
 
 
Supplemental cash flow information:
 
 
 
Cash paid for interest
$
561

 
$
562

Cash paid for income taxes, net
$
1,868

 
$
1,236

See Notes to Consolidated Financial Statements.

6


CISCO SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF EQUITY
(in millions, except per-share amounts)
(Unaudited)
Nine Months Ended April 26, 2014
 
Shares of Common Stock
 
Common Stock and Additional Paid-In Capital
 
Retained Earnings
 
Accumulated Other Comprehensive Income
 
Total Cisco Shareholders’ Equity
 
Non-Controlling Interests
 
Total Equity
BALANCE AT JULY 27, 2013
 
5,389

 
$
42,297

 
$
16,215

 
$
608

 
$
59,120

 
$
8

 
$
59,128

Net income
 
 
 
 
 
5,606

 
 
 
5,606

 
 
 
5,606

Other comprehensive income
 
 
 
 
 
 
 
89

 
89

 
1

 
90

Issuance of common stock
 
100

 
1,053

 
 
 
 
 
1,053

 
 
 
1,053

Repurchase of common stock
 
(359
)
 
(2,837
)
 
(5,188
)
 
 
 
(8,025
)
 
 
 
(8,025
)
Shares repurchased for tax withholdings on vesting of restricted stock units
 
(14
)
 
(345
)
 
 
 
 
 
(345
)
 
 
 
(345
)
Cash dividends declared ($0.53 per common share)
 
 
 
 
 
(2,784
)
 
 
 
(2,784
)
 
 
 
(2,784
)
Tax effects from employee stock incentive plans
 
 
 
16

 
 
 
 
 
16

 
 
 
16

Share-based compensation expense
 
 
 
1,009

 
 
 
 
 
1,009

 
 
 
1,009

Purchase acquisitions and other
 
 
 
48

 
 
 
 
 
48

 
 
 
48

BALANCE AT APRIL 26, 2014
 
5,116

 
$
41,241

 
$
13,849

 
$
697

 
$
55,787

 
$
9

 
$
55,796


Nine Months Ended April 27, 2013
 
Shares of Common Stock
 
Common Stock and Additional Paid-In Capital
 
Retained Earnings
 
Accumulated Other Comprehensive Income
 
Total Cisco Shareholders’ Equity
 
Non-Controlling Interests
 
Total Equity
BALANCE AT JULY 28, 2012
 
5,298

 
$
39,271

 
$
11,354

 
$
661

 
$
51,286

 
$
15

 
$
51,301

Net income
 
 
 
 
 
7,713

 
 
 
7,713

 
 
 
7,713

Other comprehensive income (loss)
 
 
 
 
 
 
 
28

 
28

 
(5
)
 
23

Issuance of common stock
 
111

 
1,193

 
 
 
 
 
1,193

 
 
 
1,193

Repurchase of common stock
 
(81
)
 
(606
)
 
(1,007
)
 
 
 
(1,613
)
 
 
 
(1,613
)
Shares repurchased for tax withholdings on vesting of restricted stock units
 
(13
)
 
(249
)
 
 
 
 
 
(249
)
 
 
 
(249
)
Cash dividends declared ($0.45 per common share)
 
 
 
 
 
(2,392
)
 
 
 
(2,392
)
 
 
 
(2,392
)
Tax effects from employee stock incentive plans
 
 
 
(120
)
 
 
 
 
 
(120
)
 
 
 
(120
)
Share-based compensation expense
 
 
 
880

 
 
 
 
 
880

 
 
 
880

Purchase acquisitions and other
 
 
 
62

 
 
 
 
 
62

 
 
 
62

BALANCE AT APRIL 27, 2013
 
5,315

 
$
40,431

 
$
15,668

 
$
689

 
$
56,788

 
$
10

 
$
56,798

In September 2001, the Company’s Board of Directors authorized a stock repurchase program. As of April 26, 2014, the Company’s Board of Directors had authorized an aggregate repurchase of up to $97 billion of common stock under this program, with no termination date. The stock repurchases since the inception of this program and the related impacts on Cisco shareholders’ equity are summarized in the following table (in millions):
 
Shares of Common Stock
 
Common Stock and Additional Paid-In Capital
 
Retained Earnings
 
Total Cisco Shareholders’ Equity
Repurchases of common stock under the repurchase program
4,227

 
$
20,839

 
$
66,092

 
$
86,931

See Notes to Consolidated Financial Statements.

7


CISCO SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1.
Basis of Presentation
The fiscal year for Cisco Systems, Inc. (the “Company” or “Cisco”) is the 52 or 53 weeks ending on the last Saturday in July. Fiscal 2014 and fiscal 2013 are each 52-week fiscal years. The Consolidated Financial Statements include the accounts of Cisco and its subsidiaries. All significant intercompany accounts and transactions have been eliminated. The Company conducts business globally and is 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).
The accompanying financial data as of April 26, 2014 and for the three and nine months ended April 26, 2014 and April 27, 2013 has been prepared by the Company, 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 27, 2013 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, the Company believes 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 the Company’s Annual Report on Form 10-K for the fiscal year ended July 27, 2013.
The Company consolidates its investments in a venture fund managed by SOFTBANK Corp. and its affiliates (“SOFTBANK”) as this is a variable interest entity and the Company is the primary beneficiary. The noncontrolling interests attributed to SOFTBANK are presented as a separate component from the Company’s equity in the equity section of the Consolidated Balance Sheets. SOFTBANK’s share of the earnings in the venture fund are not presented separately in the Consolidated Statements of Operations as these amounts are not material for any of the fiscal periods presented.
In the opinion of management, all adjustments (which include normal recurring adjustments, except as disclosed herein) necessary to present fairly the statement of financial position as of April 26, 2014; the results of operations and statements of comprehensive income for the three and nine months ended April 26, 2014 and April 27, 2013; and the statements of cash flows and equity for the nine months ended April 26, 2014 and April 27, 2013, as applicable, have been made. The results of operations for the three and nine months ended April 26, 2014 are not necessarily indicative of the operating results for the full fiscal year or any future periods.
Certain reclassifications have been made to prior-period amounts in order to conform to the current period’s presentation. The Company has evaluated subsequent events through the date that the financial statements were issued.

2.
Recent Accounting Pronouncements
(a)
New Accounting Updates Recently Adopted
In December 2011, the Financial Accounting Standards Board (FASB) issued an accounting standard update requiring enhanced disclosures about certain financial instruments and derivative instruments that are offset in the statement of financial position or that are subject to enforceable master netting arrangements or similar agreements. This accounting standard became effective for the Company in the first quarter of fiscal 2014. As a result of the application of this accounting standard update, the Company has provided additional disclosures in Note 11.
In July 2012, the FASB issued an accounting standard update intended to simplify how an entity tests indefinite-lived intangible assets other than goodwill for impairment by providing entities with an option to perform a qualitative assessment to determine whether further impairment testing is necessary. This accounting standard update became effective for the Company beginning in the first quarter of fiscal 2014, and its adoption did not have any impact on the Company’s Consolidated Financial Statements.
In February 2013, the FASB issued an accounting standard update to require reclassification adjustments from other comprehensive income to be presented either in the financial statements or in the notes to the financial statements. This accounting standard became effective for the Company in the first quarter of fiscal 2014. As a result of the application of this accounting standard update, the Company has provided additional disclosures in Note 15.

8

CISCO SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)

(b)
Recent Accounting Standards or Updates Not Yet Effective
In March 2013, the FASB issued an accounting standard update requiring an entity to release into net income the entire amount of a cumulative translation adjustment related to its investment in a foreign entity when as a parent it either sells a part or all of its investment in the foreign entity or no longer holds a controlling financial interest in a subsidiary or group of assets within the foreign entity. This accounting standard update will be effective for the Company beginning in the first quarter of fiscal 2015. The Company is currently evaluating the impact of this accounting standard update on its Consolidated Financial Statements.
In July 2013, the FASB issued an accounting standard update that provides explicit guidance on the financial statement presentation of an unrecognized tax benefit when a net operating loss carryforward or a tax credit carryforward exists. Under the new standard update, an unrecognized tax benefit, or a portion of an unrecognized tax benefit, is to be presented in the financial statements as a reduction to a deferred tax asset for a net operating loss carryforward or a tax credit carryforward. This accounting standard update will be effective for the Company beginning in the first quarter of fiscal 2015 and applied prospectively with early adoption permitted. The Company is currently evaluating the impact of this accounting standard update on its Consolidated Financial Statements.
In April 2014, the FASB issued an accounting standard update that changes the criteria for reporting discontinued operations. Under the accounting standard update, a disposal of a component of an entity or a group of components of an entity is required to be reported in discontinued operations if the disposal represents a strategic shift that has, or will have, a major effect on an entity's operations and financial results when either it qualifies as held for sale, disposed of by sale, or disposed of other than by sale. This accounting standard update will be effective for the Company beginning in the first quarter of fiscal 2016. The Company is currently evaluating the impact of this accounting standard update on its Consolidated Financial Statements.

3.
Business Combinations
(a)
Acquisition Summary
The Company completed five business combinations during the nine months ended April 26, 2014. 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
Composite Software, Inc.
$
160

 
$
(10
)
 
$
75

 
$
95

Sourcefire, Inc.
2,449

 
81

 
577

 
1,791

WhipTail Technologies, Inc.
351

 
(34
)
 
105

 
280

All others (2 in total)
10

 
(2
)
 
6

 
6

   Total
$
2,970

 
$
35

 
$
763

 
$
2,172

On July 29, 2013, the Company completed its acquisition of privately held Composite Software, Inc. (“Composite Software”), a provider of data virtualization software and services. Composite Software provides technology that connects many types of data from across the network and makes it appear as if the data is in one place. With its acquisition of Composite Software, the Company intends to extend its next-generation services platform by connecting data and infrastructure. Revenue from the Composite Software acquisition has been included in the Company's Services category.
On October 7, 2013, the Company completed its acquisition of Sourcefire, Inc. (“Sourcefire”), a leader in intelligent cybersecurity solutions. Sourcefire delivers innovative, highly automated security through continuous awareness, threat detection, and protection across its portfolio, including next-generation intrusion prevention systems, next-generation firewalls, and advanced malware protection. With the Sourcefire acquisition, the Company aims to accelerate its security strategy of defending, discovering, and remediating advanced threats to provide continuous security solutions to the Company’s customers in more places across the network. Product revenue from the Sourcefire acquisition has been included in the Company's Security product category.

9

CISCO SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)

On October 28, 2013, the Company completed its acquisition of privately held WhipTail Technologies, Inc. (“WhipTail”), a leader in high performance, scalable solid state memory systems that enable organizations to simplify data center and virtualized environments and process more data in less time. With its WhipTail acquisition, the Company aims to strengthen its Unified Computing System (UCS) strategy and enhance application performance by integrating scalable solid state memory into the UCS’s fabric computing architecture. Product revenue from the WhipTail acquisition has been included in the Company's Data Center product category.
The total purchase consideration related to the Company’s business combinations completed during the nine months ended April 26, 2014 consisted of either cash consideration or cash consideration along with vested share-based awards assumed. The total cash and cash equivalents acquired from these business combinations was approximately $132 million. Total transaction costs related to the Company’s business combination activities were $7 million and $23 million for the nine months ended April 26, 2014 and April 27, 2013, respectively. These transaction costs were expensed as incurred in general and administrative (G&A) expenses in the Consolidated Statements of Operations.
The Company’s purchase price allocation for business combinations completed during recent periods is preliminary and subject to revision as additional information about fair value of assets and liabilities becomes available. Additional information, which existed as of the acquisition date but at that time was unknown to the Company, may become known to the Company during the remainder of the measurement period, a period not to exceed 12 months from the acquisition date. Adjustments in the purchase price allocation may require a recasting of the amounts allocated to goodwill retroactive to the period in which the acquisition occurred.
The goodwill generated from the Company’s business combinations completed during the nine months ended April 26, 2014 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 business combination from the date of acquisition. Pro forma results of operations for the acquisitions completed during the nine months ended April 26, 2014 have not been presented because the effects of the acquisitions, individually and in the aggregate, were not material to the Company’s financial results.
(b)
Insieme Networks, Inc.
In the second quarter of fiscal 2014, the Company acquired the remaining interest in Insieme Networks, Inc. See Note 12.

4.
Goodwill and Purchased Intangible Assets
(a)
Goodwill
The following table presents the goodwill allocated to the Company’s reportable segments as of and during the nine months ended April 26, 2014 (in millions):
 
 
Balance at
July 27, 2013
 
Acquisitions
 
Other
 
Balance at April 26, 2014
Americas
 
$
13,800

 
$
1,198

 
$
(12
)
 
$
14,986

EMEA
 
5,037

 
638

 
(3
)
 
5,672

APJC
 
3,082

 
336

 

 
3,418

Total
 
$
21,919

 
$
2,172

 
$
(15
)
 
$
24,076


10

CISCO SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)

(b)
Purchased Intangible Assets
The following table presents details of the Company’s intangible assets acquired through business combinations completed during the nine months ended April 26, 2014 (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
Composite Software, Inc.
6.0
 
$
60

 
3.9
 
$
14

 
0.0
 
$

 
$
1

 
$
75

Sourcefire, Inc.
7.0
 
400

 
5.0
 
129

 
3.0
 
26

 
22

 
577

WhipTail Technologies, Inc.
5.0
 
63

 
5.0
 
1

 
2.7
 
3

 
38

 
105

All other acquisitions
3.0
 
6

 
0.0
 

 
0.0
 

 

 
6

Total
 
 
$
529

 
 
 
$
144

 
 
 
$
29

 
$
61

 
$
763

The following tables present details of the Company’s purchased intangible assets (in millions): 
April 26, 2014
 
Gross
 
Accumulated Amortization
 
Net
Purchased intangible assets with finite lives:
 
 
 
 
 
 
Technology
 
$
4,117

 
$
(1,885
)
 
$
2,232

Customer relationships
 
1,698

 
(653
)
 
1,045

Other
 
56

 
(16
)
 
40

Total purchased intangible assets with finite lives
 
5,871

 
(2,554
)
 
3,317

In-process research and development, with indefinite lives
 
144

 

 
144

Total
 
$
6,015

 
$
(2,554
)
 
$
3,461

July 27, 2013
 
Gross
 
Accumulated Amortization
 
Net
Purchased intangible assets with finite lives:
 
 
 
 
 
 
Technology
 
$
3,563

 
$
(1,366
)
 
$
2,197

Customer relationships
 
1,566

 
(466
)
 
1,100

Other
 
30

 
(10
)
 
20

Total purchased intangible assets with finite lives
 
5,159

 
(1,842
)
 
3,317

In-process research and development, with indefinite lives
 
86

 

 
86

Total
 
$
5,245

 
$
(1,842
)
 
$
3,403

 
Purchased intangible assets include intangible assets acquired through business combinations as well as through direct purchases or licenses.
The following table presents the amortization of purchased intangible assets (in millions):
 
Three Months Ended
 
Nine Months Ended
 
April 26,
2014
 
April 27,
2013
 
April 26,
2014
 
April 27,
2013
Amortization of purchased intangible assets:
 
 
 
 
 
 
 
Cost of sales
$
190

 
$
156

 
$
553

 
$
444

Operating expenses
71

 
89

 
207

 
329

Total
$
261

 
$
245

 
$
760

 
$
773

There were no impairment charges related to purchased intangible assets during the periods presented.

11

CISCO SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)

The estimated future amortization expense of purchased intangible assets with finite lives as of April 26, 2014 is as follows (in millions):
Fiscal Year
 
Amount
2014 (remaining three months)
 
$
259

2015
 
959

2016
 
726

2017
 
550

2018
 
398

Thereafter
 
425

Total
 
$
3,317


5.
Restructuring and Other Charges
August Fiscal 2014 Plan

In August 2013, the Company announced a workforce reduction plan that will impact up to 4,000 employees, or 5%, of the Company’s global workforce. This workforce reduction plan is designed to enable the Company to rebalance its workforce in order to reinvest in key growth areas such as the cloud, data center, mobility, services, software, and security and to drive operational efficiencies. As the Company intends to reinvest in the above areas, it does not expect significant overall cost savings as a result of this rebalancing of its resources.

In connection with this restructuring action, the Company incurred charges of $26 million and $336 million for the three and nine months ended April 26, 2014. The Company expects total pre-tax charges pursuant to these restructuring actions not to exceed $500 million, and that substantially all of the remaining charges will be incurred in the fourth quarter of fiscal 2014.
The following table summarizes the activities related to the restructuring and other charges pursuant to the August Fiscal 2014 Plan (in millions):
August Fiscal 2014 Plan
 
Employee
Severance
 
Other
 
Total
Gross charges in fiscal 2014
 
$
331

 
$
5

 
$
336

Cash payments
 
(306
)
 

 
(306
)
Non-cash items
 

 
(5
)
 
(5
)
Liability as of April 26, 2014
 
$
25

 
$

 
$
25

Fiscal 2011 Plans
The Fiscal 2011 Plans consist primarily of the realignment and restructuring of the Company’s business announced in July 2011 and of certain consumer product lines as announced during April 2011. The Company completed the Fiscal 2011 Plans at the end of fiscal 2013 and does not expect any remaining charges related to these actions. The Company incurred cumulative charges of approximately $1.1 billion in connection with these plans. For the three and nine months ended April 27, 2013, such charges were $33 million and $105 million. The remaining liability balance as of April 26, 2014 was $4 million inclusive of severance and non-severance activities.

12

CISCO SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)

6.
Balance Sheet Details
The following tables provide details of selected balance sheet items (in millions):
 
 
April 26,
2014
 
July 27,
2013
Inventories:
 
 
 
 
Raw materials
 
$
57

 
$
105

Work in process
 
5

 
24

Finished goods:
 
 
 
 
Distributor inventory and deferred cost of sales
 
623

 
572

Manufactured finished goods
 
550

 
480

Total finished goods
 
1,173

 
1,052

Service-related spares
 
255

 
256

Demonstration systems
 
38

 
39

Total
 
$
1,528

 
$
1,476

Property and equipment, net:
 
 
 
 
Land, buildings, and building and leasehold improvements
 
$
4,496

 
$
4,426

Computer equipment and related software
 
1,442

 
1,416

Production, engineering, and other equipment
 
5,750

 
5,721

Operating lease assets (1)
 
360

 
326

Furniture and fixtures
 
508

 
497

 
 
12,556

 
12,386

Less accumulated depreciation and amortization (1)
 
(9,246
)
 
(9,064
)
Total
 
$
3,310

 
$
3,322

(1)      Accumulated depreciation related to operating lease assets was $198 and $203 as of April 26, 2014 and July 27, 2013, respectively.
 Other assets:
 
 
 
 
Deferred tax assets
 
$
1,540

 
$
1,539

Investments in privately held companies
 
923

 
833

Other
 
721

 
743

Total
 
$
3,184

 
$
3,115

Deferred revenue:
 
 
 
 
Service
 
$
8,746

 
$
9,403

Product:
 
 
 
 
Unrecognized revenue on product shipments and other deferred revenue
 
3,669

 
3,340

Cash receipts related to unrecognized revenue from two-tier distributors
 
736

 
680

Total product deferred revenue
 
4,405

 
4,020

Total
 
$
13,151

 
$
13,423

Reported as:
 
 
 
 
Current
 
$
9,198

 
$
9,262

Noncurrent
 
3,953

 
4,161

Total
 
$
13,151

 
$
13,423




13

CISCO SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)


7.
Financing Receivables and Guarantees
(a)
Financing Receivables
Financing receivables primarily consist of lease receivables, loan receivables, and financed service contracts and other. Lease receivables represent sales-type and direct-financing leases resulting from the sale of the Company’s and complementary third-party products and are typically collateralized by a security interest in the underlying assets. Loan receivables represent financing arrangements related to the sale of the Company’s products and services, which may include additional funding for other costs associated with network installation and integration of the Company’s products and services. Lease receivables consist of arrangements with terms of four years on average, while loan receivables generally have terms of up to three years. The financed service contracts and other category includes financing receivables related to technical support and advanced services, as well as receivables related to financing of certain indirect costs associated with leases. 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 to three years.
A summary of the Company’s financing receivables is presented as follows (in millions):
April 26, 2014
Lease Receivables
 
Loan Receivables
 
Financed Service Contracts and Other
 
Total Financing Receivables
Gross
$
3,783

 
$
1,621

 
$
2,810

 
$
8,214

Unearned income
(246
)
 

 

 
(246
)
Allowance for credit loss
(249
)
 
(92
)
 
(19
)
 
(360
)
Total, net
$
3,288

 
$
1,529

 
$
2,791

 
$
7,608

Reported as:
 
 
 
 
 
 
 
Current
$
1,480

 
$
814

 
$
1,777

 
$
4,071

Noncurrent
1,808

 
715

 
1,014

 
3,537

Total, net
$
3,288

 
$
1,529

 
$
2,791

 
$
7,608

July 27, 2013
Lease Receivables
 
Loan Receivables
 
Financed Service Contracts and Other
 
Total Financing Receivables
Gross
$
3,780

 
$
1,649

 
$
3,136

 
$
8,565

Unearned income
(273
)
 

 

 
(273
)
Allowance for credit loss
(238
)
 
(86
)
 
(20
)
 
(344
)
Total, net
$
3,269

 
$
1,563

 
$
3,116

 
$
7,948

Reported as:
 
 
 
 
 
 
 
Current
$
1,418

 
$
898

 
$
1,721

 
$
4,037

Noncurrent
1,851

 
665

 
1,395

 
3,911

Total, net
$
3,269

 
$
1,563

 
$
3,116

 
$
7,948

As of April 26, 2014 and July 27, 2013, the deferred service revenue related to the financed service contracts and other was $1,592 million and $2,036 million, respectively.
Contractual maturities of the gross lease receivables at April 26, 2014 are summarized as follows (in millions):
Fiscal Year
 
Amount
2014 (remaining three months)
 
$
589

2015
 
1,471

2016
 
971

2017
 
524

2018
 
194

Thereafter
 
34

Total
 
$
3,783


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

14

CISCO SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)

(b)
Credit Quality of Financing Receivables
Financing receivables categorized by the Company’s internal credit risk rating as of April 26, 2014 and July 27, 2013 are summarized as follows (in millions):
 
INTERNAL CREDIT RISK RATING
 
 
 
 
 
 
April 26, 2014
1 to 4
 
5 to 6
 
7 and Higher
 
Total
 
Residual Value
 
Gross Receivables,
Net of Unearned Income
Lease receivables
$
1,604

 
$
1,557

 
$
133

 
$
3,294

 
$
243

 
$
3,537

Loan receivables
894

 
595

 
132

 
1,621

 

 
1,621

Financed service contracts and other
1,569

 
1,160

 
81

 
2,810

 

 
2,810

Total
$
4,067

 
$
3,312

 
$
346

 
$
7,725

 
$
243

 
$
7,968

 
INTERNAL CREDIT RISK RATING
 
 
 
 
 
 
July 27, 2013
1 to 4
 
5 to 6
 
7 and Higher
 
Total
 
Residual Value
 
Gross Receivables,
Net of Unearned Income
Lease receivables
$
1,681

 
$
1,482

 
$
93

 
$
3,256

 
$
251

 
$
3,507

Loan receivables
842

 
777

 
30

 
1,649

 

 
1,649

Financed service contracts and other
1,876

 
1,141

 
119

 
3,136

 

 
3,136

Total
$
4,399

 
$
3,400

 
$
242

 
$
8,041

 
$
251

 
$
8,292

The Company determines the adequacy of its allowance for credit loss by assessing the risks and losses inherent in its financing receivables by portfolio segment. The portfolio segment is based on the types of financing offered by the Company to its customers, which consist of the following: lease receivables, loan receivables, and financed service contracts and other.
The Company’s internal credit risk ratings of 1 through 4 correspond to investment-grade ratings, while credit risk ratings of 5 and 6 correspond to non-investment grade ratings. Credit risk ratings of 7 and higher correspond to substandard ratings.
In circumstances when collectibility is not deemed reasonably assured, the associated revenue is deferred in accordance with the Company’s revenue recognition policies, and the related allowance for credit loss, if any, is included in deferred revenue. The Company also records deferred revenue associated with financing receivables when there are remaining performance obligations, as it does for financed service contracts. Total allowances for credit loss and deferred revenue as of April 26, 2014 and July 27, 2013 were $1,989 million and $2,453 million, respectively, and they were associated with financing receivables (net of unearned income) of $7,968 million and $8,292 million as of their respective period ends.
The following tables present the aging analysis of financing receivables as of April 26, 2014 and July 27, 2013 (in millions):
 
DAYS PAST DUE (INCLUDES BILLED AND UNBILLED)
 
 
 
 
 
 
 
 
April 26, 2014
31-60
 
61-90 
 
91+
 
Total Past Due
 
Current
 
Gross Receivables,
Net of Unearned Income
 
Nonaccrual Financing Receivables
 
Impaired Financing Receivables
Lease receivables
$
83

 
$
41

 
$
165

 
$
289

 
$
3,248

 
$
3,537

 
$
67

 
$
54

Loan receivables
5

 
6

 
15

 
26

 
1,595

 
1,621

 
8

 
8

Financed service contracts and other
228

 
96

 
239

 
563

 
2,247

 
2,810

 
11

 
8

Total
$
316

 
$
143

 
$
419

 
$
878

 
$
7,090

 
$
7,968

 
$
86

 
$
70


15

CISCO SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)

 
DAYS PAST DUE (INCLUDES BILLED AND UNBILLED)
 
 
 
 
 
 
 
 
July 27, 2013
31-60
 
61-90 
 
91+
 
Total Past Due
 
Current
 
Gross Receivables,
Net of Unearned Income
 
Nonaccrual Financing Receivables
 
Impaired Financing Receivables
Lease receivables
$
85

 
$
48

 
$
124

 
$
257

 
$
3,250

 
$
3,507

 
$
27

 
$
22

Loan receivables
6

 
3

 
11

 
20

 
1,629

 
1,649

 
11

 
9

Financed service contracts and other
75

 
48

 
392

 
515

 
2,621

 
3,136

 
18

 
11

Total
$
166

 
$
99

 
$
527

 
$
792

 
$
7,500

 
$
8,292

 
$
56

 
$
42

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 are 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. The balances of either unbilled or current financing receivables included in the category of 91 days plus past due for financing receivables were $295 million and $406 million as of April 26, 2014 and July 27, 2013, respectively.
As of April 26, 2014, the Company had financing receivables of $88 million, net of unbilled or current receivables from the same contract, that were in the category of 91 days plus past due but remained on accrual status. Such balance was $87 million as of July 27, 2013. A financing receivable may be placed on nonaccrual status earlier if, in management’s opinion, a timely collection of the full principal and interest becomes uncertain.
(c)
Allowance for Credit Loss Rollforward
The allowances for credit loss and the related financing receivables are summarized as follows (in millions):

 
CREDIT LOSS ALLOWANCES
Three Months Ended April 26, 2014
Lease Receivables
 
Loan Receivables
 
Financed Service Contracts and Other
 
Total
Allowance for credit loss as of January 25, 2014
$
254

 
$
98

 
$
22

 
$
374

Provisions
(6
)
 
(10
)
 
(2
)
 
(18
)
Recoveries (write-offs), net
(1
)
 
4

 
(1
)
 
2

Foreign exchange and other
2

 

 

 
2

Allowance for credit loss as of April 26, 2014
$
249

 
$
92

 
$
19

 
$
360

Gross receivables as of April 26, 2014, net of unearned income
$
3,537

 
$
1,621

 
$
2,810

 
$
7,968


 
CREDIT LOSS ALLOWANCES
Nine Months Ended April 26, 2014
Lease Receivables
 
Loan Receivables
 
Financed Service Contracts and Other
 
Total
Allowance for credit loss as of July 27, 2013
$
238

 
$
86

 
$
20

 
$
344

Provisions
9

 
5

 

 
14

Recoveries (write-offs), net

 
4

 
(1
)
 
3

Foreign exchange and other
2

 
(3
)
 

 
(1
)
Allowance for credit loss as of April 26, 2014
$
249

 
$
92

 
$
19

 
$
360





16

CISCO SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)

 
CREDIT LOSS ALLOWANCES
Three Months Ended April 27, 2013
Lease Receivables
 
Loan Receivables
 
Financed Service Contracts and Other
 
Total
Allowance for credit loss as of January 26, 2013
$
247

 
$
101

 
$
13

 
$
361

Provisions
30

 
8

 
6

 
44

Recoveries (write-offs), net
(29
)
 
(15
)
 

 
(44
)
Foreign exchange and other
(3
)
 
(1
)
 

 
(4
)
Allowance for credit loss as of April 27, 2013
$
245

 
$
93

 
$
19

 
$
357

Gross receivables as of April 27, 2013, net of unearned income
$
3,478

 
$
1,671

 
$
2,924

 
$
8,073

 
CREDIT LOSS ALLOWANCES
Nine Months Ended April 27, 2013
Lease Receivables
 
Loan Receivables
 
Financed Service Contracts and Other
 
Total
Allowance for credit loss as of July 28, 2012
$
247

 
$
122

 
$
11

 
$
380

Provisions
27

 
(15
)
 
8

 
20

Recoveries (write-offs), net
(29
)
 
(15
)
 

 
(44
)
Foreign exchange and other

 
1

 

 
1

Allowance for credit loss as of April 27, 2013
$
245

 
$
93

 
$
19

 
$
357

The Company assesses the allowance for credit loss related to financing receivables on either an individual or a collective basis. The Company considers various factors in evaluating lease and loan receivables and the earned portion of financed service contracts for possible impairment on an individual basis. These factors include the Company’s historical experience, credit quality and age of the receivable balances, and economic conditions that may affect a customer’s ability to pay. When the evaluation indicates that it is probable that all amounts due pursuant to the contractual terms of the financing agreement, including scheduled interest payments, are unable to be collected, the financing receivable is considered impaired. All such outstanding amounts, including any accrued interest, will be assessed and fully reserved at the customer level. The Company’s internal credit risk ratings are categorized as 1 through 10, with the lowest credit risk rating representing the highest quality financing receivables.
Typically, the Company also considers receivables with a risk rating of 8 or higher to be impaired and will include them in the individual assessment for allowance. These balances, as of April 26, 2014 and July 27, 2013, are presented under “(b) Credit Quality of Financing Receivables” above.
The Company evaluates the remainder of its financing receivables portfolio for impairment on a collective basis and records an allowance for credit loss at the portfolio segment level. When evaluating the financing receivables on a collective basis, the Company uses expected default frequency rates published by a major third-party credit-rating agency as well as its own historical loss rate in the event of default, while also systematically giving effect to economic conditions, concentration of risk, and correlation.
(d)
Financing Guarantees
In the ordinary course of business, the Company provides financing guarantees for various third-party financing arrangements extended to channel partners and end-user customers. Payments under these financing guarantee arrangements were not material for the periods presented.
Channel Partner Financing Guarantees The Company facilitates arrangements for third-party financing extended to channel partners, consisting of revolving short-term financing, generally with payment terms ranging from 60 to 90 days. These financing arrangements facilitate the working capital requirements of the channel partners, and, in some cases, the Company guarantees a portion of these arrangements. The volume of channel partner financing was $5.8 billion for each of the three months ended April 26, 2014 and April 27, 2013, respectively. The volume of channel partner financing was $17.9 billion and $17.2 billion for the nine months ended April 26, 2014 and April 27, 2013, respectively. The balance of the channel partner financing subject to guarantees was $1.1 billion and $1.4 billion as of April 26, 2014 and July 27, 2013, respectively.

17

CISCO SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)

End-User Financing Guarantees The Company also provides financing guarantees for third-party financing arrangements extended to end-user customers related to leases and loans, which typically have terms of up to three years. The volume of financing provided by third parties for leases and loans as to which the Company had provided guarantees was $44 million and $38 million for the three months ended April 26, 2014 and April 27, 2013, respectively, and was $89 million and $137 million for the nine months ended April 26, 2014 and April 27, 2013, respectively.
Financing Guarantee Summary  The aggregate amounts of financing guarantees outstanding at April 26, 2014 and July 27, 2013, representing the total maximum potential future payments under financing arrangements with third parties along with the related deferred revenue, are summarized in the following table (in millions):
 
April 26,
2014
 
July 27,
2013
Maximum potential future payments relating to financing guarantees:
 
 
 
Channel partner
$
247

 
$
438

End user
229

 
237

Total
$
476

 
$
675

Deferred revenue associated with financing guarantees:
 
 
 
Channel partner
$
(132
)
 
$
(225
)
End user
(198
)
 
(191
)
Total
$
(330
)
 
$
(416
)
Maximum potential future payments relating to financing guarantees, net of associated deferred revenue
$
146

 
$
259


8.
Investments
(a)
Summary of Available-for-Sale Investments
The following tables summarize the Company’s available-for-sale investments (in millions):
April 26, 2014
Amortized Cost
 
Gross Unrealized Gains
 
Gross Unrealized Losses
 
Fair Value
Fixed income securities:
 
 
 
 
 
 
 
U.S. government securities
$
31,675

 
$
34

 
$
(6
)
 
$
31,703

U.S. government agency securities
1,060

 
2

 
(1
)
 
1,061

Non-U.S. government and agency securities
819

 
2

 
(1
)
 
820

Corporate debt securities
8,050

 
75

 
(10
)
 
8,115

U.S. agency mortgage-backed securities
567

 
3

 

 
570

Total fixed income securities
42,171

 
116

 
(18
)
 
42,269

Publicly traded equity securities
1,314

 
652

 
(7
)
 
1,959

Total
$
43,485

 
$
768

 
$
(25
)
 
$
44,228

July 27, 2013
Amortized Cost
 
Gross Unrealized Gains
 
Gross Unrealized Losses
 
Fair Value
Fixed income securities:
 
 
 
 
 
 
 
U.S. government securities
$
27,814

 
$
22

 
$
(13
)
 
$
27,823

U.S. government agency securities
3,083

 
7

 
(1
)
 
3,089

Non-U.S. government and agency securities
1,094

 
3

 
(2
)
 
1,095

Corporate debt securities
7,876

 
55

 
(50
)
 
7,881

Total fixed income securities
39,867

 
87

 
(66
)
 
39,888

Publicly traded equity securities
2,063

 
738

 
(4
)
 
2,797

Total
$
41,930

 
$
825

 
$
(70
)
 
$
42,685


18

CISCO SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)

Non-U.S. government and agency securities include agency and corporate debt securities that are guaranteed by non-U.S. governments.
(b)
Gains and Losses on Available-for-Sale Investments
The following table presents the gross realized gains and gross realized losses related to the Company’s available-for-sale investments (in millions):
 
Three Months Ended
 
Nine Months Ended
 
April 26,
2014
 
April 27,
2013
 
April 26,
2014
 
April 27,
2013
Gross realized gains