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): August 17, 2016

CISCO SYSTEMS, INC.
(Exact name of registrant as specified in its charter)

California
(State or other jurisdiction of incorporation)

0-18225	 	77-0059951	
(Commission File Number)	 	(IRS Employer Identification No.)	
		
170 West Tasman Drive, San Jose, California	 	95134-1706	
(Address of principal executive offices)	 	(Zip Code)	
(408) 526-4000
(Registrant’s telephone number, including area code)
Not Applicable
(Former name or former address, if changed since last report)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions ( see General Instruction A.2. below):
 
¨	Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)	
 
¨	Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)	
 
¨	Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))	
 
¨	Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))	

Item 2.02.	Results of Operations and Financial Condition.	
On August 17, 2016, Cisco Systems, Inc. (“Cisco”) reported its results of operations for its fiscal fourth quarter and fiscal year 2016 ended July 30, 2016. 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 net income per share data, and free cash flow 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. Cisco believes that the presentation of free cash flow, which it defines as the net cash provided by operating activities less cash used to acquire property and equipment, to be a liquidity measure that provides useful information to management and investors because of Cisco’s intent to return a stated percentage of free cash flow to shareholders in the form of dividends and stock repurchases. Cisco further regards free cash flow as a useful measure because it reflects cash that can be used to, among other things, invest in its business, make strategic acquisitions, repurchase common stock, and pay dividends on its common stock, after deducting capital investments.
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, impact to cost of sales from purchase accounting adjustments to inventory, acquisition-related/divestiture costs, significant asset impairments and restructurings, significant litigation and other contingencies, significant gains and losses on investments, the income tax effects of the foregoing, and significant tax matters. Cisco’s management also uses the foregoing non-GAAP measures, in addition to the corresponding GAAP measures, in reviewing the financial results of Cisco. In prior periods, Cisco has excluded other items that it no longer excludes for purposes of its non-GAAP financial measures. From time to time in the future, there may be other items that Cisco may exclude for purposes of its internal budgeting process and in reviewing its financial results.
Cisco divested the Customer Premises Equipment portion of its Service Provider Video Connected Devices business (“SP Video CPE Business”) during the second quarter of fiscal 2016 on November 20, 2015. The attached exhibit includes, where indicated, financial measures that exclude the SP Video CPE Business. Cisco believes that the presentation of these measures provides useful information to investors and management regarding financial and business trends relating to its financial condition and its historical and projected results of operations because the SP Video CPE Business is no longer part of and will not be part of Cisco on a go forward basis. Cisco’s management also uses the financial measures excluding the SP Video CPE Business in reviewing the financial results of Cisco.

As described above, Cisco excludes the following items from one or more of its non-GAAP measures when applicable:
Share-based compensation expense. These expenses consist primarily of expenses for employee restricted stock and restricted stock units, employee stock options, and employee stock purchase rights, including such expenses associated with acquisitions. Cisco excludes share-based compensation expense from its non-GAAP measures primarily because they are non-cash expenses and Cisco believes that it is useful to investors to understand the impact of share-based compensation to its results of operations.
Amortization of acquisition-related intangible assets . Cisco incurs amortization of intangible assets (which may include impairment charges from the write-downs of purchased intangible assets) in connection with acquisitions. Such intangible assets may include purchased intangible assets with finite lives, capitalized in process research and development and goodwill. Cisco excludes these items because Cisco does not believe these expenses are reflective of ongoing operating results in the period incurred. These amounts arise from Cisco’s prior acquisitions and have no direct correlation to the operation of Cisco’s business.
Impact to cost of sales from purchase accounting adjustments to inventory . This represents the amount of increase in inventory valuation resulting from the fair value adjustments required under purchase accounting for business combinations. Cisco excludes such impacts as 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 and other contingencies . Cisco from time to time may incur charges or benefits related to significant litigation 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.
Significant gains and losses on investments. Cisco does not actively trade public equity securities and investments in privately held companies nor does it plan on these investments for funding of ongoing operations, and investments. Cisco excludes gains and losses on these investments, when significant, 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 in the current period that relate to one or more prior fiscal years as a 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, impacts to cost of sales from purchase accounting adjustments to inventory, and acquisition-related costs, in future periods. Significant asset impairments, restructurings, significant litigation and other contingencies, significant gains and losses on investments, and divestiture costs could occur in future periods. Cisco could also be impacted by significant tax matters in future periods.

Item 2.05.	Costs Associated with Exit or Disposal Activities.	
On August 17, 2016, Cisco announced a restructuring plan that will impact up to 5,500 employees, representing approximately 7 percent of Cisco’s global workforce. Cisco will take action under this plan beginning in the first quarter of fiscal 2017. Cisco currently estimates that it will recognize pre-tax charges to its GAAP financial results in an amount of up to $700 million consisting of severance and other one-time termination benefits, and other associated costs. These charges are primarily cash-based. Cisco expects that approximately $325 million to $400 million of these charges will be recognized during the first quarter of fiscal 2017 with the remaining amount to be recognized during the rest of the fiscal year.
The foregoing contains 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 the size of the restructuring and the amount and timing of the related charges. Statements regarding future events are based on Cisco’s current expectations and are necessarily subject to associated risks related to the completion of the restructuring in the manner anticipated by Cisco. 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: Cisco’s ability to achieve the benefits of the announced restructuring and possible changes in the size and timing of the related charges. For information regarding other factors that could cause Cisco’s results to vary from expectations, please see the “Risk Factors” section of Cisco’s filings with the Securities and Exchange Commission, including its most recent quarterly report on Form 10-Q. Cisco undertakes no obligation to revise or update publicly any forward-looking statements.

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: August 17, 2016	 	By:	 	/s/ Kelly A. Kramer	
	 	Name:	 	Kelly A. Kramer	
	 	Title:	 	Executive Vice President and Chief Financial Officer	

EXHIBIT INDEX

Exhibit Number	  	Description of Document	
		
99.1	  	Press Release of Cisco, dated August 17, 2016, reporting the results of operations for Cisco’s fiscal fourth quarter and fiscal year 2016 ended July 30, 2016.	

Exhibit 99.1

 
					
Press Contact:	 		 	Investor Relations Contact:	
Andrea Duffy	 		 	Marilyn Mora	
Cisco	 		 	Cisco	
1 (646) 295-5241	 		 	1 (408) 527-7452	
anduffy@cisco.com	 		 	marilmor@cisco.com	
CISCO REPORTS FOURTH QUARTER AND FISCAL YEAR 2016 EARNINGS
 
 	•	 	Q4 Revenue : $12.6 billion	
 
 	•	 	Growth of 2% year over year — Q4 guidance was 0% to 3% growth year over year (normalized to exclude the SP Video CPE Business for Q4 FY 2015)	
 
 	•	 	Q4 Earnings per Share: $0.56 GAAP; $0.63 non-GAAP	
 
 	•	 	FY 2016 Revenue (normalized to exclude the SP Video CPE Business):	
 
 	•	 	$48.7 billion, growth of 3% year over year	
 
 	•	 	FY 2016 Earnings per Share: $2.11 GAAP; $2.36 non-GAAP	
 
 	•	 	Q1 FY 2017 Outlook:	
 
 	•	 	Revenue: -1% to 1% growth year over year (normalized to exclude the SP Video CPE Business for Q1 FY 2016)	
 
 	•	 	Earnings per Share: GAAP $0.42 - $0.47; Non-GAAP: $0.58 to $0.60	
SAN JOSE, Calif. — August 17, 2016 — Cisco today reported fourth quarter and fiscal year results for the period ended July 30, 2016. Cisco reported fourth quarter revenue of $12.6 billion, net income on a generally accepted accounting principles (GAAP) basis of $2.8 billion or $0.56 per share, and non-GAAP net income of $3.2 billion or $0.63 per share.
“We had another strong quarter, wrapping up a great year. I am particularly pleased with our performance in priority areas including security, data center switching, collaboration, services as well as our overall performance, with revenues up 2% in Q4 excluding the SP Video CPE business,” said Chuck Robbins, CEO of Cisco. “We continue to execute well in a challenging macro environment. Despite slowing in our Service Provider business and Emerging Markets after three consecutive quarters of growth, the balance of the business was healthy with 5% order growth. This growth and balance demonstrates the strength of our diverse portfolio. Our product deferred revenue from software and subscriptions grew 33% showing the continued momentum of our business model transformation.”
Q4 GAAP Results

 	  	Q4 FY 2016	 	  	Q4 FY 2015	 	  	Vs. Q4 FY 2015	 	
Revenue (including SP Video CPE Business for all periods)	  	$	  12.6 billion	  	  	$	  12.8 billion	  	  	 	(2	)% 	
Revenue (excluding SP Video CPE Business for all periods)	  	$	12.6 billion	  	  	$	12.4 billion	  	  	 	2	% 	
Net Income	  	$	2.8 billion	  	  	$	2.3 billion	  	  	 	21	% 	
Diluted Earnings per Share (EPS)	  	$	0.56	  	  	$	0.45	  	  	 	24	% 	
Q4 Non-GAAP Results

 	  	Q4 FY 2016	 	  	Q4 FY 2015	 	  	Vs. Q4 FY 2015	 	
Net Income (excluding SP Video CPE Business for all periods)	  	$	  3.2 billion	  	  	$	  3.0 billion	  	  	 	7	% 	
EPS (excluding SP Video CPE Business for all periods)	  	$	0.63	  	  	$	0.58	  	  	 	9	% 	
 
1

Fiscal Year GAAP Results

 	  	FY 2016	 	  	FY 2015	 	  	Vs. FY 2015	 	
Revenue (including SP Video CPE Business for all periods)	  	$	  49.2 billion	  	  	$	  49.2 billion	  	  	 	—  	% 	
Revenue (excluding SP Video CPE Business for all periods)	  	$	48.7 billion	  	  	$	47.3 billion	  	  	 	3	% 	
Net Income	  	$	10.7 billion	  	  	$	9.0 billion	  	  	 	20	% 	
EPS	  	$	2.11	  	  	$	1.75	  	  	 	21	% 	
Fiscal Year Non-GAAP Results

 	  	FY 2016	 	  	FY 2015	 	  	Vs. FY 2015	 	
Net Income (excluding SP Video CPE Business for all periods)	  	$	  12.0 billion	  	  	$	  11.2 billion	  	  	 	7	% 	
EPS (excluding SP Video CPE Business for all periods)	  	$	2.36	  	  	$	2.18	  	  	 	8	% 	
Reconciliations between net income, EPS and other measures on a GAAP and non-GAAP basis are provided in the tables located in the section entitled “Reconciliations of GAAP to non-GAAP Measures.”
“We delivered another solid quarter and a good fiscal year, expanding both our gross margins and operating margins,” said Kelly Kramer, Cisco executive vice president and chief financial officer. “Our strong operational discipline has enabled us to drive growth and margin improvement as we continue to invest in key priority areas such as security, IoT, collaboration, next generation data center and cloud, while also delivering shareholder value.”
Restructuring Plan
Today’s market requires Cisco and our customers to be decisive, move with greater speed and drive more innovation than we’ve seen in our history. Today, we announced a restructuring enabling us to optimize our cost base in lower growth areas of our portfolio and further invest in key priority areas such as security, IoT, collaboration, next generation data center and cloud. We expect to reinvest substantially all of the cost savings from these actions back into these businesses and will continue to aggressively invest to focus on our areas of future growth. The restructuring will eliminate up to 5,500 positions, representing approximately 7 percent of our global workforce, and we will take action under this plan beginning in the first quarter of fiscal 2017.
Financial Summary
All comparative percentages are on a year-over-year basis unless otherwise noted.
All revenue, non-GAAP, and geographic financial information in the “Q4 FY 2016 Highlights” and “FY 2016 Highlights” sections are presented excluding the SP Video CPE Business for prior periods as it was divested during the second quarter of fiscal 2016 on November 20, 2015.
Q4 FY 2016 Highlights
Revenue — Total revenue was $12.6 billion, up 2%, with product revenue up 1% and service revenue up 5%. Revenue by geographic segment was: Americas up 3%, EMEA up 3%, and APJC down 2%. Product revenue growth was led by Security at 16%. Collaboration, Wireless and Switching product revenue increased by 6%, 5%, and 2%, respectively. Service Provider Video, NGN Routing and Data Center product revenue decreased by 12%, 6%, and 1%, respectively.
Gross Margin — On a GAAP basis, total gross margin and product gross margin were 63.1% and 62.2%, respectively. The increase in the product gross margin compared with 59.0% in the fourth quarter of fiscal 2015 was primarily due to continued productivity improvements, the divestiture of the SP Video CPE Business, and to a lesser extent product mix, partially offset by pricing.
Non-GAAP total gross margin and product gross margin were 64.6% and 63.9%, respectively. The increase in non-GAAP product gross margin compared with 63.2% in the fourth quarter of fiscal 2015 was primarily due to continued productivity improvement and to a lesser extent product mix, partially offset by pricing.
GAAP service margin was 66.0% and non-GAAP service gross margin was 67.0%.
Total gross margins by geographic segment were: 64.9% for the Americas, 65.2% for EMEA and 62.5% for APJC.
Operating Expenses — On a GAAP basis, operating expenses were $4.7 billion, down 4%. Non-GAAP operating expenses were $4.2 billion, up 1%, and were 33.2% of revenue. Headcount compared with the end of the third quarter of fiscal 2016 increased by 607 to 73,711, driven by additional headcount from investments in key growth areas.
Operating Income — GAAP operating income was $3.3 billion, up 15%, with GAAP operating margin of 26.1%. Non-GAAP operating income was $4.0 billion, up 7%, with non-GAAP operating margin at 31.4%.
 
2

Provision for Income Taxes — The GAAP tax provision rate was 17.1%, reflecting certain tax benefits related to prior-year periods. The non-GAAP tax provision rate was 21.4% which excludes these tax benefits related to prior-year periods.
Net Income and EPS — On a GAAP basis, net income was $2.8 billion and EPS was $0.56. On a non-GAAP basis, net income was $3.2 billion, an increase of 7%, and EPS was $0.63, an increase of 9%.
Cash Flow from Operating Activities — was $3.8 billion for the fourth quarter of fiscal 2016, compared with $3.1 billion for the third quarter of fiscal 2016, and compared with $4.1 billion for the fourth quarter of fiscal 2015.
FY 2016 Highlights
Revenue — Total revenue was $48.7 billion, an increase of 3%.
Net Income and EPS — On a GAAP basis, net income was $10.7 billion and EPS was $2.11. On a non-GAAP basis, net income was $12.0 billion, an increase of 7%, and EPS was $2.36, an increase of 8%.
Cash Flow from Operating Activities — was $13.6 billion for fiscal 2016, compared with $12.6 billion for fiscal 2015.
Balance Sheet and Other Financial Highlights
Cash and Cash Equivalents and Investments — were $65.8 billion at the end of the fourth quarter of fiscal 2016, compared with $63.5 billion at the end of the third quarter of fiscal 2016, and compared with $60.4 billion at the end of fiscal 2015. The total cash and cash equivalents and investments available in the United States at the end of the fourth quarter of fiscal 2016 were $5.9 billion.
Deferred Revenue — was $16.5 billion, up 8% in total, with deferred product revenue up 8%, driven largely by subscription-based and software offerings, and deferred service revenue was up 9%. Cisco continued to build a greater mix of recurring revenue as reflected in the increase in deferred revenue.
Product Backlog — was approximately $4.6 billion at the end of fiscal 2016, an increase of 1% compared with the balance at the end of fiscal 2015 (excluding the SP Video CPE Business).
Days Sales Outstanding in Accounts Receivable (DSO) — was 42 days at the end of the fourth quarter of fiscal 2016, compared with 38 days at the end of the fourth quarter of fiscal 2015.
Capital Allocation — In the fourth quarter of fiscal 2016, Cisco declared and paid a cash dividend of $0.26 per common share, or $1.3 billion. For the full fiscal year, Cisco declared and paid cash dividends of $0.94 per common share, or $4.8 billion.
For the fourth quarter of fiscal 2016, Cisco repurchased approximately 28 million shares of common stock under its stock repurchase program at an average price of $28.70 per share for an aggregate purchase price of $800 million. For the full fiscal year, Cisco repurchased approximately 148 million shares of common stock under its stock repurchase program at an average price of $26.45 per share for an aggregate purchase price of $3.9 billion. As of July 30, 2016, Cisco had repurchased and retired 4.6 billion shares of Cisco common stock at an average price of $21.04 per share for an aggregate purchase price of approximately $96.6 billion since the inception of the stock repurchase program. The remaining authorized amount for stock repurchases under this program is approximately $15.4 billion with no termination date.
For the full fiscal year, Cisco returned $8.7 billion to shareholders through share buybacks and dividends, which represented approximately 70% of free cash flow.
Acquisitions — In Q4 FY 2016, we announced our intent to acquire CloudLock Inc., which closed in early Q1 FY 2017. The CloudLock acquisition will further enhance Cisco’s security portfolio and build on Cisco’s Security Everywhere strategy, designed to provide protection from the cloud to the network to the endpoint and also aligns with our strategy to deliver more cloud based subscription services.
 
3

Business Outlook for Q1 FY 2017
On November 20, 2015, during the second quarter of fiscal 2016, Cisco completed its divestiture of the SP Video CPE Business. In order to provide a clear view of Cisco’s continuing expected financial performance, the revenue outlook for the first quarter of fiscal 2017 is normalized to exclude the SP Video CPE Business for the first quarter of fiscal 2016. The corresponding revenue in the first quarter of fiscal 2016 for the SP Video CPE Business was $411 million.
Cisco expects to achieve the following results for the first quarter of fiscal 2017:

Q1 FY 2017	  	 	
Revenue (normalized to exclude SP Video CPE Business for Q1 FY2016)	  	-1% to 1% growth Y/Y	
Non-GAAP gross margin rate	  	63% - 64%	
Non-GAAP operating margin rate	  	29% - 30%	
Non-GAAP tax provision rate	  	22%	
Non-GAAP EPS	  	$0.58 - $0.60	
Cisco estimates that GAAP EPS will be $0.42 to $0.47 which is lower than non-GAAP EPS by $0.13 to $0.16 per share in the first quarter of fiscal 2017.
A reconciliation between the Business Outlook for Q1 FY 2017 on a GAAP and non-GAAP basis is provided in the table entitled “GAAP to non-GAAP Business Outlook for Q1 FY 2017” located in the section entitled “Reconciliations of GAAP to non-GAAP Measures.”
Editor’s Notes:
 
 	•	 	Q4 fiscal year 2016 conference call to discuss Cisco’s results along with its business outlook will be held on Wednesday, August 17, 2016 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, August 17, 2016 to 4:00 p.m. Pacific Time, August 24, 2016 at 1-866-566-0452 (United States) or 1-203-369-3048 (international). The replay will also be available via webcast on the Cisco Investor Relations website at http://investor.cisco.com.	
 
 	•	 	Additional information regarding Cisco’s financials, as well as a webcast of the conference call with visuals designed to guide participants through the call, will be available at 1:30 p.m. Pacific Time, August 17, 2016. Text of the conference call’s prepared remarks will be available within 24 hours of completion of the call. The webcast will include both the prepared remarks and the question-and-answer session. This information, along with the GAAP to non-GAAP reconciliation information, will be available on the Cisco Investor Relations website at http://investor.cisco.com.	
 
4

CISCO SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In millions, except per-share amounts)
(Unaudited)

 	  	Three Months Ended	 	 	Fiscal Year Ended	 	
 	  	July 30,
2016	 	 	July 25,
2015	 	 	July 30,
2016	 	 	July 25,
2015	 	
REVENUE:	  				 				 				 				
Product	  	$	9,552	  	 	$	9,911	  	 	$	37,254	  	 	$	37,750	  	
Service	  	 	3,086	  	 	 	2,932	  	 	 	11,993	  	 	 	11,411	  	
	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Total revenue	  	 	12,638	  	 	 	12,843	  	 	 	49,247	  	 	 	49,161	  	
	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
COST OF SALES:	  				 				 				 				
Product	  	 	3,614	  	 	 	4,068	  	 	 	14,161	  	 	 	15,377	  	
Service	  	 	1,049	  	 	 	1,042	  	 	 	4,126	  	 	 	4,103	  	
	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Total cost of sales	  	 	4,663	  	 	 	5,110	  	 	 	18,287	  	 	 	19,480	  	
	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
GROSS MARGIN	  	 	7,975	  	 	 	7,733	  	 	 	30,960	  	 	 	29,681	  	
OPERATING EXPENSES:	  				 				 				 				
Research and development	  	 	1,601	  	 	 	1,548	  	 	 	6,296	  	 	 	6,207	  	
Sales and marketing	  	 	2,443	  	 	 	2,549	  	 	 	9,619	  	 	 	9,821	  	
General and administrative	  	 	533	  	 	 	536	  	 	 	1,814	  	 	 	2,040	  	
Amortization of purchased intangible assets	  	 	82	  	 	 	146	  	 	 	303	  	 	 	359	  	
Restructuring and other charges	  	 	13	  	 	 	73	  	 	 	268	  	 	 	484	  	
	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Total operating expenses	  	 	4,672	  	 	 	4,852	  	 	 	18,300	  	 	 	18,911	  	
	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
OPERATING INCOME	  	 	3,303	  	 	 	2,881	  	 	 	12,660	  	 	 	10,770	  	
Interest income	  	 	273	  	 	 	211	  	 	 	1,005	  	 	 	769	  	
Interest expense	  	 	(180	) 	 	 	(149	) 	 	 	(676	) 	 	 	(566	) 	
Other income (loss), net	  	 	(2	) 	 	 	(10	) 	 	 	(69	) 	 	 	228	  	
	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Interest and other income (loss), net	  	 	91	  	 	 	52	  	 	 	260	  	 	 	431	  	
	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
INCOME BEFORE PROVISION FOR INCOME TAXES	  	 	3,394	  	 	 	2,933	  	 	 	12,920	  	 	 	11,201	  	
Provision for income taxes	  	 	581	  	 	 	614	  	 	 	2,181	  	 	 	2,220	  	
	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
NET INCOME	  	$	2,813	  	 	$	2,319	  	 	$	10,739	  	 	$	8,981	  	
	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Net income per share:	  				 				 				 				
Basic	  	$	0.56	  	 	$	0.46	  	 	$	2.13	  	 	$	1.76	  	
	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Diluted	  	$	0.56	  	 	$	0.45	  	 	$	2.11	  	 	$	1.75	  	
	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Shares used in per-share calculation:	  				 				 				 				
Basic	  	 	5,031	  	 	 	5,086	  	 	 	5,053	  	 	 	5,104	  	
	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Diluted	  	 	5,067	  	 	 	5,131	  	 	 	5,088	  	 	 	5,146	  	
	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Cash dividends declared per common share	  	$	0.26	  	 	$	0.21	  	 	$	0.94	  	 	$	0.80	  	
	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
The Consolidated Statements of Operations include the results of the SP Video CPE Business prior to its divestiture during the second quarter of fiscal 2016 on November 20, 2015. Accordingly, the fiscal year ended July 30, 2016 includes four months of financial results for this business.
 
5

CISCO SYSTEMS, INC.
REVENUE BY SEGMENT
(In millions, except percentages)

 	  	July 30, 2016	 	
 	  	Three Months Ended	 	 	Fiscal Year Ended	 	
 	  	Amount	 	  	Y/Y %	 	 	Amount	 	  	Y/Y %	 	
Revenue :	  				  				 				  				
Including SP Video CPE Business for all periods:	  				  				 				  				
Americas	  	$	7,638	  	  	 	(2)%	  	 	$	29,411	  	  	 	(1)%	  	
EMEA	  	 	3,105	  	  	 	—  %	  	 	 	12,281	  	  	 	—  %	  	
APJC	  	 	1,895	  	  	 	(2)%	  	 	 	7,555	  	  	 	5%	  	
	  	 	 	 	  				 	 	 	 	  				
Total	  	$	12,638	  	  	 	(2)%	  	 	$	49,247	  	  	 	—  %	  	
	  	 	 	 	  				 	 	 	 	  				
Excluding SP Video CPE Business for all periods:	  				  				 				  				
Americas	  	$	7,638	  	  	 	3%	  	 	$	29,033	  	  	 	3%	  	
EMEA	  	 	3,105	  	  	 	3%	  	 	 	12,173	  	  	 	1%	  	
APJC	  	 	1,895	  	  	 	(2)%	  	 	 	7,537	  	  	 	6%	  	
	  	 	 	 	  				 	 	 	 	  				
Total	  	$	12,638	  	  	 	2%	  	 	$	48,743	  	  	 	3%	  	
	  	 	 	 	  				 	 	 	 	  				
During the second quarter of fiscal 2016 on November 20, 2015, Cisco completed its divestiture of the SP Video CPE Business. SP Video CPE Business revenue for the three months ended July 25, 2015 was $487 million and for fiscal 2016 and 2015 was $504 million and $1,846 million, respectively.
CISCO SYSTEMS, INC.
GROSS MARGIN PERCENTAGE BY SEGMENT
(In percentages)

 	 	July 30, 2016	 	
 	 	Three Months Ended	 	 	Fiscal Year Ended	 	
Gross Margin Percentage :	 				 				
Including SP Video CPE Business for all periods:	 				 				
Americas	 	 	64.9%	  	 	 	64.6%	  	
EMEA	 	 	65.2%	  	 	 	64.9%	  	
APJC	 	 	62.5%	  	 	 	61.2%	  	
Excluding SP Video CPE Business for all periods (1) :	 				 				
Americas	 	 	64.9%	  	 	 	65.3%	  	
EMEA	 	 	65.2%	  	 	 	65.4%	  	
APJC	 	 	62.5%	  	 	 	61.3%	  	
(1)  During the second quarter of fiscal 2016 on November 20, 2015, Cisco completed its divestiture of the SP Video CPE Business. SP Video CPE Business gross profit for fiscal 2016 was $41 million and $15 million for the Americas and EMEA, respectively.
 
6

CISCO SYSTEMS, INC.
REVENUE FOR GROUPS OF SIMILAR PRODUCTS AND SERVICES
(In millions, except percentages)

 	  	July 30, 2016	 	
 	  	Three Months Ended	 	  	Fiscal Year Ended	 	
 	  	Amount	 	  	Y/Y %	 	  	Amount	 	  	Y/Y %	 	
Revenue :	  				  				  				  				
Switching	  	$	3,794	  	  	 	2%	  	  	$	14,746	  	  	 	—  %	  	
NGN Routing	  	 	1,876	  	  	 	(6)%	  	  	 	7,408	  	  	 	(4)%	  	
Collaboration	  	 	1,149	  	  	 	6% 	  	  	 	4,352	  	  	 	9% 	  	
Data Center	  	 	873	  	  	 	(1)% 	  	  	 	3,365	  	  	 	5% 	  	
Wireless	  	 	752	  	  	 	5% 	  	  	 	2,625	  	  	 	3% 	  	
Security	  	 	540	  	  	 	16% 	  	  	 	1,969	  	  	 	13% 	  	
Service Provider Video (1)	  	 	444	  	  	 	(12)% 	  	  	 	1,920	  	  	 	12% 	  	
Other	  	 	124	  	  	 	114% 	  	  	 	365	  	  	 	53% 	  	
	  	 	 	 	  				  	 	 	 	  				
Product - excluding SP Video CPE Business	  	 	9,552	  	  	 	1% 	  	  	 	36,750	  	  	 	2% 	  	
Service	  	 	3,086	  	  	 	5% 	  	  	 	11,993	  	  	 	5% 	  	
	  	 	 	 	  				  	 	 	 	  				
Total - excluding SP Video CPE Business	  	 	12,638	  	  	 	2% 	  	  	 	48,743	  	  	 	3% 	  	
	  	 	 	 	  				  	 	 	 	  				
SP Video CPE Business (2)	  	 	—  	  	  				  	 	504	  	  				
	  	 	 	 	  				  	 	 	 	  				
Total	  	$	12,638	  	  	 	(2)%	  	  	$	49,247	  	  	 	—  % 	  	
	  	 	 	 	  				  	 	 	 	  				
(1) Excludes SP Video CPE Business revenue for all periods presented as it was divested during the second quarter of fiscal 2016 on November 20, 2015. SP Video CPE Business revenue for the three months ended July 25, 2015 was $487 million and for fiscal 2016 and fiscal 2015 was $504 million and $1,846 million, respectively.
(2) Includes SP Video CPE Business revenue through the date of divestiture of November 20, 2015.
 
7

CISCO SYSTEMS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In millions)
(Unaudited)

 	  	July 30,
2016	 	  	July 25,
2015	 	
ASSETS	  				  				
Current assets:	  				  				
Cash and cash equivalents	  	$	7,631	  	  	$	6,877	  	
Investments	  	 	58,125	  	  	 	53,539	  	
Accounts receivable, net of allowance for doubtful accounts of $249 at July 30, 2016 and $302 at July 25, 2015	  	 	5,847	  	  	 	5,344	  	
Inventories	  	 	1,217	  	  	 	1,627	  	
Financing receivables, net	  	 	4,272	  	  	 	4,491	  	
Other current assets	  	 	1,627	  	  	 	1,490	  	
	  	 	 	 	  	 	 	 	
Total current assets	  	 	78,719	  	  	 	73,368	  	
Property and equipment, net	  	 	3,506	  	  	 	3,332	  	
Financing receivables, net	  	 	4,158	  	  	 	3,858	  	
Goodwill	  	 	26,625	  	  	 	24,469	  	
Purchased intangible assets, net	  	 	2,501	  	  	 	2,376	  	
Deferred tax assets	  	 	4,299	  	  	 	4,454	  	
Other assets	  	 	1,844	  	  	 	1,516	  	
	  	 	 	 	  	 	 	 	
TOTAL ASSETS	  	$	121,652	  	  	$	113,373	  	
	  	 	 	 	  	 	 	 	
LIABILITIES AND EQUITY	  				  				
Current liabilities:	  				  				
Short-term debt	  	$	4,160	  	  	$	3,897	  	
Accounts payable	  	 	1,056	  	  	 	1,104	  	
Income taxes payable	  	 	517	  	  	 	62	  	
Accrued compensation	  	 	2,951	  	  	 	3,049	  	
Deferred revenue	  	 	10,155	  	  	 	9,824	  	
Other current liabilities	  	 	6,072	  	  	 	5,476	  	
	  	 	 	 	  	 	 	 	
Total current liabilities	  	 	24,911	  	  	 	23,412	  	
Long-term debt	  	 	24,483	  	  	 	21,457	  	
Income taxes payable	  	 	925	  	  	 	1,876	  	
Deferred revenue	  	 	6,317	  	  	 	5,359	  	
Other long-term liabilities	  	 	1,431	  	  	 	1,562	  	
	  	 	 	 	  	 	 	 	
Total liabilities	  	 	58,067	  	  	 	53,666	  	
Total equity	  	 	63,585	  	  	 	59,707	  	
	  	 	 	 	  	 	 	 	
TOTAL LIABILITIES AND EQUITY	  	$	121,652	  	  	$	113,373	  	
	  	 	 	 	  	 	 	 	
Certain reclassifications have been made to prior year amounts to conform to the current year’s presentation.
 
8

CISCO SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In millions)
(Unaudited)

 	  	Fiscal Year Ended	 	
 	  	July 30,
2016	 	 	July 25,
2015	 	
Cash flows from operating activities:	  				 				
Net income	  	$	10,739	  	 	$	8,981	  	
Adjustments to reconcile net income to net cash provided by operating activities:	  				 				
Depreciation, amortization, and other	  	 	2,150	  	 	 	2,442	  	
Share-based compensation expense	  	 	1,458	  	 	 	1,440	  	
Provision for receivables	  	 	(9	) 	 	 	134	  	
Deferred income taxes	  	 	(194	) 	 	 	(23	) 	
Excess tax benefits from share-based compensation	  	 	(129	) 	 	 	(128	) 	
(Gains) losses on investments and other, net	  	 	(317	) 	 	 	(258	) 	
Change in operating assets and liabilities, net of effects of acquisitions and divestitures:	  				 				
Accounts receivable	  	 	(404	) 	 	 	(413	) 	
Inventories	  	 	315	  	 	 	(116	) 	
Financing receivables	  	 	(150	) 	 	 	(634	) 	
Other assets	  	 	(37	) 	 	 	(370	) 	
Accounts payable	  	 	(65	) 	 	 	87	  	
Income taxes, net	  	 	(300	) 	 	 	53	  	
Accrued compensation	  	 	(101	) 	 	 	7	  	
Deferred revenue	  	 	1,219	  	 	 	1,275	  	
Other liabilities	  	 	(605	) 	 	 	75	  	
	  	 	 	 	 	 	 	 	
Net cash provided by operating activities	  	 	13,570	  	 	 	12,552	  	
	  	 	 	 	 	 	 	 	
Cash flows from investing activities:	  				 				
Purchases of investments	  	 	(46,760	) 	 	 	(43,975	) 	
Proceeds from sales of investments	  	 	28,778	  	 	 	20,237	  	
Proceeds from maturities of investments	  	 	14,115	  	 	 	15,293	  	
Acquisition of businesses, net of cash and cash equivalents acquired	  	 	(3,161	) 	 	 	(326	) 	
Proceeds from business divestiture	  	 	372	  	 	 	—  	  	
Purchases of investments in privately held companies	  	 	(256	) 	 	 	(222	) 	
Return of investments in privately held companies	  	 	91	  	 	 	288	  	
Acquisition of property and equipment	  	 	(1,146	) 	 	 	(1,227	) 	
Proceeds from sales of property and equipment	  	 	41	  	 	 	22	  	
Other	  	 	(191	) 	 	 	(178	) 	
	  	 	 	 	 	 	 	 	
Net cash used in investing activities	  	 	(8,117	) 	 	 	(10,088	) 	
	  	 	 	 	 	 	 	 	
Cash flows from financing activities:	  				 				
Issuances of common stock	  	 	1,127	  	 	 	2,016	  	
Repurchases of common stock—repurchase program	  	 	(3,909	) 	 	 	(4,324	) 	
Shares repurchased for tax withholdings on vesting of restricted stock units	  	 	(557	) 	 	 	(502	) 	
Short-term borrowings, original maturities less than 90 days, net	  	 	(4	) 	 	 	(4	) 	
Issuances of debt	  	 	6,978	  	 	 	4,981	  	
Repayments of debt	  	 	(3,863	) 	 	 	(508	) 	
Excess tax benefits from share-based compensation	  	 	129	  	 	 	128	  	
Dividends paid	  	 	(4,750	) 	 	 	(4,086	) 	
Other	  	 	150	  	 	 	(14	) 	
	  	 	 	 	 	 	 	 	
Net cash used in financing activities	  	 	(4,699	) 	 	 	(2,313	) 	
	  	 	 	 	 	 	 	 	
Net increase (decrease) in cash and cash equivalents	  	 	754	  	 	 	151	  	
Cash and cash equivalents, beginning of fiscal year	  	 	6,877	  	 	 	6,726	  	
	  	 	 	 	 	 	 	 	
Cash and cash equivalents, end of fiscal year	  	$	7,631	  	 	$	6,877	  	
	  	 	 	 	 	 	 	 	
Supplemental cash flow information:	  				 				
Cash paid for interest	  	$	859	  	 	$	760	  	
Cash paid for income taxes, net	  	$	2,675	  	 	$	2,190	  	
 
9

CISCO SYSTEMS, INC.
DEFERRED REVENUE
(In millions)

 	  	July 30,
2016	 	  	April 30,
2016	 	  	July 25,
2015	 	
Deferred revenue:	  				  				  				
Service	  	$	10,621	  	  	$	9,866	  	  	$	9,757	  	
Product:	  				  				  				
Unrecognized revenue on product shipments and other deferred revenue	  	 	5,474	  	  	 	4,987	  	  	 	4,766	  	
Deferred revenue related to two-tier distributors	  	 	377	  	  	 	419	  	  	 	660	  	
	  	 	 	 	  	 	 	 	  	 	 	 	
Total product deferred revenue	  	 	5,851	  	  	 	5,406	  	  	 	5,426	  	
	  	 	 	 	  	 	 	 	  	 	 	 	
Total	  	$	16,472	  	  	$	15,272	  	  	$	15,183	  	
	  	 	 	 	  	 	 	 	  	 	 	 	
Reported as:	  				  				  				
Current	  	$	10,155	  	  	$	9,662	  	  	$	9,824	  	
Noncurrent	  	 	6,317	  	  	 	5,610	  	  	 	5,359	  	
	  	 	 	 	  	 	 	 	  	 	 	 	
Total	  	$	16,472	  	  	$	15,272	  	  	$	15,183	  	
	  	 	 	 	  	 	 	 	  	 	 	 	
CISCO SYSTEMS, INC.
DIVIDENDS PAID AND REPURCHASES OF COMMON STOCK
(In millions, except per-share amounts)

 	  	DIVIDENDS	 	  	STOCK REPURCHASE PROGRAM	 	  	TOTAL	 	
Quarter Ended	  	Per Share	 	  	Amount	 	  	Shares	 	  	Weighted-
Average Price
per Share	 	  	Amount	 	  	Amount	 	
Fiscal 2016	  				  				  				  				  				  				
July 30, 2016	  	$	0.26	  	  	$	1,309	  	  	 	28	  	  	$	28.70	  	  	$	800	  	  	$	2,109	  	
April 30, 2016	  	 	0.26	  	  	 	1,308	  	  	 	27	  	  	 	24.08	  	  	 	649	  	  	 	1,957	  	
January 23, 2016	  	 	0.21	  	  	 	1,065	  	  	 	48	  	  	 	26.12	  	  	 	1,262	  	  	 	2,327	  	
October 24, 2015	  	 	0.21	  	  	 	1,068	  	  	 	45	  	  	 	26.83	  	  	 	1,207	  	  	 	2,275	  	
	  	 	 	 	  	 	 	 	  	 	 	 	  				  	 	 	 	  	 	 	 	
	  	$	0.94	  	  	$	4,750	  	  	 	148	  	  	$	26.45	  	  	$	3,918	  	  	$	8,668	  	
	  	 	 	 	  	 	 	 	  	 	 	 	  				  	 	 	 	  	 	 	 	
Fiscal 2015	  				  				  				  				  				  				
July 25, 2015	  	$	0.21	  	  	$	1,069	  	  	 	35	  	  	$	28.62	  	  	$	1,005	  	  	$	2,074	  	
April 25, 2015	  	 	0.21	  	  	 	1,070	  	  	 	35	  	  	 	28.39	  	  	 	1,008	  	  	 	2,078	  	
January 24, 2015	  	 	0.19	  	  	 	974	  	  	 	44	  	  	 	27.63	  	  	 	1,208	  	  	 	2,182	  	
October 25, 2014	  	 	0.19	  	  	 	973	  	  	 	41	  	  	 	24.58	  	  	 	1,013	  	  	 	1,986	  	
	  	 	 	 	  	 	 	 	  	 	 	 	  				  	 	 	 	  	 	 	 	
Total	  	$	0.80	  	  	$	4,086	  	  	 	155	  	  	$	27.22	  	  	$	4,234	  	  	$	8,320	  	

10

CISCO SYSTEMS, INC.
RECONCILIATIONS OF GAAP TO NON-GAAP MEASURES
GAAP TO NON-GAAP NET INCOME
(In millions, except per-share amounts)

 	  	Three Months Ended	 	 	Fiscal Year Ended	 	
 	  	July 30,
2016	 	 	July 25,
2015	 	 	July 30,
2016	 	 	July 25,
2015	 	
GAAP net income	  	$	2,813	  	 	$	2,319	  	 	$	10,739	  	 	$	8,981	  	
Adjustments to cost of sales:	  				 				 				 				
Share-based compensation expense	  	 	52	  	 	 	58	  	 	 	212	  	 	 	207	  	
Amortization of acquisition-related intangible assets	  	 	141	  	 	 	179	  	 	 	507	  	 	 	765	  	
Supplier component remediation adjustment	  	 	—  	  	 	 	—  	  	 	 	(74	) 	 	 	(164	) 	
Rockstar patent portfolio charge	  	 	—  	  	 	 	—  	  	 	 	—  	  	 	 	188	  	
Acquisition-related/divestiture costs	  	 	—  	  	 	 	—  	  	 	 	1	  	 	 	—  	  	
Significant asset impairments and restructurings	  	 	—  	  	 	 	5	  	 	 	(2	) 	 	 	5	  	
	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Total adjustments to GAAP cost of sales	  	 	193	  	 	 	242	  	 	 	644	  	 	 	1,001	  	
	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Adjustments to operating expenses:	  				 				 				 				
Share-based compensation expense	  	 	293	  	 	 	338	  	 	 	1,220	  	 	 	1,235	  	
Amortization of acquisition-related intangible assets	  	 	82	  	 	 	146	  	 	 	303	  	 	 	359	  	
Acquisition-related/divestiture costs (1)	  	 	82	  	 	 	79	  	 	 	27	  	 	 	351	  	
Significant asset impairments and restructurings	  	 	13	  	 	 	73	  	 	 	268	  	 	 	484	  	
	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Total adjustments to GAAP operating expenses	  	 	470	  	 	 	636	  	 	 	1,818	  	 	 	2,429	  	
	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Adjustments to other income (loss), net:	  				 				 				 				
Gain on VCE reorganization	  	 	—  	  	 	 	—  	  	 	 	—  	  	 	 	(126	) 	
	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Total adjustments to GAAP income before provision for income taxes	  	 	663	  	 	 	878	  	 	 	2,462	  	 	 	3,304	  	
	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Income tax effect of non-GAAP adjustments	  	 	(196	) 	 	 	(185	) 	 	 	(623	) 	 	 	(731	) 	
Significant tax matters (2)	  	 	(91	) 	 	 	—  	  	 	 	(556	) 	 	 	(200	) 	
	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Total adjustments to GAAP provision for income taxes	  	 	(287	) 	 	 	(185	) 	 	 	(1,179	) 	 	 	(931	) 	
	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Non-GAAP net income	  	$	3,189	  	 	$	3,012	  	 	$	12,022	  	 	$	11,354	  	
	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Diluted net income per share:	  				 				 				 				
GAAP	  	$	0.56	  	 	$	0.45	  	 	$	2.11	  	 	$	1.75	  	
	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Non-GAAP	  	$	0.63	  	 	$	0.59	  	 	$	2.36	  	 	$	2.21	  	
	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
(1) During the second quarter of fiscal 2016 on November 20, 2015, Cisco completed its divestiture of the SP Video CPE Business. This sale resulted in a pre-tax gain of $253 million, net of certain transaction costs incurred to date. The gain on this transaction was excluded from non-GAAP net income for fiscal 2016.
(2) Cisco recorded certain net tax benefits totaling $556 million related to prior-year periods that were excluded from non-GAAP net income for fiscal 2016.
 
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CISCO SYSTEMS, INC.
RECONCILIATIONS OF GAAP TO NON-GAAP MEASURES
GROSS MARGINS, OPERATING EXPENSES, OPERATING MARGINS, AND NET INCOME
(In millions, except percentages)

 	  	Three Months Ended
 
July 30, 2016	 	

 
 	Product
Gross
  Margin  	  

 
 	Service
Gross
  Margin  	  

 
 	Total
Gross
  Margin  	  

 	Operating
  Expenses  	  
  	  	 	  Y/Y  	  	  	 
 	Operating
  Income  	  
  	  	 	  Y/Y  	  	  	 
 	Net
  Income  	  
  	  	 	  Y/Y  	  	
 
GAAP amount	  	$	5,938   	  	  	$	2,037   	  	  	$	7,975   	  	  	$	4,672   	  	  	 	(4)%	  	  	$	3,303   	  	  	 	15%	  	  	$	2,813   	  	  	 	21% 	  	
 
% of revenue	  	 	62.2%	  	  	 	66.0%	  	  	 	63.1%	  	  	 	37.0%	  	  				  	 	26.1%	  	  				  	 	22.3%	  	  				
 
Adjustments to GAAP amounts:	  				  				  				  				  				  				  				  				  				
 
Share-based compensation expense	  	 	20   	  	  	 	32   	  	  	 	52   	  	  	 	293   	  	  				  	 	345   	  	  				  	 	345   	  	  				
 
Amortization of acquisition-related intangible assets	  	 	141   	  	  	 	—   	  	  	 	141   	  	  	 	82   	  	  				  	 	223   	  	  				  	 	223   	  	  				
 
Acquisition/divestiture-related costs	  	 	—   	  	  	 	—   	  	  	 	—   	  	  	 	82   	  	  				  	 	82   	  	  				  	 	82   	  	  				
 
Significant asset impairments and restructurings	  	 	—   	  	  	 	—   	  	  	 	—   	  	  	 	13   	  	  				  	 	13   	  	  				  	 	13   	  	  				
 
Income tax/significant tax matters	  	 	—   	  	  	 	—   	  	  	 	—   	  	  	 	—   	  	  				  	 	—   	  	  				  	 	(287)  	  	  				
	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	  				  	 	 	 	  				  	 	 	 	  				
Non-GAAP amount	  	$	6,099   	  	  	$	2,069   	  	  	$	8,168   	  	  	$	4,202   	  	  	 	1% 	  	  	$	3,966   	  	  	 	7% 	  	  	$	3,189   	  	  	 	7% 	  	
	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	  				  	 	 	 	  				  	 	 	 	  				
% of revenue	  	 	63.9%	  	  	 	67.0%	  	  	 	64.6%	  	  	 	33.2%	  	  				  	 	31.4%	  	  				  	 	25.2%	  	  				
On November 20, 2015, during the second quarter of fiscal 2016, Cisco completed its divestiture of the SP Video CPE Business. Accordingly, the non-GAAP growth rates above are normalized to exclude the SP Video CPE Business for the fourth quarter of fiscal 2015 as detailed in the table below.

 	  	Three Months Ended
July 25, 2015	 	
 	  	Product
Gross
  Margin  	 	  	Service
Gross
  Margin  	 	  	Total
Gross
  Margin  	 	  	  Operating  
Expenses	 	  	  Operating  
Income	 	  	Net
  Income  	 	
GAAP amount	  	$	5,843   	  	  	$	1,890   	  	  	$	7,733   	  	  	$	4,852   	  	  	$	2,881   	  	  	$	2,319   	  	
% of revenue	  	 	59.0%	  	  	 	64.5%	  	  	 	60.2%	  	  	 	37.8%	  	  	 	22.4%	  	  	 	18.1%	  	
 
Adjustments to GAAP amounts:	  				  				  				  				  				  				
 
Share-based compensation expense	  	 	16   	  	  	 	42   	  	  	 	58   	  	  	 	338   	  	  	 	396   	  	  	 	396   	  	
 
Amortization of acquisition-related intangible assets	  	 	179   	  	  	 	—   	  	  	 	179   	  	  	 	146   	  	  	 	325   	  	  	 	325   	  	
 
Acquisition/divestiture-related costs	  	 	—   	  	  	 	—   	  	  	 	—   	  	  	 	79   	  	  	 	79   	  	  	 	79   	  	
 
Significant asset impairments and restructurings	  	 	5   	  	  	 	—   	  	  	 	5   	  	  	 	73   	  	  	 	78   	  	  	 	78   	  	
 
Income tax/significant tax matters	  	 	—   	  	  	 	—   	  	  	 	—   	  	  	 	—   	  	  	 	—   	  	  	 	(185)  	  	
	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	
Non-GAAP amount	  	$	6,043   	  	  	$	1,932   	  	  	$	7,975   	  	  	$	4,216   	  	  	$	3,759   	  	  	$	3,012   	  	
 
Less: SP Video CPE Business	  	 	(83)  	  	  	 	—   	  	  	 	(83)  	  	  	 	(37)  	  	  	 	(46)  	  	  	 	(37)  	  	
	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	
Non-GAAP amount (excluding SP Video CPE Business)	  	$	  5,960   	  	  	$	  1,932   	  	  	$	  7,892   	  	  	$	  4,179   	  	  	$	  3,713   	  	  	$	  2,975   	  	
	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	
% of revenue	  	 	63.2%	  	  	 	65.9%	  	  	 	63.9%	  	  	 	33.8%	  	  	 	30.1%	  	  	 	24.1%	  	
For the SP Video CPE Business, EPS was $0.01 for the fourth quarter of fiscal 2015. Net income for the SP Video CPE Business was $10 million and $142 million for fiscal 2016 and fiscal 2015, respectively, and EPS for fiscal 2016 and 2015 was $0.00 and $0.03, respectively.
 
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CISCO SYSTEMS, INC.
RECONCILIATIONS OF GAAP TO NON-GAAP MEASURES
EFFECTIVE TAX RATE
(In percentages)

 	  	Three Months Ended	 	 	Fiscal Year Ended	 	
 	  	July 30,
2016	 	 	July 25,
2015	 	 	July 30,
2016	 	 	July 25,
2015	 	
GAAP effective tax rate	  	 	17.1	% 	 	 	20.9	% 	 	 	16.9	% 	 	 	19.8	% 	
Total adjustments to GAAP provision for income taxes	  	 	4.3	% 	 	 	0.1	% 	 	 	4.9	% 	 	 	1.9	% 	
	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Non-GAAP effective tax rate	  	 	21.4	% 	 	 	21.0	% 	 	 	21.8	% 	 	 	21.7	% 	
	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
FREE CASH FLOW
(In millions)

 	  	Three Months Ended	 	 	Fiscal Year Ended	 	
 	  	July 30, 2016	 	 	July 25, 2015	 	 	July 30, 2016	 	 	July 25, 2015	 	
Net cash provided by operating activities	  	$	3,818	  	 	$	4,138	  	 	$	13,570	  	 	$	12,552	  	
Acquisition of property and equipment	  	 	(266	) 	 	 	(320	) 	 	 	(1,146	) 	 	 	(1,227	) 	
	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Free cash flow	  	$	3,552	  	 	$	3,818	  	 	$	12,424	  	 	$	11,325	  	
	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
GAAP TO NON-GAAP BUSINESS OUTLOOK FOR Q1 FY 2017

Q1 FY 2017	  	Gross Margin
Rate	 	Operating Margin
Rate	 	Tax Provision
Rate	 	Earnings per
Share (2)	
GAAP	  	61.5% - 62.5%	 	21% - 22%	 	21%	 	$0.42 to $0.47	
Estimated adjustments for:	  		 		 		 		
Share-based compensation expense	  	0.5%	 	3%	 	—  	 	$0.05 - $0.06	
Amortization of purchased intangible assets and other acquisition-related/divestiture costs	  	1%	 	2%	 	—  	 	$0.03 - $0.04	
Restructuring and other charges (1)	  	—  	 	3%	 	—  	 	$0.05 - $0.06	
Income tax effect of non-GAAP adjustments	  	—  	 	—  	 	1%	 		
	  	 	 	 	 	 	 	 	
Non-GAAP	  	63% - 64%	 	29% - 30%	 	22%	 	$0.58 - $0.60	
	  	 	 	 	 	 	 	 	
(1) In relation to the restructuring plan, Cisco currently estimates that it will recognize pre-tax charges to its GAAP financial results in an amount of up to $700 million consisting of severance and other one-time termination benefits, and other associated costs. These charges are primarily cash-based. Cisco expects that approximately $325 million to $400 million of these charges will be recognized during the first quarter of fiscal 2017 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 business outlook 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 Additional Information
This release may be deemed to contain forward-looking statements, which are subject to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These forward-looking statements include, among other things, statements regarding future events (such as the impact of the challenging macro environment, our ability to successfully invest in key priority areas such as security, IoT, collaboration, next generation data center and cloud, our ability to deliver shareholder value, profitable growth and strong margins, continued growth of our software and subscriptions business, and the size of the restructuring and the amount and timing of the related charges) and the future financial performance of Cisco (including the business outlook for Q1 FY 2017) 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: 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; man-made problems such as cyber-attacks, data protection breaches, computer viruses or terrorism; natural catastrophic events; a pandemic or epidemic; our ability to achieve the benefits anticipated from our investments in sales, engineering, service, marketing and manufacturing activities; our ability to recruit and retain key personnel; our ability to manage financial risk, and to manage expenses during economic downturns; risks related to the global nature of our operations, including our operations in emerging markets; currency fluctuations and other international factors; changes in provision for income taxes, including changes in tax laws and regulations or adverse outcomes resulting from examinations of our income tax returns; potential volatility in operating results; and other factors listed in Cisco’s most recent reports on Forms 10-Q and 10-K filed on May 24, 2016 and September 8, 2015, respectively. The financial information contained in this release should be read in conjunction with the consolidated financial statements and notes thereto included in Cisco’s most recent reports on Forms 10-Q and 10-K as each may be amended from time to time. Cisco’s results of operations for the three months and the year ended July 30, 2016 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 net income per share data, and free cash flow 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. Cisco believes that the presentation of free cash flow, which it defines as the net cash provided by operating activities less cash used to acquire property and equipment, to be a
 
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liquidity measure that provides useful information to management and investors because of its intent to return a stated percentage of free cash flow to shareholders in the form of dividends and stock repurchases. Cisco further regards free cash flow as a useful measure because it reflects cash that can be used to, among other things, invest in its business, make strategic acquisitions, repurchase common stock and pay dividends on its common stock, after deducting capital investments.
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, impact to cost of sales from purchase accounting adjustments to inventory, acquisition-related/divestiture costs, significant asset impairments and restructurings, significant litigation and other contingencies, significant gains and losses on 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.
Cisco divested the Customer Premises Equipment portion of the Service Provider Video Connected Devices business (“SP Video CPE Business”) during the second quarter of fiscal 2016 on November 20, 2015. This release includes, where indicated, financial measures that exclude the SP Video CPE Business. Cisco believes that the presentation of these measures provides useful information to investors and management regarding financial and business trends relating to its financial condition and its historical and projected results of operations because the SP Video CPE Business is no longer part of Cisco and will not be part of Cisco on a go forward basis. Cisco’s management also uses the financial measures excluding the SP Video CPE Business in reviewing the financial results of Cisco.
About Cisco
Cisco (NASDAQ: CSCO) is the worldwide technology leader that has been making the Internet work since 1984. Our people, products and partners help society securely connect and seize tomorrow’s digital opportunity today. Discover more at thenetwork.cisco.com and follow us on Twitter at @Cisco.
Copyright © 2016 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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