Computer Hardware: Remaining performance obligations

Fiscal 2026	Fiscal 2025
Cash and cash equivalents and investments	$15,918	$16,110
Cash provided by operating activities	$14,177	$14,193
Remaining performance obligations	$46,734	$43,533
Repurchases of common stock—stock repurchase program	$6,106	$5,995
Dividends paid	$6,553	$6,437
Inventories	$5,694	$3,164
Total debt	$29,533	$28,093

CISCO SYSTEMS, INC.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)

CRITICAL ACCOUNTING ESTIMATES

The preparation of financial statements and related disclosures in conformity with accounting principles generally accepted in the United States requires us to make judgments, assumptions, and estimates that affect the amounts reported in the Consolidated Financial Statements and accompanying notes. Note 2 to the Consolidated Financial Statements describes the significant accounting policies and methods used in the preparation of the Consolidated Financial Statements. The accounting policies described below are significantly affected by critical accounting estimates. Such accounting policies require significant judgments, assumptions, and estimates used in the preparation of the Consolidated Financial Statements, and actual results could differ materially from the amounts reported based on these policies.

Revenue Recognition

We enter into contracts with customers that can include various combinations of products and services which are generally distinct and accounted for as separate performance obligations, resulting in contracts that may contain multiple performance obligations. We determine whether arrangements are distinct based on whether the customer can benefit from the product or service on its own or together with other resources that are readily available and whether our commitment to transfer the product or service to the customer is separately identifiable from other obligations in the contract. We classify our hardware, perpetual software licenses, and SaaS as distinct performance obligations. Term software licenses represent multiple obligations, which include software licenses and software maintenance. In transactions where we deliver hardware or software, we are typically the principal and we record revenue and costs of goods sold on a gross basis.

Product backlog represents the value of unfulfilled manufacturing orders and is included as a component of remaining performance obligations to the extent we determine that the manufacturing orders are non-cancelable. Our world-class supply chain operates at significant scale and provides us with the ability to remain agile in a variety of environments. While our supply chain operated efficiently at standard lead times, during both Fiscal 2025 and Fiscal 2026, increasing demand for our AI-optimized servers offerings continued to drive backlog growth. Given the scale of the AI opportunities, the varying stages of customer readiness, and the frequency of component part updates or transitions, there is inherent non-linearity in the timing of demand and subsequent shipments for our AI-optimized servers offerings. Additionally, during Fiscal 2026, demand for our traditional servers and networking offerings outpaced supply, resulting in incremental backlog growth as we exited the year.

Geographic Operations

Our corporate headquarters is located in Round Rock, Texas. We have operations and conduct business in many countries located in the Americas, Europe, the Middle East, Asia, and other geographic regions. Accordingly, we pursue the development of technology solutions that meet the needs of these markets. For information about the amount of net revenue we generated from our operations outside of the United States during the last three fiscal years, see Note 18 of the Notes to the Consolidated Financial Statements included in this report.

Seasonality

Our sales can be affected by seasonal trends. Within ISG, our storage sales are typically stronger in our fourth fiscal quarter. Our sales within the Americas are typically stronger in the second and fourth fiscal quarters, while our sales in EMEA are typically stronger during the fourth fiscal quarter. Historical seasonal patterns have been impacted by the changing macroeconomic environment and our mix of business, and may not continue in the future.

Competition

• statements regarding expected profitability, new revenues, trends in annual recurring revenue, trends in remaining performance obligations, our mix of product and subscription and support revenue, cost of revenue, gross margin, cash flows, operating expenses, including future share-based compensation expense, income taxes, investment plans, and liquidity;

• expected recurring revenues resulting from growth in our end-customers and increased adoption of our products, subscriptions and services;

• the performance advantages of our products and subscription and support offerings and the potential benefits to our customers;

• expectations regarding future investments in research and development and product development, customer support, in our employees and in our sales force, including expectations regarding growth in our sales headcount;

• expectations that we will continue to expand our global presence;

• expectations regarding our revenues, including the seasonality and cyclicality from quarter to quarter;

• expectations relating to our customer financing activities;

• the sufficiency of our cash flow from operations with existing cash, cash equivalents, and investments to meet our cash needs for the foreseeable future;

• our ability to successfully acquire and integrate companies and assets and expectations and intentions with respect to the assets, products and technologies that we acquire;

• expectations regarding the benefits and synergies from our acquisition and integration of companies, assets, and technologies, including our acquisition of CyberArk Software Ltd.;

• expectations regarding contingent consideration obligations;

• expectations regarding the change in fair value of our convertible senior notes and capped call transactions and its impact on us and our financial results;

• statements regarding our competition, including the expanded scope of our competitors as a result of entering into new product and service categories;

• the timing and amount of capital expenditures and share repurchases;

• the effects of worldwide economic and geopolitical conditions, including, but not limited to, hostilities in Israel and the surrounding regions, inflation, tariff rates, interest rate levels, public or administration policies, trade regulations, trade policy, growth rates and other conditions, on our operating and financial results and performance;

• expectations regarding the manufacture, delivery and cost of certain of our products;

• the effects of litigation or regulatory developments involving us or affecting our industry;

• our debt repayment obligations; and

• other statements regarding our future operations, financial condition and prospects, and business strategies.