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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
_____________________________________
FORM 10-Q
(Mark One)
| | | | | |
☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended January 27, 2024
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 001-39940
_____________________________________
CISCO SYSTEMS, INC.
(Exact name of registrant as specified in its charter)
| | | | | | | | |
Delaware | | 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)
Not Applicable
(Former name, former address and formal fiscal year, if changed since last report.)
_____________________________________
Securities registered pursuant to Section 12(b) of the Act:
| | | | | | | | |
Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
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.
| | | | | | | | | | | | | | | | | | | | | | | |
Large accelerated filer | | ☒ | | | Accelerated filer | | ☐ |
| | | |
Non-accelerated filer | | ☐ | | | Smaller reporting company | | ☐ |
| | | | | | | |
| | | | | Emerging growth company | | ☐ |
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 February 15, 2024: 4,049,187,080
____________________________________
Cisco Systems, Inc.
Form 10-Q for the Quarter Ended January 27, 2024
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. | | | | |
| | | | |
PART I. FINANCIAL INFORMATION
| | | | | |
Item 1. | Financial Statements (Unaudited) |
CISCO SYSTEMS, INC.
CONSOLIDATED BALANCE SHEETS
(in millions, except par value)
(Unaudited)
| | | | | | | | | | | |
| January 27, 2024 | | July 29, 2023 |
ASSETS | | | |
Current assets: | | | |
Cash and cash equivalents | $ | 13,715 | | | $ | 10,123 | |
Investments | 11,956 | | | 16,023 | |
Accounts receivable, net of allowance of $79 at January 27, 2024 and $85 at July 29, 2023 | 4,884 | | | 5,854 | |
Inventories | 3,209 | | | 3,644 | |
Financing receivables, net | 3,476 | | | 3,352 | |
Other current assets | 4,887 | | | 4,352 | |
Total current assets | 42,127 | | | 43,348 | |
Property and equipment, net | 2,005 | | | 2,085 | |
Financing receivables, net | 3,364 | | | 3,483 | |
Goodwill | 39,087 | | | 38,535 | |
Purchased intangible assets, net | 1,678 | | | 1,818 | |
Deferred tax assets | 7,338 | | | 6,576 | |
Other assets | 5,575 | | | 6,007 | |
TOTAL ASSETS | $ | 101,174 | | | $ | 101,852 | |
LIABILITIES AND EQUITY | | | |
Current liabilities: | | | |
Short-term debt | $ | 4,936 | | | $ | 1,733 | |
Accounts payable | 1,848 | | | 2,313 | |
Income taxes payable | 1,876 | | | 4,235 | |
Accrued compensation | 3,216 | | | 3,984 | |
Deferred revenue | 14,011 | | | 13,908 | |
Other current liabilities | 4,964 | | | 5,136 | |
Total current liabilities | 30,851 | | | 31,309 | |
Long-term debt | 6,669 | | | 6,658 | |
Income taxes payable | 3,390 | | | 5,756 | |
Deferred revenue | 11,760 | | | 11,642 | |
Other long-term liabilities | 2,253 | | | 2,134 | |
Total liabilities | 54,923 | | | 57,499 | |
Commitments and contingencies (Note 14) | | | |
Equity: | | | |
Cisco stockholders’ equity: | | | |
Preferred stock, $0.001 par value: 5 shares authorized; none issued and outstanding | — | | | — | |
Common stock and additional paid-in capital, $0.001 par value: 20,000 shares authorized; 4,050 and 4,066 shares issued and outstanding at January 27, 2024 and July 29, 2023, respectively | 45,002 | | | 44,289 | |
Retained earnings | 2,761 | | | 1,639 | |
Accumulated other comprehensive loss | (1,512) | | | (1,575) | |
Total equity | 46,251 | | | 44,353 | |
TOTAL LIABILITIES AND EQUITY | $ | 101,174 | | | $ | 101,852 | |
See Notes to Consolidated Financial Statements.
CISCO SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in millions, except per-share amounts)
(Unaudited)
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | Six Months Ended |
| January 27, 2024 | | January 28, 2023 | | January 27, 2024 | | January 28, 2023 |
REVENUE: | | | | | | | |
Product | $ | 9,232 | | | $ | 10,155 | | | $ | 20,371 | | | $ | 20,400 | |
Service | 3,559 | | | 3,437 | | | 7,088 | | | 6,824 | |
Total revenue | 12,791 | | | 13,592 | | | 27,459 | | | 27,224 | |
COST OF SALES: | | | | | | | |
Product | 3,443 | | | 4,038 | | | 7,400 | | | 8,217 | |
Service | 1,131 | | | 1,127 | | | 2,285 | | | 2,234 | |
Total cost of sales | 4,574 | | | 5,165 | | | 9,685 | | | 10,451 | |
GROSS MARGIN | 8,217 | | | 8,427 | | | 17,774 | | | 16,773 | |
OPERATING EXPENSES: | | | | | | | |
Research and development | 1,943 | | | 1,855 | | | 3,856 | | | 3,636 | |
Sales and marketing | 2,458 | | | 2,384 | | | 4,964 | | | 4,775 | |
General and administrative | 642 | | | 582 | | | 1,314 | | | 1,147 | |
Amortization of purchased intangible assets | 66 | | | 71 | | | 133 | | | 142 | |
Restructuring and other charges | 12 | | | 243 | | | 135 | | | 241 | |
Total operating expenses | 5,121 | | | 5,135 | | | 10,402 | | | 9,941 | |
OPERATING INCOME | 3,096 | | | 3,292 | | | 7,372 | | | 6,832 | |
Interest income | 324 | | | 219 | | | 684 | | | 388 | |
Interest expense | (120) | | | (107) | | | (231) | | | (207) | |
Other income (loss), net | (139) | | | 11 | | | (222) | | | (123) | |
Interest and other income (loss), net | 65 | | | 123 | | | 231 | | | 58 | |
INCOME BEFORE PROVISION FOR INCOME TAXES | 3,161 | | | 3,415 | | | 7,603 | | | 6,890 | |
Provision for income taxes | 527 | | | 642 | | | 1,331 | | | 1,447 | |
NET INCOME | $ | 2,634 | | | $ | 2,773 | | | $ | 6,272 | | | $ | 5,443 | |
| | | | | | | |
Net income per share: | | | | | | | |
Basic | $ | 0.65 | | | $ | 0.68 | | | $ | 1.55 | | | $ | 1.33 | |
Diluted | $ | 0.65 | | | $ | 0.67 | | | $ | 1.54 | | | $ | 1.32 | |
Shares used in per-share calculation: | | | | | | | |
Basic | 4,055 | | | 4,103 | | | 4,056 | | | 4,105 | |
Diluted | 4,073 | | | 4,116 | | | 4,079 | | | 4,115 | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
See Notes to Consolidated Financial Statements.
CISCO SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(in millions)
(Unaudited)
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | Six Months Ended |
| January 27, 2024 | | January 28, 2023 | | January 27, 2024 | | January 28, 2023 |
Net income | $ | 2,634 | | | $ | 2,773 | | | $ | 6,272 | | | $ | 5,443 | |
Available-for-sale investments: | | | | | | | |
Change in net unrealized gains and losses, net of tax benefit (expense) of $(73) and $(33) for the second quarter and first six months of fiscal 2024, respectively, and $(66) and $12 for the corresponding periods of fiscal 2023, respectively | 229 | | | 187 | | | 99 | | | (64) | |
Net (gains) losses reclassified into earnings, net of tax (benefit) expense of $(5) and $(9) for the second quarter and first six months of fiscal 2024, respectively, and $0 and $(1) for the corresponding periods of fiscal 2023, respectively | 18 | | | 3 | | | 34 | | | 8 | |
| 247 | | | 190 | | | 133 | | | (56) | |
Cash flow hedging instruments: | | | | | | | |
Change in unrealized gains and losses, net of tax benefit (expense) of $0 and $(9) for the second quarter and first six months of fiscal 2024, respectively, and $11 and $3 for the corresponding periods of fiscal 2023, respectively | 1 | | | (33) | | | 30 | | | (9) | |
Net (gains) losses reclassified into earnings, net of tax (benefit) expense of $2 and $5 for the second quarter and first six months of fiscal 2024, respectively, and $4 and $9 for the corresponding periods of fiscal 2023, respectively | (9) | | | (14) | | | (18) | | | (28) | |
| (8) | | | (47) | | | 12 | | | (37) | |
Net change in cumulative translation adjustment and actuarial gains and losses net of tax benefit (expense) of $0 and $1 for the second quarter and first six months of fiscal 2024, respectively, and $2 and $24 for the corresponding periods of fiscal 2023, respectively | 274 | | | 389 | | | (82) | | | 129 | |
Other comprehensive income | 513 | | | 532 | | | 63 | | | 36 | |
Comprehensive income | $ | 3,147 | | | $ | 3,305 | | | $ | 6,335 | | | $ | 5,479 | |
See Notes to Consolidated Financial Statements.
CISCO SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in millions)
(Unaudited)
| | | | | | | | | | | |
| Six Months Ended |
| January 27, 2024 | | January 28, 2023 |
Cash flows from operating activities: | | | |
Net income | $ | 6,272 | | | $ | 5,443 | |
Adjustments to reconcile net income to net cash provided by operating activities: | | | |
Depreciation, amortization, and other | 823 | | | 853 | |
Share-based compensation expense | 1,463 | | | 1,097 | |
Provision (benefit) for receivables | 12 | | | 6 | |
Deferred income taxes | (816) | | | (845) | |
(Gains) losses on divestitures, investments and other, net | 205 | | | 109 | |
Change in operating assets and liabilities, net of effects of acquisitions and divestitures: | | | |
Accounts receivable | 941 | | | 1,393 | |
Inventories | 442 | | | (569) | |
Financing receivables | (33) | | | 834 | |
Other assets | (403) | | | (210) | |
Accounts payable | (476) | | | 42 | |
Income taxes, net | (4,656) | | | 118 | |
Accrued compensation | (763) | | | (146) | |
Deferred revenue | 293 | | | 633 | |
Other liabilities | (125) | | | (57) | |
Net cash provided by operating activities | 3,179 | | | 8,701 | |
Cash flows from investing activities: | | | |
Purchases of investments | (2,253) | | | (3,797) | |
Proceeds from sales of investments | 2,484 | | | 587 | |
Proceeds from maturities of investments | 4,044 | | | 2,316 | |
Acquisitions, net of cash and cash equivalents acquired | (878) | | | (3) | |
Purchases of investments in privately held companies | (50) | | | (70) | |
Return of investments in privately held companies | 123 | | | 39 | |
Acquisition of property and equipment | (304) | | | (346) | |
Other | (1) | | | (19) | |
Net cash provided by (used in) investing activities | 3,165 | | | (1,293) | |
Cash flows from financing activities: | | | |
Issuances of common stock | 349 | | | 316 | |
Repurchases of common stock—repurchase program | (2,504) | | | (1,760) | |
Shares repurchased for tax withholdings on vesting of restricted stock units | (581) | | | (310) | |
Short-term borrowings, original maturities of 90 days or less, net | 1,398 | | | (602) | |
Issuances of debt | 2,537 | | | — | |
Repayments of debt | (750) | | | — | |
Dividends paid | (3,163) | | | (3,120) | |
Other | (7) | | | (5) | |
Net cash used in financing activities | (2,721) | | | (5,481) | |
Effect of foreign currency exchange rate changes on cash, cash equivalents, restricted cash and restricted cash equivalents | (32) | | | 3 | |
Net increase (decrease) in cash, cash equivalents, restricted cash and restricted cash equivalents | 3,591 | | | 1,930 | |
Cash, cash equivalents, restricted cash and restricted cash equivalents, beginning of period | 11,627 | | | 8,579 | |
Cash, cash equivalents, restricted cash and restricted cash equivalents, end of period | $ | 15,218 | | | $ | 10,509 | |
| | | |
Supplemental cash flow information: | | | |
Cash paid for interest | $ | 203 | | | $ | 178 | |
Cash paid for income taxes, net | $ | 6,804 | | | $ | 2,172 | |
See Notes to Consolidated Financial Statements.
CISCO SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF EQUITY
(in millions, except per-share amounts)
(Unaudited)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Three Months Ended January 27, 2024 | Shares of Common Stock | | Common Stock and Additional Paid-In Capital | | Retained Earnings | | Accumulated Other Comprehensive Loss | | Total Equity |
Balance at October 28, 2023 | 4,049 | | | $ | 44,546 | | | $ | 2,689 | | | $ | (2,025) | | | $ | 45,210 | |
Net income | | | | | 2,634 | | | | | 2,634 | |
Other comprehensive income (loss) | | | | | | | 513 | | | 513 | |
Issuance of common stock | 34 | | | 349 | | | | | | | 349 | |
Repurchase of common stock | (25) | | | (279) | | | (975) | | | | | (1,254) | |
Shares repurchased for tax withholdings on vesting of restricted stock units and other | (8) | | | (425) | | | | | | | (425) | |
Cash dividends declared ($0.39 per common share) | | | | | (1,583) | | | | | (1,583) | |
Share-based compensation | | | 802 | | | | | | | 802 | |
Other | | | 9 | | | (4) | | | | | 5 | |
Balance at January 27, 2024 | 4,050 | | $ | 45,002 | | | $ | 2,761 | | | $ | (1,512) | | | $ | 46,251 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Six Months Ended January 27, 2024 | Shares of Common Stock | | Common Stock and Additional Paid-In Capital | | Retained Earnings | | Accumulated Other Comprehensive Loss | | Total Equity |
Balance at July 29, 2023 | 4,066 | | | $ | 44,289 | | | $ | 1,639 | | | $ | (1,575) | | | $ | 44,353 | |
Net income | | | | | 6,272 | | | | | 6,272 | |
Other comprehensive income (loss) | | | | | | | 63 | | | 63 | |
Issuance of common stock | 43 | | | 349 | | | | | | | 349 | |
Repurchase of common stock | (48) | | | (528) | | | (1,978) | | | | | (2,506) | |
Shares repurchased for tax withholdings on vesting of restricted stock units and other | (11) | | | (581) | | | | | | | (581) | |
Cash dividends declared ($0.78 per common share) | | | | | (3,163) | | | | | (3,163) | |
Share-based compensation | | | 1,463 | | | | | | | 1,463 | |
Other | | | 10 | | | (9) | | | | | 1 | |
Balance at January 27, 2024 | 4,050 | | | $ | 45,002 | | | $ | 2,761 | | | $ | (1,512) | | | $ | 46,251 | |
CISCO SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF EQUITY
(in millions, except per-share amounts)
(Unaudited)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Three Months Ended January 28, 2023 | Shares of Common Stock | | Common Stock and Additional Paid-In Capital | | Accumulated Deficit | | Accumulated Other Comprehensive Loss | | Total Equity |
Balance at October 29, 2022 | 4,103 | | | $ | 42,984 | | | $ | (594) | | | $ | (2,118) | | | $ | 40,272 | |
Net income | | | | | 2,773 | | | | | 2,773 | |
Other comprehensive income (loss) | | | | | | | 532 | | | 532 | |
Issuance of common stock | 23 | | | 316 | | | | | | | 316 | |
Repurchase of common stock | (26) | | | (276) | | | (980) | | | | | (1,256) | |
Shares repurchased for tax withholdings on vesting of restricted stock units and other | (5) | | | (202) | | | | | | | (202) | |
Cash dividends declared ($0.38 per common share) | | | | | (1,560) | | | | | (1,560) | |
Share-based compensation | | | 601 | | | | | | | 601 | |
Other | | | 1 | | | (3) | | | | | (2) | |
Balance at January 28, 2023 | 4,095 | | $ | 43,424 | | | $ | (364) | | | $ | (1,586) | | | $ | 41,474 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Six Months Ended January 28, 2023 | Shares of Common Stock | | Common Stock and Additional Paid-In Capital | | Accumulated Deficit | | Accumulated Other Comprehensive Loss | | Total Equity |
Balance at July 30, 2022 | 4,110 | | | $ | 42,714 | | | $ | (1,319) | | | $ | (1,622) | | | $ | 39,773 | |
Net income | | | | | 5,443 | | | | | 5,443 | |
Other comprehensive income (loss) | | | | | | | 36 | | | 36 | |
Issuance of common stock | 30 | | | 316 | | | | | | | 316 | |
Repurchase of common stock | (38) | | | (394) | | | (1,364) | | | | | (1,758) | |
Shares repurchased for tax withholdings on vesting of restricted stock units and other | (7) | | | (310) | | | | | | | (310) | |
Cash dividends declared ($0.76 per common share) | | | | | (3,120) | | | | | (3,120) | |
Share-based compensation | | | 1,097 | | | | | | | 1,097 | |
Other | | | 1 | | | (4) | | | | | (3) | |
Balance at January 28, 2023 | 4,095 | | $ | 43,424 | | | $ | (364) | | | $ | (1,586) | | | $ | 41,474 | |
CISCO SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1.Organization and Basis of Presentation
The fiscal year for Cisco Systems, Inc. (the “Company,” “Cisco,” “we,” “us,” or “our”) is the 52 or 53 weeks ending on the last Saturday in July. Fiscal 2024 and fiscal 2023 are each 52-week fiscal years. The Consolidated Financial Statements include our accounts and those of our subsidiaries. All intercompany accounts and transactions have been eliminated. We conduct business globally and are primarily managed on a geographic basis in the following three geographic segments: the Americas; Europe, Middle East, and Africa (EMEA); and Asia Pacific, Japan, and China (APJC).
We have prepared the accompanying financial data as of January 27, 2024 and for the second quarter and first six months of fiscal 2024 and 2023, without audit, pursuant to the rules and regulations of the U.S. Securities and Exchange Commission (SEC). Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles in the United States (GAAP) have been condensed or omitted pursuant to such rules and regulations. The July 29, 2023 Consolidated Balance Sheet was derived from audited financial statements, but does not include all disclosures required by accounting principles generally accepted in the United States. However, we believe that the disclosures are adequate to make the information presented not misleading. These Consolidated Financial Statements should be read in conjunction with the Consolidated Financial Statements and the notes thereto included in our Annual Report on Form 10-K for the fiscal year ended July 29, 2023.
In the opinion of management, all normal recurring adjustments necessary to state fairly the consolidated balance sheet as of January 27, 2024, the results of operations, the statements of comprehensive income and the statements of equity for the second quarter and first six months of fiscal 2024 and 2023, and the statements of cash flows for the first six months of fiscal 2024 and 2023, as applicable, have been made. The results of operations for the second quarter and first six months of fiscal 2024 are not necessarily indicative of the operating results for the full fiscal year or any future periods.
Our consolidated financial statements include our accounts and investments consolidated under the voting interest model. The noncontrolling interests attributed to these investments are not presented as a separate component in the equity section of the Consolidated Balance Sheets as these amounts are not material for any of the fiscal periods presented. The share of earnings attributable to the noncontrolling interests are not presented separately in the Consolidated Statements of Operations as these amounts are not material for any of the fiscal periods presented.
Certain reclassifications have been made to the amounts in prior periods in order to conform to the current period’s presentation. We have evaluated subsequent events through the date that the financial statements were issued.
2.Recent Accounting Pronouncements
(a)Recent Accounting Standards or Updates Not Yet Effective
Segment Reporting In November 2023, the Financial Accounting Standards Board (FASB) issued an accounting standard update that expands the disclosure requirements for reportable segments, primarily through enhanced disclosures around significant segment expenses. The accounting standard update will be effective for our fiscal 2025 Form 10-K on a retrospective basis, and early adoption is permitted. We are currently evaluating the impact of this accounting standard update on our segment disclosures.
Improvements on Income Tax Disclosures In December 2023, the FASB issued an accounting standard update expanding the requirements for disclosure of disaggregated information about the effective tax rate reconciliation and income taxes paid. The accounting standard update will be effective for our fiscal 2026 Form 10-K. We are currently evaluating the impact of this accounting standard update on our income tax disclosures.
CISCO SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
3.Revenue
We enter into contracts with customers that can include various combinations of products and services which are generally distinct and accounted for as separate performance obligations. As a result, our contracts may contain multiple performance obligations. We determine whether arrangements are distinct based on whether the customer can benefit from the product or service on its own or together with other resources that are readily available and whether our commitment to transfer the product or service to the customer is separately identifiable from other obligations in the contract. We classify our hardware, perpetual software licenses, and software-as-a-service (SaaS) as distinct performance obligations. Term software licenses represent multiple obligations, which include software licenses and software maintenance. In transactions where we deliver hardware or software, we are typically the principal and we record revenue and costs of goods sold on a gross basis. We refer to our term software licenses, security software licenses, SaaS, and associated service arrangements as subscription offers.
We recognize revenue upon transfer of control of promised goods or services in a contract with a customer in an amount that reflects the consideration we expect to receive in exchange for those products or services. Transfer of control occurs once the customer has the contractual right to use the product, generally upon shipment, electronic delivery (or when the software is available for download by the customer), or once title and risk of loss has transferred to the customer. Transfer of control can also occur over time for software maintenance and services as the customer receives the benefit over the contract term. Our hardware and perpetual software licenses are distinct performance obligations where revenue is recognized upfront upon transfer of control. Term software licenses include multiple performance obligations where the term licenses are recognized upfront upon transfer of control, with the associated software maintenance revenue recognized ratably over the contract term as services and software updates are provided. SaaS arrangements do not include the right for the customer to take possession of the software during the term, and therefore have one distinct performance obligation which is satisfied over time with revenue recognized ratably over the contract term as the customer consumes the services. On our product sales, we record consideration from shipping and handling on a gross basis within net product sales. We record our revenue net of any associated sales taxes.
An allowance for future sales returns is established based on historical trends in product return rates. The allowance for future sales returns as of January 27, 2024 and July 29, 2023 was $36 million and $39 million, respectively, and was recorded as a reduction of our accounts receivable and revenue.
Significant Judgments
Revenue is allocated among these performance obligations in a manner that reflects the consideration that we expect to be entitled to for the promised goods or services based on standalone selling prices (SSP). SSP is estimated for each distinct performance obligation and judgment may be required in their determination. The best evidence of SSP is the observable price of a product or service when we sell the goods separately in similar circumstances and to similar customers. In instances where SSP is not directly observable, we determine SSP using information that may include market conditions and other observable inputs.
We assess relevant contractual terms in our customer contracts to determine the transaction price. We apply judgment in identifying contractual terms and determining the transaction price as we may be required to estimate variable consideration when determining the amount of revenue to recognize. Variable consideration includes potential contractual penalties and various rebate, cooperative marketing and other incentive programs that we offer to our distributors, channel partners and customers. When determining the amount of revenue to recognize, we estimate the expected usage of these programs, applying the expected value or most likely estimate and update the estimate at each reporting period as actual utilization becomes available. We also consider the customers’ right of return in determining the transaction price, where applicable.
We assess certain software licenses, such as for security software, that contain critical updates or upgrades which customers can download throughout the contract term. Without these updates or upgrades, the functionality of the software would diminish over a relatively short time period. These updates or upgrades provide the customer the full functionality of the purchased security software licenses and are required to maintain the security license’s utility as the risks and threats in the environment are rapidly changing. In these circumstances, the revenue from these software arrangements is recognized as a single performance obligation satisfied over the contract term.
CISCO SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
(a)Disaggregation of Revenue
We disaggregate our revenue into groups of similar products and services that depict the nature, amount, and timing of revenue and cash flows for our various offerings. The sales cycle, contractual obligations, customer requirements, and go-to-market strategies differ for each of our product categories, resulting in different economic risk profiles for each category. Effective in the first quarter of fiscal 2024, we began reporting our product and service revenue in the following categories: Networking, Security, Collaboration, Observability, and Services and conformed our product revenue for prior periods to the current period presentation. The following table presents this disaggregation of revenue (in millions):
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | Six Months Ended |
| January 27, 2024 | | January 28, 2023 | | January 27, 2024 | | January 28, 2023 |
Product revenue: | | | | | | | |
Networking | $ | 7,081 | | | $ | 8,092 | | | $ | 15,904 | | | $ | 16,123 | |
Security | 973 | | | 943 | | | 1,984 | | | 1,914 | |
Collaboration | 989 | | | 958 | | | 2,106 | | | 2,044 | |
Observability | 188 | | | 162 | | | 378 | | | 319 | |
Total Product | 9,232 | | | 10,155 | | | 20,371 | | | 20,400 | |
Services | 3,559 | | | 3,437 | | | 7,088 | | | 6,824 | |
Total | $ | 12,791 | | | $ | 13,592 | | | 27,459 | | | 27,224 | |
Amounts may not sum due to rounding.
Networking consists of our core networking technologies of switching, routing, wireless, 5G, silicon, optics solutions and compute products. These technologies consist of both hardware and software offerings, including software licenses and SaaS. Our hardware and perpetual software in this category are distinct performance obligations where revenue is recognized upfront upon transfer of control. Term software licenses are multiple performance obligations where the term license is recognized upfront upon transfer of control with the associated software maintenance revenue recognized ratably over the contract term. SaaS arrangements in this category have one distinct performance obligation which is satisfied over time with revenue recognized ratably over the contract term.
Security consists of our Cloud and Application Security, Industrial Security, Network Security, and User and Device Security offerings. These products consist of both hardware and software offerings, including software licenses and SaaS. Updates and upgrades for the term software licenses are critical for our software to perform its intended commercial purpose because of the continuous need for our software to secure our customers’ network environments against frequent threats. Therefore, security software licenses are generally represented by a single distinct performance obligation with revenue recognized ratably over the contract term. Our hardware and perpetual software in this category are distinct performance obligations where revenue is recognized upfront upon transfer of control. SaaS arrangements in this category have one distinct performance obligation which is satisfied over time with revenue recognized ratably over the contract term.
Collaboration consists of our Meetings, Collaboration Devices, Calling, Contact Center and Communication Platform as a Service (CPaaS) offerings. These products consist primarily of software offerings, including software licenses and SaaS, as well as hardware. Our perpetual software and hardware in this category are distinct performance obligations where revenue is recognized upfront upon transfer of control. Term software licenses are multiple performance obligations where the term license is recognized upfront upon transfer of control with the associated software maintenance revenue recognized ratably over the contract term. SaaS arrangements in this category have one distinct performance obligation which is satisfied over time with revenue recognized ratably over the contract term.
Observability consists of our full stack observability offerings. These products consist primarily of software offerings, including software licenses and SaaS. Our perpetual software in this category are distinct performance obligations where revenue is recognized upfront upon transfer of control. Term software licenses are multiple performance obligations where the term license is recognized upfront upon transfer of control with the associated software maintenance revenue recognized ratably over the contract term. SaaS arrangements in this category have one distinct performance obligation which is satisfied over time with revenue recognized ratably over the contract term.
CISCO SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
In addition to our product offerings, we provide a broad range of service and support options for our customers, including technical support services and advanced services. Technical support services represent the majority of these offerings which are distinct performance obligations that are satisfied over time with revenue recognized ratably over the contract term. Advanced services are distinct performance obligations that are satisfied over time with revenue recognized as services are delivered.
The sales arrangements as discussed above are typically made pursuant to customer purchase orders based on master purchase or partner agreements. Cash is received based on our standard payment terms which is typically 30 days. We provide financing arrangements to customers for all of our hardware, software and service offerings. Refer to Note 9 for additional information. For these arrangements, cash is typically received over time.
(b)Contract Balances
Accounts Receivable
Accounts receivable, net was $4.9 billion as of January 27, 2024 compared to $5.9 billion as of July 29, 2023, as reported on the Consolidated Balance Sheets.
The allowances for credit loss for our accounts receivable are summarized as follows (in millions):
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | Six Months Ended |
| January 27, 2024 | | January 28, 2023 | | January 27, 2024 | | January 28, 2023 |
Allowance for credit loss at beginning of period | $ | 82 | | | $ | 88 | | | $ | 85 | | | $ | 83 | |
Provisions (benefits) | 9 | | | 3 | | | 11 | | | 14 | |
Recoveries (write-offs), net | (12) | | | (5) | | | (17) | | | (11) | |
Allowance for credit loss at end of period | $ | 79 | | | $ | 86 | | | $ | 79 | | | $ | 86 | |
Contract Assets and Liabilities
Gross contract assets by our internal risk ratings are summarized as follows (in millions):
| | | | | | | | | | | |
| January 27, 2024 | | July 29, 2023 |
1 to 4 | $ | 693 | | | $ | 672 | |
5 to 6 | 1,042 | | | 954 | |
7 and Higher | 62 | | | 60 | |
Total | $ | 1,797 | | | $ | 1,686 | |
Contract assets consist of unbilled receivables and are recorded when revenue is recognized in advance of scheduled billings to our customers. These amounts are primarily related to software and service arrangements where transfer of control has occurred but we have not yet invoiced. Our contract assets for these unbilled receivables, net of allowances, were $1.8 billion as of January 27, 2024 and $1.6 billion as of July 29, 2023, and were included in other current assets and other assets.
Contract liabilities consist of deferred revenue. Deferred revenue was $25.8 billion as of January 27, 2024 compared to $25.6 billion as of July 29, 2023. We recognized approximately $3.8 billion and $8.4 billion of revenue during the second quarter and first six months of fiscal 2024 that was included in the deferred revenue balance at July 29, 2023.
(c)Capitalized Contract Acquisition Costs
We capitalize direct and incremental costs incurred to acquire contracts, primarily sales commissions, for which the associated revenue is expected to be recognized in future periods. We incur these costs in connection with both initial contracts and renewals. These costs are initially deferred and typically amortized over the term of the customer contract which corresponds to the period of benefit. Capitalized contract acquisition costs were $1.2 billion and $1.1 billion as of January 27, 2024 and July 29, 2023, respectively, and were included in other current assets and other assets. The amortization expense associated with these costs was $166 million and $324 million for the second quarter and first six months fiscal 2024, respectively, and $201 million and $377 million for the corresponding periods of fiscal 2023, respectively, and was included in sales and marketing expenses.
CISCO SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
4.Acquisitions and Divestitures
A summary of the allocation of the total purchase consideration of our completed acquisitions during the first six months of fiscal 2024 is presented as follows (in millions):
| | | | | | | | | | | | | | | | | | | | | | | |
| Purchase Consideration | | Net Tangible Assets Acquired (Liabilities Assumed) | | Purchased Intangible Assets | | Goodwill |
Total acquisitions | $ | 896 | | | $ | (50) | | | $ | 354 | | | $ | 592 | |
The total purchase consideration related to our acquisitions completed during the first six months of fiscal 2024 consisted primarily of cash consideration. The total cash and cash equivalents acquired from these acquisitions was approximately $17 million. Total transaction costs related to acquisition and divestiture activities were $51 million and $3 million for the first six months of fiscal 2024 and 2023, respectively. These transaction costs were expensed as incurred in general and administrative expenses (“G&A”) in the Consolidated Statements of Operations.
The purchase price allocation for acquisitions completed during recent periods is preliminary and subject to revision as additional information about fair value of assets and liabilities becomes available. Additional information that existed as of the acquisition date but at that time was unknown to us may become known during the remainder of the measurement period, a period not to exceed 12 months from the acquisition date.
The goodwill generated from acquisitions completed during the first six months of fiscal 2024 is primarily related to expected synergies. The goodwill is generally not deductible for income tax purposes.
The Consolidated Financial Statements include the operating results of each acquisition from the date of acquisition. Pro forma results of operations and the revenue and net income subsequent to the acquisition date for the acquisitions completed during the first six months of fiscal 2024 have not been presented because the effects of the acquisitions were not material to our financial results.
Intent to Acquire Splunk On September 21, 2023, we announced our intent to acquire Splunk Inc. (“Splunk”), a public cybersecurity and observability company. Under the terms of the agreement, we have agreed to pay $157 per share in cash, representing approximately $28 billion in equity value. The acquisition is expected to close late in the first quarter or early in the second quarter of calendar year 2024, subject to regulatory approval and other customary closing conditions. We anticipate this transaction will be financed with a combination of cash and debt.
5.Goodwill and Purchased Intangible Assets
(a)Goodwill
The following table presents the goodwill allocated to our reportable segments as of January 27, 2024 and during the first six months of fiscal 2024 (in millions):
| | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | |
| Balance at July 29, 2023 | | Acquisitions | | Foreign Currency Translation and Other | | Balance at January 27, 2024 |
Americas | $ | 24,035 | | | $ | 367 | | | $ | (25) | | | $ | 24,377 | |
EMEA | 9,118 | | | 121 | | | (10) | | | 9,229 | |
APJC | 5,382 | | | 104 | | | (5) | | | 5,481 | |
Total | $ | 38,535 | | | $ | 592 | | | $ | (40) | | | $ | 39,087 | |
CISCO SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
(b)Purchased Intangible Assets
The following table presents details of our intangible assets acquired through acquisitions completed during the first six months of fiscal 2024 (in millions, except years):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| FINITE LIVES | | INDEFINITE LIVES | | TOTAL |
| TECHNOLOGY | | CUSTOMER RELATIONSHIPS | | OTHER | | IPR&D | |
| Weighted- Average Useful Life (in Years) | | Amount | | Weighted- Average Useful Life (in Years) | | Amount | | Weighted- Average Useful Life (in Years) | | Amount | | Amount | | Amount |
Total acquisitions | 4.8 | | $ | 280 | | | 4.8 | | $ | 58 | | | 1.0 | | $ | 2 | | | $ | 14 | | | $ | 354 | |
The following tables present details of our purchased intangible assets (in millions):
| | | | | | | | | | | | | | | | | | | | |
January 27, 2024 | | Gross | | Accumulated Amortization | | Net |
Purchased intangible assets with finite lives: | | | | | | |
Technology | | $ | 3,020 | | | $ | (1,791) | | | $ | 1,229 | |
Customer relationships | | 963 | | | (709) | | | 254 | |
Other | | 42 | | | (27) | | | 15 | |
Total purchased intangible assets with finite lives | | 4,025 | | | (2,527) | | | 1,498 | |
In-process research and development, with indefinite lives | | 180 | | | — | | | 180 | |
Total | | $ | 4,205 | | | $ | (2,527) | | | $ | 1,678 | |
| | | | | | | | | | | | | | | | | | | | |
July 29, 2023 | | Gross | | Accumulated Amortization | | Net |
Purchased intangible assets with finite lives: | | | | | | |
Technology | | $ | 2,998 | | | $ | (1,691) | | | $ | 1,307 | |
Customer relationships | | 1,228 | | | (905) | | | 323 | |
Other | | 40 | | | (22) | | | 18 | |
Total purchased intangible assets with finite lives | | 4,266 | | | (2,618) | | | 1,648 | |
In-process research and development, with indefinite lives | | 170 | | | — | | | 170 | |
Total | | $ | 4,436 | | | $ | (2,618) | | | $ | 1,818 | |
Purchased intangible assets include intangible assets acquired through acquisitions as well as through direct purchases or licenses.
The following table presents the amortization of purchased intangible assets, including impairment charges (in millions):
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | Six Months Ended |
| January 27, 2024 | | January 28, 2023 | | January 27, 2024 | | January 28, 2023 |
Amortization of purchased intangible assets: | | | | | | | |
Cost of sales | $ | 180 | | | $ | 158 | | | $ | 366 | | | $ | 316 | |
Operating expenses | 66 | | | 71 | | | 133 | | | 142 | |
Total | $ | 246 | | | $ | 229 | | | $ | 499 | | | $ | 458 | |
CISCO SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
The estimated future amortization expense of purchased intangible assets with finite lives as of January 27, 2024 is as follows (in millions):
| | | | | |
Fiscal Year | Amount |
2024 (remaining six months) | $ | 440 | |
2025 | $ | 576 | |
2026 | $ | 228 | |
2027 | $ | 143 | |
2028 | $ | 100 | |
Thereafter | $ | 11 | |
6.Restructuring and Other Charges
In the third quarter of fiscal 2024, we initiated a restructuring plan (the “Fiscal 2024 Plan”) in order to realign the organization and enable further investment in key priority areas. The Fiscal 2024 Plan will impact approximately 5% of our global workforce, with estimated pretax charges of approximately $800 million. These aggregate pretax charges will be primarily cash-based and consist of severance and other one-time termination benefits and other costs. We expect this plan to be substantially completed during the first half of fiscal 2025.
In the second quarter of fiscal 2023, we announced a restructuring plan (the “Fiscal 2023 Plan”) in order to rebalance the organization and enable further investment in key priority areas. In connection with the Fiscal 2023 Plan, we incurred charges of $12 million and $135 million for the second quarter and first six months of fiscal 2024, respectively. We incurred charges of $243 million for the second quarter and first six months of fiscal 2023. Total cumulative charges of $670 million have been recognized to date. These aggregate pretax charges were primarily cash-based and consist of severance and other one-time termination benefits, real estate-related charges, and other costs. We completed the Fiscal 2023 Plan in the second quarter of fiscal 2024.
The following table summarizes the activities related to the Fiscal 2023 Plan (in millions):
| | | | | | | | | | | | | | | | | | | | |
| | FISCAL 2023 PLAN | | |
| | Employee Severance | | Other | | Total |
Liability as of July 29, 2023 | | $ | 166 | | | $ | 44 | | | $ | 210 | |
Charges | | 104 | | | 31 | | | 135 | |
Cash payments | | (222) | | | (8) | | | (230) | |
Non-cash items | | — | | | (15) | | | (15) | |
Liability as of January 27, 2024 | | $ | 48 | | | $ | 52 | | | $ | 100 | |
CISCO SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
7.Balance Sheet and Other Details
The following tables provide details of selected balance sheet and other items (in millions, except percentages):
Cash, Cash Equivalents, Restricted Cash and Restricted Cash Equivalents
| | | | | | | | | | | | | | |
| | January 27, 2024 | | July 29, 2023 |
Cash and cash equivalents | | $ | 13,715 | | | $ | 10,123 | |
Restricted cash and restricted cash equivalents included in other current assets | | 565 | | | 191 | |
Restricted cash and restricted cash equivalents included in other assets | | 938 | | | 1,313 | |
Total | | $ | 15,218 | | | $ | 11,627 | |
Our restricted cash and restricted cash equivalents are funds primarily related to contractual obligations with suppliers.
Inventories
| | | | | | | | | | | | | | |
| | January 27, 2024 | | July 29, 2023 |
Raw materials | | $ | 1,784 | | | $ | 1,685 | |
Work in process | | 165 | | | 264 | |
Finished goods | | 1,047 | | | 1,493 | |
Service-related spares | | 200 | | | 186 | |
Demonstration systems | | 13 | | | 16 | |
Total | | $ | 3,209 | | | $ | 3,644 | |
Property and Equipment, Net
| | | | | | | | | | | | | | |
| | January 27, 2024 | | July 29, 2023 |
Gross property and equipment: | | | | |
Land, buildings, and building and leasehold improvements | | $ | 4,214 | | | $ | 4,229 | |
Computer equipment and related software | | 691 | | | 744 | |
Production, engineering, and other equipment | | 4,466 | | | 4,611 | |
Operating lease assets | | 125 | | | 135 | |
Furniture, fixtures and other | | 339 | | | 339 | |
Total gross property and equipment | | 9,835 | | | 10,058 | |
Less: accumulated depreciation and amortization | | (7,830) | | | (7,973) | |
Total | | $ | 2,005 | | | $ | 2,085 | |
CISCO SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
Remaining Performance Obligations (RPO)
| | | | | | | | | | | | | | |
| | January 27, 2024 | | July 29, 2023 |
Product | | $ | 16,249 | | | $ | 15,802 | |
Service | | 19,407 | | | 19,066 | |
Total | | $ | 35,656 | | | $ | 34,868 | |
| | | | |
Short-term RPO | | $ | 17,930 | | | $ | 17,910 | |
Long-term RPO | | 17,726 | | | 16,958 | |
Total | | $ | 35,656 | | | $ | 34,868 | |
| | | | |
Amount to be recognized as revenue over the next 12 months | | 50 | % | | 51 | % |
| | | | |
Deferred revenue | | $ | 25,771 | | | $ | 25,550 | |
Unbilled contract revenue | | 9,885 | | | 9,318 | |
Total | | $ | 35,656 | | | $ | 34,868 | |
Unbilled contract revenue represents noncancelable contracts for which we have not invoiced, have an obligation to perform, and revenue has not yet been recognized in the financial statements.
Deferred Revenue
| | | | | | | | | | | | | | |
| | January 27, 2024 | | July 29, 2023 |
Product | | $ | 11,640 | | | $ | 11,505 | |
Service | | 14,131 | | | 14,045 | |
Total | | $ | 25,771 | | | $ | 25,550 | |
Reported as: | | | | |
Current | | $ | 14,011 | | | $ | 13,908 | |
Noncurrent | | 11,760 | | | 11,642 | |
Total | | $ | 25,771 | | | $ | 25,550 | |
Transition Tax Payable
Our income tax payable associated with the one-time U.S. transition tax on accumulated earnings for foreign subsidiaries as a result of the Tax Cuts and Jobs Act is as follows (in millions):
| | | | | | | | | | | | | | |
| | January 27, 2024 | | July 29, 2023 |
Current | | $ | 1,819 | | | $ | 1,364 | |
Noncurrent | | 2,273 | | | 4,092 | |
Total | | $ | 4,092 | | | $ | 5,456 | |
CISCO SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
8.Leases
(a)Lessee Arrangements
The following table presents our operating lease balances (in millions):
| | | | | | | | | | | | | | | | | |
| Balance Sheet Line Item | | January 27, 2024 | | July 29, 2023 |
Operating lease right-of-use assets | Other assets | | $ | 978 | | | $ | 971 | |
| | | | | |
Operating lease liabilities | Other current liabilities | | $ | 330 | | | $ | 313 | |
Operating lease liabilities | Other long-term liabilities | | 703 | | | 707 | |
Total operating lease liabilities | | | $ | 1,033 | | | $ | 1,020 | |
The components of our lease expenses were as follows (in millions):
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | Six Months Ended |
| January 27, 2024 | | January 28, 2023 | | January 27, 2024 | | January 28, 2023 |
Operating lease expense | $ | 103 | | | $ | 98 | | | $ | 203 | | | $ | 194 | |
Short-term lease expense | 25 | | | 17 | | | 36 | | | 34 | |
Variable lease expense | 50 | | | 63 | | | 106 | | | 121 | |
Total lease expense | $ | 178 | | | $ | 178 | | | $ | 345 | | | $ | 349 | |
Supplemental information related to our operating leases is as follows (in millions):
| | | | | | | | | | | |
| Six Months Ended |
| January 27, 2024 | | January 28, 2023 |
Cash paid for amounts included in the measurement of lease liabilities — operating cash flows | $ | 178 | | | $ | 192 | |
Right-of-use assets obtained in exchange for operating leases liabilities | $ | 182 | | | $ | 149 | |
The weighted-average lease term was 4.6 years as of each of January 27, 2024 and July 29, 2023. The weighted-average discount rate was 3.7% and 3.1% as of January 27, 2024 and July 29, 2023, respectively.
The maturities of our operating leases (undiscounted) as of January 27, 2024 are as follows (in millions):
| | | | | |
Fiscal Year | Amount |
2024 (remaining six months) | $ | 183 | |
2025 | 303 | |
2026 | 206 | |
2027 | 129 | |
2028 | 94 | |
Thereafter | 231 | |
Total lease payments | 1,146 | |
Less interest | (113) | |
Total | $ | 1,033 | |
(b)Lessor Arrangements
Our leases primarily represent sales-type leases with terms of four years on average. We provide leasing of our equipment and complementary third-party products primarily through our channel partners and distributors, for which the income arising from these leases is recognized through interest income. Interest income was $16 million and $30 million for the second quarter and the first six months of fiscal 2024, respectively, and $12 million and $24 million for the corresponding periods of fiscal 2023, respectively, and was included in interest income in the Consolidated Statement of Operations. The net investment of our lease receivables is measured at the commencement date as the gross lease receivable, residual value less unearned income and allowance for credit loss. For additional information, see Note 9.
CISCO SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
Future minimum lease payments on our lease receivables as of January 27, 2024 are summarized as follows (in millions):
| | | | | |
Fiscal Year | Amount |
2024 (remaining six months) | $ | 401 | |
2025 | 369 | |
2026 | 125 | |
2027 | 91 | |
2028 | 68 | |
Thereafter | 45 | |
Total | 1,099 | |
Less: Present value of lease payments | (989) | |
Unearned income | $ | 110 | |
Actual cash collections may differ from the contractual maturities due to early customer buyouts, refinancings, or defaults.
We provide financing of certain equipment through operating leases, and the amounts are included in property and equipment in the Consolidated Balance Sheets. Amounts relating to equipment on operating lease assets held by us and the associated accumulated depreciation are summarized as follows (in millions):
| | | | | | | | | | | |
| January 27, 2024 | | July 29, 2023 |
Operating lease assets | $ | 125 | | | $ | 135 | |
Accumulated depreciation | (72) | | | (78) | |
Operating lease assets, net | $ | 53 | | | $ | 57 | |
Our operating lease income was $15 million and $31 million for the second quarter and first six months of fiscal 2024, respectively, and $18 million and $39 million for the corresponding periods of fiscal 2023, respectively, and was included in product revenue in the Consolidated Statements of Operations.
Minimum future rentals on noncancelable operating leases as of January 27, 2024 are summarized as follows (in millions):
| | | | | |
Fiscal Year | Amount |
2024 (remaining six months) | $ | 12 | |
2025 | 16 | |
2026 | 9 | |
2027 | 1 | |
Total | $ | 38 | |
9.Financing Receivables
(a)Financing Receivables
Financing receivables primarily consist of loan receivables and lease receivables. Loan receivables represent financing arrangements related to the sale of our hardware, software, and services (including technical support and advanced services), and also may include additional funding for other costs associated with network installation and integration of our products and services. Loan receivables have terms of one year to three years on average. Lease receivables represent sales-type leases resulting from the sale of Cisco’s and complementary third-party products and are typically collateralized by a security interest in the underlying assets. Lease receivables consist of arrangements with terms of four years on average.
CISCO SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
A summary of our financing receivables is presented as follows (in millions):
| | | | | | | | | | | | | | | | | |
January 27, 2024 | Loan Receivables | | Lease Receivables | | Total |
Gross | $ | 5,850 | | | $ | 1,099 | | | $ | 6,949 | |
Residual value | — | | | 70 | | | 70 | |
Unearned income | — | | | (110) | | | (110) | |
Allowance for credit loss | (53) | | | (16) | | | (69) | |
Total, net | $ | 5,797 | | | $ | 1,043 | | | $ | 6,840 | |
Reported as: | | | | | |
Current | $ | 3,066 | | | $ | 410 | | | $ | 3,476 | |
Noncurrent | 2,731 | | | 633 | | | 3,364 | |
Total, net | $ | 5,797 | | | $ | 1,043 | | | $ | 6,840 | |
| | | | | | | | | | | | | | | | | |
July 29, 2023 | Loan Receivables | | Lease Receivables | | Total |
Gross | $ | 5,910 | | | $ | 1,015 | | | $ | 6,925 | |
Residual value | — | | | 70 | | | 70 | |
Unearned income | — | | | (88) | | | (88) | |
Allowance for credit loss | (53) | | | (19) | | | (72) | |
Total, net | $ | 5,857 | | | $ | 978 | | | $ | 6,835 | |
Reported as: | | | | | |
Current | $ | 2,988 | | | $ | 364 | | | $ | 3,352 | |
Noncurrent | 2,869 | | | 614 | | | 3,483 | |
Total, net | $ | 5,857 | | | $ | 978 | | | $ | 6,835 | |
(b)Credit Quality of Financing Receivables
The tables below present our gross financing receivables, excluding residual value, less unearned income, categorized by our internal credit risk rating by period of origination (in millions):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
January 27, 2024 | | | Fiscal Year | | Six Months Ended | | |
Internal Credit Risk Rating | Prior | | July 25, 2020 | | July 31, 2021 | | July 30, 2022 | | July 29, 2023 | | January 27, 2024 | | Total |
Loan Receivables: | | | | | | | | | | | | | |
1 to 4 | $ | 24 | | | $ | 164 | | | $ | 552 | | | $ | 783 | | | $ | 1,243 | | | $ | 1,008 | | | $ | 3,774 | |
5 to 6 | 6 | | | 67 | | | |