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): November 12, 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
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(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)
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☐	Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
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☐	Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))
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Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Trading<br> <br>Symbol(s)	Name of each exchange<br> <br>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 November 12, 2020, Cisco Systems, Inc. (“Cisco”) reported its results of operations for its fiscal first quarter 2021 ended October 24, 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.

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<br>Number	Description of Document
99.1	Press Release of Cisco, dated November 12, 2020, reporting the results of operations for Cisco’s fiscal first quarter ended October 24, 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: November 12, 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 FIRST QUARTER EARNINGS

•	Q1 Results:
•	Revenue: $11.9 billion
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•	Decrease of (9)% year over year
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•	Earnings per Share: GAAP: $0.51; Non-GAAP: $0.76<br>
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•	GAAP EPS decreased (25)% year over year
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•	Non-GAAP EPS decreased (10)% year over year
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•	Q2 Guidance:
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•	Revenue: 0% to (2)% decline year over year
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•	Earnings per Share: GAAP: $0.55 to $0.60; Non-GAAP: $0.74 to $0.76<br>
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SAN JOSE, Calif. — November 12, 2020 — Cisco today reported first quarter results for the period ended October 24, 2020. Cisco reported first quarter revenue of $11.9 billion, net income on a generally accepted accounting principles (GAAP) basis of $2.2 billion or $0.51 per share, and non-GAAP net income of $3.2 billion or $0.76 per share.

“Cisco is off to a solid start in fiscal 2021 and we are encouraged by the signs of improvement in our business as we continue to navigate the pandemic and other macro uncertainties,” said Chuck Robbins, chairman and CEO of Cisco. “Our focus is on winning with a differentiated innovative portfolio, long-term growth and being a trusted technology partner offering choice and flexibility to our customers. We see many great opportunities ahead as every company in every industry is accelerating its digital-first strategy.”

GAAP Results

	Q1 FY 2021		Q1 FY 2020		Vs. Q1 FY 2020
Revenue	$	11.9 billion	$	13.2 billion		(9	)%
Net Income	$	2.2 billion	$	2.9 billion		(26	)%
Diluted Earnings per Share (EPS)	$	0.51	$	0.68		(25	)%

Non-GAAP Results

	Q1 FY 2021		Q1 FY 2020		Vs. Q1 FY 2020
Net Income	$	3.2 billion	$	3.6 billion		(11	)%
EPS	$	0.76	$	0.84		(10	)%

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.”

“Our Q1 results reflect good execution with strong margins in a challenging environment,” said Kelly Kramer, CFO of Cisco. “We continued to transform our business through more software offerings and subscriptions, driving 10% year over year growth in remaining performance obligations. We delivered strong growth in operating cash flow and returned $2.3 billion to shareholders.”

1

Financial Summary

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

Q1 FY 2021 Highlights

Revenue — Total revenue was $11.9 billion, down 9%, with product revenue down 13% and service revenue up 2%. Revenue by geographic segment was: Americas down 10%, EMEA down 10%, and APJC down 7%. Product revenue was led by growth in Security, up 6%. Infrastructure Platforms was down 16% and Applications was down 8%.

Gross Margin — On a GAAP basis, total gross margin, product gross margin, and service gross margin were 63.6%, 62.7%, and 65.8%, respectively, as compared with 64.3% for each in the first quarter of fiscal 2020.

On a non-GAAP basis, total gross margin, product gross margin, and service gross margin were 65.8%, 65.3%, and 67.1%, respectively, as compared with 65.9%, 66.1%, and 65.4%, respectively, in the first quarter of fiscal 2020.

Total gross margins by geographic segment were: 67.3% for the Americas, 63.9% for EMEA and 63.0% for APJC.

Operating Expenses — **** On a GAAP basis, operating expenses were $5.0 billion, up 3%, and were 42.0% of revenue. Non-GAAP operating expenses were $4.0 billion, down 7%, and were 33.1% of revenue.

Operating Income — GAAP operating income was $2.6 billion, down 28%, with GAAP operating margin of 21.5%. Non-GAAP operating income was $3.9 billion, down 12%, with non-GAAP operating margin at 32.7%.

Provision for Income Taxes — The GAAP tax provision rate was 18.9%. The non-GAAP tax provision rate was 19.0%.

Net Income and EPS — On a GAAP basis, net income was $2.2 billion, a decrease of 26%, and EPS was $0.51, a decrease of 25%. On a non-GAAP basis, net income was $3.2 billion, a decrease of 11%, and EPS was $0.76, a decrease of 10%.

Cash Flow from Operating Activities — $4.1 billion for the first quarter of fiscal 2021, an increase of 14% compared with $3.6 billion for the first quarter of fiscal 2020.

Balance Sheet and Other Financial Highlights

Cash and Cash Equivalents and Investments — $30.0 billion at the end of the first quarter of fiscal 2021, compared with $29.4 billion at the end of fiscal 2020.

Deferred Revenue — $20.5 billion, up 10% in total, with deferred product revenue up 15%. Deferred service revenue was up 7%.

Remaining Performance Obligations — $27.5 billion at the end of the first quarter of fiscal 2021, up 10%.

Capital Allocation — In the first quarter of fiscal 2021, we returned $2.3 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 20 million shares of common stock under our stock repurchase program at an average price of $40.44 per share for an aggregate purchase price of $800 million. The remaining authorized amount for stock repurchases under the program is $10.0 billion with no termination date.

2

Guidance for Q2 FY 2021

Cisco expects to achieve the following results for the second quarter of fiscal 2021:

Q2 FY 2021
Revenue	0% - (2)% decline Y/Y
Non-GAAP gross margin rate	64% - 65%
Non-GAAP operating margin rate	32% - 33%
Non-GAAP tax provision rate	19%
Non-GAAP EPS	$0.74 - $0.76

Cisco estimates that GAAP EPS will be $0.55 to $0.60 in the second quarter of fiscal 2021.

A reconciliation between the Guidance for Q2 FY 2021 on a GAAP and non-GAAP basis is provided in the table entitled “GAAP to non-GAAP Guidance for Q2 FY 2021” located in the section entitled “Reconciliations of GAAP to non-GAAP Measures.”

Editor’s Notes:

•	Q1 fiscal year 2021 conference call to discuss Cisco’s results along with its guidance will be held on<br>Thursday, November 12, 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, November 12, 2020 to 4:00 p.m. Pacific<br>Time, November 19, 2020 at 1-800-879-5193 (United States) or<br>1-203-369-3562 (international). The replay will also be available via webcast on the Cisco Investor Relations website at<br>https://investor.cisco.com.
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•	Additional information regarding Cisco’s financials, as well as a webcast of the conference call with<br>visuals designed to guide participants through the call, will be available at 1:30 p.m. Pacific Time, November 12, 2020. Text of the conference call’s prepared remarks will be available within 24 hours of completion of the call. The<br>webcast will include both the prepared remarks and the question-and-answer session. This information, along with the GAAP to<br>non-GAAP reconciliation information, will be available on the Cisco Investor Relations website at https://investor.cisco.com.
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3

CISCO SYSTEMS, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(In millions, except per-share amounts)

(Unaudited)

	Three Months Ended
	October 24,<br>2020			October 26,<br>2019
REVENUE:
Product	$	8,587		$	9,878
Service		3,342			3,281
Total revenue		11,929			13,159
COST OF SALES:
Product		3,206			3,524
Service		1,142			1,171
Total cost of sales		4,348			4,695
GROSS MARGIN		7,581			8,464
OPERATING EXPENSES:
Research and development		1,612			1,666
Sales and marketing		2,217			2,480
General and administrative		544			519
Amortization of purchased intangible assets		36			36
Restructuring and other charges		602			184
Total operating expenses		5,011			4,885
OPERATING INCOME		2,570			3,579
Interest income		174			273
Interest expense		(112	)		(178	)
Other income (loss), net		49			12
Interest and other income (loss), net		111			107
INCOME BEFORE PROVISION FOR INCOME TAXES		2,681			3,686
Provision for income taxes		507			760
NET INCOME	$	2,174		$	2,926
Net income per share:
Basic	$	0.51		$	0.69
Diluted	$	0.51		$	0.68
Shares used in per-share calculation:
Basic		4,230			4,246
Diluted		4,244			4,273

4

CISCO SYSTEMS, INC.

REVENUE BY SEGMENT

(Inmillions, except percentages)

	Three Months Ended
	October 24, 2020
	Amount		Y/Y%
Revenue:
Americas	$	7,198		(10	)%
EMEA		2,964		(10	)%
APJC		1,767		(7	)%
Total	$	11,929		(9	)%

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

CISCO SYSTEMS, INC.

GROSS MARGIN PERCENTAGE BY SEGMENT

(In percentages)

	Three Months Ended
	October 24, 2020
Gross Margin Percentage:
Americas		67.3	%
EMEA		63.9	%
APJC		63.0	%

5

CISCO SYSTEMS, INC.

REVENUE FOR GROUPS OF SIMILAR PRODUCTS AND SERVICES

(In millions, except percentages)

	Three Months Ended
	October 24, 2020
	Amount		Y/Y%
Revenue:
Infrastructure Platforms	$	6,341		(16	)%
Applications		1,380		(8	)%
Security		861		6	%
Other Products		5		(56	)%
Total Product		8,587		(13	)%
Services		3,342		2	%
Total	$	11,929		(9	)%

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

6

CISCO SYSTEMS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(In millions)

(Unaudited)

		July 25, 2020
ASSETS
Current assets:
Cash and cash equivalents	10,822	$	11,809
Investments	19,190		17,610
Accounts receivable, net of allowance for doubtful accounts of 125 at October 24, 2020 and<br>143 at July 25, 2020	3,980		5,472
Inventories	1,303		1,282
Financing receivables, net	5,105		5,051
Other current assets	2,589		2,349
Total current assets	42,989		43,573
Property and equipment, net	2,412		2,453
Financing receivables, net	5,516		5,714
Goodwill	34,535		33,806
Purchased intangible assets, net	1,581		1,576
Deferred tax assets	4,138		3,990
Other assets	3,832		3,741
TOTAL ASSETS	95,003	$	94,853
LIABILITIES AND EQUITY
Current liabilities:
Short-term debt	5,002	$	3,005
Accounts payable	2,294		2,218
Income taxes payable	810		839
Accrued compensation	2,978		3,122
Deferred revenue	11,271		11,406
Other current liabilities	4,636		4,741
Total current liabilities	26,991		25,331
Long-term debt	9,564		11,578
Income taxes payable	8,786		8,837
Deferred revenue	9,202		9,040
Other long-term liabilities	2,303		2,147
Total liabilities	56,846		56,933
Total equity	38,157		37,920
TOTAL LIABILITIES AND EQUITY	95,003	$	94,853

All values are in US Dollars.

7

CISCO SYSTEMS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In millions)

(Unaudited)

	Three Months Ended
	October 24,<br>2020			October 26,<br>2019
Cash flows from operating activities:
Net income	$	2,174		$	2,926
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation, amortization, and other		451			461
Share-based compensation expense		438			395
Provision (benefit) for receivables		13			50
Deferred income taxes		(120	)		81
(Gains) losses on divestitures, investments and other, net		(59	)		(8	)
Change in operating assets and liabilities, net of effects of acquisitions and<br>divestitures:
Accounts receivable		1,526			515
Inventories		(21	)		34
Financing receivables		167			146
Other assets		(259	)		59
Accounts payable		73			(45	)
Income taxes, net		(84	)		(330	)
Accrued compensation		(165	)		(473	)
Deferred revenue		(45	)		158
Other liabilities		7			(382	)
Net cash provided by operating activities		4,096			3,587
Cash flows from investing activities:
Purchases of investments		(3,756	)		(2,028	)
Proceeds from sales of investments		657			2,342
Proceeds from maturities of investments		1,425			1,966
Acquisitions and divestitures		(830	)		(163	)
Purchases of investments in privately held companies		(68	)		(54	)
Return of investments in privately held companies		29			57
Acquisition of property and equipment		(171	)		(202	)
Proceeds from sales of property and equipment		4			4
Net cash (used in) provided by investing activities		(2,710	)		1,922
Cash flows from financing activities:
Issuances of common stock		1			2
Repurchases of common stock—repurchase program		(800	)		(784	)
Shares repurchased for tax withholdings on vesting of restricted stock units		(89	)		(194	)
Short-term borrowings, original maturities of 90 days or less, net		—			(3,470	)
Repayments of debt		—			(2,720	)
Dividends paid		(1,520	)		(1,486	)
Other		35			(16	)
Net cash used in financing activities		(2,373	)		(8,668	)
Net decrease in cash, cash equivalents, and restricted cash		(987	)		(3,159	)
Cash, cash equivalents, and restricted cash, beginning of period		11,812			11,772
Cash, cash equivalents, and restricted cash, end of period	$	10,825		$	8,613
Supplemental cash flow information:
Cash paid for interest	$	160		$	204
Cash paid for income taxes, net	$	710		$	1,009

8

CISCO SYSTEMS, INC.

DEFERRED REVENUE

(Inmillions)

	October 24,<br>2020		July 25,<br>2020		October 26,<br>2019
Deferred revenue:
Product	$	8,139	$	7,895	$	7,105
Service		12,334		12,551		11,497
Total	$	20,473	$	20,446	$	18,602
Reported as:
Current	$	11,271	$	11,406	$	10,646
Noncurrent		9,202		9,040		7,956
Total	$	20,473	$	20,446	$	18,602

CISCO SYSTEMS, INC.

REMAINING PERFORMANCE OBLIGATIONS

(In millions, except percentages)

	October 24, 2020					July 25, 2020					October 26, 2019
	Amount		Y/Y%			Amount		Y/Y%			Amount		Y/Y%
Product	$	11,340		15	%	$	11,261		17	%	$	9,878		28	%
Service		16,129		8	%		17,093		9	%		14,991		3	%
Total	$	27,469		10	%	$	28,354		12	%	$	24,869		11	%

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-<br>Average Price<br>per Share		Amount		Amount
Fiscal 2021
October 24, 2020	$	0.36	$	1,520		20	$	40.44	$	800	$	2,320
Fiscal 2020
July 25, 2020	$	0.36	$	1,525		—	$	—	$	—	$	1,525
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

9

CISCO SYSTEMS, INC.

RECONCILIATIONS OF GAAP TO NON-GAAP MEASURES

GAAP TO NON-GAAP NET INCOME

(In millions)

	Three Months Ended
	October 24,<br>2020			October 26,<br>2019
GAAP net income	$	2,174		$	2,926
Adjustments to cost of sales:
Share-based compensation expense		65			57
Amortization of acquisition-related intangible assets		163			150
Acquisition-related/divestiture costs		1			1
Legal and indemnification settlements/charges		43			4
Total adjustments to GAAP cost of sales		272			212
Adjustments to operating expenses:
Share-based compensation expense		362			333
Amortization of acquisition-related intangible assets		36			36
Acquisition-related/divestiture costs		59			72
Significant asset impairments and restructurings		602			184
Total adjustments to GAAP operating expenses		1,059			625
Adjustments to GAAP interest and other income (loss), net:
(Gains) and losses on equity investments		(48	)		(13	)
Total adjustments to GAAP income before provision for income taxes		1,283			824
Income tax effect of non-GAAP adjustments		(246	)		(209	)
Significant tax matters		—			67
Total adjustments to GAAP provision for income taxes		(246	)		(142	)
Non-GAAP net income	$	3,211		$	3,608

10

CISCO SYSTEMS, INC.

RECONCILIATIONS OF GAAP TO NON-GAAP MEASURES

GAAP TO NON-GAAP EPS

	Three Months Ended
	October 24,<br>2020			October 26,<br>2019
GAAP EPS	$	0.51		$	0.68
Adjustments to GAAP:
Share-based compensation expense		0.10			0.09
Amortization of acquisition-related intangible assets		0.05			0.04
Acquisition-related/divestiture costs		0.01			0.02
Legal and indemnification settlements/charges		0.01			—
Significant asset impairments and restructurings		0.14			0.04
(Gains) and losses on equity investments		(0.01	)		—
Income tax effect of non-GAAP adjustments		(0.06	)		(0.05	)
Significant tax matters		—			0.02
Non-GAAP EPS	$	0.76		$	0.84

Amounts may not sum due to rounding.

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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
	October 24, 2020
	Product<br>Gross<br>Margin			Service<br>Gross<br>Margin			Total<br>Gross<br>Margin			Operating<br>Expenses			Y/Y			Operating<br>Income			Y/Y			Interest<br>and other<br>income<br>(loss), net			Net<br>Income			Y/Y
GAAP amount	$	5,381		$	2,200		$	7,581		$	5,011			3	%	$	2,570			(28	)%	$	111		$	2,174			(26	)%
% of revenue		62.7	%		65.8	%		63.6	%		42.0	%					21.5	%					0.9	%		18.2	%
Adjustments to GAAP amounts:
Share-based compensation expense		24			41			65			362						427						—			427
Amortization of acquisition-related intangible assets		163			—			163			36						199						—			199
Acquisition/divestiture-related costs		—			1			1			59						60						—			60
Legal and indemnification settlements/charges		43			—			43			—						43						—			43
Significant asset impairments and restructurings		—			—			—			602						602						—			602
(Gains) and losses on equity investments		—			—			—			—						—						(48	)		(48	)
Income tax effect/significant tax matters		—			—			—			—						—						—			(246	)
Non-GAAP amount	$	5,611		$	2,242		$	7,853		$	3,952			(7	)%	$	3,901			(12	)%	$	63		$	3,211			(11	)%
% of revenue		65.3	%		67.1	%		65.8	%		33.1	%					32.7	%					0.5	%		26.9	%
	Three Months Ended
---	---	---	---	---	---	---	---	---	---	---	---	---	---	---	---	---	---	---	---	---	---
	October 26, 2019
	Product<br>Gross<br>Margin			Service<br>Gross<br>Margin			Total<br>Gross<br>Margin			Operating<br>Expenses			Operating<br>Income			Interest and<br>other<br>income<br>(loss), net			Net<br>Income
GAAP amount	$	6,354		$	2,110		$	8,464		$	4,885		$	3,579		$	107		$	2,926
% of revenue		64.3	%		64.3	%		64.3	%		37.1	%		27.2	%		0.8	%		22.2	%
Adjustments to GAAP amounts:
Share-based compensation expense		23			34			57			333			390			—			390
Amortization of acquisition-related intangible assets		150			—			150			36			186			—			186
Legal and indemnification settlements/charges		4			—			4			—			4			—			4
Acquisition/divestiture-related costs		—			1			1			72			73			—			73
Significant asset impairments and restructurings		—			—			—			184			184			—			184
(Gains) and losses on equity investments		—			—			—			—			—			(13	)		(13	)
Income tax effect/significant tax matters		—			—			—			—			—			—			(142	)
Non-GAAP amount	$	6,531		$	2,145		$	8,676		$	4,260		$	4,416		$	94		$	3,608
% of revenue		66.1	%		65.4	%		65.9	%		32.4	%		33.6	%		0.7	%		27.4	%

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

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CISCO SYSTEMS, INC.

RECONCILIATIONS OF GAAP TO NON-GAAP MEASURES

EFFECTIVE TAX RATE

(Inpercentages)

	Three Months Ended
	October 24,<br>2020			October 26,<br>2019
GAAP effective tax rate		18.9	%		20.6	%
Total adjustments to GAAP provision for income taxes		0.1	%		(0.6	)%
Non-GAAP effective tax rate		19.0	%		20.0	%

GAAP TO NON-GAAP GUIDANCE FOR Q2 FY 2021

Q2 FY 2021	Gross Margin<br>Rate	Operating Margin<br>Rate	Tax Provision<br>Rate	Earnings per<br>Share ^(2)^
GAAP	62% - 63%	24.5% - 25.5%	19%	$0.55 - $0.60
Estimated adjustments for:
Share-based compensation expense	0.5%	3.5%	—	$0.08 - $0.09
Amortization of acquisition-related intangible assets and acquisition/divestiture-related<br>costs	1.5%	2.0%	—	$0.04 - $0.05
Significant asset impairments and restructurings<br>^(1)^	—	2.0%	—	$0.04 - $0.05
Income tax effect of non-GAAP adjustments			—
Non-GAAP	64% - 65%	32% - 33%	19%	$0.74 - $0.76
^(1)^	In the first quarter of fiscal 2021, we initiated a restructuring plan, which includes a voluntary early<br>retirement program, in order to realign the organization and enable further investment in key priority areas with total estimated pretax charges of approximately $900 million consisting of severance and other<br>one-time termination benefits, and other costs. We recognized $602 million of these charges during the first quarter of fiscal 2021. We expect to recognize approximately $200 million of these charges<br>in the second quarter of fiscal 2021 with the remaining amount to be recognized during the rest of the fiscal year.
---	---
^(2)^	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.

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Forward Looking Statements, Non-GAAP Information and AdditionalInformation

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 improvement in our business as we continue to navigate the pandemic and other macro uncertainties, our ability to execute on our strategy to focus on winning with a differentiated innovative portfolio, long-term growth and being a trusted technology partner offering choice and flexibility to our customers, our future opportunities as every company in every industry is accelerating its digital-first strategy, our ability to continue to transform our business through more software offerings and subscriptions, and our ability to continue to deliver strong growth in operating cash flow and return value to our shareholders) and the future financial performance of Cisco (including the guidance for Q2 FY 2021) 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 report on Form 10-K filed on September 3, 2020. 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 report on Form 10-K as it may be amended from time to time. Cisco’s results of operations for the three months ended October 24, 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.

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About Cisco

Cisco (Nasdaq: CSCO) is the worldwide leader in technology that powers the Internet. Cisco inspires new possibilities by reimagining your applications, securing your data, transforming your infrastructure, and empowering your teams for a global and inclusive future. 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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