C-Cation Tech 2002
`Cisco Systems, Inc. v. C-Cation Technologies, LLC
`IPR2014-00454
`1
`
`

`
`Table of Contents
`
`UNITED STATES
`
`SECURITIES AND EXCHANGE COMMISSION
`
`WASHINGTON, D.C‘. 20549
`
`(Mark one)
`
`FORM 10-Q
`
`QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
`
`For the quarterly period ended October 26, 2013
`OR
`
`El TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
`
`to
`For the transition period from
`Commission file number O-18225
`
`CISCO SYSTEMS, INC.
`(Exact name of Registrant as specified in its charter)
`
`California
`(State or other jurisdiction of
`incorporation or organization)
`
`77-0059951
`(I.R.S. Employer
`Identification Number)
`
`170 West Tasman Drive
`
`San Jose, California 95134
`(Address of principal executive office and zip code)
`
`(408) 526-4000
`(Registrant’s telephone number, including area code)
`
`Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act
`of l934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been
`subject to such filing requirements for the past 90 days. YES
`NO El
`
`Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data
`File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or
`for such shorter period that the registrant was required to submit and post such files).
`YES
`NO El
`
`Indicate by check mark Whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting
`company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange
`Act.
`
`Large accelerated filer
`Non—accelerated filer (Do not check if a smaller reporting company)
`
`Accelerated filer
`Smaller reporting company
`
`El
`
`Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Y:
`
`Number of shares of the registrant’s common stock outstanding as of November 15, 2013 : 5,346,617,505
`
`2
`
`

`
`Table" of Contents
`
`Cisco Systems, Inc.
`FORM 10-Q for the Quarter Ended October 26, 2013
`
`INDEX
`
`Fmanciael Irlifei-In anon
`
`?Fimm9ia1.—'Statei§;a-ants:'_UnaMdif¢d.._e
`C0ns0li'da~te:d Balance S}ie'e.ts.~at Qo1:0'be»r '26. 20.1.3‘ and July 27* 2'01 3
`Conselidea-tedi Statements. of.O;_erja1;i-ons f0,.r /the‘ Three Months Ended OchQb_eI 26 21013 and
`October 27 ‘2012
`
`.CW01idatw,Statemi?r!t$;9fQ?rn3:1mhensi$e Incefneegfbfr fihie. Time
`’27e713a1§d7Or’t6ber’27]21.2-
`"W W W
`'m""W’ W
`
`End9@;Q'¢fi9b6rj2§,
`W
`
`'(:':_I;ns,Q1idaLed ,Sta‘nerr1=en:ts‘ ofCash Flowls f0rflI1e.T}"JJee Months Ended October 26 2013 and
`October 27- -2012
`
`Cofisdlidated S‘ta‘_Le_rn:e1?_nts_of3
`2.7 2012
`.
`.
`
`fo_r the Three Menth§.En_ded Oetobef 26
`.
`.
`.
`.
`.
`
`201:3 and October
`
`Notes to _C0:ns01ida,-ted Financial Statements
`Maria‘emen1:TS-Dis_cI1ssiQn,and Anal-, sis of Financial Con1c1i:ti0n,and Re~s,1=11its of O .ei:at-ions
`
`uantitattve ‘31m¥1,u?!1‘i1:&l¢i_V§“< Disélesurewr-b©,ut L1‘/£,ia_fi1éeteiRis,ki
`Controls and Procedufes
`
`Other Infenfiri a_ti59._‘m
`Le a,1,I§’r@ce-ed-i,
`- 5
`OPS
`
`U‘-nre. istered ‘Sa-1.e-5 of
`
`rui-
`
`.SecuIi.t-izes and Use of Proceeds
`
`De-£au1.ts._ m Senic?xr$:fS'ej.c3fiI-ities
`Mir-1_e' Safet Dtis-c.1_E‘)'su.re‘s
`Other‘ Inf0m1,ati,OIi1
`
`Exhibit?
`Signature
`
`3
`
`

`
`Table of Contents
`
`Item 1.
`
`Financial Statements (Unaudited)
`
`PART 1. FINANCIAL INFORNIATION
`
`CISCO SYSTEMS, INC.
`CONSOLIDATED BALANCE SHEETS
`
`(in millions, except par value)
`(Unaudited)
`
`ASSETS
`Current assets:
`
`Cash and cash equivalents
`Investments
`Accounts receivable, net of allowance for doubtful accounts of $245 at October 26, 2013 and $228 at
`July 27, 2013
`Inventories
`
`Financing receivables, net
`Deferred tax assets
`Other current assets
`Total current assets
`
`Property and eqI1ipment, net
`Financing receivables, net
`Goodwill
`
`Purchased intangible assets, net
`Other assets
`TOTAL ASSETS
`
`LIABILITIES AND EQUITY
`Current liabilities:
`Short—terrn debt
`
`Accounts payable
`Income taxes payable
`Accrued compensation
`Deferred revenue
`Other current liabilities
`Total current liabilities
`
`Long—terrn debt
`Income taxes payable
`Deferred revenue
`
`Other long—terrn liabilities
`Total liabilities
`
`October 26,
`2013
`
`5,254
`42,947
`
`5,188
`1,466
`
`4,132
`2,333
`1,476
`62,796
`
`3,273
`3,893
`23,804
`
`3,835
`3,140
`100,741
`
`7,925
`42,685
`
`5,470
`1,476
`
`4,037
`2,616
`1,312
`65,521
`
`3,322
`3,911
`21,919
`
`3,403
`3,115
`101,191
`
`Commitments and contingencies (Note 12)
`Equity:
`Cisco shareholders’ equity:
`Preferred stock, no par value: 5 shares authorized; none issued and outstanding
`Common stock and additional paid-in capital, $0.001 par value: 20,000 shares authorized‘, 5,351 and
`5,389 shares issued and outstanding at October 26, 2013 and July 27, 2013, respectively
`Retained earnings
`Accumulated other comprehensive income
`Total Cisco shareholders’ equity
`Noncontrolling interests
`Total equity
`
`42,166
`15,959
`772
`58,897
`12
`58,909
`
`42,297
`16,215
`608
`59,120
`8
`59,128
`
`TOTAL LIABILITIES AND EQUITY
`
`100,741
`
`$
`
`101=191
`
`4
`
`

`
`See Notes to Consolidated Financial Statements.
`
`3
`
`5
`
`

`
`Three Months Ended
`
`October 26,
`2013
`
`October 27,
`2012
`
`9,297
`2,579
`11,876
`
`3,748
`889
`
`4637
`7239
`
`1,431
`2,416
`560
`122
`59
`
`$
`
`9,397
`2,688
`12,085
`
`3,747
`931
`
`4678
`1407
`
`1,724
`2,411
`515
`65
`237
`
`4952
`1455
`169
`
`(140)
`56
`85
`
`CISCO SYSTEMS, INC.
`CONSOLIDATED STATEMENTS OF OPERATIONS
`
`(in millions, except per-share amounts)
`(Unaudited)
`
`Table of Contents
`
`REVENUE:
`Product
`Service
`Total revenue
`COST OF SALES:
`Product
`Service
`
`Total cost of sales
`GROSS MARGIN
`OPERATING EXPENSES:
`
`Research and development
`Sales and marketing
`General and administrative
`
`Amortization of purchased intangible assets
`Restructuring and other charges
`
`Total operating expenses
`OPERATING INCOME
`Interest incom e
`
`Interest expense
`Other income (loss), net
`Interest aid other income (loss), net
`INCOME B11‘ OR: PROVISION FOR INCOME TAXES
`
`Provision for income taxes
`
`NET INCOME
`
`Net income per share:
`Basic
`
`Diluted
`
`Shares used in per-share calculation:
`3asic
`
`"Diluted
`
`Cash dividends declared per common share
`
`See Notes to Consolidated Financial Statements.
`
`4
`
`6
`
`

`
`Three Months Ended
`
`October 26,
`2013
`
`October 27,
`2012
`
`1,996
`
`$
`
`2,092
`
`Table of Contents
`
`CISCO SYSTEMS, INC.
`CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
`
`(in millions)
`(Unaudited)
`
`Net income
`Available-for-sale investments:
`
`Change in net unrealized gains, net of tax benefit (expense) of $63) and $1 for the three months
`ended October 26, 2013 and October 27, 2012, respectively
`Net gains reclassified into earnings, net of tax expense of $31 and $10 for the three months ended
`October 26, 2013 and October 27, 2012, respectively
`
`Cash flow hedging instrum ents:
`Change in unrealized gains and losses, net of tax expense of $3 and $0 for the three months ended
`October 26, 2013 and October 27, 2012, respectively
`Net (gains) losses reclassified into earnings
`
`Net change in cumulative translation adjustment and other, net of tax expense of $3 and $10 for the three
`months ended October 26, 2013 and October 27, 2012, respectively
`Other comprehensive income
`Comprehensive incom e
`Comprehensive income attributable to noncontrolling interests
`
`Comprehensive income attributable to Cisco Systems, Inc.
`
`See Notes to Consolidated Financial Statements.
`
`7
`
`

`
`Table of Contents
`
`CISCO SYSTEMS, INC.
`CONSOLIDATED STATEMENTS OF CASH FLOWS
`
`(in millions)
`(Unaudited)
`
`Cash flows from operating activities:
`Net income
`
`Adjustments to reconcile net income to net cash provided by operating activities:
`Depreciation, amortization, and other
`Share-based compensation expense
`Drovision for receivables
`Deferred income taxes
`
`Excess tax benefits from share-based compensation
`(Gains) losses on investments and other, net
`
`Change in operating assets and liabilities, net of effects of acquisitions and divestitures:
`Accounts receivable
`Inventories
`
`Financing receivables
`Other assets
`
`Accounts payable
`Income taxes, net
`
`Accrued compensation
`Deferred revenue
`Other liabilities
`
`Net cash provided by operating activities
`
`Cash flows from investing activities:
`Purchases of investments
`Proceeds from sales of investments
`Proceeds from maturities of investments
`
`Acquisition of property and equipment
`Acquisition of businesses, net of cash and cash equivalents acquired
`Purchases of investments in privately held companies
`Return of investments in privately held companies
`Proceeds from sales of property and equipment
`Other
`
`Net cash used in investing activities
`
`Cash flows from financing activities:
`Issuances of common stock
`
`Repurchases of common stock — repurchase program
`Shares repurchased for tax vvithholdings on vesting of restricted stock units
`Short-terrn borrowings, maturities less than 90 days, net
`Issuances of debt, maturities greater than 90 days
`Excess tax benefits from share-based compensation
`Dividends paid
`Other
`
`Net cash used in financing activities
`Net decrease in cash and cash equivalents
`Cash and cash equivalents, beginning ofperiod
`
`Three Months Ended
`
`October 26,
`2013
`
`October 2'7,
`2012
`
`1,996
`
`2,092
`
`615
`306
`7
`135
`
`(15)
`12
`
`(8,213)
`2,447
`4,388
`
`(265)
`(4,912)
`(9)
`12
`24
`
`(2)
`(6,530)
`
`591
`309
`23
`130
`
`(55)
`(108)
`
`361
`22
`
`(37)
`28
`
`(29)
`(389)
`(460)
`(307)
`574
`
`2,649
`
`(8,835)
`4,733
`4,058
`
`(315)
`(2,447)
`(134)
`33
`156
`
`(4)
`(2,755)
`
`444
`
`(1,898)
`(286)
`(2)
`4
`55
`
`32
`
`8
`
`

`
`Cash and cash equivalents, end ofpeiiod
`
`5:254
`
`$
`
`Supplemental cash flow information:
`Cash paid for interest
`Cash paid for income taxes, net
`
`See Notes to Consolidated Financial Statements.
`
`6
`
`9
`
`

`
`Table of Contents
`
`CISCO SYSTEMS, INC.
`CONSOLIDATED STATEMENTS OF EQUITY
`(in millions, except per-share amounts)
`(Unaudited)
`
`Three Months Ended October 26, 2013
`
`BALANCE AT JULY 27, 2013
`Net income
`
`Other comprehensive income
`Issuance of common stock
`
`Repurchase of common stock
`Shares repurchased for tax Withholdings on vesting of
`restiicted stock units
`
`Cash dividends declared ($0.17 per common share)
`Tax effects from employee stock incentive plans
`Share—based compensation expense
`Purchase acquisitions and other
`BALANCE AT OCTOBER 26, 2013
`
`Three Months Ended October 27, 2012
`
`BALANCE AT JULY 28, 2012
`Net income
`
`Other comprehensive income
`Issuance of common stock
`
`Repurchase of common stock
`Shares repurchased for tax withholdings on vesting of
`restricted stock units
`
`Cash dividends declared ($0.14 per common share)
`Tax effects from employee stock incentive plans
`Share-based compensation expense
`BALANCE AT OCTOBER 27, 2012
`
`Shares of
`Common
`
`Common Stock
`and Additional
`Paid-In Capital
`
`Retained
`Earnings
`
`$ 16,215
`1,996
`
`$
`
`Accumulated
`Other
`Comprehensive
`
`Total Cisco
`
`Non-
`controlling
`
`444
`
`(662)
`
`(1,338)
`
`(286)
`
`35
`309
`
`(2,000)
`
`(286)
`(914)
`
`Total Equity
`
`(2,000)
`
`(286)
`(914)
`
`Shares of
`Common
`
`Common Stock
`and Additional
`Paid-In Capital
`
`Accumulated
`Other
`Comprehensive
`
`Retained
`Earnings
`
`$ 11,354
`2,092
`
`$
`
`117
`
`(114)
`
`(203)
`
`(87)
`
`(139)
`
`(744)
`
`In September 2001, the Company’s Board of Directors authorized a stock repurchase program. As of October 26, 2013 , the Company’s Board of Directors had
`authorized an aggregate repurchase of up to $82 billion of common stock under this program, with no termination date.
`
`In November 2013, the Company’s Board of Directors authorized up to $15 billion in additional repurchases of common stock under this program, with no
`tennination date. The stock repurchases since the inception of this program and the related impacts on Cisco shareholders’ equity are summarized in the
`following table (in millions):
`
`Shares of Common
`Stock
`
`Common Stock and
`Additional Paid-
`In Capital
`
`Retained Earnings
`
`Total Ci soo
`Shareholders’ Equity
`
`Repurchases of common stock under the repurchase program
`
`3,952
`
`$
`
`18,664
`
`$
`
`62,242
`
`$
`
`80,906
`
`See Notes to Consolidated Financial Statements.
`
`7
`
`10
`
`

`
`Table of Contents
`
`1. Basis of Presentation
`
`CISCO SYSTEMS, INC.
`NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
`
`(Unaudited)
`
`The fiscal year for Cisco Systems, Inc. (the “Company” or “Cisco”) is the 52 or 53 weeks ending on the last Saturday in July. Fiscal 2014 and
`fiscal 2013 are each 52-week fiscal years. The Consolidated Financial Statements include the accounts of Cisco and its subsidiaries. All
`significant intercompany accounts and transactions have been eliminated. The Company conducts business globally and is primarily managed
`on a geographic basis in the following three geographic segments: the Americas; Europe, Middle East, and Africa (EMEA), and Asia Pacific,
`Japan, and China (APJC).
`
`The accompanying financial data as of October 26, 2013 and for the three months ended October 26, 2013 and October 27, 2012 has been
`orepared by the Company, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission (SEC). Certain
`information and footnote disclosures norm ally included in financial statements prepared in accordance with generally accepted accounting
`orinciples in the United States (GAAP) have been condensed or omitted pursuant to such rules and regulations. The July 27, 2013 Consolidated
`Balance Sheet was derived from audited financial statements, but does not include all disclosures required by accounting principles generally
`accepted in the United States. However, the Company believes that the disclosures are adequate to make the information presented not
`nisleading. These Consolidated Financial Statements should be read in conjunction with the Consolidated Financial Statements and the notes
`thereto included in the Company’s Annual Report on Form 10—K for the fiscal year ended July 27, 2013.
`
`The Company consolidates its investments in a venture fund managed by SOFTBANK Corp. and its affiliates (“SOFTBANK”) and Insieme
`\Ietworl<s, Inc. (“Insieme”) as these are variable interest entities and the Company is the primary beneficiary. The noncontrolling interests
`attributed to SOFTBANK are presented as a separate component from the Company’s equity in the equity section of the Consolidated Balance
`Sheets. SOFTBANICS share of the earnings in the venture fund and the loss attributable to the noncontrolling interests in Insieme are not
`oresented separately in the Consolidated Statements of Operations as these amounts are not material for any of the fiscal periods presented.
`
`In the opinion of management, all adjustments (which include normal recurring adjustments, except as disclosed herein) necessary to present
`fairly the statement of financial position as of October 26, 2013 and the results of operations, cash f1ows and equity for the three months ended
`October 26, 2013 and October 27, 2012 , as applicable, have been made. The results of operations for the three months ended October 26, 2013
`are not necessarily indicative of the operating results for the full fiscal year or any future periods.
`
`Certain reclassifications have been made to prior period amounts in order to conform to the current period’s presentation. The Company has
`evaluated subsequent events through the date that the financial statements were issued.
`
`2. Recent Accounting Pronouncem ents
`
`(a) New Accounting Updates Recently Adopted
`
`In December 2011, the FASB issued an accounting standard update requiring enhanced disclosures about certain financial instruments and
`derivative instruments that are offset in the statement of financial position or that are subject to enforceable master netting arrangements or
`similar agreements. This accounting standard became effective for the Company in the first quarter of fiscal 2014. As a result of the application
`of this accounting standard update, the Company has provided additional disclosures in Note 11.
`
`In July 2012, the FASB issued an accounting standard update intended to simplify how an entity tests indefinite—lived intangible assets other
`than goodwill for impairment by providing entities with an option to perform a qualitative assessment to determine whether further impairment
`testing is necessary. This accounting standard update became effective for the Company beginning in the first quarter of fiscal 2014, and its
`adoption did not have any impact on the Company’s Consolidated Financial Statements.
`
`In February 2013, the FASB issued an accounting standard update to require reclassification adjustments from other comprehensive income to
`be presented either in the financial statements or in the notes to the financial statements. This accounting standard became effective for the
`Company in the first quarter of fiscal 2014. As a result of the application of this accounting standard update, the Company has provided
`additional disclosures in Note 15.
`
`11
`
`

`
`Table of Contents
`
`CISCO SYSTEMS, INC.
`NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
`(Unaudited)
`
`(b) Recent Accounting Standards or Updates Not Yet Effective
`
`In March 2013, the FASB issued an accounting standard update requiring an entity to release into net income the entire amount of a cumulative
`translation acfiustm ent related to its investment in a foreign entity when as a parent it either sells a part or all of its investment in the foreign
`entity or no longer holds a controlling financial interest in a subsidiary or group of assets within the foreign entity. This accounting standard
`update will be effective for the Company beginning in the first quarter of fiscal 2015. The Company is currently evaluating the impact of this
`accounting standard update on its Consolidated Financial Statements.
`
`In July 2013, the FASB issued an accounting standard update that provides explicit guidance on the financial statement presentation of an
`unrecognized tax benefit when a net operating loss carryforward or a tax credit canyforward exists. Under the new standard update,
`unrecognized tax benefit, or a portion of an unrecognized tax benefit, is to be presented in the financial statements as a reduction to a deferred
`tax asset for a net operating loss carryforward or a tax credit carryforward. This accounting standard update will be effective for the Company
`beginning in the first quarter fiscal 2015 and applied prospectively with early adoption permitted. The Company is currently evaluating the
`impact of this accounting standard update on its Consolidated Financial Statements.
`
`3. Business Combinations
`
`(a) Acquisition Summary
`
`The Company completed two business combinations during the three months ended October 26, 2013 . A summary of the allocation of the total
`purchase consideration is presented as follows (in millions):
`
`Sourcefire, Inc.
`
`Composite Software, Inc.
`Total
`
`Purchase
`Consideration
`2,449
`
`$
`
`160
`2,609
`
`Net Tangible Assets
`Acquired (Liabilities
`Assumed)
`
`Purchased Intangible
`Assets
`
`$
`
`$
`
`81
`
`(10)
`71
`
`$
`
`$
`
`577
`
`75
`652
`
`$
`
`$
`
`Goodwill
`1,791
`
`95
`1,886
`
`On October 7, 2013, the Company completed its acquisition of Sourcefire, Inc. (“Sourcefire”), a leader in intelligent cybersecurity solutions.
`Sourcefire delivers innovative, highly automated security through continuous awareness, threat detection and protection across its portfolio,
`including next—generation intrusion prevention systems, next—generation firewalls, and advanced malware protection. With the Sourcefire
`acquisition, the Company aims to accelerate its security strategy of defending, discovering, and remediating advanced threats to provide
`continuous security solutions to the Company’s customers in more places across the network. Product revenue from the Sourcefire acquisition
`has been included in the Company's Security product category.
`
`On July 29, 2013, the Company completed its acquisition of privately held Composite Software, Inc. (“Composite Software”), a provider of
`data virtualization software and services. Composite Software provides technology that connects many types of data from across the network
`and makes it appear as if the data is in one place. With its acquisition of Composite Software, the Company intends to extend its next-
`generation services platform by connecting data and infrastructure. Revenue from the Composite Software acquisition has been included in the
`Company's Services category.
`
`The total purchase consideration related to the Company’s business combinations completed during the three months ended October 26, 2013
`consisted of cash consideration and vested share-based awards assumed. The total cash and cash equivalents acquired from these business
`combinations was approximately $132 million . Total transaction costs related to the Company’s business combination activities were $6
`million for each of the three months ended October 26, 2013 and October 27, 2012 . These transaction costs were expensed as incurred in
`general and administrative (“G&A”) expenses in the Consolidated Statements of Operations.
`
`The Company’s purchase price allocation for business combinations completed during recent periods is preliminary and subject to revision as
`additional information about fair value of assets and liabilities becomes available. Additional information, which existed as of the acquisition
`date but at that time was unknown to the Company, may become known to the Company during the remainder of the measurement period, a
`period not to exceed 12 months from the acquisition date. Adjustments in the purchase price allocation may require a recasting of the amounts
`allocated to goodwill retroactive to the period in which the acquisition occurred.
`
`9
`
`12
`
`

`
`Table of Contents
`
`CISCO SYSTEMS, INC.
`NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
`(Unaudited)
`
`The goodwill generated from the Company’s business combinations completed during the three months ended October 26, 2013 is primarily
`related to expected synergies. The goodwill is generally not deductible for income tax purposes.
`
`The Consolidated Financial Statements include the operating results of each business combination from the date of acquisition. Pro forma
`results of operations for the acquisitions completed during the three months ended October 26, 2013 have not been presented because the
`effects of the acquisitions, individually and in the aggregate, were not material to the Company’s financial results.
`
`(b) Acquisition of WhipTail Technologies, Inc.
`
`On October 28, 2013 the Company completed its acquisition of privately held WhipTail Technologies, Inc. (“WhipTail”). The Company
`agreed to pay approximately $0.4 billion in cash and retention-based incentives to acquire WhipTail. WhipTail is a leader in high performance,
`scalable solid state memory systems that enable organizations to simplify data center and virtualized environments and process more data in
`less time. Witlq its WhipTail acquisition, the Company aims to strengthen its Unified Computing System (UCS) strategy and enhance
`application performance by integrating scalable solid state memory into the UCS’s fabric computing architecture. Revenue from the WhipTail
`acquisition will be included in the Company's Data Center product category. The Company expects that most of the purchase price will be
`allocated to goodwill and purchased intangible assets.
`
`4. Goodwill and Purchased Intangible Assets
`
`(a) Goodwill
`
`The following table presents the goodwill allocated to the Company’s reportable segments as of and during the three months ended October 26,
`2013
`millions):
`
`Americas
`EMEA
`APJC
`
`Total
`
`(b) Purchased Intangible Assets
`
`$
`
`Balance at
`July 27, 2013
`13,800
`5,037
`3,082
`
`$
`
`Acquisitions
`1,012
`575
`299
`
`21,919
`
`1,886
`
`Other
`
`Balance at
`October 26, 2013
`14,812
`5,611
`3,381
`
`23,804
`
`— $
`(1)
`—
`
`(1)
`
`$
`
`The following table presents details of the Company’s intangible assets acquired through business combinations completed during the three
`months ended October 26, 2013 (in millions, except years):
`
`TECHNOLOGY
`
`Average Usefill
`Life (in Years)
`
`FINITE LIVES
`CUSTOMER
`RELATIONSHIPS
`
`Weighted-
`Average Useful
`Life (in Years)
`
`Weighted-
`Average Usefill
`Life (in Years)
`
`INDEFINITE
`LIVES
`
`Sourcefire, Inc.
`
`Composite Software, Inc.
`Total
`
`13
`
`

`
`Table of Contents
`
`CISCO SYSTEMS, INC.
`NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
`(Unaudited)
`
`The following tables present details of the Company’s purchased intangible assets (in millions):
`
`October 26 2013
`
`Purchased intangible assets with finite lives:
`Technology
`Custom er relationships
`Other
`
`Total purchased intangible assets with finite lives
`In-process research and development, with indefinite lives
`
`Total
`
`July 27, 2013
`Purchased intangible assets with finite lives:
`Technology
`Custom er relationships
`Other
`Total purchased intangible assets with finite lives
`In-process research and development, with indefinite lives
`Total
`
`Gross
`
`Accumulated
`Amortization
`
`4,034
`1,698
`55
`
`5,787
`104
`
`5,891
`
`(1,529)
`(516)
`(1 1)
`
`(2,056)
`—
`
`(2,056)
`
`Gross
`
`Accumulated
`Amortization
`
`3,563
`1,566
`30
`5,159
`86
`5,245
`
`(1,366)
`(466)
`(10)
`(1,842)
`—
`(1,842)
`
`2,197
`1,100
`20
`3,317
`86
`3,403
`
`Purchased intangible assets include intangible assets acquired through business combinations as well as through direct purchases or licenses.
`
`The following table presents the amortization of purchased intangible assets (in millions):
`
`Three Months Ended
`
`October 26,
`2013
`
`October 27,
`2012
`
`Amortization of purchased intangible assets:
`Cost of sales
`
`Operating expenses
`Total
`
`There were no impairment charges related to purchased intangible assets during the periods presented.
`
`The estimated future amortization expense of purchased intangible assets with finite lives as of October 26, 2013 is as follows (in millions):
`
`Fiscal Year
`
`2014 (remaining nine in onths)
`2015
`2016
`2017
`2018
`
`Thereafter
`
`Total
`
`Amount
`
`764
`934
`704
`530
`380
`
`419
`
`3,731
`
`14
`
`

`
`Table of Contents
`
`CISCO SYSTEMS, INC.
`NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
`(Unaudited)
`
`5. Restructuring and Other Charges
`
`August Fiscal 2014 Plan
`
`In August 2013 the Company announced a workforce reduction plan. The Company is rebalancing its resources with a workforce reduction
`plan that will impact approximately 4,000 employees, or 5% , of the Company’s global workforce. This workforce reduction plan is designed
`to enable the Company to rebalance its workforce in order to reinvest in key growth areas such as the cloud, data center, mobility, services,
`software and security and to drive operational efficiencies. As the Company intends to reinvest in the above areas, it does not expect significant
`overall cost savings as a result of this rebalancing of its resources.
`
`In connection with this restructuring action, the Company incurred cumulative charges of $237 million for the first quarter of fiscal 2014. The
`Company expects total pre—tax charges pursuant to these restructuring actions of approximately $550 million and it expects the remaining
`charges to be incurred though the end of fiscal 2014.
`
`The following table summarizes the activities related to the restructuring and other charges pursuant to the August Fiscal 2014 Plan (in
`millions):
`
`_
`August Fiscal 2014 Plan
`Gross charges in fiscal 2014
`Cash paym ents
`Non-cash items
`
`Liability as of October 26, 2013
`Fiscal 2011 Plans
`
`Employee
`severance
`240
`(70)
`—
`
`35
`
`170
`
`515
`
`The Fiscal 2011 Plans consist primarily of the realignment and restructuring of the Company’s business announced in July 2011 and of certain
`consumer product lines as announced during April 2011. The Company has completed the Fiscal 2011 Plans and does not expect any
`remaining charges related to these actions. The Company incurred cumulative charges of approximately $1.1 billion in connection with these
`plans. There were no charges incurred during the three months ended October 26, 2013 in connection with these plans. For the three months
`ended October 27, 2012 , such charges were $59 million . The remaining liability balance as of October 26, 2013 was $22 million inclusive of
`severance and non-severance activities.
`
`12
`
`15
`
`

`
`Table of Contents
`
`CISCO SYSTEMS, INC.
`NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
`(Unaudited)
`
`6. Balance Sheet Details
`
`The following tables provide details of selected balance sheet items (in millions):
`
`October 26,
`2013
`
`Inventories:
`Raw m aterials
`
`Work in process
`Finished goods:
`Distributor inventory and deferred cost of sales
`Manufactured finished goods
`Total finished goods
`Service—related spares
`Demonstration systems
`T otal
`
`Property and equipment, net:
`Land, buildings, and building and leasehold improvements
`Computer equipment and related software
`Production, engineering, and other equipment
`Operating lease assets (1)
`Furniture and fixtures
`
`Less accumulated depreciation and amortization ‘1’
`Total
`
`(1)
`
`Accumulated depreciation related to operating lease assets was $207 and $203 as of October 26, 2013 and July 27, 2013, respectively.
`
`Other assets:
`Deferred tax assets
`
`Investments in privately held companies
`Other
`
`Total
`
`Deferred revenue:
`Service
`Product:
`
`Unrecognized revenue on product shipments and other deferred revenue
`Cash receipts related to unrecognized revenue from two-tier distributors
`Total product deferred revenue
`T otal
`
`Reported as:
`Current
`Noncurrent
`T otal
`
`24
`
`572
`480
`1,052
`256
`39
`l ,476
`
`4,426
`l,4l 6
`5,721
`326
`497
`
`l 2,3 86
`
`(9,064)
`3,322
`
`16
`
`

`
`Table of Contents
`
`CISCO SYSTEMS, INC.
`NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
`(Unaudited)
`
`7. Financing Receivables and Guarantees
`
`(a) Financing Receivables
`
`Financing receivables primarily consist of lease receivables, loan receivables, and financed service contracts and other. Lease receivables
`represent sales-type and direct-financing leases resulting from the sale of the Company’s and complementary third-party products and are
`typically collateralized by a security interest in the underlying assets. Loan receivables represent financing arrangements related to the sale of
`the Company’s products and services, which may include additional funding for other costs associated with network installation and integration
`of the Company’s products and services. Lease receivables consist of arrangements with terms of four years on average, while loan receivables
`generally have terms of up to three years . The financed service contracts and other category includes financing receivables related to technical
`support and advanced services, as well as receivables related to financing of certain indirect costs associated with leases. Revenue related to the
`technical support services is typically deferred and included in deferred service revenue and is recognized ratably over the period during which
`the related services are to be perform ed, which typically ranges from one to three years .
`
`A summary of the Company’s financing receivables is presented as follows (in millions):
`
`October 26 2013
`
`Gross
`
`Unearned income
`Allowance for credit loss
`Total, net
`
`Reported as:
`Current
`Noncurrent
`
`Total, net
`
`July 27, 2013
`Gross
`
`Unearned income
`Allowance for credit loss
`Total, net
`
`Reported as:
`Current
`Noncurrent
`
`Total,net
`
`Lease Receivables
`
`Loan Receivables
`
`Financed Service
`Contracts and Other
`
`Total Financing
`Receivables
`
`$
`
`3,813
`
`$
`
`1,808
`
`$
`
`3,018
`
`$
`
`(264)
`(237)
`3,312
`
`1,463
`1,849
`
`3,312
`
`—
`(93)
`1,715
`
`951
`764
`
`1,715
`
`—
`(20)
`2,998
`
`1,718
`1,280
`
`2,998
`
`8,639
`
`(264)
`(350)
`8,025
`
`4,132
`3, 893
`
`8,025
`
`Lease Receivables
`3,780
`
`$
`
`Loan Receivables
`1,649
`
`$
`
`Financed Service
`Contracts and Other
`3,136
`
`$
`
`Total Financing
`Receivables
`8,565
`
`(273)
`(23 8)
`3,269
`
`1,418
`1,851
`
`—
`(86)
`1,563
`
`898
`665
`
`—
`(20)
`3,116
`
`1,721
`1,395
`
`$
`
`3,269
`
`$
`
`1,563
`
`$
`
`3,116
`
`$
`
`(273)
`(344)
`7,948
`
`4,037
`3,911
`
`7,948
`
`As of October 26, 2013 and July 27, 2013, the deferred service revenue related to the financed service contracts and other was $1,881 million
`and $2,036 million , respectively.
`
`Contractual maturities of the gross lease receivables at October 26, 2013 are summarized as follows (in millions):
`
`Fiscal Year
`
`2014 (remaining nine in onths)
`2015
`2016
`2017
`2018
`Thereafter
`Total
`
`Actual cash collections may differ from the contractual maturities due to early customer buyouts, refinancings, or defaults.
`
`17
`
`

`
`18
`
`

`
`Table of Contents
`
`CISCO SYSTEMS, INC.
`NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
`(Unaudited)
`
`(b) Credit Quality of Financing Receivables
`
`Financing receivables categorized by the Company°s internal credit risk rating as of October 26, 2013 and July 27, 2013 are summarized as
`follows (in millions):
`
`October 26 2013
`
`Lease receivables
`Loan receivables
`Financed service contracts and other
`Total
`
`July 27, 2013
`Lease receivables
`Loan receivables
`
`Financed service contracts and other
`Total
`
`INTERNAL CREDIT RISK RATING
`
`$
`
`1,695
`981
`1,792
`
`1,498
`777
`1,110
`
`104
`
`$
`
`3,297
`1,808
`3,018
`
`Residual
`
`Gross Receivables,
`Net of Uneamed Income
`
`1,681
`
`$
`
`$
`
`1,482
`777
`
`1,141
`
`Gross Receivables