8-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 8-K

CURRENT REPORT

Pursuant to Section 13 OR 15(d)

of The Securities Exchange Act of 1934

Date of Report (Date of earliest event reported): May 13, 2020

CISCO SYSTEMS, INC.

(Exact name of registrant as specified in its charter)

California	0-18225	77-0059951
(State or other jurisdiction of incorporation)	(Commission File Number)	(IRS Employer Identification No.)

170 West Tasman Drive, San Jose, California	95134-1706
(Address of principal executive offices)	(Zip Code)

(408) 526-4000

(Registrant’s telephone number, including area code)

Not Applicable

(Former name or former address, if changed since last report.)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):

☐ Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

☐ Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

☐ Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

☐ Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

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 is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§ 230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§ 240.12b-2 of this chapter).

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.  ☐

Item 2.02. Results of Operations and Financial Condition.

On May 13, 2020, Cisco Systems, Inc. (“Cisco”) reported its results of operations for its fiscal third quarter 2020 ended April 25, 2020. A copy of the press release issued by Cisco concerning the foregoing results is furnished herewith as Exhibit 99.1.

The information contained herein and in the accompanying exhibit shall not be incorporated by reference into any filing of Cisco, whether made before or after the date hereof, regardless of any general incorporation language in such filing, unless expressly incorporated by specific reference to such filing. The information in this report, including the exhibit hereto, shall not be deemed to be “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to the liabilities of that section or Sections 11 and 12(a)(2) of the Securities Act of 1933, as amended.

The attached exhibit includes non-GAAP net income, non-GAAP gross margins, non-GAAP operating expenses, non-GAAP operating income and margin, non-GAAP effective tax rates, non-GAAP interest and other income (loss), net, and non-GAAP net income per share data for the periods presented. It also includes future estimated ranges for gross margin, operating margin, tax provision rate and EPS on a non-GAAP basis.

These non-GAAP measures are not in accordance with, or an alternative for, measures prepared in accordance with generally accepted accounting principles, and may be different from non-GAAP measures used by other companies. In addition, these non-GAAP measures are not based on any comprehensive set of accounting rules or principles. Cisco believes that non-GAAP measures have limitations in that they do not reflect all of the amounts associated with Cisco’s results of operations as determined in accordance with GAAP and that these measures should only be used to evaluate Cisco’s results of operations in conjunction with the corresponding GAAP measures.

Cisco believes that the presentation of non-GAAP measures when shown in conjunction with the corresponding GAAP measures, provides useful information to investors and management regarding financial and business trends relating to its financial condition and its historical and projected results of operations.

For its internal budgeting process, Cisco’s management uses financial statements that do not include, when applicable, share-based compensation expense, amortization of acquisition-related intangible assets, acquisition-related/divestiture costs, significant asset impairments and restructurings, significant litigation settlements and other contingencies (such as legal and indemnification settlements and the supplier component remediation amounts), gains and losses on equity investments, the income tax effects of the foregoing, and significant tax matters. Cisco’s management also uses the foregoing non-GAAP measures, in addition to the corresponding GAAP measures, in reviewing the financial results of Cisco. In prior periods, Cisco has excluded other items that it no longer excludes for purposes of its non-GAAP financial measures. From time to time in the future, there may be other items that Cisco may exclude for purposes of its internal budgeting process and in reviewing its financial results.

Cisco divested the Service Provider Video Software Solutions (“SPVSS”) business during the second quarter of fiscal 2019 on October 28, 2018. The attached exhibit includes, where indicated, financial measures that exclude the SPVSS business. Cisco believes that the presentation of these measures provides useful information to investors and management regarding financial and business trends relating to its financial condition and its historical and projected results of operations because the SPVSS business is no longer part of and will not be part of Cisco on a go forward basis. Cisco’s management also uses the financial measures excluding the SPVSS business in reviewing the financial results of Cisco.

As described above, Cisco excludes the following items from one or more of its non-GAAP measures when applicable:

Share-based compensation expense. These expenses consist primarily of expenses for employee restricted stock and restricted stock units, employee stock options, and employee stock purchase rights, including such expenses associated with acquisitions. Cisco excludes share-based compensation expense from its non-GAAP measures primarily because they are non-cash expenses and Cisco believes that it is useful to investors to understand the impact of share-based compensation to its results of operations.

Amortization of acquisition-related intangible assets. Cisco incurs amortization of intangible assets (which may include impairment charges from the write-downs of purchased intangible assets) in connection with acquisitions. Such intangible assets may include purchased intangible assets with finite lives, capitalized in process research and development and goodwill. Cisco excludes these items because Cisco does not believe these expenses are reflective of ongoing operating results in the period incurred. These amounts arise from Cisco’s prior acquisitions and have no direct correlation to the operation of Cisco’s business.

Acquisition-related/divestiture costs. In connection with its business combinations, Cisco incurs compensation expense, changes to the fair value of contingent consideration, as well as professional fees and other direct expenses such as restructuring activities related to the acquired company. In addition, from time to time Cisco enters into foreign currency transactions related to pending acquisitions, and may incur gains or losses on such transactions. Cisco may also from time to time incur gains or losses from divestitures of a business area as well as professional fees and other direct expenses associated with such transactions. Cisco excludes such compensation expense, changes to the fair value of contingent consideration, fees, other direct expenses, and gains and losses, as they are related to acquisitions and divestitures and have no direct correlation to the operation of Cisco’s business.

Significant asset impairments and restructurings. Cisco from time to time incurs significant asset impairments, restructuring charges, and gains or losses on asset disposals. Cisco excludes these items, when significant, because it does not believe they are reflective of ongoing business and operating results.

Significant litigation settlements and other contingencies. Cisco from time to time may incur charges or benefits related to significant litigation settlements and other contingencies. Cisco excludes these charges or benefits, when significant, because it does not believe they are reflective of ongoing business and operating results.

Gains and losses on equity investments. Cisco does not actively trade equity securities nor does it plan on these investments for funding of ongoing operations, and investments. Cisco excludes gains and losses on these investments because it does not believe they are reflective of ongoing business and operating results.

Income tax effects of the foregoing. This amount is used to present each of the amounts described above on an after-tax basis consistent with the presentation of non-GAAP net income.

Significant tax matters. Cisco may incur tax charges or benefits that are (i) related to prior periods or (ii) not reflective of its ongoing provision for income taxes. These tax charges or benefits may be the result of events such as changes in tax legislation, court decisions, and/or tax settlements. Cisco excludes these charges or benefits, when significant, because it does not believe they are reflective of ongoing business and operating results.

From time to time in the future, there may be other items that Cisco may exclude if it believes that doing so is consistent with the goal of providing useful information to investors and management.

Cisco will incur share-based compensation expense, amortization of acquisition-related intangible assets, acquisition-related costs, and gains and losses on equity investments, in future periods. Significant asset impairments, restructurings, significant litigation settlements and other contingencies, and divestiture costs could occur in future periods. Cisco could also be impacted by significant tax matters in future periods.

Item 9.01. Financial Statements and Exhibits.

(d) Exhibits

Exhibit Number		Description of Document
	99.1	Press Release of Cisco, dated May 13, 2020, reporting the results of operations for Cisco’s fiscal third quarter ended April 25, 2020.
	104	Cover Page Interactive Data File (embedded within the Inline XBRL document).

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

		CISCO SYSTEMS, INC.
Dated: May 13, 2020	By:	/s/ Kelly A. Kramer
	Name:	Kelly A. Kramer
	Title:	Executive Vice President and Chief Financial Officer

EX-99.1

Exhibit 99.1

Press Contact:	Investor Relations Contact:
Robyn Blum	Marilyn Mora
Cisco	Cisco
1 (408) 930-8548	1 (408) 527-7452
rojenkin@cisco.com	marilmor@cisco.com

CISCO REPORTS THIRD QUARTER EARNINGS

• Q3 Results:

• Revenue: $12.0 billion

• Decrease of (8)% year over year

• Earnings per Share: GAAP: $0.65; Non-GAAP: $0.79

• GAAP EPS decreased (6)% year over year

• Non-GAAP EPS increased 1% year over year

• Q4 Guidance:

• Revenue: (8.5)% to (11.5)% decline year over year

• Earnings per Share: GAAP: $0.57 to $0.62; Non-GAAP: $0.72 to $0.74

SAN JOSE, Calif. — May 13, 2020 — Cisco today reported third quarter results for the period ended April 25, 2020. Cisco reported third quarter revenue of $12.0 billion, net income on a generally accepted accounting principles (GAAP) basis of $2.8 billion or $0.65 per share, and non-GAAP net income of $3.4 billion or $0.79 per share.

“During this extraordinary time, our priority has been supporting our employees, customers, partners and communities, while positioning Cisco for the future,” said Chuck Robbins, chairman and CEO of Cisco. “The pandemic has driven organizations across the globe to digitize their operations and support remote workforces at a faster speed and greater scale than ever before. We remain focused on providing the technology and solutions our customers need to accelerate their digital organizations.”

GAAP Results

	Q3 FY 2020		Q3 FY 2019		Vs. Q3 FY 2019
Revenue	$	12.0 billion	$	13.0 billion		(8	)%
Net Income	$	2.8 billion	$	3.0 billion		(9	)%
Diluted Earnings per Share (EPS)	$	0.65	$	0.69		(6	)%
Non-GAAP Results
	Q3 FY 2020		Q3 FY 2019		Vs. Q3 FY 2019
Net Income	$	3.4 billion	$	3.5 billion		(2	)%
EPS	$	0.79	$	0.78		1	%

Reconciliations between net income, EPS, and other measures on a GAAP and non-GAAP basis are provided in the tables located in the section entitled “Reconciliations of GAAP to non-GAAP Measures.”

“We executed well in Q3 in a very challenging environment, delivering strong margins and non-GAAP EPS growth,” said Kelly Kramer, CFO of Cisco. “The resiliency that we have been building into our business model is paying off, with software subscriptions now at 74% of our software revenue, up 9 points year over year. We are focused on driving long-term profitable growth while delivering shareholder value.”

1

COVID-19 Pandemic Response

We have been focused on helping our employees, customers, partners and communities.

Employees

• 95% of our global workforce working from home.

• Seamless transition to work from home with a long-standing flexible work policy, and we build the technologies that allow organizations to stay connected, secure and productive.

• For the 5% who must be in the office to perform their roles, we are focused on their health and safety, and are taking all of the necessary precautions.

Customer and Partners

• Introduced a variety of free offers and trials for our Webex and security technologies as they dramatically shifted entire workforces to be remote.

• Announced $2.5 billion in financing with a new Business Resiliency Program through Cisco Capital to offer financial flexibility and support their business continuity. This will help customers and partners access the technology they need now, invest for recovery, and defer most of the payments until early 2021.

Communities

• Committed nearly $300 million to date to support both global and local pandemic response efforts.

• Providing technology and financial support for non-profits, first responders, and governments.

• Donating personal protective equipment to hospital workers including N95 masks and face shields 3D-printed by Cisco volunteers around the world.

2

Financial Summary

All comparative percentages are on a year-over-year basis unless otherwise noted.

Q3 FY 2020 Highlights

Revenue — Total revenue was $12.0 billion, down 8%, with product revenue down 12% and service revenue up 5%. Revenue by geographic segment was: Americas down 8%, EMEA down 7%, and APJC down 9%. Product revenue was led by growth in Security, up 6%. Infrastructure Platforms was down 15% and Applications was down 5%.

Gross Margin — On a GAAP basis, total gross margin, product gross margin, and service gross margin were 64.9%, 63.7%, and 67.7%, respectively, as compared with 63.1%, 62.0%, and 66.3%, respectively, in the third quarter of fiscal 2019.

On a non-GAAP basis, total gross margin, product gross margin, and service gross margin were 66.6%, 65.8%, and 68.9%, respectively, as compared with 64.6%, 63.7%, and 67.3%, respectively, in the third quarter of fiscal 2019.

Total gross margins by geographic segment were: 67.8% for the Americas, 65.7% for EMEA and 63.5% for APJC.

Operating Expenses — On a GAAP basis, operating expenses were $4.4 billion, down 6%, and were 36.4% of revenue. Non-GAAP operating expenses were $3.8 billion, down 9%, and were 31.8% of revenue.

Operating Income — GAAP operating income was $3.4 billion, down 3%, with GAAP operating margin of 28.5%. Non-GAAP operating income was flat at $4.2 billion, with non-GAAP operating margin at 34.9%.

Provision for Income Taxes — The GAAP tax provision rate was 19.4%. The non-GAAP tax provision rate was 20.0%.

Net Income and EPS — On a GAAP basis, net income was $2.8 billion, a decrease of 9%, and EPS was $0.65, a decrease of 6%. On a non-GAAP basis, net income was $3.4 billion, a decrease of 2%, and EPS was $0.79, an increase of 1%.

Cash Flow from Operating Activities — $4.2 billion for the third quarter of fiscal 2020, a decrease of 2% compared with $4.3 billion for the third quarter of fiscal 2019.

Balance Sheet and Other Financial Highlights

Cash and Cash Equivalents and Investments — $28.6 billion at the end of the third quarter of fiscal 2020, compared with $33.4 billion at the end of fiscal 2019.

Deferred Revenue — $18.6 billion, up 7% in total, with deferred product revenue up 17%. Deferred service revenue was up 1%.

Remaining Performance Obligations — $25.5 billion at the end of the third quarter of fiscal 2020, up 11%.

Capital Allocation — In the third quarter of fiscal 2020, we returned $2.5 billion to shareholders through share buybacks and dividends. We declared and paid a cash dividend of $0.36 per common share, or $1.5 billion, and repurchased approximately 25 million shares of common stock under our stock repurchase program at an average price of $39.71 per share for an aggregate purchase price of $981 million. The remaining authorized amount for stock repurchases under the program is $10.8 billion with no termination date.

Acquisitions

In the third quarter of fiscal 2020, we closed the acquisition of Exablaze, a privately held designer and manufacturer of advanced network devices aimed at reducing latency and improving network performance.

3

Guidance for Q4 FY 2020

Cisco expects to achieve the following results for the fourth quarter of fiscal 2020:

Q4 FY 2020
Revenue	(8.5)% - (11.5)% decline Y/Y
Non-GAAP gross margin rate	64% - 65%
Non-GAAP operating margin rate	31.5% - 32.5%
Non-GAAP tax provision rate	20%
Non-GAAP EPS	$0.72 - $0.74

Cisco estimates that GAAP EPS will be $0.57 to $0.62 in the fourth quarter of fiscal 2020.

A reconciliation between the Guidance for Q4 FY 2020 on a GAAP and non-GAAP basis is provided in the table entitled “GAAP to non-GAAP Guidance for Q4 FY 2020” located in the section entitled “Reconciliations of GAAP to non-GAAP Measures.”

Editor’s Notes:

• Q3 fiscal year 2020 conference call to discuss Cisco’s results along with its guidance will be held on Wednesday, May 13, 2020 at 1:30 p.m. Pacific Time. Conference call number is 1-888-848-6507 (United States) or 1-212-519-0847 (international).

• Conference call replay will be available from 4:00 p.m. Pacific Time, May 13, 2020 to 4:00 p.m. Pacific Time, May 20, 2020 at 1-800-391-9847 (United States) or 1-402-220-3093 (international). The replay will also be available via webcast on the Cisco Investor Relations website at https://investor.cisco.com.

• Additional information regarding Cisco’s financials, as well as a webcast of the conference call with visuals designed to guide participants through the call, will be available at 1:30 p.m. Pacific Time, May 13, 2020. Text of the conference call’s prepared remarks will be available within 24 hours of completion of the call. The webcast will include both the prepared remarks and the question-and-answer session. This information, along with the GAAP to non-GAAP reconciliation information, will be available on the Cisco Investor Relations website at https://investor.cisco.com.

4

CISCO SYSTEMS, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(In millions, except per-share amounts)

(Unaudited)

	Three Months Ended						Nine Months Ended
	April 25, 2020			April 27, 2019			April 25, 2020			April 27, 2019
REVENUE:
Product	$	8,597		$	9,722		$	27,146		$	28,885
Service		3,386			3,236			10,001			9,591
Total revenue		11,983			12,958			37,147			38,476
COST OF SALES:
Product		3,120			3,693			9,770			11,106
Service		1,092			1,092			3,378			3,278
Total cost of sales		4,212			4,785			13,148			14,384
GROSS MARGIN		7,771			8,173			23,999			24,092
OPERATING EXPENSES:
Research and development		1,546			1,659			4,782			4,824
Sales and marketing		2,192			2,403			6,951			7,084
General and administrative		457			541			1,431			1,261
Amortization of purchased intangible assets		34			39			108			112
Restructuring and other charges		128			18			354			282
Total operating expenses		4,357			4,660			13,626			13,563
OPERATING INCOME		3,414			3,513			10,373			10,529
Interest income		218			331			733			1,003
Interest expense		(130	)		(211	)		(466	)		(655	)
Other income (loss), net		(58	)		(18	)		24			(10	)
Interest and other income (loss), net		30			102			291			338
INCOME BEFORE PROVISION FOR INCOME TAXES		3,444			3,615			10,664			10,867
Provision for income taxes		670			571			2,086			1,452
NET INCOME	$	2,774		$	3,044		$	8,578		$	9,415
Net income per share:
Basic	$	0.66		$	0.70		$	2.02		$	2.11
Diluted	$	0.65		$	0.69		$	2.01		$	2.09
Shares used in per-share calculation:
Basic		4,230			4,370			4,239			4,468
Diluted		4,243			4,415			4,258			4,509

The Consolidated Statements of Operations include the results of the divested Service Provider Video Software Solutions (SPVSS) business for the nine months ended April 27, 2019.

5

CISCO SYSTEMS, INC.

REVENUE BY SEGMENT

(In millions, except percentages)

	April 25, 2020
	Three Months Ended					Nine Months Ended
								Excluding SPVSS business			Including SPVSS business
	Amount		Y/Y%			Amount		Y/Y%			Y/Y%
Revenue:
Americas	$	7,116		(8	)%	$	22,106		(3	)%		(3	)%
EMEA		3,136		(7	)%		9,553		(2	)%		(3	)%
APJC		1,730		(9	)%		5,489		(6	)%		(7	)%
Total	$	11,983		(8	)%	$	37,147		(3	)%		(3	)%

Amounts may not sum and percentages may not recalculate due to rounding.

During the second quarter of fiscal 2019 on October 28, 2018, we completed the divestiture of the SPVSS business. SPVSS business revenue for the nine months ended April 27, 2019 was $168 million.

CISCO SYSTEMS, INC.

GROSS MARGIN PERCENTAGE BY SEGMENT

(In percentages)

	April 25, 2020
	Three Months Ended			Nine Months Ended
Gross Margin Percentage:
Americas		67.8	%		67.1	%
EMEA		65.7	%		65.8	%
APJC		63.5	%		64.0	%

6

CISCO SYSTEMS, INC.

REVENUE FOR GROUPS OF SIMILAR PRODUCTS AND SERVICES

(In millions, except percentages)

	April 25, 2020
	Three Months Ended					Nine Months Ended
								Excluding SPVSS business			Including SPVSS business
	Amount		Y/Y%			Amount		Y/Y%			Y/Y%
Revenue:
Infrastructure Platforms	$	6,429		(15	)%	$	20,496		(8	)%		(8	)%
Applications		1,363		(5	)%		4,211		(2	)%		(2	)%
Security		776		6	%		2,340		12	%		12	%
Other Products		28		(27	)%		100		8	%		(58	)%
Total Product		8,597		(12	)%		27,146		(6	)%		(6	)%
Services		3,386		5	%		10,001		5	%		4	%
Total	$	11,983		(8	)%	$	37,147		(3	)%		(3	)%

Amounts may not sum and percentages may not recalculate due to rounding.

During the second quarter of fiscal 2019 on October 28, 2018, we completed the divestiture of the SPVSS business. SPVSS business revenue for the nine months ended April 27, 2019 was $168 million.

7

CISCO SYSTEMS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(In millions)

(Unaudited)

	April 25, 2020		July 27, 2019
ASSETS
Current assets:
Cash and cash equivalents	$	10,366	$	11,750
Investments		18,208		21,663
Accounts receivable, net of allowance for doubtful accounts of $130 at April 25, 2020 and $136 at July 27, 2019		4,569		5,491
Inventories		1,212		1,383
Financing receivables, net		4,703		5,095
Other current assets		2,249		2,373
Total current assets		41,307		47,755
Property and equipment, net		2,535		2,789
Financing receivables, net		4,770		4,958
Goodwill		33,453		33,529
Purchased intangible assets, net		1,744		2,201
Deferred tax assets		3,909		4,065
Other assets		3,676		2,496
TOTAL ASSETS	$	91,394	$	97,793
LIABILITIES AND EQUITY
Current liabilities:
Short-term debt	$	4,506	$	10,191
Accounts payable		2,393		2,059
Income taxes payable		1,047		1,149
Accrued compensation		2,940		3,221
Deferred revenue		10,710		10,668
Other current liabilities		4,341		4,424
Total current liabilities		25,937		31,712
Long-term debt		11,578		14,475
Income taxes payable		8,285		8,927
Deferred revenue		7,938		7,799
Other long-term liabilities		1,948		1,309
Total liabilities		55,686		64,222
Total equity		35,708		33,571
TOTAL LIABILITIES AND EQUITY	$	91,394	$	97,793

8

CISCO SYSTEMS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In millions)

(Unaudited)

	Nine Months Ended
	April 25, 2020			April 27, 2019
Cash flows from operating activities:
Net income	$	8,578		$	9,415
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation, amortization, and other		1,364			1,433
Share-based compensation expense		1,170			1,166
Provision (benefit) for receivables		60			32
Deferred income taxes		103			(281	)
(Gains) losses on divestitures, investments and other, net		(185	)		(79	)
Change in operating assets and liabilities, net of effects of acquisitions and divestitures:
Accounts receivable		774			1,560
Inventories		143			(1	)
Financing receivables		380			(112	)
Other assets		145			(736	)
Accounts payable		324			52
Income taxes, net		(700	)		(759	)
Accrued compensation		(220	)		(68	)
Deferred revenue		333			421
Other liabilities		(645	)		(154	)
Net cash provided by operating activities		11,624			11,889
Cash flows from investing activities:
Purchases of investments		(6,880	)		(1,176	)
Proceeds from sales of investments		4,737			5,391
Proceeds from maturities of investments		5,708			10,797
Acquisitions and divestitures		(237	)		(2,175	)
Purchases of investments in privately held companies		(143	)		(118	)
Return of investments in privately held companies		213			127
Acquisition of property and equipment		(562	)		(701	)
Proceeds from sales of property and equipment		175			15
Other		(10	)		(12	)
Net cash provided by investing activities		3,001			12,148
Cash flows from financing activities:
Issuances of common stock		335			321
Repurchases of common stock - repurchase program		(2,659	)		(16,042	)
Shares repurchased for tax withholdings on vesting of restricted stock units		(519	)		(601	)
Short-term borrowings, original maturities of 90 days or less, net		(3,470	)		1,723
Issuances of debt		—			1,530
Repayments of debt		(5,220	)		(5,250	)
Dividends paid		(4,491	)		(4,489	)
Other		(3	)		51
Net cash used in financing activities		(16,027	)		(22,757	)
Net increase (decrease) in cash, cash equivalents, and restricted cash		(1,402	)		1,280
Cash, cash equivalents, and restricted cash, beginning of period		11,772			8,993
Cash, cash equivalents, and restricted cash, end of period	$	10,370		$	10,273
Supplemental cash flow information:
Cash paid for interest	$	519		$	707
Cash paid for income taxes, net	$	2,683		$	2,491

9

CISCO SYSTEMS, INC.

DEFERRED REVENUE

(In millions)

	April 25, 2020		January 25, 2020		April 27, 2019
Deferred revenue:
Service	$	11,423	$	11,526	$	11,297
Product		7,225		7,160		6,159
Total	$	18,648	$	18,686	$	17,456
Reported as:
Current	$	10,710	$	10,638	$	10,117
Noncurrent		7,938		8,048		7,339
Total	$	18,648	$	18,686	$	17,456

CISCO SYSTEMS, INC.

DIVIDENDS PAID AND REPURCHASES OF COMMON STOCK

(In millions, except per-share amounts)

	DIVIDENDS				STOCK REPURCHASE PROGRAM						TOTAL
Quarter Ended	Per Share		Amount		Shares		Weighted- Average Price per Share		Amount		Amount
Fiscal 2020
April 25, 2020	$	0.36	$	1,519		25	$	39.71	$	981	$	2,500
January 25, 2020	$	0.35	$	1,486		18	$	46.71	$	870	$	2,356
October 26, 2019	$	0.35	$	1,486		16	$	48.91	$	768	$	2,254
Fiscal 2019
July 27, 2019	$	0.35	$	1,490		82	$	54.99	$	4,515	$	6,005
April 27, 2019	$	0.35	$	1,519		116	$	52.14	$	6,020	$	7,539
January 26, 2019	$	0.33	$	1,470		111	$	45.09	$	5,016	$	6,486
October 27, 2018	$	0.33	$	1,500		109	$	46.01	$	5,026	$	6,526

10

CISCO SYSTEMS, INC.

RECONCILIATIONS OF GAAP TO NON-GAAP MEASURES

GAAP TO NON-GAAP NET INCOME

(In millions)

	Three Months Ended						Nine Months Ended
	April 25, 2020			April 27, 2019			April 25, 2020			April 27, 2019
GAAP net income	$	2,774		$	3,044		$	8,578		$	9,415
Adjustments to cost of sales:
Share-based compensation expense		60			54			176			163
Amortization of acquisition-related intangible assets		154			141			454			418
Supplier component remediation charge (adjustment), net		—			—			—			(1	)
Acquisition-related/divestiture costs		1			2			3			9
Legal and indemnification settlements		—			—			4			5
Total adjustments to GAAP cost of sales		215			197			637			594
Adjustments to operating expenses:
Share-based compensation expense		322			322			975			974
Amortization of acquisition-related intangible assets		34			39			108			112
Acquisition-related/divestiture costs		66			78			191			238
Legal and indemnification settlements		—			(1	)		—			(396	)
Significant asset impairments and restructurings		128			18			354			282
Total adjustments to GAAP operating expenses		550			456			1,628			1,210
Adjustments to GAAP interest and other income (loss), net:
(Gains) and losses on equity investments		1			(4	)		(99	)		(77	)
Total adjustments to GAAP income before provision for income taxes		766			649			2,166			1,727
Income tax effect of non-GAAP adjustments		(172	)		(160	)		(547	)		(554	)
Significant tax matters		—			(79	)		67			(387	)
Total adjustments to GAAP provision for income taxes		(172	)		(239	)		(480	)		(941	)
Non-GAAP net income	$	3,368		$	3,454		$	10,264		$	10,201

11

CISCO SYSTEMS, INC.

RECONCILIATIONS OF GAAP TO NON-GAAP MEASURES

GAAP TO NON-GAAP EPS

	Three Months Ended						Nine Months Ended
	April 25, 2020			April 27, 2019			April 25, 2020			April 27, 2019
GAAP EPS	$	0.65		$	0.69		$	2.01		$	2.09
Adjustments to GAAP:
Share-based compensation expense		0.09			0.09			0.27			0.25
Amortization of acquisition-related intangible assets		0.04			0.04			0.13			0.12
Acquisition-related/divestiture costs		0.02			0.02			0.05			0.05
Legal and indemnification settlements		—			—			—			(0.09	)
Significant asset impairments and restructurings		0.03			—			0.08			0.06
(Gains) and losses on equity investments		—			—			(0.02	)		(0.02	)
Income tax effect of non-GAAP adjustments		(0.04	)		(0.04	)		(0.13	)		(0.12	)
Significant tax matters		—			(0.02	)		0.02			(0.09	)
Non-GAAP EPS	$	0.79		$	0.78		$	2.41		$	2.26

Amounts may not sum due to rounding.

12

CISCO SYSTEMS, INC.

RECONCILIATIONS OF GAAP TO NON-GAAP MEASURES

GROSS MARGINS, OPERATING EXPENSES, OPERATING MARGINS, INTEREST AND OTHER INCOME (LOSS), NET, AND NET INCOME

(In millions, except percentages)

	Three Months Ended
	April 25, 2020
	Product Gross Margin			Service Gross Margin			Total Gross Margin			Operating Expenses			Y/Y			Operating Income			Y/Y			Interest and other income (loss), net			Y/Y			Net Income			Y/Y
GAAP amount	$	5,477		$	2,294		$	7,771		$	4,357			(6	)%	$	3,414			(3	)%	$	30			(71	)%	$	2,774			(9	)%
% of revenue		63.7	%		67.7	%		64.9	%		36.4	%					28.5	%					0.3	%					23.1	%
Adjustments to GAAP amounts:
Share-based compensation expense		23			37			60			322						382						—						382
Amortization of acquisition-related intangible assets		154			—			154			34						188						—						188
Acquisition/divestiture-related costs		—			1			1			66						67						—						67
Significant asset impairments and restructurings		—			—			—			128						128						—						128
(Gains) and losses on equity investments		—			—			—			—						—						1						1
Income tax effect/significant tax matters		—			—			—			—						—						—						(172	)
Non-GAAP amount	$	5,654		$	2,332		$	7,986		$	3,807			(9	)%	$	4,179			—	%	$	31			(68	)%	$	3,368			(2	)%
% of revenue		65.8	%		68.9	%		66.6	%		31.8	%					34.9	%					0.3	%					28.1	%

	Three Months Ended
	April 27, 2019
	Product Gross Margin			Service Gross Margin			Total Gross Margin			Operating Expenses			Operating Income			Interest and other income (loss), net			Net Income
GAAP amount	$	6,029		$	2,144		$	8,173		$	4,660		$	3,513		$	102		$	3,044
% of revenue		62.0	%		66.3	%		63.1	%		36.0	%		27.1	%		0.8	%		23.5	%
Adjustments to GAAP amounts:
Share-based compensation expense		22			32			54			322			376			—			376
Amortization of acquisition-related intangible assets		141			—			141			39			180			—			180
Legal and indemnification settlements		—			—			—			(1	)		(1	)		—			(1	)
Acquisition/divestiture-related costs		1			1			2			78			80			—			80
Significant asset impairments and restructurings		—			—			—			18			18			—			18
(Gains) and losses on equity investments		—			—			—			—			—			(4	)		(4	)
Income tax effect/significant tax matters		—			—			—			—			—			—			(239	)
Non-GAAP amount	$	6,193		$	2,177		$	8,370		$	4,204		$	4,166		$	98		$	3,454
% of revenue		63.7	%		67.3	%		64.6	%		32.4	%		32.2	%		0.8	%		26.7	%

Amounts may not sum and percentages may not recalculate due to rounding.

13

CISCO SYSTEMS, INC.

RECONCILIATIONS OF GAAP TO NON-GAAP MEASURES

EFFECTIVE TAX RATE

(In percentages)

	Three Months Ended						Nine Months Ended
	April 25, 2020			April 27, 2019			April 25, 2020			April 27, 2019
GAAP effective tax rate		19.4	%		15.8	%		19.6	%		13.4	%
Total adjustments to GAAP provision for income taxes		0.6	%		3.2	%		0.4	%		5.6	%
Non-GAAP effective tax rate		20.0	%		19.0	%		20.0	%		19.0	%

GAAP TO NON-GAAP GUIDANCE FOR Q4 FY 2020

Q4 FY 2020	Gross Margin Rate	Operating Margin Rate	Tax Provision Rate	Earnings per Share (1)
GAAP	62% - 63%	25.5% - 26.5%	19%	$0.57 - $0.62
Estimated adjustments for:
Share-based compensation expense	0.5%	3.5%	—	$0.07 - $0.08
Amortization of acquisition-related intangible assets and acquisition/divestiture-related costs	1.5%	2.0%	—	$0.04 - $0.05
Significant asset impairments and restructurings	—	0.5%	—	$0.01 - $0.02
Income tax effect of non-GAAP adjustments			1%
Non-GAAP	64% - 65%	31.5% - 32.5%	20%	$0.72 - $0.74

⁽¹⁾  Estimated adjustments to GAAP earnings per share are shown after income tax effects.

Except as noted above, this guidance does not include the effects of any future acquisitions/divestitures, asset impairments, restructurings and significant tax matters or other events, which may or may not be significant unless specifically stated.

14

Forward Looking Statements, Non-GAAP Information and Additional Information

This release may be deemed to contain forward-looking statements, which are subject to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These forward-looking statements include, among other things, statements regarding future events (such as continued support of our employees, customers, partners and communities, while positioning Cisco for the future, global customer demand to digitize their operations and support remote workforces at a faster speeds and greater scale and our ability to provide the technology and solutions our customers need to accelerate their digital organizations, our ability to continue to build resiliency into our business model, continued growth of revenue from software subscriptions, our ability to drive long-term profitable growth while delivering shareholder value, and future responses to and effects of the COVID-19 pandemic) and the future financial performance of Cisco (including the guidance for Q4 FY 2020) that involve risks and uncertainties. Readers are cautioned that these forward-looking statements are only predictions and may differ materially from actual future events or results due to a variety of factors, including: the impact of the COVID-19 pandemic; business and economic conditions and growth trends in the networking industry, our customer markets and various geographic regions; global economic conditions and uncertainties in the geopolitical environment; overall information technology spending; the growth and evolution of the Internet and levels of capital spending on Internet-based systems; variations in customer demand for products and services, including sales to the service provider market and other customer markets; the return on our investments in certain priorities, key growth areas, and in certain geographical locations, as well as maintaining leadership in routing, switching and services; the timing of orders and manufacturing and customer lead times; changes in customer order patterns or customer mix; insufficient, excess or obsolete inventory; variability of component costs; variations in sales channels, product costs or mix of products sold; our ability to successfully acquire businesses and technologies and to successfully integrate and operate these acquired businesses and technologies; our ability to achieve expected benefits of our partnerships; increased competition in our product and service markets, including the data center market; dependence on the introduction and market acceptance of new product offerings and standards; rapid technological and market change; manufacturing and sourcing risks; product defects and returns; litigation involving patents, intellectual property, antitrust, shareholder and other matters, and governmental investigations; our ability to achieve the benefits of the announced restructuring and possible changes in the size and timing of the related charges; cyber-attacks, data breaches or malware; vulnerabilities and critical security defects; terrorism; natural catastrophic events; any other pandemic or epidemic; our ability to achieve the benefits anticipated from our investments in sales, engineering, service, marketing and manufacturing activities; our ability to recruit and retain key personnel; our ability to manage financial risk, and to manage expenses during economic downturns; risks related to the global nature of our operations, including our operations in emerging markets; currency fluctuations and other international factors; changes in provision for income taxes, including changes in tax laws and regulations or adverse outcomes resulting from examinations of our income tax returns; potential volatility in operating results; and other factors listed in Cisco’s most recent reports on Forms 10-Q and 10-K filed on February 18, 2020 and September 5, 2019, respectively. The financial information contained in this release should be read in conjunction with the consolidated financial statements and notes thereto included in Cisco’s most recent reports on Forms 10-Q and 10-K as each may be amended from time to time. Cisco’s results of operations for the three and nine months ended April 25, 2020 are not necessarily indicative of Cisco’s operating results for any future periods. Any projections in this release are based on limited information currently available to Cisco, which is subject to change. Although any such projections and the factors influencing them will likely change, Cisco will not necessarily update the information, since Cisco will only provide guidance at certain points during the year. Such information speaks only as of the date of this release.

This release includes non-GAAP net income, non-GAAP gross margins, non-GAAP operating expenses, non-GAAP operating income and margin, non-GAAP effective tax rates, non-GAAP interest and other income (loss), net, and non-GAAP net income per share data for the periods presented. It also includes future estimated ranges for gross margin, operating margin, tax provision rate and EPS on a non-GAAP basis.

These non-GAAP measures are not in accordance with, or an alternative for, measures prepared in accordance with generally accepted accounting principles and may be different from non-GAAP measures used by other companies. In addition, these non-GAAP measures are not based on any comprehensive set of accounting rules or principles. Cisco believes that non-GAAP measures have limitations in that they do not reflect all of the amounts associated with Cisco’s results of operations as determined in accordance with GAAP and that these measures should only be used to evaluate Cisco’s results of operations in conjunction with the corresponding GAAP measures.

Cisco believes that the presentation of non-GAAP measures when shown in conjunction with the corresponding GAAP measures, provides useful information to investors and management regarding financial and business trends relating to its financial condition and its historical and projected results of operations.

For its internal budgeting process, Cisco’s management uses financial statements that do not include, when applicable, share-based compensation expense, amortization of acquisition-related intangible assets, acquisition-related/divestiture costs, significant asset impairments and restructurings, significant litigation settlements and other contingencies, gains and losses on equity investments, the income tax effects of the foregoing and significant tax matters. Cisco’s management also uses the foregoing non-GAAP measures, in addition to the corresponding GAAP measures, in reviewing the financial results of Cisco. In prior periods, Cisco has excluded other items that it no longer excludes for purposes of its non-GAAP financial measures. From time to time in the future there may be other items that Cisco may exclude for purposes of its internal budgeting process and in reviewing its financial results. For additional information on the items excluded by Cisco from one or more of its non-GAAP financial measures, refer to the Form 8-K regarding this release furnished today to the Securities and Exchange Commission.

15

Cisco divested its Service Provider Video Software Solutions business (SPVSS) during the second quarter of fiscal 2019 on October 28, 2018. This release includes, where indicated, financial measures that exclude the SPVSS business. Cisco believes that the presentation of these measures provides useful information to investors and management regarding financial and business trends relating to its financial condition and its historical and projected results of operations because the SPVSS business will not be part of Cisco on a go forward basis. Cisco’s management also uses the financial measures excluding the SPVSS business in reviewing the financial results of Cisco.

About Cisco

Cisco (Nasdaq: CSCO) is the worldwide technology leader that has been making the Internet work since 1984. Our people, products and partners help society securely connect and seize tomorrow’s digital opportunity today. Discover more at newsroom.cisco.com and follow us on Twitter at @Cisco.

Copyright ^© 2020 Cisco and/or its affiliates. All rights reserved. Cisco and the Cisco logo are trademarks or registered trademarks of Cisco and/or its affiliates in the U.S. and other countries. To view a list of Cisco trademarks, go to: www.cisco.com/go/trademarks. Third-party trademarks mentioned in this document are the property of their respective owners. The use of the word partner does not imply a partnership relationship between Cisco and any other company. This document is Cisco Public Information.

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16

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Document Type	8-K
Document Period End Date	May 13, 2020
Entity Registrant Name	CISCO SYSTEMS, INC.
Entity Incorporation State Country Code	CA
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Entity Tax Identification Number	77-0059951
Entity Address, Address Line One	170 West Tasman Drive
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Entity Address, State or Province	CA
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