Cisco Systems Earnings 2019-04-27

CSCO 10Q Quarterly Report

Balance Sheet	Income Statement	Cash Flow

10-Q 1 a10qq3fy19.htm FORM 10-Q Document

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UNITED STATES SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

_____________________________________

FORM 10-Q

(Mark One)



x	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended April 27, 2019



o	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission file number 0-18225

_____________________________________

CISCO SYSTEMS, INC.

(Exact name of registrant as specified in its charter)



California		77-0059951
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification Number)

170 West Tasman Drive

San Jose, California 95134

(Address of principal executive office and zip code)

(408) 526-4000

(Registrant’s telephone number, including area code)

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 x No o

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 x No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, 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	x	Accelerated filer	o

Non-accelerated filer	o	Smaller reporting company	o

		Emerging growth company	o

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. o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x

Number of shares of the registrant’s common stock outstanding as of May 16, 2019: 4,280,733,008

____________________________________

Table of Contents

Cisco Systems, Inc.

Form 10-Q for the Quarter Ended April 27, 2019

INDEX



		Page
Part I	Financial Information	3
Item 1.	Financial Statements (Unaudited)	3
	Consolidated Balance Sheets at April 27, 2019 and July 28, 2018	3
	Consolidated Statements of Operations for the Three and Nine Months Ended April 27, 2019 and April 28, 2018	4
	Consolidated Statements of Comprehensive Income (Loss) for the Three and Nine Months Ended April 27, 2019 and April 28, 2018	5
	Consolidated Statements of Cash Flows for the Nine Months Ended April 27, 2019 and April 28, 2018	6
	Consolidated Statements of Equity for the Three and Nine Months Ended April 27, 2019 and April 28, 2018	7
	Notes to Consolidated Financial Statements	9
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	49
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	72
Item 4.	Controls and Procedures	74
Part II.	Other Information	74
Item 1.	Legal Proceedings	74
Item 1A.	Risk Factors	75
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	92
Item 3.	Defaults Upon Senior Securities	92
Item 4.	Mine Safety Disclosures	92
Item 5.	Other Information	92
Item 6.	Exhibits	93
	Signature	94

Table of Contents

PART I. FINANCIAL INFORMATION

Item 1.
Financial Statements (Unaudited)

CISCO SYSTEMS, INC.

CONSOLIDATED BALANCE SHEETS

(in millions, except par value)

(Unaudited)



	April 27, 2019			July 28, 2018
ASSETS
Current assets:
Cash and cash equivalents	$	10,251		$	8,934
Investments	24,392			37,614
Accounts receivable, net of allowance for doubtful accounts of $124 at April 27, 2019 and $129 at July 28, 2018	3,795			5,554
Inventories	1,513			1,846
Financing receivables, net	5,029			4,949
Other current assets	2,331			2,940
Total current assets	47,311			61,837
Property and equipment, net	2,834			3,006
Financing receivables, net	4,862			4,882
Goodwill	33,544			31,706
Purchased intangible assets, net	2,398			2,552
Deferred tax assets	4,023			3,219
Other assets	2,315			1,582
TOTAL ASSETS	$	97,287		$	108,784
LIABILITIES AND EQUITY
Current liabilities:
Short-term debt	$	7,777		$	5,238
Accounts payable	2,022			1,904
Income taxes payable	953			1,004
Accrued compensation	2,872			2,986
Deferred revenue	10,117			11,490
Other current liabilities	4,172			4,413
Total current liabilities	27,913			27,035
Long-term debt	15,921			20,331
Income taxes payable	8,038			8,585
Deferred revenue	7,339			8,195
Other long-term liabilities	1,272			1,434
Total liabilities	60,483			65,580
Commitments and contingencies (Note 13)
Equity:
Cisco shareholders’ equity:
Preferred stock, no par value: 5 shares authorized; none issued and outstanding	—			—
Common stock and additional paid-in capital, $0.001 par value: 20,000 shares authorized; 4,313 and 4,614 shares issued and outstanding at April 27, 2019 and July 28, 2018, respectively	40,577			42,820
(Accumulated deficit) Retained earnings	(2,877		)	1,233
Accumulated other comprehensive income (loss)	(896		)	(849		)
Total equity	36,804			43,204
TOTAL LIABILITIES AND EQUITY	$	97,287		$	108,784

See Notes to Consolidated Financial Statements.

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CISCO SYSTEMS, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(in millions, except per-share amounts)

(Unaudited)



	Three Months Ended						Nine Months Ended
	April 27, 2019			April 28, 2018			April 27, 2019			April 28, 2018
REVENUE:
Product	$	9,722		$	9,304		$	28,885		$	27,067
Service	3,236			3,159			9,591			9,419
Total revenue	12,958			12,463			38,476			36,486
COST OF SALES:
Product	3,693			3,625			11,106			10,594
Service	1,092			1,079			3,278			3,208
Total cost of sales	4,785			4,704			14,384			13,802
GROSS MARGIN	8,173			7,759			24,092			22,684
OPERATING EXPENSES:
Research and development	1,659			1,590			4,824			4,706
Sales and marketing	2,403			2,325			7,084			6,894
General and administrative	541			561			1,261			1,601
Amortization of purchased intangible assets	39			67			112			188
Restructuring and other charges	18			82			282			332
Total operating expenses	4,660			4,625			13,563			13,721
OPERATING INCOME	3,513			3,134			10,529			8,963
Interest income	331			380			1,003			1,155
Interest expense	(211		)	(237		)	(655		)	(719		)
Other income (loss), net	(18		)	(24		)	(10		)	48
Interest and other income (loss), net	102			119			338			484
INCOME BEFORE PROVISION FOR INCOME TAXES	3,615			3,253			10,867			9,447
Provision for income taxes	571			562			1,452			13,140
NET INCOME (LOSS)	$	3,044		$	2,691		$	9,415		$	(3,693	)

Net income (loss) per share:
Basic	$	0.70		$	0.56		$	2.11		$	(0.76	)
Diluted	$	0.69		$	0.56		$	2.09		$	(0.76	)
Shares used in per-share calculation:
Basic	4,370			4,791			4,468			4,892
Diluted	4,415			4,844			4,509			4,892

See Notes to Consolidated Financial Statements.

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CISCO SYSTEMS, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(in millions)

(Unaudited)



	Three Months Ended						Nine Months Ended
	April 27, 2019			April 28, 2018			April 27, 2019			April 28, 2018
Net income (loss)	$	3,044		$	2,691		$	9,415		$	(3,693	)
Available-for-sale investments:
Change in net unrealized gains and losses, net of tax benefit (expense) of $(64) and $(63) for the third quarter and first nine months of fiscal 2019, respectively, and $18 and $(4) for the corresponding periods of fiscal 2018, respectively	232			(428		)	319			(624		)
Net (gains) losses reclassified into earnings, net of tax (benefit) expense of $5 and $4 for the third quarter and first nine months of fiscal 2019, respectively, and $3 and $28 for the corresponding periods of fiscal 2018, respectively	12			(14		)	22			(80		)
	244			(442		)	341			(704		)
Cash flow hedging instruments:
Change in unrealized gains and losses, net of tax benefit (expense) of $(2) and $0 for the third quarter and first nine months of fiscal 2019, respectively, and $0 and $(3) for the corresponding periods of fiscal 2018, respectively	10			(10		)	3			25
Net (gains) losses reclassified into earnings, net of tax (benefit) expense of $0 for each of the third quarter and first nine months of fiscal 2019, and $3 and $7 for the corresponding periods of fiscal 2018, respectively	—			(25		)	(1		)	(52		)
	10			(35		)	2			(27		)
Net change in cumulative translation adjustment and actuarial gains and losses net of tax benefit (expense) of $(1) and $(2) for the third quarter and first nine months of fiscal 2019, respectively, and $3 and $(3) for the corresponding periods of fiscal 2018, respectively	(40		)	(255		)	(222		)	36
Other comprehensive income (loss)	214			(732		)	121			(695		)
Comprehensive income (loss)	3,258			1,959			9,536			(4,388		)
Comprehensive (income) loss attributable to noncontrolling interests	—			—			—			—
Comprehensive income (loss) attributable to Cisco Systems, Inc.	$	3,258		$	1,959		$	9,536		$	(4,388	)

See Notes to Consolidated Financial Statements.

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CISCO SYSTEMS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in millions)

(Unaudited)



	Nine Months Ended
	April 27, 2019			April 28, 2018
Cash flows from operating activities:
Net income (loss)	$	9,415		$	(3,693	)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation, amortization, and other	1,433			1,676
Share-based compensation expense	1,166			1,184
Provision (benefit) for receivables	32			(104		)
Deferred income taxes	(281		)	1,013
(Gains) losses on divestitures, investments and other, net	(79		)	(159		)
Change in operating assets and liabilities, net of effects of acquisitions and divestitures:
Accounts receivable	1,560			1,064
Inventories	(1		)	(289		)
Financing receivables	(112		)	(165		)
Other assets	(736		)	(135		)
Accounts payable	52			148
Income taxes, net	(759		)	8,795
Accrued compensation	(68		)	53
Deferred revenue	421			415
Other liabilities	(154		)	(237		)
Net cash provided by operating activities	11,889			9,566
Cash flows from investing activities:
Purchases of investments	(1,176		)	(14,132		)
Proceeds from sales of investments	5,391			12,422
Proceeds from maturities of investments	10,797			12,259
Acquisitions and divestitures	(2,175		)	(2,762		)
Purchases of investments in privately held companies	(118		)	(126		)
Return of investments in privately held companies	127			163
Acquisition of property and equipment	(701		)	(620		)
Proceeds from sales of property and equipment	15			54
Other	(12		)	(16		)
Net cash provided by investing activities	12,148			7,242
Cash flows from financing activities:
Issuances of common stock	321			318
Repurchases of common stock—repurchase program	(16,042		)	(11,562		)
Shares repurchased for tax withholdings on vesting of restricted stock units	(601		)	(541		)
Short-term borrowings, original maturities of 90 days or less, net	1,723			(2,502		)
Issuances of debt	1,530			6,877
Repayments of debt	(5,250		)	(9,875		)
Dividends paid	(4,489		)	(4,433		)
Other	51			(92		)
Net cash used in financing activities	(22,757		)	(21,810		)
Net increase in cash, cash equivalents, and restricted cash	1,280			(5,002		)
Cash, cash equivalents, and restricted cash, beginning of period	8,993			11,773
Cash, cash equivalents, and restricted cash, end of period	$	10,273		$	6,771

Supplemental cash flow information:
Cash paid for interest	$	690		$	739
Cash paid for income taxes, net	$	2,491		$	3,332

See Notes to Consolidated Financial Statements.

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CISCO SYSTEMS, INC.

CONSOLIDATED STATEMENTS OF EQUITY

(in millions, except per-share amounts)

(Unaudited)



Three Months Ended April 27, 2019	Shares of Common Stock		Common Stock and Additional Paid-In Capital			Retained Earnings (Accumulated Deficit)			Accumulated Other Comprehensive Income (Loss)			Total Cisco Shareholders’ Equity			Non-controlling Interests		Total Equity
BALANCE AT JANUARY 26, 2019	4,424		$	41,361		$	538		$	(1,110	)	$	40,789		$	—	$	40,789
Net income						3,044						3,044					3,044
Other comprehensive income (loss)									214			214					214
Issuance of common stock	7		9									9					9
Repurchase of common stock	(116	)	(1,080		)	(4,940		)				(6,020		)			(6,020		)
Shares repurchased for tax withholdings on vesting of restricted stock units	(2	)	(87		)							(87		)			(87		)
Cash dividends declared ($0.35 per common share)						(1,519		)				(1,519		)			(1,519		)
Share-based compensation			374									374					374
BALANCE AT APRIL 27, 2019	4,313		$	40,577		$	(2,877	)	$	(896	)	$	36,804		$	—	$	36,804



Nine Months Ended April 27, 2019	Shares of Common Stock		Common Stock and Additional Paid-In Capital			Retained Earnings (Accumulated Deficit)			Accumulated Other Comprehensive Income (Loss)			Total Cisco Shareholders’ Equity			Non-controlling Interests		Total Equity
BALANCE AT JULY 28, 2018	4,614		$	42,820		$	1,233		$	(849	)	$	43,204		$	—	$	43,204
Net income						9,415						9,415					9,415
Other comprehensive income (loss)									121			121					121
Issuance of common stock	48		321									321					321
Repurchase of common stock	(336	)	(3,129		)	(12,933		)				(16,062		)			(16,062		)
Shares repurchased for tax withholdings on vesting of restricted stock units	(13	)	(601		)							(601		)			(601		)
Cash dividends declared ($1.01 per common share)						(4,489		)				(4,489		)			(4,489		)
Effect of adoption of accounting standards						3,897			(168		)	3,729					3,729
Share-based compensation			1,166									1,166					1,166
BALANCE AT APRIL 27, 2019	4,313		$	40,577		$	(2,877	)	$	(896	)	$	36,804		$	—	$	36,804

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CISCO SYSTEMS, INC.

CONSOLIDATED STATEMENTS OF EQUITY

(in millions, except per-share amounts)

(Unaudited)



Three Months Ended April 28, 2018	Shares of Common Stock		Common Stock and Additional Paid-In Capital			Retained Earnings			Accumulated Other Comprehensive Income (Loss)			Total Cisco Shareholders’ Equity			Non-controlling Interests		Total Equity
BALANCE AT JANUARY 27, 2018	4,868		$	44,535		$	7,364		$	83		$	51,982		$	—	$	51,982
Net income						2,691						2,691					2,691
Other comprehensive income (loss)									(732		)	(732		)	—		(732		)
Issuance of common stock	9		16									16					16
Repurchase of common stock	(140	)	(1,286		)	(4,729		)				(6,015		)			(6,015		)
Shares repurchased for tax withholdings on vesting of restricted stock units	(3	)	(108		)							(108		)			(108		)
Cash dividends declared ($0.33 per common share)						(1,572		)				(1,572		)			(1,572		)
Effect of adoption of accounting standards						(45		)	45			—					—
Share-based compensation			399									399					399
Purchase acquisitions and other												—					—
BALANCE AT APRIL 28, 2018	4,734		$	43,556		$	3,709		$	(604	)	$	46,661		$	—	$	46,661



Nine Months Ended April 28, 2018	Shares of Common Stock		Common Stock and Additional Paid-In Capital			Retained Earnings			Accumulated Other Comprehensive Income (Loss)			Total Cisco Shareholders’ Equity			Non-controlling Interests		Total Equity
BALANCE AT JULY 29, 2017	4,983		$	45,253		$	20,838		$	46		$	66,137		$	—	$	66,137
Net loss						(3,693		)				(3,693		)			(3,693		)
Other comprehensive income (loss)									(695		)	(695		)			(695		)
Issuance of common stock	61		318									318					318
Repurchase of common stock	(294	)	(2,679		)	(8,967		)				(11,646		)			(11,646		)
Shares repurchased for tax withholdings on vesting of restricted stock units	(16	)	(541		)							(541		)			(541		)
Cash dividends declared ($0.91 per common share)						(4,433		)				(4,433		)			(4,433		)
Effect of adoption of accounting standards						(36		)	45			9					9
Share-based compensation			1,184									1,184					1,184
Purchase acquisitions and other			21									21					21
BALANCE AT APRIL 28, 2018	4,734		$	43,556		$	3,709		$	(604	)	$	46,661		$	—	$	46,661

See Notes to Consolidated Financial Statements.

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CISCO SYSTEMS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)


1.	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 2019 and fiscal 2018 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 April 27, 2019 and for the third quarter and first nine months of fiscal 2019 and fiscal 2018, 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 28, 2018 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 28, 2018.

Our consolidated financial statements include our accounts and entities consolidated under the variable interest and voting models. The noncontrolling interests attributed to these investments, if any, are presented as a separate component from our equity in the equity section of the Consolidated Balance Sheets. The share of earnings attributable to the noncontrolling interests are not presented separately in the Consolidated Statements of Operations as these amounts are not material for any of the fiscal periods presented.

In the opinion of management, all normal recurring adjustments necessary to present fairly the consolidated balance sheet as of April 27, 2019; the results of operations and the statements of comprehensive income (loss) for the third quarter and first nine months of fiscal 2019 and fiscal 2018; the statements of cash flows for the first nine months of fiscal 2019 and fiscal 2018; and the statements of equity for the third quarter and first nine months of fiscal 2019 and fiscal 2018, as applicable, have been made. The results of operations for the third quarter and first nine months of fiscal 2019 and fiscal 2018 are not necessarily indicative of the operating results for the full fiscal year or any future periods.

Certain reclassifications have been made to the amounts in prior periods in order to conform to the current period’s presentation. We have evaluated subsequent events through the date that the financial statements were issued.


2.	Recent Accounting Pronouncements


(a)	New Accounting Updates Recently Adopted

Revenue Recognition In May 2014, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Codification ("ASC") 606, Revenue from Contracts with Customers, a new accounting standard related to revenue recognition. ASC 606 supersedes nearly all U.S. GAAP on revenue recognition and eliminated industry-specific guidance. The underlying principle of ASC 606 is to recognize revenue when a customer obtains control of promised goods or services at an amount that reflects the consideration that is expected to be received in exchange for those goods or services. It also requires increased disclosures including the nature, amount, timing, and uncertainty of revenues and cash flows related to contracts with customers.

ASC 606 allows two methods of adoption: i) retrospectively to each prior period presented (“full retrospective method”), or ii) retrospectively with the cumulative effect recognized in retained earnings as of the date of adoption ("modified retrospective method"). At the beginning of the first quarter of fiscal 2019, we adopted ASC 606 using the modified retrospective method to those contracts that were not completed as of July 28, 2018. Refer to Opening Balance Adjustments below for the impact of adoption on our Consolidated Financial Statements.

We have implemented new accounting policies, systems, processes, and internal controls necessary to support the requirements of ASC 606.

ASC 606 primarily impacts our revenue recognition for software arrangements and sales to two-tier distributors. In both areas, the new standard accelerates the recognition of revenue.

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CISCO SYSTEMS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

The table below details the timing of when revenue was typically recognized under the prior revenue standard compared to the timing of when revenue is typically recognized under ASC 606 for these major areas:



	Prior Revenue Standard	ASC 606
Software arrangements:
Perpetual software licenses	Upfront	Upfront
Term software licenses	Ratable	Upfront
Security software licenses	Ratable	Ratable
Enterprise license agreements (software licenses)	Ratable	Upfront
Software support (maintenance)	Ratable	Ratable
Software-as-a-service	Ratable	Ratable
Two-tier distribution	Sell-Through	Sell-In

In addition to the above revenue recognition timing impacts, ASC 606 requires incremental contract acquisition costs (such as sales commissions) for customer contracts to be capitalized and amortized on a systematic basis that is consistent with the transfer to the customer of the goods or services to which the assets relates.

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 or once delivery 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 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.

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 apply judgment in determining the transaction price as we may be required to estimate variable consideration when determining the amount of revenue to recognize. Variable consideration includes various rebate, cooperative marketing, and other incentive programs that we offer to our distributors, 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

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CISCO SYSTEMS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

changing. In these circumstances, the revenue from these software arrangements is recognized as a distinct performance obligation satisfied over the contract term.

For the additional disclosures required as part of ASC 606 see Note 3.

Financial Instruments In January 2016, the FASB issued an accounting standard update that changes the accounting for equity investments, financial liabilities under the fair value option, and the presentation and disclosure requirements for financial instruments. The most significant impact of this accounting standard update is that it requires the remeasurement of investments not accounted for under the equity method to be recorded at fair value through the Consolidated Statement of Operations at the end of each reporting period. The application of this accounting standard update increases the variability of other income (loss), net.

Our equity investments are accounted for as follows:


•	Marketable equity securities have readily determinable fair value (RDFV) that are measured and recorded at fair value.


•	Non-marketable equity securities do not have RDFV and are measured using a measurement alternative recorded at cost less any impairment, plus or minus changes resulting from qualifying observable price changes. For certain of these securities, we have elected to apply the net asset value (NAV) practical expedient. The NAV is the estimated fair value of these investments.


•	Equity method investments are securities we do not control, but are able to exert significant influence over the investee. These investments are measured at cost less any impairment, plus or minus our share of equity method investee income or loss.

We adopted this accounting standard update beginning the first quarter of fiscal 2019. The standard was adopted using the modified retrospective method for our marketable equity securities and non-marketable equity securities measured using the NAV practical expedient. For our non-marketable equity securities measured using the measurement alternative, we applied the prospective method. Refer to Opening Balance Adjustments below for the impact of adoption on our Consolidated Balance Sheet.

Income Taxes on Intra-Entity Transfers of Assets In October 2016, the FASB issued an accounting standard update that requires recognition of the income tax consequences of intra-entity transfers of assets (other than inventory) at the transaction date. We adopted this accounting standard update beginning in the first quarter of fiscal 2019 on a modified retrospective basis. The ongoing impact of this standard will be facts and circumstances dependent on any transactions within its scope. Refer to Opening Balance Adjustments below for the impact of adoption on our Consolidated Balance Sheet.

Classification of Cash Flow Elements In August 2016, the FASB issued an accounting standard update related to the classification of certain cash receipts and cash payments on the statement of cash flows. We adopted this accounting standard update beginning in the first quarter of fiscal 2019 on a retrospective basis. The application of this accounting standard update did not have an impact on our Consolidated Statements of Cash Flows.

Restricted Cash in Statement of Cash Flows In November 2016, the FASB issued an accounting standard update that provides guidance on the classification and presentation of changes in restricted cash and cash equivalents in the statement of cash flows. We adopted this accounting standard update beginning in the first quarter of fiscal 2019 using a retrospective transition method to each period presented. The application of this accounting standard update did not have a material impact on our Consolidated Statements of Cash Flows. Prior period information has been retrospectively adjusted due to the adoption of ASU 2016-18, Statement of Cash Flows, Restricted Cash at the beginning of the first quarter of fiscal 2019.

Simplifying the Test for Goodwill Impairment In January 2017, the FASB issued an accounting standard update that removes Step

2 of the goodwill impairment test, which requires the assessment of fair value of individual assets and liabilities of a reporting unit to measure goodwill impairments. Goodwill impairment will now be the amount by which a reporting unit's carrying value exceeds its fair value. We early adopted this accounting standard update beginning in the first quarter of fiscal 2019 on a prospective basis. The application of this accounting standard update did not have any impact on our Consolidated Financial Statements.

Definition of a Business In January 2017, the FASB issued an accounting standard update that clarifies the definition of a business to help companies evaluate whether acquisition or disposal transactions should be accounted for as asset groups or as businesses. We adopted this accounting standard update beginning in the first quarter of fiscal 2019 on a prospective basis. The impact of this accounting standard update will be fact dependent, but we expect that some transactions that were previously accounted for as business combinations or disposal transactions will be accounted for as asset purchases or asset sales under the accounting standard update.

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(Unaudited)

Opening Balance Adjustments

The following table summarizes the cumulative effect of the changes made to the Consolidated Balance Sheet for the adoption of ASC 606, ASU 2016-01, Financial Instruments, and ASU 2016-16, Intra-Entity Transfers of Assets Other than Inventory (in millions):



Line Item in Consolidated Balance Sheet:	Balance at July 28, 2018			New Revenue Recognition Standard				New Financial Instruments Standard				New Intra-Entity Transfers Standard				Adjusted Balance at July 29, 2018
ASSETS
Accounts receivable, net	$	5,554		$	(104	)	⁽¹⁾	$	—			$	—			$	5,450
Inventories	$	1,846		$	(302	)	⁽²⁾	$	—			$	—			$	1,544
Other current assets (includes capitalized contract acquisition costs)	$	2,940		$	371		^{(3), (4)}	$	—			$	(25	)	⁽³⁾	$	3,286
Deferred tax assets	$	3,219		$	(624	)	⁽³⁾	$	(15	)	⁽³⁾	$	1,415		⁽⁸⁾	$	3,995
Other assets (includes capitalized contract acquisition costs)	$	1,582		$	327		⁽⁴⁾	$	136		⁽⁷⁾	$	(91	)	⁽³⁾	$	1,954

TOTAL ASSETS	$	108,784		$	(332	)		$	121			$	1,299			$	109,872

LIABILITIES AND EQUITY
Income taxes payable	$	1,004		$	—			$	—			$	11		⁽³⁾	$	1,015
Deferred revenue — current	$	11,490		$	(1,702	)	⁽⁵⁾	$	—			$	—			$	9,788
Other current liabilities	$	4,413		$	33		⁽⁶⁾	$	—			$	—			$	4,446
Deferred revenue — non-current	$	8,195		$	(1,081	)	⁽⁵⁾	$	—			$	—			$	7,114
Other long-term liabilities	$	1,434		$	85		⁽³⁾	$	13		⁽³⁾	$	—			$	1,532
Retained earnings	$	1,233		$	2,333		⁽¹⁰⁾	$	283		⁽¹⁰⁾	$	1,281		⁽¹⁰⁾	$	5,130
Accumulated other comprehensive income (loss)	$	(849	)	$	—			$	(175	)	⁽⁹⁾	$	7		⁽³⁾	$	(1,017	)

TOTAL LIABILITIES AND EQUITY	$	108,784		$	(332	)		$	121			$	1,299			$	109,872

⁽¹⁾ Primarily represents the decrease to accounts receivable related to the change in recognizing revenue on sales to two-tier distributors from a sell-through to a sell-in basis

⁽²⁾ Primarily represents the reduction of inventory for the change from recognizing revenue on sales to two-tier distributors from a sell-through to a sell-in basis

⁽³⁾ Includes the impacts to deferred tax assets, liabilities and other income tax balances

⁽⁴⁾ Primarily represents capitalized contract acquisition costs (e.g. commissions)

⁽⁵⁾ Primarily represents deferred revenue adjusted to retained earnings primarily due to the change in revenue recognition for certain software arrangements from ratable to upfront, recognizing revenue on sales to two-tier distributors from a sell-through to a sell-in basis. Of this total $2.8 billion adjustment, $2.6 billion related to product deferred revenue, of which $1.3 billion relates to our recurring software and subscription offers, $0.6 billion relates to two-tier distribution, and the remainder relates to non-recurring software and other adjustments.

⁽⁶⁾ Primarily represents the reclassification of accounts receivable contra balances to other current liabilities, adjustments to rebate liabilities for the change from recognizing revenue on sales to two-tier distributors from a sell-through to a sell-in basis, and reclassifications from other current liabilities for amounts that are not contract liabilities under ASC 606

⁽⁷⁾ Represents the adjustment due to the remeasurement of non-marketable equity investments at fair value

⁽⁸⁾ Primarily represents the change in net deferred tax assets related to unrecognized income tax effects of intra-entity asset transfers

⁽⁹⁾ Represents the reclassification of net unrealized gains from accumulated other comprehensive income (loss) to retained earnings

⁽¹⁰⁾ Retained earnings impact from the adjustments noted above

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(Unaudited)

Impact of ASC 606 Adoption

The application of ASC 606 increased our total revenue by $146 million and $662 million in the third quarter and first nine months of fiscal 2019, respectively. The application of ASC 606 did not have a material impact to either our cost of sales or our operating expenses in the third quarter and first nine months of fiscal 2019. We recognized a $152 million benefit to our provision for income taxes relating to indirect effects from the adoption of ASC 606 in the first quarter of fiscal 2019. For additional information regarding ASC 606, see Note 3 to the Consolidated Financial Statements.

In connection with the adoption of ASC 606, we recorded a transition adjustment to increase retained earnings by $2.3 billion. See above for the transition impact of ASC 606 by balance sheet line item. As of April 27, 2019, the balance sheet changes attributable to ASC 606 related to accounts receivable, inventories, and deferred revenue were not materially different than the impacts upon adoption. In connection with the adoption of ASC 606, we established contract assets for unbilled receivables. As of April 27, 2019, we had total contract assets of $637 million, of which $254 million was recorded in other current assets and $383 million was recorded in other assets. As of April 27, 2019, we had total capitalized contract acquisition costs of $705 million, of which $390 million was recorded in other current assets and $315 million was recorded in other assets. The adoption of ASC 606 did not have any impact on net cash provided by operating activities.


(b)	Recent Accounting Standards or Updates Not Yet Effective

Leases In February 2016, the FASB issued an accounting standard update and subsequent amendments related to leases requiring lessees to recognize operating and financing lease liabilities on the balance sheet, as well as corresponding right-of-use assets. The new lease standard also makes some changes to lessor accounting and aligns key aspects of the lessor accounting model with the revenue recognition standard. In addition, disclosures will be required to enable users of financial statements to assess the amount, timing, and uncertainty of cash flows arising from leases. The accounting standard update will be effective for us beginning in the first quarter of fiscal 2020 and early adoption is permitted. We expect to adopt this accounting standard update on a modified retrospective basis in the first quarter of fiscal 2020, and we are currently evaluating the impact of this accounting standard update on our Consolidated Financial Statements.

Credit Losses of Financial Instruments In June 2016, the FASB issued an accounting standard update that requires measurement and recognition of expected credit losses for financial assets held based on historical experience, current conditions, and reasonable and supportable forecasts that affect the collectibility of the reported amount. The accounting standard update will be effective for us beginning in the first quarter of fiscal 2021 and early adoption in fiscal 2020 is permitted. We expect to adopt this accounting standard update on a modified retrospective basis in the first quarter of fiscal 2021, and we are currently evaluating the impact of this accounting standard update on our Consolidated Financial Statements.

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(Unaudited)


3.	Revenue


(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. The following table presents this disaggregation of revenue (in millions):



	Three Months Ended				Nine Months Ended
	April 27, 2019		April 28, 2018		April 27, 2019		April 28, 2018
Revenue:
Infrastructure Platforms	$	7,545	$	7,180	$	22,315	$	20,870
Applications	1,431		1,310		4,315		3,697
Security	707		583		2,016		1,725
Other Products	39		231		239		775
Total Product	9,722		9,304		28,885		27,067
Services	3,236		3,159		9,591		9,419
Total ⁽¹⁾	$	12,958	$	12,463	$	38,476	$	36,486

Amounts may not sum due to rounding.

⁽¹⁾ During the second quarter of fiscal 2019, we completed the divestiture of the Service Provider Video Software Solutions ("SPVSS") business. Total revenue includes SPVSS business revenue of $0 and $219 million for the third quarter of fiscal 2019 and 2018, respectively, and $168 million and $697 million for the first nine months of fiscal 2019 and 2018, respectively.

Infrastructure Platforms consist of our core networking technologies of switching, routing, data center products, and wireless that are designed to work together to deliver networking capabilities and transport and/or store data. These technologies consist of both hardware and software offerings, including software licenses and software-as-a-service (SaaS), that help our customers build networks, automate, orchestrate, integrate, and digitize data. We are shifting and expanding more of our business to software and subscriptions across our core networking portfolio. 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.

Applications consists of offerings that utilize the core networking and data center platforms to provide their functions. The 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.

Security primarily includes our unified threat management, advanced threat security, and web security products. 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.

Other Products primarily include our Service Provider Video Software Solutions and cloud and system management products. On May 1, 2018, we announced a definitive agreement to sell the SPVSS business. The sale closed on October 28, 2018. These products include both hardware and software licenses. Our offerings in this category are distinct performance obligations where revenue is recognized upfront upon transfer of control.

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

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

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 8 for additional information. For these arrangements, cash is typically received over time.


(b)	Contract Balances

Accounts receivable, net was $3.8 billion as of April 27, 2019 compared to $5.6 billion as of July 28, 2018, as reported on the Consolidated Balance Sheet.

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. As of April 27, 2019 and July 29, 2018, our contract assets for these unbilled receivables were $637 million and $122 million, respectively, and were included in other current assets and other assets.

Contract liabilities consist of deferred revenue. Deferred revenue was $17.5 billion as of April 27, 2019 compared to $19.7 billion as of July 28, 2018. In connection with the adoption of ASC 606, we recorded an adjustment to retained earnings to reduce deferred revenue by $2.8 billion. We recognized approximately $2.0 billion and $8.0 billion of revenue during the third quarter and first nine months of fiscal 2019, respectively, that was included in the deferred revenue balance at July 29, 2018.


(c)	Remaining Performance Obligations

Remaining Performance Obligations (RPO) are comprised of deferred revenue plus unbilled contract revenue. As of April 27, 2019, the aggregate amount of RPO was $23.0 billion, comprised of $17.5 billion of deferred revenue and $5.5 billion of unbilled contract revenue. We expect approximately 56% of this amount to be recognized as revenue over the next year. Unbilled contract revenue represents non-cancelable contracts for which we have not invoiced, have an obligation to perform, and revenue has not yet been recognized in the financial statements.


(d)	Capitalized Contract Acquisition Costs

In connection with the adoption of ASC 606, we began to capitalize direct and incremental costs incurred to acquire contracts, primarily sales commissions, for which the associated revenue is expected to be recognized in future periods. We incur these costs in connection with both initial contracts and renewals. These costs are initially deferred and typically amortized over the term of the customer contract which corresponds to the period of benefit. Deferred sales commissions were $705 million and $644 million as of April 27, 2019 and July 29, 2018, respectively, and were included in other current assets and other assets. The amortization expense associated with these costs was $124 million and $349 million for the third quarter and first nine months of fiscal 2019, respectively, and was included in sales and marketing expenses.


4.	Acquisitions and Divestitures

We completed five acquisitions during the first nine months of fiscal 2019. A summary of the allocation of the total purchase consideration is presented as follows (in millions):



	Purchase Consideration		Net Tangible Assets Acquired (Liabilities Assumed)			Purchased Intangible Assets		Goodwill
Duo	$	2,025	$	(57	)	$	342	$	1,740
Luxtera	596		(19		)	319		296
Others (three in total)	65		2			11		52
Total	$	2,686	$	(74	)	$	672	$	2,088

On September 28, 2018, we completed our acquisition of privately held Duo Security, Inc. ("Duo"), a leading provider of unified access security and multi-factor authentication delivered through the cloud. Revenue from the Duo acquisition has been included in our Security product category.

On February 6, 2019, we completed our acquisition of Luxtera, Inc. ("Luxtera"), a privately held semiconductor company. Revenue from the Luxtera acquisition has been included in our Infrastructure Platforms product category.

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(Unaudited)

The total purchase consideration related to acquisitions completed during the first nine months of fiscal 2019 consisted of cash consideration. The total cash and cash equivalents acquired from these acquisitions was approximately $100 million. Total transaction costs related to acquisition and divestiture activities were $15 million and $25 million for the first nine months of fiscal 2019 and 2018, respectively. These transaction costs were expensed as incurred in general and administrative expenses ("G&A") in the Consolidated Statements of Operations.

The goodwill generated from acquisitions completed during the first nine months of fiscal 2019 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 nine months of fiscal 2019 have not been presented because the effects of the acquisitions, individually and in the aggregate, were not material to our financial results.

Divestiture of Service Provider Video Software Solutions On October 28, 2018, we completed the sale of the Service Provider Video Software Solutions business. This business had tangible assets of approximately $160 million (primarily comprised of accounts receivables, inventories and various other current and long-term assets) and net intangible assets and goodwill (based on relative fair value) of $340 million. In addition, the business had total liabilities of approximately $200 million (primarily comprised of deferred revenue and various other current and long-term liabilities). We recognized an immaterial gain from this transaction in the first nine months of fiscal 2019.

We completed two divestitures during the second quarter of fiscal 2018. The financial statement impact of these divestitures was not material for the first nine months of fiscal 2018.


5.	Goodwill and Purchased Intangible Assets


(a)	Goodwill

The following table presents the goodwill allocated to our reportable segments as of April 27, 2019 and during the first nine months of fiscal 2019 (in millions):




	Balance at July 28, 2018		Acquisitions & Divestitures		Other			Balance at April 27, 2019
Americas	$	19,998	$	1,240	$	(109	)	$	21,129
EMEA	7,529		486		(33		)	7,982
APJC	4,179		274		(20		)	4,433
Total	$	31,706	$	2,000	$	(162	)	$	33,544

“Other” in the table above primarily consists of foreign currency translation as well as immaterial purchase accounting adjustments.


(b)	Purchased Intangible Assets

The following table presents details of our intangible assets acquired through acquisitions completed during the first nine months of fiscal 2019 (in millions, except years):



	FINITE LIVES									INDEFINITE LIVES		TOTAL
	TECHNOLOGY			CUSTOMER RELATIONSHIPS			OTHER			IPR&D		TOTAL
	Weighted- Average Useful Life (in Years)	Amount		Weighted- Average Useful Life (in Years)	Amount		Weighted- Average Useful Life (in Years)	Amount		Amount		Amount
Duo	5.0	$	153	5.0	$	94	2.5	$	18	$	77	$	342
Luxtera	4.0	2		5.0	58		1.6	3		256		319
Others (three in total)	4.4	11		—	—		—	—		—		11
Total		$	166		$	152		$	21	$	333	$	672

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(Unaudited)

The following tables present details of our purchased intangible assets (in millions):



April 27, 2019	Gross		Accumulated Amortization			Net
Purchased intangible assets with finite lives:
Technology	$	3,169	$	(1,775	)	$	1,394
Customer relationships	840		(296		)	544
Other	41		(18		)	23
Total purchased intangible assets with finite lives	4,050		(2,089		)	1,961
In-process research and development, with indefinite lives	437		—			437
Total	$	4,487	$	(2,089	)	$	2,398



July 28, 2018	Gross		Accumulated Amortization			Net
Purchased intangible assets with finite lives:
Technology	$	3,711	$	(1,888	)	$	1,823
Customer relationships	1,538		(937		)	601
Other	63		(38		)	25
Total purchased intangible assets with finite lives	5,312		(2,863		)	2,449
In-process research and development, with indefinite lives	103		—			103
Total	$	5,415	$	(2,863	)	$	2,552

Purchased intangible assets include intangible assets acquired through acquisitions as well as through direct purchases or licenses.

There were no impairment charges related to purchased intangible assets for the third quarter and first nine months of fiscal 2019. Impairment charges related to purchased intangible assets for the third quarter and first nine months of fiscal 2018 were $1 million. Impairment charges are primarily a result of declines in estimated fair values of certain purchased intangible assets resulting from the reduction or elimination of expected future cash flows associated with certain of our technology and in-process research and development (IPR&D) intangible assets.

The following table presents the amortization of purchased intangible assets, including impairment charges (in millions):



	Three Months Ended				Nine Months Ended
	April 27, 2019		April 28, 2018		April 27, 2019		April 28, 2018
Amortization of purchased intangible assets:
Cost of sales	$	157	$	177	$	464	$	491
Operating expenses	39		67		112		188
Total	$	196	$	244	$	576	$	679

The estimated future amortization expense of purchased intangible assets with finite lives as of April 27, 2019 is as follows (in millions):



Fiscal Year	Amount
2019 (remaining three months)	$	194
2020	$	741
2021	$	543
2022	$	287
2023	$	145
Thereafter	$	51

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(Unaudited)


6.	Restructuring and Other Charges

We initiated a restructuring plan during fiscal 2018 (the "Fiscal 2018 Plan") in order to realign the organization and enable further investment in key priority areas with estimated pretax charges of approximately $600 million. These aggregate pretax charges are primarily cash-based and consist of employee severance and other one-time termination benefits, and other associated costs. In connection with the Fiscal 2018 Plan, we have incurred charges of $18 million and $282 million for the third quarter and first nine months of fiscal 2019, respectively, and have incurred cumulative charges of $390 million. We expect the Fiscal 2018 Plan to be substantially completed in the first half of fiscal 2020.

We announced a restructuring plan in August 2016 (the "Fiscal 2017 Plan"), in order to reinvest in our key priority areas. In connection with the Fiscal 2017 Plan, we incurred cumulative charges of approximately $1.0 billion, which were primarily cash-based and consisted of employee severance and other one-time termination benefits, and other associated costs. We completed the Fiscal 2017 Plan in fiscal 2018.

The following tables summarize the activities related to the restructuring and other charges (in millions):



	FISCAL 2017 AND PRIOR PLANS						FISCAL 2018 PLAN
	Employee Severance			Other			Employee Severance			Other			Total
Liability as of July 28, 2018	$	41		$	13		$	19		$	—		$	73
Charges	—			(1		)	232			51			282
Cash payments	(34		)	(7		)	(232		)	(2		)	(275		)
Non-cash items	—			—			—			(46		)	(46		)
Liability as of April 27, 2019	$	7		$	5		$	19		$	3		$	34



	FISCAL 2017 AND PRIOR PLANS						FISCAL 2018 PLAN
	Employee Severance			Other			Employee Severance			Other			Total
Liability as of July 29, 2017	$	74		$	43		$	—		$	—		$	117
Charges	223			27			75			7			332
Cash payments	(245		)	(30		)	(49		)	(1		)	(325		)
Non-cash items	4			(18		)	—			(6		)	(20		)
Liability as of April 28, 2018	$	56		$	22		$	26		$	—		$	104

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)


7.	Balance Sheet Details

The following tables provide details of selected balance sheet items (in millions):



	April 27, 2019		July 28, 2018
Cash and cash equivalents	$	10,251	$	8,934
Restricted cash included in other current assets	21		32
Restricted cash included in other assets	1		27
Total cash, cash equivalents, and restricted cash	$	10,273	$	8,993



Inventories:
Raw materials	$	398	$	423
Work in process	12		—
Finished goods:
Deferred cost of sales and distributor inventory	77		443
Manufactured finished goods	787		689
Total finished goods	864		1,132
Service-related spares	217		258
Demonstration systems	22		33
Total	$	1,513	$	1,846



Property and equipment, net:
Gross property and equipment:
Land, buildings, and building and leasehold improvements	$	4,554		$	4,710
Computer equipment and related software	941			1,085
Production, engineering, and other equipment	5,688			5,734
Operating lease assets	562			356
Furniture and fixtures	370			358
Total gross property and equipment	12,115			12,243
Less: accumulated depreciation and amortization	(9,281		)	(9,237		)
Total	$	2,834		$	3,006



Deferred revenue:
Service	$	11,297	$	11,431
Product	6,159		8,254
Total	$	17,456	$	19,685
Reported as:
Current	$	10,117	$	11,490
Noncurrent	7,339		8,195
Total	$	17,456	$	19,685

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(Unaudited)


8.	Financing Receivables and Operating Leases


(a)	Financing Receivables

Financing receivables primarily consist of lease receivables, loan receivables, and financed service contracts. Lease receivables represent sales-type and direct-financing leases resulting from the sale of Cisco’s and complementary third-party products and are typically collateralized by a security interest in the underlying assets. Lease receivables consist of arrangements with terms of four years on average. Loan receivables represent financing arrangements related to the sale of our hardware, software, and services, which may include additional funding for other costs associated with network installation and integration of our products and services. Loan receivables generally have terms of up to three years. Financed service contracts include financing receivables related to technical support and advanced services. Revenue related to the technical support services is typically deferred and included in deferred service revenue and is recognized ratably over the period during which the related services are to be performed, which typically ranges from one to three years.

A summary of our financing receivables is presented as follows (in millions):



April 27, 2019	Lease Receivables			Loan Receivables			Financed Service Contracts			Total
Gross	$	2,442		$	5,240		$	2,349		$	10,031
Residual value	152			—			—			152
Unearned income	(139		)	—			—			(139		)
Allowance for credit loss	(68		)	(77		)	(8		)	(153		)
Total, net	$	2,387		$	5,163		$	2,341		$	9,891
Reported as:
Current	$	1,033		$	2,632		$	1,364		$	5,029
Noncurrent	1,354			2,531			977

Closing Price ($)	Shares Out (MM)	Market Cap ($MM)
$52.92	4,402	$232,960

10-Q	2019-04-27	Quarter: 2019-04-27
10-Q	2019-01-26	Quarter: 2019-01-26
10-Q	2018-10-27	Quarter: 2018-10-27
10-K	2018-07-28	Annual: 2018-07-28
10-Q	2018-04-28	Quarter: 2018-04-28
10-Q	2018-01-27	Quarter: 2018-01-27
10-Q	2017-10-28	Quarter: 2017-10-28
10-K	2017-07-29	Annual: 2017-07-29
10-Q	2017-04-29	Quarter: 2017-04-29
10-Q	2017-01-28	Quarter: 2017-01-28
10-Q	2016-10-29	Quarter: 2016-10-29
10-K	2016-07-30	Annual: 2016-07-30
10-Q	2016-04-30	Quarter: 2016-04-30
10-Q	2016-01-23	Quarter: 2016-01-23
10-Q	2015-10-24	Quarter: 2015-10-24
10-K	2015-07-25	Annual: 2015-07-25
10-Q	2015-04-25	Quarter: 2015-04-25
10-Q	2015-01-24	Quarter: 2015-01-24
10-Q	2014-10-25	Quarter: 2014-10-25
10-K	2014-07-26	Annual: 2014-07-26
10-Q	2014-04-26	Quarter: 2014-04-26
10-Q	2014-01-25	Quarter: 2014-01-25

8-K	2019-07-08	Other Events, Exhibits
8-K	2019-06-13	Other Events
8-K	2019-05-30	Other Events
8-K	2019-05-21	Officers
8-K	2019-05-15	Earnings, Exhibits
8-K	2019-03-04	Other Events
8-K	2019-02-13	Earnings, Exhibits
8-K	2018-12-12	Officers, Shareholder Vote, Exhibits
8-K	2018-11-14	Earnings, Exhibits
8-K	2018-10-15	Officers
8-K	2018-09-07	Officers, Exhibits
8-K	2018-08-15	Earnings, Exhibits
8-K	2018-08-06	Other Events
8-K	2018-06-19	Other Events
8-K	2018-06-01	Other Events
8-K	2018-05-16	Earnings, Exhibits
8-K	2018-05-01	Officers
8-K	2018-04-12	Officers
8-K	2018-02-14	Earnings, Exhibits

AGR	Avangrid	15,160
BPY	Brookfield Property Partners	8,250
REZI	Resideo Technologies	2,780
EEX	Emerald Expositions Events	970
RRGB	Red Robin	451
PTVCA	Protective Insurance	227
AFC	Allied Capital	205
RBCA	Republic Bancorp	0
SQNF	SQN Asset Income Fund V	0
BYIN	Baying Ecological Holding Group	0

EX-31.1	exh311-q3fy19.htm
EX-31.2	exh312-q3fy19.htm
EX-32.1	exh321-q3fy19.htm
EX-32.2	exh322-q3fy19.htm